Geospace Technologies Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2021. Financial statement amounts are unaudited and in U.S. dollars; figures below are rounded to millions unless otherwise stated.
Business context and performance
Geospace designs and manufactures seismic equipment for oil and gas exploration and also serves industrial, imaging, geotechnical, and border-security markets. Its reporting segments are Oil and Gas Markets, Adjacent Markets, and Emerging Markets.
| Metric | Three months ended Mar. 31, 2021 | Six months ended Mar. 31, 2021 |
|---|---|---|
| Revenue | $23.9 million, down 7.8% year over year | $52.4 million, up 20.0% |
| Gross profit / margin | $0.8 million / 3.5% (prior year $7.9 million / 30.5%) | $7.6 million / 14.5% (prior year $10.4 million / 23.9%) |
| Operating loss | $8.2 million (prior year $3.5 million) | $9.6 million (prior year $11.3 million) |
| Net loss / loss per share | $7.2 million / $0.53 | $8.2 million / $0.61 |
| Operating cash flow | Not separately stated for the quarter | Cash used of $3.9 million (prior year cash provided of $5.7 million) |
Revenue drivers and changes versus prior year
- Quarterly revenue fell mainly because OBX marine rental revenue declined following an equipment sale and lower fleet utilization. The reduction was partly offset by land-based wireless product revenue recognized on a prior-year delivery.
- Six-month revenue growth was driven in part by recognition of $12.5 million on that prior-year land-based wireless product sale, a $9.9 million sale of used OBX rental equipment, and $9.0 million recognized on the U.S. Customs and Border Protection (CBP) contract. These items materially affect comparability.
- For the quarter, Oil and Gas Markets revenue was $16.1 million, down from $18.4 million; Adjacent Markets revenue was $7.6 million, up from $7.1 million; Emerging Markets revenue was $0.2 million, down from $0.4 million. Six-month Emerging Markets revenue rose to $9.0 million, primarily from the CBP contract.
- Quarterly gross profit declined sharply as rental revenue and related profitability weakened. The six-month gross margin also declined despite higher reported revenue.
- Operating expenses fell about 21% year over year for both the quarter and six-month period, reflecting cost reductions, lower general expenses, and favorable noncash changes in contingent consideration fair value.
Financial position and liquidity
- At March 31, 2021, cash and cash equivalents were $31.2 million and short-term investments were $3.9 million, totaling $35.1 million. Cash was down $1.4 million from September 30, 2020.
- Current assets were $67.6 million and current liabilities were $16.2 million. Total liabilities were $25.1 million and stockholders’ equity was $151.7 million.
- The company reported no borrowings under its credit facility; borrowing availability was $18.5 million. It said it was in compliance with the facility’s covenants at quarter-end.
- Operating cash use was $3.9 million; investing activities provided $4.7 million, mainly from used rental-equipment sales; financing activities used $2.3 million for treasury-stock purchases.
- Rental equipment, net, declined to $38.4 million from $54.3 million. Inventory, current and non-current combined, was $39.9 million, including a $35.3 million obsolescence reserve.
- Liabilities included $10.0 million of contingent acquisition consideration and $1.3 million of operating lease liabilities. The filing reports no funded debt outstanding.
Outlook, management commentary, and risks
- Management expects challenging oil and gas industry conditions to continue in fiscal 2021 and anticipates lower Oil and Gas Markets revenue. It cites constrained customer budgets, excess customer equipment, and uncertain exploration activity. No numerical revenue or earnings guidance is provided.
- Management expects approximately $3 million of fiscal 2021 property, plant, and equipment investment and approximately $2 million of rental-fleet investment, depending on OBX demand. It believes cash and available credit should fund operating losses and planned capital spending for the next 12 months.
- The company expects approximately $2.3 million of Quantum earn-out payments in fiscal Q4 2021. The credit agreement was amended in March 2021, including a new funded-debt-to-EBITDA covenant; management said it was compliant at March 31.
- COVID-19 has weighed on demand and rental utilization, disrupted supply chains, increased material costs and lead times, and constrained business travel. Further effects could materially harm results, financial condition, or liquidity.
- Oil and gas prices and exploration spending remain key risks. Management also cited potential policy changes affecting drilling and federal leasing, and uncertainty over border-security demand under the new U.S. administration.
- Three customers accounted for $6.9 million, $4.2 million, and $1.0 million of combined receivables and unbilled receivables at quarter-end; six-month revenue from them was $13.2 million, $12.7 million, and $8.9 million, respectively.
- A $10 million customer promissory note related to a $12.5 million product sale was recognized after management concluded collection was probable; the customer had paid $6.1 million of principal by March 31. The CBP contract had $2.7 million of unbilled receivables and approximately $1.3 million of remaining performance obligations.
- The company transferred a distressed customer bond for $0.3 million and may receive another $2.4 million if specified conditions are met by December 31, 2021; otherwise it can reacquire the bond for $1. The contingent payment is uncertain.
- Management said pending legal matters were not expected to have a material adverse effect. The filing also states tax benefits on losses in the U.S., Canada, and Russia are not being recorded because future utilization is uncertain.
Most important facts for investors to verify
- How much of reported six-month growth and future earnings depends on the nonrecurring $12.5 million product-sale recognition, OBX equipment disposition, and CBP contract.
- Whether OBX rental utilization, Oil and Gas Markets demand, and gross margins recover, and whether further inventory obsolescence charges arise.
- Collection of the customer note and CBP unbilled receivables, and the conditions for receiving the possible $2.4 million bond-transfer payment.
- Ongoing liquidity and covenant compliance, including the amended credit-facility terms and expected Quantum earn-out payment.
- Customer concentration, supply-chain pressures, COVID-19 effects, and policy-driven risks to oil and gas and border-security markets.
- Share-count disclosure: the balance sheet reports 13,465,908 shares outstanding at March 31, while the cover reports 13,463,908 at April 30; verify the subsequent-period share count and any intervening activity.