Geospace Technologies (NASDAQ: GEOS) has reported a net income of $8.4 million for the first half of fiscal year 2024, but faces a net loss of $4.3 million in the second quarter. The company's financial performance reflects a challenging period in the oil and gas market segment, primarily due to low utilization of its OBX and Mariner ocean bottom nodes. Despite this, Geospace is optimistic about the second half of the fiscal year, expecting better utilization of its ocean-bottom nodes. The adjacent markets segment showed strength, contributing $12.2 million in revenue during the second quarter. Additionally, Geospace's emerging markets segment saw meaningful revenue contributions, particularly from a DARPA contract. The company has also announced executive leadership changes and a stock repurchase program.
Key Takeaways
- Geospace Technologies reported a net loss of $4.3 million in Q2 but a net income of $8.4 million for the first half of fiscal 2024.
- The company's adjacent markets segment generated $12.2 million in revenue in the second quarter.
- Revenue from the emerging markets segment was primarily due to fulfilling a DARPA contract.
- Geospace expects better utilization of its ocean-bottom nodes in the second half of the fiscal year.
- The company appointed Rich Kelly as Executive Vice President and COO and announced a stock repurchase program.
- Delays in projects and capacity issues may affect rental revenues, with significant financial commitments needed to expand the rental fleet.
- Discussions with government agencies on security and surveillance, particularly border patrol, could lead to additional revenue next fiscal year, with larger opportunities in fiscal year 2025.
Company Outlook
- Anticipation of increased utilization of ocean-bottom nodes in the latter half of the fiscal year.
- Emerging and adjacent market segments are expected to continue contributing to revenue.
- The company is cautious about expanding its rental fleet without substantial financial commitments.
Bearish Highlights
- Low utilization of OBX and Mariner ocean bottom nodes impacted the oil and gas market segment negatively in Q2.
- Capacity constraints in the industry could limit the ability to fulfill all rental requests.
Bullish Highlights
- Positive performance in adjacent markets and significant revenue from a DARPA contract bolster the company's financial standing.
- Potential for new revenue streams from government discussions on security and surveillance, especially border patrol projects.
Misses
- The company incurred a net loss in the second quarter due to underperformance in the oil and gas market segment.
Q&A Highlights
- Geospace discussed the impact of delayed projects on rental revenues, expected to materialize in the fourth quarter.
- There is ongoing dialogue with government agencies about security and surveillance, with fiscal impacts likely in the next fiscal year.
- Passive monitoring technologies in the energy sector are under discussion, with applications in carbon capture and other areas, though specifics are undisclosed due to intellectual property concerns.
- The next earnings call is scheduled for August, to discuss the third quarter of fiscal year 2024.
InvestingPro Insights
Geospace Technologies (NASDAQ: GEOS) has demonstrated resilience in a fluctuating market, as indicated by their recent financial reports. To provide a deeper understanding of the company's current financial health and future potential, let's delve into some key metrics and insights from InvestingPro.
InvestingPro Data:
- The company holds a market capitalization of $147.95 million, suggesting a moderate size within its industry.
- Geospace Technologies has an attractive P/E ratio of 5.89, which has adjusted to 7.61 over the last twelve months as of Q1 2024. This may appeal to value investors looking for potentially undervalued stocks.
- An impressive revenue growth of 40.11% over the last twelve months as of Q1 2024 indicates the company is expanding its market presence and financial reach.
InvestingPro Tips:
1. Geospace Technologies has achieved a significant return over the last week, with an 8.17% price total return, which may interest short-term investors looking for momentum in their investments.
2. The company's cash flows can sufficiently cover interest payments, which is a reassuring sign for investors concerned about the company's financial obligations and overall stability.
For investors who are considering Geospace Technologies as part of their portfolio, these insights could be valuable in making an informed decision. Additionally, for a more comprehensive analysis, there are 6 more InvestingPro Tips available for GEOS at https://www.investing.com/pro/GEOS. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a more in-depth look at the company's financials and market position.
Full transcript - OYO Geospace Corp (GEOS) Q2 2024:
Operator: Welcome to the Geospace Technologies Second Quarter 2024 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 Rick Wheeler. Sir, you may begin.
