March 31, 2017 Forward-Looking Statements This presentation - - PowerPoint PPT Presentation

March 31, 2017

Forward-Looking Statements

This presentation includes forward-looking statements within the meaning of Section 21E

• f the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act
• f 1933, as amended. All statements other than statements of historical facts included

herein, including statements regarding the Company’s future financial position and results

• f operations, future product development initiatives, the Company’s business strategy, the

future mix of product revenues, future demand for the Company’s products and general conditions in the energy industry, in general, and the seismic industry, are forward-looking

• statements. While management believes that these forward-looking statements are

reasonable when and as made, actual results may differ materially from such forward- looking statements. Important factors that could cause or contribute to such differences include possible decline in demand for seismic data and our products; the effect of recent declines in oil and natural gas prices on exploration activity; the effect of uncertainty in financial markets on our customers’ ability to obtain financing; loss of significant customers; defaults by customers on amounts due us; possible obsolescence of inventories and impairment of long-lived assets; and foreign currency exchange risk. These factors and

• thers are described and discussed in the Company’s most recently filed Annual Report on

Form 10-K, the Company’s most recently filed Quarterly Report on Form 10-Q, and in the Company’s other filings with the SEC.

1

Management Team

Walter R. Wheeler President & Chief Executive Officer

– 33 years in the seismic industry – 13 years with Input/Output, Inc. (now ION Geophysical Corp.)

2

Thomas T. McEntire VP & Chief Financial Officer

– 20 years in the seismic industry – 7 years with APS Holding Corp. – 8 years with Coopers & Lybrand, LLP

Michael J. Sheen Senior VP & Chief Technology Officer

– 47 years in the seismic industry

Robbin B. Adams Executive VP & Chief Project Engineer

– 36 years in the seismic industry

All management team members have been with Geospace Technologies for 20 years

Business Overview

Leading designer and manufacturer of seismic equipment for oil & gas exploration and exploitation Wireless and reservoir monitoring systems drivers of future revenue growth Incubator of products for other markets leveraging existing engineering & manufacturing expertise

3

LTM March 31, 2017

59% 41% LTM Revenue: $70 million Seismic Non-Seismic

Seismic Non-Seismic

Company Highlights

4

Leading edge wireless (GSX/OBX) systems and permanent reservoir monitoring (PRM) technology past growth drivers, and growing industrial product business Decades of experience and team continuity

Proven Track Record of Technology Leadership Experienced Management Team with Long History in Seismic Industry Growth Potential through Product Innovation Strong Capitalization

Differentiated technology innovation No long-term debt and $78 million of liquidity as of March 31, 2017

Significant Earnings Over Time

Annualized growth in retained earnings of 13% since 1997 IPO

Impact of Technology Innovation

5

1950s 1960s 1970s 1980s 1990s 2000s 2010+

• 24 channels
• Pre-digital revolution
• Paper recordings
• 24 channels
• Early digital system
• 1st using transistors
• 120 channels
• Analog inputs only
• Huge diameter cables
• 192 channels
• 1st telemetry system
• 4,000 channels
• 1st multi-line 3-D system
• 1st 24 bit converter
• 40,000+ channels
• Single channel units
• Higher channel counts
• Wireless technology
• GPS synchronized

Product Development Driven Growth

6

Marketing Engineering Manufacturing Industry Expertise Improvements Organic growth – Creating value for our customers and investors by developing new products Engineering expertise – 69 member engineering team located in Houston with an average of 25 years of product design experience – Design teams for seismic data acquisition systems, sensors, cables, connectors and thermal printheads

Differentiated Manufacturing Capabilities

7

Manufacturing expertise & capacity

– Electronic assembly, sensor shop, cable shop, machine shop, molding shop, printhead clean room – 455k sq. ft. in Houston – 120k sq. ft. in Ufa, Bashkortostan, Russia – 45k sq. ft. in Calgary

750 employees worldwide We leverage technology development through the products we manufacture

– Increased flexibility & cost savings – Control over proprietary intellectual property

Strategic Focus Within Seismic Market

8

Processing Equipment Data Multi-Client Data Processing & Company Manufacturing Leasing Acquisition Data Library Interpretation Geospace Technologies

 

BGP (Inova)

  

CGG (Sercel)

   

ION Geophysical

   

WesternGeco (Schlumberger)

   

Dawson

 

Geokinetics

  

PGS

  

SAExploration

 

Seitel



Mitcham

 

Teledyne



Multi-Service Acquisition or Processing Focused Equipment Focused

Geospace does not compete with its customers in these areas

9

Seismic Segment

Traditional Seismic Exploration Products

10

Land & Marine Applications

Sensor Products

– Geophones – Hydrophones – Multi-component packages

Cable Products

– Leader wire (geophone string application) – Acquisition system cables – Marine cables

Connectors

– Cable connectors – Geophone string connectors – Acquisition system connectors

Marine Products

– Streamer retriever devices – Wet and dry mate connectors – Shallow water connectors

LTM¹ Revenue Contribution

16% 40% 3% 41%

Seismic - Traditional

Seismic - Wireless Seismic - Reservoir Non-Seismic

1 LTM as of March 31, 2017

Wireless Products Providing Significant Growth

11

Geospace Seismic Recorder (GSX) Wireless seismic data acquisition system

– Introduced leading land-based wireless data acquisition system in 2008 – Permits new multi-source acquisition techniques – Enables virtually unlimited channel count

Rapid customer acceptance

– Most widely used wireless data acquisition system – 470,000 channels sold or available for rent in N. and S. America, Europe, Africa, Asia and Australia

