Q1 2021 Geospace Technologies Corp Earnings Call
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Welcome to the Geo space Technologies first quarter 2021 earnings conference call hosting the call today from Geo space is Mr. Rick Wheeler, President and Chief Executive Officer. He is joined by Robert Kurt <unk>, The company's Chief Financial Officer, and Mark Tinker CEO of subsidiary Quantum Technology Sciences, today's call is being recorded.
It will be available on the Geo space technologies Investor Relations website. Following the call at this time all participants have been placed in a listen only mode and the floor will open for your questions. Following the presentation. If you would like to ask a question at that time. Please press Star then one on your touchdown zone. If at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key we ask.
Could you please pick up your handset to allow optimal sound quality lastly, if you should require operator assistance. Please press star zero. It is now my pleasure to turn the floor over to Rick Wheeler, Sir you may begin.
Thank you Darren.
Good morning, and welcome to Geospatial Technologies conference call for the first quarter of fiscal year 'twenty 'twenty, one as mentioned I'm, Rick Wheeler, the company's President and Chief Executive Officer, and I'm joined by Robert Kurt is the company's Chief Financial Officer also with US is Dr. Mark Tinker CEO of our quantum technology Sciences subsidiary I'll first give an overview of.
The first quarter and Robert will follow with some in depth commentary on our financial performance.
After a few last remarks, we'll open the line for questions that Robert Marc and I can answer.
Some of today's statements may be considered forward looking as defined in the private Securities Litigation Reform Act of 1995, including comments about product markets revenue recognition planned operations and capital expenditures.
These 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 undesirable results or differing performance from what we say your implied a day such risks and uncertainties include those discussed on our SEC forms 10-K, and 10-Q filings for <unk>.
Faineance, we will link a recording of this call on the Investor Relations page of our Geo space Dot Com website, which I encourage everyone to visit and browse.
Note that the information discussed in recorded this morning is time sensitive and it may not be accurate at the time, one listens to the replay.
Yesterday after the market closed we released financial results for our first quarter fiscal year 2021 ended December 31st 2020.
As we noted despite the negative impacts that the COVID-19 pandemic has and continues to have on our business segments. We were pleased to report that total revenue generated in the first three months of fiscal year 'twenty 'twenty, one reached $28 $5 million.
This figure exceeded each of the four quarters reported in the previous fiscal year, and Moreover, achieved our highest recorded first quarter revenue in seven years.
There were also several notable first time events that occurred in the quarter. The first of these was our first sale of a large ob ex marine nodal recording system. The system, which included 7500 Ob ex Ocean bottom Marine notes from our rental fleet along with related Central electronics was purchased by a large international seismic cant.
Tractor for $9 $9 million.
The quarter also marked the first occurrence of meaningful revenue from our quantum technology Sciences subsidiary, which makes up our emerging market segment. The revenue was in relation to fulfillment of a $10 5 million dollar contract secured in April of 'twenty 'twenty with the U S customs and border protection U S border patrol for a high technology border security.
Verity solution.
Products from our emerging market segment utilized proprietary seismic acoustics and data analytics, which provide customers in a variety of markets with actionable real time information.
And another company first revenue from our emerging markets and adjacent market segments combined to reach the highest figure ever and for the first time exceeded revenue generated in our oil and gas market segment.
This accomplishment tangibly demonstrates real and true value derived entirely from our disciplined diversification strategy. We believe this strategy will continue to create new value with its clear focus on deepening our technologies and advancing our core engineering and manufacturing carbon competencies into broader markets.
In noting yet one more first the company made its first purchases during the quarter of common shares under the stock repurchase program that we announced in November of 'twenty 'twenty.
As of December 31, 2020, the company had purchased a total of 117637 shares on the open market for an aggregate amount of $828000 or implementation and execution of this program is just one more way that we are returning value to our shareholders.
At this point I'll now turn the call over to Robert So he can provide some more financial detail.
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, our first quarter ended December 31, 2020, we reported revenue of $28 5 million compared to last year's last year's revenue of $17 seven net.
