Geospace Technologies Corporation

Welcome to the GeoSpace Technologies second quarter 2025 earnings conference call. Hosting the call today from GeoSpace is Mr. Rich Kelly, President and Chief Executive Officer. He is joined by Robert Kurda, 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. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, press star 0. It is now my pleasure to turn the floor over to Rich Kelly. Sir, you may begin.

Thank you, Beau. Good morning

and welcome to GeoSpace Technologies conference call for the second quarter of fiscal year 2025. I am Rich Kelly, the company's Chief Executive Officer and President. I am joined by Robert Kurda, the company's Chief Financial Officer. In our prepared remarks, I will first provide an overview of the second quarter, and Robert will then follow up with more in-depth commentary on our financial performance, as well as an overview of our financials. I will then give some final comments before opening the line for questions. Today's commentary on markets, revenues, land 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, 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's recorded information is time-sensitive and may not be accurate at the time when listened to the replay. Yesterday, after the market closed, we released our financial results for the period ended March 31, our second quarter of the fiscal year. For the three months ended March 31, 2025, we reported revenue of $18 million, with a net loss of $9.8 million. For the first half of our fiscal year, we had $55.2 million in revenue, with a net loss of $1.4 million. Like many companies, the second quarter provided volatility for our company. We had record performance in our smart water segment, with our Hydrocon Universal Connectors continuing to outperform year over year. We are also experiencing increased interest in our quantum product offerings. We anticipate continued organic growth in this market segment. Offsetting that is the ongoing uncertainty in the energy solution segment. Global trade concerns, tariffs, and decrease in oil prices have impacted private decisions for our customers, resulting in delayed and canceled opportunities. The OVN rental market and land equipment sales continue to underperform previous years. That being said, we recently announced a Mariner contract and have ongoing inquiries for possible future requirements for OVN solutions. Combined with the ongoing PRM studies, this reinforces the market's interest in our technology and possible future resilience. Our intelligent industrial segment is negatively impacted by tariffs concerns, especially for our Exile products. Recognizing those external factors, we are working to optimize our supply chain to minimize the impact to our company and our customers. Our industrial center products remain steady, and with increased interest in American-made products, there are more inquiries into our contract manufacturing business. We are well positioned to exploit the tremendous potential we have created with our innovative IRT technologies, our talented staff, and our continuing diversification into new high margin markets in the smart water and intelligent industrial segments. Additionally, our current backlog places us in a strong position going into the second half of the year. Importantly, the long-standing strength of our balance sheet with no debt and $19.8 million in cash and short-term investments, demonstrate our conservative approach to managing the business. Executive leadership continues to address workforce costs and development expenses on our path to sustained profitability. Beyond our traditional conservative fiscal management in our profitability plan, we continue to pursue growth and acquisition and immediately accretive additions to our top-line revenue. Overall, I have continued optimism that our company is well positioned to perform in our newer markets. I will now turn the call over to Robert to provide more detail on our financial performance.

