Geospace Technologies Corporation (NASDAQ:GEOS) Q4 2023 Earnings Call Transcript

Geospace Technologies Corporation (NASDAQ:GEOS) Q4 2023 Earnings Call Transcript November 17, 2023

Operator: Welcome to the Geospace Technologies Fourth Quarter and Full Year 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 open for your questions following the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Mr. Rick Wheeler. Sir, you may begin.

Rick Wheeler: Thanks, Michael. Good morning, and welcome to Geospace Technologies conference call for the fourth quarter and year-end of fiscal year 2023. 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 fourth quarter and year-end 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. Some of today’s commentary 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.

These statements are based on our present awareness, but actual outcomes are affected by uncertainties we cannot control or predict. 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, 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 a little bit about the company and our products. Note that the information recorded today 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 fourth quarter and year-end of fiscal year 2023, which ended September 30th of 2023.

We were incredibly pleased to announce to our shareholders yet another quarter of positive earnings. Combined with the successful quarters earlier in the year, fiscal year 2023 closed with an overall net income of $12.2 million. Moreover, full year revenue of $124.5 million represents the largest figure the company has recorded since 2014. Our improved performance is the result of accelerated efforts by our dedicated employees and reducing costs and streamlining our operations as well as better market conditions for our products in both the oil and gas and adjacent market segments. Increases in utilization and rentals of our OBX ocean bottom nodes were the largest revenue driver in fiscal year 2023. In fact, the company’s total revenue for rentals more than doubled from last year’s figure.

Our conservative financial management and preservation of a strong debt-free balance sheet have given us essential tools needed to maintain leadership and technology innovations even in depressed markets. We believe this has strengthened our ability to take advantage of these improving market conditions and we’ll continue to do so in the future. This is strongly evidenced by recent developments in our oil and gas market segment. In the fourth quarter, we announced a $3 million rental agreement for our highly advanced Mariner product, which is a shallow water seabed seismic data acquisition node. In addition, we announced a $5.7 million contract with an international seismic company for specialized geophones designed for use in their proprietary system.

And prior to both of these announcements was our announcement in June of a $20 million rental contract for our Mariner ocean bottom nodes. We expect the delivery of this system to complete in the next few weeks with the rental term commencing thereafter. While we do expect gaps to occur in some of our OBX rental contracts, we anticipate the ocean bottom node market remaining strong over the coming fiscal year. Results from our Adjacent Markets segment proved equally compelling as total revenue for the fourth quarter and full fiscal year ending September 30th, 2023, came in at $10.6 million and $49 million, respectively. The full year amount for this segment sets yet another new company record. Our efforts toward revenue diversification have seen some success in the adjacent market segment where several new quarterly records were set over the course of fiscal year 2023.

The outstanding performance for the year of our industrial products largely stems from the greater demand for our water meter cables and connectors, which was the primary factor pushing the segment’s overall revenue growth of 25% over last year’s results. The company’s Emerging markets segment generated $0.8 million in the fourth quarter and $1.2 million over the full 2023 fiscal year. During the second fiscal quarter, we announced a $1.5 million contract with the Defense Advanced Projects Research Agency, otherwise known as DARPA. This contract is a Phase II small business innovative research or SBIR contract to explore a new SADAR capability designed to monitor acoustic energy sources of interest on nearby land, water and air environments.

Revenue over the course of fiscal year 2023 for this segment includes amounts derived from this contract as well as fulfillment of a separate unrelated contract with a major defense contractor. We continue to explore further opportunities for contracts with DARPA and other governmental agencies as well as new private sector applications for SADAR and Quantum’s unique analytics in the energy transition market. Complementing our operational success in fiscal year 2023 were substantive gains on the company’s balance sheet. In addition to increasing stockholder equity by more than $11 million, we ended fiscal year 2023 with a total of $33.7 million in cash, cash equivalents and short-term investments. We further maintained an additional borrowing availability of $13.1 million under an unused bank credit agreement with no borrowings outstanding.