Net loss for the quarter was $1 1 million or eight cents per dilute diluted share compared compared to the first quarter of last years net loss of $9 3 million or <unk> 69 cents per diluted share.
The first quarter of fiscal year 2021 benefited from a seven 700000 net reduction in the fair value of contingent earn out liabilities related to our acquisitions of quantum on the off the size, whereas the same period of the prior year did not contain a similar adjustment.
A breakdown on for our oil and gas product revenue is as follows our traditional product revenue for the three months period ended December 31, 2020 was $1 million.
A decrease of 58% compared to revenue of $2 4 million last year. The decrease in revenue is due to lower demand for our marine seismic products repairs of customer Trish traditional seismic equipment and support services provided to our customers. We expect continued low levels of demand for these products.
And services until seismic exploration activity increases from the historic lows, we are seeing today.
Yes.
Our wireless product revenue for the quarter was $11 7 million, an increase of 31% compared to revenue of $8 9 million last year. The increase in revenue is due to a 9.9 billion dollar sale of 7500, Ob ex rental nodes and the related central electronic equipment to an international seismic contractor.
On.
This sale was partially offset by a reduction in rental revenue due to lower utilization of our rental fleet and the conversion of the rental contract into a cell youll be extra rental nodes.
We expect lower demand for our wireless products and lower utilization of our rental fleet during fiscal year 2021, due to reduced global demand for oil and gas.
As a reminder, we have not recognized revenue in fiscal year 2021, four on a 12 and a half million dollar G C O product sale.
Delivered in the second quarter of fiscal year, 2020 secured by $10 million promissory note.
As of December 31, 2020, we received $5 9 million in cash for principal and interest payments from our customer our customer continues to rank Kermit current on all payment obligations. The cash payment received in cost of revenue associated with the sales had been recorded on our balance sheet as part of long term deferred revenue.
And long deferred long term deferred cost of revenue.
We plan to recognize the revenue and cost of revenue for this transaction when we determine the collection of the promissory note is profit.
Our reservoir product revenue for the first quarter was 29000, a decrease of 87% compared to revenue of 218000 last year.
Reduced demand for engineering services, and the sales rental and repair of the company's borehole tools are responsible for the decrease in revenue we.
We do not expect meaningful revenue from these products unless and until we are engaged in a contract for the delivery of a permanent reservoir monitoring system and.
In September of 2020, we received a request to bid on a large scale P. RM system from a major oil and gas producer we.
We declined to provide a bid on the project due to terms and conditions presented by the customer. We have continued discussions with the customer to resolve these issues borrowing barring us from providing a pure EMS system.
We do not know when or if these issues will be resolved and whether it will lead to the award of the contract. We continue to have discussions with other major oil and gas producers about P. R M systems.
Moving to adjacent markets product products segment, our industrial product.
Product revenue for the first quarter was $4 4 million, an increase of 23% compared to last year's revenue of $3 6 million.
The increase in revenue is due to higher demand for our water meter connector and cables and contract manufacturing service.
We do not believe this increase in revenue marks a recovery from the effects of the COVID-19.
Paris on the demand for these products and services.
Imaging product revenue for the first quarter was $2 5 million equal to the revenue for the same period of the prior fiscal year. We believe these projects products will continue doing counter reduced demand until we see a recovery from the effects of the COVID-19 pandemic recovery for these products will not occur in <unk> and <unk>.
So there is a return of large social gatherings like conferences sporting events and concerts. These gatherings consumer sell products that are manufactured using our imaging products.
Revenue from our emerging emerging market segments for the first quarter of fiscal year 2021 is at $8 8 million compared to 100 sales and for the same period of the prior fiscal year.
The increase in revenue as a result of completing most of the obligations related to the contract with the U S border patrol that we signed in April 2020.
We expect to complete the remaining obligations of the contract during fiscal year 2021, Although we currently do not have any additional significant contracts. We believe our advanced seismic acoustic technologies in the innovative data analytics develop our volume subsidiary provides customers with capabilities.
