2023
Annual
Report
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FORWARD-LOOKING STATEMENTS:
This Annual Report on Form 10-K and the documents incorporated by reference herein, if any, contain “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.
These forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “intend”, “expect”, “plan”, “budget”, “forecast”,
“anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue”, “evaluating” or similar words. Statements that contain these words should be
read carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or
state other forward-looking information. Examples of forward-looking statements include, among others, statements that we make regarding
our expected operating results, the adoption, results and success of our rollout of our Aquana smart water valves and cloud-based control
platform, future demand for our Quantum security solutions, the adoption and sale of our products in various geographic regions, potential
tenders for PRM systems, future demand for OBX rental equipment, the adoption of Quantum’s SADAR® product monitoring of subsurface
reservoirs, the completion of new orders for our channels of our GCL system, the fulfillment of customer payment obligations, the impact of and
the recovery from the impact of the coronavirus (or COVID-19) pandemic, the impact of the current armed conflict between Russia and Ukraine,
our ability to manage changes and the continued health or availability of management personnel, volatility and direction of oil prices, anticipated
levels of capital expenditures and the sources of funding therefor, and our strategy for growth, product development, market position, financial
results and the provision of accounting reserves. These forward-looking statements reflect our current judgment about future events and trends
based on the information currently available to us. However, there will likely be events in the future that we are not able to predict or control.
The factors listed under the caption “Risk Factors”, as well as cautionary language in this Annual Report on Form 10-K, provide examples of
risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking
statements. Such examples include, but are not limited to, the failure of the Quantum or OptoSeis® or Aquana technology transactions to yield
positive operating results, decreases in commodity price levels and continued adverse impact of COVID-19 which could reduce demand for our
products, the failure of our products to achieve market acceptance (despite substantial investment by us) our sensitivity to short term backlog,
delayed or cancelled customer orders, product obsolescence resulting from poor industry conditions or new technologies, bad debt write-offs
associated with customer accounts, inability to collect on promissory notes, lack of further orders for our OBX rental equipment, failure of our
Quantum products to be adopted by the border and perimeter security market, or a decrease in such market due to governmental changes,
and infringement or failure to protect intellectual property. The occurrence of the events described in these risk factors and elsewhere in this
Annual Report on Form 10-K could have a material adverse effect on our business, results of operations and financial position, and actual events
and results of operations may vary materially from our current expectations. 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.
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FY23 ACHIEVES POSITIVE EARNINGS
SUCCESSFULLY LEADING OUR COMPANY ON
AN AMBITIOUS PATH TOWARD PROFITABLITY
Rick Wheeler
PRESIDENT & CHIEF EXECUTIVE OFFICER
Dear Fellow Shareholders,
As we look back, the 2023 fiscal year was cast over a complex backdrop of global economic uncertainty and geopolitical
strife. Much of this persists even today as high inflation, weakened supply chains, and military conflicts continue across
the globe. Yet, despite such headwinds, the year brought forth some remarkable accomplishments for Geospace. It’s a
true pleasure to report to our shareholders that revenue of $124.5 million for the year reached its highest recorded figure
since 2014. As a result, the year ended with an overall net income of $12.2 million, reflecting positive earnings of $0.92 per
share.
Last year, we set forward on an ambitious path toward profitability, outlining multiple key aspects of the plan to
shareholders. This included the decommissioning and divestiture of older manufacturing equipment, increasing factory
automation to meet growing customer demands, consolidating our Houston-based operations into a single location,
and carefully reducing expenses without compromising operational efficiency. Because of the stellar performance of
our dedicated employees, focused on these goals, and improved market conditions for our products, we’re incredibly
pleased to have accelerated the execution and implementation of this plan.
Financial and Operational Leadership Guided a Profitable Fiscal Year
In a direct comparison to last year, revenue of $124.5 million in fiscal year 2023 reflected an impressive increase of almost
40% over last year’s figure. Fully complementing this operational success were substantive gains on the company’s
balance sheet. Not only did we increase stockholder equity by more than $11 million, but we also ended fiscal year 2023
with a total of $33.7 million in cash, cash equivalents and short-term investments. Combining this with an unused credit
facility that holds $13.1 million of available borrowing , our total liquidity, as of September 30, 2023, was $46.8 million.
