Geospace Technologies (GEOS) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial statements show a return to quarterly profitability driven by rental revenue and improved semi-annual results Consolidated Balance Sheets Total assets remained stable as a shift from short-term investments funded a significant increase in rental equipment Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | September 30, 2018 | | :--- | :--- | :--- | | Total current assets | $55,607 | $76,654 | | Rental equipment, net | $56,434 | $39,545 | | Goodwill | $5,059 | $4,343 | | Total assets | $199,650 | $199,080 | | Total current liabilities | $14,602 | $14,735 | | Contingent earn-out liabilities | $12,055 | $7,713 | | Total liabilities | $26,697 | $22,493 | | Total stockholders' equity | $172,953 | $176,587 | Consolidated Statements of Operations The company achieved quarterly net income of $0.7 million, a significant turnaround driven by a 35.7% revenue increase Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2019 | Three Months Ended Mar 31, 2018 | Six Months Ended Mar 31, 2019 | Six Months Ended Mar 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $26,123 | $19,247 | $43,998 | $33,891 | | - Product Revenue | $11,845 | $13,910 | $22,304 | $27,184 | | - Rental Revenue | $14,278 | $5,337 | $21,694 | $6,707 | | Gross Profit | $10,351 | $1,999 | $13,441 | $1,031 | | Income (loss) from operations | $1,022 | $(5,222) | $(5,041) | $(14,827) | | Net Income (Loss) | $707 | $(4,729) | $(5,146) | $(14,209) | | Diluted EPS | $0.05 | $(0.36) | $(0.38) | $(1.07) | Consolidated Statements of Cash Flows Cash from investing activities, funded by asset sales, offset operating cash use and supported rental fleet expansion Cash Flow Summary for the Six Months Ended March 31 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,904) | $(12,375) | | Net cash provided by investing activities | $3,851 | $11,532 | | Net cash provided by financing activities | $215 | $19 | | Increase (decrease) in cash | $831 | $(913) | | Cash and cash equivalents, end of period | $12,765 | $14,179 | - Key investing activities included a $20.4 million investment to expand the rental equipment fleet and a $1.8 million cash payment for a business acquisition, funded by $24.9 million in proceeds from the sale of short-term investments[19] Notes to Consolidated Financial Statements Notes detail the impact of new accounting standards, recent acquisitions, and segment reporting structures - The company adopted the new revenue recognition standard ASC Topic 606 on October 1, 2018, which did not have a material impact on the consolidated financial statements[28][34][39] - On November 13, 2018, the company acquired the OptoSeis® fiber optic sensing technology business for approximately $1.8 million in cash and potential contingent earn-out payments up to $23.2 million, resulting in $0.7 million in goodwill[44][45] - The company has contingent earn-out liabilities from two acquisitions with fair values recorded at $7.7 million for the Quantum acquisition and $4.3 million for the OptoSeis acquisition[61][62] Segment Revenue for Six Months Ended March 31 (in thousands) | Segment | 2019 | 2018 | | :--- | :--- | :--- | | Oil and Gas Markets | $29,673 | $19,326 | | Adjacent Markets | $13,894 | $14,280 | | Emerging Markets | $134 | $— | | Total | $43,998 | $33,891 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong quarterly revenue growth from OBX rentals, ongoing investments, and sufficient liquidity Business Overview and Products The company operates across Oil and Gas, Adjacent, and Emerging Markets segments, recently expanding via acquisitions - The company operates through three segments: Oil and Gas Markets, Adjacent Markets, and Emerging Markets[65][72] - The Oil and Gas segment includes wireless systems like the land-based GSX and the marine-based OBX, with 22,000 OBX stations in the rental fleet[81][82] - The Emerging Markets segment was created after the Quantum acquisition and focuses on security and surveillance products[91] Consolidated Results of Operations Consolidated revenue increased 35.7% year-over-year, driving a return to operating income for the quarter Consolidated Results - Three Months Ended March 31 (in thousands) | Metric | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $26,123 | $19,247 | 35.7% | | Gross Profit | $10,351 | $2,000 | 417.6% | | Operating Expenses | $9,329 | $7,221 | 29.2% | | Operating Income (Loss) | $1,022 | $(5,222) | N/A | - The increase in operating expenses was primarily due to incremental costs of $1.8 million for the quarter related to the Quantum and OptoSeis acquisitions[99] Segment Results of Operations The Oil and Gas segment drove performance with a 65.4% revenue increase, turning an operating loss into income Oil and Gas Markets Revenue - Three Months Ended March 31 (in thousands) | Product Line | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Wireless Exploration | $13,644 | $6,039 | 125.9% | | Traditional Exploration | $3,969 | $3,187 | 24.5% | | Reservoir Products | $1,056 | $2,061 | -48.8% | | Total | $18,669 | $11,287 | 65.4% | - The Oil and Gas segment's operating income for Q2 2019 was $3.3 million, a significant improvement from an operating loss of $3.8 million in Q2 2018[104] - The new Emerging Markets segment generated $45,000 in revenue and a $1.2 million operating loss for the quarter[107] Liquidity and Capital Resources Liquidity is sufficient for operations and planned capital expenditures, supported by cash and an amended credit facility - The company expects fiscal year 2019 cash investments into its rental fleet could be $30 million or more[109] - At March 31, 2019, the company had $13.5 million in available cash, cash equivalents, and short-term investments[112] - In March 2019, the credit agreement was amended to reduce the minimum unencumbered liquid assets threshold to $5 million and add a new covenant requiring a tangible net worth of at least $140 million[113][114] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rates on its credit facility - The company has foreign currency exposure from its operations in Russia and Colombia; a hypothetical 10% strengthening of the U.S. dollar would reduce working capital by approximately $0.5 million[123] - The company had an un-hedged position of CAD $4.3 million related to intercompany receivables[124] - The company is subject to floating interest rate risk on its credit facility but had no outstanding borrowings as of March 31, 2019[125] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2019 - Based on an evaluation as of March 31, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[127] - No material changes occurred during the quarter that affected the company's internal control over financial reporting[128] PART II. OTHER INFORMATION Exhibits This section lists key exhibits filed with the report, including a loan amendment and executive certifications - The report includes several exhibits, notably the Sixth Amendment to the Loan Agreement and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act[131]