It will lead to future contracts.
Our consolidated gross profit for the first quarter was $6 7 million compared to $2 5 million last year.
The increase in gross profit was due to the large sale of our obs rental equipment to the farmer last let's see and the partial completion of the U S border patrol contract.
These transactions were.
Partially offset by low utilization of <unk>, and obs rental equipment, and lower manufacturing productivity, increasing our unutilized factory costs.
The first quarter of fiscal year 2021 operating expenses are $88 2 million. This is a 21% decrease.
When compared to $10 3 million for the first three months of fiscal year 2020. The decrease as a result of reduced personnel cost related to our cost reduction program that began in fiscal year 2020, a noncash decrease in the fair value of contingent earn out liabilities for quantum and <unk> acquisitions.
A decrease in research and development project costs and a reduction in general business expenses related to business operations.
Fiscal year 2021 cash investments into property plant and equipment is $600000. We expect fiscal year 2021 capital investments into our rental fleet will be minimal unless new rental rental contract warrants additions to the fleet.
Investments in property plant and equipment could be as much as $5 million for the fiscal year 2021.
Our balance sheet at December 31, 2020 reflected $33 7 million of cash and cash equivalents, we had no long term debt outstanding and the borrowings available under our credit agreement was $14 7 million.
We own numerous real estate holdings in Houston and around the world that are owned free and clear without any leverage.
That concludes my discussion I'll turn the call back to Rick.
Alright, Thank you Robert.
A year is now gone by since COVID-19 began to wreak havoc on the ear to jeopardizing the health of Mannkind and disrupting whole national economies and the attempts to prevent its spread.
The world is anxious yet hopeful that the vaccines emerging today, we will provide a path to normalcy.
Our successful recovery will take some time zone and a true rendering of societies, new normal after COVID-19 is still undefined.
Therefore, many challenges remain ahead of us in fiscal year 2021, as they do for many other companies, including our customers their reduced demand for energy that we've seen over the past year is a direct consequence of the reactions to COVID-19, and we believe it is unrealistic that this reduced demand will persist once the pandemic is contained.
Renewable energy will be able to assist with some fraction of these near term needs. However, servicing a full return in subsequent growth in primary energy demand will require a better recovery from existing oil and gas reservoirs and renewed exploration for new resources.
The products and services, we offer in our oil and gas market segment are ideally suited for these tasks, especially where the required fidelity of seismic imaging demands the highest quality data.
As a new normalcy evolves and more facets of the economy ramp up we fully expect our adjacent market segment to resume the trending growth experienced prior to the COVID-19 pandemic.
And its very essence, geo space as a technology company and our adjacent markets products embody innovative solutions that leverage our extensive engineering accomplishments in a broad range of industries and our deep manufacturing skills give us the means to rapidly bring these products to market with tightly control quality and cost.
This is very convincingly illustrated by the novel technologies incorporated in the border and perimeter security solution, we are providing to the U S border patrol the features and capabilities of which have not been seen before.
We certainly anticipate challenges ahead in our 2021 fiscal year and we believe our technical focus conservative management and strong balance sheet with zero debt and ample liquidity will keep us on a path towards success.
That brings us to the end of our prepared statements and I'll now turn the call back over to Erin for questions.
Sure.
The floor is now open for questions. At this time, if you have a question or comment. Please press Star then one on your Touchtone phone if at any point. Your question is answered you may remove yourself from the queue by pressing the pound key.
We do ask that you pose your question that you pick up your handset to provide optimal sound quality.
Thank you.
Our first question comes from Bill.
<unk> with Titan capital.
Okay. Thank you I have a a group of questions, but I'd like to start with the Ob access if we could please would you discuss the circumstances that led to your customer purchasing are the rental equipment.
Sure Bill.
This customer had been.
Under a rental contract for some length of time for some significant work in projects using the obs.
Throughout their duration.
Our contracts offer the.
Accrual of equity towards that purchase and in fact, that's on incentive.
