Welcome to the Geospace Technologies Third Quarter 2025 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rich Kelley, President and Chief Executive Officer. He is joined by Mr. 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. [Operator Instructions] It is now my pleasure to turn the floor over to Mr. Rich Kelley. Sir, you may begin.

Thank you, Angela. Good morning, and welcome to Geospace Technologies conference call for the third quarter of fiscal year 2025. I am Rich Kelley, the company's Chief Executive Officer and President. I'm joined by Robert Curda, the company's Chief Financial Officer. In our prepared remarks, I will first provide an overview of the third quarter, 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 by 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 June 30, our third quarter fiscal year 2025. For the 3 months ended June 30, 2025, we reported revenue of $24.8 million with a net income of $0.8 million. For the first 9 months of our fiscal year, we had $80.1 million in revenue with a net loss of $0.7 million. Strategic accomplishments during the third quarter in all of…

Thanks, Rich, 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 of our third quarter ended June 30, 2025, we reported revenue of $24.8 million compared to last year's revenue of $24.9 million. The net income for the quarter was $760,000 or $0.06 per diluted share compared to last year's net loss of $2.1 million or $0.16 per diluted share. For the 9 months ended June 30, 2025, we reported revenue of $80.1 million compared to revenue of $100.2 million last year. Our net loss for the 9-month period was $662,000 or $0.05 per diluted share compared to last year's net income of $6.3 million or $0.47 per diluted share. Our Smart Water segment produced revenue of $10.5 million for the 3 months ended June 30, 2025. This compares with revenue of $9.9 million for the same period of the prior fiscal year, an increase of 6%. For the 9-month period, the segment contributed revenue of $27.3 million versus $20.6 million, an increase of 33%. The increase in revenue of both periods is due to higher demand for our Hydroconn connectors. The 9-month revenue marks a new high revenue for our Smart Water segment. Revenue from our Energy Solutions segment totalled $8.1 million for the 3-month period ended June 30, 2025. This compares to $9.4 million in revenue for the same prior year period, representing a decrease of 14%. Revenue for the 9-month period is $35 million, a decrease of 42% over the equivalent prior year period. The decrease in revenue for the 3-month and 9-month period was due to lower utilization and sales of our marine ocean bottom nodes. Our Intelligent Industrial segment revenue totalled $6.1 million…

Thank you, Robert. This concludes our prepared commentary, and I will now turn the call back to the moderator for any questions from our listeners.

[Operator Instructions] We go first to investor, Michael Cox.

I just wanted to start with a couple of questions about the PRM announcement. I just -- the announcement itself came as a bit of a surprise. I think from previous quarters' discussions around us, it sounds like there were conversations happening, but didn't feel like the announcement of a contract was imminent. Can you just talk about sort of how we got to the point where all of a sudden this announcement came out? And I know it wasn't to you guys, but sort of the fact that it became a rather surprising announcement.

Well, thank you, Michael, for the call. Yes, as you know, we really don't discuss in detail operations ongoing. This contract was actually in discussions for many months with Petrobras, lots of back and forth with regards to technical requirements and commercial requirements. So it was nice to be able to land that contract going against our -- the competitor that's already on Barrel 1 and 2. So I would say, overall, we work on the negotiations of the contract around 6 months.

In comparing, obviously, when the announcement came out, we didn't have a whole lot of numbers to go on, and you just talked about $80 million of equipment manufacturing revenue. Size-wise, just by kilometers, it's similar to the [indiscernible] field from a decade ago. But I don't recall that being broken down into equipment versus installation versus other revenues. Is this -- that was the headline number was big. But can you help us think about what this is going to overall impact over the course of the contract will be from a revenue perspective beyond [indiscernible]?

So it's slightly different than Sonora and the other Equinor contracts in the sense that, that was the older PRM technology with electromechanical devices versus an optical solution that we have now. The other thing, too, is that our end customer, Petrobras has announced the overall value of the contract in their press release, but they did not break down the details between the goods portion and the insulation portion. So we're not at liberty to discuss the details of that as well. But what we can say is the majority of the insulation revenue will be recognized by our partner in Brazil, Blue Marine. So that's why I can address what the goods portion is, but I can't really address the overall services contract.

