Geospace Technologies Corporation (NASDAQ:GEOS) Q2 2023 Earnings Call Transcript May 12, 2023

Operator: Good day and welcome to the Geospace Technologies’ Second Quarter 2023 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rick Wheeler, President and Chief Executive Officer. He is joined by 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. At this time, all participants have been placed in a listen-only mode and the floor will be opened 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.

Rick Wheeler: Thank you, Scott. Good morning, and welcome to Geospace Technologies conference call for the second quarter of fiscal year 2023. I’m Rick Wheeler, the Company’s President and Chief Executive Officer, and I’m joined by Robert Curda, the company’s Chief Financial Officer. In our prepared remarks, I will first provide an overview of the second quarter and Robert will then provide an in-depth commentary on our financial performance. After some final comments, we will open the line for questions. Some of today’s comments on markets, revenue recognition, planned operations and capital expenditures may be considered forward-looking as defined in the Private Securities Litigation Reform Act of 1995. The statements we make are based on our present awareness, but actual incomes – or outcomes are affected by uncertainties we cannot control or predict.

Both known and unknown risks can lead to results that differ from what we say or implied today. Some of these risks and uncertainties are discussed in our SEC, Form 10-K and 10-Q filings. As mentioned, for convenience, we will link a recording of this call on the Investor Relations page of our geospace.com website, which I hope everyone will visit and browse to learn more about Geospace and our products. Note that the information reported today is time sensitive and may not be accurate at the time when listens to the replay. Yesterday, after the market closed, we released our financial results for the second quarter of fiscal year 2023 spanning January 1st through March 31, 2023. We were delighted to report such solid performance in our second quarter results for fiscal year 2023.

Revenue of $31.4 million, represents the highest quarterly figure reported in almost nine years and net income exceeding $4.6 million serves to demonstrate our real commitment to profitability. Although net income includes a $1.3 million gain on the sale of our Langfield facility, it’s clear that most of the income came from profits on our operations. The largest single contribution to both revenue and profits for the second quarter and first half of the fiscal year came from rentals of our OBX ocean bottom nodes. Our OBX customers report that projects requiring their ocean bottom seismic services have increased beyond pre-pandemic levels and will remain strong throughout the year. This translates to greater demand and utilization of our OBX rental fleet.

We believe these improved market conditions will persist for the foreseeable future and should provide leverage for greater revenue from our Oil & Gas segment with less volatility. Furthermore, field demonstrations of our latest ocean bottom node technology are either planned or underway creating more customer interest in our mariner and new deepwater offerings. Driven by increased sales of our water meter cables and connectors, second quarter revenue from our Adjacent Market segments set yet another quarterly record. Moreover, revenue generated by this segment in the first half of fiscal year 2023 represents the greatest figure ever achieved over any six-month period. It is rewarding to see such firm evidence of the positive impact our strategic diversification efforts are making in this segment, and its growing strength only adds stability to the company’s overall performance.

We believe this segment will remain on an upward trajectory of generating reliable revenue as domestic municipalities continue to update their smart meter infrastructure. We further anticipate these infrastructure updates will translate into meaningful contracts for our Aquana smart water shut off valves. The second quarter and first half of the fiscal year reflected only a small amount of revenue from the quantum and our emerging market segment. However, current efforts on the previously announced DARPA contract as well as a smaller contract within undisclosed major defense contractor offer potential for significant future contracts utilizing our SADAR acoustic arrays and unique analysis. And we are pleased to see backlog developing for this group.

Ongoing discussions with energy companies and service providers related to carbon capture monitoring also hold promise for the future of this segment. With that, I’ll now turn the call over to Robert to give more financial details on the second quarter performance.

Robert Curda: Thanks, Rick, and good morning. Before I begin, I would 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 for our second quarter ended March 31, 2023, we reported revenue of $31.4 million compared to last year’s revenue of $24.7 million. The net income for the quarter was $4.7 million or $0.35 per diluted share compared to the last year’s net loss of $1.5 million or $0.11 per diluted share. For the six months ended March 31, 2023, we reported revenue of $62.5 million compared to revenue of $42.7 million last year. Our net income for this six months period was $4.5 million or $0.35 per diluted share compared to last year’s net loss of $8.2 million or $0.64 per diluted share.

