Geospace Technologies - Q4 2024

Executive Summary

• Q4 revenue rose 20.9% year over year to $35.4M, with gross margin at ~45.0% and income from operations of $1.2M; reported net loss of $12.9M ($1.00 diluted EPS) was driven by non‑cash charges tied to a Russian entity divestiture ($14.5M) and intangible impairment ($2.8M). Adjusted net income was $4.4M for Q4 and $10.7M for FY24.
• Adjacent Markets (Smart Water/Industrial) delivered a standout quarter: revenue up 65% YoY to $17.6M, with Hydroconn smart water cables hitting record quarterly and annual revenue; Oil & Gas was stable YoY at $17.5M, while Emerging Markets fell to $0.2M in Q4.
• Balance sheet remains strong with ~$37.1M cash and short-term investments and no debt; operating cash flow was $(9.1)M for FY24 reflecting the Mariner sale mix and non-cash items.
• Management will realign reporting segments to Smart Water, Energy Solutions, and Intelligent Industrial beginning with the next release; no formal revenue/EPS guidance was provided, and management stated no near-term intent to expand buybacks, a change from Q3’s program extension.
• Post-earnings, GEOS shares declined amid mixed segment performance and non-cash charges; watch for smart water momentum, OBX rental utilization normalization, and segment realignment updates as potential catalysts.

What Went Well and What Went Wrong

What Went Well

• Record Hydroconn smart water cable revenue with strong Adjacent Markets growth; “The fourth quarter… was the highest level of quarterly revenue for Hydroconn as well as fiscal year 2024 produced the highest annual revenue for the product line”.
• First successful international Aquana sale and expanding traction in municipal and multifamily water applications; “We also had our first successful international sale of our Aquana products… We believe that our focus on Smart Water going forward will continue to drive growth”.
• Resilient balance sheet and liquidity with ~$37.1M cash/short-term investments and no debt; continued investments in rental fleet ($8.3M) and PP&E ($3.9M) support operational capacity.

What Went Wrong

• Non‑cash charges of $17.3M (Russia divestiture $14.5M; intangible impairment $2.8M) drove a GAAP net loss in Q4 and FY; Emerging Markets posted operating losses amid impairment.
• OBN/OBX rental fleet utilization remained a headwind at times; management noted industry “excitement” not yet translating to orders and declined to disclose utilization metrics.
• No near-term expansion of buybacks despite prior authorization; “we don't have any intention in the short term of doing any more stock buybacks”.

Transcript

Operator (participant)

Welcome to the Geospace Technologies fourth quarter and fiscal year 2024 earnings conference call. Hosting the call today from Geospace is Mr. Rich Kelley, 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 this 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. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. We ask that you please pick up your headset to allow optimal sound quality. Lastly, if you should require operator assistance, press star zero.

It is now my pleasure to turn the floor over to Rich Kelley. Sir, you may begin.

Rich Kelley (President and CEO)

Good morning and welcome to Geospace Technologies conference call for the fourth quarter of fiscal year 2024. I am Rich Kelley, the company's President and Chief Executive Officer, and I am joined by Robert Curda, the company's Chief Financial Officer. In our prepared remarks, I will first provide an overview of the fourth quarter, and Robert will then follow up with more in-depth commentary on our financial performance. I will then give some final comments before opening 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 solutions. Note that today's recorded information is time-sensitive and may not be accurate at the time of one listens to the replay. Yesterday, after the market closed, we released our financial results for the fourth quarter and full year fiscal year 2024, which ended September 30th, 2024. We closed the year with $135.6 million in revenue. This represents the greatest revenue figure in 10 years. However, due to non-cash charges in the fourth quarter totaling $17.3 million, the year ended with a net loss of $6.5 million.

These one-time charges are primarily associated with a divestiture of our Russian entity, but excluding these non-cash charges, the fiscal year adjusted net income is $10.7 million. While examining the increasing conflict in Ukraine and potential conflicts, complications within Russian-sanctioned entities, management and our board of directors determined the most prudent action would be to divest of our Russian entity. This divestment resulted in a loss driven mainly by accrued foreign exchange losses, which had minimal effect on the value of the net assets of the company. Additionally, our fiscal year financial reporting reflects another one-time charge related to a non-cash intangible asset impairment related to our subsidiary, Quantum Technology Sciences. Following our long-standing and unwavering commitment towards sustaining a strong balance sheet, we finished the year with zero debt and holdings of $37.1 million in cash and short-term investments, excuse me.

