Geospace Technologies Q1 2024 Earnings Call Transcript

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February 8, 2024

There are 6 speakers on the call.

Operator

Welcome to the GEO's page of our conference call for today's conference call. On the call today's conference call is Mr. It's now my pleasure to turn the floor over to Rick Wheeler. Sir, you may begin.

Speaker 1

All right. Thanks, Natalie. Good morning, and welcome to Geospace Technologies conference call for the Q1 of fiscal year 2024. Rick Wheeler, the company's President and Chief Executive Officer, and I'm joined by Robert Curta, the company's Chief Financial Officer. In our prepared remarks, I'll first provide an overview of the Q1, and Robert will then follow-up with more in-depth commentary on our financial performance.

Speaker 1

After some final comments, we'll then 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 ks and 10 Q filings.

Speaker 1

For convenience, we will link a recording of this call on the Investor Relations page of our geospace. Com website. And I encourage everyone to visit and browse the site to learn more about Geospace and our products. Note that today's recorded information is time sensitive and may not be accurate at the time one does listen to the replay. Yesterday, after the market closed, we released our financial results for the Q1 of fiscal year 2024, which ended December 31, 2023.

Speaker 1

We were gratified to start the new fiscal year with our 4th straight quarter of profitability. Along with improved industry demand for products in our oil and gas market segment. We believe our streamlining of operations over the last year and our attention to financial discipline were instrumental in carrying over profitability to the new fiscal year. 1st quarter revenue of $50,000,000 represents the highest quarterly figure achieved in nearly 10 years. And net income exceeding $12,700,000 solidly demonstrates the type of value we strive to deliver To our shareholders, the sale and delivery of our newest technology ocean bottom node known as the Mariner was pinnacle element in delivering our Q1 performance.

Speaker 1

As we previously announced, a $20,000,000 rental contract to the Q1 that would have otherwise been received from incremental rental payments over the course of the year. Given that we don't anticipate another such sale in the imminent future, this transaction serves as a stark reminder of how commerce in our oil and gas market segment Navigating these ups and downs is familiar territory for Geospace. And despite the volatility, we are encouraged by industry reports of major energy companies investing more broadly and conventional seismic exploration and 4 d time lapse monitoring. Those endeavors are known to benefit from our latest technology offerings, such as our Mariner and our Aquanaut ocean bottom nodes. This leads us to anticipate healthy utilization of our ocean bottom node rental fleet during the second half of the fiscal year.

Speaker 1

The first quarter reflected a modest decrease in revenue from our adjacent market segment compared to last We believe that reduction is the result of customers working through inventory purchases made earlier in quarters before to stay ahead of their supply chain concerns. Despite the slightly lower revenue, we expect continued growth overall from this segment to remain strong into the foreseeable future. We believe our strategy of cultivating and delivering stable, Predictable and profitable revenue from this segment is working. Our confidence for continued improvement is supported by an ever expanding commercial demand for smart infrastructure solutions, both domestically and abroad. This is further evidenced by the recent signing of a modest contract in the international market from our emerging market segment was generated through existing contracts between our Quantum subsidiary and the U.

Speaker 1

S. Federal Government. Note that the opportunity for future contracts with the Customs and Border Protection Agency is solid, but those government decisions are not expected until later in the calendar year. Progress toward meaningful revenue contributions from this segment has developed more slowly than desired. However, quoting inquiries from energy companies for carbon capture monitoring projects as well as other new and unique applications For Quantum's analytical methods are increasing.

Speaker 1

But despite high public interest in carbon capture, utilization and storage, These projects seem to move slowly as country requirements and industry commitments still evolve. With that, I'll turn the call over to Robert to give a little bit more financial detail on our Q1 of 2024. Thanks, Rick. Good morning.

