Geospace Technologies Reports Fiscal Year 2017 Results

HOUSTON–(BUSINESS WIRE)–Geospace Technologies (NASDAQ: GEOS) today announced a net loss of $56.8
million, or $4.32 per diluted share, on revenues of $73.7 million for
its fiscal year ended September 30, 2017. This compares with a net loss
of $46.0 million, or $3.52 per diluted share, on revenues of $62.1
million for the prior year.

For the fourth quarter ended September 30, 2017, the company recorded
revenues of $23.7 million and a net loss of $19.2 million, or $1.46 per
diluted share. For the comparable period last year, the company recorded
revenues of $16.3 million and a net loss of $12.3 million, or $0.94 per
diluted share.

Walter R. ("Rick") Wheeler, President and CEO of Geospace Technologies
said, "Revenue generated in the fourth quarter of fiscal year 2017
totaled $23.7 million. This is an increase of 45% over last year’s
fourth quarter and represents the largest quarterly revenue since the
second quarter of fiscal year 2015. A significant portion of this fourth
quarter revenue resulted from the purchase by a customer of 15,000
three-channel GSX recording stations and related three-component
geophone sensors from our rental fleet. Combining these results with the
first three quarters, revenue for the 2017 fiscal year increased almost
19% over last year, reaching $73.7 million. Despite higher revenue in
the fourth quarter and fiscal year, earnings for the year reflected a
net loss of $56.8 million, or $4.32 per diluted share. Contributing to
this loss were significant non-cash charges of $5.3 million of
impairment charges levied in the fourth quarter against certain factory
equipment used in the manufacture of permanent reservoir monitoring
(PRM) systems, as well as $21.5 million of inventory obsolescence
reserves, including $5.1 million in our fourth quarter related to our
PRM products. Together, these non-cash adjustments amounted to $26.8
million over the fiscal year, or a loss of $2.04 per diluted share. The
adjustments associated with PRM manufacturing equipment and related
product inventories occurred in response to news we received in
September 2017 from one of our PRM customers. We were informed that two
offshore fields we had been discussing would now limit tender
submissions to systems utilizing fiber optic sensor technology. In
conjunction with this notice and the recognition that there have been no
PRM orders since November of 2012, irrespective of technology type, we
concluded that the additional inventory obsolescence reserves and
impairment charges were warranted.”

“Our traditional seismic exploration products produced revenues of $14.8
million for fiscal year 2017. This is an increase of 11% over last
year’s total and is largely derived from the sale in the fourth quarter
of three-component geophone sensors in connection with the large GSX
system sale mentioned above. Our traditional seismic product revenue in
fiscal year 2016 represented a historic low, and the increase
experienced in fiscal year 2017 is an encouragement of potential market
improvement. Despite the increased revenue, demand for our traditional
seismic products has remained relatively flat and slow to recover. We
expect demand for our traditional products to expand and diminish in
parallel with future increases or decreases in seismic exploration
activity.”

“Wireless product revenue for fiscal year 2017 grew by 61% compared to
last year, totaling $29.7 million. More than $11 million of revenues
came in the fourth quarter, with the largest portion derived from the
previously mentioned sale of the large GSX system. During fiscal year
2017, we sold almost 67,000 channels of our GSX wireless recording
system, compared with only 4,600 channels last year. Rentals of our OBX
marine nodal systems, although down from last year, were also a
significant contributor to our wireless revenues and continued to
represent a majority of our rental revenue for fiscal year 2017. In the
significantly depressed seismic exploration environment of today, our
wireless land and marine recording systems remain especially relevant to
contractors as the premier tools for their operational efficiency and
reliability.”

“Our reservoir seismic products generated $2.7 million of revenue in
fiscal year 2017. While this represents an increase of 27% over last
year, it is still approximately half of what was received in fiscal year
2015. As was similarly the case in both fiscal year 2015 and 2016,
revenue from this product line in fiscal year 2017 was primarily
associated with the sale, rental, and repair of our high-definition
seismic borehole tools. Absent any contracts to manufacture PRM systems,
revenue from this segment is not expected to increase in any appreciable
way. Moreover, with the recent news from an existing PRM customer that
bids for two fields previously under discussion would now be restricted
to fiber optic sensor technology, we believe that fiscal year 2018 is
also unlikely to see any revenue from PRM system contracts. Our PRM
system designs, which utilize electrical sensor technology, are proven
to provide the best performance and long-term functionality of any PRM
system ever deployed or made available, and we remain committed to
pursuing PRM contract opportunities with discerning oil companies
managing their reserves through high resolution seismic monitoring.
Nonetheless, while we are still engaged in ongoing discussions regarding
other fields and other customers for PRM systems, we do not expect these
endeavors to result in any PRM contracts producing revenue in fiscal
year 2018.”

“Revenue from our non-seismic products totaled $26.0 million in fiscal
year 2017. This reflects a decrease of about 6% from last year’s
performance, but is still almost 10% higher than the amount produced two
years ago. The decrease from last year is largely attributed to a
temporary lull in demand for certain industrial products while some of
our customers worked through large inventories purchased the year
before. Notably, we were encouraged to see revenue from our non-seismic
products increase in our second, third and fourth quarters of fiscal
year 2017. Despite the decrease in revenue compared to last year,
operating income associated with our non-seismic products has increased
each year over the last three consecutive years. We believe our ongoing
efforts to design and introduce new products in our various non-seismic
business lines will continue to provide opportunities for new revenue
and growth.”