Thanks, Rich. 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 this morning. In yesterday's press release for our second quarter, ended March 31, 2025, we reported revenue of $18 million compared to last year's revenue of $24.3 million. The net loss for the quarter was $9.8 million or $0.77 per diluted share. Compared to last year's net loss of $4.3 million or $0.32 per diluted share. For the six months ended March 31, 2025, we reported revenue of $55.2 million compared to revenue of $74.3 million last year. Our net loss for the six-month period was $1.4 million or $0.11 per diluted share compared to last year's net income of $8.4 million or $0.06 per diluted share. Our smart water segment generated revenue of $9.5 million for the three-month period ended March 31, 2025. In comparison, revenue for the same prior year period was $6.4 million, an increase of 48%. Revenue for the six-month period of 2025 was $16.8 million compared to $10.6 million from the same period of fiscal year 2024. This marks the record high level of second quarter and first half revenue for our smart water segment. Our energy pollution segment second quarter revenue totaled $2.6 million. This compares to $11 million in revenue for the same period of fiscal year 2024, representing a decrease of 77%. Revenue for the six-month period of 2025 is $26.9 million, a decrease of 47% over the equivalent prior year period of $50.9 million. The decrease in revenue for the three-month and six-month periods was due to lower demand for our marine wireless products and lower utilization of our marine ocean bottom node rental fleet. The three-month period was also impacted by concerns of collectability of receivables from the OVN rental customer. Our concern resulted in the rent receivable balance due from this customer, $2.2 million, to be reversed against rental revenue. Any future cash we receive from this customer will be recognized as rental revenue. The intelligent industrial segment revenue totaled $5.9 million for the three-month period. This compares to $6.7 million from the equivalent year ago period, representing a decrease of 13%. Revenue for the six-month period of fiscal year 2025 was $11.5 million. This compares to the same prior year period revenue of $12.6 million, a decrease of 9%. The decrease in revenue for both periods was primarily due to revenue recognized for the three- and six-months ended March 31, 2024, on a government contract that we completed in the fourth quarter of fiscal year 2024, and lower demand for our imaging products. The decrease for both periods was partially offset by an increase in demand for our sensor products. Our operating expenses increased by $1.6 million, or 16%, for the second quarter of 2025, and increased $4.6 million, or 23%, for the six-month period ended March 31, 2025. The increase in operating expenses for both periods was due to higher personnel costs, increased research and development project costs, and higher sales and marketing expenses. Our six-month cash investments into our rental fleet is $900,000, and property and plant equipment investments is $4.4 million. Our balance sheet at the end of the second quarter reflected $19.8 million of cash and short-term investments, and our credit facility has available borrowings of $15 million as of March 31, 2025. Additionally, the company's working capital is $71 million, which includes $36 million of trade accounts and financing receivables. Lastly, we own real estate holdings in Houston and around the world that are owned free and clear without any leverage. This concludes my discussion, and I'll turn the call back to Rich.

Thank you, Robert. This concludes our prepared commentary, and I will now turn the call back to the moderator for any questions from our listeners.

Thank you, Mr. Kelly. Ladies and gentlemen, at this time, if you would like to ask a question, please press star one on your telephone keypad. If you find your question has been addressed, you may remove yourself from the queue by pressing star two. Once again, that is star one to ask a question, and we will pause for a moment to allow questions to queue.

And we'll take our first question

this morning from Bill Duzellem at Keaton Capital. Bill, please go ahead.

Thank you. First of all, you mentioned the cost-cutting that you all continue to work on. What are you thinking about as far as the break-even level, or is that even the way at which you're approaching the exercise?

Good morning, Bill. Good question. We're really more

focused on strategic cost-cutting. So, as we evaluate our overall, you know, individual business units, which ones continue to make sense? Which ones are we going to invest in going forward, versus which ones we're considering possible making changes? So, it's more strategic and really just kind of focus

on what makes the best sense for the business.

That's helpful. Thank you. And then the Mariner contract. I believe in the press release you have a phrase similar to interest in possible future requirements, something to that effect. Would you please discuss what that means? It sounds like that's code for something more interesting.

That's a good question. So, that's a new customer for us over in the Caspian area. And I think they have a business strategy where they anticipate increased activity in that area. So, once they're operational, I think that they'll be evaluating what their future business might look like. So, we're definitely having discussions to get a partner with them going forward to help them grow and develop their business.

That is helpful. Thank you. And then the federal government is working on a budget. What do you know about the implications of that budget for you all and from the various businesses?

I wish my crystal ball was more clear on that.

I don't think Congress even knows what they're doing sometimes. I will say that we are pretty bullish for our border security products. I think as you read in the press, there's lots of interest in border security, border protection, and they're going to be looking at technologies and solutions that help them secure the border. So, I think that's all positive for us. We've not gotten any news or any mutations from them specifically. I think we just feel fairly bullish about it. The things can be done on the defense side. They are focused on growing the defense part of the country. And again, even though we don't today know any specific opportunities, we feel pretty good about it. And the conversations we are having with our partners. So, overall, if Congress can actually reconcile and have a budget, I think it's going to be positive for us as a company.

And Rich, do we understand correctly that the continuing resolution that the budget seems to have perpetually been under, that that has negative implications or had negative implications for you all, whereas passing an actual budget, even if it is at the end of the year, does have some positive, potential positives for you all? Is that correct?

