It's becoming very clear that the decline in oil prices over the past year is not just some quick turnaround, and the earnings for Geospace Technologies (NASDAQ:GEOS) have been the poster child of what the oil price decline can do to a company's finances. With revenue and earnings on a precipitous decline, investors' patience is really being tested here.
Let's do a quick rundown of the numbers to see if there were any signs for better things to come or if this long slog of losses will continue for a while.
By the numbers
For the fiscal third quarter, Geospace Technologies generated $19.75 million in total revenue, a 52% decline from the same quarter last year. This marked the fourth quarter over the past five where Geospace has not met consensus revenue expectations compiled by S&P Capital IQ.
The big decline in revenue over the past year has been mostly attributed to exploration and production companies scaling back their capital expenditures. This has hit Geospace particularly hard because its offerings for oil and gas companies is used in seismic exploration, which is the first part of the budget likely to get cut when times get rough.
The one consolation prize in these revenue numbers is that the company has been able to increase revenue in its non-seismic related products. Non-seismic revenue for the quarter came in at $6.1 million, a 17% increase from this time last year.
In terms of earnings, it's pretty clear that these levels of revnue will not be enough to sustain the company long term. EPS for the quarter came in at a loss of $0.66, which is the fourth straight quarter where the company has reported a loss and the fifth straight quarter where it has missed earnings estimates.
The reason that the company's earnings have taken it that much harder on the chin than revenue is that operating costs have barely budged from this time last year. Cost of revenues and operating expenses declined less than 5% from the same time last year, even though revenue has been cut in half. Its non-seismic segment was a lone bright spot here as well. Over the past nine months, the company has been able to increase operational income in this segment to $2.3 million. It's not much, but at this point any sort of positive income to stop the bleeding is a welcome sign.
As bad as earnings appear for the company, management has been able to batten down the hatches quite well when it comes to maintaining the balance sheet in this down market. Compared to the end of Geospace's fiscal year 2014, total liabilities have been cut to $14.1 million, which could be easily paid with the $45 million in cash and short-term investments sitting on the books. It's very likely that it will burn through this cash hoard over the next several quarters if revenue and earnings remain at these levels.
When it comes to the company's near-term future, CEO Rick Wheeler didn't pull any punches. His somber outlook on the market isn't the most encouraging statement for investors, but he did want to ensure us that the company is doing everything it can to make it work:
Industry demand for seismic exploration services is at historic low levels, and there is no simple way to forecast when higher levels of product demand may return. To the extent that the current market conditions in the industry remain unchanged, demand for our seismic equipment products will likely continue at these low levels. Until seismic industry activity returns to more conventional norms, our profits will continue to be hard hit by depreciation of unutilized rental equipment and fixed factory overhead costs left unabsorbed by minimal manufacturing operations. Given that seismic exploration and reservoir management are necessary components for a stable and sustainable energy market, endurance through this down cycle and a strong emergence thereafter are our focused objectives. We believe that our strong balance sheet and continued development of industry technology are the key elements that will allow us to achieve these objectives.
If the oil and gas industry continues its traditional cyclical track, then Wheeler's moves to get ready for a turnaround in the market are very prudent ones. It may take a while for the lack of investment in new oil and gas reservoirs to catch up to actual production, but when it does, exploratory budgets will increase and Geospace's seismic equipment will likely be in demand.
Things aren't looking pretty for Geospace Technologies at the moment, and with oil and gas companies scaling back exploration budgets for the second half of the year, it's hard to see Geospace's prospects turning for the better anytime soon. Management seems prepared to wait this one out, and has made several moves to shore up its balance sheet to wait it out.