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Geospace Technologies Corporation (NASDAQ:GEOS)

F4Q 2013 Results Earnings Call

November 22, 2013 10:00 AM ET

Executives

Gary Owens - Chairman, President and CEO

Tom McEntire - Vice President and CFO

Rick Wheeler - Executive Vice President and COO

Analysts

Ryan Fitzgibbon - Global Hunter

Veny Aleksandrov - FIG Partners

Georg Venturatos - Johnson Rice

Joel Luton - Westlake Securities

Joe Maxa - Dougherty & Company

Hamed Khorsand - BWS Financials

Josh Goldberg - G2 Investment Partners

Operator

Please standby, your program is about to begin. Welcome to the Geospace Technologies' Fourth Quarter 2013 Earnings Conference Call. Hosting the call today from Geospace is Mr. Gary Owens, Chairman, President and Chief Executive Officer. He is joined by Tom McEntire, the company's Vice President and Chief Financial Officer; and Mr. Rick Wheeler, the company's Executive Vice President and Chief Operating Officer.

Today’s call is being recorded and will be available on the Geospace Technologies Investor Relations website following the call. At this 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 Gary Owens. Sir, you may begin.

Gary Owens

Thank you, Pat. Good morning. And welcome to the Geospace Technologies' fourth quarter and year end conference call. We appreciate your participation today. I am Gary Owens, the company's Chairman, President and CEO. Also with me are Mr. Tom McEntire, the company's Vice President and Chief Financial Officer; and Mr. Rick Wheeler, the company's Executive Vice President and Chief Operating Officer.

I will begin the prepared portion of the conference call, followed by a review of our financial performance from Tom. Rick will then discuss the immediate outlook for our business and I'll add some remarks before we conclude the prepared remarks.

Before I begin discussing the quarter and the year, allow me to say that if you would like to listen to a replay of today's call, it will be available by going to the Investor Relations section of our website at www.geospace.com.

I should point out that the information we will discuss this morning is time sensitive and therefore may not be accurate on the day one listens to the replay. I warn you that many of the statements we will make today will constitute forward-looking statements within the meaning of the Private Securities Litigation Act of 1995, including statements about the market for our products, revenue recognition, rental fleet expansion and capital expenditures.

These statements are made with management's current expectations and knowledge. The statements are based on risks that are known and unknown are influenced by uncertainties and other factors that we are unable to predict or control.

Some or all of these may create undesirable results or cause our performance to differ materially from any results or performances as we may express or imply. These risks and uncertainties include the risk factors you can find in our filings with the SEC, including our annual filings on Form 10-K and our quarterly filings on Form 10-Q.

Yesterday afternoon, the company released its fourth quarter and year end earnings for fiscal year 2013. For the year earnings were $69.6 million or $5.38 per diluted share on revenue of $30.6 million.

Revenues and net income are all time high for the company for the third consecutive year. Revenues were 57% higher than fiscal year 2012. Net income increased to 98% over the same time period.

For the fourth quarter ended September 30, 2013, revenues were $68.3 million with net income of $13.7 million or $1.05 per diluted share. For the comparable quarter for fiscal year 2012, revenues were $36.9 million with net income of $4.3 million or $0.33 per diluted share.

Our quarterly results reflect the larger revenue contribution from the Statoil permanent reservoir monitoring system than originally anticipating, totaling $38.1 million, compared to the $25 million to $30 million we forecasted last quarter.

The bulk of the extra revenue from the Statoil contract came from our ability to increase our manufacturing output of the system. Tom will add more information on this and the forecast of future revenue recognition from this contract.

Despite some softness in our traditional seismic business, fiscal year 2013 revenues from our wireless products were $87.3 million, an increase of 6% from last year. During the fiscal year, we added several new international wireless customers and we will continue to focus sales and marketing efforts in these important international markets.

We sold 81,000 channels of our wireless land products during fiscal year 2013, resulting in cumulative sales of 239,000 wireless land-channels since the product’s introduction in 2008. At September 30, 2013, our rental fleet contained 77,000 wireless land-channels

Revenues from our traditional seismic exploration products for fiscal year 2013 declined 26% in fiscal year 2013. This softness was primarily due to a slowdown of seismic activities in North America. The decline in demand primarily impacted our geophone and connector products, and we also experienced a small decline in sales of our marine products.

