Oh, the problems with being tied to the spending habits of a few companies. This quarter was yet another stinker for Geospace Technologies (GEOS +5.43%), as the biggest names in the oil industry scale back their capital investments. Let's take a quick look at what happened this quarter, as well as the fiscal year for Geospace and whether there are any promising signs for a better business environment.
Business update
Even before we started to see oil prices start on their precipitous slide in recent months, prospects for Geospace were starting to dry up. Since the company's business is almost exclusively tied to the exploration aspect of the oil and gas business, a large source of its revenue comes from the big-spending integrated oil and gas companies. These group of companies have all said recently that are looking to slow some of their capital spending in order to focus on on generating better cash flow. When this happens, some of the first things to go are new exploration and appraisal projects, which is going to affect Geospace dramatically, even if the company is performing well.
Geospace technologies is making headway with some of its innovative wireless seismic data gathering devices, but in this business it's extremely difficult to overcome waning capital spending.
By the numbers: revenue details
Total revenue for the quarter came in at $26.3 million, well short of the consensus estimate from S&P Capital IQ of $30.2 million. Quarterly sales compared with this quarter last year ended down 61%, thanks in large part to booking revenue on a sizable contract from Statoil in last year's quarter. This marks the third straight quarter with a decline in revenue.
Source: S&P Capital IQ; revenue in millions, Non-GAAP figures are normalized by S&P Capital IQ and may vary to maintain comparability with normalized estimates
This represented the end of the fiscal year for Geospace as well. And like this quarter, the numbers for the year are down as well. Annual revenue for the year totaled $236 million, a 21% drop from the year prior. These numbers have also been adversely affected by the declining spending of its Big Oil clients and the completion of that Statoil contract.
The biggest decline, as expected, came from weakening product sales, but the one small bright spot was the revenue from its rental fleet. This part of the business, mostly responsible for ocean floor seismic work, saw revenue double annually. Based on the company's revenue mix, though, it will take a massive uptick from its rental revenues to make up for the slumping product sales.
A look at earnings
Normalized earnings per share for the quarter came in at a loss of $0.14 per share, falling well below the estimates from S&P Cap IQ consensus estimate that predicted earnings per share to be a gain of $0.36 per share. Earnings saw such a large change because fixed costs such as R&D and administrative costs couldn't be offset buy such meager total sales.
Source: S&P Capital IQ, Non-GAAP figures are normalized by S&P Capital IQ and may vary to maintain comparability with normalized estimates.
Over the entire fiscal year, though, the company ended in the black with earnings per share coming in at $2.81 per share. It's not as attractive as fiscal 2013's result of $5.38 per share, but considering the scale-back in capital spending from Geospace's clients, it's a small consolation prize to remain profitable for the entire year.
The one reassurance that Geospace will be able to weather the storm of this weaker demand environment is the strength of its balance sheet. The company has grown cash and short-term investments from just $2 million this time last $53 million today. Also, management has cut total debt and other liabilities by one-third to $25 million, making the company net cash positive.
What a Fool believes
On paper, the numbers for Geospace don't give a lot of confidence, but these declining sales are much less indicative of the company itself and are more a reflection of some very challenging market conditions. That's just how it goes when your business is tied to a commodity market. Just like all commodity cycles, though, existing production of oil and gas will dwindle, and many of Goespace's clients will be right back at spending on exploration again.
Geospace's management has done a commendable job of cleaning up the balance sheet in preparation for this weak market. It should set the company up nicely to take advantage when prospects for exploration look better, whenever that may happen.