And then -- so obviously, it sounds like reading between the lines here, the new technology versus the old [indiscernible] mechanical is it higher margin and lower revenue, for you guys, higher margin? I mean what's -- or is it just the state of the world these days is you're just not going to make as much money on PRM [indiscernible].

I mean we still anticipate good margins on it. But just the cost breakdown of the components themselves put forth a completely different financial model with regards to calculating revenue and costs.

Well, how are there other discussions going on, on the PRM front now that this one has been announced?

So what I can say is, yes, I mean, there are ongoing discussions with other partners, including Petrobras. I mean they have a multiyear plan for their fields. Of course, each of those are subject to final approval by their management team where it makes financial sense. So I mean, we will continue to discuss with partners who are interested in PRM, advising them on the opportunities and the benefits of our technology. But I would not want you to read into that. There are other contracts pending.

We'll go next to Scott Bundy with Moors & Cabot.

Does OptoSeis allow you guys to go deeper than existing equipment out there provided by [indiscernible] for example?

I think the depth performance between the two are very similar. I mean, in the sense that they're already going to be on Mero 1 & 2, we're on Mero 3 & 4. I think the depth performance is the same. However, we differentiate on the fact that our technology does not require any kind of in-water wagmi connectors, which improves the reliability of the product over the life of the reservoir. There are some other technologies with regards to how we actually interpret the optical signals that give us an advantage over our competitors as well.

And just for, Rob, going back to December of '23, when we produced something in the vicinity of $50 million in revenues and gross margins around pushing 40% in a $45 million to $50 million revenue per quarter, are we capable of getting back to that 40% gross margin?

I think you said 2023, did you mean 2013?

No. And so we sold a product that produced roughly $50 million in revenues in the December quarter 2023. And margins back then were roughly 40%. That was on a -- that was the product that was originally going to be rented and it was converted to a sale.

Yes. We sold some mariners at that time.

Correct.

Yes. I think part of the things that affect the gross margin at that time is we had some manufacturing times, manufacturing activity that went on to build that equipment, so we had nice absorption, also that's a high profitability product to begin with. And through the PRM contract, we will certainly have a higher level of absorption, which will lead to a higher profitability. I would expect it to be somewhere in the 40% to 45% range overall.

Okay. Great. And just while I have you there's a receivable for that particular contract that I believe comes due in late September or early October that's somewhere in the vicinity of $25 million to $30 million. Do I have that correct?

No. From October -- December '23, no, we do not have a receivable on the books associated with that transaction.

I could be wrong, but there is a receivable that -- if I'm correct, that comes due in October of this year for $25 million to $30 million. Am I wrong?

We do have receivables on the books that -- one second, Scott. We're just reviewing the numbers real quick. Yes. We have receivables on the books for customers that have [indiscernible] Energy Solutions equipment, but their due dates are a little bit further out than that.

Okay. But this calendar year, is that correct?

No, I think they extend beyond this calendar year. They're on progress payment plans, so we'll have some this year and some next year.

Rich, if you -- can you just talk a little bit about this product that you just purchased? Can you give any indication of did we buy it for stock, cash? What sort of revenues? The only thing you've really told us is that it would be accretive. Can you give us a little more detail about this particular product and why you're excited about it?

Sure. So with regards to the deal itself, it was a cash deal. It had an upfront component and then an earn-out component for the overall purchase. So depending on performance of the product over the next 5 years, depending on what the total purchase price is. The part -- there's two things that are exciting to us. One is it's really our first foray into a fully subscription model, so we provide the solution to -- in the U.S., it's mostly used in prison. So anywhere you have a gate where you control -- you're concerned about security, you've got a man with a gun standing post. And you got trucks coming and going, you're concerned about any kind of trafficking or in prisons example, people coming out. This allows a very low cost effective solution for the [indiscernible] to very quickly run a couple of sensors on the vehicle, and it can detect if there is a human inside the truck within 10 seconds. And this has been proven for over 25 years. This was a technology developed by Oak Ridge National Labs for their own security of their own labs. And we have the exclusive license from ORNL for this technology, and that was what we were going after. It fits very well with our security and perimeter detection solutions portfolio, it ties in very well with -- if you think about the SADAR solution with regards to perimeter security, it ties in very well with that as well, so it's a nice fit into our overall portfolio. It has great growth potential. The former solution, the [indiscernible] company had an older solution that was more of a big CapEx expenditure for the end client. This has now been redeveloped and repackaged into a low-cost subscription model. And so we think it's got a great opportunity not only in the U.S. but also internationally. The other thing that we're very excited about is there's obviously intense focus on the borders with regards to human trafficking. This gives a great solution for the U.S. Border Patrol to take advantage of this technology at the truck checkpoints. And that's one of the things when we talk about bringing Carla Probus on, she has experience with those teams and those people, and she's a firm believer in this technology, so we feel like we have a strong champion in her and promoting this within the U.S.