While the financials indicate a net loss for the year due to two non-cash charges, we are pleased to have 24 months of consecutive adjusted net income indicating our core business remains profitable. We started the fourth quarter of fiscal year 2024 with significant contributions from our oil and gas market segment, with more than $20 million in sales and rental announcements for our OBX seabed nodes in August. This follows a trend for the fiscal year of multi-million dollar contracts for this product line and contributed to an overall increase in revenue from the prior fiscal year. In our adjusted market segment, we enjoyed a record-setting year for our HydroCon line of smart water meter cables and our Aquana product line. The market continues to recognize our leading technology, and resulting growth outpaces the industry. We also had our first successful international sale of our Aquana products.

The Aquana product line generates further traction in smart water markets for both municipal and multi-family residential applications. We believe that our focus on smart water going forward will continue to drive growth for the organization. I now turn the call over to Robert to provide more financial detail on our fourth quarter and full year performance.

Robert Curda (CFO)

Thanks, Rick, 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. In yesterday's press release for our fourth quarter ended September 30th, 2024, we reported revenue of $35.4 million compared to last year's revenue of $29.3 million. The net loss for the quarter was $12.9 million, or $1 per diluted share, compared to last year's net income of $4.4 million, or $0.33 per diluted share. For the 12 months ended September 30th, 2024, we reported revenue of $135.6 million compared to revenue of $124.5 million last year. Our net loss for the 12-month period was $6.6 million, or $0.50 per diluted share, compared to last year's net income of $12.2 million, or $0.92 per diluted share.

In the fourth quarter ended September 30th, 2024, we recorded non-cash charges totaling $17.3 million. To add additional detail to Rich's prior comments on this subject, $14.5 million was from the divestiture of our Russian legal entity, while another was a $2.8 million charge from the impairment of tangible assets from our Quantum Technology Sciences subsidiary. It's important to note that the divestiture of the Russian legal entity has virtually no effect on the company's net assets, as most of the charge came from cumulative unrealized foreign currency translation losses previously recorded within shareholders' equity. The oil and gas segment produced revenue of $17.5 million for the three months ended September 30th, 2024. This compares with revenue of $17.8 million for the same period of the prior fiscal year. For the 12-month period, the segment contributed revenue of $77.5 million versus $74 million for the same prior year period.

The 12-month increase in revenue is due to increased sales of ocean-bottom nodal products such as the Mariner and sales of OBX equipment from our rental fleet. This was offset by lower utilization of our rental fleet and lower demand for seismic sensors and marine products. Now, our adjacent market segment revenue, which includes our industrial products and imaging products. Our industrial product revenue for the fourth quarter of fiscal year 2024 was $14.6 million compared to $7.6 million for the fourth quarter of 2023, an increase of 91%. Industrial products' 12-month revenue for fiscal year 2024 is $43 million, an increase over the same period in 2023 of 17%. Both periods' increases are the result of record-high revenue from our HydroCon water meter cables and connector product line. Imaging product revenue for the fourth quarter was $3 million, which is equal to last year's revenue for the same period.

The 12-month revenue for imaging products for fiscal year 2024 is $12.6 million versus $12.2 million for the same period in 2023. Finally, revenue from our emerging market segment for the fourth quarter was $200,000 compared to $800,000 for the same period in 2023. The 12-month revenue for the segment for fiscal year 2024 was $2.2 million compared to $1.2 million for the same prior year period. Our 12-month cash investments into the rental fleet was $8.3 million, and cash investments into our property plant and equipment was $3.9 million. As of September 30th, 2024, we have $37 million of cash and short-term investments and $15 million of additional available liquidity from our credit facility. In addition, we own numerous real estate holdings in Houston and around the world that are owned free and clear without any leverage. This concludes my discussion.

I would like to wish everyone a happy Thanksgiving, and now I'll return the call to Rich for his closing comments.

Rich Kelley (President and CEO)

Thank you, Robert. As we announced in September, this will be the last time we will be reporting earnings with these business segments of oil and gas markets, adjacent markets, and emerging markets. Beginning with our release in early February, we will provide financial information using our three new business segments: smart water, energy solutions, and intelligent industrial. Other highlights of note this year included our company's addition to the Russell Stock Indexes, the Russell 2000, Russell 3000, and Russell Microcap Index. In a final note, we would like to thank Rick Wheeler, our outgoing CEO. Rick dedicated almost 30 years to Geospace. He led the company through successful and tumultuous times in the industry. His guidance and foresight provided stability and opportunities for growth through diversification.

