Geospace Technologies Corporation (GEOS) Q2 2026 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Geospace Technologies Second Quarter 2026 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rich Kelly, 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. [Operator Instructions] It is now my pleasure to turn the call over to today's CEO, Mr. Rich Kelly. Please go ahead, sir.

Thank you, Bo. Good morning, and welcome to Geospace Technologies conference call for the second quarter of fiscal year 2026. I am Rich Kelly, the company's President and Chief Executive Officer. I am 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 follow up with more in-depth commentary on our financial performance as well as an overview of our financials. We will then open the line for questions. Today's commentary on markets, revenue, planned operations and capital expenditures may be considered forward-looking as defined by 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 and services. 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 March 31, our second quarter for the fiscal year 2026. For the 3 months ended March 31, 2026, we reported revenue of $19.7 million with a net loss of $11.1 million. While our recent results reflect near-term market pressures, they do not change our longer-term plan for diversification and growth. We have seen encouraging signs through new contract wins and expanding opportunities beyond our traditional oil and gas markets. We also recognized revenue with the Heartbeat Detector subscription model, which underscores the growing value of our reoccurring revenue initiatives. Additionally, we are leveraging our contract manufacturing expertise to pursue white label product developments and manufacturing in smart water technologies. Despite lower utilization of our ocean bottom node fleet, we are seeing increased interest for the summer survey season. As planned, we recognized our first revenue from the previously announced permanent reservoir monitoring, or PRM project as initial manufacturing activities began in Houston, representing an important milestone in the project execution. While the conflict in the Middle East has delayed potential future business due to travel restrictions and regional uncertainty associated with the conflict, we have maintained positive North American interest in our Pioneer land node solution. Currently, we are providing proposals to new and existing customers for the Pioneer. To date, Pioneer has been and is currently deployed in numerous basins across North America. As part of ongoing operations and to support potential sales opportunities, we have increased our inventory position in both Pioneer and Mariner components and finished goods. This gives us the opportunity to respond quickly to customer needs and remain flexible given the current market environment. In addition, we have procured many of the long lead components needed for the PRM project and started the manufacturing process to meet the expected delivery schedule. As part of ongoing efforts to align our cost structure with current market conditions and long-term strategic priorities, we implemented a workforce reduction of approximately 20%. Combined with other cost reduction efforts, we expect to generate annualized cost savings of roughly $12 million. The reductions primarily reflect actions to streamline operations, optimize resource allocation and enhance organizational efficiency across key business segments. These steps are intended to strengthen operating leverage, support disciplined capital management and position our company to respond more effectively to evolving customer demand while maintaining focus on its core growth initiatives. We remain committed to building a stronger, more resilient company for the future. I will now turn the call over to Robert to provide more detail on our financial performance.

Thanks, Rich, 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 second quarter ended March 31, 2026, we reported revenue of $19.7 million compared to last year's revenue of $18 million. The net loss for the quarter was $11.1 million or $0.86 per diluted share compared to last year's net loss of $9.8 million or $0.77 per diluted share. For the 6 months ended March 31, 2026, we reported revenue of $45.3 million compared to revenue of $55.2 million last year. Our net loss for the 6-month period was $20.8 million or $1.62 per diluted share compared to last year's net loss of $1.4 million or $0.11 per diluted share. Our Smart Water segment generated revenue of $3.7 million for the three-month period ended March 31, 2026. In comparison, revenue for the same prior year period was $9.5 million, a decrease of 61%. Revenue for the 6-month period was $9.5 million compared to $16.8 million for the same period of the prior fiscal year. Currently, demand for our Hydroconn connector is lower than expected as customers work through excess inventory. As their inventory levels return to normal, we anticipate gradual revenue improvement in the coming quarters. We continue to see growth potential for this segment as utilities increasingly adopt automated metering solutions that use our Hydroconn connector. Our Energy Solutions segment second quarter revenue totaled $9.6 million for the 3 months ended March 31, 2026. This compares to $2.6 million in revenue for the same period of fiscal year 2025, representing an increase of 272% Revenue for the 6-month period is $24.3 million, a decrease of 10% over the equivalent prior year period revenue of $26.9 million. The decrease in revenue for the 3 months was due to revenue recognized related to the PRM contract, the final deliveries of our Pioneer land wireless product purchased by Dawson Geophysical. This increase in revenue is partially offset by lower demand for our traditional seismic products. Additionally, the prior year included a reduction to rental revenue due to concerns about collectibility of receivables from a rental customer. The decrease in revenue for the 6-month period is attributed to lower utilization of our ocean bottom nodal rental fleet, offset by the above-mentioned Pioneer sale to Dawson Geophysical and the revenue recognized for the PRM contract. The Intelligent Industrial segment revenue totaled $6.3 million for the 3-month period ended March 31, 2026. This compares with $5.9 million from the equivalent year ago period, representing an increase of 7%. Revenue for the 6-month period of fiscal year 2026 was $11.4 million. This compares to the same prior year period revenue of $11.5 million. The increase in revenue for the 3-month period was driven by higher demand for our industrial sensors and contract manufacturing services. Our operating expenses increased by $100,000 for the second quarter of 2026 and increased by $700,000 for the 3 -- or 3% for the 6-month period ended March 31, 2026. The increase in operating expenses for the 6-month period is due to higher legal fees and increased facility costs, offset by lower research and development project costs. Our 6-month cash investments into plant and equipment is $3 million. Our balance sheet at the end of the second quarter reflected $13.4 million in cash, and we maintain available borrowings of $25 million from our credit agreement with Woodforest Bank. At March 31, 2026, the company's working capital is $45 million, which includes $19 million of trade accounts and financing receivables. This concludes my discussion, and I'll turn the call back to Rich.

