GEOSPACE TECHNOLOGIES CORP (GEOS) Q4 2021 Earnings Call Transcript

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GEOSPACE TECHNOLOGIES CORP (GEOS 2.04%)
Q4 2021 Earnings Call
Nov 19, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Geospace Technologies' Fourth Quarter 2021 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rick Wheeler, President and Chief Executive Officer. He is joined by Robert Curda, the company's Chief Financial Officer; and Mark Tinker, CEO of Geospace subsidiary, Quantum Technology Sciences. Today's call is being recorded and will be available on the Geospace Technologies' Investor Relations website following the call. [Operator Instructions]

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

Rick Wheeler -- President & Chief Executive Officer

Thank you, Britney. Good morning and welcome to Geospace Technologies' conference call for the fourth quarter of our 2021 fiscal year. I'm Rick Wheeler, the company's President and Chief Executive Officer and I'm joined by Robert Curda, the company's Chief Financial Officer, and also with us this morning is Dr. Mark Tinker, CEO of Quantum Technology Sciences, our subsidiary.

I'll first give an overview of the year-end and Robert will follow with in-depth commentary on our financial performance and after a few last remarks, we'll open the line for questions for Robert Mark and I to try and answer.

Some of today's statements may be forward-looking as defined in the Private Securities Litigation Reform Act of 1995. This includes comments about markets, revenue recognition, planned operations and capital expenditures. Such statements are based on our present awareness, while actual outcomes are affected by factors and uncertainties we cannot predict or control. Both known and unknown risks can lead to performance and results that differ from what we say or imply today. Such risks and uncertainties include those 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. And I encourage everyone to browse the site to learn more about Geospace and our products. Note that the information we record this morning is time-sensitive and may not be accurate at the time one listens to a replay.

After the markets closed yesterday, we released our financial results for the fourth and final quarter of fiscal year 2021, which ended September 30, 2021. While the year was challenged by the ongoing havoc and instabilities related to COVID-19, we were pleased that revenue for the full fiscal year increased by 8% over last year. This is a near match to the revenue we achieved just before the pandemic in fiscal year 2019. However, performance over the year for each of our market segments was mixed. The Oil and Gas Market segment experienced a reduction in revenue of 15%. Lower demand for our traditional marine products was a factor, however, the largest reduction stemmed from fewer rentals of our OBX ocean bottom recording systems. Despite this overall reduction, the last two quarters of the year experienced consecutive increases and rental revenue from our OBX equipment. This suggests that OBX demand is improving as both new and earlier stalled projects move forward.

As the world emerges from the pandemic, fueling global economic recovery has increased energy demands resulting in higher oil prices. This bolsters the likelihood of improved demand for our seismic products, however a lag in time typically occurs between higher oil prices and greater demand for our products. This lag in part is the result of decisions by exploration and production or E&P companies to allocate major portions of their cash flow toward shareholder reward initiatives such as stock buybacks and dividends as well as debt reduction. While this may be a short-term trend until E&P operators begin to reinvest capital in exploration and production, challenges will remain for our Oil and Gas Market segment.

And more upbeat news, we received a new request for our proposal from a major oil company for a permanent reservoir monitoring or PRM system. If after due consideration, we provide a proposal, there is no assurance that a contract will be awarded, nor if so that it would be awarded to us. However, the presenting of this formal request in conjunction with the level of interest and quality discussions underway with other E&P companies, gives us great encouragement that the potential for future PRM contracts is high.

In contrast to the Oil and Gas Market segment, our Adjacent Market segment reported an increase in full-year revenue of 27% over last year. Industrial products made up the largest increase due to greater demand for our water meter cables and connectors as well as for our contract manufacturing services. Higher sales of our graphic imaging products also boosted revenue in this segment. These products as used in merchandise and textile printing has seen demand grow with the reopening of sporting, entertainment and other social events and gatherings. There was no revenue from our IoT smart water valves and cloud platform secured through our recent Aquana acquisition. However, we are actively rolling out these products in close cooperation with potential customers to incorporate their requirements. We expect revenue from our Aquana products to begin in fiscal year 2022, this coming fiscal year.

As our Emerging Market segment, fiscal year 2021 marked a major milestone in the achievement of meaningful revenue from our Quantum Technology Sciences subsidiary. For the full year, this segment generated over $10 million primarily associated with our contract to provide the US Border Patrol with an advanced high tech border security solution. We firmly believe the value of actionable information provided by our Quantum Solutions will lead to future contracts across multiple US government entities.

