For all the euphoria in shale patches like the Permian Basin of West Texas that the oil rebound is here, there are quite a few companies still stuck in neutral. Geospace Technologies (NASDAQ: GEOS) is one of those companies. While it did see a decent uptick in revenue this past quarter, management has already squashed investors' hopes that this is a lasting trend.
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Let's check in with Geospace's most recent results to see how the company continues to handle this tough market and when investors can expect some recovery for the offshore exploration specialist.
Image source: Getty Images.
Geospace Technologies earnings: The raw numbers
|Metric||Q2 2017||Q1 2017||Q2 2016|
|Revenue||$20.56 million||$12.28 million||$14.93 million|
|EBITDA*||($6.18 million)||($6.69 million)||($8.46 million)|
|Net income from continuing operations||($11.5 million)||($11.7 million)||$10.96 million|
|Earnings per share||($0.88)||($0.89)||($0.84)|
*EBITDA = EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION. DATA SOURCE: GEOSPACE TECHNOLOGIES EARNINGS RELEASE.
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Even though Geospace saw a decent uptick in revenue for the quarter, it didn't translate into better bottom-line results. The biggest issue was costs of goods sold. The company's product segments cost of goods sold -- $18.8 million -- was higher than the actual revenue it generated from product sales -- $14.75 million. A lot of those costs, though, were non-cash items such as depreciation and obsolescence of inventory.
If we take out the non-cash impacts on the bottom line, Geospace generated $10 million in cash from operations. That helped to boost the company's total cash and short-term investments to $48 million. Geospace continues to operate as a debt-free business despite the long streak of losses, which will be helpful when an uptick in offshore oil and gas activity finally comes.
What happened with Geospace Technologies this quarter?
- The largest gains in revenue came from Geospace's wireless seismic products, which were up 104% to $9.6 million. Those sales came from short-term rental contracts that concluded in this quarter, and there is no follow-on work thus far. So investors should expect revenues in this segment to decline again unless we hear news of a new contract in the coming weeks.
- Geospace's non-seismic sensors continue to be a steady hand for the company: Revenue for this segment ticked up slightly compared to this time last year. Management anticipates that revenue from its non-seismic products will remain flat for the rest of the year.
What management had to say
Here are CEO Rick Wheeler thoughts on what Geospace is seeing for the seismic sensor market for offshore oil and gas as well his broader outlook on the offshore industry as a whole:
With the first half of fiscal year 2017 at an end, it is evident that market demand for our seismic products still remains at historic lows -- a direct consequence of vastly reduced seismic exploration by oil and gas companies. While the price of oil seems stabilized around its trailing six-month average of $50 per barrel, capital allocations have yet to be ear-marked for exploration in any meaningful way. As the International Energy Agency reported last week, global conventional oil discoveries in 2016 amounted to only 2.4 billion barrels, roughly one-fourth of the last fifteen-year average. Compounding this, the amount of resources sanctioned for development reached its lowest point in over 70 years, and exploration spending in 2017 is expected to again fall for the third year in a row. We expect these conditions to pose a continued challenge to our future financial performance. Despite these circumstances, seismic imaging is the defining fundamental science necessary to find and optimally exploit oil and gas reserves. To this end, we believe our seismic products represent the most technically advanced and cost effective tools available to the industry for acquiring such images. We are resolved to maintain this advantage and leadership through our ongoing cost management and disciplined engineering.
Numerous other oil services executives have shared similar views on their respective conference calls. The low costs and quick turnaround of shale drilling in the U.S. have kept oil prices lower and shifted some capital away from offshore and into shale patches. This trend can't last forever, though, as growing demand and decline rates will require greater spending in the offshore environment eventually.
Perhaps the most admirable thing about Geospace Technologies is its ability to endure. The company's rather asset-light business and debt-free balance sheet have allowed it to survive on a the tiniest trickles of cash, bringing to mind desert plants that flower at the slightest drop of rain.
Based on Wheeler's comments, Geospace will continue to endure for at least another year or so. Executives at other oil services companies have said that we should expect an uptick in activity and spending in the second half of 2017, but Geospace's management remains less than optimistic.
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