Thank you, Robert. This concludes our prepared commentary. And I will now turn the call back to the moderator for any questions from our listeners.

[Operator Instructions] We'll go first this morning to Bill Dezellem with Tieton Capital.

A group of questions here. First of all, would you walk through the layoffs that you did and what part of the organization that is impacted? And really just discuss that full rightsizing thought process there, if you would, please.

The layoffs, the reduction impacted all departments across the organization. What we did is we looked at those areas where we felt we weren't as efficient or where we had put more efficient processes and procedures in place. We looked at where we needed resources going forward to support the business going forward. And we took the opportunity to also -- embedded in that was a voluntary early retirement plan, similar to what we did last year. So we offered people who were close to retirement a chance to take advantage of that. So all those combined is how we got to the number. And as I said, it impacted all departments in the organization.

And did it impact the plant more than the inside or kind of 20% on both sides?

It was a mix. We didn't -- it was not a focus on direct labor. It was a focus more on operational efficiency and where we needed resources going forward versus sort of where we had been in the past. But we had both direct and indirect professional and direct labor.

Okay. That's helpful. And then let's talk a little bit, if we could, about Petrobras and the contract. A couple of questions there. The first one is walk us through how you see the revenue recognition progressing from here now that you have the first quarter where you've had some revenue. How you see that unfolding over the next several quarters? And when does that reach conclusion? And then in your discussions with Petrobras. What are you hearing relative to what they have for future fields and their thinking? And has any of their thinking spilled over to any of their partners that are on these fields?

Okay. I will take the second part of the question, and then I'll turn it over to Robert to discuss specific about revenue recognition, okay? So strategically, with Petrobras looking at their future fields, as we've mentioned in the past, we did a FEED study for their 2 next planned fields, which were Sepia and Buzios. They are still ongoing. They still have plans for that. They have a rough time line of the next couple of years, but they are not as I've said in the past, until they actually launch a request for proposals, we can't really state when that might hit. But we -- in the discussions we have with them on a regular basis, those are still in the queue. They're still -- they still are bought into the advantages of permanent reservoir monitoring with regards to efficiency on managing those reservoirs. They see a clear financial advantage to that and strategic advantage to that. So beyond that, I can't really comment. But for revenue recognition, I'm going to turn that over to Robert.

Yes. So, although we have 2 separate contracts, a products contract and a services contract, the way we view that is one performance obligation. You don't have one contract without the other contract. So as a result, we expect to have revenue recognitions throughout the end of the entire endeavor. So we won't stop recognizing revenue until the system is completely deployed. My expectation is -- will be that revenue will increase as we're moving further into production and move into full production. It will be like a nice bell curve that increases over as product is being manufactured and then it will taper off at the end as the cables are being deployed.

And Robert, when would you anticipate that, that top of the bell curve arrives? And then when do you anticipate the contract to be finished?

Well, the contract won't be finished until late in 2027 or early of 2028. I'm not -- haven't totally nailed down what installation is in my mind yet. But the top of the bell curve is going to be...

We think about the peak in those revenues essentially being the midpoint in time between now and let's just call it December of '27?

Yes, I would think that's probably a good call.

Mr. Dezellem, did you have anything further, sir?

Are you still there?

Yes.

We can hear you, sir, Your line is still active. Hearing no response, we will circle back around. We'll go next now to Karl Birkenfeld with American Trust Investment Services.

Karl Birkenfeld, American Trust. Question, you recently sold your ultralight seismic land nodes to Dawson. Do they have applications for the miners that are now going after these strategic metals that are buried underground, the 11 metals that the Chinese currently control, and we are now actively mining.

Thank you for joining the call. We can't really comment to Dawson's business. What we can say in general that the Pioneer can be used in mining applications. I mean we know that it can be used and has -- its sister products have been used in coal and lithium and gold mining. But we can't speak specifically to how Dawson using our solutions.

Okay. Well, I didn't want to know that. I want to know if other miners have been contacting you for your services.

Absolutely. I mean our solutions, even the prior solutions to Pioneer have been used in mining applications, for sure.

[Operator Instructions] And we'll go back now to Bill Dezellem for a follow-up question.

My apologies. I had a technical difficulty, and I did not hear the response to your answer to the question of whether peak revenues for the Petrobras contract are probably somewhere essentially between the midpoint between now and late '27, call it, December 27.

Yes, Bill, I think that's a pretty good estimate at this point to use as the peak timing.