Competitive pressures, production capacity and industry’s transition to wireless data acquisition systems are expected to challenge our future efforts to market and sell certain of our traditional products. Fiscal year 2013 revenues from our non-seismic products were down 5% primarily due to the struggles in European economy

During fiscal year 2013, we launched an ambitious campaign to expand our local and worldwide presence. In Northwest Houston, due to manufacturing constraints, we purchased a 30,000 square foot facility to expand our manufacturing and testing operations and we subsequently leased two additional facilities to add capacity.

We also purchased 17.3 acres of land on two properties adjacent to our Pinemont facility where we plan to construct a 350,000 square foot facility to expand our manufacturing and engineering operations. We are currently in early phases of planning this new facility and we expect construction activities to begin in mid-fiscal year 2014. Finally, we purchased a 19,000 square foot facility in Bogotá, Colombia and opened that office for business in the second fiscal quarter.

I'll now turn the call over to Tom who will cover the company financial results in more detail.

Tom McEntire

Thank you, Gary, and good morning everyone. First, I will discuss an overview of our consolidated results of operations for the fourth quarter and then the full fiscal year 2013. And then I will drill deeper into our annual revenues for each of our four product segments.

Finally, I will close with some additional information concerning our balance sheet and cash flows. And while we’ll discuss estimates of revenue recognition and cash flows for fiscal year 2014, we will not provide any earnings guidance during this call.

As Gary just mentioned, our fourth quarter ended September 30, 2013, we reported revenues of $68.3 million, an increase of 85% over revenues of $36.9 million last year. Our net income for the quarter was $13.7 million or $1.05 per diluted share, an increase of 220% from last year’s net income of $4.3 million or $0.33 per diluted share.

We saw quarter-over-quarter declines in our traditional and wireless business -- business segments and the quarter’s financial results were largely driven by the revenue recognition of $38.1 million under the Statoil contract representing 56% of our revenues for the fourth quarter. Our non-seismic businesses were up slightly from last year.

For the fiscal year ended September 30, 2013, we reported another record year of revenues of $300.6 million, an increase of 57% over revenues of $191.7 million for fiscal year 2012. Our net income for fiscal year 2013, also a record, was $69.6 million, or $5.38 per diluted share, an increase of 98% from last year's net income of $35.1 million or $2.74 per diluted share.

We report our revenue segments in four different product categories. And I will discuss each of these product categories for fiscal year 2013 compared to fiscal year 2012.

Revenues from our traditional seismic products for fiscal year 2013 were $49.8 million, a decrease of 26% compared to revenues of $66.8 million last year. As Gary mentioned, the softness experienced in fiscal year 2013 was primarily due to a slowdown in seismic activities in North America.

We believe the market for certain of our traditional seismic products will continue to be challenged in future periods. Revenues from our wireless seismic products for fiscal year 2013 were $87.3 million, an increase of 6% compared to revenues of $82.6 million for last year.

We believe demand on for land and wireless data recording systems, although erratic quarter-to-quarter will continue to grow in the future and reflect the seismic industry’s acceptance of our wireless systems in lieu of less efficient legacy cable-based systems.

During fiscal year 2013, we sold 81,000 channels of our land wireless systems and we ended the year with 77,000 channels in our worldwide rental fleet. Revenues from our reservoir seismic products for fiscal year 2013 were $138.1 million, an increase of 795% compared to revenues of $50.4 million last year.

During the fiscal year, we reported revenues of $18 million from the delivery of the Shell PRM system in Brazil and we recognized $109.6 million from the Statoil contract used in the percentage of completion revenue recognition method. During the fourth quarter, the Statoil contract was increased to $166.9 million with most of that increase representing third-party pass-through guidance with low margins.

At September 30, 2013, there remains approximately $57 million of unrecognized revenue in the Statoil contract and we expect to recognize approximately $30 million of this revenue in the first quarter of fiscal year 2014. It is our expectation that the Statoil contract will be completed in April 2014.

Revenues from our non-seismic products for fiscal year 2013 were $24.6 million, a decrease of 5% compared to last year. We believe revenue softness in this segment reflects light demand from our European customers due to the region’s economic issues.

Regarding other elements in our financial statements, our operating expenses for fiscal year 2013 were $38.5 million, an increase of 24%, compared to $31.2 million from last year. The increase in operating expenses primarily reflects higher personnel costs and other general expense increases associated with our increased sales and asset expansion. As a percentage of sales, operating expenses were 12.8% for fiscal year 2013, compared to 16.3% last year.