Now, just ahead of turning the call over to Robert, I'm pleased to announce that as of this week we have succeeded in fully executing the $7.5 million stock repurchase plan that our Board of Directors approved in November of 2020. Under this program, we returned meaningful value to our shareholders through the repurchase of nearly 842,000 shares of our common stock.

And with that, I'll now turn the call over to Robert for financial details.

Robert Curda -- Vice President & Chief Financial Officer

Thanks, Rick, 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 this morning.

In yesterday's press release for our fourth quarter ended September 30, 2021, we reported revenue of $19.4 million compared to last year's revenue of $21.5 million. The net loss for the quarter was $5 million or $0.39 per diluted share, compared to last year's net loss of $3.9 million or $0.29 per diluted share. For the 12 months ended September 30, 2021, we reported revenue of $94.9 million compared to revenue of $87.8 million last year. Our net loss for the 12-month period was $14.1 million or $1.05 per diluted share, compared to last year's net loss of $19.2 million or $1.42 per diluted share.

Our Oil and Gas Markets revenue is as follows: Our traditional seismic product revenue for the fourth quarter was $800,000, a decrease of 29% compared to revenue of $1.1 million last year. The decrease in revenue for the comparative three month period is due to lower demand for the rental and sale of our traditional seismic products. Revenue for the 12 months of 2021 was $4.5 million, a decrease of 32% compared to revenue of $6.7 million for the same prior year period. The reduction of revenue is due to lower sales of our marine seismic products, lower utilization of our traditional seismic products, offset by higher sales of our seismic sensors.

Our wireless product revenue for the quarter was $9.6 million, a decrease of 26% compared to revenue of $13 million last year. Wireless product revenue for 12 months was $45.8 million, a decrease of 15% compared to revenue of $54.1 million for the same period last year. The reduction in revenue for both the three month and 12-month period is due to lower utilization of our OBX rental fleet caused by the effects from the COVID-19 pandemic. The reduction in revenue for the 12-month period is offset by the recognition of a $12.5 million sale related to a land base seismic wireless system delivered to a customer in the prior year. The $9.9 million sale of used OBX rental equipment to the former lessee, and a $2.9 million sale of land base wireless products.

Our reservoir product revenue for the three and 12-month periods ended September 30, 2021 was $300,000 and $2 million respectively. These reflect increases of $200,000 and $1 million when compared to the three and 12 months periods last year. The increase in both periods is due to a higher level of performed engineering services. We believe the best opportunity for meaningful revenue from this segment will be from the future contracts for the design, manufacture and deployment of PRM systems. We continue to discuss PRM products with multiple customers.

Moving onto our Adjacent Market segments. Our industrial product revenue for the fourth quarter of fiscal year 2021 was $5 million, an increase of 24% over the fourth quarter of 2020. Industrial products 12-month revenue for fiscal year 2021 is $21.5 million, an increase over the same period in 2020 and 37%. Both periods' revenue increases are due to higher sales of our water meter cable and connector products and higher demand for our contract manufacturing services. Imaging product revenue for the fourth quarter was $3.1 million, an increase of 13% compared to last year's revenue of $2.7 million. The 12-month revenue for imaging products for fiscal year 2021 is $11.1 million, a 13% increase when compared to the same period in 2020. The increase in revenue for both periods is due to increased demand for our thermal imaging products.

Finally, revenue from our Emerging Markets segment totaled $170,000 for the three-month and $2.2 million for the 12-month period ending September 30, 2021. Prior year revenue was $177,000 for the fourth quarter and $734,000 for the 12-month period ending September 30, 2020. The increase in revenue for the 12-month period over the prior year is due to the contract awarded in April 2020 with the US Border Patrol. We expect to complete this contract during the second quarter of fiscal year 2022.

Our fourth quarter of the fiscal year 2021 operating expenses decreased by $1.2 million or 14% compared to the fourth quarter of 2020. The 12-month operating expenses decreased by $8.3 million or 20% when compared to the same prior year period. The decrease in operating expenses for the three-month and 12-month periods is due to reduced personnel costs related to our cost reduction program that began in fiscal year 2020, a noncash decrease to the fair value of contingent earnout liabilities for our Quantum and OptoSeis acquisitions, a decrease in research and development project costs and a reduction in general business expenses related to our business operation. The decrease in operating expenses for the three-month period was partially offset by higher selling and marketing costs related to travel -- related to an entry [Phonetic] level conferences and trade shows previously restricted by the COVID-19 pandemic.

