Geospace Technologies Corporation (GEOS) Q1 2025 Earnings Report, Transcript and Summary

Welcome to the Geospace Technologies First Quarter 2025 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rich Kelley, President and Chief Executive Officer. He is joined by Mr. 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 Rich Kelley. Sir, you may begin.

Good morning and welcome to Geospace Technologies conference call for the first quarter of fiscal year 2025. As stated, I am Rich Kelley, the company's Chief Executive Officer and President. I am joined by Robert Curda, the company's Chief Financial Officer. In our prepared remarks, I will first provide an overview of the first quarter and Robert will then follow up with more in-depth commentary on our financial performance as well as an overview of our recast financials under our new segment realignment. I will then give some final comments before opening 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, 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's 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 period ended December 31, 2024, our first fiscal quarter for 2025. We are pleased to begin the fiscal year with a strong quarter, yielding net income for our shareholders. For the first quarter, we reported revenue of $37.2 million and net income of $8.4 million or $0.65 per diluted share. These results show that our focus on driving profitability through strategic decisions continues to generate positive financial performance. This earnings release marks the first time we are reporting financial information since the announcement of our business segment realignment in September of 2024. We updated and reorganized our business segments to better reflect the areas where our technology driven solutions should produce improved results. As a reminder, our new business segments are Smart Water, Energy Solutions and Intelligent Industrial. In our Smart Water segment, we reported revenue of $7.3 million for the quarter, an increase from a year ago period. This is a positive indicator given that historically, the first quarter of fiscal year shows lesser revenue than other quarters due to both seasonality and government budget cycles. We see significant potential in the municipal and multifamily marketplace for our water management solutions. We intend to grow both organically and through potential acquisition to realize our long-term vision for this segment. In our Energy Solutions segment, we reported revenue of $24.3 million for the quarter. It is important to view this decrease in context to the same period a year ago. Our quarter of fiscal year 2024 included a large $30 million sale of our Mariner shallow water ocean bottom nodes. This quarter, we were pleased to secure a $17 million OBX marine wireless product sale. Our Intelligent Industrial segment revenue totaled $5.6 million for the quarter. This compared with $5.8 million from the same period a year ago, a decrease of 4%, which we attribute to lower demand in the quarter for our imaging products. I will now turn the call over to Robert to provide more financial detail on our first quarter performance.

Thanks, Rich. 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 first quarter ended December 31st, 2024, we reported revenue of $37.2 million compared to last year's revenue of $50 million. Net income for the quarter was $8.4 million or $0.65 per diluted share compared to the first quarter of last year's net income of $12.7 million or $0.94 per diluted share. Revenue from our Smart Water segment totaled $7.3 million for the three months ended December 31st, 2024. This compares to $4.2 million in revenue for the same year ago period, an increase of 72%. The increase in revenue is due to higher demand for the company's Hydroconn cable and connector products. The Energy Solutions segment revenue totaled $24.3 million for the three months ended December 31st, 2024. This compares to $39.9 million in revenue for the first quarter of fiscal year '24, a decrease of 39%. Revenue for the three months ended December 31st, 2024, included a $17 million OBX marine wireless product sale from our rental fleet. However, in comparison, revenue for the first quarter of the prior year included a $30 million sale of our Mariner shallow water ocean bottom nodes. Additionally, the reduction in revenue for the first quarter of fiscal year 2025 was also due to lower utilization of the OBX rental fleet. Revenue from our Intelligent Industrial segment totaled $5.6 million for the three month period ended December 31st, 2024. This compares with $5.8 million from the same year ago period, a decrease of 4%. The decrease in revenue for the three months ended December 31st, 2024 was primarily due to lower demand for our imaging products. This decrease was partially offset by an increase in demand for our industrial sensor products. The first quarter of fiscal year 2025 operating expenses were $12.3 million. This is an increase of 31% compared to $9.4 million for the first three months of fiscal year 2024. The increase is due to higher personnel cost-related costs, including wages, benefits, severance, recruiting fees and bonus. Additionally, during our first quarter, we experienced higher agent commissions due to increased revenue from our Smart Water segment and higher R&D related project expenditures. Fiscal year 2025 cash investments into property, plant and equipment are $3.2 million and cash investments into our rental fleet is $400,000. We expect fiscal year 2025 investments in property, plant and equipment to be as much as $6 million. Our balance sheet at the end of the first quarter remains strong and debt-free with $22 million of cash and short-term investments and trade and financing receivables of $41 million. Additionally, we have borrowing availability of $12 million under our bank credit agreement. Thus, as of December 31st, our total liquidity was $34 million. Lastly, we own numerous real estate holdings in Houston and around the world that are free and clear without any leverage. That concludes my discussion and I'll turn the call back to Rich.

Thank you, Robert. I am pleased to announce the company completed its $7 million stock repurchase program early in the second quarter of fiscal year 2025. Through that program, the company purchased roughly 716,000 shares at an average price of $9.72 per share and that program is now considered complete. As a final note, I'd like to thank my team for the support they have given me and the company during my first quarter as CEO. Our long-term engineering expertise, manufacturing capabilities and continued focus on our clients is continuing to drive profitable growth for our valued shareholders in each of our new business segments. This concludes our prepared commentary and I'll now turn the call back to the moderator for any questions from our listeners.

