Welcome to the Geospace Technologies' Q2 2025 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rich Kelley, President and Chief Executive Officer. He is joined by Robert Curda, 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 Rich Kelley. Sir, you may begin. Thank you, Bill. Good morning and welcome to Geospace Technologies' Conference Call for the Q2 of Fiscal year 2025. I am Rich Kelley, the company's Chief Executive Officer and President. I am joined by Robert Curda, the company's Chief Financial Officer. In our prepared remarks, I will first provide an overview of the Q2, and Robert will then follow up with more in-depth commentary on our financial performance as well as an overview of our financials. I will then give some final comments before opening 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, which I invite everyone to browse through and learn more about Geospace, our subsidiaries, 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 period ended March 31, our Q2 of the fiscal year. For the three months ended 31 March,2025, we reported revenue of $18 million with a net loss of $9.8 million. For the first half of our fiscal year, we had $55.2 million in revenue with a net loss of $1.4 million. Like many companies, the Q2 provided volatility for our company. We had record performance in our smart water segment, with our Hydrocon universal connectors continuing to outperform year over year. We are also experiencing increased interest in our Aquana product offerings. We anticipate continued organic growth in this market segment. Offsetting that is the ongoing uncertainty in the energy solution segment. Global trade concerns, tariffs, and decreasing oil prices have impacted project decisions for our customers, resulting in delayed and canceled opportunities. The OBN rental market and land equipment sales continue to underperform previous years. That being said, we recently announced a Mariner contract and have ongoing inquiries for possible future requirements for OBN solutions. Combined with the ongoing PRM studies, this reinforces the market's interest in our technology and possible future resilience. Our intelligent industrial segment is negatively impacted by tariff concerns, especially for our XOL products. Recognizing those external factors, we are working to optimize our supply chain to minimize the impact to our company and our customers. Our industrial sensor products remain steady, and with increased interest in American-made products, there are more inquiries into our contract manufacturing business. We are well-positioned to exploit the tremendous potential we have created with our innovative IoT technologies, our talented staff, and our continuing diversification into new high-margin markets in the smart water and intelligent industrial segments. Additionally, our current backlog places us in a strong position going into the second half of the year. Importantly, the long-standing strength of our balance sheet, with no debt and $19.8 million in cash and short-term investments, illustrates our conservative approach to managing the business. Executive leadership continues to address workforce costs and development expenses on our path to sustained profitability. Beyond our traditional conservative fiscal management in our profitability plan, we continue to pursue growth through acquisitions and immediately accretive additions to our top-line revenue. Overall, I have continued optimism that our company is well-positioned to perform in our newer markets. I will now turn the call over to Robert to provide more detail in our financial performance. Thanks, Rich. 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 Q2 ended 31 March,2025, we reported revenue of $18 million compared to last year's revenue of $24.3 million. The net loss for the quarter was $9.8 million, or $0.77 per diluted share, compared to last year's net loss of $4.3 million, or $0.32 per diluted share. For the six months ended 31 March,2025, we reported revenue of $55.2 million compared to revenue of $74.3 million last year. Our net loss for the six-month period was $1.4 million, or $0.11 per diluted share, compared to last year's net income of $8.4 million, or $0.60 per diluted share. Our smart water segment generated revenue of $9.5 million for the three-month period ended 31 March,2025. In comparison, revenue for the same prior year period was $6.4 million, an increase of 48%. Revenue for the six-month period of 2025 was $16.8 million compared to $10.6 million from the same period of fiscal year 2024. This marks a record high level of Q2 and first-half revenue for our smart water segment. Our energy solution segment Q2 revenue totaled $2.6 million. This compares to $11 million in revenue for the same period of fiscal year 2024, representing a decrease of 77%. Revenue for the six-month period of 2025 is $26.9 million, a decrease of 47% over the equivalent prior year period of $50.9 million. The decrease in revenue for the three-month and six-month periods was due to lower demand for our marine wireless products and lower utilization of our marine ocean bottom node rental fleet. The three-month period was also impacted by concerns of collectibility of receivables from an OBN rental customer. Our concern resulted in the receivable balance due from this customer, $2.2 