We embed in our rental contracts to facility facilitate those sorts of sales. This particular customer had rented them for a length of time and had expectations of extended rental times that it made sense for them to go ahead and exercise that option within their contract end and purchase these units.
Given the the larger.
The amount of projects that we have been seeing probably for three years now where the <unk> has taken a more dominant role and some of the the marine exploration.
And reservoir monitoring.
This is not completely unexpected and we may see some more of that going forward, but that is in essence, what led them to buy these units.
And how does the 7500 nodes that they purchased how does that compare to what what this contractor has been using on many of their their projects.
They are using more than that overall and they have more than one crude. It's also utilizing a <unk>. So this is just one of those.
Those contracts and one crew that debt is still renting some other units as well.
Great. Thank you, let me shift if I may two P. R M.
Relative to the the bid that you noted in the press release that you did not.
I guess I said bid on.
Pete that you did not have bid on.
Did anyone else a bit on that.
On.
On that piece of business.
I'm really not at Liberty to to really discuss that just based on our NDA with the with that particular oil company.
But certainly we.
We entered into our decision based on its own merits and our own and our own position.
Let me ask the question in a way that might be answerable for you do you feel as though there is still an opportunity.
With that customer and that's why your conversations are continuing with them yes.
Yes, we certainly believe that there's still opportunity there and it's exactly why we're having these conversations.
Great. Thank you and then relative to your comment in the release about.
Either P. R M.
On contracts or fields that you are under discussions with would you talk to us about the level of those conversations and how they how they compare relative to win when eight.
What an oil company really is genuine like close to <unk> ear in RFP or making a decision.
Well I think that as we see it the fields that are being examined here would not expect to see these these sorts of systems deployed until probably 2022 at the earliest.
So these are looking forward, but these discussions as you well know.
Take quite some time.
To come to terms with and to get the systems designed in and.
Suited for the fields that they're going to be deployed in.
The discussions are of high interest to you know we're not just randomly having these discussions we're being solicited to have these discussions and so that's always an encouragement, but we don't anticipate any contracts to happen imminently here based on these discussions.
Great. Thank you and then.
Let me jump to quantum if I may.
The press release, specifically states and and I believe Robert opening remarks made reference to the fact that that.
This will lead to additional contracts as.
Oil is a pretty pretty definitive statement, so I'm, hoping for a little more commentary around that please.
Alright, well actually let me let mark.
Speak to that I'm sure he's chomping at the bit to get some worse. Since you know these are very excited about what we're doing for the border patrol.
Good morning, Bill Good morning, Mark.
Ah.
Yeah. We're we're we're tracking this closely so we're excited about what we've deployed so far and we're right on cost right on schedule for that effort.
We're looking at how FY 'twenty, one appropriations is shaking out this and this time.
Of the new administration and in light of a global pandemic.
But I think what we're able to do with the value that we're adding on.
From a security standpoint.
Is going to be extremely well received.
Pretty confident that downstream from this as we work through these budgeting cycles, we will see follow on work.
And should I believe yesterday the.
New head of Homeland Security was a it was confirmed that is is that relevant to them.
Two I guess on that those of us on the outside our hope is that you would have another contract.
Would be awarded.
When this when it is completed or is that.
Is that not a disruptive factor that that having now a permanent head of homeland security removes that distraction and disruption and in fact, the favorable I'm trying to understand the significance of that.
Yes.
That's a good question and I'll try to give you a thoughtful answer.
It has two perspectives.
On the first is we can have a stable leadership.
Within the Department I don't mean, the individual's themselves I mean of them coming and going.
Working with acting secretaries, and what what's underneath them can be challenging.
For customs and border protection at the border patrol, because it's such a fluid environment and that ultimately could trickle down to us so having something stable I think to give a benefit.
The second one is with the.
On the Democrats coming into office.
They favor.
More heavily on.
Your security technologies.
And the type of security that we provide we have found to be perfectly bipartisan we've never met with anybody who.
Yeah.
Doesn't favor the security value that we offer.
So what that means is yes.
FY 'twenty one.