Rental fleet of approximately 127,000 channels LTM¹ Revenue Contribution

16% 40% 3% 41% Seismic - Traditional

Seismic - Wireless

Seismic - Reservoir Non-Seismic

Note: Channel counts as of March 31, 2017

1 LTM as of March 31, 2017

The GSX Wireless Advantage

12

Conventional Technology → Cabled Our Technology → Wireless

Increases crew productivity and decreases crew footprint Lightweight and easy to deploy Significantly reduces maintenance Allows crews to start work at daybreak instead of waiting on cable repairs Deployment is time-consuming Maintenance is constant Cables are heavy, raising HSE issues Roads, railroads, fences, rivers, lakes & towns are obstacles

GSX Market Opportunity

13 Sold more wireless channels than any other competitor Opportunity to capture market share as cabled systems are replaced due to aging and inefficiency

– 4-5 million estimated channel market opportunity – Target market approximately 2-3 million channels – Channel count per seismic crew growing

42 GSX Customers

2 10 33 105 210 316 459 461 463 470

• 50

100 150 200 250 300 350 400 450 500

FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17

Channels in thousands Cumulative Wireless Channels Sold / Available for Rent

Sales Available for Rent

The OBX Wireless Advantage

14

Conventional Technology → Cabled Our Technology → Wireless

Increases crew productivity Much more reliable thus reduces maintenance costs More stations per vessel size allowing for use

• f smaller vessels

Deployment and retrieval is time -consuming Maintenance is constant and downtime is expensive Cables take-up deck space thus requiring larger vessels Cables are expensive to purchase and replace

Leader in Reservoir Characterization Products

15 Pioneered and market leader in permanent seismic reservoir monitoring (PRM) systems Recent contracts provided substantial revenue growth in 2013-2014 – $18 Million Shell contract for BC-10 field in Brazil (FY 2013) – $172 Million Statoil contract for Snorre & Grane fields in Norway (FY 2013 and 2014) Ocean bottom and borehole data acquisition systems – Retrievable & permanent versions

LTM¹ Revenue Contribution

Seismic - Traditional Seismic - Wireless Seismic - Reservoir Non-Seismic

1 LTM as of March 31, 2017

Selected Customers

16% 40% 3% 41%

16

Non-Seismic Segment

Non-Seismic Markets

17

Utilizes existing engineering and manufacturing resources to broaden product lines and markets Strategy focuses on thermal imaging, cabling, molding and machining capabilities

59% 41%

Industrial Imaging

LTM Revenue: $29 million

Thermal Imaging and Digital Inkjet Printing Industrial Sensors Water Meter Cables and Connectors Subsea Cables Contract Manufacturing

LTM¹ Revenue Contribution

16% 40% 3% 41%

1 LTM as of March 31, 2017

Seismic - Traditional Seismic - Wireless Seismic - Reservoir Non-Seismic

18

Financials

Profitability and Return on Equity

19

Strong earnings growth during periods of oil price growth and stability 13% annualized growth in retained earnings since IPO in 1997 despite periodic downturns in the seismic segment Innovation driven results -- majority of revenues & profits from new product innovations

33% 29% 47% 19%

• 15%
• 19%
• 18%

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Q2 2017

Pre-Tax Return on Shareholders’ Equity

Note: Company has a September 30 fiscal year end.

Potential for Growth When Seismic Market Returns

20

Revenue ($ in millions) Business Overview

Wireless Market – Market Leader – Funded by E&P exploration budgets – Primary growth driver since 2008 introduction – Rental business popular with customers Reservoir Products – Market Leader – Funded by E&P production budgets – “Lumpy” order flow – Systems range from $5 - 100+ million Traditional Seismic Business – Lower Margin Consumables – Funded by E&P exploration budgets – Product demand serves as a good barometer for health of overall seismic industry Non-Seismic Industrial & Imaging Products – Industrial products experiencing growth – Imaging products stable

$13 $17 $7 $12 $11 $6 $30 $13 $6 $5 $25 $18 $16

FY 2015 FY 2016 Q2 2017

Industrial Imaging Traditional Reservoir Wireless

$62 $85 $35

Review of Q2 2017 Results

21

Revenue of $20.6 million

– Significantly impacted by decline in exploration spending – Profit margins impacted by high fixed cost structure, low factory utilization, and rental fleet depreciation

Net loss of $11.5 million, or $0.88 per share

– Significant non-cash charges of $10.6 million in Q2 – No tax benefits able to be recognized for losses

Strong Balance Sheet & Liquidity

22

($ in millions, as of March 31, 2017)

Financial stability and staying power

– No long-term debt outstanding – $30 million credit facility

Long-term track record of conservative cash flow management

Cash and Short-Term Investments $ 48 Available Borrowings Under Revolver 30 Total Liquidity $ 78 Working Capital $ 154 Current Ratio 21 X Debt / Total Book Capitalization 0% Stockholders’ Equity $ 225 Unencumbered Real Estate Holdings:

• Houston – 3 owned buildings 494,000 sq. ft.
• 17 acres of land available for expansion
• International – 4 owned buildings 192,000 sq. ft.

Company Highlights

23

Leading edge wireless (GSX / OBX) systems and permanent reservoir monitoring (PRM) technology past growth drivers, and growing industrial product business Decades of experience and team continuity

Proven Track Record of Technology Leadership Experienced Management Team with Long History in Seismic Industry Growth Potential through Product Innovation Strong Capitalization

Differentiated technology innovation No long-term debt and $78 million of liquidity as of March 31, 2017

Significant Earnings Over Time

Annualized growth in retained earnings of 13% since 1997 IPO