Geospace Technologies (NASDAQ: GEOS) today announced that it reported
net income of $0.7 million, or $0.05 per diluted share, on revenue of
$26.1 million for its second quarter ended March 31, 2019 compared to a
net loss of $4.7 million, or $0.36 per diluted share, on revenue of
$19.2 million for the second quarter of the prior year. The net income
reported for the second quarter ended March 31, 2019 was the company’s
first quarterly net income in over four years.
For the six months ended March 31, 2019, the company recorded revenue of
$44.0 million compared to revenue of $33.9 million during the prior year
period. The company reported a net loss of $5.1 million, or $0.38 per
diluted share, compared to a net loss of $14.2 million, or $1.07 per
diluted share for the year ago period.
Walter R. (“Rick”) Wheeler, President and CEO of Geospace Technologies,
said, “Increased growth in our oil and gas markets segment, specifically
our OBX rental market, fueled second quarter and six-month results. In
fact, the financial results for the three months ended March 31, 2019
reflect our best second quarter performance in the past three fiscal
years and the highest quarterly revenue posted by Geospace in four
years. As mentioned, utilization by our rental customers of our OBX
ocean bottom system continues to strengthen and merits continued
investment. Approximately 17,000 OBX stations are currently deployed and
another 9,000 stations are scheduled for delivery in our fourth fiscal
quarter. In addition, steady performance from our Adjacent Markets
segment continues to help mitigate the product demand fluctuations
experienced in our oil and gas markets segment. Despite the slight
reduction in revenue from our adjacent markets, we are confident that
this segment will continue along its demonstrated path of overall
growth.”
Oil and Gas Markets Segment
Combined revenue from the oil and gas markets segment totaled $18.7
million for the three months ended March 31, 2019. For the six-month
period, total revenue from this segment was $29.7 million. These figures
reflect increases of 65.4% and 53.5% respectively over the equivalent
three-month and six-month periods a year ago. The increases in revenue
for both periods are primarily the result of performing rental contracts
utilizing a substantial number of the company’s OBX ocean bottom
recording stations. More than 17,000 stations of the company’s OBX
rental fleet are currently under contract. In addition, the company
recently entered into another OBX rental contract with a major
international seismic contractor, inclusive of a non-refundable deposit,
that will utilize 9,000 OBX stations for a minimum rental periods
ranging from 150 to 180 days. Delivery of the equipment is expected to
occur in the company’s fourth fiscal quarter at which time the
performance phase of the contract begins with expected revenue of $13
million over its duration.
Revenue from the company’s traditional seismic products in its second
fiscal quarter totaled $4.0 million, reflecting an increase of 24.5%
compared to the year before. The increase is the result of greater
demand for its traditional marine products and repair services. For the
six months ended March 31, 2019, revenue from these products totaled
$6.8 million, a decrease of 3.2% compared to last year’s first
six-months. The slight reduction is primarily due to lower market demand
for the company’s specialty sensors.
The company recorded significant increases in revenue from its wireless
seismic products, generating $13.6 million and $20.9 million
respectively for the second fiscal quarter and first six months ended
March 31, 2019. The increases of 126% and 116% for the respective
periods are attributed to higher rental demand for the company’s OBX
ocean bottom recording stations and are partially offset in both periods
by reductions in the sale and rental of its GSX land-wireless products.
Notably, both periods include the recognition of a $1.3 million
non-refundable deposit associated with the cancellation of an OBX rental
contract by one of the company’s customers. The company believes demand
for its OBX products will remain strong for the foreseeable future and
plans to continue its investment in these products to satisfy the
growing market needs and revenue opportunities.
Reductions in revenue occurred for the company’s reservoir seismic
products in both the three-month and six-month periods ended March 31,
2019 when compared with the previous year. The reductions are a direct
result of reduced sales of the company’s borehole tools and reservoir
related services. Management does not expect revenue from its reservoir
borehole products, sensors, and services to see significant increases.
However, the company has generated significant revenue in prior years
from its permanent reservoir monitoring (PRM) systems. Based on its
ongoing discussions with industry users and adopters of this technology,
management believes there is potential for revenue from the company’s
PRM products in the foreseeable future. Management believes this
potential is strongly enhanced by its OptoSeis® fiber optic sensing
technology, acquired in November of 2018, which extends the domain of
available system options for all potential customers of PRM systems.