Has about $188 million, so far that we're tracking on plan.
Appropriations.
There might be and this is kind of the key point I say might there might be additional reallocation from border wall.
The administration is looking to to stay on that down that's going to be a lengthy process legalities involved.
But we're tracking that as well so.
Those are the two perspectives when you get stability into the Department and then the department wants to make sure that there is the appropriate balance of how you provide border security between physical and between technological.
I know I've already taken up a more of my more than my allotted time, but Marc you just said a $188 million of allocations that you were tracking them.
When I compare that to a $10 million order you had last year.
Pretty big pretty Big difference, which would you talk to us about what a what what's your.
That actually means to 188 million.
Yes, that's a good and I'm glad you brought that up its overall for border security technologies. So that so the department and border patrol will decide how they allocate that and so we are a technology we are not the only technologies.
As you might imagine that can go to facilitate things like further cameras being deployed or radars being deployed.
It's a step on the right direction for how we make.
The environment along the border.
Something that's complementary to the physical security that's currently there.
So when I think about the billions.
That generally we talk about when we when we think about federal budget.
On 100.
<unk> hundred 88 million actually seems pretty small and that are in that scope are there other pieces where oh.
That are relevant to our to the quantum business.
And that's the place that we will start.
And your your assessment of that proportion I agree with.
It does seem rather small and that's why when we start to look at.
What aspects of the law are now going to be stood down and reprogrammed.
A significant amount of money and so we wanted to make sure we're there.
Advocating for where some of those funds can go and make sure they're aligned more about the technology standpoint.
And also keep in mind as far as our current contract is coming to a close part of that is it's full.
If you will.
So we're.
I have a lot of confidence complete confidence but.
We're in a in a planned understanding that the border patrol uses for introducing any new technologies as a security and whats you step through this process of testing and evaluation.
So I have confidence that we'll come out the other side doing rather well and then we can see.
If it went on those securities funds start to elevate.
Are you under or in conversations already to a force for that next order once you've completed this installation.
I can't say that at this time.
And then lastly.
Is your equipment.
Installed in in such a location that it would give you an ability to identify illicit boats.
Meaning that if you were installed in a in Arizona.
Doesn't give you a chance to pick up anything in the Pacific Ocean, but if you were still on land in a but in southern California right on the edge of the Ocean you would be able to do that or you are you are in a position to do that.
[laughter] Bill that's a bad because that's the question but on.
I'm not allowed to say, where we currently have that installed.
Okay.
Great. Thank you.
Yeah.
Once again, if you do have a question you May Press Star then one on your Touchtone phone at this time.
We will continue to pause for any additional questions.
Yeah.
And we do have a follow up from Bill <unk> with Titan capital.
Hi, Mark I actually want to want to continue down that same path.
I was just on.
The reason for the question.
Yes, we did see where there was and a boat that was.
That was picked up.
And.
I think the Guy had a criminal record in the U S. Even though he was Uh huh.
A Mexican citizen.
And so theoretically.
If you were if you had your equipment on land.
They're in the U S, but right right next to the Ocean would you be able do it.
The system capable of.
Of identifying a boat traffic offshore in the ocean.
To the Oh, the coast guard and border patrol that way.
Bill you're a real problem for me you know that [laughter]. Thank you Mark.
[laughter].
What I'll say is.
Before we were acquired by Geo space Quanta on had a deep.
Relationship with a number of R&D organizations within the U S government.
One of those.
Functions that we performed was doing exactly that tabid land based sensors tracking out traffic.
So this is a proven capability our government that was about it.
We of course are in constant conversations about where the next application might be but which we could add value.
Having G O space now being a part of the geospatial family and their ability to.
To make submarine.
Data acquisition systems.
Really gives me.
A lot of kind of street cred, now and I when I go low and it had these conversations on what we're able to do next and where that might apply.
I want to be clear I'm, not specifically, referring to any location that debt.
Such as the one you're mentioning it may not even be with the border patrol, but it is a capability.
