Geospace Technologies Corporation (NASDAQ:GEOS) Q2 2024 Earnings Call Transcript

Geospace Technologies Corporation (NASDAQ:GEOS) Q2 2024 Earnings Call Transcript May 10, 2024

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Operator: Welcome to the Geospace Technologies Second Quarter 2024 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 open 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, Jamie. Good morning, and welcome to Geospace Technologies conference call for the second quarter of fiscal year 2024. As mentioned, 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’ll first provide an overview of the second quarter, and Robert will then follow-up with more in-depth commentary on our financial performance. After some final comments, we’ll open the line for questions. Today’s commentary on markets revenue, planned operations and capital expenditures may be considered forward-looking as defined in 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, as was mentioned, 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 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 second quarter and first six months of fiscal year 2024, which ended March 31, 2024. After reaching the halfway mark of the fiscal year, the company has recorded positive net income of $8.4 million or $0.62 per share.

Following the profitable results of last year, the first-half of fiscal year 2024 serves as a strong indication that our strategic efforts towards sustained profitability are at work. Furthermore, the long-standing strength of our balance sheet remains firmly intact with no debt and over $51 million in cash and short-term investments. However, low utilization of our OBX and Mariner ocean bottom nodes did have an unfavorable impact on our oil and gas market segment, where second quarter revenue fell short of the previous six quarters. This led to an overall net loss for the isolated second quarter of $4.3 million. Although no specific guidance was provided, we did mention in our conference call that some gaps in our OBX rental contracts were expected which became a driving factor in lowering second quarter revenue set to be received in the second quarter was actually brought forward into the first quarter.

When a rental contract for our new Mariner ocean bottom nodes was converted to a $30 million saving. Despite these circumstances affecting the second quarter, we do believe the second half of the fiscal year will see better utilization of our ocean-bottom nodes, which should bolster performance of our oil and gas market segment. Our adjacent markets segment showed strong performance in the second quarter, generating revenue of $12.2 million. This figure represents the third highest quarterly revenue from this segment in the company’s history coming close to matching a record-setting amount of last year’s second quarter. We believe these results demonstrate that our long-standing strategy of creating an increasing stable source of revenue from the adjacent market segment through expanded product lines and nurtured growth is working, while offering less volatility than our oil and gas market segment.

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Q&A Session

Our emerging markets segment also made a meaningful contribution to revenue in the second quarter, adding $1.1 million to the three months total. The largest portion came from fulfilling major aspects of the nearly completed DARPA contract that we announced last year. Several significant discussions and engagements mentioned in the last quarter for utilizing Quantum at array monitoring system and other analytics do remain underway. These include multiple government agency security and surveillance projects as well as advanced monitoring projects in the energy and energy transition areas. Each of these demonstrate opportunities where our technology could be uniquely applied. And while these discussions continue to be very productive, they are somewhat slow going.

As such, contributions to revenue this fiscal year from this segment may be meaningful, but will likely remain relatively small, leaving the potential for larger revenue contributions in the next fiscal year. With that, I’ll now turn the call over to Robert to give a little more detail on our financial performance of the second quarter and six months.

Robert Curda: Thanks, Rick, and good morning. Before I begin, I’d like to remind everyone that we will not provide any specific revenue or earnings guidance here on our call this morning. In yesterday’s press release for our second quarter ended March 31, 2024, we reported revenue of $24.3 million, compared to last year’s revenue of $31.4 million. The net loss for the quarter was $4.3 million or $0.32 per diluted share, compared to last year’s net income of $4.6 million or $0.35 per diluted share. For the six months ended March 31, 2024, we reported revenue of $74.3 million, compared to revenue of $62.5 million last year. Our net income for the six month period was $8.4 million or $0.62 per diluted share, compared to last year’s net income of $4.5 million or $0.35 per diluted share.

Our oil and gas market segment produced revenue of $10.8 million for the three months ended March 31, 2024. This compares with revenue of $18.4 million for the same period of the prior fixed prior fiscal year, a decrease of 41%. For the six month period, the segment contributed revenue of $50.8 million versus $38.6 million, an increase of 32%. The decrease in revenue for the three month period was due to lower utilization of our OBX rental fleet and the increase in revenue for the six month period is due to the $30 million sale of our Mariner ocean bottom nodes, which occurred in the first quarter of this fiscal year, partially offset by lower utilization of our OBX rental fleet. Our adjacent markets segment revenue is as follows: our industrial product revenue for the second quarter of fiscal year 2024 was $9 million compared to $9.6 million for the same prior year period.

Industrial Products six month revenue for the fiscal year is $15.5 million, a decrease over the same period in 2023 of 12%. The decrease for both periods was primarily due to lower demand of our water meter cable and connector products and industrial sensor products, partially offset by an increase in demand for our contract manufacturing services. Imaging product revenue for the second quarter was $3.2 million, compared to last year’s revenue of $3.1 million. The six month revenue for imaging products for fiscal year 2024 is $6.6 million, compared with $6 million, a 10% increase when compared to the same period in 2023. Finally, revenue for our emerging markets for the second quarter was $1.1 million, compared to $191,000 for the same period in 2023.

The six month revenue for the segment for the fiscal year was $1.3 million, compared to $284,000 for the same period in 2023. The increase in both — in revenue for both periods is due to revenue recognized from a DARPA contract we announced in 2023. Our operating expenses increased by $500,000 or 5% for the second quarter of 2024, while they decreased by $900,000 or 4% for the six month period ended March 31, 2024. The increase for the three month period is primarily due to higher research and development expenses mostly relating to ongoing project expenditures. The decrease in operating expenses for the six month period is primarily due to lower personnel costs as a result of our workforce reduction in the first quarter of fiscal year 2023.

Our six month cash investments into the rental fleets was $3.9 million in property, plant and equipment investments were $3.2 million. For fiscal year 2024, we expect to invest $7 million in additional equipment to our rental fleet and $5 million for plant and equipment. Our balance sheet at the end of the second quarter reflected $51.2 million of cash and short-term investments. And our credit facility has available borrowings to $11.3 million. Thus, our total liquidity is $62.5 million as of March 31, 2024. Lastly, we own real estate holdings in Houston around the world that are owned free and clear without any leverage. This concludes my discussion, and I’ll turn the call back to Rick.

Rick Wheeler: Thanks, Robert. Now I’d also like to draw attention to two other notable announcements in our press release. First, we are very fortunate to welcome Rich Kelly to our Geospace management team as Executive Vice President and Chief Operating Officer. Rich comes to us with an extensive executive background serving in the most recent seven years as President of Sercel Inc. His accomplishments and experience bring a wealth of knowledge and leadership to Geospace that is keenly aligned with all facets of our technology-focused engineering, manufacturing, business development and operations. I sincerely believe Rich’s contributions will enhance our strategic plans and goals and advancing the company to its next level.

Secondly, I’m very pleased to highlight our announcement of the stock repurchase program authorized by our Board of Directors. Under this program, the company has been authorized to make discretionary purchases through open market block trades of up to $5 million in total, with actual purchases depending on a variety of factors, including stock price, trading volume, and our general business and market conditions. With that, that concludes our prepared commentary. And now I’ll turn the call back over to Jamie for any questions from our listeners.