GEOSPACE TECHNOLOGIES CORP Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• Began fiscal year with strong quarter, reporting revenue of $37.2 million and net income of $8.4 million or $0.65 per diluted share.
• Reported financial information since business segment realignment to Smart Water, Energy Solutions, and Intelligent Industrial.
• Operating expenses for first quarter of fiscal year 2025 were $12.3 million, an increase of 31% due to higher personnel costs, agent commissions, and R&D expenditures.
• Fiscal year 2025 cash investments into property, plant and equipment are $3.2 million, with expected investments up to $6 million. Balance sheet remains strong, debt-free with $22 million in cash and short-term investments, $41 million in receivables, and $34 million total liquidity.
• Completed a $7 million stock repurchase program, purchasing roughly 716,000 shares at an average price of $9.72 per share.

Segment Performance:

• Smart Water: Reported revenue of $7.3 million for the quarter, a 72% increase from the prior year period. Revenue contribution: Approximately 19.6% of total revenue ($37.2 million). The increase is due to higher demand for Hydroconn cable and connector products.
• Energy Solutions: Reported revenue of $24.3 million for the quarter, a 39% decrease from the prior year period. Revenue contribution: Approximately 65.3% of total revenue. The decrease is due to a prior large sale of Mariner shallow water ocean bottom nodes and lower utilization of the OBX rental fleet, but a $17 million OBX marine wireless product sale was secured.
• Intelligent Industrial: Reported revenue of $5.6 million for the quarter, a 4% decrease from the prior year period. Revenue contribution: Approximately 15.1% of total revenue. The decrease is due to lower demand for imaging products, partially offset by an increase in demand for industrial sensor products.

Guidance:

• No specific revenue or earnings guidance provided during the call.
• Fiscal year 2025 investments in property, plant and equipment are expected to be as much as $6 million.

Risks:

• Uncertainties from market conditions and government actions that can affect outcomes.
• Industry transitions, such as with Carbon Capture, where there are ongoing discussions but no current revenue generation.

Q: Comment on what is happening with Homeland Security and if there's any activity that could significantly impact the company?

A: 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.

Q: Is there anything happening on the front with Carbon Capture that is in the foreseeable future?

A: 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.

Q: What more can you reference around R&D projects for specific client projects?

A: Great 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.

Q: Can you add some color around both Aquana and Hydroconn in terms of Smart Water momentum?

A: 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.

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

A: 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.

Q: Is there anything happening with Quantum technology on the Canadian border?

A: 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.

Q: What about PRM developments?

A: 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.