One we've worked on it's one we've refined and its one we look forward to trying to add value to put it out on.
Right.
Thank you I appreciate the theoretical a theoretical answer.
Relative to the equate to have installed.
Yeah, I'm I'm guessing by now that are that there is a level of operational capability.
And if that is the case have you had any success.
And I guess I'll say generically at Nabbing bad guys.
You will hear about any you won't hear about any success. We don't have obviously hard to report on that non event, but when successes do occur you will.
Here about it through proper.
Proper channel is coming out of Florida.
And.
Okay.
Mark Thanks for taking all my questions.
Youre welcome.
And our next question comes from Glenn <unk> with <unk> Capital Partners. Your line is open.
Gentlemen, good morning, how are you good how are you.
Let me start by saying that I feel like a broken record, but great job again on cash management, and conserve and conservative stewardship of the balance sheet.
I see the cash and cash equivalents has trended slightly up from $32 million last quarter to $33 7 million this quarter.
Wanted to ask is any of that trend up or change include that customers partial pay down of the $10 million note I know you classified it as non current deferred revenue, but is that listed elsewhere on the balance sheet or is that listed as part of the cash and cash equivalents.
The cash we receive for them for their payments is included in that increase in cash.
<unk> said as to the deferred debt.
FERC portions on the balance sheet.
Got you. Okay very helpful. Do you have any prediction of where you see our cash and cash equivalents trending in the next 12 months, even with the stock buyback.
Yeah, we don't normally provide that kind of information or we don't provide that information.
Going forward.
Fair enough.
The next question.
Notice that the bank credit agreement dropped a little bit from 17 million to 14 million any reason for that.
Just you know.
Just the normal.
<unk>.
Changes within our balance sheet better subject too.
But.
Adjustments in our borrowing base.
We collect cash receivables go down and as a result.
The amount, we can borrow changes along with that.
Gotcha, Okay. So day review that once a quarter.
And we make that assessment once a quarter yes.
Okay great.
Wanted to jump over to head count.
Six months ago head count was reduced again plays well into your good stewardship and knowing.
Knowing how to manage expenses well.
Has head count trended back up or would do you feel that it's plateaued.
Yeah, I'd say, our head count as it continues to be down at a similar level as it was when we did our cost reductions.
Okay great.
Last question about the imaging sub segment.
Any thoughts on or any.
Color on if that sub segments.
Is it profitable or if not do you think it will be profitable and let me add that I Miss going to concerts I Miss.
T shirts on I know, that's one of the things you guys do and looking forward to spending a lot of money on concert T shirts, and hopefully some of that goes back to I G. O space, but is that sub segment would you say is it profitable not or.
You don't have that level of detail available.
Well I mean, we do show cost of goods and are in the various segments, there, which you can look at our in our financials that we published.
But certainly we enjoy that business.
It is good for the company in.
It's part of our overall strategy of making sure that our footprint extends into more than just the oil and gas sector to your point.
You know it certainly has been impacted by the the restriction of all the social events of a very vast number of them, including schools. There are school events and things of that nature are also part of all of that.
So our customers are those products are the ones that provide the merchandising and other things for those those sorts of events and we're looking forward to the recovery that will occur after COVID-19, because we think that will.
Go back to a more normal demand.
Right.
Even if demand returns any thoughts of ever spinning that subsegment off.
I guess, we're always open to all things.
But we're gonna anything of that nature, we would we would have to examine what the return would be to our shareholders and how it would impact our business.
Okay, Great. That's all I've got for today, guys again, great job and stay safe. Thank.
Thank you you do the same.
Yeah.
And there are no additional questions at this time I'd like to turn the program back over to Rick Wheeler for any closing remarks.
Alright, well, thank you Erin and I certainly thank everyone that has joined our call today, we'll look forward to speaking with you again on our conference call for the second quarter of fiscal year 2021 in May So for now goodbye.
Thank you. This does conclude today's geospatial technologies first 2021 earnings conference call. Please disconnect. Your lines at this time and have a wonderful day.
Yeah.
Okay.
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