Ocean Bottom Node Products Prove a Powerful Revenue Generator
Over the course of the year, our Oil and Gas Markets segment garnered nearly 60% of the company’s total revenue, bringing
in $74 million. This was primarily achieved through increased utilization and rentals of our ocean bottom nodes. In fact,
the company’s total revenue from rentals more than doubled in fiscal year 2023 from last year’s figure. It is very rewarding
to see the value these products bring to our customers. Similarly, we’ve been pleased with the industry’s reception to our
new generation and most innovative seabed nodes, the Mariner™ and the Aquanaut™, for respective shallow water and
deep water deployments.
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GEOSPACE TECHNOLOGIES ANNUAL REPORT 2023
Diversification through Adjacent Markets Enriches the Bottomline
Our Adjacent Markets segment had a record-setting year, generating $49 million in revenue. This represents an overall
increase of 25% over last year, where growing sales of our proprietary smart water meter cables and connectors led the
way. This is one area where our focused efforts to increase automation and factory capacity have yielded significant
benefits to our ongoing strategy for revenue diversification. The success of this segment underscores the effectiveness
of the strategy, which leverages the core engineering and manufacturing competencies into new markets. In the coming
years, we expect to see further penetration and expansion into a growing smart city movement and “Industrial Internet
of Things” (IIOT) product space. The groundwork for this expansion is already underway as exemplified through our
investment in Aquana and its smart water meter valves and peripheral products.
Emerging Markets Requires Patience
Our Emerging Markets segment progressed slower than expected, but we remain committed to this path in our
diversification strategy. Revenue from this segment increased 70% over last year, reaching $1.2 million through a
combination of new and existing government and defense related contracts. At the end of September 2023, a backlog
of business for the segment stood at nearly $2 million. We’re pleased to support the important technical research taking
place with the Defense Advanced Research Projects Agency (DARPA), through the application of our Quantum SADAR®
technology. In another application, we believe energy transition efforts will require permanent reliable, robust, and
persistent monitoring of induced and passive seismic activity in such fields as carbon storage and geothermal energy.
Our Quantum subsidiary is working closely with our Oil and Gas Markets segment team to offer comprehensive solutions
to this growing market.
Offering Gratitude
While the year was fully uplifting and a commercial success, we did experience personal sadness near the end of the year
with the passing of our longtime board director, Tina M. Langtry. Serving alongside fellow board members for more than
a decade, Tina’s advice and counsel has been instrumental in our successful strategy and navigation through industry
challenges and emergent victories. Tina’s work ethic, attention to detail, and sharp instincts elevated all who collaborated
with her. Well beyond her professional contributions, Tina brought warmth, generosity of spirit, and clever wit into the
lives she forever gratefully touched.
Conclusion
As our new fiscal year begins, we’re enthusiastic about the plans and the paths taken to continue our profitability. We
believe our strong balance sheet and technological leadership will be pivotal to our success in fiscal year 2024. Beyond our
technological endeavors to bolster profitability, we are also dedicated to maintain an innovative and diverse workforce
at Geospace. This year we saw firsthand how vital our employees were in accelerating our sustained path to profitability.
We plan to continue investing in the people behind the products of Geospace to ensure the future of our company and
provide the best value to our shareholders.
Walter “Richard” Wheeler
President & Chief Executive Officer
GEOSPACE TECHNOLOGIES ANNUAL REPORT 2023
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2023
2023
growth
diversity
quality
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended
September 30, 2023
OR
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 001-13601
GEOSPACE TECHNOLOGIES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Texas
(State or Other Jurisdiction of Incorporation or Organization)
76-0447780
(I.R.S. Employer Identification No.)
