Good day and welcome to the Geospace Technologies Third Quarter 2018 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rick Wheeler, President and Chief Executive Officer. He is joined by Tom McEntire, the Company's Vice President and Chief Financial Officer. Today's call is being recorded and will be available on the Geospace Technologies' Investor Relations Web-site 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. [Operator Instructions] It is now my pleasure to turn the floor over to Rick Wheeler. Sir, you may begin.

Thank you, Keith. Good morning and welcome to Geospace Technologies conference call for the third quarter of fiscal year 2018. I am Rick Wheeler, the Company's President and Chief Executive Officer, and I am joined by Tom McEntire, the Company's Vice President and Chief Financial Officer. We will start the call with my overview of the third quarter, followed by Tom's in-depth commentary of our financial performance. I'll then offer some final remarks, after which we will open the line for questions. Many of today's statements can be considered forward-looking as defined in the Private Securities Litigation Reform Act of 1995, and this includes comments about our product markets, revenue recognition, planned operations, and capital expenditures. All such statements are based on our present knowledge and perception, while actual outcomes are influenced by uncertainties and other factors that we are unable to predict or control. Related known and unknown risks can lead to undesirable results or cause our performance to materially differ from what we say or imply. These risks and uncertainties include those discussed in our SEC Form 10-K and Form 10-Q filings. For everyone's convenience, as mentioned, we will link a recording of this call on the Investor Relations page of our geospace.com Web-site, keeping in mind that the information discussed this morning is time-sensitive and may not be accurate on the date one listens to the replay. Yesterday, after the market closed, we released our financial results for the third quarter of fiscal year 2018, which ended June 30, 2018. As noted, the reported $21.3 million figure for quarterly revenues set a high mark so far in fiscal year 2019 and represented the second time this year that quarterly revenue increased sequentially. Moreover, the current third quarter result reflected a 50% increase in revenue in comparison with…

Thanks, Rick, and good morning everyone. Before I begin, I'd like to remind everyone that we will not provide any specific revenue or earnings guidance during this call. In yesterday's press release for our third quarter ended June 30, 2018, we reported revenue of $21.3 million compared to last year's revenue of $14.2 million. Our net loss for the quarter was $4.8 million or $0.36 per diluted share compared to last year's net loss of $14.4 million or $1.09 per diluted share. For the nine months ended June 30, 2018, we reported revenue of $55.2 million compared to revenue of $50 million last year. Our net loss for the nine-month period was $19 million or $1.43 per diluted share, compared to last year's net loss of $37.6 million or $2.86 per diluted share. A breakdown of our seismic product revenue is as follows. Our traditional product revenue for the third quarter was $2.6 million, a decrease of 28% compared to revenue of $3.6 million last year. Revenue for the nine months was $9.6 million, a decrease of 3% compared to revenue of $9.8 million last year. The decline in both periods reflects lower demand for our specialty sensor and marine products. Our wireless product revenue for the third quarter was $7.9 million, an increase of 294%, compared to revenue of only $2.7 million last year. Most of this increase was driven by rental revenues from our OBX nodes. Revenue for the nine months was $17.6 million, a decrease of 6% compared to $18.6 million last year. The slight decline in revenue in the current year-to-date period primarily results from lower sales of our wireless products. We expect wireless rental revenue to continue to be strong into our first fiscal quarter of next year primarily due to ongoing large rental contract…

Thanks Tom. As we announced earlier this week, our acquisition of Quantum Technology Sciences represented a strategic effort to further expand Geospace's core seismic engineering and manufacturing competencies into the border critical infrastructure and perimeter security markets. We believe Quantum's extremely unique seismic analytic software technology and existing products are rapidly gaining recognition in these important industries. In future course, our jointly planned efforts include the blending of our technologies to incorporate Quantum's innovative analytic solutions with our highly ruggedized large channel count PRM data acquisition system designs. As we accomplish this, we expect to provide new products along the way of incomparable functionality for markets focused on homeland security and the protection of borders and critical infrastructure. As Tom stated, our balance sheet at the end of June remained debt free and included approximately $40 million of cash and short-term securities as well as almost $22 million of borrowings available under our credit facility. After the $4.4 million cash down-payment related to the acquisition of Quantum, we believe our remaining liquidity and debt-free status continue to reflect an extremely strong financial position. We also believe that this financial strength in conjunction with a calculated exploitation of broader markets for our seismic technologies provides a significant opportunity for the Company's growth and diversification in the coming years. This concludes our prepared remarks and I'll turn the call back over to Keith for questions.