Our effective tax rate for fiscal year 2013 was 31.2%, compared to 32.3% last year. Our tax rate is lower than U.S. statutory tax rate of 35%, due to the impact of deductions available to manufacturers and also research and experimentation tax credits. We expect our effective tax rate for fiscal year 2014 to be approximately 32% to 33%.

As discussed last quarter, we continue our investment in the buildup of the Statoil system and in our OBX and GSX inventories to meet anticipated customer demand, which we are pleased to say, has recently resulted in several very large orders.

At the end of the fiscal year, we have $198 million of working capital less than $1 million of long-term debt. We also expanded our credit facility to $50 million to give us additional flexibility and liquidity. Strength of our balance sheet puts us in a good position to meet the opportunities ahead.

As we look ahead to fiscal year 2014, we plan to continue making investments to expand our operations. If market conditions allow, we are prepared to expand the rental fleet by up at $30 million in the fiscal year 2014. As in prior years, we expect any cash investments in rental equipment will be entirely or partially offset by cash proceeds and the sales of rental equipment.

Investments in property, plant and equipment are currently planned to be $30 million, including $13 million for in-progress construction expenditures related to the expansion of our Houston manufacturing and engineering facilities. We expect to fund these capital investments from our internal cash flows and available borrowings under our credit facility, which we believe will be sufficient to fund our capital needs throughout fiscal year 2014.

I will now turn the call over to Rick who will discuss our business outlook.

Rick Wheeler

Thanks, Tom. As we predicted in our third-quarter earnings conference call, the affects from the overall slowdown in seismic activities experienced in the third quarter, continued into the fourth quarter.

The reduce levels of traditional and wireless product revenues for the fourth quarter of 2013 as compared to 2012 is evidence of this. Yet as we’ve reported, total revenues for our wireless products increased in fiscal year 2013 over 2012, modestly achieving a new record.

We believe that fiscal year 2014 will bring strong demand for our wireless products. Already in the beginning of the first quarter of fiscal year 2014, we have announced sales of our land and marine wireless product, totaling $77 million and requests for growths continued for a mix of additional rentals and purchases.

One of the announcements I just referred to was for the sale of just over 2,300 stations of our deepwater OBX nodal recording system to Seafloor Geophysical Solutions or SGS. As we’ve mentioned, serious inquiries and discussions with potential customers for OBX system have been underway for sometime now and is very gratifying to see SGS become the first to initiate the purchase of a significant size OBX system. Delivery of the SGS system is slated for sometime late in the second fiscal quarter of 2014. Meanwhile, talks with other interested customers for OBX systems in 2014 remain active and that list continues to grow with new inquiries.

As Tom mentioned, revenues for the fourth quarter of fiscal year 2013, came predominantly from the reservoir products seismic segment. In fact, 42% of revenues throughout fiscal year 2013 were from seabed permanent reservoir monitoring systems, which includes the completed shale BC-10 project into a larger extent, the ongoing fulfillment of the Statoil contract for its Snorre and Grane Fields.

Looking forward, we expect revenues related to the Statoil contract to continue to the first and second quarters of fiscal year 2014. And although, we often discuss future seabed PRM projects with Statoil and other oil companies, a significant reduction in revenues is expected for this segment in fiscal year 2014 unless a large order is received before the Statoil contract is completed.

Although it is possible, we believe that the moment that we will not see a substantive new PRM projects sooner now to meaningfully impact our fiscal year 2014 results. We do believe the company will receive new PRM orders in a future, although their timing is speculative. The lack of any new PRM projects impacting our fiscal year 2014 results will results in a drop in revenues and profits from this product line.

However, we do expect new revenues and profits from product lines that have lesser impact on our fiscal year 2013 finance results. For example, we already announced the $29.4 million OBX order that is scheduled to be shipped in late second quarter of this fiscal year. Based upon existing quotes and conversations with our customers we expect additional sales and rental income from the OBX product line during fiscal year 2014.

We believe this product line has good market potential and we have the inventory and manufacturing capacity to replace and exceed any drop in PRM orders for fiscal year 2014. In addition to OBX opportunities, the $5 million Saudi land based permanent land system contract is an additional revenue and profit contributor which did not exist in fiscal year 2013.

