Most oil and gas equipment and services companies didn't see a huge impact on most recent earnings releases. Then again, Geospace Technologies (NASDAQ:GEOS) isn't like most service companies. This past quarter's results bore the brunt of the recent plunge in oil prices and the cuts that many companies in the space can expect in the near future. Let's take a look at the numbers from this past quarter, why Geospace's position in the oil industry means it will be one of the first companies to get stung by plunging oil prices, and what this could mean for the future of the company.
By the numbers: revenue details
Let's just say it wasn't good, not only did this quarter's $21.2 million in revenue miss the consensus estimate from S&P Capital IQ of $26.6 million, but it was also a 79% decrease from the same quarter last year. The reason for such a large decline was two fold. The first was that this quarter last year Geospace was working through a sizable contract with Statoil that has since been completed. The second, though, was that many of the new projects that the company was in negotiations for were either suspended or delayed. This was the fourth quarter in a row that revenue both missed estimates and saw a decline from the previous sequential quarter.
Product revenue saw the biggest decline, but unlike last quarter the company's rental business saw declines as well. Based on statements from Geospace CEO Rick Wheeler, it doesn't appear that rentals nor product sales will be increasing any time soon.
A look at earnings
Net earnings per share also came in at a less than encouraging loss of $0.41 per share. S&P Capital IQ consensus estimate had predicted that earnings per share would only loose $0.08 per share, but the limited revenue that the company brought in was less than the cost of goods sold, so the fixed costs such as R&D and SG&A weren't covered.
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.
If there is anything that can bring some solace to these miserable numbers is that Geospace remains debt free and has close to $50 million in cash and short term investments on hand. In fact, the company has enough cash on hand to pay off all of its current liabilities and still have plenty left over. Having this amount of financial flexibility on its balance sheet will go a long way in helping the company through these rough times.
Looking at the results for other oil services companies this past quarter, it might be a wonder why Geospace has seen such a precipitous decline in revenue when so many others seem to be doing OK. There are two reasons for this. The first is that the company is a highly specialized oil services company that only deals with the sales of remote sensors needed for the exploration of oil and gas. With oil prices plunging and producers start to trim their capital expenditures, the first projects to get tabled will be exploration and appraisals while those projects that have been developed and under construction will likely continue. Also, these projects will be some of the last to start to receive funding once spending picks up again.
The second is that Geospace's seismic equipment is used almost exclusively in offshore exploration. It provides lots of value to producers since it's remote sensing can be used in the ultra-deep drilling locations where water depths are greater than 10,000 feet. However, these projects also happen to be some of the most expensive projects on a marginal cost per barrel basis. So not only are exploration budgets the first ones to go, but offshore exploration is normally the first type of exploration to get slashed.
So as long as oil prices are low and big spending companies with assets deep offshore refrain from exploration and appraisal work, Geospace is likely to suffer. The question now is how long will it last and how long can Geospace Technologies hold out.
What a Fool believes
There are few companies that are as levered to high oil prices as Geospace Technologies, and that position is part of the reason why shares of the company have done so miserably over the past year. Luckily, we go through these commodity price downswings all the time, and the natural production decline from wells will mean that eventually supply and demand will come back into equilibrium and Geospace's services will be needed again.
With a strong balance sheet and a management team that is making tough decisions today, it appears ready to live to do business another day. All management can hope for is that this oil price thing won't last too long.