GEOS - Geospace Technologies Corporation (GEOS) Q2 2023 Earnings Call Transcript
2023-05-12 13:55:06 ET
Geospace Technologies Corporation (GEOS)
Q2 2023 Earnings Conference Call
May 12, 2023 10:00 AM ET
Company Participants
Rick Wheeler - President and Chief Executive Officer
Robert Curda - Chief Financial Officer
Conference Call Participants
Scott Bundy - Moors & Cabot
Bill Dezellem - Tieton Capital.
Dennis Scannell - Rutabaga Capital
Presentation
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.
Question-And-Answer Session
Question-And-Answer Session
Operator
Thank you. Our first question comes from Scott Bundy with Moors & Cabot.
Scott Bundy
Morning guys.
Rick Wheeler
Morning, Scott.
Scott Bundy
Rick, just a couple quick questions please. In the event that the mariner - if there is interest in mariner before year end, do you, will you have components enough to deliver the product?
Rick Wheeler
We have enough components to deliver a reasonable quantity, but there are going to be supply chain issues that put delays on some of that. But we are working actually to try to shorten those. And there are some avenues that we’re pursuing that might well work out for that. So, some of that's yet to be seen.
Scott Bundy
And, Rick, regarding Quantum, can you provide any insight as to what the Defense Department's interests are? What applications there might be? Just give us an idea of where this might be going?
Rick Wheeler
Well, I can't get into any real specifics there, but clearly, it's for monitoring, some of our defense assets and making sure that, our security levels or what they need to be. And in some cases, you know, the DARPA contract, certainly indicate some of where some of the concerns of the government might be with respect to the littoral waters et cetera.
So, you know it's really and several places that they believe that our monitoring technologies and that intelligence that it provides are useful, but I really can't get into specifics.
Scott Bundy
Thanks a lot. Appreciate it.
Operator
Thank you. [Operator Instructions] Our next question comes from Bill Dezellem with Tieton Capital.
Bill Dezellem
Thank you. I'd actually like to follow up on that last question if I may. Is the DARPA contract a test or is it something that they have determined is a good solution for whatever application? And so it's a follow-on implementation?
Rick Wheeler
Well, DARPA is basically is always a situation where they're trying to demonstrate technology provides a solution and offering opportunity to businesses like ours to show that. So there's a combinatorial aspect of that that's both product level, as well as showing the technology and actually perform a certain function. So it really spans all of those aspects.
Bill Dezellem
So that's really the answer of both that it’s both a test and an actual implementation?
Rick Wheeler
Right. As it is typical of any DARPA endeavors.
Bill Dezellem
Okay. All right. So let me take this one step further then if I if I may. So, you had mentioned that the military sees or the Department of Defense sees multiple applications. Would you anticipate that if they move forward that they would do that under additional DARPA contracts or that it would be contracted in a different way. I am not really familiar with how that process works.
Rick Wheeler
Well, I don't think it would go under a DARPA contract. That's just not what DARPA really is. It would be – it’s a more of a direct involvement with those US defense agencies and military agencies as it applies.
Bill Dezellem
All right. Thank you. And then, let me jump to the financial side for a moment. What are you seeing that that leads to you expanding the credit facility, I mean, especially with your cash going up? I mean, that's an interesting dynamic that we're seeing here.
Rick Wheeler
Well, there's other aspects to this new credit facility that makes it more interesting to us. It just also happens to expand our borrowing availability. We also are somewhat excited by the activity that's going on and having that additional liquidity could be helpful with things that we don't anticipate occur in the future.
Bill Dezellem
Okay. So, you see the potential that activity levels will be so great that you may need an expanded credit facility, if I just heard you correctly, is that right?
Rick Wheeler
Well, Bill, I think just my commentary, Robert is really the man on that stuff. And you know, in many cases these credit facilities are insurance policies to make sure that things if a big contract comes in that besides the cash that we’re able to generate. And historically have been able to fund our own activities even large contracts from our own cash flow, but you always want something in your back pocket if there's something that comes in, you had not considered or planned on in that sense. And I think it fits that Bill.
Bill Dezellem
Great. That's helpful. And then Robert, you also mentioned that there were some other aspects to it just besides the increasing of the size that we’re interesting. Would you highlight what those are please?
Robert Curda
Primarily cheaper, cheaper access to cash and then what we have in our current facility.