Finally, based on existing orders, outstanding quotes and discussions with our customers for land nodal GSX products, we expect strong growth in this product line during fiscal year 2014, with expected increases in both sales and rentals.

In summary, we believe that good growth opportunities are available to the company, despite the possible absence of new PRM orders in tacking fiscal year 2014. We expect growth to primarily come from rental and sales of our OBX and GSX wireless products, as well as new product offerings like the PRM land system. We are certainly off to a good start towards this goal.

Fiscal year 2013 brought significant pressure to bear on our manufacturing capacity, warehousing, plant facilities and general infrastructure. Our continued growth and success is highly dependent on the alleviation of these conditions through necessary expansion. Our purchase of the two tracks of land totaling 17.3 acres immediately adjacent and south of our existing Pinemont facility was the first step in accomplishing this goal.

And we are now designing the 350,000 square foot facility to be constructed on this property, as well as clearing away issues with local, municipal and state agencies that will allow such construction to get started.

That’s the conclusion of my prepared remarks and I will now turn it back over to Gary for his closing remarks.

Gary Owens

Thanks Rick. I am entering the last month of my career here at Geospace. After 43 years in the seismic industry, 16 of which were here at Geospace as the company’s Chairman, President and CEO, I will retire at the end of December. This is my last conference call.

There are many memories I will take with me, the experience of working with my fellow employees, interacting with our customers and preaching the gospel of lumpiness. I just have to say that one word one more time.

To our investors, bankers and analysts is one I will never forget, I will remain as the company’s Chairman and I will have the privilege of watching Rick and his team grow the company further. I wish to thank everyone for allowing me to serve.

I will now turn the call back to the moderator for any questions.

Question-and-Answer Session

Operator

(Operator Instruction) Thank you. Our first question will come from Ryan Fitzgibbon with Global Hunter. Please go ahead.

Ryan Fitzgibbon - Global Hunter

Thanks. Good morning, guys and congrats again Gary.

Gary Owens

Thanks Ryan.

Ryan Fitzgibbon - Global Hunter

First one for you, Rick, you sound fairly optimistic on the OBX side of business. Can you talk a little bit about maybe where inventories currently stand now and whether you could actually shift another system near-term? And then finally, what you actually are seeing on the [mid front], are you able to quantify maybe how many tenders you have outstanding right now?

Rick Wheeler

Well, I would like to get into great specifics on those details, but we definitely have some other orders that are typically going to be in that same sort of timeframe into the second quarter, maybe some even into the third quarter of our fiscal year 2014. As far as inventories, Tom has a better line on those specific numbers but we feel confident the inventories we have are going to get us an easy handle on the second and third orders.

Ryan Fitzgibbon - Global Hunter

Yes, that’s great to hear. Second question from me is on the rental fleet for GSX and OBX. We’ll be exiting the quarter with 77,000 channels. Where does it stand today in terms of the GSX fleet and then secondarily, Tom, you mentioned $30 million of CapEx this year to expand the rental fleet. Can you give us a mixture of whether -- what really what the waiting is, OBX or GSX for that investment?

Tom McEntire

Yes, Ryan, it’s still heavily weighted into the GSX. I mean, most of the rental fleet is land base right now. But we have expectations of adding OBX throughout the year. And the channel count is roughly designed today as it was back in September 30th.

Ryan Fitzgibbon - Global Hunter

Okay. So the recently announced GSX sales, are those new channels or are they coming out of the rental fleet?

Tom McEntire

Mostly no, were there are some rental fleet channels as well.

Ryan Fitzgibbon - Global Hunter

Okay. Got it. Appreciate your time guys. Thank you.

Operator

(Operator Instructions) We take our next question from Veny Aleksandrov with FIG Partners. Please go ahead.

Veny Aleksandrov - FIG Partners

Good morning.

Gary Owens

Good morning.

Veny Aleksandrov - FIG Partners

Good morning. My first question is on the permanent land data acquisition system that you guys solved. It’s very interesting to see new application for an existing product. Can you give us a little bit more details, when are you going to get some feedback from the client, can this grow and how it can grow? I know that it’s not going to be Q1 2014, but it’s very interesting?