Our 12 month cash investments into property, plant and equipment were $3.2 million. Our cash investment into our rental fleet was $2.1 million as of September 30, 2021. We expect fiscal year 2022 cash investments into our rental fleet to be approximately $3 million and cash investments into our property, plant and equipment to be $4 million. Our balance sheet at the end of the fourth quarter reflected $23.6 million of cash and short-term investments. We currently have no debt and own numerous real estate holdings in Houston around the world that are owned free and clear without any leverage. That concludes my discussion.

And I'll turn the call back to Rick.

Rick Wheeler -- President & Chief Executive Officer

Thank you, Robert. Despite the many negative impacts of COVID-19 throughout the year, our 2021 fiscal year held some remarkable accomplishments. Full year revenue from our Adjacent Market segment reached its highest figure ever in the company's long history. The year also marked the beginning of meaningful revenue from our Quantum subsidiary and the Emerging Market segment. Moreover, combined revenue from products and services outside of our Oil and Gas Market segment made up 45% of the year's total revenue. This serves as a testament to the power of our diversification strategy and the afforded benefit of transitioning our technologies into other markets. This path forward is further evidenced in our recent addition of Aquana and its smart water management products. Likewise our announced partnership with Carbon Management Canada to develop a cost-effective solution for monitoring carbon storage with sophisticated Quantum analytics is another example. Both endeavors seek to improve the environment through better management of water resources in one case and helping industry reduce atmospheric CO2 in the other. In conjunction with our strong debt-free balance sheet these pursuits give us optimism that the opportunities for our growth are outstanding.

This concludes our prepared remarks and I'll now turn the call back over to Britney for questions.

Questions and Answers:

Operator

The floor is now open for questions. [Operator Instructions] Our first question comes from Matt Dhane with Tieton Capital.

Matt Dhane -- Tieton Capital -- Analyst

Thank you. I wanted to touch on your commentary around the Border Control contract being completed here in the second quarter of fiscal '22. I was surprised to hear that I thought it was more or less completed. Is there significant revenues that still remain to be realized from that contract? And what are you still doing on that contract, if you could do?

Rick Wheeler -- President & Chief Executive Officer

There are not any significant revenues associated with that. We're really just wrapping up the contract. We have some very minor things to complete with them. Some training to do. Things of that nature. We're just getting toward the end of it.

Matt Dhane -- Tieton Capital -- Analyst

And I -- should it -- would it be safe to assume that conversations continue actively with the Border Patrol and how would you characterize those conversations and what's been their reaction to what they've experienced and seen so far with the system that is actively laid [Phonetic] right now?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

Hi, Matt. This is Mark.

Matt Dhane -- Tieton Capital -- Analyst

Hey, Mark.

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

The relationship remains very positive of course. Performance has gone very well. We're very proud of that and the team that we have developed to do something so complex. They, of course, are subject to what's happening on the hill with continuing resolutions. And so it's going to be a little bit of a wait and see for what's next as we work through this budgeting period and see what will ultimately happen with the Homeland Security budget that we -- it's hard to predict of course, but we hope to see and have go into law sometime in the spring.

Matt Dhane -- Tieton Capital -- Analyst

Great. And I -- from my understanding, I believe expectations, there was already an expectation that the system will perform well. Has it exceeded even what you believe the individuals at the Border Patrol expected it to do and as it surpassed expectations?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

I can't answer for them. Of course, I can tell you as a seismologist and one of the innovators of it, that I'm very happy. I'm very pleased with how it has gone, both in our manufacturing of it. It's a very complex system. So Geospace and Quantum bringing our mutual capabilities into a single solution. That's a big milestone for us that we're now going to leverage going forward into many different applications in the future. I'm pleased, we're getting it in the ground. These are seismic acoustic systems and how we get them there is important in an efficient and cost effective and environmentally friendly way. And then how it performs. These are challenging environments that we go into. We prepared for them, we did the good science and yes I could not be happier with how well the system is doing, but I'm only speaking on my behalf. I can't speak on behalf of the Border Patrol.

Matt Dhane -- Tieton Capital -- Analyst

I appreciate the commentary Mark.

Operator

[Operator Instructions] And we will -- we do have an additional question from Mark [Phonetic] Bundy with Moors & Cabot. Your line is open.

Mark Bundy -- Moors & Cabot -- Analyst

Good morning, gentlemen.

Rick Wheeler -- President & Chief Executive Officer

Hi.

Mark Bundy -- Moors & Cabot -- Analyst

So Rick, the credit facility is it the intent to increase the size of that credit facility with someone else?