As a result, our total liquidity as of September 30th, 2023, was $46.8 million. In addition, we own wholly unencumbered properties in real estate in both domestic and international locations. With that, I’ll now turn the call over to Robert to give a little bit more financial detail on the fourth quarter and year-end performance.

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 during our call this morning. In yesterday’s press release for our fourth quarter ended September 30th, 2023, we reported revenue of $29.3 million compared to last year’s revenue of $25.9 million. The net income for the quarter was $4.4 million or $0.33 per diluted share compared to last year’s net loss of $8 million or $0.62 per diluted share. For the 12 months ended September 30th, 2023, we reported revenue of $124.5 million compared to revenue of $89.3 million last year. Our net income for the 12-month period was $12.2 million or $0.92 per diluted share compared to last year’s net loss of $22.9 million or $1.76 per diluted share.

The oil and gas market segment produced revenue of $17.8 million for the three months ended September 30th, 2023. This compares with revenue of $14.8 million for the same period of the prior fiscal year, an increase of 20%. For the 12-month period, the segment contributed revenue of $74 million versus $49.1 million for the same prior year period. The increase for the three-month period is due to higher utilization of our OBX rental fleet, increased sales of wireless seismic products and higher demand for our marine products. The 12-month increase in revenue is due to a high-level utilization of our OBX rental fleet, increased sales of our seismic sensor and also of our marine products. Our adjacent markets segment revenue is as follows. Our industrial product revenue for the fourth quarter of fiscal year 2023 was $7.6 million compared to $7.2 million for the fourth quarter of 2022.

Industrial Products 12-month revenue for fiscal year 2023 was $36.9 million, an increase over the same period in 2022 of 44%. Both periods revenue increases are due to higher sales of our water meter cable and connector products. Imaging product revenue for the fourth quarter was $3 million, a decrease of 18% compared to last year’s revenue of $3.7 million. The 12-month revenue for imaging products for fiscal year 2023 was $12.1 million versus $13.5 million for the same period in 2022. The decrease in revenue for both periods is due to lower demand for our thermal imaging equipment and consumable film products. Finally, revenue for our Emerging Markets segment for the fourth quarter was $800,000 compared to $100,000 for the same period in 2022.

The 12-month revenue for the segment for fiscal year 2023 was $1.2 million compared to $700,000 for the same prior year period. This segment has a backlog of approximately $2 million that will be recognized in fiscal year 2024. Excluding noncash decreases to the fair value of contingent earn-out liabilities and noncash goodwill impairment, both recorded in fiscal year 2022, our operating expenses modestly increased by $500,000 for the fourth quarter and decreased by $200,000 for the 12-month period of 2023. Our 12-month cash investments into our rental fleet was $9.9 million and cash investments into property, plant and equipment was $4 million. In fiscal year 2024, we anticipate to invest approximately $9 million into our rental fleet and $4 million into property, plant and equipment.

Our balance sheet at the end of the fourth quarter reflected $34 million of cash and short-term investments and we have $13 million of additional liquidity from our credit facility. In addition, we own numerous real estate holdings in Houston around the world that are free and clear without any leverage. That concludes my discussion. And I’ll turn the call back to Rick.

Rick Wheeler: Thank you, Robert. As we enter the new fiscal year, we’re enthusiastic about the plans we’ve set in motion to continue being profitable. As a part of that, we intend to regularly evaluate each business segment with our efforts focused on driving revenue opportunities and assessing additional areas where costs can be reduced. However, it must be noted that time gaps in our performing seismic industry contracts are likely to result in uneven revenue proportions of the coming year. Despite this expected variability though, we remain encouraged by the volume of planned exploration activity during the year and the result of demand for our products it should create. In conjunction with an approved market, we believe our strong balance sheet and technological leadership will be pivotal to our success in fiscal year 2024. This concludes our prepared commentary and now I’ll turn the call back over to Michael for any questions from our listeners.

