Investors in Geospace Technologies (NASDAQ:GEOS) must feel like they're trapped in a loop -- like Bill Murray in Groundhog Day -- whenever they see Geospace report earnings. For close to two years now, the company has been reporting losses as the demand for its seismic equipment dwindles from a lack of investment in oil and gas exploration.
At the same time, the company continues to batten down the hatches to preserve its precious amount of cash. Let's take a quick look at the company's results for the most-recent quarter, and what investors can expect in the coming quarters.
Geospace Technologies' quarter: The raw numbers
|Results||FYQ1 2016||FYQ1 2015||% Change|
|Revenue (in millions)||$13.1||$21.2||(38%)|
|EBITDA (in millions)||($9.9)||($6.0)||(65%)|
|Net income (in millions)||($11.04)||($5.44)||(103%)|
Several quarters in the red shouldn't be that shocking for Geospace's investors by now. The company's customers simply aren't buying or renting equipment for exploration right now. That leaves Geospace with one option: to keep cutting costs to preserve cash and balance sheet strength until customers call again. On that front, the company did a decent job.
Even after a full year of losses, the company's cash and short-term investments have only declined by $3.4 million, and the company remains debt free. After seven straight quarters of losses, it seems like a small victory that it can keep its cash position in tact, and no debt dragging it down.
What happened with Geospace Technologies this past quarter
- Many of Geospace's clients aren't currently deploying all of their existing equipment from Geospace as exploration activity dries up. This is keeping sales of new equipment back considerably.
- One good piece of news was that a rental contract for 5,000 stations from its OBX marine nodal system remains on track, and should lead to $17 million in revenue during the next nine months.
- The company took a $1.9 million asset writedown on the value of its Canadian subsidiary's deffered tax assets, which is baked into the company's current earnings.
- Geospace's one segment that keeps the lights on, non-seismic rentals and equipment, saw sales remain flat compared to the same time last year.
- The company implemented another round of reduction programs that is expected to reduce cash costs by $7 million annually. It's not much, but with $13 million in quarterly revenue right now, a $7 million improvement in cash costs could go a long way.
What management had to say
Geospace's management isn't trying to hide the fact that results right now don't look good, but as CEO Rick Wheeler points out, the company has been able to preserve itself through this long slog of an oil and gas downturn.
With capital budgets being continually revised downward by oil and gas companies, planned seismic exploration activity has been reduced significantly. In conjunction, available funding to enhance existing fields and to develop new production has also dropped amid these capital spending cuts... Despite the consequential effects on our financial results, we reiterate our strong persistent belief that the current circumstances cannot be sustained indefinitely, and that the requirement to explore for new resources and enhance the production of existing reservoirs through seismic monitoring is absolute and inescapable in the long term.
We recognize the cyclical nature of the oil and gas industry we serve, and we believe that improved seismic technology will remain a core component in an inevitably corrected market. With no debt, $37.0 million of cash and short-term investments, and $30 million of untapped credit with our bank, the strength of our balance sheet demonstrates our commitment to manage the business to withstand these cycles.
There isn't much more that the market can throw at Geospace Technologies. We're coming up on close to two years since things really started to go south for the company, and yet it has been able to stay the course by cutting to a skeleton operation.
There's not a whole lot of indications that oil prices are set to rebound very soon, but one thing to keep in mind is that any uptick in exploration spending will lag a recovery in oil prices as producers look to clean up their balance sheets again. It may take a while before Geospace makes a recovery, but it looks like the company will be around for it.