It's interesting, you know, who you speak to in regards to the continuing resolution, because even though it was a PR, it does seem that Congress and the administration are reshuffling those dollars. So, there are possibilities that some of our projects get funded as they try to divert more money to border security. So, we are following that closely and we're talking to our partners, both our lobbying partners and our commercial partners. So, it's interesting to see what happens over the coming months.

And as funds may be favorably diverted, do you sense that those are for different applications that you have been testing for up to this point, or is it a continuation of what the Border Patrol has been evaluating for many quarters now?

So, we went to the Border Security Expo a few weeks ago over in

Phoenix, and I would say the message is it's an all-in approach. So, whether it's boots on the ground, whether it's the technology, whether it's support functionality, I think the message from Homan and Noam was it's all in to try to secure the border. So, I think if you have an interesting solution that meets their mission, then you're going to have an opportunity in that space. So, if you think about what we offer today, I think it's an interesting technology with regards to tunnel detection and tunnel prevention.

So, I feel pretty good about that.

Great. Thank you. And then one additional question on the PRM front that you referenced in the release and your remarks, the ongoing discussions. What implications, if any, have you heard from those that you were in discussions with about lower oil prices and or tariffs negatively impacting their decision process?

That's a good question and one that we are obviously monitoring closely. You know, our ongoing discussions, as we've said in the past, are mostly with national oil companies, not necessarily the independents, and so their decision making is more strategic long-term than possible short-term impacts with regards to tariffs and things like that. So, they are still, we're still having conversations. They're still interested in the technology. They look at it as how to maximize the return on their investment on their overall reservoirs over the life of the reservoir. And they look at the PRM technology versus modal technology. And if you do a total cost of ownership over the life of the reservoir, PRM starts to make sense. And so, I think that they're still interested in the technology. The feed studies are still ongoing. And so, ultimately, it's that the national company has to make the decision on how they want to feed. But it certainly is a short-term concern, but I think long-term in their decision making process is not as much of a weight as what they can gain overall from the technology.

Great. That's all for our one. I'll step back and let someone else ask about Iqwana and others. Thank you very much.

Thanks, Bill. I appreciate it. Thank you. Just a quick reminder, ladies and gentlemen, any further questions this morning, please press star one. We'll go next now to Sheldon Grocksky of Grocksky Associates.

Good morning, everybody. Back on February 17th, you announced that you had this $7.6 million contract from Mariner Ocean Bottom Nodes. Was that all received in the quarter, or was any of that received in the quarter?

No.

Okay. Who is?

You made the announcement, but the delivery was always planned for later in the year.

Okay. So that was not in there. Okay. Well, I think I'm kind of hoping you guys can touch the bottom in this quarter. This is rather dramatically poor results, especially in terms of the revenues. And is there any expectation that the revenues will continue at this low level? I know you had some odd items in the quarter, and now you just make something that didn't happen in the quarter. But I would think that it... Go ahead. Go ahead.

Yes, Sheldon. I appreciate the question. I think if you look historically at Geospathe, the second quarter has always been a challenge for the business. Just from the cyclical nature of how we operate, we do anticipate with our backlog that we're going to be much stronger in Q3 and Q4. And our indicators that we're looking at point in that direction as well. So I think, as I mentioned, there's some push out on some schedules that no significant cancellations. We have some small things, but most significant cancellations, our customers are still engaged. They're monitoring very closely what's going on in the market space. As everybody knows, it's very volatile right now, especially on the oil and gas side. But a lot of these investments that our partners and our customers are making, they're more longer-term decisions. So, yeah, I think there's risk there, but we're not overly pessimistic at this point.

But Sheldon, also, if that announcement gave you the impression we expected that revenue to happen in Q2, we'll do a much better job of communicating when we expect that to happen in the future. Because there was never plans for Q2.

Yeah, we announced the partnerships, but the customer always anticipated taking delivery in the later quarter.

Thank

you. Mm-hmm.

Thank you. And just a final reminder, ladies and gentlemen, any further questions this morning, please press star one at a time. And we'll pause

for just one moment. We'll go next now to Scott Bundy of Moores and Catholic. Scott, please go ahead. Morning, guys. Just a couple of quick questions. Robert, the sale of the 17 acres, you guys anticipate that we will... that will be completed in the current quarter? Yes, sir. That's our anticipation as of today. And it was originally discussed that was sort of in the 7 to 10 million range. Is that still accurate? That's... it's in that range, sir. And the... there was a discussion in your 10Q last time that the National Oil Company would make a final investment decision for PRM sometime in the current quarter. Is that still the case? So, there may be a little bit of confusion, Scott.