Speaker 2

Before I begin, I'd like to remind everyone that we will not provide any specific revenue or earnings guidance call this morning. In yesterday's press release for our Q1 ended December 31, 2023, We reported revenue of $50,000,000 compared to last year's revenue of $31,100,000 Net income for the quarter was $12,700,000 Or $0.94 per diluted share compared to the Q1 of last year's net loss of $100,000 or $0.01 per diluted share. Now our oil and gas product revenue. Traditional credit revenue for the 3 month period ending December 31, 2023 was 1,800,000 Compared to revenue of $2,800,000 last year, the decrease in revenue is due to lower demand for seismic sensors. Our wireless product revenue for the quarter was $38,100,000 an increase of 121% compared to revenue of $17,200,000 last year.

Speaker 2

The increase in revenue is due to the sale of our newest ocean bottom node called the Mariner. The increased revenue is partially by lower utilization of our OBX rental fleet. We do not expect this level of revenue to continue in the remainder quarters remaining quarters of this fiscal year. Moving to the Adjacent Markets Products segment, our industrial product revenue for the first The decrease in revenue was due to lower demand for our smart water meter connectors and cables. Imaging product revenue for the 3 months ending December 31, 2023 was $3,400,000 an increase of 17% when compared to $2,900,000 from the same prior year period.

Speaker 2

The increase in revenue is due to higher demand for our thermal film products and imaging equipment. Revenue from our emerging market segments for the Q1 of fiscal year 2024 is 234,000 compared to 93,000 from the Q1 of fiscal year 2023. The Emerging Markets segment has a backlog of approximately $1,800,000 which is to be recognized during the current fiscal year. Our consolidated gross profit for the Q1 of the fiscal year 20 $24,000,000 was $22,800,000 compared to $10,500,000 last year. The increase in gross profit is a result of the gross profit from the sale of the Marinera Ocean Bottic notes, which was partially offset by lower utilization of our OBX rental lower demand for our water meter cables and connectors.

Speaker 2

The first quarter's operating expenses were 9 point $4,000,000 This is a decrease of 13% when compared to $10,800,000 for the 1st 3 months of fiscal year 2023. The decrease is due primarily to lower personnel costs attributable to our workforce reduction in the Q1 of the prior fiscal year. Fiscal year 2024 cash investments into our property, plant and equipment was $779,000 and cash investments into our rental fleet is $2,600,000 We expect fiscal year 2024 Capital investments into our rental fleet to be $5,000,000 Investments in property, plant and equipment could be as much as $2,000,000 for the fiscal year. Our balance sheet at the end of the Q1 reflected $34,000,000 of cash and short term investments, and we maintained additional borrowing availability of $15,000,000 under our bank credit agreement. Thus, as of December 31, 2023, the company's total liquidity Was $49,000,000 We currently have no debt and own numerous real estate holdings in Houston and around the world that are owned free and clear without any leverage.

Speaker 2

That concludes my discussion, and I'll turn the call back to Rick.

Speaker 1

Thank you, Robert. Our Q1 represents a great start to the new fiscal year. And although gaps in rental contracts for ocean bottom nodes will likely unevenness in our oil and gas markets revenue in the near term, we believe greater demand for these products will rebound later this fiscal year. Meanwhile, we intend to continue nurturing the growth of our adjacent and emerging markets as well as build on our successes and operational efficiencies. Combining our leadership in technology innovation with our strong balance sheet and financial discipline, we believe we have the necessary tools to meet these challenges.

Speaker 1

This concludes our prepared remarks, and I'll now turn the call back over to Natalie for any questions from our listeners.

Operator

Thank you. Our first question comes from Bill Denzel from Tintin Capital.

Speaker 3

Then I'll begin. So British Petroleum is doing a 4 d survey In the Azari field that was recently announced, how does that relate to geospace? And potentially, how does that relate to the that you made in the press release relative to 4 d?

Speaker 1

Well, we did not reveal any of the Information with respect to the purchase of this Mariner system, but certainly, we're aware of these opportunities manifesting out there in both four d monitoring and in greenfield exploration as it relates to the ocean bottom type systems. So that plays well for us, Bill.

