Geospace Technologies (GEOS) Post Wider Than Expected Q4 Loss

Geospace Technologies (NASDAQ: GEOS) reported Q4 EPS of ($1.03), $0.46 worse than the analyst estimate of ($0.57). Revenue for the quarter came in at $16 million versus the consensus estimate of $20.53 million.

Walter R. (“Rick”) Wheeler, Geospace Technologies’ President and CEO said, “Our 2015 fiscal year has represented perhaps the most challenging year in our company’s history. As market conditions continually worsened throughout the year, our fourth quarter experienced accelerated weakness in demand for our seismic products. Compared to fiscal year 2014, fourth quarter revenue fell by 39%, and our full fiscal year revenue declined 64% from last year. Net losses sustained in all four quarters were largely driven by our high fixed manufacturing overhead costs which were left unabsorbed by lower factory activity, along with depreciation expenses on our under-utilized GSX rental equipment. Contributing to the fiscal year loss was a $1.8 million write-off of goodwill in our fourth quarter, which was determined to be impaired in light of current market conditions in our seismic business segment. Also contributing to the loss was a $1.3 million increase in our bad debt expense. Excluding these charges, operating expenses for fiscal year 2015 were reduced by 11% from fiscal year 2014 levels.”

“Traditional seismic exploration products generated revenue of $6.5 million in the fourth quarter, down 26% from the same period a year ago. For the full fiscal year, revenue totaled $30.1 million, a decrease of 42% compared to fiscal year 2014. A large majority of these products constitute consumable items that become used up and worn out as a function of our customers' seismic operations. As such, the comparative revenue reductions in these periods are a testament to the slow seismic exploration activity currently taking place in the wake of lower oil prices and the subsequent reduced exploration spending by oil companies. This is further exacerbated by the fact that our customers can draw from their existing stocks of unutilized equipment which reduces their need for new equipment.”

“Demand for our wireless seismic equipment has also been impacted by these same market conditions. Wireless product revenue in our fourth quarter was $1.3 million compared to $8.3 million in last year’s fourth quarter. For fiscal year 2015, wireless product revenue totaled $25.1 million, a 68% reduction compared to revenue of $78.6 million last year. Fiscal year 2015 sales of our GSX wireless land system totaled just under 7,000 channels, most of which were sold from our rental fleet. However, as the year unfolded, we saw continued demand for rental of our OBX ocean bottom nodal marine systems. As previously announced, we recently executed an agreement to rent a system comprised of 5,000 OBX stations, which is scheduled for delivery in our second fiscal quarter ending March 31, 2016. This is a very positive note in an otherwise retracting seismic exploration market. The technical merits of our OBX system have seen increasing recognition and acceptance worldwide, and its operational benefits are being continually proven.”

“Revenue from our reservoir seismic products totaled $0.9 million in the fourth quarter. This compares to revenue of $3.6 million in the fourth quarter of the previous year. For the fiscal year 2015, our reservoir seismic products generated revenue of only $5.4 million compared with $84.3 million last year. This represents a year-over-year decline of 94% and is largely the result of having no contracts in fiscal year 2015 for permanent reservoir monitoring (PRM) systems. In fiscal year 2014, PRM contracts with Statoil, BP and Makamin Petroleum Services contributed revenue of $71.5 million. While discussions and real opportunities exist for PRM system contracts in fiscal year 2016, we are cautious in today’s market that they will materialize without delays or postponements. However, because PRM systems facilitate increased recovery and enhanced production which maximizes the value of existing assets and infrastructure, we believe they represent sensible investments even in today’s market of lower oil prices.”

“Although our seismic business segment struggled throughout fiscal year 2015, our non-seismic businesses posted fourth quarter revenue of $7.2 million compared with $5.5 million for the same period last year, an increase of 31%. For the full fiscal year, non-seismic revenue grew to $23.8 million in 2015, up from $21.4 million in 2014 yielding a year-over-year revenue increase of 11%. For the first time, our industrial products now represent a majority of our product revenue in this segment and we’re very pleased to see these products gain acceptance and penetration in their respective markets.”

“As we look back over fiscal year 2015, we saw crude oil prices continue to fall to six-year lows. This price drop had a significant impact on the seismic exploration industry as oil companies have minimized or eliminated spending on exploration projects. We believe that this reduced level of spending on seismic exploration will likely continue through 2016, and we do not anticipate any improvement in demand for our seismic exploration products in the foreseeable future. However, we also believe that low crude oil prices and, more particularly, continued curtailment of seismic exploration activities are not sustainable for an indefinite period of time. Furthermore, we believe that seismic technologies will continue to be an important tool used by the oil and gas industry to find and exploit oil and gas reservoirs long into the future. In the meantime, we intend to continue our focus on conservative financial management and minimal capital expenditures while continuing the research and development that will both maintain and extend our leadership position in the science and technology required for the seismic industry. We believe this strategy combined with our strong balance sheet provides us the means to weather the current market conditions.”

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