Rick Wheeler: Thank you, Jamie. Good morning, and welcome to Geospace Technologies conference call for the second quarter of fiscal year 2024. 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 second quarter, 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. 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, as was mentioned, 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 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 second quarter and first six months of fiscal year 2024, which ended March 31, 2024. After reaching the halfway mark of the fiscal year, the company has recorded positive net income of $8.4 million or $0.62 per share. Following the profitable results of last year, the first-half of fiscal year 2024 serves as a strong indication that our strategic efforts towards sustained profitability are at work. Furthermore, the long-standing strength of our balance sheet remains firmly intact with no debt and over $51 million in cash and short-term investments. However, low utilization of our OBX and Mariner ocean bottom nodes did have an unfavorable impact on our oil and gas market segment, where second quarter revenue fell short of the previous six quarters. This led to an overall net loss for the isolated second quarter of $4.3 million. Although no specific guidance was provided, we did mention in our conference call that some gaps in our OBX rental contracts were expected which became a driving factor in lowering second quarter revenue set to be received in the second quarter was actually brought forward into the first quarter. When a rental contract for our new Mariner ocean bottom nodes was converted to a $30 million saving. Despite these circumstances affecting the second quarter, we do believe the second half of the fiscal year will see better utilization of our ocean-bottom nodes, which should bolster performance of our oil and gas market segment. Our adjacent markets segment showed strong performance in the second quarter, generating revenue of $12.2 million. This figure represents the third highest quarterly revenue from this segment in the company's history coming close to matching a record-setting amount of last year's second quarter. We believe these results demonstrate that our long-standing strategy of creating an increasing stable source of revenue from the adjacent market segment through expanded product lines and nurtured growth is working, while offering less volatility than our oil and gas market segment. Our emerging markets segment also made a meaningful contribution to revenue in the second quarter, adding $1.1 million to the three months total. The largest portion came from fulfilling major aspects of the nearly completed DARPA contract that we announced last year. Several significant discussions and engagements mentioned in the last quarter for utilizing Quantum (NASDAQ:QMCO) at array monitoring system and other analytics do remain underway. These include multiple government agency security and surveillance projects as well as advanced monitoring projects in the energy and energy transition areas. Each of these demonstrate opportunities where our technology could be uniquely applied. And while these discussions continue to be very productive, they are somewhat slow going. As such, contributions to revenue this fiscal year from this segment may be meaningful, but will likely remain relatively small, leaving the potential for larger revenue contributions in the next fiscal year. With that, I'll now turn the call over to Robert to give a little more detail on our financial performance of the second quarter and six months.
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 here on our call this morning. In yesterday's press release for our second quarter ended March 31, 2024, we reported revenue of $24.3 million, compared to last year's revenue of $31.4 million. The net loss for the quarter was $4.3 million or $0.32 per diluted share, compared to last year's net income of $4.6 million or $0.35 per diluted share. For the six months ended March 31, 2024, we reported revenue of $74.3 million, compared to revenue of $62.5 million last year. Our net income for the six month period was $8.4 million or $0.62 per diluted share, compared to last year's net income of $4.5 million or $0.35 per diluted share. Our oil and gas market segment produced revenue of $10.8 million for the three months ended March 31, 2024. This compares with revenue of $18.4 million for the same period of the prior fixed prior fiscal year, a decrease of 41%. For the six month period, the segment contributed revenue of $50.8 million versus $38.6 million, an increase of 32%. The decrease in revenue for the three month period was due to lower utilization of our OBX rental fleet and the increase in revenue for the six month period is due to the $30 million sale of our Mariner ocean bottom nodes, which occurred in the first quarter of this fiscal year, partially offset by lower utilization of our OBX rental fleet. Our adjacent markets segment revenue is as follows: our industrial product revenue for the second quarter of fiscal year 2024 was $9 million compared to $9.6 million for the same prior year period. Industrial Products six month revenue for the fiscal year is $15.5 million, a decrease over the same period in 2023 of 12%. The decrease for both periods was primarily due to lower demand of our water meter cable and connector products and