Rick Wheeler

Yes. This is very interesting. This is Rick, Veny. It’s a brand new product as far as this land permanent system. So it’s little hard to figure out exactly how it’s going to impact our bottom line. There’s definitely testing that the client is going through. They believe that there is important information they can gain from this and this project is more or less a pilot into that program. So we'll have to wait and see exactly how that manifests.

Veny Aleksandrov - FIG Partners

And so for now only which clients is looking at this technology and this application or you have more inquiries?

Rick Wheeler

In this particular form, yes, this is the clients. Therefore they enter into this sort of work.

Veny Aleksandrov - FIG Partners

Thank you, Rick. My second question is Colombia in Latin America. You build the facility there, are you trying to enter the market. What stock base do you have? How many general (inaudible) there into rental fleet and what do you see?

Gary Owens

Well, Colombia is getting a better foothold as time is progressing. They are renting products out of the Colombia office and in fact, some are coming up into next year as well. So that office is getting more traction and we’re very excited about that to watch their growth.

Veny Aleksandrov - FIG Partners

Thank you so much.

Operator

And we’ll go next to Georg Venturatos with Johnson Rice. Please go ahead.

Georg Venturatos - Johnson Rice

Hey good morning guys.

Gary Owens

Good morning Georg.

Georg Venturatos - Johnson Rice

Hey Gary, just wanted to wish you the best as well, pleasure working with you for the last few years.

Gary Owens

Thanks Georg.

Georg Venturatos - Johnson Rice

Wanted to touch on the PRM side, just wanted to get sense of when we would need to see timing of when that award would need to be -- to hit in order to impact ‘14. Just given the lead time on the manufacturing side?

Gary Owens

Well, I think that we need to affect 2014. It would need to occur before the Statoil contract finishes. There a lot of ramp up with the oil companies in the design phase of these things that in order for it to hit in 2014 would require that lead time.

Georg Venturatos - Johnson Rice

Okay.

Gary Owens

That’s for a significant one, I mean some smaller enterprise might come in and still impact it beyond that date. But when we’re talking the large scale PRM projects that’s the timeframe that you need.

Georg Venturatos - Johnson Rice

Okay. That’s helpful and then that kind of leads into my next question. I mean, we saw the small MPS order, what’s the potential to see maybe some of these smaller tack-on orders in between that timeframe, while I know the larger order seem like they’re not likely to impact 2014?

Gary Owens

Well, the smaller orders, we’re in discussion with the oil companies on smaller arrangements, extensions and that’s sort of thing. Really, it’s out of our control as to when that would drop, when that would happen, so we don’t really have a good line on that necessarily.

Georg Venturatos - Johnson Rice

Okay. On the capacity expansion efforts, I just wanted to get a sense for this additional 350,000 square foot facility. Upon completion, where does that put you in terms of multiples of current capacity? Is that two times, three times, what you can do today or just trying to get my hands around how much that helps you out there?

Gary Owens

That about doubles our existing square footage for manufacturing and engineering and research lab, so you can use that as a reasonable scale factor.

Georg Venturatos - Johnson Rice

Okay. Great. I appreciate the answer, guys.

Operator

We’ll take our next question from Joel Luton with Westlake Securities. Please go ahead.

Joel Luton - Westlake Securities

Yeah. Congratulations, Gary. And I am really going to miss your preaching of the gospel of lumpiness. I’m trying to see that go. But I’m sure Rick will read some lumpiness going forward too. Couple questions on the Statoil contract, are you getting any feedback from Statoil in terms of the project and how well that’s gone?

And then also when that thing is up and running, will they be like a lot of the potential feature possible buyers of Statoil type contract, kind of looking at Statoil, the Statoil project to see if how that thing works and if so, kind of when would you expect some feedback on the success of that?

Gary Owens

Well, we get the feedback from Statoil everyday. So we’re very much part of it in this whole arrangement. So information is flowing back and forth freely with respect to our ongoing endeavors. As far as other oil companies I think a lot of watching what’s going on in this PRM exercise with Statoil, Statoil is a very large notable company. They see the value of this, so I think that the overall industry in general is watching this. Shells had their eye and had their hand in this sort of thing for awhile, BC-10 BP is an example of this, BP and I think many other oil companies are beginning to take a close look at this.

Joel Luton - Westlake Securities

And when will you get kind of -- and the feedback you’re getting now from Statoil, kind of what is that, is that just kind of feedback on how the project has gone so far, or are they receiving information about what seismic information now or is that not occurring now and that will occur when the project gets completed?