Management believes that an open tender for a PRM system may occur later
in fiscal year 2019. If such a tender is ultimately awarded to Geospace,
management believes that revenue from such tender would not begin to be
earned any earlier than fiscal year 2020.
Adjacent Markets Segment
The company’s adjacent markets segment produced total revenue of $7.3
million for the three months ended March 31, 2019, a reduction in
revenue of $0.6 million, or 7.2% from the same period last year. For the
six months similarly ended, revenue from these products totaled $13.9
million, a reduction of $0.4 million, or 2.7% from the previous year.
For both periods, the decreases reflect lower demand for the company’s
water meter related products and contract manufacturing services. The
decreases in both periods were partially offset by increases in demand
for its offshore cable and thermal imaging products. Despite the
variations in revenue occurring from one quarter to another, management
believes demand for its adjacent market products will continue to
reflect growth.
Emerging Markets Segment
Revenue in the company’s emerging markets segment is comprised solely
from the sales of products and services offered by its Quantum
Technology Sciences subsidiary (“Quantum”), which Geospace acquired in
July of 2018. Quantum focuses on specialty products incorporating
seismic acoustic technology to monitor, protect, and secure physical
borders and perimeters in both domestic and international markets. For
the three- and six-month periods ended March 31, 2019, revenue produced
from this segment totaled $46,000 and $134,000, respectively. There are
no available prior year comparative periods of revenue. The company does
not anticipate significant revenue contributions from this segment in
the near term, but believes its ongoing efforts in the design,
manufacture, and deployment of this progressive technology for border
and perimeter security creates an opportunity for meaningful revenue
contributions in the future.
Balance Sheet and Liquidity
As of March 31, 2019, Geospace had $13.5 million in cash, cash
equivalents, and short-term investments. In addition, the company owns
unencumbered property and real estate in both domestic and international
locations and has no outstanding debt. In March of 2019, the company
amended its credit agreement to provide broader flexibility in its
covenants and available borrowings. As of March 31, 2019, the company
had a borrowing availability of $25.5 million under this amended credit
facility and had no borrowings outstanding. Management believes that its
strong, debt-free balance sheet and total liquidity of $39 million
provide the necessary resources to increase revenues through advancing
its technology products in all its relevant markets.
Wheeler concluded, “Amidst the ongoing industry challenges that continue
affecting our oil and gas markets segment, we are very pleased that our
second fiscal quarter reflected net profitability as well as the highest
recorded quarterly revenue in four years. Lingering challenges remain in
our oil and gas markets segment and some product components are more
affected than others. In this environment, we will continue to
cautiously leverage identified market improvements as exemplified by our
investments in OBX rental equipment to take advantage of increased
demands for ocean bottom marine survey projects. We also believe our
continued diversification efforts in our adjacent and emerging market
segments is a strategy that has already shown results and that future
product developments in these markets will create further opportunities
in both current and future fiscal years.”
Conference Call Information
Geospace Technologies will host a conference call to review its fiscal
year 2019 second quarter financial results on May 3, 2019 at 10:00 a.m.
Eastern Time (9 a.m. Central). Participants can access the call at (877)
876-9173 (US) or (785) 424-1667 (International). Please reference the
conference ID: GEOSQ219 prior to the start of the conference call. A
replay will be available for approximately 60 days and may be accessed
through the Investor tab of our website at www.geospace.com.
About Geospace Technologies
Geospace principally designs and manufactures seismic instruments and
equipment. We primarily market our seismic products to the oil and gas
industry to locate, characterize and monitor hydrocarbon producing
reservoirs. We also market our seismic products to other industries for
vibration monitoring, border and perimeter security and various
geotechnical applications. We design and manufacture other products of a
non-seismic nature, including water meter products, imaging equipment
and offshore cables.
Forward Looking Statements
This press release contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements can be identified by terminology such as
“may”, “will”, “should”, “intend”, “expect”, “plan”, “budget”,
“forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”,
“continue”, “evaluating” or similar words. Statements that contain these
words should be read carefully because they discuss our future
expectations, contain projections of our future results of operations or
of our financial position or state other forward-looking information.