7007 Pinemont Drive
Houston, Texas 77040-6601
(Address of Principal Executive Offices)
(713) 986-4444
(Registrant’s telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock
Trading Symbol(s)
GEOS
Name of Each Exchange on Which Registered
The NASDAQ Global Select Market
Securities Registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 13,197,489 shares of the Registrant’s Common Stock outstanding as of the close of business on October 31, 2023. As of March 31, 2023,
the aggregate market value of the Registrant’s Common Stock held by non-affiliates was approximately $86 million (based upon the closing price of $7.05
on March 31, 2023, as reported by The NASDAQ Global Select Market).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Registrant’s 2024 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.
Auditor Firm Id: 49
Auditor Name: RSM US LLP
Auditor Location: Houston, Texas, USA
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Item 1. Business
Business Overview
PART I
Unless otherwise specified, the discussion in this Annual Report on Form 10-K refers to Geospace Technologies
Corporation and its subsidiaries. We principally design and manufacture seismic instruments and equipment. These seismic
products are marketed to the oil and gas industry and used to locate, characterize and monitor hydrocarbon producing
reservoirs. More recently, we’ve begun marketing our seismic products for energy transition applications such as carbon
storage, geothermal and mining. We also market our seismic products to other industries for vibration monitoring, border
and perimeter security and various geotechnical applications. We design and manufacture other products of a non-seismic
nature, including water meter products, imaging equipment, offshore cables, remote shutoff water valves and Internet of
Things ("IoT") platform. Additionally, we provide contract manufacturing services, which leverage our capabilities and
manufacturing resources. We report and categorize our customers and products into three different segments: Oil and Gas
Markets, Adjacent Markets and Emerging Markets. In recent years, the revenue contribution from our Adjacent Markets
segment has grown to represent nearly half of our total revenue. This revenue growth in this segment is largely attributable
to the rise in water utility modernization which includes our waterproof meter connector cable series of products.
Demand for our seismic products targeted at customers in our Oil and Gas Markets segment has been, and will likely
continue to be, vulnerable to downturns in the economy and the oil and gas industry in general. For more information, please
refer to the risks discussed under the heading “Risk Factors.”
Segment and Geographical Information
We report and evaluate financial information for our three business segments: Oil and Gas Markets, Adjacent Markets
and Emerging Markets. For a discussion of the products sold and markets served by each of our segments, see “Products and
Product Development” below. For a discussion of financial information by segment and geographic area, see Note 19 to the
consolidated financial statements contained in this Annual Report on Form 10-K.
Products and Product Development
Oil and Gas Markets
Our Oil and Gas Markets business segment has historically accounted for the majority of our revenue. Geoscientists use
seismic data primarily in connection with the exploration, development and production of oil and gas reserves to map potential
and known hydrocarbon bearing formations and the geologic structures that surround them. This segment’s products include
wireless seismic data acquisition systems, reservoir characterization products and services, and traditional seismic exploration
products such as geophones, hydrophones, leader wire, connectors, cables, marine streamer retrieval and steering devices and
various other seismic products. We believe that our Oil and Gas Markets' products are among the most technologically
advanced instruments and equipment available for seismic data acquisition.
Traditional Products
An energy source and a data recording system are combined to acquire seismic data. We provide many of the components
of seismic data recording systems, including geophones, hydrophones, multi-component sensors, leader wire, geophone
strings, connectors, seismic telemetry cables and other seismic related products. On land, our customers use geophones, leader
wire, cables and connectors to receive and measure seismic reflections resulting from an energy source into data recording
units, which store the seismic information for subsequent processing and analysis. In the marine environment, large ocean-
going vessels tow long seismic cables known as “streamers” containing hydrophones that are used to detect pressure changes.
Hydrophones transmit electrical impulses back to the vessel’s data recording unit where the seismic data is stored for
subsequent processing and analysis. Our marine seismic products also help steer streamers while being towed and help
recover streamers if they become disconnected from the vessel.
Our seismic sensor, cable and connector products are compatible with most major competitive seismic data acquisition
systems currently in use. Revenue from these products results primarily from seismic contractors purchasing our products as
components of new seismic data acquisition systems or to repair and replace components of seismic data acquisition systems
already in use.