His management and leadership allowed Geospace to remain a strong presence in the seismic equipment market while taking advantage of their engineering and manufacturing capabilities to explore new opportunities in adjacent markets. Rick will remain as a member of the board of directors, and we wish him all the best in his retirement. This concludes our prepared commentary, and I will now turn the call back to the moderator for any questions for our listeners.

Operator (participant)

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue, and we'll take our first question from Martin Lorenzen with Private Investor.

Martin Lorenzen (Analyst)

Hello, Texas.

Rich Kelley (President and CEO)

Hello, Martin.

Martin Lorenzen (Analyst)

I'll start with what should be the primary focus of every public company, which is capital allocation. Given your strong balance sheet, what's your time frame to increase the buyback program?

Rich Kelley (President and CEO)

At this time, we don't have any intention in the short term of doing any more stock buybacks.

Martin Lorenzen (Analyst)

Got it. And on the energy segment, several public companies note an uptick in exploration, particularly land exploration. Now, I guess that has to do with administrative changes that are about to be done. And when do you expect to capitalize on that? I know you had a product launch, but no sales yet.

Rich Kelley (President and CEO)

Yeah, I would say that while there's maybe excitement in the industry, we've not actually seen that translated into actual orders for equipment or rental contracts for equipment. We're well positioned for that with the launch of our Pioneer product, which is now in manufacturing, and with our OBN products with Mariner and Mariner Deep. So we're well suited and will welcome any orders that come in the door. But as it stands right now, we are not seeing the excitement translating into orders for our equipment or services.

Martin Lorenzen (Analyst)

Got it. And now that the Russian segment is gone, what's the cost savings associated with that?

Robert Curda (CFO)

The Russian entity was pretty much self-sustaining. They generated enough cash flow to support themselves. In the end, the cost from them was very insignificant to us as a whole.

Martin Lorenzen (Analyst)

On the OBX rental fleet, could you update us on how many nodes you currently own?

Robert Curda (CFO)

We don't normally give that information.

Martin Lorenzen (Analyst)

Would it be fair to say that you currently utilize your fleet at around 40%?

Robert Curda (CFO)

We also don't provide that information. Sorry, Martin.

Martin Lorenzen (Analyst)

On the carbon capture, that sector seems to be already industrially scaled. I think the U.S. Department of Energy just approved a $2.4 billion commitment to apply CCUS to an Indiana coal mine. I think just recently, just yesterday, BP greenlighted the $7 billion Indonesian greenfield gas project that also includes carbon capture and storage. Do you expect to be involved there, given your ongoing relationship with BP?

Rich Kelley (President and CEO)

I mean, we've had ongoing conversations with several different contractors, several different entities, but as it stands right now, we don't have anything specific to report or comment on.

Martin Lorenzen (Analyst)

Is the margin profile within the carbon capture and storage application comparable to the reservoir monitoring business?

Rich Kelley (President and CEO)

It's hard to say. I mean, there's not enough historical business there to say if you can really do a comparison between the two.

Martin Lorenzen (Analyst)

On anything water-related, could you give us a rough sense of how many customers you currently serve?

Rich Kelley (President and CEO)

On the HydroCon water meter connector, we have, within our customer base, the majority of the major water meter manufacturer OEMs that we do business with, and on the Aquana side, as you know, that product just launched this year, but we are in communications with a number of the suppliers in that industry, or customers in the industry, I should say.

Martin Lorenzen (Analyst)

Okay. And on the expense side, anything tangible you're working on currently?

Rich Kelley (President and CEO)

Nothing of note.

Martin Lorenzen (Analyst)

Okay, then good luck.

Rich Kelley (President and CEO)

Thank you, Martin.

Robert Curda (CFO)

Thank you.

Operator (participant)

Thank you, and once again, to ask a question, please press star one. We'll take our next question from Jeffrey Feldman with Primary Succession Capital. Your line is open.

Jeffrey Feldman (Analyst)

Hi, gentlemen, and thanks for taking the call for the question. You actually had a reasonably good outcome in the quarter, so good luck with that, and looking forward to the future here. My question was really simple, had to do with the changes with the Russian facility, let's say, and I wondered why the last few years you hadn't taken that action sooner. I was interested on the operating impact. Did you have any capability issues or anything there that you'd want to share, given that you don't have access to that resource any longer?

