GEOSPACE TECHNOLOGIES CORP Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financials: The company reported a positive net income of $6.3 million or $0.47 per share for the third quarter and first nine months of fiscal year 2024, with zero debt and $42.5 million in cash and short-term investments.
• Leadership Change: Rich Kelley will become President and Chief Executive Officer on October 1, 2024.
• Stock Repurchase: The company repurchased approximately 512,000 common shares under the authorized program, with an extension to repurchase up to an additional $2 million of shares.
• Investments: $8.2 million invested in the rental fleet and $3.6 million in property, plant, and equipment for the nine-month period, with expected total investments of $12 million in rental fleet and $5 million in plant and equipment for fiscal year 2024.

Segment Performance

• Oil and Gas Markets: Third quarter revenue was $9.2 million, a 48% decrease from the prior year's $17.7 million. For the nine-month period ended June 30, 2024, revenue was $59.9 million, an increase of 6.6% from $56.2 million the prior year. The Q3 net loss was $2.1 million due to lower utilization of the OBX rental fleet.
• Adjacent Markets: Third quarter revenue reached $16 million, an all-time record, up $1.1 million from the prior year's quarterly record. Nine-month revenue was $38 million, a modest decrease of less than 1% from the prior year. Driven by higher demand for water meter cables and connectors, and growth of the Aquana smart water valve and IoT technology products.
• Emerging Markets: Third quarter revenue was $640,000, with the largest portion from the completion of a DARPA contract. Nine-month revenue was $2 million. As of June 30, 2024, the segment had a backlog of approximately $750,000 from an extended U.S. Border Patrol contract.

Guidance

• No specific revenue or earnings guidance provided during the call.
• Mentioned ongoing strategic direction in diversifying into Adjacent and Emerging Markets and continuing investments in equipment and product development.

Risks

• Volatility: Uncertainties and volatility in the Oil and Gas segment due to market fluctuations.
• Supply Chain: Disruptions in the supply chain affecting component availability.
• Government Contracts: Uncertainties in government contract timelines, appropriations, and approval processes.
• Market Adoption: Risks related to the slow adoption of new products in emerging markets.

Question and Answer

Q: Josh Goldberg asked about Adjacent Market growth and potential double-digit growth.

A: Rich Kelley responded that the Adjacent Markets, especially around smart water and water metering, have seen significant year-on-year growth and they anticipate continuing to diversify and grow these product lines.

Q: Josh Goldberg inquired about Aquana's backlog and product.

A: Rich Kelley explained Aquana is a smart valve technology for municipalities and multifamily usage, gaining traction, and there's a backlog due to increasing adoption.

Q: Bill Dezellem asked about Emerging Markets backlog and Border Patrol contract extension.

A: Rich Kelley discussed the ongoing testing and acceptance process of the Border Patrol contract, with a decision expected in calendar year Q2 2025.

Q: Scott Bundy asked about PRM in the seismic market.

A: Rick Wheeler stated discussions about PRM are active, but revenue recognition would take time due to project complexity and capital investment requirements.

Q: Unidentified Analyst asked about PRM activity and company interest.

A: Rick Wheeler said the number of companies interested in PRM remains about the same, with discussions continuing but no immediate revenue recognition.