Speaker 3

And so is it your well, I guess I'll ask relative to that Mariner System Did that go to an oil company or did that go to a contractor?

Speaker 1

No, that went to a contractor.

Speaker 3

And are you anticipating that it will be used in Additional seismic or some of this 4 d activity?

Speaker 1

I suspect it will be used in both As a matter of fact.

Speaker 3

Okay. Thank you. And then in the press release, you also referenced that quoting activity Was picking up in the energy arena. Would you talk further to that point, please?

Speaker 1

Yes. It's related still to the emphasis that they're putting onto their marine Production facilities and their marine reservoirs offshore. We don't see just a whole lot Progressing in the land environment as it relates to generating commerce for us. Some of that may occur later in the year because if you think about it, All of the land equipment that's out there, a good portion of it has reached end of life. It's still functioning, but there's new technology So most of these quotes that we're seeing are with respect to new ocean bottom surveys where the OBX and or the Mariner would be the items of interest that would be performing those.

Speaker 3

And that's both 4 d and traditional 3 d then?

Speaker 1

That's exactly right. I mean the Greenfield exploration still seems to be highly oriented towards determining if there are reservoirs nearby Some of the existing production facilities they already have without having to construct more. There are some that are greener fields than others, I guess, where there's Some of that infrastructure would have to be built out, but it is going to be for both 4 d and new exploration.

Speaker 3

And taking this a step further, I think that Schlumberger Had indicated that the final investment decisions in the deepwater, shallow water for the next couple of years Are going to be massive. Is that really what you are talking about here is Basically, the same thing that Schlumberger is saying. It's just that you're benefiting on the quoting activity?

Speaker 1

Yes. I think it's the same industry reports That we read and are privy to with respect to how those activities are going and The needle is pointing in the direction of more capital investment, which is required for this sort of exploration activity in seismic projects to go forward.

Speaker 3

And then I'd like to jump if I could to Aquana and then after that the Quantum. So Aquana you referenced an order and it's Going outside of the U. S, if we heard correctly, would you please expand on your comments there?

Speaker 1

Yes, this is an order that has an international destination side of the U. S. It's a modest order as that turns out and not one We necessarily felt was warranting any sort of independent release of its own with respect But it's certainly worth mentioning. And it's sort of the ramp up, the first fruits of That sort of product and we're really anxious to see that get out.

Speaker 3

And then relative to Quantum, There is, I think, $1,800,000 in backlog was referenced. What is that backlog from? Are these orders that you've already talked about?

Speaker 1

Yes. These are like the we have the DARPA contract, which we did announce and some other activities going on and Potentially, even some follow-up work, we'll say, with some of the Border Patrol things.

Speaker 3

And then relative to the Border Patrol, there is a reference in the release to the later in this calendar year. Is that tied to a new budget? Is that tied to an evaluation period? What's leading to the view that later in the calendar year is the right time to be thinking about that?

Speaker 1

Right. No, this comes from a publication that the government provided not that long ago. But With respect to what the intentions were of the government, was it the Government Accountability Office, I think, that presented That PROS. And it was their indication that the systems that are Currently in place, ours being a premier example of that, are going through an examination and that Additional decisions on new deployments would not come until sometime late in 2024. So that's really where that comes from.

Speaker 3

Understood. And then I think that the 10 ks references that Quantum revenues are anticipated to increase this year. Would you kind of bring that comment in and tie this all together for us?

Speaker 1

Yes. I think first off, completion of these existing contracts are going to be contributors to that. But I did mention that there are some new applications of the analytics that Quantum has developed in some other areas. And it certainly looks like those are going to manifest some additional revenues as well. Carbon capture is taking a while.

Speaker 1

There is definite interest. We have multiple discussions with those involved with that. But it doesn't it seems to move at a snail's pace in many respects.

