# Dear Fellow Shareholder

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-equipment-services/NASDAQ_GEOS_2019/NASDAQ_GEOS_2019.mmd` · pages 2-8_

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Dear Fellow Shareholder,

## Geospace Leveraging Technology

Ask someone familiar with Geospace, and the first things that will likely come to mind are well defined, high quality technology, and client-oriented attention focused on customers' success. Since the company's inception, these principles have defined us, driven our growth, and guided us through both good and bad market conditions. Fiscal year 2019 was filled with activities strengthening our technology and positioning our company and its shareholders for a next phase of prosperity and opportunity. With the invention of our GCL recorder, we've established a new pinnacle for land seismic instruments. With our acquisition of OptoSeis \( ^{®} \)  fiber-optic sensing technology, we can now provide oil and gas companies the broadest spectrum of available products for permanent reservoir monitoring (PRM). And by combining our digital seismic systems with the groundbreaking algorithms and analytic software of Quantum Technology Sciences, we've created a new breed of border and perimeter security solutions featuring unparalleled capability.

Defying a fifth straight year of record low spending for global oil and gas exploration, we grew revenue by 26% in fiscal year 2019 over last year. In fact, our fourth fiscal quarter which ended September 30, 2019 recorded the highest quarterly revenue and gross profit in over five years. This improved performance was driven by strong rental demand for our OBX ocean-bottom nodal seismic recording systems. In today's world, many offshore focused oil and gas companies are realizing significant savings through finding and producing new hydrocarbon resources nearby existing infrastructure. Our proven OBX technology helps this goal become a reality with superior subsurface imaging quality. It's no wonder why the list of world-wide projects and customers utilizing our OBX systems continues to grow.

## Financial Results

Total revenue in fiscal year 2019 climbed to almost \(96 million, producing a gross profit of over \)31 million. If we set aside beneficial amounts related to a gain on the sale of non-essential real estate and a favorable net reduction in contingent earn-out liabilities, our net loss for the year shrank to \(0.70 per share – less than half that of the year before. And with these beneficial amounts included in our financial results, our net loss for fiscal year 2019 drops to just \)0.01 per share. Over the course of the year, our capital expenditures amounted to $36 million and were mostly targeted at the expansion of our OBX rental fleet. We accomplished all of this while maintaining a strong balance sheet that at year's end remained debt free with a total liquidity of almost $46 million, including nearly $19 million in cash and equivalents. Looking into the future, we anticipate capital spending in fiscal year 2020 to be about one-third of last year's figure, with approximately half being allocated toward additional OBX rental equipment. The remainder of these investments are targeted toward expanded factory automation, maintenance, and other improvements.

## Oil and Gas Markets Segment

Last year, our hopes for fiscal year 2019 were to see a diminished stranglehold on energy exploration spending. These hopes were somewhat realized as reflected by the increase in revenue from our oil and gas market segment of almost 45% over last year. Faced with lower revenue from our traditional and reservoir seismic products, the improvement was entirely driven by our wireless products, where demand for our marine OBX equipment pushed rental revenue to record levels. Although new oil and gas discoveries in recent years are woefully

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short of replacing produced reserves, the overwhelming majority of these limited finds have been offshore. Our success with the OBX highlights our ability to place innovative technologies wherever demand is highest in an otherwise difficult market. Likewise, our latest GCL land seismic recorder offers best-in-class technology for land seismic operations. While this portion of the market remains challenged, recent sales of our GCL demonstrate our preparedness to fulfill any demand that may similarly arise in the onshore market.

## Adjacent Markets Segment

Products in our adjacent markets segment generated revenue of just over $30 million in fiscal year 2019. Although this represents an increase of less than 1% over last year, we continue to believe that this segment has significant opportunity for expansion and growth. For the full year, this segment contributed almost one-third of the company's total revenue, directly emphasizing its strategic importance in partially diffusing volatility from our oil and gas market segment. In fiscal year 2020, we intend to continue identifying new ways and means to expand this segment's revenue contribution.

## Emerging Markets Segment

Our emerging markets segment focuses on border and perimeter security products that provide deep awareness and real-time intelligence of any activity occurring in proximity to an area or asset of interest. These products process seismic-acoustic information using sophisticated algorithms and analytics developed by our Quantum group. Even though very little revenue was generated from these products in fiscal year 2019, the year heralded major advances in our integration of Quantum software and our hardened digital systems. Based on the accolades our demonstrations of this technology have received from targeted customers, we fully expect meaningful and sustainable revenue from this segment in the foreseeable future.

## Conclusion

For Geospace Technologies, fiscal year 2019 can be summed up as a year of multi-faceted achievement. While this certainly includes financial metrics such as our growth in revenue, higher gross profit, and preservation of a rock-solid balance sheet, it also describes many behind the scenes accomplishments in engineering innovation and product diversification. Improvements in our OBX marine recorder and the invention of our GCL land seismic recorder have each maximized our opportunity for commerce in an improved seismic exploration market. And by incorporating OptoSeis fiber-optic sensing technology into our largescale system designs and manufacturing capabilities, we've significantly increased our chances of landing any future contracts for PRM systems. On top of this, the full integration of Quantum's intelligent analytics software with our field proven systems has created a remarkable new potential for future revenue. Our goal in fiscal year 2020 is to exploit all of the rich opportunities we have created, thus giving our employees, our customers, and our shareholders the highest possible value that can be attained.

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Rick Wheeler

President & Chief Executive Officer