Examples of forward-looking statements include, among others, statements
that we make regarding our expected operating results, the results and
success of our transactions with Quantum and the OptoSeis®
technology, the adoption and sale of our products in various geographic
regions, potential tenders for PRM systems, future demand for OBX
systems, anticipated levels of capital expenditures and the sources of
funding therefore, and our strategy for growth, product development,
market position, financial results and the provision of accounting
reserves. These forward-looking statements reflect our best judgment
about future events and trends based on the information currently
available to us. However, there will likely be events in the future that
we are not able to predict or control. The factors listed under the
caption “Risk Factors” and elsewhere in our most recent Annual Report on
Form 10-K which is on file with the Securities and Exchange Commission,
as well as other cautionary language in such Annual Report, provide
examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our
forward-looking statements. Such examples include, but are not limited
to, the failure of the Quantum or OptoSeis technology transactions to
yield positive operating results, decreases in commodity price levels,
which could reduce demand for our products, the failure of our products
to achieve market acceptance, despite substantial investment by us, our
sensitivity to short term backlog, delayed or cancelled customer orders,
product obsolescence resulting from poor industry conditions or new
technologies, bad debt write-offs associated with customer accounts,
lack of further orders for our OBX systems, failure of our Quantum
products to be adopted by the border and security perimeter market, and
infringement or failure to protect intellectual property. The occurrence
of the events described in these risk factors and elsewhere in our most
recent Annual Report on Form 10-K could have a material adverse effect
on our business, results of operations and financial position, and
actual events and results of operations may vary materially from our
current expectations. We assume no obligation to revise or update any
forward-looking statement, whether written or oral, that we may make
from time to time, whether as a result of new information, future
developments or otherwise.
| GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||
|
(in thousands, except share and per share amounts) |
|||||||||||||||||
|
(unaudited) |
|||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| March 31, 2019 | March 31, 2018 | March 31, 2019 | March 31, 2018 | ||||||||||||||
| Revenue: | |||||||||||||||||
| Products | $ | 11,845 | $ | 13,910 | $ | 22,304 | $ | 27,184 | |||||||||
| Rental | 14,278 | 5,337 | 21,694 | 6,707 | |||||||||||||
| Total revenue | 26,123 | 19,247 | 43,998 | 33,891 | |||||||||||||
| Cost of revenue: | |||||||||||||||||
| Products | 11,246 | 14,065 | 22,459 | 27,161 | |||||||||||||
| Rental | 4,526 | 3,183 | 8,098 | 5,699 | |||||||||||||
| Total cost of revenue | 15,772 | 17,248 | 30,557 | 32,860 | |||||||||||||
| Gross profit | 10,351 | 1,999 | 13,441 | 1,031 | |||||||||||||
| Operating expenses: | |||||||||||||||||
| Selling, general and administrative | 5,358 | 4,785 | 11,443 | 9,914 | |||||||||||||
| Research and development | 3,898 | 2,430 | 7,069 | 5,588 | |||||||||||||
| Bad debt expense (recovery) | 73 | 6 | (30 | ) | 356 | ||||||||||||
| Total operating expenses | 9,329 | 7,221 | 18,482 | 15,858 | |||||||||||||
| Income (loss) from operations | 1,022 | (5,222 | ) | (5,041 | ) | (14,827 | ) | ||||||||||
| Other income (expense): | |||||||||||||||||
| Interest expense | (23 | ) | (127 | ) | (57 | ) | (191 | ) | |||||||||
| Interest income | 180 | 279 | 452 | 542 | |||||||||||||
