Geospace Technologies Corporation Q3 FY2026 earnings call

• Overall Financial and Market Context • Challenging industry-wide market conditions negatively impacted short-term Q3 2026 financial results. • Revenue was pressured by geopolitical uncertainty, project timing delays, lower sales volumes, and constrained customer access to capital. • Margins were pressured by unfavorable product mix, inflation, elevated raw material costs, and ongoing component supply chain availability issues. • Cost reduction efforts and improved manufacturing productivity offset a portion of these negative pressures. • Management notes the quarter's weak performance does not reflect the strength of the company's long-term opportunities across its diversified end markets, and the firm is well-positioned to benefit from improving market conditions.

• Product and Contract Updates • Smart water segment launched the new Series 5 connector in June 2026, designed to address ongoing customer supply chain challenges by increasing compatibility. This new offering gives Geospace the most universally compatible portfolio of smart water meter connectors and adapters in the domestic market, strengthening competitive positioning and aligning the segment with evolving customer infrastructure needs. • Intelligent industrial is a consistent revenue contributor, with expected future growth from its security portfolio, supported by the new U.S. Navy contract.

• Strategic Priorities • Management continues to prioritize investment in innovation, customer support, and strict financial discipline. • Core near-term focus is converting existing pipeline opportunities into recognized revenue, improving overall operating performance, and positioning the company for long-term profitable growth.

• Balance Sheet Status • Total operating expenses decreased $1.2 million in Q3 2026 (driven by lower personnel costs, agent commissions, and legal/professional fees) and decreased $400,000 for the nine-month period (driven by lower R&D costs and agent commissions). • Nine-month capital expenditures for plant and equipment totaled $3.3 million. As of quarter-end, the company had $25 million in available borrowings under its credit agreement with Wood Forest Bank, and total working capital of $41 million, which includes $17 million in trade accounts and financing receivables.

Geospace Technologies reported total third quarter fiscal 2026 revenue of $15.8 million, down from $24.8 million in the year-ago third quarter. Below is performance by segment:

1. Smart Water: Generated $4.6 million (note: the transcript contains a clear typo that lists $46 million for the quarter, which contradicts the full nine-month figure, and this is adjusted to the mathematically consistent $4.6 million) in Q3 2026 revenue, a 56% decrease from $10.5 million in the year-ago quarter. Nine-month revenue was $14.1 million, down from $27.3 million in the prior year nine-month period. This segment contributed ~29% of total Q3 2026 revenue. The decline is driven by lower demand for the Hydrocon connector product line.
2. Energy Solutions: Generated $5.9 million in Q3 2026 revenue, a 28% decrease from $8.1 million in the year-ago quarter. Nine-month revenue was $30.1 million, down from $35 million in the prior year nine-month period. This segment contributed ~37% of total Q3 2026 revenue. The Q3 decline is partially due to the sale of streamer recovery device assets in the prior year; the nine-month decline reflects lower demand for ocean bottom nodal products, partially offset by PRM contract revenue and increased land wireless product sales. PRM contract revenue came in below expectations this quarter due to customer-requested scope changes, though the contract has now entered full production.
3. Intelligent Industrial: Generated $5.2 million in Q3 2026 revenue, a 14% decrease from $6.1 million in the year-ago quarter. Nine-month revenue was $16.6 million, down from $17.6 million in the prior year nine-month period. This segment contributed ~33% of total Q3 2026 revenue. The decline for both periods is driven by lower demand for industrial sensors, with the Q3 decline also impacted by lower demand for contract manufacturing services. Subsidiary Quantum Technology Sciences secured a new $10.8 million U.S. Navy contract for a seismic acoustic detection system, expected to be completed by December 2027.

Management did not provide specific revenue or earnings guidance during this call. The only forward-looking updates on project timelines are: • The new $10.8 million U.S. Navy contract is scheduled for completion by December 2027, with revenue recognized over the performance period, bridging fiscal 2027 and fiscal 2028. • Following customer-requested scope changes to the PRM contract, management now anticipates final revenue recognition for the contract will occur between fiscal Q3 and fiscal Q4 of 2027, with the performance period extended to accommodate the changes (no change to total contract value). • The Heartbeat Detector product is progressing slightly ahead of internal plan, with ramped revenue growth expected over coming periods, aligned with original expectations. • Management expects the company has sufficient liquidity to reach the next milestone payment from the PRM contract with Petrobras.

• Broad macroeconomic and industry risks: Geopolitical uncertainty, volatile oil prices, and constrained customer access to capital are negatively impacting current demand and project timelines across business segments.
• Supply chain risks: Persistent raw material cost inflation and ongoing component availability issues continue to pressure operating margins.
• Project timing risk: Customer-driven scope changes for major contracts (such as the PRM contract) can delay revenue recognition, even when total contract value remains unchanged.
• Cash burn risk: Sustained net losses have created investor concerns about cash liquidity, though management is actively working to control expenses to maintain sufficient liquidity through the current challenging market period.
• Forward-looking statement risk: All forward-looking statements are subject to unknown risks and uncertainties that could cause actual results to differ materially from current expectations, with additional risks detailed in the company's periodic SEC filings (10-K and 10-Q).

Q: What details can you share about the scope changes to the PRM contract, and what are the implications for the contract and future business? / A: The total contract value remains unchanged with no financial impact. The customer requested engineering changes to adjust sensor and cable routing and spacing based on updated field layout plans after the original contract was signed, which caused a delay. The customer approved an extension to the performance period to accommodate the changes, with no changes to the core equipment being supplied. There are no negative competitive implications from the changes, and Geospace remains ready to bid on future PRM contracts, including the next planned procurement from Petrobras. The contract is now in full production.

Q: What is the background and outlook for the new $10.8 million U.S. Navy contract? / A: The contract combines Quantum Technology Sciences' SADAR detection technology and Geospace's PRM technology to deliver an in-water threat detection system for the Navy, awarded under an SBIR program. The contract confirms the technology can meet the Navy's technical performance requirements, which will inform the Navy's decision on larger-scale future deployments after completion. Revenue will be recognized over time (similar to percentage-of-completion) through the scheduled completion date of December 2027, spanning fiscal 2027 and 2028.

Q: What is the current update for the Heartbeat Detector product? / A: The product is proceeding slightly ahead of internal development plans, with completed pilot programs and a pipeline of interested customers. Revenue growth will ramp gradually, as sales to government and agency customers require long lead times, but the product remains on track to meet management's long-term expectations.

Q: How is management addressing investor concerns about cash burn rate and liquidity? / A: Management is actively monitoring and controlling cash flow closely, with a dedicated group reviewing all expenses to cut unnecessary spending. With the available capacity under its existing credit facility, management expects the company has sufficient liquidity to operate until it receives the next milestone payment from the Petrobras PRM contract.