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Q&A Session

Operator: Thank you. The floor is now open for questions. [Operator Instructions] And we do have our first question from Martin Lorenzen, a Private Investor.

Martin Lorenzen: Good morning, Texas.

Rick Wheeler: Hi. How are you, Martin?

Martin Lorenzen: I’m fine. Thank you. Can you please elaborate on the significance of your Itron-Aquana collaboration you posted about in, I think, June of this year. To what degree does it drive your revenue volume within that water segment?

Rick Wheeler: Well, that development is very recent. So it really hasn’t manifested into hard revenue as of yet, but we certainly anticipate that it will. It’s a great partnership. It puts our quantum valves into a distribution environment that should be very healthy. So I can’t give you exact numbers on that, but look forward to it.

Martin Lorenzen: Great. That’s good to hear that it hasn’t materialized yet in the numbers. And I guess on the product side, how long would be the life cycle of such a water meter?

Rick Wheeler: Actually, these systems are designed for at least 20 years of operation, typically. There is a component that sometimes needs to be replaced after maybe a decade or so, which is a battery that drives some of the electronics in these smart meters as it were. But they’re designed for quite a long duration.

Martin Lorenzen: So would it be safe to assume that the product is relatively sticky and that your customer base won’t erode over time once you gain market share there?

Rick Wheeler: Well, there are always dynamics in any sort of market as competition comes up as a process has changed and approaches change to a technology such as smart water metering. But our belief is that the Smart City expansion that we see really throughout the country, actually throughout the world, with respect to these types of instruments and valves as well as outside of the water initiative, but we expect this to be an ongoing part of our business for some length of time.

Martin Lorenzen: Okay. And so you try to roll it out in certain geographies where you think the market is underpenetrated or how do you roll out that product?

Rick Wheeler: Well, it’s definitely underpenetrated. As it turns out in the smart meter industry, the water side of that affair as opposed to electricity and gas has generally been the lagger in that sort of deployment. The way you roll it out is through market penetration as in any other market through your sales efforts, your marketing efforts and demonstrating the technology.

Martin Lorenzen: Okay. Thank you.

Rick Wheeler: You’re welcome.

Operator: [Operator Instructions] And our next question comes from Bill Dezellem with Tieton Capital.

William Dezellem: Thank you. Just quickly following up on the last question. When does the Itron contract began producing meaningful revenue?

Rick Wheeler: I’m not going to tell you that, Bill, because there are some things in place there that we’re not really privileged to reveal as it relates to our partnership with Itron, but we don’t anticipate it’s going to be some lengthy period of time. Itron is a well-known organization and certainly has these contracts already in place that will take place shortly in terms of their deployments.

William Dezellem: Okay. Not to pin you too far into a corner, but fiscal ’24, you would anticipate that to begin?

Rick Wheeler: Yes. We do expect to see returns on that in fiscal year 2024, exactly right.

William Dezellem: Okay. That’s helpful. Moving along, if I may. The utilization, I think, Robert, you mentioned the utilization for your offshore rental fleet was high. What was the utilization rate in fiscal Q4?

Robert Curda: It’s very similar to fiscal year — very similar to Q3. If not at full capacity, very close to full capacity.

William Dezellem: And so that may then explain my next question, which you all have been very cautious about the spending that you will that you will have to build out your rental fleet and yet you’ve talked about, I think, 9 million additions to the rental fleet. So would you talk to what you are what you are seeing in terms of demand that is leading to that?

Robert Curda: Well, those additions are specifically related to the Mariners for the contracts we received this fiscal year. So those of, you know, those are — that’s a new type of node we introduced to the market and to fulfill those contracts. We have to add those units to our fleet.

William Dezellem: And speaking of Mariner, your $20 million contract that you’re going to have delivered here shortly, that rental last how long for the initial period?