Geospace Technologies Corporation — Q1 FY2023 10-Q
Reporting period: Three months ended December 31, 2022, compared with the three months ended December 31, 2021. Amounts below are in millions of U.S. dollars unless otherwise noted.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $31.1 | $18.0 | Up 72.9% |
| Gross profit / gross margin | $10.5 / 33.9% | $1.7 / 9.5% | Margin up 24.4 percentage points |
| Operating loss | $(0.3) | $(6.9) | Improved $6.6 |
| Net loss / loss per share | $(0.1) / $(0.01) | $(6.8) / $(0.52) | Loss narrowed |
| Cash used in operating activities | $(4.9) | $(7.3) | Use decreased $2.5 |
Revenue comprised $19.5 million of product revenue and $11.6 million of rental revenue. Oil and Gas Markets revenue rose to $20.1 million from $9.7 million; Adjacent Markets revenue increased to $10.8 million from $8.2 million. Emerging Markets revenue was $0.1 million. The filing attributes the improvement mainly to higher OBX rental utilization, wireless product sales, a $4.0 million payment for lost OBX nodes, and stronger water-meter product sales.
At December 31, 2022, cash and cash equivalents were $11.4 million and short-term investments were $0.9 million. Total debt was zero; the company had $8.5 million of borrowing availability under a credit facility with a $10 million maximum. Current assets were $68.6 million and current liabilities were $15.8 million. Total liabilities were $16.5 million and stockholders’ equity was $121.9 million.
Operating cash use reflected, among other items, increases of $6.9 million in receivables and $5.2 million in inventory. Investing activities provided $0.2 million, and financing activities used $0.2 million. Cash and cash equivalents declined $4.8 million during the quarter.
Material changes and unusual items
- Oil and Gas Markets operating results swung to $2.4 million of income from a $4.2 million loss; Adjacent Markets operating income rose to $1.7 million from $1.2 million. Emerging Markets’ operating loss widened to $1.2 million from $0.8 million.
- The prior-year quarter included a $2.4 million favorable non-cash fair-value adjustment for contingent consideration, which did not recur. The current-quarter operating expenses also included $0.6 million of restructuring costs, primarily workforce termination costs.
- The company recorded $1.4 million of inventory obsolescence expense. Management said Oil and Gas inventory remained above levels appropriate for current demand.
- The company agreed to sell its Houston property at 6410 Langfield Road, carried at $2.4 million, and expected closing before the end of Q2 FY2023. The property also supports the credit facility’s collateral base; the company was discussing alternative collateral with lenders.
Outlook, liquidity and risks
No formal revenue or earnings guidance is provided. Management expects the restructuring to generate annual savings of more than $2 million and expects no significant future costs from the plan. Fiscal 2023 planned cash investment is approximately $6 million for rental equipment and $1 million for property, plant and equipment. Management believes available cash, investments and other expected resources are sufficient for operating losses and planned capital expenditures over the next 12 months, while noting that absent profitable operations it may need other liquidity sources.
Management expects subdued demand for certain Oil and Gas products to persist, citing the lag between higher oil prices and exploration spending and customers’ underutilized equipment. OBX rental demand had improved. Key uncertainties include oil and gas price and exploration activity, customer order timing and collections, inventory obsolescence, COVID-related supply-chain disruption, and Russia-related sanctions and operating restrictions. The company held $2.2 million of cash in Russia that may be difficult or costly to repatriate; its Russian subsidiary’s net carrying value was $5.5 million. Four customers accounted for notable receivable balances, including one at $9.2 million. A customer with a $3.0 million note balance received a further six-month principal-payment forbearance in October 2022.
The company reported compliance with its credit-facility covenants and effective disclosure controls as of December 31, 2022. Management said pending legal matters were not expected to have a material adverse effect, while acknowledging outcomes are uncertain.
Important facts for investors to verify
- Whether the $4.0 million payment for lost OBX nodes is non-recurring and how it affects future rental revenue and fleet availability.
- Whether OBX utilization, product demand and segment profitability remain strong after the reported quarter.
- Whether the expected annual savings above $2 million are achieved and inventory obsolescence charges subside.
- Completion and proceeds of the property sale, and the lenders’ acceptance of replacement collateral for the credit facility.
- Collection of concentrated customer receivables and promissory notes, including the note under payment forbearance.
- Access to Russian-held cash and the effect of sanctions or supply-chain restrictions on manufacturing and sales.