Gary Owens

The primary feedback now is on how the project is going, but seismic data and that takes a little while to process and to look at -- this confidence that they’re going to see is a good information out of that.

Joel Luton - Westlake Securities

Okay. Okay. And then just one more question on the OBX, how -- and this and I am sure I have talked about this with you all before. But how is the OBX superior to data retreat through streamers, what is the catch therefore for your clients when they order the OBX versus using a streamer?

Gary Owens

Sure. Streamers among other things, it can only receive pressure waves. It’s a hydrophone component and even though there are some with proprietary techniques like PGS where they have some with geophones sensors in there, the fundamental pickups or at a distance and through water traversal pressure waves.

Once you get on the ocean floor, you can do 3D or three component recording, which is exactly what the OBX does in addition to pressure wave record, so you can pick up motions in all directions on the ocean floor and you can’t really do that effectively from a streamer at all.

Joel Luton - Westlake Securities

Okay. Let me ask you, what’s the difference between the costs between the two?

Gary Owens

Well, we don’t sell streamers, so I can’t give you a good answer on that. But the operational aspects are going to be hugely different. With streamers you have got significant infrastructure on your boats for all of that, managing all kinds of equipment, lot of personnel involved. The OBX system reduces that drastically with respect to how you operate.

Joel Luton - Westlake Securities

Okay. Thanks guys.

Operator

And our next question comes from Joe Maxa with Dougherty & Company. Please go ahead.

Joe Maxa - Dougherty & Company

Good morning.

Gary Owens

Good morning.

Tom McEntire

Hi, Joe.

Joe Maxa - Dougherty & Company

Question on these OBX potential orders coming up, round 2, round 3, are these of the same magnitude, I know you had maybe a handful of these 3,000 or 5,000 unit orders out there, are this what we are talking about?

Gary Owens

Some are talking larger numbers, some are talking numbers in that same sort of size and some are talking smaller numbers in some regards. So they are all over the place.

Joe Maxa - Dougherty & Company

So, if you would get a couple more orders in the Q2, Q3 timeframe of the largest side you are feeling confident, you can deliver those?

Gary Owens

Right.

Joe Maxa - Dougherty & Company

Okay. Also wanted to ask on the PRM side, the recently what was in the, I am sorry, in the seismic reservoir side, what was in the line item outside of Statoil orders, because you have another $4 million, was that primarily borehole or was it something else in there?

Gary Owens

It was primarily borehole.

Joe Maxa - Dougherty & Company

Okay. Just wanted to clarify that. And looking at your operating expenses, Tom, given the sequential increase in Q4 was, are there any one times in there or was that a good base level to be looking at for next year given current revenue expectation or how should we be thinking about the OpEx?

Thomas McEntire

Yeah. We have built up our cost structure throughout the year and you should expect it to be increasing over the average of the year and there is always a few little one-time things, we have all sorts of one-time things, but for whatever reason, one-time things always seem to recur quarter in and quarter out, so we don’t really highlight those, so I think you should expect to see it ramp up slightly.

Joe Maxa - Dougherty & Company

Okay. So, slight ramp up from current levels through 2014?

Thomas McEntire

Right.

Joe Maxa - Dougherty & Company

Okay. And then, can you also talk a little bit on the margin side, now that, I am not, the margins have been little bit lower, obviously, did very strong in Q1 with the GSX orders, big orders for the last Q1? Should we start to see margins pick back up here in Q1, can we approach a 50% gross margin with a big orders for the December quarter?

Gary Owens

Yeah. It is always weighted based on product mix and the GSX product mix and OBX products or some of the higher profit margin products. So, yeah, you should see that.

Joe Maxa - Dougherty & Company

Okay. That’s good. And I will see -- I think -- had one more on the, well, I will let it go, I will jump back in. Thanks.

Operator

(Operator Instructions) We will go next to Hamed Khorsand with BWS Financials. Please go ahead.

Hamed Khorsand - BWS Financials

Hey. Good morning and also my best wishes to you, Gary. Just a question here is, continuing the topic of discussion on Q&A sessions, what would the catalyst speed to generate such a large contract of Statoil type and would it have to be a new field or would it already one of the fields that already has been developed?