Just kind of think of it as a normal bell curve essentially.

Yes, sir.

And then would you please walk through a couple of the comments that you made in the press release. Number one, that you had increased interest in the summer survey season for your rental fleet. Maybe give some more detail behind that. And then secondarily, you talked about the white label opportunity. Provide more detail on that also, please?

Sure. So with regards to the summer season, if we compare the number of requests for quotes and the request for availability of rental compared to last summer season, we're definitely seeing an uptick in activity. Now none of those have converted to orders -- well, I would say none of them. Very few of them have converted to orders yet. But it gives us an idea that the activity and request for surveys for the summer seems to be much improved over last year. We don't know if that's being driven by just the overall macroeconomics or what might -- the underlying forces might be by that. But we are prepared to respond to those. As you know, we have equipment readily available, and we're working closely with those customers to try to win that work that we can. With the regards to the white label, I mean, because it's a white label, I can't give too much detail there, but -- what's interesting is companies in the smart water space that are looking to add to their portfolio without having to invest in the research and development dollars where they can take our solution and have us package it for them and then they then turn around and sell it as part of their larger portfolio or larger solution. So it's embedded in the solution they're offering to the market. We've had a couple of opportunities like that, and it's been quite successful for us. So it gives us a different distribution channel into some areas that we haven't been too terribly successful at before.

And Rich, this is for the actuator valve? Or is this the cable side of your water business?

No, this is specific to the Aquana solutions.

Right. All right. Two additional questions. The first one is relative to Petrobras, have they -- have you been in discussions? And does it appear that they have additional fields beyond Buzios and Sepia that you've done the FEED studies on that they are interested in doing additional homework on FEED studies or otherwise? And then secondarily, given that the water business had been a bright spot and has been pretty weak in the last several quarters. Would you walk us all through what was driving the strength, what changed and how that business ultimately develops going forward for us, please?

Sure. So with regards to Petrobras, we have seen their long-term plan. I mean, it's like a lot of other national companies. They have a number of fields that they have identified and they are looking to develop. But they are really focused on Buzios and Sepia right now with regards to putting assets in place and how they want to manage those reservoirs. And so that's the only thing that they're really discussing in any kind of detail for the next few years. I would fully anticipate some sort of FEED study, if not next year, the year after for the next 2 fields that they're looking to develop. But there's nothing concrete now. But we have a great relationship with Petrobras. We're really -- because, obviously, with the Mero 3 and 4 project going on, we're in discussions with their teams every week. So we have a pretty good finger on the pulse of what's going on there. But it's like everything else. I mean, they don't want to get -- they have limited resources as well. So they don't want to get too distracted with a project that might not really start for another 4 or 5 years. So like I said, they do have a long-term plan. They -- obviously, offshore exploration and production is critical to their success going forward. And so we'll continue to support them as best as we can. Switching gears to the water market. And it's a good question and one that we really ask given how much growth we saw over the last few years. As you know, I mean, we were 15% plus growth year-on-year, especially around the Hydroconn. We've had a lot of good discussions with other players in this space, and it's across the board. There seems to have been a little bit of a step back with regards to infrastructure investment. Not really sure what's driving that, if it's a lack of infrastructure dollars or just more of a refocus on other projects. But there's -- if we look at the long-term water industry, specifically around water scarcity, water quality, water management and water loss, I mean, AMI will continue to play a key part in that. And AMI with regards to smart meters and remote communications of those smart meters, that business is going to continue to grow over time, and it's going to be there. And not only that, but with regards to AMR, AMI, we're now -- that technology is mature enough now where that sort of first generation is starting to age out. And so now they're actually starting to get into a replacement cycle. So we do see with some municipalities who are early adopters, they're now into replacement mode. And so that's going to continue to drive demand as well. So -- we have a strong and encouraging philosophy around that, and we do continue to expect that market to grow for some reason, and we don't really have a good feel for that. This year, it seems to be a little bit of a step back. But we don't anticipate that to be the long-term situation.

And Rich, is it your sense that some that you are selling your cables to that they have lost market share, and that's part of the equation also? Or is that -- does that not seem to be a phenomenon and it truly is macro spending?

I mean, as you know, I mean, we sell to almost every OEM. So we're seeing that same drop across really all the players. There's not really a new evolving technology out there. There's not really a new evolving company out there. So we don't see it a loss of market share. What you see is the overall market itself is down. And we've talked to all the key players, the AWWA and the other players plus the OEMs we do business with. And it's across the board that they're seeing a slowdown in meter deployment.

And gentlemen, it appears we have no further questions this morning. Mr. Kelly, sir, I'd like to turn things back to you for any closing comments.

Thank you, Bo, and thanks to all of you who joined our call today. We look forward to speaking with you again on our conference call for the third quarter of fiscal year 2026. Goodbye, and have a great day.

Thank you, Mr. Kelly, and thank you, Mr. Curda. Ladies and gentlemen, if you did experience any technical issues with the audio during today's call, it was being recorded and will be available on the Geospace Technologies Investor Relations website following today's call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.