“In other matters, we reported in a recent Form 8-K filing an accounting
error in our financial statements for the fiscal years ended September
30, 2015 and 2016, and the quarterly periods ended December 31, 2016,
March 31, 2017 and June 30, 2017. Specifically, the accounting error
relates to the classification of inventories on the balance sheet. We
had previously classified all of our inventories as a current asset in
our balance sheets for each of those periods. We have now determined
that all of our inventories for each of these dates were not reasonably
expected to be sold or consumed during our next operating cycle, and
therefore a portion of these inventories should have been classified as
non-current in our balance sheets. The error had no effect on previously
reported results of operations, net loss, total assets, total
liabilities, stockholders' equity or cash flows for any of the affected
periods. All of our inventory is available for sale, and is often sold
on unanticipated short notice. However, in light of the rapid onset of
depressed seismic market conditions that occurred in 2015 and 2016, and
the recognition that our forecasted expectations of revenues in the
current industry environment would not consume our large inventory
balances, we realized that portions of our inventories should have been
classified as non-current, meaning these inventories were unlikely to be
sold or consumed within a one-year period. Going forward, we will
continue to categorize portions of our inventories as non-current based
on estimates of when it might be sold, even though such estimates are
highly subject to change from one period to another.”

“As previously disclosed, we recently amended our loan agreement with
Frost Bank. This amendment extended the maturity of the loan agreement
to April 2019, modified the borrowing base to include new assets while
restricting the inclusion of others, and requires us to maintain $10
million of unencumbered liquid assets. We are pleased with the outcome
of this negotiation with our bankers.”

“When we began fiscal year 2017, all indicators pointed to the
persistence of similar depressed conditions for the seismic equipment
market that were experienced in the previous fiscal year. As the year
unfolded, this assessment proved to be essentially accurate as a
consequence of continued low seismic exploration funding by oil and gas
companies. As the 2017 fiscal year has now come to a close, we are
encouraged that total revenue increased over last year and that quoting
activity as reported by our customers is also increasing. However, our
optimism remains guarded in that we believe recovery in the seismic
industry will be gradual and that demand for our seismic products will
lag behind initial market improvements. Our latest product offerings are
currently under evaluation and testing by existing as well as new
potential customers, and are being recognized for the utility and
efficiencies their new features can provide. These products and our
reputation for customer support provide an abounding opportunity for us
to take advantage of an improved seismic exploration and reservoir
characterization industry where both technical and operational
performance are important. Our strong balance sheet includes $51.2
million in cash, cash equivalents and short term investments, and is
further highlighted by the lack of any long term debt. Combined with our
borrowing availability of $23.8 million from our credit agreement, our
total liquidity at September 30, 2017 was $75 million. In concert with
our ongoing cost management efforts, this strong financial position and
our technical competence leave us well prepared for the future.”

Conference Call Information

Geospace Technologies will host a conference call to review its fiscal
year 2017 full year financial results on December 1, 2017, at 10:00 a.m.
Eastern Time (9 a.m. Central). Participants can access the call at (800)
459-5343 (US) or (203) 518-9553 (International). Please reference the
conference ID: GEOSQ417 prior to the start of the conference call. A
replay will be available for approximately 60 days and may be accessed
through the Investor tab of our website at www.geospace.com.

About Geospace Technologies

Geospace Technologies Corporation designs and manufactures instruments
and equipment used by the oil and gas industry to acquire seismic data
in order to locate, characterize and monitor hydrocarbon producing
reservoirs. The company also designs and manufactures non-seismic
products, including industrial products, offshore cables, thermal
printing equipment and film.

Forward Looking Statements

This press release includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical fact included herein
including statements regarding potential future products and markets,
our potential future revenues, future financial position, business
strategy, future expectations and estimates and other plans and
objectives for future operations, are forward-looking statements.
Forward-looking statements are often, but not always, identified by the
use of words such as "anticipate", "believe", "expect", "plan",
"intend", "forecast", "target", "project", "may", "will", "should",
"could", "estimate", "predict", or similar words suggesting future
outcomes or language suggesting an outlook. We believe our
forward-looking statements are reasonable. However, they are based on
certain assumptions about our industry and our business that may in the
future prove to be inaccurate. Important factors that could cause actual
results to differ materially from our expectations include the level of
seismic exploration worldwide, which is influenced primarily by
prevailing prices for oil and gas, the extent to which our new products
are accepted in the market, the availability of competitive products
that may be more technologically advanced or otherwise preferable to our
products, obsolescence of inventory, negative reactions to our
restatement, tensions in the Middle East and other factors disclosed
under the heading “Risk Factors” and elsewhere in our most recent Annual
Report on Form 10-K and Quarterly Report on Form 10-Q, which are on file
with the Securities and Exchange Commission. Further, all written and
verbal forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by such factors.
We assume no obligation to revise or update any forward-looking
statement, whether written or oral, that we may make from time to time,
whether as a result of new information, future developments or otherwise.

Contacts

Geospace Technologies
Rick Wheeler, 713.986.4444
President and
CEO