million, to be reversed against rental revenue. Any future cash we receive from this customer will be recognized as rental revenue. The intelligent industrial segment revenue totaled $5.9 million for the three-month period. This compares with $6.7 million from the equivalent year-ago period, representing a decrease of 13%. Revenue for the six-month period of fiscal year 2025 was $11.5 million. This compares to the same prior year period revenue of $12.6 million, a decrease of 9%. The decrease in revenue for both periods was primarily due to revenue recognized for the three and six months ended 31 M arch, 2024, on a government contract that we completed in the Q4 of fiscal year 2024, and lower demand for our imaging products. The decrease for both periods was partially offset by an increase in demand for our sensor products. Our operating expenses increased by $1.6 million, or 16%, for the Q2 of 2025, and increased $4.6 million, or 23%, for the six-month period ended 31 March,2025. The increase in operating expenses for both periods is due to higher personnel costs, increased research and development project costs, and higher sales and marketing expenses. Our six-month cash investments into our rental fleet is $900,000, and property plant equipment investments is $4.4 million. Our balance sheet at the end of the Q2 reflected $19.8 million of cash and short-term investments, and our credit facility has available borrowings of $15 million as of 31 March,2025. Additionally, the company's working capital is $71 million, which includes $36 million of trade accounts and financing receivables. Lastly, we own real estate holdings in Houston and around the world that are owned free and clear without any leverage. This concludes my discussion, and I'll turn the call back to Rich. Thank you, Robert. This concludes our prepared commentary, and I'll now turn the call back to the moderator for any questions from our listeners. Thank you, Mr. Kelley. Ladies and gentlemen, at this time, if you would like to ask a question, please press star one on your telephone keypad. If you find your question has been addressed, you may remove yourself from the queue by pressing star two. Once again, that is star one to ask a question, and we will pause for a moment to allow questions to queue. We will take our first question this morning from Bill Dedellum at Teton Capital. Bill, please go ahead. Thank you. First of all, you'd mentioned the cost cutting that you all continue to work on. How are you thinking about a target break-even level, or is that even the way at which you're approaching the exercise? Good morning, Bill. Good question. We're really more focused on strategic cost cutting. As we evaluate our overall individual business units, which ones continue to make sense, which ones are we going to invest in going forward, versus which ones we're considering possibly making changes. It is more strategic and really just trying to focus on what makes the best sense for the business. That's helpful. Thank you. The Mariner contract, I believe in the press release you have a phrase similar to interest in possible future requirements, something to that effect. Would you please discuss what that means? It sounds like that's code for something more interesting. That's a good question. That's a new customer for us over in the Gascon area, and I think they have a business strategy where they anticipate increased activity in that area. Once they're operational, I think that they'll be evaluating what their future business might look like. We're definitely having discussions to be a partner with them going forward to help them grow and develop their business. That is helpful. Thank you. The federal government is working on a budget. What do you know about the implications of that budget for you all and from the various businesses? I wish my crystal ball was more clear on that. I do not think Congress even knows what they are doing sometimes. I will say that we are pretty bullish for our border security products. I think, as you read in the press, there is lots of interest in border security, border protection, and they are going to be looking at technologies and solutions that help them secure the border. I think that is all positive for us. We have not gotten any news or any indications from them specifically. I think we just feel fairly bullish about it. The same can be said on the defense side. They are focused on growing the defense part of the country. Again, even though we do not today know of any specific opportunities, we feel pretty good about it in the conversations we are having with our partners. Overall, if Congress can actually reconcile and pass a budget, I think it's going to be positive for us as a company. Rich, do we understand correctly that the continuing resolution that the budget, boy, seems to have perpetually been under, that that has negative implications or had negative implications for you all, whereas passing an actual budget, even if it is at the end of the year, does have some potential positives for you all? Is that correct? It's interesting who you speak to with regards to the continuing resolution because even though it was a CR, it does seem that Congress administration are reshuffling those dollars. There are possibilities that some of our projects get funded as they