So speaking of Carla, was Carla involved in the original Homeland Security $10 million sale back in early 2020, I think.

She was not directly involved, but she was aware of it. I mean she was obviously in border patrol at the time. What she'll tell you is she was in the room when that tunnel was detected by our technology. And there were highs all around.

So just a couple of others regarding budget and homeland, the annual review that comes out of February has a pretty significant number over years associated with a 30-mile project. The recent budget looks a little different. Can you square that up for me?

Yes. I think that you're speaking about the General Accounting Office report that we reviewed earlier compared to the One Big Beautiful Bill that's got roughly $30 million allocated for that. So I think that if you look at the [indiscernible] that line is structured, even though it does mention tunnel detection specifically, it also mentions other expenditures on that line. Talking to CBP, I mean, they do anticipate still to issue another request for proposals for more mileage. That number is still not finalized, and the timing of that has been delayed until probably next calendar year. So we do anticipate with the availability of funds, we do anticipate CBP wanting to do more mileage on tunnel detection. We just don't have much more insight than that at this time.

But the committee has directed the CBP to provide tunnel detection technology no later than 90 days, which is 90 days from July. Is that going to help the cause here?

I don't think so. I mean, I know that they were directed that, but I'm sure you know what's going on in D.C. and in all these agencies. I mean they are scrambling. They're losing people, and so they're resource constrained. The procurement people are prioritizing -- they were given the directors to review all of their contracts, review and justify them again and renew them. So as far as this as being a priority for them, I don't see it being a top priority given all the other directors they have to follow.

So your best guess is that this is a 2026 event, not a -- calendar 2026 event, not a 2025 event.

That's the feedback we're getting, Scott, is that we can anticipate an RFP sometime early next calendar year.

We'll go next to Bill Dezellem with Tieton Capital.

Let's start with the Petrobras comment or contract for just a moment, and then we'll jump to a couple of other areas. So relative to that contract, given that there's some confusion about the revenue versus for you all versus contractors, et cetera, et cetera. And I guess, electromechanical versus the fiber optic. Is it fair to say that this is the second largest contract in Geospace's history based off of the operating income or gross margin dollar contribution that you will ultimately receive over the life of the contract?

Yes, absolutely

And congratulations, by the way. It's not every day one wins the second largest contract in your history, so well done. And that revenue, you are going to begin recognizing that revenue in your first fiscal quarter of the coming fiscal year. Is that what we heard? Or am I confused?

Well, I was very careful about that because we are still working with our customer to define the actual revenue recognition milestones and the timing of those. So we are hoping to be able to recognize revenue in Q1, but that has not been finalized yet.

Explains why I was a little bit confused. Let me shift then to the border patrol and first of all, why is the border patrol not adopted the Heartbeat Detector technology up to this point?

That's a great question and one that gets asked frequently. So we had long conversations with the team from GeoVox about how the border works and there are two technologies that are currently used down there. One is a Backscatter and the other one is x-ray. Neither one of those are ideal, but they are used, they've already made the investment. So the uphill climb that we have, I guess, for Carla and the team is to sell them on the efficiency of using this technology. So the other ones that take a long time to set up. They're very capital intensive. This is -- takes just a minute -- less than a minute to set up less than 10 seconds to detect and the truck is on its way. So we can vastly improve their operational efficiency at the border. The other thing, too, is at the border with their current technology, they scan less than 1% of the trucks that come through the border. This should vastly improve the percentage of trucks that they can actually scan and detect. So we think we have some winning arguments going forward. And I think with this current environment and the current focus on the border that we'll have a much better success in selling the solution.