Bill Dezellem
Lower interest rates are always good I think.
Robert Curda
Yes sir.
Bill Dezellem
Okay. So relative to larger pieces of business. PRM was not mentioned in the press release. Would you please give us an update there?
Robert Curda
The discussions are still ongoing with PRM, but we don't see any active contracts that are in the immediate future. They're still talking about activities that would fall into 2024 with respect to potential tenders for deployments likely not even in 2024, but certainly could begin then and in years thereafter. So really, there's just not much more news than that.
And certainly not anything that represents a contemporary piece of information on things that might be in the pipe.
Bill Dezellem
Okay. Great. Thank you. And then I'm going to take one more question if I may and then I will step back. Carbon capture, would you please kind of talk in some detail at how that market is developing relative to Quantum and the various angles that you may be addressing?
Rick Wheeler
Well, it's developing very fluidly I'll say. The thing about carbon capture, it has to be done in a very economic way because really there it's that you're not exploiting a resource like you are when you're producing oil and gas that you can sell in a market. In that sense, it's got to be very effective in terms of the monitoring.
So the area where we fit into carbon capture is not in the actual capture, the transport, some of these other really major big-ticket components associated with carbon capture. But what has to happen is once it's sequestered it needs to be monitored and it needs to be understood whether it's meeting your plans and it's following through with respect to your predictions as being fully captured.
That we have a marvelous capability of monitoring at low cost with precision. There's lots of ways of monitoring things. You can either spend lots of money doing it with lots of sensors or you can use very low quality type sensors that you might see and distribute it through sensing type applications, but we have very high precise monitoring capabilities with our array forming techniques and analytics. So that's where we fit the bill there.
Bill Dezellem
Great. Thank you both.
Operator
Thank you. Our next question comes from, Dennis Scannell with Rutabaga Capital.
Dennis Scannell
Yes. Good morning, gentlemen, nice quarter. Just a couple things for me. I'm not – Rick, I think you said that utilization - your utilization of your rental fleet looks pretty good going forward obviously, been strong in the first half of your fiscal year. I'm just curious, typically how much visibility you have on that? Are these 3, 6 month contracts? Just curious about, again, kind of help how far in the future you can see with that business?
Rick Wheeler
Well, I mean, that's a good question and it's one that, it doesn't seem real far into the future. We do have some conversations that are extending into 2024 in terms of some of the projects that the oil companies are looking for. In many cases, you know they're having to really scrambled around up contractors for these interests that they're wanting to see in the future. But in the foreseeable future in this coming quarter and for the rest of this year, we certainly believe that, our rental fleets going to be at near full utilization with these contracts that are on board now.
Some of these contracts have been already underway for more than a year. So, as these other contracts come on board and there's other parts of the world where this activity is picking up considerably, this looks like it's liable to carry on for years.
Dennis Scannell
Excellent. Excellent. And just, as a reminder, this is primarily Marine. Am I right there?
Rick Wheeler
Yes, it is. Yeah, yeah.
Dennis Scannell
Okay. And then, I think in the first quarter you did call you did discuss perhaps adding to the fleet during the year your rental fleet, I'm sorry, maybe I am testing another $ 5 million or $6 million if memory serves. It doesn't look like we've done that yet. Is that, is that something to come or depends on the market? Or how are we thinking about that?
Rick Wheeler
We have added some, but probably it had better cost because we had some things that, we're already partial works in progress as it were and some of that, as you mentioned is yet to come. We definitely have supply chain issues. You already mentioned there are some components that are somewhat at risk with respect to being able to get our Mariner out. But we've made some inroads there in finding some of these components and/or mitigating design issues.
So, I think that's yet to come. We will still be cautious. It will be market-driven. It always is. And so we're, definitely going to be looking for committed circumstances to place new assets and in our fleet.
Dennis Scannell
Excellent. Excellent. And then, just, I think an obvious question. So, the $1.3 million gain that was recognized in the oil and gas segment, correct?
Rick Wheeler
I think it was in the corporate sector. Corporate.
Dennis Scannell
The corporate. Okay. Great. Oh, that's good. That's my model will keep them better. Thank you very much. I'm all set. Thank you.
Rick Wheeler
All right. Thank you.
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.
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Geospace Technologies Corporation (GEOS) Q2 2023 Earnings Call Transcript