try to divert more money to border security. We are following that closely, and we're talking to our partners, both our lobbying partners and our commercial partners. It's going to be interesting to see what happens over the coming months. As funds may be favorably diverted, do you sense that those are for different applications than you have been testing for up to this point, or is it a continuation of what the Border Patrol has been evaluating for many quarters now? We went to the Border Security Expo a few weeks ago over in Phoenix, and I would say the message is it's an all-in approach. Whether it's boots on the ground, whether it's a technology, whether it's support functionality, I think the message from Hohmann and NOAA was it's all-in to try to secure the border. I think if you have an interesting solution that meets their mission, you're going to have an opportunity in that space. If we think about what we offer today, I think it's an interesting technology with regards to tunnel detection and tunnel prevention. I feel pretty good about that. Great. Thank you. One additional question. On the PRM front, you referenced in the release in your remarks the ongoing discussions. What implications, if any, have you heard from those that you were in discussions with about lower oil prices and/or tariffs negatively impacting their decision process? That's a good question and one that we are obviously monitoring closely. Our ongoing discussions, as we've said in the past, are mostly with national oil companies, not necessarily the independents. Their decision-making is more strategic long-term than possible short-term impacts with regards to tariffs and things like that. We're still having conversations. They're still interested in the technology. They look at it as how to maximize the return on their investment on their overall reservoirs over the life of the reservoir. They look at the PRM technology versus nodal technology. If you do a total cost of ownership over the life of a reservoir, PRM starts to make sense. I think that there's still interest in the technology. The feed studies are still ongoing. Ultimately, the national oil company has to make the decision on how they want to proceed. It certainly is a short-term concern. I think long-term in their decision-making process, it's not as much of a weight as what they can gain overall from the technology. Great. That's helpful. I'll step back in queue and let someone else ask about Aquana and others. Thank you very much. Thanks, Bill. Appreciate it. Thank you. Just a quick reminder, ladies and gentlemen, any further questions this morning, please press star one. We'll go next now to Sheldon Grodsky of Grodsky Associates. Yes. Good morning, everybody. Back on February 17, you announced that you had a $7.6 million contract for Mariner ocean bottom nodes. Was that all received in the quarter, or was any of that received in the quarter? No. Okay. No to which? We made the announcement, but the delivery was always planned for later in the year. Okay. So that was not in there. Okay. I'm kind of hoping you guys have touched bottom in this quarter. This is a rather dramatically poor result, especially in terms of the revenues. Is there any expectation that the revenues would continue at this low level? I know you had some odd items in the quarter, and now you just mentioned that some things did not happen in the quarter. I would think that it. Well. Go ahead. Yes, Mr. Sheldon. I appreciate the question. I think if you look historically at Geospace, the Q2 has always been a challenge for the business just from the cyclical nature of how we operate. We do anticipate with our backlog that we're going to be much stronger in Q3 and Q4. Our indicators that we're looking at point in that direction as well. I think, as I mentioned, there is some push-out on some schedules, but no significant cancellations. We have some small things, but no significant cancellations. Our customers are still engaged. They're monitoring very closely what's going on in the market space. As everybody knows, it's very volatile right now, especially on the oil and gas side. A lot of these investments that our partners and our customers are making, they're more longer-term decisions. Yeah, I think there's risk there, but we're not overly pessimistic at this point. Sheldon, also with that announcement, gave you the impression we expected that revenue to happen in Q2. We'll do a much better job of communicating when we expect that to happen in the future because it was never planned for Q2. Yeah. We announced the partnership, but the customer always anticipated taking delivery in the later quarter. Thank you. Mm-hmm. Thank you. And just a final reminder, ladies and gentlemen, any further questions this morning, please press star one at this time. We'll pause for just one moment. We'll go next now to Scott Bundy of Moors & Cabot. Scott, please go ahead. Morning, guys. Just a couple of quick questions. Robert, the sale of the 17 acres, you guys anticipate that will be completed in the current quarter? Yes, sir. Is there anticipation as of today? It was originally discussed that was sort of in the $7 million-$10 million range. Is that still accurate? It's in that range, yes, sir. There was a discussion in your 10-Q last time that the national oil company