Wireless Products
We have developed multiple versions of a land-based wireless (or nodal) seismic data acquisition system. Rather than
utilizing interconnecting cables as required by most traditional land data acquisition systems, each of our wireless stations
operate as an independent data collection system, allowing for virtually unlimited channel configurations. As a result, our
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wireless systems require less maintenance, which we believe allows our customers to operate more effectively and efficiently
because of its reduced environmental impact, lower weight and ease of operation. Each wireless station is available in a
single-channel or three-channel configuration.
We have also developed a marine-based wireless seismic data acquisition system called the OBX. Similar to our land-
based wireless systems, the marine OBX system may be deployed in virtually unlimited channel configurations and does not
require interconnecting cables between each station. We have two versions of OBX nodal stations: A shallow water version
that can be used in depths up to 750 meters and a deepwater version that can be deployed in depths of up to 3,450 meters.
Through September 30, 2023, we have sold 13,000 OBX stations and we currently have 28,000 OBX stations in our rental
fleet.
In August 2022, we announced the release of a new seismic acquisition product known as Mariner™, a continuous, cable-
free, four channel autonomous, shallow water ocean bottom recorder. Mariner is the next generation node designed for
extended duration seabed ocean bottom seismic data acquisition. The slim profile nodes, which are part of our shallow water
stations, are ideally deployed as deep as 750 meters. The device continuously records for up to 70 days and offers more rapid
recharging times. Its slim profile creates space savings on seismic survey vessels, allowing contractors to fit up to 25% more
nodes into a download/charge container.
In August 2023, we announced the latest in our ocean bottom node product line known as Aquanaut™, a deepwater,
wireless seismic acquisition node capable of operating for 200 days in water as deep at 3,450 meters.
Reservoir Products
Seismic surveys repeated over selected time intervals show dynamic changes within a producing oil and gas reservoir,
and operators can use these surveys to monitor the effects of oil and gas development and production. This type of reservoir
monitoring requires special purpose or custom designed systems in which portability becomes less critical and functional
reliability assumes greater importance. This reliability factor helps assure successful operations in inaccessible locations over
a considerable period of time. Additionally, reservoirs located in deep water or harsh environments require special
instrumentation and new techniques to maximize recovery. Reservoir monitoring also requires high-bandwidth, high-
resolution seismic data for engineering project planning and reservoir management. Utilizing these reservoir monitoring tools,
producers can enhance the recovery of oil and gas deposits over the life of a reservoir.
We have developed permanently installed high-definition reservoir monitoring systems for land and ocean-bottom
applications in producing oil and gas fields. Our electrical reservoir monitoring systems are currently installed on numerous
offshore reservoirs in the North Sea and elsewhere. Through our acquisition of the OptoSeis® fiber optic sensing technology,
we now offer both electrical and fiber optic reservoir monitoring systems. These high-definition seismic data acquisition
systems have a flexible architecture allowing them to be configured as a subsurface system for both land and marine reservoir-
monitoring projects. The scalable architecture of these systems enables custom designed configuration for applications
ranging from low-channel engineering and environmental-scale surveys requiring a minimum number of recording channels
to high-channel surveys required to efficiently conduct permanent reservoir monitoring (“PRM”). The modular architecture
of these products allows virtually unlimited channel expansion for these systems.
In the spring of 2023, we released a derivative of the OptoSeis® technology for high temperature downhole
applications. The product know as Insight by OptoSeis offers a passive, all-optical downhole sensor network – no electronics
downhole - resulting in years long operational lifetime @ 150 °C.
In addition, we produce seismic borehole acquisition systems that employ a fiber optic augmented wireline capable of
very high data transmission rates. These systems are used for several reservoir monitoring applications, including an
application pioneered by us allowing operators and service companies to monitor and measure the results of hydraulic
fracturing operations.
We believe our reservoir characterization products make seismic acquisition a cost-effective and reliable process for
reservoir monitoring. Our multi-component seismic product developments also include an omni-directional geophone for use
in reservoir monitoring, a compact marine three-component or four-component gimbaled sensor and special-purpose
connectors, connector arrays and cases.