| Foreign exchange gains (losses), net | 119 | (306 | ) | 186 | (349 | ) | |||||||||||
| Other, net | (41 | ) | (29 | ) | (129 | ) | (54 | ) | |||||||||
| Total other income (expense), net | 235 | (183 | ) | 452 | (52 | ) | |||||||||||
| Income (loss) before income taxes | 1,257 | (5,405 | ) | (4,589 | ) | (14,879 | ) | ||||||||||
| Income tax expense (benefit) | 550 | (676 | ) | 557 | (670 | ) | |||||||||||
| Net income (loss) | $ | 707 | $ | (4,729 | ) | $ | (5,146 | ) | $ | (14,209 | ) | ||||||
| Income (loss) per common share: | |||||||||||||||||
| Basic | $ | 0.05 | $ | (0.36 | ) | $ | (0.38 | ) | $ | (1.07 | ) | ||||||
| Diluted | $ | 0.05 | $ | (0.36 | ) | $ | (0.38 | ) | $ | (1.07 | ) | ||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic | 13,401,135 | 13,264,710 | 13,369,932 | 13,233,205 | |||||||||||||
| Diluted | 13,557,185 | 13,264,710 | 13,369,932 | 13,233,205 | |||||||||||||
| GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
|
(in thousands except share amounts) |
||||||||
|
(unaudited) |
||||||||
| March 31, 2019 | September 30, 2018 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 12,765 | $ | 11,934 | ||||
| Short-term investments | 748 | 25,471 | ||||||
| Trade accounts receivable, net | 20,634 | 14,323 | ||||||
| Financing receivables | 3,660 | 4,258 | ||||||
| Inventories | 15,525 | 18,812 | ||||||
| Prepaid expenses and other current assets | 2,275 | 1,856 | ||||||
| Total current assets | 55,607 | 76,654 | ||||||
| Rental equipment, net | 56,434 | 39,545 | ||||||
| Property, plant and equipment, net | 34,320 | 33,624 | ||||||
| Non-current inventories | 34,037 | 31,655 | ||||||
| Goodwill | 5,059 | 4,343 | ||||||
| Other intangible assets, net | 10,930 | 8,006 | ||||||
| Deferred income tax assets, net | 225 | 246 | ||||||
| Non-current financing receivables, net | 2,753 | 4,740 | ||||||
| Prepaid income taxes | 69 | 54 | ||||||
| Other assets | 216 | 213 | ||||||
| Total assets | $ | 199,650 | $ | 199,080 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable trade | $ | 7,117 | $ | 4,106 | ||||
| Accrued expenses and other current liabilities | 5,059 | 6,826 | ||||||
| Deferred revenue | 2,393 | 3,752 | ||||||
| Income tax payable | 33 | 51 | ||||||
| Total current liabilities | 14,602 | 14,735 | ||||||
| Contingent earn-out liabilities | 12,055 | 7,713 | ||||||
| Deferred income tax liabilities | 40 | 45 | ||||||
| Total liabilities | 26,697 | 22,493 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
|
Preferred stock, 1,000,000 shares authorized, no shares issued and outstanding |
— | — | ||||||
|
Common stock, $.01 par value, 20,000,000 shares authorized, 13,632,291 and 13,600,541 shares issued and outstanding |
136 | 136 | ||||||
| Additional paid-in capital | 87,525 | 86,116 | ||||||
| Retained earnings | 100,808 | 105,954 | ||||||
| Accumulated other comprehensive loss | (15,516 | ) | (15,619 | ) | ||||
| Total stockholders’ equity | 172,953 | 176,587 | ||||||
| Total liabilities and stockholders’ equity | $ | 199,650 | $ | 199,080 | ||||
| GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
|
(in thousands) |
||||||||
|
(unaudited) |
||||||||
| Six Months Ended | ||||||||
| March 31, 2019 | March 31, 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (5,146 | ) | $ | (14,209 | ) | ||
|
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||
| Deferred income tax benefit | (14 | ) | (40 | ) | ||||
| Rental equipment depreciation | 6,121 | 4,519 | ||||||
| Property, plant and equipment depreciation | 2,003 | 2,105 | ||||||
| Amortization of intangible assets | 795 | — | ||||||
| Accretion of discounts on short-term investments | (9 | ) | 24 | |||||
| Stock-based compensation expense | 1,194 | 1,344 | ||||||
| Bad debt expense (recovery) | (30 | ) | 356 | |||||
| Inventory obsolescence expense | 2,401 | 3,297 | ||||||
| Gross profit from sale of used rental equipment | (200 | ) | (4,187 | ) | ||||