Gary Owens

Both of those. Certainly, existing fields are ones that bring the topic of more to light because you are trying to manage the end of life of that field or extend its life based on the infrastructure you already have installed in that field. But clearly, examination of new fields for that is ongoing. So it really achieves both rounds if you really make it down to it.

Hamed Khorsand - BWS Financials

So it will just come down to just one morning oil company will say we want to use your product and what will be the catalyst?

Gary Owens

It’s not quite that simple, there is usually a long discussion. We have these discussions quite often and then suddenly it happens. So, it’s a long duration of that suddenly.

Tom McEntire

Yeah. They used to give us two days notice.

Hamed Khorsand - BWS Financials

Okay. And then my other question was just on the Canadian winter right now, I know one of your customers has been talking about, a weak season? Is that impacting your business right now?

Gary Owens

Well, a weak season would have some impact on our real side for that, so yes.

Hamed Khorsand - BWS Financials

Anyway, quantifier and not much yet?

Gary Owens

No.

Hamed Khorsand - BWS Financials

Okay. All right. That’s it for me. Thank you.

Operator

And our next question comes from Josh Goldberg with G2 Investment Partners. Please go ahead

Josh Goldberg - G2 Investment Partners

Hey guys. Gary, again congratulations on your retirement and look forward to your next step in your career. I just had a question, I mean, as you look at your outlook, obviously there is some puts and take and I know you don’t give guidance but it sounds like there is a lot more positives than negatives.

The positives are some of these things going on in terms of the wireless seismic data recording market and some of your other new products outweighing obviously a slowdown in Statoil which is sort of understood. Could you give analysts just some comfort that you feel that that will return to a growth year for the company, or do you need some more visibility before getting that sort of comfort?

Gary Owens

Well, we believe that the growth is there, just based on the discussions, we have with our customers, the activities we see go on in Colombia and the discussions that are going on there. The fact that some of these large sales have taken place, those are new customers. So we have a belief that growth is certainly there.

Josh Goldberg - G2 Investment Partners

Growth for fiscal ’14 versus ’13?

Gary Owens

Exactly.

Josh Goldberg - G2 Investment Partners

Got it. Okay. Brilliant. And as you kind of look at your mix shift, how dependent are you in terms of gross margins on for new different products? I know there is a wide range there.

Gary Owens

Well, what we typically disclose is that our wireless and our reservoir products are going to have higher than your average gross profit margins and our non-seismic and traditional products are going to be lower than average. So we certainly like to have the mix with higher products and that’s what we are seeing right now.

Josh Goldberg - G2 Investment Partners

Okay. Fantastic. Thank you very much.

Operator

And our next question comes from Joe Maxa with Dougherty & Company. Please go ahead.

Joe Maxa - Dougherty & Company

Yeah. Hi. Just one additional question, regarding the two larger GFX orders you’ve announced recently, can you just give us a little bit of color on the difference in healthy ASP per channel and maybe how that’s made up if you take an average, right?

Gary Owens

Yes, the channels are -- there is three channel boxes and there is single channel boxes and so you can't dump them all in one bucket and compute an average. So, the three channel boxes were going to sell at a price per channel less than the single channel boxes are. These are priced specifically to the customer’s order and larger the orders perhaps the larger the discount. So we won't give any specific numbers and we just don’t do that on our conference call. That’s between us and the customer.

Joe Maxa - Dougherty & Company

So on one -- that if you take a blended ASPs that’s higher, I mean there is more outside, let’s call it electronics and other types of equipment perhaps build enough to that larger number?

Gary Owens

I am not quite sure, I understood what you mean there but I mean clearly…

Joe Maxa - Dougherty & Company

The phones batteries, all the types of connectors, equipments, all of that.

Gary Owens

All of that has a bearing and then the central seizers, all kinds of variations on those sorts of configurations that have vastly different cost structure so.

Joe Maxa - Dougherty & Company

Would you expect it to be much of a margin difference even though, you talked about maybe that it’s not a real ASP but difference or should margin be roughly comparable? I mean obviously, there is a volume discount on the margin once that you talked.

Gary Owens

I think the configuration has impacts on margins.

Joe Maxa - Dougherty & Company

Okay. I will let go that. Thank you for your answers.

Operator

And, I'd like to turn the program back over to our presenters for any closing remarks.

Gary Owens

Thanks, Zach. Well, thanks everyone for participating in the conference call today and we look forward to seeing you next time. Take care.

Operator

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.

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