industrial sensor products, partially offset by an increase in demand for our contract manufacturing services. Imaging product revenue for the second quarter was $3.2 million, compared to last year's revenue of $3.1 million. The six month revenue for imaging products for fiscal year 2024 is $6.6 million, compared with $6 million, a 10% increase when compared to the same period in 2023. Finally, revenue for our emerging markets for the second quarter was $1.1 million, compared to $191,000 for the same period in 2023. The six month revenue for the segment for the fiscal year was $1.3 million, compared to $284,000 for the same period in 2023. The increase in both -- in revenue for both periods is due to revenue recognized from a DARPA contract we announced in 2023. Our operating expenses increased by $500,000 or 5% for the second quarter of 2024, while they decreased by $900,000 or 4% for the six month period ended March 31, 2024. The increase for the three month period is primarily due to higher research and development expenses mostly relating to ongoing project expenditures. The decrease in operating expenses for the six month period is primarily due to lower personnel costs as a result of our workforce reduction in the first quarter of fiscal year 2023. Our six month cash investments into the rental fleets was $3.9 million in property, plant and equipment investments were $3.2 million. For fiscal year 2024, we expect to invest $7 million in additional equipment to our rental fleet and $5 million for plant and equipment. Our balance sheet at the end of the second quarter reflected $51.2 million of cash and short-term investments. And our credit facility has available borrowings to $11.3 million. Thus, our total liquidity is $62.5 million as of March 31, 2024. Lastly, we own real estate holdings in Houston around the world that are owned free and clear without any leverage. This concludes my discussion, and I'll turn the call back to Rick.
Rick Wheeler: Thanks, Robert. Now I'd also like to draw attention to two other notable announcements in our press release. First, we are very fortunate to welcome Rich Kelly to our Geospace management team as Executive Vice President and Chief Operating Officer. Rich comes to us with an extensive executive background serving in the most recent seven years as President of Sercel Inc. His accomplishments and experience bring a wealth of knowledge and leadership to Geospace that is keenly aligned with all facets of our technology-focused engineering, manufacturing, business development and operations. I sincerely believe Rich's contributions will enhance our strategic plans and goals and advancing the company to its next level. Secondly, I'm very pleased to highlight our announcement of the stock repurchase program authorized by our Board of Directors. Under this program, the company has been authorized to make discretionary purchases through open market block trades of up to $5 million in total, with actual purchases depending on a variety of factors, including stock price, trading volume, and our general business and market conditions. With that, that concludes our prepared commentary. And now I'll turn the call back over to Jamie for any questions from our listeners.
Operator: Thank you. The floor is now open for questions. [Operator Instructions] We'll go first to Bill Dezellem with Tieton Capital.
Bill Dezellem: Let's go with Tieton Capital. Thank you. So let's start with the rental business, you referenced in the opening remarks and the release that you feel good about rentals in the second half of the year. We haven't seen any significant announcements about that yet. Would you walk us through kind of what it is that you're seeing on the OBX and Mariner front for rentals, please?
Rick Wheeler: Yes. Bill. Well, the rentals in the second half are associated with the timing that most of these projects come about. There haven't really been any real announcements other than those that are associated with the sale and the large rental that originally was a rental contract that turned into that sale most recently. But there are quite a number of different projects out there that have either slipped a little bit in time in terms of when they're going to be performed, but also new ones are popping up on a daily basis they probably wouldn't manifest any real rentals until maybe the fourth quarter of this fiscal year. But the ones that we're talking about are ones that are already out there bids have already been placed and we'll likely need our OBXs simply, because the capacity can't really accommodate all of the rental projects that are out there.
Bill Dezellem: So Rick, apologies that I don't think I comprehended everything that you were saying there. So you have projects that you have already won, but those deliveries or the projects won't begin, so your rentals won't begin until the fourth quarter. Is that correct? And then did we also...
Rick Wheeler: Those are new projects. We do have rentals that are underway now. And we also -- but again, we mentioned there was a lag in those rentals and some timing differences. But we do have rentals that are scheduled for the third quarter and the fourth quarter that are already in place, and there are new ones that because of the logistics of mobilizing these crews, those new ones probably would not manifest until the fourth quarter. Maybe some of them even in the next fiscal year.