Our oil and gas market segment produced revenue of $18.4 million for the three months ended March 31, 2023. This compared with revenue of $15.1 million for the same period of the prior fiscal year, an increase of 22%. For the six months period the segment contributed revenue of $38.6 million versus $24.8 million, an increase of 56%. The increase in revenue for the three months and six months periods include a higher utilization of our OBX rental fleets and higher demand for our seismic sensors. The six month period increase in revenue is partially offset by a decrease in demand for our wireless exploration products. Our adjacent market segment revenue is as follows: Our industrial product revenue for the second quarter of fiscal year 2023 was $9.6 million, an increase of 61% over the second quarter of 2022.

Industrial products six month revenue for the fiscal year of 2023 is $17.6 million, an increase over the same period of 2022 of 60%. Both period revenue increases were due to higher sales of our water meter cable and connector products and higher demand for our industrial sensor products. Imaging product revenue for the second quarter was $3.1 million, compared to last year’s revenue of $3.2 million. The six month revenue for imaging products versus the year 2023 is $6 million, a 6% increase compared to the same period in 2022. Finally, the revenues from our emerging market segment for the second quarter was $191,000 compared to $299,000 for the same period in 2022. The six-month revenue for this segment for fiscal year 2023 was $284,000 compared to $436,000 for the same period in 2022.

The emerging market segment currently has $2.1 million in backlog and we expect to begin to recognize a portion of this revenue in the third quarter of fiscal year 2023. Excluding the high cash decreases to the fair value of contingent earn out liabilities reported in fiscal year 2022 our operating expenses decreased by $800,000 or 7% for the second quarter and by $1 million or 5% for the six-month period ended March, 31st 2023. The decrease in operating expenses for both periods is the result of our cost-cutting measures that we began in our first quarter of this fiscal year. Our six month cash investments into our rental fleet and property plant and equipment are $1.8 million. Our balance sheet at the end of the second quarter reflected $22.8 million of cash and cash equivalents our credit facility and available borrowings of $5.5 million as our total liquidity is $28.3 million as of March, 31st 2023.

We are also happy to report we expect to complete negotiations for a new credit facility during our third fiscal quarter that will further expand our available liquidity. Lastly, we own real estate holdings in Houston and around the world that are on free and clear without any leverage. That concludes my discussion and I’ll turn the call back to Rick.

Rick Wheeler : All right. Thank you, Rob. As noted in Robert’s, financial outline, our efforts to reduce expenses are bearing fruit. Looking past last year’s non-cash adjustments to earn out liabilities this is reflected in the reduction of our operating expenses for that first half of the fiscal year by 5% compared to last year. And with the move of our OBX rental operations through our primary Pinemont campus, now completed, we expect added savings and operational benefits in these activities. We believe the company’s path to profitability through conservative management, a strong balance sheet and market cultivation will continue to yield positive results, and shareholder returns. So this concludes our prepared commentary. And now I’ll turn the call back over to Todd for any questions from our listeners.

Q&A Session

Operator: Thank you. Our first question comes from Scott Bundy with Moors & Cabot.

Operator: Thank you. [Operator Instructions] Our next question comes from Bill Dezellem with Tieton Capital.

Operator: Thank you. Our next question comes from, Dennis Scannell with Rutabaga Capital.

Operator: Thank you. And at this time, we have no further questions in queue. I’ll turn the floor back over to Rick Wheeler for any additional or closing remarks.

Rick Wheeler: Alright. Well, thank you, Todd. And thanks to everyone that joined our call today. We look forward to speaking to you again for our conference call for the third quarter of fiscal year 2023. So thank you very much and goodbye.

Operator: Thank you. This does conclude today’s Geospace Technologies second quarter 2023 earnings conference call. You may disconnect your line at this time and have a wonderful day.