It seems as though the oil and gas market can't stop doling out punishment to shareholders of Geospace Technologies (NASDAQ:GEOS). The lack of demand for seismic work is pretty much a guarantee that Geospace's will post losses. This past quarter was no different, as the company posted a net loss of $13.5 million. Here's a quick snapshot look at Geospace Technologies earnings and what kind of pain investors can expect in the coming quarters.
Geospace Technologies results: By the numbers
|(all figures in millions except EPS)||Q3 2015||Q3 2014||% Change|
What happened with Geospace Technologies this past quarter?
- As expected, demand for seismic products remains weak as many exploration and production companies scale back their capital budgets.
- Even though the company has cut a large portion of its workforce and has reduced operating expenses drastically, the low utilization of its manufacturing facilities' capacity isn't enough to cover its fixed costs. Also, depreciation of its rental fleet is in excess of under-utilized rental fleet are wiping out any chances at a profit.
- Despite more than $32 million in net losses so far this year, the company has lowered net capital expenditures to less than $300,000 this year and has burned through $11 million of its cash reserves. As the end of the quarter, Geospace had $23 million in cash on hand.
- In October, the company did secure a contract with an undisclosed international oil and gas company to rent 5,000 of its OBX ocean bottom wireless seismic monitoring nodes. The contract for this equipment will be as much as $17.1 million, but it won't start until March 2016.
- The one positive note in the company's results is that the company's non-seismic business continues to gain traction. This past quarter's non-seismic revenue of $7.2 million was the company's largest revenue source in the quarter and was an 11% improvement from the same quarter last year. It may not be much, but with Geospace struggling to find revenue sources, this segment has helped keep the company from sinking hard.
- Geospace's CEO Rick Wheeler was nominated to the board of directors.
What management had to say
Geospace's management is not oblivious to the fact that the market for oil and gas activity is low, and based on management it may be quite some time before the industry -- and Geospace Technologies in particular -- sees a recovery:
As we look back over fiscal year 2015, we saw crude oil prices continue to fall to six-year lows. This price drop had a significant impact on the seismic exploration industry as oil companies have minimized or eliminated spending on exploration projects. We believe that this reduced level of spending on seismic exploration will likely continue through 2016, and we do not anticipate any improvement in demand for our seismic exploration products in the foreseeable future. However, we also believe that low crude oil prices and, more particularly, continued curtailment of seismic exploration activities are not sustainable for an indefinite period of time. Furthermore, we believe that seismic technologies will continue to be an important tool used by the oil and gas industry to find and exploit oil and gas reservoirs long into the future. In the meantime, we intend to continue our focus on conservative financial management and minimal capital expenditures while continuing the research and development that will both maintain and extend our leadership position in the science and technology required for the seismic industry. We believe this strategy combined with our strong balance sheet provides us the means to weather the current market conditions. -- CEO Walter ("Rick") Wheeler
So much of what is happening to Geospace is out of its control. Without higher oil and gas prices, producers simply don't have the cash flows or the financial strength to take on any large exploration or appraisal projects. Without those projects, Geospace is without clients. The best path forward for the company right now is to keep its costs at skeleton crew levels to preserve cash, and try to diversify away from the oil and gas world through its non-seismic product offerings that seem to be gaining some traction. If it can do these things, Geospace will be able to keep the lights on until the eventual rebound in oil activity.
That beings said, it will take a very patient investor to wait for that to happen.