Rick Wheeler -- President & Chief Executive Officer

Well, in actuality, we haven't used that credit facility in quite some time and in review of that, we thought we could do better than that. And I mean, let me let Robert speak to that because he can give you some more details on it.

Robert Curda -- Vice President & Chief Financial Officer

Yes. Our plans right now are not necessarily to increase the credit facility. It's just to look for what other options are out there and what better fits our needs today.

Rick Wheeler -- President & Chief Executive Officer

I think the last time we even utilized any kind of credit facility was back in -- was in 2013.

Robert Curda -- Vice President & Chief Financial Officer

Yes, September 2013.

Rick Wheeler -- President & Chief Executive Officer

So it's just -- it's not been something that's really benefited us or has been needed to benefit us in time since then.

Mark Bundy -- Moors & Cabot -- Analyst

So where I'm going with that is obviously in 2013, was the last significant PRM contract. I guess the interesting question from me is, if this PRM contract comes to fruition, would you need additional resources?

Rick Wheeler -- President & Chief Executive Officer

We're actually not sure that we would or would not, but I don't think we feel that we are under any stress with respect to coming out with the financial wherewithal to proceed with any of these discussions that we're having with oil and gas companies.

Mark Bundy -- Moors & Cabot -- Analyst

So, Rick, the Gulf of Mexico just had a fairly significant new leases. Is there any historical perspective that you can provide for us related to activity in the Gulf, new leases etc and what that may mean for your seismic equipment?

Rick Wheeler -- President & Chief Executive Officer

Well, certainly our OBX ocean bottom equipment has been very popular in the marine environment over the last several years and you're well aware of that. It certainly has opportunity to be used in the Gulf. There are discussions about various projects out there where we would apply. There is also possibilities for permanent reservoir monitoring systems in Gulf waters as well. So there is plenty of opportunities there, but as you well know, things change as political environments change that also impacts the future of those areas. So we'll just have to see.

Mark Bundy -- Moors & Cabot -- Analyst

Rick, am I correct, is the only other competition for this PRM contract from Alcatel or are there others?

Rick Wheeler -- President & Chief Executive Officer

I would say that in our estimation the primary competition would be from Alcatel. If there are others, they're not ones that have made themselves known to me. It does not mean they don't exist some out there.

Mark Bundy -- Moors & Cabot -- Analyst

And so I'm assuming going back a year ago when you guys declined to provide a bid that Alcatel or the others also declined to bid. And so what's different right now versus a year ago when these discussions were taking place?

Rick Wheeler -- President & Chief Executive Officer

Well, I mean, terms and conditions were tweaked a bit I guess from last time and that requires new evaluations, which is what we're in the middle of at this point in time.

Mark Bundy -- Moors & Cabot -- Analyst

And obviously when you are used the word great encouragement. Is this environment, the best environment in terms of discussions that you guys have ever had at Geospace?

Rick Wheeler -- President & Chief Executive Officer

That's a very fair statement. We have more ongoing conversations going on. None of which imply there will be any revenue in fiscal year 2022, but the level of these discussions, the depth that we're getting into on these discussions certainly is the greatest as ever been to be quite frank. And that being the case, it's very much an indication of just how well the science is understood, how much value there is in 4D Monitoring they call it on these reservoirs. They all do 4D Monitoring or Time-lapse Monitoring. They don't always use permanent systems, but there's quite a bit of return on the investment in a sooner amount of time using permanent reservoir monitoring systems. They are also much more environmentally friendly because, once you deploy the systems, then subsequent surveys are generally a single vessel towing an airgun around. So it's a very lightweight ongoing process there. So there's a lot of things that point to the effectiveness of PRM -- that may well be why we have as many conversations going on as we do, but we'll just have to see how it all plays out.

Mark Bundy -- Moors & Cabot -- Analyst

If I could just ask Mark a couple of questions. So, Mark, the Secretary of Homeland Security is supposed to submit an Annual Report to the Congressional Committee set forth in this. This would include cross border tunnels, etc. I'm sure you're quite aware of this. What I've not been able to find, is this report, but this report supposed to be pretty exhaustive as best I can tell. Can you give us any additional information on what this means and how this affects Geospace?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

Well, everybody pull up to your whiteboards. It's a very good question. But it requires more of an in depth answer than I think is, I can go into here. Our capabilities provide solution for being able to deliver to the Border Patrol actionable information. So Border Security is a key element, non-partisan for ensuring that we remain aware of anything coming across our borders. Whether it's legally through ports of entry or illegally. Threats come every day. So I'm not exactly sure what will be in his report, but we do know, surface crossings, ariel crossings and subterranean crossings are mechanisms for bringing guns, weapons, drugs and other contraband in. It's been no secret, we've talked about it quite a bit that there the requirements for monitoring. We are very attuned to and that this next level system that we've been -- that we've delivered is going to be evaluated and looked at for meeting those additional requirements. So his report, the plus up that came in the Senate Appropriations last draft language of taking border security technologies and adding another $70 million to it, it's all indications that security technologies are key element in addition to a physical barrier such as a wall to providing a complete security domain awareness along the southern border and the northern border to be included.