There is a decision with regards to the... the feed study is due in the current quarter.

How do you make a decision based on that feed study to come later on? Okay. And lastly, can you give us a rough idea of what sort of revenue number you need from the water business to begin making money given your allocated costs? From our smart water division?

Correct. Is that what you're asking? Correct. I mean, we have... when you say start making money, are you talking about profitability for the entire company or profitability for that division? I mean, we can... it has operating income for the quarter.

So, last quarter... It has operating income for the year. Yeah. So, in the 10Q last quarter, we increased revenues pretty dramatically, but the costs associated with those revenues were also pretty substantial. It didn't look like you were making any money. That's what I'm trying to understand.

Yeah, we made money. We had operating income from there last quarter. So, I... you know, we're going to continue to make money from that segment going forward, even with the change in our allocation methodology for the new business segment.

Yeah. I think

last quarter was a result of how we allocated our overhead expenses. Not so much the business segment itself. That's exactly right.

And I don't anticipate the scenarios that generated that to reoccur this fiscal year. That doesn't mean the scenarios can't reoccur in the future, but it won't happen again this fiscal year.

And last... my last question, regarding a quantic, can you give us an idea of what percentage of a quantic is of the revenues?

It still continues to be an insignificant portion. Single digits,

Scott. And do you anticipate that to change over the course of the next nine months, or in terms of people trusting and using the product?

So, what I would say is, over the next nine months, probably not... we're not going to see that kind of thing, because it's compared to the overall revenue of the corporation. I would say that as a percentage of our water segment, we will see that increase over the coming period. You know, we've talked about this in the past. The water municipalities are slow to adopt technology, but we're getting great positive feedback from the pilots that we have. And so that distribution pipeline is 12 to 18 months from initial pilot to decision making. And then of course then they phase that in over time. So I would say that in our business plan, we're looking at 24 to 36 months, what a quant is going to look like

with regards to significant impact on the corporation. And what do you determine to be significant? More than 10%. Okay. Thanks, Scott. Yeah,

we'll not comment on that. Remember, you know, any large energy solutions fail can significantly change the ratios. So we like to look at base business versus those kind of one-off fails that we do get from time to time.

No, I understand. Thanks, Scott. Thanks, Scott. Appreciate it.

Thank you. We'll take a follow-up question now from Bill DeVille. Bill, please go ahead.

Thank you. I actually want to continue down the smart water path because I realized that I have a tendency to jump to what's exciting and new, which in this case is Iquana, and pass over kind of where the real bulk of activity is, which is in the hydrocon connectors. So you've talked about, I think, 20-some million connectors, and in response to the last questioner's question, you said that it takes time for essentially the flywheel to get moving. So the question is relative to the hydrocon connectors, are you at some point where you anticipate an increasing rate of growth and essentially where there's just a massive momentum behind that business now? And the answer is yes or no. Would you provide some more feedback and color around how that business has developed? Right now it feels like you're in overnight success and what the opportunities and risks are. And I jokingly say overnight success because it's taking you years to get here.

I appreciate that, Bill, because the figure cycle is not really clear overnight for most people. But yeah, I mean, hydrocon has been a part of geostasis history. It was organically developed over 10 years ago. And we've been partnered with our shooting partner, NICOR, for a number of years. And between the two of us, we've done a great job building the inertia within the municipalities as making that connector the connector of choice. And what we're seeing today is, and we have seen for the last few years, is that continued 10 to 15 percent growth year on year adoption. We work directly with the OEMs now with regards to smart heaters. So all the major players are customers of ours now. Even the ones that have their own connectors, you see pressures in the municipalities to adopt the hydrocon as a solution of choice. And so, yeah, it's been a very bright spot for geostasis for the last number of years. We make good margins on that. It drives a good portion of our production here in Houston. And we're producing around five million connectors a year now and generating a significant, a good portion of our revenues and

margins are coming out of that business. And is there, is there anything,

I guess, are you seeing an increased level of adoption so that 10 to 15 percent growth becomes a larger number as you as you move forward? And if we look at this particular quarter, the numbers were significantly greater than 10 to 15 percent, pushing up over 40 percent.