Rich Kelley (President and CEO)

Sure, Jeffrey. I'll start with why the action wasn't taken sooner. The reality is that we were still able to operate in Russia for the last several years, even with the sanctions, but what's happened recently is several of the large Russian oil seismic contractors ended up on the sanctions list, which means that our Russian entity would not have been able to do business with them, but the Russian government could have forced our hand, and then we would have been in violation of the U.S. sanctions, so it was a difficult decision, but one more politically driven than anything else, and so we decided the best thing to do was just to divest ourselves of the entity.

From an operations standpoint, we had already been working, knowing that that potential could happen, in standing up a manufacturing facility in Malaysia with a third-party contractor, as well as improving our operations here in Houston. So I think we're well suited to continue to meet the needs of the market for our equipment, even with that change in ownership. That's not to say that we cannot still have some sort of relationship through a third party going forward.

Jeffrey Feldman (Analyst)

Okay. So just to clarify, there's minimal operational impact from that change?

Rich Kelley (President and CEO)

Very minimal impact.

Jeffrey Feldman (Analyst)

Excellent. That's great. Thank you.

Rich Kelley (President and CEO)

You're welcome, Jeffrey. Thank you.

Jeffrey Feldman (Analyst)

Thank you. Okay. Do well.

Operator (participant)

Thank you. We'll take our next question from Scott Bundy with Moors & Cabot. Your line is open.

Scott Bundy (Analyst)

Good morning, guys. Just a question regarding the Russian subsidiary. We had cash over there. Is that cash retrievable, or is it lost?

Robert Curda (CFO)

We've retrieved some of that cash, but we're not going to be able to get all of it.

Scott Bundy (Analyst)

So Robert, with the 17 acres for sale next to the plant, what's the status of that?

Robert Curda (CFO)

We're still working through that contract with the buyer, but we expect we'll see that to the end.

Rich Kelley (President and CEO)

The expected impact is early next year, Scott.

Scott Bundy (Analyst)

So first calendar quarter, correct?

Robert Curda (CFO)

Yes, sir.

Rich Kelley (President and CEO)

Yeah, somewhere in that time frame.

Scott Bundy (Analyst)

On your report here, you've got assets for sale, something in the vicinity of about $1.8 million. What is that?

Robert Curda (CFO)

It's a facility we have in Colombia.

Scott Bundy (Analyst)

That's been for sale for some time, correct?

Robert Curda (CFO)

Yeah. It was for sale in the past, and then we leased it out to someone who could use the warehouse, and now we've decided to put it up for sale again.

Scott Bundy (Analyst)

Are we reasonably optimistic of a sale within six months?

Robert Curda (CFO)

We're just beginning the process. I don't see why that's going to be a problem, but this is early in that search for a buyer.

Rich Kelley (President and CEO)

We're still waiting on our broker to give us an opinion on what's going to happen with the Colombian market.

Scott Bundy (Analyst)

Okay. And so, Rich, just seasonality associated with the water business, the run rate in the fourth quarter was really good. Aquana, are you willing to tell us how much revenues, Aquana, or some percentage of revenues Aquana contributed?

Rich Kelley (President and CEO)

I mean, as you know, Scott, we don't provide that kind of guidance. So unfortunately, I won't be able to share that. But as far as seasonality in general for the HydroCon water meter connector, we do see a slight slowdown in the calendar fourth quarter, and we are seeing that. But we still expect to have, and we do have strong backlog in that for calendar year 2025. So we expect them to be on track for another strong year in the water space.

Scott Bundy (Analyst)

Finally, Robert, I assume because you didn't put anything in the release that there were zero shares bought back in the current quarter?

Rich Kelley (President and CEO)

That's correct.

Scott Bundy (Analyst)

Okay. Thanks, guys.

Rich Kelley (President and CEO)

Thank you, Scott.

Operator (participant)

Thank you. It appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

Rich Kelley (President and CEO)

Thank you, Shelby, and thanks to all of you who joined our call today. We look forward to speaking to you again on our conference call for the first quarter of fiscal year 2025 in February. Goodbye and have a good day.

Operator (participant)

That concludes today's teleconference. Thank you for your participation. You may now disconnect.