[Operator Instructions] We'll take our first question from Bill Dezellem. Please go ahead. Your line is open.

Thank you. I had a couple of questions. First of all, relative to the reservoir monitoring business, it seems as though your enthusiasm has lessened if you think it's unlikely that you're going to be getting an award over the next 6 to 12 months. Is that a correct read of at least the current conditions of that market, and if so, can you talk about what customer discussions have led to that lower level of enthusiasm?

The customer discussions that we had ongoing are similar to others that we have done in the past, Bill. Those are all very long time cycles with respect to anything ever coming to fruition. So, with that in mind and our prior experience, it's not really a lack of enthusiasm. I think it's just an element of reality with respect to the oil companies as they prepare their budgeting going forward. And just in an objective manner, we don't expect anything to actually come about within that period that we mentioned.

So you're not finding then that the higher oil prices that we have now is leading to the upcoming budgetary cycle, building a little bit of enthusiasm for an order in there, from kind of what you are hearing from your customers?

No, we do think that the oil prices is having an impact on more forward-looking aspects in that regard, but the time cycle on these is just such that that somewhat makes them unlikely within the six-month or 12 month period in terms of an actual award.

Rick, that's really helpful. Thank you. And then relative to the industrial business, talk a little bit about the long-term sustainability and/or the ability to grow that business. If I remember right, it's water meter related. Kind of how are you viewing that and maybe even what are you doing there, is it cables or is it sensors, would you talk us through that please?

Yes, the water meter cables and connectors is the larger part of that growth, and as I just said, it's primarily unique cables and connectors that are used for the automated water meters in municipalities that you see going in a lot these days. The designs we have there are very unique and patented and very robust with respect to being waterproofed and suitable for that application, and as time goes on, they become more and more of a standardized component in that industry for use. There are some other products that we are trying to gain some inertia on out in that market, that we'll basically try to leverage those relationships that are being formed out there. But we also have other components within our Non-Seismic segment that are growing. As you know, we do some contract manufacturing to try to keep some of our work centers busy and some of our overhead absorbed, and those efforts as well have increased in that same time period.

Great. Thank you.

We can go next to Damon Benedict with Nierenberg. Please go ahead. Your line is open.

So, if I look at your operating loss excluding the bad debt charge, kind of still roughly $2.5 million, and I think your quarterly D&A rate is something like 3.5. So, could you just please confirm for us that EBITDA this quarter excluding bad debt would have been about positive $1 million?

Actually the calculation that I did on the back of a napkin was a little higher than that. But yes, it certainly is positive.

Okay, great. Thank you. And you mentioned sort of the uncertain outcome on the charge you took. Can you speak qualitatively to any potential chance of recovery there?

Damon, this is kind of a tricky situation because this bankruptcy filing happened very late in the third quarter, and we're monitoring it with our attorneys, that I think there are some complexities that could enter into, whether there is an ultimate payout or not. And so, we're just trying to take the conservative road and it won't be worse than what we have accrued for.

Okay, great. Separately on Quantum, congrats on this deal, it seems like a fairly low risk proposition given your $4 million upfront payment, but sounds like it could have some great upside if things go well. So, I'd love seeing that and wanted to hear you speak a little more in simple terms just about the use case for Quantum's algorithms and how it helps its customers use their employees more efficiently and that sort of thing?

Their algorithms are very unique in the way that they detect, locate and classify the types of activities that are being seismically detected. That's a significant capability, and when you couple that with what we can do with respect to designing these large-scale data acquisition systems and you apply that technology, it's just a remarkable capability that it could provide for monitoring these sorts of things. So yes, we are very excited about this. We think that it's going to be a significant opportunity for revenues in the future and products that quite honestly are very unique and don't exist right now.

So, existing solutions in the market, do they not do as good a job identifying what is causing sensors to be tripped and Quantum does a better job identifying that?

That's exactly right. That's exactly right. And most of these systems in the times past, and our sensors have been used in that market for quite a long time in respect to some of those more simplistic approaches and systems, but they are so resource-intensive that at a point it comes time for humans to sort of analyze and examine what's going on, and we aim to correct that.

Great. It seems like a sensible acquisition, so congrats on that. Thank you.

Gentlemen, it appears we have no further questions. I'll return the floor to you, Mr. Wheeler, for any additional comments.

All right, thank you, Keith, and thanks to all of you who decided to join our call today. We look forward to speaking with you for our fourth quarter conference call in November. So, thanks a lot and goodbye.

And this will conclude today's conference call. We thank you for your appreciation. You may disconnect at any time. Have a great weekend.