Reading Geospace Technologies' (NASDAQ:GEOS) earnings reports over the past couple of years have been like watching a bear in hibernation. Exploration activity hasn't been in high demand -- or any demand for that matter -- and Geospace's revenue barely registers. With some major oil and gas producers announcing they would start to spend more on exploration and development, we might expect to see Geospace stir from its slumber. That wasn't the case in the most recent quarter, though. Here's a look at the company's latest earnings release
Geospace Technologies earnings: The raw numbers
|Metric||Fiscal Q3 2017||Fiscal Q2 2017||Fiscal Q3 2016|
|Revenue||$14.19 million||$20.56 million||$17.68 million|
|Operating income||($13.77 million)||($11.06 million)||($12.01 million)|
|Net income from continuing operations||($14.37 million)||($11.5 million)||($11.65 million)|
In the prior quarter, Geospace reported an uptick in revenue that we haven't seen in years. Management warned, though, that this was the result of a one-time rental contract and that it did not expect to see revenue to grow in the coming quarters. That ended up being the case as Geospace's revenue declined to $14.2 million. Toss in overhead and depreciation costs, and you get three straight years of quarterly losses.
The one thing that is still rather encouraging is that this modest amount of revenue is enough to keep cash coming in the door. In three quarters of this fiscal year, Geospace has generated $12 million in cash from operations. Since it has less than a million in capital expenditures, it has been able to stash the cash.
What happened with Geospace Technologies this quarter?
- The company issued a new product designed to monitor fracking operations and provide drillers with better reservoir characterization. The goal is to win some permanent reservoir monitoring contracts. The company did sell about $1 million of these products in the quarter, but it has yet to sign a monitoring contract.
- The one place where management currently foresees growth is in its non-seismic monitoring devices. These remote sensors are the company's one offering that is outside the oil and gas industry. So far, this business has been steady throughout this downturn.
What management had to say
CEO Rick Wheeler's comments on the outlook for seismic exploration weren't exactly positive. Instead, his press release statement focused on how the company is in fine financial shape while many of its competitors fall to the wayside. When the market does pick up again, this should benefit Geospace immensely.
The prolonged holdback in upstream spending by oil and gas companies over the last several years has relegated seismic exploration activity to its barest of minimums. This has unmistakably posed immense challenges for virtually all seismic contractors and suppliers. For some the challenges have proven overwhelming, leading to failed businesses, bankruptcies, and an utter uncertainty of the future. In this extraordinary environment, Geospace has kept focus on navigating a course that preserves and promotes its pillar strengths of financial stability, core technology development, and extensive customer support.
While an improvement in seismic exploration activity seems rationally inevitable, the timing of such turnaround does not seem imminent. In the meantime, we are confident that by continuing to focus on our core financial, technological, and customer centric strengths we optimally position ourselves for advantage in a forthcoming industry recovery.
It's pretty clear from these earnings results that Geospace is still in hibernation mode. Capital spending is still at a bare bones minimum that has allowed the company to preserve cash for when it will need it.
From an investor perspective, Wheeler's comments didn't give much hope that a turnaround is coming soon. However, if the company can find traction with its permanent reservoir monitoring products, then it could diversify away from the exploration aspect of the oil and gas business. If there is anything that could give hope of better results in the future, it's this part of the business.