[Operator Instructions] We'll go first to Morris Schimmel. Your line is open. Please go ahead.

Yes. Congratulations on your -- I'm wondering if you could comment on what is happening with Homeland Security and if there's any activity that could significantly impact the company?

Thank you, Morris, for the question. I mean we are monitoring this new administration, trying to understand the direction they're taking it. Obviously, there's a lot of interest in immigration, border protection. And as we said in prior calls, we have a project going on with Customs and Border Protection. So we don't have any guidance to provide right now on that, but we are continuing to monitor that and keep our ear to the ground hoping for opportunities.

And one additional thought. Is there anything happening on the front with Carbon Capture that is in the foreseeable future?

Regarding Carbon Capture, I mean, we continue to talk to our partners, our customers, understand what their needs are. That's, again, an industry that's in transition, really trying to understand what the revenue opportunities are. We've had lots of discussions, but nothing that's actually generating revenue for us today.

Thank you.

We'll take our next question from Matt Dhane with Tieton Capital Management. Please go ahead.

Great. That's Tieton Capital Management. I want to delve into the R&D projects for specific client projects, I guess, that you referenced earlier on the call. What more can you reference around that or what more can you tell us around that? And, yes, I'm just curious to hear a little bit more about that if you could?

Good morning, Matt. Thanks for the question. Yes, some of our projects can be fairly capital intensive and have long lead times, depending on the size and scope of the project, requires R&D investment before we can actually capitalize that or get a return on investment. So we've got a couple of opportunities that we've spent, some additional R&D resources on. Also with the transition to our new market segments, we're looking at opportunities to make investments in R&D projects and trying to find future revenue streams. So we have made some additional investments in R&D in the recent quarter.

Is there a specific segment that most of these R&D dollars have been directed to or anything there?

Nothing specific that we can provide guidance for today.

I also want to talk about your Smart Water momentum. If you could add some color around both Aquana and Hydroconn. What you're seeing there? How we should be thinking about that going forward? And you folks have been doing great here. I just wanted to get a little bit more color on future expectations here.

Yes. Great question. So I'll start with Hydroconn. Hydroconn has been a product that was organically developed by Geospace a number of years ago. We continue to see year-on-year improvement in market uptake interest. As municipalities continue to adapt and adopt to automated meter reading and automated meter instrumentation, a continuing need to upgrade their meters, which use our connector as part of that. Again, we had a great first quarter, unexpected, just because the market, the continued uptake in the market of the product offering. And we expect to see that same sort of interest and uptick in business in future quarters. Same is true of Aquana. We had our first commercial deliveries last year. Great feedback from the customers. We were able to capitalize on that by taking that to our other potential customers, trying to shorten the pipeline on that. We've seen order increase for that, for our product offerings there. We expect that to grow in about the same range. So we're very excited about both of those. The other thing that's exciting about Aquana is we mentioned that we had our first international sale last year. The customer has been very excited about that and we're in early discussions about future projects, additional projects overseas as well. So we expect opportunities both domestically and internationally for that product offering. So we're very excited about it.

Great. Thanks for the help.

We'll go next to investor John Elliott. Your line is open. Please go ahead.

Good morning, gentlemen.

Good morning, John.

With the new administration, is there some optimism that Aquana will benefit from border security and other developments?

That is a good question. I mean, clearly, as I said earlier, focus on border security, immigration control, drug and trafficking enforcement. So we really think there's opportunities there. Now there's been no clear indicators of how that money is going to be dispersed. So we are monitoring that closely. We've had our solution on the border for a couple of years now. As we stated earlier, we expect the Customs and Border Protection to make some determination on that solution in the coming months. So I think overall we're positive. But again until they actually determine how they want to spend the money, that money is allocated, we're sort of at the mercy of the federal government.

And I believe in the past, the focus has always been on the Mexican border, but has there been any discussion about deploying the Quantum technology along the Canadian border?

Not specific to that, but we've obviously had internal discussions about other types of borders. You think about other countries around the world that are concerned with border security. I mean it's a solution that lends itself very well to those sort of applications. And so we are trying to figure out a way to monetize that and market that in other spaces, other areas of the world.

And what about PRM? Have there been any developments with it?

Yes and no. I mean there are still a couple of reservoirs internationally that lend itself to PRM technology. We obviously have conversations with the companies that would consider putting PRM in. There's obviously the ongoing competition with ocean bottom nodes. And so it really comes down to a financial decision with regards to reservoir managers. And as it stands right now, there's not a hard drive or any pressing opportunities for PRM.

Safe to say you wouldn't expect a PRM tender in 2025?

You just never know what might develop. It's going to be interesting to see the dynamics in the energy field with this administration and how that impacts the global energy industry. And what the -- if you look about what the long-term supply and demand curves for oil and gas and how that's going to play out with these reservoirs.

Well, I appreciate you taking my questions.

Thank you, John. You have a good day.

[Operator Instructions]

And if there's no more questions, we can end the call.

I'm showing no additional questions at this time.

Well, thank you, everybody. Thank you, Angela. Everyone, have a good day.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.