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Geospace Technologies' Earnings Were a Lot More of the Same This Quarter

By Tyler Crowe - May 7, 2016 at 1:05PM

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The oil and gas equipment provider keeps taking on losses while maintaining the integrity of its balance sheet.

Here we go again: Another quarter on the books, another loss from Geospace Technologies (GEOS -2.88%). The decline in exploration activity for the oil and gas industry are at comically low levels today, which has directly caused demand for Geospace's products to rapidly evaporate. Yet somehow, despite taking multiple body blows from the market, Geospace's management has kept its balance sheet in pristine condition to avoid getting hit with that knockout punch. 

Let's take a quick look at Geospace's results for the quarter, some of its business highlights, and what investors can expect for the coming quarters. 

Geospace Technologies earnings: The raw numbers

MetricQ2 2016Q1 2016Q2 2015
Revenue $14.9 $13.1 $27.9
EBITDA ($8.5) ($9.9) ($2.4)
Net income ($10.9) ($11.04) ($5.1)
EPS ($0.84) ($0.85)

($0.40)

Source: Geospace Technologies earnings release. Numbers in millions, except per-share data.

There haven't been a whole lot of promising signs from Geospace Technologies in recent quarters. Diminishing levels of capital spending on exploration and appraisal work have put a huge damper on sales of Geospace's seismic monitoring equipment. This quarter was the first in a over a year in which revenue increased sequentially. The uptick in revenue was the result of two things: revenue growth in its non-seismic equipment and the start of a rental contract for some of its OBX seismic equipment.

Geospace Technologies ended the quarter with $43.3 million in cash on hand and short-term investments, which is pretty much in line with where the company's cash balance was this time last year. Geospace has managed so far to maintain this cash balance and remain debt-free throughout this downcycle. Compared with so many other oil and gas equipment suppliers, this is an accomplishment in and of itself.

What happened with Geospace Technologies this quarter?

  • As in last quarter, most of Geospace's clients have slowed exploration activity so much that they have enough of Geospace's equipment in inventory to make purchases or rentals currently unnecessary. 
  • Non-seismic equipment sales are now the largest segment of the business by revenue -- 42%. This section of the business has been the one strong segment for the company, as revenue has been steadily increasing for more than a year and management expects this trend to continue, as this equipment gains traction and incorporation into a wider array of industries. 
  • The recent OBX rental contract that provided a modest revenue boost will contribute another $13.7 million for another few quarters. 
  • Aside from its non-seismic business, management expects that demand for all of its other segments will continue to remain flat or decline for a few more quarters. 

What management had to say
According to CEO Walter "Rick" Wheeler, the company is still bracing for its business to suffer for a while longer, but he foresees a return to better days ahead. As Wheeler explains:

With the first six months of fiscal year 2016 behind us, we've seen seismic exploration activity and resulting product demand drop to unprecedented and enduring low industry levels. Moreover, because most oil and gas companies are focusing their limited capital spending on production-oriented project commitments, we maintain our belief that seismic exploration will remain relatively unfunded through 2016 and perhaps longer. In this anticipated environment, demand for our seismic exploration and reservoir monitoring products is expected to remain at these record low levels. If so, low levels of revenue and inevitable operating losses are expected to persist. It is worthy to note that throughout this period, in the absence of ongoing seismic exploration activities, new potential oil and gas resources are not being found and existing reserves are being depleted through extraction and inherent decline. We stand by our view that this condition is innately unsustainable. Any long-term rationale for energy stability unequivocally necessitates meaningful seismic exploration to find new reserves and seismic reservoir characterization to optimally recover existing reserves. 

Looking forward
For investors waiting on a rebound at Geospace Technologies, you probably shouldn't hold your breath. Exploration and appraisal work will be one of the last segments of producers' capital spending budgets to pick back up again. The company has, however, been able to preserve its balance sheet remarkably well so far, and it should help it keep the company going for a while longer before it runs into major solvency or liquidity issues. Geospace Technologies looks to have a decent chance of riding this out until the market picks back up again. Just don't expect its stock to do anything for a while until producers open their wallets again.

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