And then let's circle back to the One Big Beautiful Bill Act, if we could. What funding -- I think you already gave the answer in a previous comment. But what funding is in that bill for subterranean tunnel detection?

There's a particular line in there that is $30 million, but it's addressed in several different solutions in there is mission tunnel detection. And so it's the discretion of the CBPs how they actually allocate those funds.

So it is not a [indiscernible] that, that will be -- that the full $30 million would be for tunnels.

No. And given the way that this -- the administration today, how they're deciding to apportion and allocate funds, I mean, all that's going to be a question mark at this point.

And then relative to your comment in response to a prior question that you anticipate an RFP in the first calendar quarter, so the March quarter of next year. You all have -- and I don't understand the government contracting that well, so bear with me here. But I believe you have SBR 3 certification. And it was our understanding that the implications of that, that if there is a government need and an acquisition of tunnel detection equipment that it would be -- the contract would go to Geospace because you have the SBR 3 certification. But you mentioned an RFP. Can you -- would you please reconcile these things? And maybe help me understand what I don't understand about the whole process.

That's a great question, Bill. So the SBR 3, we certainly have that. That's certainly in place with regards to the technology. However -- and we've asked -- we sought legal guidance on this as well as far as what that really means for the government, whether they're actually forced to buy from us or what that actually means. So I don't have a good answer for you on that. I do know that there were 3 solutions that were -- that are existing on the border today being evaluated. Until the RFP comes out, we don't really know -- we don't really have -- we can't really defend our SBR 3 position with regards to the RFP until we see it. I know it's not very clear. And we have the same question, Bill. So I don't have a good answer for you today, but we are definitely investigating that. And so we're looking forward to the actual RFP to see what the wording is, what the technology is referenced in there to see if we can apply the SBR 3 that we have to it.

And what do you know about the, I'll call it, the bake-off between you and the 2 other competitors on the border?

Absolutely nothing. As I've said in the previous calls and previous meetings, the CBP has been very tight-lipped about the 3 solutions.

Then coming back to the One Big Beautiful Bill Act, what allocations are in that bill for military and/or Navy that would be interesting and relevant to Geospace?

That was not as clear. I mean, obviously, they have money in there for harbor protection, threat detection, things like that but they weren't as specific as the appropriations we had seen earlier, they had specifically $12.8 million allocated to that. So we are still working with our partners to understand what the priorities are and the timing of that. I will say that we don't anticipate -- talking to our partners on that particular topic, we don't anticipate any decisions until either late this calendar year or early next calendar year.

So the $12.8 million that was in maybe the house bill, if I recall correctly, that is not -- did not make it specifically into the final bill.

That’s correct.

That is appreciated. And yet, you think that there is some activity going on later this year or early next year that could be relevant to you all?

Yes. The discussions that we're having both with our partners and with the U.S. Navy, there's obvious concern about harbor protection and threat detection, especially with regards to unmanned underwater vehicles. And so they are seeking solutions, commercially available solutions, which we -- obviously, with -- between our SADAR technology and our PRM technology, we bring a commercially viable solution for that. So those discussions are ongoing. We're having good discussions, good progress. But at this time, we don't anticipate in the near term any kind of commercial agreement.

And then relative to Aquana, that has essentially been the star of the company here for -- excuse me, not Aquana, Hydroconn has been the star. Would you provide some more commentary around it? I know that connectors aren't near as exciting as $80-plus million contracts and Heartbeat Detection, et cetera, et cetera. But talk to us about the [indiscernible], if you would, please.

Sure. I mean Hydroconn is, as you say, I mean, it's been a great performer for us being organically developed and working with our partners to get it out to the market. As I said in previous calls, that water space offers a 10% to 15% growth year-on-year overall. Hydroconn is in that range and actually outperforms that some quarters more than others. It's still the industry standard. You may have seen there was a recent announcement where Nycor, our partner was acquired by Hubbell. We've had great conversations with Hubbell on how to grow that relationship, so we continue -- we expect to see continued growth and acceptance of this solution in the water space going forward.

This does conclude today's question-and-answer session. I will now turn the program back over to Rich Kelley for any additional or closing remarks.

Thank you, Angela, and thanks to all of you who joined our call today. We look forward to speaking with you again on our conference call for the fourth quarter of fiscal year 2025. Goodbye, and have a good day.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.