Speaker 3

Okay, Rick. I thought that was going to be my last But you hooked me with your reference to other areas in energy. Would you please talk a little bit more about that?

Speaker 1

No, I really can't. These are proprietary utilizations of that technology that we're working towards. And I think once they're completed, we will be able to have more discussion about that.

Speaker 3

Okay. Thank you and congratulations

Operator

Our next question comes from Robert Marken with TDB Partners.

Speaker 4

Well, excellent quarter, gentlemen. I guess the $1,000,000 question is what we follow it up with. I had a question on the ratio of the Sales price at $30,000,000 to the rental price at $20,000,000 It seems if the units were roughly the same, It seems that there's a disincentive annuity there because it seems like who would rent if it's only 50% more to purchase? Well, Keith Am I correct in assuming that? I'll surely as heck pay 1.5x of annual rent for my house.

Speaker 4

Would be a little bit of a bargain, but I'm a new shareholder here. I have a few questions because pardon my ignorance of the situation because There's not a lot of information available from management's communication with shareholders, and I don't know if this has ever been answered in past calls. So could you just enlighten me as to that relationship? Thank you.

Speaker 1

Yes. There's some reasonable logic in what you're saying there. But certainly, The rental agreements that we are known for are ones that the customer, as that rental proceeds, Is able to earn an equity interest in that equipment such that they can purchase it at a later date At below its initial list price value. So some of that is accommodated in the types of rental agreements That are reflected there. It was certainly less than what the face value of the equipment was as it related to the overall sale, the outright sale, simply because it's going to be that revenue is delivered over the course of time.

Speaker 1

But yes, in this particular case, they examined the very situation you are saying, keeping in mind even the equity value they would have gained over the course of that rental contract and felt it was better value for them based on the project and utilization they were going to have Go ahead and purchase it in advance. These are rather expensive instruments. We do our best to keep the down on these instruments and we made great progress in actually doing that especially with the Mariner because it has absolutely brand new technology in it. But as cost effective as we can possibly manufacture it. But that being said, they still remain a pretty big investment and that's Why the rental of these units has been a historic manner of the commerce.

Speaker 4

Okay. When you make a large sale like this, is there any kind of recurring revenue for providing data or analytics or service or You know refurbishment and maintenance, any of that kind of stuff? Or is it all, you know, is it done a one off transaction where That goes out the door and that's all we see for the lifetime of that equipment.

Speaker 1

There is certainly an element of recurring revenue as it relates to maintenance And upgrades and things of that nature. But by far, it's a much smaller percentage and does not represent any significant amount going forward.

Speaker 4

And do we have a preference? Will we rather rent everything or sell everything? Or doesn't it matter to our income statement?

Speaker 1

Well, selling is something we like to The fact is that we could and do rent equipment normally because it does represent such a large investment. But it's not really viable to only offer a rental market because there are competitors out there that build equipment This is intended to serve the same purpose. And if a customer wants to buy the equipment, If we would not allow them to do so, then they would probably go buy it from someone else.

Speaker 4

Okay. And then to something like that That

Speaker 2

also Is a better use of our manufacturing facility versus many.

Speaker 4

Okay. Do we know anything about The TAM from the last cycle and where the replacement cycle would be if the last big up cycle 7 years ago, we're sort of recreated over the next few years with the lag in investment in the offshore area?

Speaker 1

Well, with respect to our involvement, it's a closed market. It's not a huge, an infinite For product demand as it were. So that is a careful balance actually that we have to monitor with respect to how much We're willing to invest in our rental fleet compared to the volume of work That's being let out for utilizing this equipment. That being said, it's not a firm number because it varies Significantly because of the demand itself varying enormously between the oil companies. But that's where we are encouraged Because we are seeing more capital investment coming from the oil companies towards the seismic exploration and monitoring of existing reserves.