would make a final investment decision for PRM sometime in the current quarter. Is that still the case? There may be a little bit of confusion, Scott. The decision with regards to the feed study is due in the current quarter. How they make a decision based on that feed study would come later on. Okay. Lastly, can you give us a rough idea of what sort of revenue number you need from the water business to begin making money given your allocated costs? From our smart water division? Correct. Is that what you're asking? Correct. I mean, when you say start making money, are you talking about profitability for the entire company or profitability for that division? I mean, we. Well, last. It has operating income for the quarter. Last quarter. It has operating income for the year. Yeah. Yeah. In the 10Q last quarter, we increased revenues pretty dramatically, but the costs associated with those revenues were also pretty substantial. It did not look like you were making any money. That is what I am trying to understand. Yeah. We made money. We had operating income from there last quarter. We're going to continue to make money from that segment going forward, even with the change in our allocation methodology for the new business segments. Yeah. Scott, this is Rick. I think last quarter was a result of how we allocate our overhead expenses, not so much the business segment itself. Oh, that's exactly right. I don't anticipate the scenarios that generated that to reoccur this fiscal year. That doesn't mean the scenarios can't reoccur in the future, but it won't happen again this fiscal year. My last question regarding Aquana, can you give us an idea of what percentage Aquana is of the revenues? It still continues to be an insignificant portion. Single digit, Scott. Do you anticipate that to change over the course of the next nine months in terms of people testing and using the product? What I would say is over the next nine months, probably not. We're not going to see that kind of significant growth compared to the overall revenue of the corporation. I would say that as a percentage of our water segment, we will see that increase over the coming period. We've talked about this in the past. The water municipalities are slow to adopt technology, but we're getting great positive feedback from the pilots that we have. That distribution pipeline is 12 to 18 months from initial pilot to decision-making. Of course, they phase that in over time. I would say that in our business plan, we're looking at 24 to 36 months what Aquana is going to look like with regards to significant impact on the corporation. What do you determine to be significant? More than 10%. Okay. Thanks for. Remember, we're on a current. Yeah. Yeah. Just one last comment on that. Remember, any large energy solution sale can significantly change the ratios. So we like to look at base business versus those kind of one-off sales that we do get from time to time. No, I understand. Thanks, guys. Thanks, Scott. Appreciate it. Thanks, Scott. Thank you. We'll take a follow-up question now from Bill Dezellem. Bill, please go ahead. Thank you. I actually want to continue down the smart water path because I realize that I have a tendency to jump to what's exciting and new, which in this case is Aquana, and pass over kind of where the real bulk of activity is, which is in the Hydrocon connectors. You have talked about, I think, 20-some million connectors. I think in response to the last questioner's question, you said that it takes time for essentially the flywheel to get moving. The question is, relative to the Hydrocon connectors, are you at some point where you anticipate an increasing rate of growth and essentially where there is just a massive momentum behind that business now? Whether the answer is yes or no, would you provide some more feedback and color around kind of how that business has developed? Right now, it feels like you're an overnight success and what the opportunities and risks are. I jokingly say overnight success because it's taken you years to get here. I appreciate that, Bill, because a 10-year cycle is not really considered overnight for most people. Yeah, I mean, Hydrocon has been a part of Geospace's history. It was organically developed over 10 years ago. We've been partnered with our strategic partner, Nycor, for a number of years. Between the two of us, we've done a great job building the inertia within the municipalities as making that connector the connector of choice. What we're seeing today is, and we have seen for the last few years, is that continued 10%-15% growth year on year adoption. We work directly with the OEMs now with regards to smart meters. All the major players are customers of ours now. Even the ones that have their own connectors, you see pressure from municipalities to adopt the Hydrocon as a solution of choice. Yeah, it has been a very bright spot for Geospace for the last number of years. We make good margins on that. It drives a good portion of our production here in Houston. We are producing around 5 million connectors a year now and generating a significant—a good portion of our revenue and margins are coming out of that business. Is there anything—I guess, are you seeing an increased level of adoption so that 10-15% growth becomes a larger number as you move forward? I