Mark Bundy -- Moors & Cabot -- Analyst

So have those funds been exhausted. And so therefore, we do have to wait for the -- this next, Bill, is that what you're referring to in terms of next spring.

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

I can't speak, if all the funds have been exhausted or not, privy to what remains in the funding coffers of the Border Patrol, but funds come in different colors, multi-year funds can sometimes be the case. But we're pretty sure that our next contract will be tied to the future funding cycles. And that's why we're trying to stay so attuned to the FY '22 budget.

Mark Bundy -- Moors & Cabot -- Analyst

Got it. And just lastly, can you give us a little bit of insight as to what this JV means for Carbon Management? Exxon recently put out a pretty big number of -- relative to the amount of money that they'd like to appropriate to this area. How far out is this? Where are we in terms of products and availability? Can you give us some sense of what's going on with regards to this JV?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

I'd be delighted to. So Passive Seismic Monitoring is an additional endeavor that we're taking here at Geospace. And as you know, we offer best-in-class products for the active seismic world that Rick was just talking about. So we deliver acquisition systems that record intentional energy injected into the ground to image the upper layers of the earth. But in this new movement and the expansion of energy and how it's -- how we're going to deliver energy, and it can be whether we're doing it cleanly to secure carbon, whether we're going to use geothermal or other techniques. When we're interacting with the -- with reservoirs in the upper layers of the earth by injecting fluids, these fluids could be liquids or these fluids can be gases, these reservoirs have a seismic expression. They're going to release micro earthquakes. So now we have the opportunity for passive monitoring and that's standing back and listening for that seismic expression.

So you're right, Exxon's putting a big investment out. I was pleased to attend about a month ago a conference in which I was able to hear the CEO of Oxy [Phonetic] speak. And she says this part of this new market that's coming at us is -- she said between $3 trillion and $5 trillion is her prediction. So of that very sizable market, a component of that will be the monitoring of those reservoirs. You can go look in Canada, you can look in California, you can Google for what these potential requirements will be to ensure that when we do store carbon underground, how are we going to make sure that it stays there. And how long do we have to ensure that. So that aspect of the full carbon capture utilization and storage market, that aspect is the MMV component. The verification component, and that's where we come in.

Mark Bundy -- Moors & Cabot -- Analyst

So would this be like lane sensors on the border for the Border Patrol?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

So our state, our technology that we're applying throughout -- that we have applied throughout the government to include the Border Patrol is an exact map over. So, the JV is very critical, because it allows us to have energy. The entire energy market see how well this works. So, that relationship that we have with Carbon Management Canada and they have a number of joint industry subscribers that they call it from a number of major oil companies such as Shell or Chevron or Cenovus or BP, it's an active carbon storage site. So our state, our technology that we've developed has now been deployed there and we're going to be analyzing the data and sharing those results with future -- potentially future customers.

Mark Bundy -- Moors & Cabot -- Analyst

And what do you think the cycle time is for other players, for people to evaluate this? What's sort of the evaluation is it, a quarter, two quarters, four quarters, what's your guess?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

I would say, four to eight quarters.

Mark Bundy -- Moors & Cabot -- Analyst

Okay. Thank you, guys. As always, appreciate it.

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

You bet.

Rick Wheeler -- President & Chief Executive Officer

Thank you.

Operator

There are no further questions on the line at this time. I will turn the floor back over to Rick Wheeler for any additional or closing remarks.

Rick Wheeler -- President & Chief Executive Officer

All right. Well, thank you Britney and thanks to everyone who joined our call today. And we'll look forward to speaking to you again on our conference call for the first quarter of fiscal year 2022 in February. Thank you very much, and goodbye.

Operator

[Operator Closing Remarks]

Duration: 33 minutes

Call participants:

Rick Wheeler -- President & Chief Executive Officer

Robert Curda -- Vice President & Chief Financial Officer

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

Matt Dhane -- Tieton Capital -- Analyst

Mark Bundy -- Moors & Cabot -- Analyst

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