Operator

Our next question comes from Scott Mundy with Moores and Cabot. Please go ahead.

Speaker 5

Good morning, guys. A couple of questions, Robert. Regarding trade accounts and notes receivable, will 50% of that Number will you receive that over the next 3 to 6 months?

Speaker 2

We will receive payment particularly on the Mariner order Rather quickly. We anticipate to get have a sizable portion of that receivable Pay before the end of the Q2.

Speaker 5

So Rick, with What appears to be close to $50,000,000 plus What are you guys thinking about as it relates

Speaker 1

for that money. I mean, to the extent that we do anticipate our rental revenue will see a hit to the extent That $20,000,000 contract, for example, that was going to generate more incremental revenue over the course of time Is going to represent a deficit in the near term and these gaps that we mentioned too, which seem to be a seasonal affair with some of these offshore exploration activities and seismic projects that we're involved in. So that money will go a long way towards operational needs at this point in time. And then we will certainly examine whether There are other deployments of that cash that makes sense.

Speaker 5

So regarding PRM, are there still potential final investment decisions out there that you guys are aware of that you might be associated with?

Speaker 1

There are. And as we've said before, those we don't expect anything to really happen this fiscal year towards the conclusion of those discussions. But yes, There are still discussions associated with PRM systems with more than 1 oil company as they examine either Initial data that they've acquired to give them a better feel for how they want to instrument a permanent situation on those reservoirs. And that is exactly why that it's not going to be imminent when that happens.

Speaker 5

Lastly, guys, Regarding Quantum, can you give us an idea, I'm just going to use the word, of pilot programs associated with these people who are Well, quoting where you guys are quoting activity, are there a number of pilot programs out there?

Speaker 1

Yes, there are actually several that are under discussion. I don't think we believe all of them are going to happen all at one time. They will incrementally be ones that come to pass. But there's definitely more than one out there. And Of course, we're still talking to the government in various situations about new deployments of that technology with Government agencies as well.

Speaker 5

So as part of this CapEx, a result of these pilot programs that you are Putting to work out there?

Speaker 1

No, I don't think there's no significant CapEx involved in what needs to go on there.

Speaker 5

For evaluation, that's interesting.

Speaker 3

Okay, got it.

Speaker 1

Thank you. They're just not large.

Speaker 5

I got it. Enough for them to make an evaluation is what you're telling me.

Speaker 1

That's exactly right. You got it.

Speaker 5

Okay. Thank you.

Speaker 1

Thanks, Scott.

Operator

If there is no further questions at time. I will now turn the floor back over to Mr. Rick Wheeler for any additional or closing remarks.

Speaker 1

All right. Well, thank you, Natalie, and thanks, everybody, that listened to our call today. We look forward to speaking with you again on our conference call for the Q2 of fiscal year 2024, which will be in May. So thanks and goodbye.

Operator

Thank you. This does conclude today's Geospace Technologies Q1 2024 Earnings Conference Call.

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Key Takeaways

  • Geospace reported its 4th straight quarter of profitability in Q1 FY2024 with revenue of $50 million (the highest quarterly figure in nearly 10 years) and net income of $12.7 million.
  • The sale of the new Mariner ocean bottom node generated a one-time $20 million boost, underpinning Q1 results but not expected to recur in the near term.
  • Oil & gas wireless product revenue surged 121% year-over-year to $38.1 million, while traditional sensor sales and adjacent-market industrial revenues saw modest declines due to inventory adjustments.
  • Emerging markets revenue reached $234 000 with a $1.8 million backlog, as Quantum analytics sees growing interest in carbon capture and border-protection projects despite slow decision cycles.
  • The company ended Q1 with a strong balance sheet—$34 million in cash, $15 million of undrawn credit availability, no debt—and plans $5 million in rental-fleet and $2 million in PP&E investments for FY2024.
A.I. generated. May contain errors.
Earnings Conference Call
Geospace Technologies Q1 2024
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