Yeah.

And we're very happy about that. I don't, I tend not to be overly optimistic because there is a certain level, not that we're anywhere close to that, but there is a level of separation where the larger municipalities that buy in very large chunks, once they're adopted, then it transitions to kind of a medium and smaller municipality where you don't get the same volume, larger number of customers, smaller volumes. And so we still continue to expect growth. We're playing around growth. We have lots of flexibility on our mega-factor capacity. We see economic, that the economy is a scale at larger volumes. So we're able to adapt and be flexible with regards to market requirements. So, I mean, that is one of our best-performing business centers for us today, our 10 product lines.

Bill, I also want to remind you that we had a very good year in 2023. And unfortunately, at the first half of 2024, our customers had overbought in the prior fiscal year, which led to a very poor first half in 2024. So the growth that we're seeing now in those two comparative areas is the result of overbuying from two years ago.

Yeah, we have to kind of go back to the supply chain crunch of 2022, 2023, where our customers were really nervous about being able to meet their customers demands. And so they bought our capacity as much as they could to make sure they could meet their requirements. And as Robert said, it's moved out through the first part of 2024. And I think we're back into kind of normal growth now. So I think if we see, we'll be monitoring closely -on-year growth Q3 and Q4 just to see if we're seeing that same sort of trend. But for sure, we get lots of inquiries and this whole AMI smart year movement, now that there's proven business cases at large and meet middle-sized municipalities, the other municipalities who have been hesitant to make the decision, they're starting to see the ROI on that and starting to make the same sort of investment.

Well, first of all, I want to say keep your pessimism so that we can continue to have 40% growth. That's fantastic. Would you say that you've shifted from the early adopters now to kind of the mainstream? Is that where we're essentially at in the cycle?

Yeah, absolutely. As I said, those early adopters, several was waiting to see a business case and a true ROI for making the investment in AMR, AMI. Those cases are well published now, well communicated. We've had several conferences and conventions throughout the year in this space. It's not a question of if they're going to make an investment. It's a question of when they're going to make the investment now.

That's helpful. One additional question then, recognizing that the Aquana smart valves are not, truly not a market of any size today, but as you look out in terms of what the Aquana market size could be versus the size of the Hygrocon market, how would you relate those to each other?

That's

a

good question. So if we look at the opportunity, the total addressable market in this space, there's roughly 60 million water control valves in the nation. And just this dumb curve stop, turn the water on, turn the water off for a resident or for a company. And of that, there's still a lot of municipalities that don't actually install meters or don't measure water. And so I think that's a real opportunity. There's some of the opportunity. Of the ones that have it, they're putting smart meters in. Now the next question is, how do I save money by being able to remotely shut off the water at the actual pit or at the actual water control valve? And that's the part that's now getting traction is, if you look at the operating cost to send a person in a truck out to a residence to turn the water off for non-payment or move in, move out, and then back, you know, today that's somewhere between $188 to $250 each time they do that. So there is a business case for making an investment in a remote shutoff valve where they can, sitting in a new office, turn that valve off and then turn that valve back on fairly quickly without having to pay overtime or have HSE risk for seeing someone out there. So that's a business case. We do have some practitioners with that, some examples to point to now. So similar to Hydrocon, you know, you had earlier doctors on Hydrocon, now it's not a question of this, but when? We see that same mentality playing out in the nationalities for a quantum. So we're in the if period right now. Does it make sense, you know, if we install it? And I think in the next couple of years you're going to see it's not necessarily if but when. There's actually a business case for it. There's actually a cost savings model for it for the municipalities.

Great. Thank you both and I appreciate the time you've spent.

Thanks, Bill. Have a good day. Thank

you, sir. Thank you, gentlemen. It appears we have no further questions this morning. Mr. Kelly, I'd like to turn things back to you for your closing comments.

Thank you, both. 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. Goodbye and have a great day.

Thank you, Mr. Kelly. And ladies and gentlemen, that will conclude the GeoSpace Technology Second Quarter 2025 earnings conference call. Again, thanks so much for joining us, everyone. And again, we wish you a great day. Goodbye.