We have maintained active discussions with potential clients for future PRM systems. During 2022, in coordination with
a potential client, we concluded a successful demonstration of our OptoSeis fiber optic PRM technology in real-world field
conditions. This demonstration was a prerequisite step toward future contract consideration. We have also held discussions
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and received requests for information from other major oil and gas producers regarding PRM systems. We have not received
any orders for a large-scale seabed PRM system since November 2012.
Adjacent Markets
Our Adjacent Markets businesses leverage upon existing manufacturing facilities and engineering capabilities utilized by
our Oil and Gas Markets businesses. Many of the seismic products in our Oil and Gas Markets segment, with little or no
modification, have direct application to other industries.
Our business diversification strategy has centered largely on translating expertise in ruggedized engineering and
manufacturing into expanded customer markets. To bolster the solid market share we’ve established in the water utility market
for water meter connectors, in fiscal year 2021, we acquired the smart water IoT company Aquana, LLC ("Aquana").
Industrial Products
Our industrial products include water meter products, remote disconnect shut-off water valves and IoT Platform, contract
manufacturing services and seismic sensors used for vibration monitoring.
Our water meter products support the global smart meter connectivity water utility market. Our products provide our
customers with highly reliable automated meter-reading and automated meter infrastructure with our robust water-proof
connectors.
Our remote disconnect values and water IoT platform allows customers that manage multi-family and commercial
properties to monitor their properties for leak and burst events, with real-time notifications, complimented with our remote-
shut off to stop water damage. These products also allow water utilities to re-claim non-revenue water at a lower energy and
field service cost through remote control of water service without placing its employees in potential harm or danger.
Our robust manufacturing capabilities have allowed us to provide specialized contract manufacturing services for printed
circuit board manufacturing, cabling and harnesses, machining, injection molding and electronic system assembly.
Our seismic sensors provide unique high definition, low frequency sensing that allows for vibration monitoring in
industrial machinery, mine safety and earthquake detection.
Imaging Products
Our imaging products include electronic pre-press products that employ direct thermal imaging, direct-to-screen printing
systems, and digital inkjet printing technologies targeted at the commercial graphics, industrial graphics, textile and
flexographic printing industries.
Emerging Markets
Our Emerging Markets business segment consists entirely of our Quantum business. Quantum’s product line includes a
proprietary detection system called SADAR®, which detects, locates and tracks items of interest in real-time. Using the
SADAR technology, Quantum designs and sells products used for border and perimeter security surveillance, cross-border
tunneling detection and other products targeted at movement monitoring, intrusion detection and situational awareness.
Quantum’s customers include various agencies of the U.S. government including the Department of Defense, Department of
Energy, Department of Homeland Security and other agencies as well as energy companies needing real-time monitoring of
seismic data.
Business Strategy
We have adopted what we think is a conservative and prudent business strategy which places a focus on sound financial
management practices, as outlined below. We have not changed our primary focus on continued investment in product
research and development, selective acquisitions and joint ventures.
● Continue Investment in Product Research and Development – Past periods of revenue growth were primarily
driven through our internal development of new products for the oil and gas industry. In past years, our oil and
gas product innovations included the introduction of borehole seismology tools, land and seabed PRM systems
and wireless data acquisition systems for both land and marine applications. These innovative technologies are
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the result of our unceasing investment in research and development initiatives. A majority of our product
research and development cost relates to our product engineers. Our engineering staff have been key to our past
success, and we intend to continue our tradition of retaining and attracting quality engineering staff by providing
appropriate compensation and benefits. Going forward, we intend to continue significant investments in product
research and development of new oil and gas technologies as well as products for our other business segments
in order to diversify and grow our revenue base.
● Selectively Pursue Acquisitions of Businesses with Technological and Engineering Overlap – The oil and gas
industry periodically experiences volatile business cycles requiring us to rapidly increase and decrease our
business activities to meet the industry’s demand for our products. This industry generally offers equipment
manufacturers like us limited visibility into new orders creating challenges for us to manage our manufacturing
capacity, workforce, inventories and other working capital challenges. While our primary growth initiative is to
expand our oil and gas seismic product offerings, as seen with our acquisition of the OptoSeis® fiber optic
sensing technology in fiscal year 2019, we may also seek out other business opportunities in adjacent markets
and emerging markets which complement our existing oil and gas seismic products, engineering and
manufacturing capabilities, and company-wide culture. In order to diversify our revenue base and expose us to
different markets with different business cycles, we have directed these efforts toward businesses outside the
oil and gas industry, as seen with our acquisition of Quantum in fiscal year 2018 and Aquana in fiscal year
2021.