Bill Dezellem: Okay. That's helpful. So as you think about the rental revenue in Q3 relative to the $4.8 million in should we anticipate a significant step up? Or how are you thinking about that?
Rick Wheeler: We're certainly seeing as an improved condition over what the second quarter represented. And that's the message we tried to get across.
Bill Dezellem: And is it enough to bring the rental revenues up to somewhere in that $10 million, $15 million sort of range in a quarter?
Rick Wheeler: Not going to give you any guidance, Bill, as far as that goes, but it's certainly going to look better than it did in the second quarter where we had these gaps that we had already mentioned.
Bill Dezellem: Great. And then I think another component of what you were saying implied that you don't have enough OBX nodes to fulfill the rentals that you see in the pipeline. Was that correct? And if so, would you frame that up a bit tighter? And maybe how you solve that problem?
Rick Wheeler: No, that's an industry-wide capacity issue that is faced. There are occasions where we do have requests for renting our nodes that we do not actually have capacity if you're just looking at higher inventories. But as we've always said and we've always -- the way we've performed in these situations, unless there are significant financial commitments we're not really inclined to just go build up the rental fleet, even though we do realize there are some capacity shortages within the industry. There has to be a financial commitment there to make that worth our investment.
Bill Dezellem: Okay. Thank you. And then I do want to jump to Quantum for a moment. The reference in the release to, I think, several significant discussions. Would you put more meat on the bone on that for us, please?
Rick Wheeler: Well, most of these are not really things that we can discuss. They're basically arrangements with various government agencies where they have some security and surveillance concerns. There are certain tensions that are arising throughout different places in the world that our U.S. government and military agencies are concerned about. And so to that extent, special capabilities that our products offer are what's being discussed with some of these agencies. Of course, we all know about the border patrol and the capabilities that we've been able to demonstrate there. Certainly, those are elements that are still likely. And if you read the most recent government, the GAO reports that there will be some additional money spent on some of those projects, too. But those won't occur until next fiscal year.
Bill Dezellem: So Rick, would you help us with timing in terms of what some of these contracts, I guess maybe what are the fastest that some of these might turn into revenue? And then how long -- how far out are we talking that this could extend?
Rick Wheeler: Well, as mentioned, we don't expect these to turn into significant revenue, larger revenue opportunities this fiscal year. So any of the larger opportunities are not going to manifest until, at the earliest, fiscal year 2025. As far as timing goes, I mean, this is related to the government budgetary cycles things that are way out of our control and that have other factors that are playing into that. Some of the others that are ongoing with the energy space, represent -- using technology that is brand new to the extent that these capabilities have not existed in those areas before. So there's still a lot of discussion in bringing those technical people on board with what the technology can do.
Bill Dezellem: And then picking up on that, if I may. Relative to the energy arena, would the passive monitoring that Quantum provides actually create revenue for the energy companies? Or are these conversations really more centered around carbon capture, which, I mean, the challenge there, of course, is that it's an expense as opposed to revenue generating?
Rick Wheeler: That's an excellent point. And in fact, they apply to both categories. Certainly, the carbon capture is one that is an ongoing discussion, and you'll perhaps see some movements there sooner than later. But many of these other uses of the passive monitoring technologies are, in fact, related to the revenue side of the energy business, but we really can't discuss how they would be applied, because there's significant intellectual property involved in what we're trying to do there.
Bill Dezellem: Okay, great. Thank you. Appreciate the time.
Operator: [Operator Instructions] At this time, we have no additional questions. I'd like to turn the call over to Rick Wheeler for closing remarks.
Rick Wheeler: All right. Well, thank you, Jamie, and thanks to all of you who joined our call today, and we look forward to speaking with you again on our conference call for the third quarter of fiscal year 2024, and that will be in August. So thanks, everyone, and goodbye.
Operator: Thank you. This does conclude today's Geospace Technologies second quarter 2024 earnings conference call. Please disconnect your lines at this time, and have a wonderful day.
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