mean, if we look at this particular quarter, the numbers were significantly greater than 10% to 15%, pushing up over 40%. Yeah. And we're very happy about that. I tend not to be overly optimistic because the water municipality space, there is a certain level—not that we're anywhere close to that—but there is a level of saturation where the larger municipalities that buy in very large chunks, once they're adopted, then it transitions to kind of the medium and smaller municipalities where you don't get the same volumes. Larger number of customers, smaller volumes. We still continue to expect growth. We're planning around growth. We have lots of flexibility on our manufacturing capacity. We see economies of scale at larger volumes. We're able to adapt and be flexible with regards to market requirements. I mean, that is one of our best-performing business segments for us today in product lines. Bill, I also want to remind you that we had a very good year in 2023. Unfortunately, in the first half of 2024, our customers had overbought in the prior fiscal year, which led to a very poor first half in 2024. This growth that we're seeing now in those two comparative periods is the result of overbuying from two years ago. Yeah. We have to kind of go back to the supply chain crunch of 2022, 2023, where our customers were really nervous about being able to meet their customers' demands. They bought our capacity as much as they could to make sure they could meet their requirements. As Robert said, it smoothed out through the first part of 2024. I think we are back into kind of normal growth now. I think if we see—we will be monitoring closely year on year growth Q3 and Q4 just to see if we are seeing that same sort of trend. For sure, we get lots of inquiries. This whole AMI smart meter movement, now that there are proven business cases at large and middle-sized municipalities, the other municipalities who have been hesitant to make the decision, they are starting to see the ROI on that and starting to make decisions on investments. First of all, I want to say keep your pessimism so that we can continue to have 40% growth. That's fantastic. Would you say that you've shifted from the early adopters now to kind of the mainstream? Is that where we're essentially at in the cycle? Yes, absolutely. As I said, those early adopters, everyone was waiting to see a business case and a true ROI for making the investment in AMR, AMI. Those cases are well-published now, well-communicated. We attend several conferences and conventions throughout the year in this space. It's not a question of if they're going to make an investment. It's a question of when they're going to make the investment now. That's helpful. One additional question then. Recognizing that the Aquana smart valves are truly not a market of any size today, but as you look out in terms of what the Aquana market size could be versus the size of the Hydrocon market, how would you relate those two to each other? That's a good question. If we look at the opportunity, the total addressable market in this space, there's roughly 60 million water control valves in the nation, just the dumb curb stop, turn the water on, turn the water off for a resident or for a company. Of that, there's still a lot of municipalities that don't actually install meters or don't measure water. I think that's the real opportunity—some of the opportunity. Of the ones that have it, they're putting smart meters in. The next question is, how do I save money by being able to remotely shut off the water at the actual pit or at the actual water control valve? That's the part that's now gaining traction. If you look at the operating cost to send a person in a truck out to a resident to turn the water off for non-payment or move in, move out, and then back, today, that's somewhere between $150-$250 each time they do that. There is a business case for making an investment in a remote shutoff valve where they can, sitting at the municipal office, turn that valve off and then turn that valve back on fairly quickly without having to pay overtime or have HSE risk for sending someone out there. That is a business case. We do have some practitioners of that, some examples to point to now. It is similar to Hydrocon. You had early adopters in Hydrocon. Now it is not a question of if, but when. We see that same mentality playing out in the municipalities for Aquana. We're in the if period right now. Does it make sense if we install it? I think in the next couple of years, you're going to see it's not necessarily if, but when. There's actually a business case for it. There's actually a cost-savings model for it for the municipalities. Great. Thank you both. I appreciate the extra time. Thanks, Bill. You have a good day. Yes, sir. Thank you. Gentlemen, it appears we have no further questions this morning. Mr. Kelley, I'd like to turn things back to you, sir, for any closing comments. Thank you, Bo. And thanks to all of you who joined our call today. We look forward to speaking to you again on our conference call for the Q3 of fiscal year 2025. Goodbye and have a great day. Thank you, Mr. Kelley. Again, ladies and gentlemen, that will conclude the Geospace Technologies Q2 2025 earnings conference call. Again, thanks so much for joining us, everyone. We wish you a great day. Goodbye.