| Gain on disposal of property, plant and equipment | — | (25 | ) | |||||
| Realized loss on short-term investments | 67 | 1 | ||||||
| Effects of changes in operating assets and liabilities: | ||||||||
| Trade accounts receivable | (5,806 | ) | (2,943 | ) | ||||
| Income tax receivable | — | (701 | ) | |||||
| Inventories | (3,695 | ) | (4,613 | ) | ||||
| Prepaid expenses and other current assets | (998 | ) | 179 | |||||
| Prepaid income taxes | (23 | ) | 49 | |||||
| Accounts payable trade | 3,018 | 2,320 | ||||||
| Accrued expenses and other | (1,218 | ) | 89 | |||||
| Deferred revenue | (1,349 | ) | 60 | |||||
| Income tax payable | (15 | ) | — | |||||
| Net cash used in operating activities | (2,904 | ) | (12,375 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | (962 | ) | (495 | ) | ||||
| Proceeds from the sale of property, plant and equipment | — | 200 | ||||||
| Investment in rental equipment | (20,420 | ) | (1,643 | ) | ||||
| Proceeds from the sale of used rental equipment | 1,646 | 3,904 | ||||||
| Purchases of short-term investments | — | (3,755 | ) | |||||
| Proceeds from the sale of short-term investments | 24,856 | 13,321 | ||||||
| Business acquisition | (1,819 | ) | — | |||||
| Payments for damages related to insurance claim | (616 | ) | — | |||||
| Proceeds from insurance claim | 1,166 | — | ||||||
| Net cash provided by investing activities | 3,851 | 11,532 | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from the exercise of stock options | 215 | 19 | ||||||
| Net cash provided by financing activities | 215 | 19 | ||||||
| Effect of exchange rate changes on cash | (331 | ) | (89 | ) | ||||
| Increase (decrease) in cash and cash equivalents | 831 | (913 | ) | |||||
| Cash and cash equivalents, beginning of fiscal year | 11,934 | 15,092 | ||||||
| Cash and cash equivalents, end of fiscal period | $ | 12,765 | $ | 14,179 | ||||
| GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES | ||||||||||||||||||||
| SUMMARY OF SEGMENT REVENUE AND OPERATING INCOME (LOSS) | ||||||||||||||||||||
|
(in thousands) |
||||||||||||||||||||
|
(unaudited) |
||||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||||
| March 31, 2019 | March 31, 2018 | March 31, 2019 | March 31, 2018 | |||||||||||||||||
| Oil and Gas Markets segment revenue: | ||||||||||||||||||||
| Traditional exploration products | $ | 3,969 | $ | 3,187 | $ | 6,754 | $ | 6,977 | ||||||||||||
| Wireless exploration products | 13,644 | 6,039 | 20,926 | 9,670 | ||||||||||||||||
| Reservoir products | 1,056 | 2,061 | 1,993 | 2,679 | ||||||||||||||||
| 18,669 | 11,287 | 29,673 | 19,326 | |||||||||||||||||
| Adjacent Markets segment revenue: | ||||||||||||||||||||
| Industrial product revenue | 4,122 | 4,711 | 7,683 | 8,387 | ||||||||||||||||
| Imaging product revenue | 3,137 | 3,115 | 6,211 | 5,893 | ||||||||||||||||
| 7,259 | 7,826 | 13,894 | 14,280 | |||||||||||||||||
| Emerging Markets segment revenue: | ||||||||||||||||||||
| Border and perimeter security product revenue | 46 | — | 134 | — | ||||||||||||||||
| Corporate | 149 | 134 | 297 | 285 | ||||||||||||||||
| Total revenue | $ | 26,123 | $ | 19,247 | $ | 43,998 | $ | 33,891 | ||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||||
| March 31, 2019 | March 31, 2018 | March 31, 2019 | March 31, 2018 | |||||||||||||||||
| Operating income (loss): | ||||||||||||||||||||
| Oil and Gas Markets segment | $ | 3,332 | $ | (3,757 | ) | $ | 731 | $ | (11,430 | ) | ||||||||||
| Adjacent Markets segment | 1,651 | 1,384 | 2,633 | 2,413 | ||||||||||||||||
| Emerging Markets segment | (1,180 | ) | — | (2,372 | ) | — | ||||||||||||||
| Corporate | (2,781 | ) | (2,849 | ) | (6,033 | ) |
(5,810 |
) | ||||||||||||
| Total operating income (loss) | $ | 1,022 | $ | (5,222 | ) | $ | (5,041 | ) | $ | (14,827 | ) | |||||||||
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