Geospace Technologies Corporation — Q1 FY2021 10-Q
Reporting period: Three months ended December 31, 2020; comparative period is the three months ended December 31, 2019. Balance-sheet comparisons are to September 30, 2020. Financial statements are unaudited. The company designs and manufactures seismic equipment and also serves adjacent industrial and imaging markets and emerging border-security markets.
Financial performance and position
| Metric | Q1 FY2021 | Prior-year quarter / comparison |
|---|---|---|
| Revenue | $28.46 million | $17.71 million; up 60.7% |
| Gross profit and margin | $6.73 million; 23.6% | $2.50 million; 14.1% |
| Operating loss and margin | $1.46 million; (5.1%) | $7.82 million; (44.2%) |
| Net loss / diluted loss per share | $1.05 million / $0.08 | $9.28 million / $0.69 |
| Operating cash flow | $2.31 million provided | $3.36 million used |
| Investing cash flow | $0.50 million used | $5.64 million used |
| Cash and cash equivalents | $33.72 million | $32.69 million at September 30, 2020 |
| Total assets / liabilities | $189.47 million / $29.63 million | $186.85 million / $25.88 million at September 30, 2020 |
There were no credit-agreement borrowings at quarter-end; borrowing availability was $14.7 million. The facility allows up to $30 million subject to a borrowing base, matures April 2022, and the company reported covenant compliance. Current assets were $73.46 million and current liabilities $16.31 million. The company had $5.0 million of cash held abroad. No interest expense was reported in the quarter.
Material changes and drivers
- Revenue growth largely reflected $8.8 million recognized on a U.S. Customs and Border Protection (CBP) contract, a large sale of OBX rental equipment, and higher industrial product demand. Rental revenue fell to $1.74 million from $8.62 million, primarily due to equipment sales and lower OBX fleet utilization.
- Emerging Markets revenue increased to $8.80 million from $0.10 million, chiefly on the CBP contract. Oil and Gas Markets revenue rose 10.9% to $12.76 million, but its operating loss widened to $5.99 million from $3.89 million. Adjacent Markets revenue rose 13.1% to $6.90 million and operating income increased to $1.26 million from $0.85 million.
- Operating expenses declined 20.7% to $8.18 million, reflecting lower personnel and R&D costs, other expense reductions, and a $0.7 million noncash fair-value credit on contingent acquisition consideration. Net loss improved substantially, but the company remained loss-making.
- Operating cash flow benefited from collections and increased payables, partly offset by $4.3 million of CBP unbilled receivables, higher inventories, and other asset increases. The company repurchased 117,637 shares for $0.83 million; $4.17 million remained under the $5 million authorization.
Outlook, risks, and unusual items
- Management expects difficult oil-and-gas conditions to continue in FY2021, with lower revenue from traditional and land-based wireless products. It warned of possible additional inventory-obsolescence expense; oil-price recovery may not persist. COVID-19 has affected demand, rentals, travel, and supply-chain lead times.
- The company expects approximately $5 million of FY2021 property, plant, and equipment spending. Rental-fleet investment will depend mainly on OBX demand. A cost-reduction program initiated in July 2020 is expected to generate about $2 million of annualized cash savings; the workforce reductions incurred $0.9 million of termination costs in FY2020, with no related liability at quarter-end.
- Management said cash, cash equivalents, and available credit were expected to fund operating losses and planned capital expenditures for the next 12 months. This depends on results, customer collections, and access to the credit facility.
- The $10.5 million CBP contract generated $8.8 million revenue in the quarter and had $4.3 million in unbilled receivables. Remaining performance obligations are described inconsistently: the notes state approximately $1.6 million, while MD&A states approximately $1.4 million. Most was expected in Q2 or Q3 FY2021.
- A $13.2 million short-term customer note was recorded during the quarter, with $6.0 million collected in January 2021; it is due by March 31, 2021. Separately, a $10 million customer note from an earlier $12.5 million product sale remains unrecognized due to collectability concerns; $5.3 million of payments received is recorded as deferred revenue.
- A $13 million face-value distressed-customer bond was sold in January 2021 for $0.3 million cash, with a further $2.4 million contingent on conditions being met by December 31, 2021; otherwise the company may repurchase the bond for $1. The contingent consideration liabilities related to the Quantum and OptoSeis acquisitions totaled about $10.3 million at quarter-end and are subject to valuation changes.
- Other risks include customer and receivable concentration, uncertain oil-and-gas exploration demand, potential changes in U.S. border-security policy, and ordinary-course legal proceedings that management does not expect to have a material adverse effect. The company reported effective disclosure controls.
Investor facts to verify
- Whether the CBP contract’s remaining revenue is $1.4 million or $1.6 million, and whether it was recognized as expected.
- Collection of the customer note, including the $6.0 million January payment and the remaining amount due by March 31, 2021; also track collectability of the separate unrecognized $10 million note.
- Whether the contingent $2.4 million bond-sale payment conditions were met, and the ultimate recovery from the bond transaction.
- OBX rental utilization and economics after the equipment sale, oil-and-gas product demand, and any further inventory-obsolescence charges.
- Liquidity and covenant headroom, including the borrowing base, while the company continues to report operating losses and fund planned capital expenditures.