Bolt Technology: An Unusual Energy Services Company

Jul.18.11 | About: Bolt Technology (BOLT)
Bolt Technology Corporation (NASDAQ:BOLT) describes itself as a worldwide developer and manufacturer of seismic energy sources, seismic energy source controllers and synchronizers and underwater connectors used in offshore seismic exploration for oil and gas. The seismic energy sources (guns) were invented by the company founder Stephen Chelminski back in the 1960s. The guns are used primarily in underwater oil and gas exploration.
Because of the repetitive use required, BOLT also has a nice business selling replacement parts. The guns and replacement parts make up nearly 50% of sales according to the company's investor relations contact. Marine cables, connectors and controllers used with the guns make up the other 50%. In 2011 BOLT completed the acquisition of Seabotix entering the area of remotely operated vehicle (ROV) systems. This segment is still very small in terms of the overall revenues for BOLT. The company sold off its industrial products segment in 2008.
BOLT has some significant customer concentration in its revenues listing Compagnie Generale de Geophysique-Veritas (CGV) as having 23% in 2010, Bureau of Geophysical Perspective China with 11% and Schlumberger (NYSE:SLB) with 7%. Some of these customers sell onto other end customers.

It is interesting that BOLT also lists Veritas as a principal competitor through its subsidiary Sercel Inc. ION Geophysical (NYSE:IO) is listed as the other principal competitor in BOLT’s 10-K filing. Despite the presence of larger competitors BOLT retains a 70% share of the seismic gun market. There have been some past reports that BOLT’s guns have greater shot to shot reliability. In any case, BOLT has been able to remain the dominant player for many years.
I was attracted to BOLT as a possible investment because I think that the underwater energy exploration segment will see major growth in coming years as land based energy sources, particularly oil, become more scarce. It has become difficult to find investment bargains in this segment as the prices of other plays such as Oceaneering (NYSE:OII) have run up significantly. I also liked the company's balance sheet and conservative financial management. BOLT currently has no long term debt and has over $30 MM in cash and equivalents. This is for a company with a market capitalization of about $112 MM.
Another unusual feature of BOLT is that it has demonstrated excellent free cash generation. This is somewhat unusual in the energy services business area. For example, the land based seismic energy company Dawson (NASDAQ:DWSN) has often had capital expenditures exceeding cash generated by its business in recent years. BOLT maintained positive cash flow throughout the recent recession, even as underwater oil exploration decreased. I would project that BOLT should be able to generate in excess of $10 MM/year of cash in coming years.
The recent acquisition of Seabotix remains something of an unknown in forecasting prospects for the company. In its latest 10-Q, BOLT list a purchase price of $15.79 MM. This may increase if certain financial targets are met. Seabotix manufactures very small ROVs for which many of the applications may reside outside of the energy service business. BOLT investor relations mentioned small marinas and law enforcement as two possible customer areas. Seabotix had about $7.2 MM in 2010 revenue down from $8.3MM in 2009. The primary rationale for the acquisition appears to be the desire to achieve some diversification outside of the energy business.
In any case, the primary driver for BOLT and its share price in the coming years will remain the amount of underwater energy exploration being conducted. I believe this will increase as the worldwide economic recovery continues and the demand for oil rises.
Currently BOLT is selling at 15x 2011 projected earnings. This figure is actually much less if the cash on the balance sheet is considered. This is quite cheap compared to other underwater exploration plays. I have added small positions in BOLT in my individual accounts and in accounts managed for Freedom Mountain Investment clients buying under $15/share.

Disclosure: I am long BOLT.