● Financial Management – Due to the cyclicality of the oil and gas industry, we have historically managed our
financial risk by limiting or eliminating debt leverage in our balance sheet. While we are not opposed to
moderate amounts of short-term debt during favorable business cycles, we choose to minimize our exposure to
long-term debt obligations which, in our view, restrict our ability to operate during periodic difficult business
cycles in the oil and gas industry similar to the recent business environment. We believe this strategy has allowed
us to continue operations through difficult business cycles without disruption for debt and equity restructuring
as has been seen among our peers, many of whom have significant long-term debt burdens. In addition, we have
limited our investments in capital assets and have liquidated, and made appropriate reserves for, significant
amounts of our inventories and rental fleet assets. We also believe that the value of our common shares
outstanding will be best served in the long-term by retaining our cash to fund future cash outflows as they
become necessary. In this regard, we do not anticipate paying any cash dividends in the foreseeable future,
however, during fiscal years 2021 and 2022 we repurchased 841,992 shares of our common stock in open market
transactions completing a $7.5 million stock-buy-back program authorized by our board of directors.
Competition
Oil and Gas Products
We are one of the world’s largest designers and manufacturers of seismic products used in the oil and gas industry. The
principal competitors for many of our traditional seismic products are Sercel (a division of CGG) and INOVA. Furthermore,
entities in China affiliated with Sercel, as well as other Chinese manufacturers produce low-cost oil and gas seismic products,
which compete with our traditional seismic products.
The primary competitors for our land wireless data acquisition systems are SmartSolo, Sercel, INOVA, STRYDE,
Geophysical Technologies and numerous smaller entities who have introduced similar versions of wireless data acquisition
systems. We believe the primary competitors for our marine nodal data acquisition systems are Magseis Fairfield ASA (a
division of TGS), Sercel and InApril AS each of whom utilizes their own proprietary nodal technology.
Most oil and gas seismic products are price sensitive, so the ability to manufacture these products at a low cost is essential
to maintain market share. While price is an important factor in a customer’s decision to purchase a land or marine wireless
data acquisition system, we believe customers also place a high value on a product’s historical performance and the ongoing
engineering and field support provided by the product’s manufacturer.
The principal keys for success in the seismic instruments and equipment market are technological superiority, product
durability under harsh field conditions, reliability, size, weight and customer support. Product deliverability is always an
important consideration for our customers.
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In general, most customers prefer to standardize data acquisition systems, geophones and hydrophones, particularly if
they are used by seismic companies that have multiple crews which are able to support each other. This standardization makes
it difficult for competitive manufacturers to gain market share from other manufacturers with existing customer relationships.
Our primary competitors for the rental of our traditional and land wireless seismic equipment are STRYDE, SmartSolo,
INOVA, and Geophysical Technologies.
Our primary competitor for our seabed PRM systems is Alcatel-Lucent. Our primary competitors for high-definition
borehole seismic data acquisition systems are Avalon Sciences Ltd and Sercel.
Our primary competitors for the new energy or energy transition market are Microseismic, Inc., Namometrics, ISTI and
ESG.
Adjacent Markets Products
Our industrial and imaging products face competition from numerous domestic and international specialty product
manufacturers.
Emerging Markets Products
The border and perimeter security marketplace is dominated by large integrated system providers such as Boeing, General
Dynamics, Lockheed Martin, Raytheon, Elbit Systems and others. Systems provided by these competitors are generally
multifaceted and may include numerous integrated surveillance technologies, including the geophysical sensor and software
systems that we have developed. Our sensing technology does not rely on line-of-sight motion detection, which is required
by cameras and other visual and radio frequency technologies, and thus enables motion-sensing such devices would miss.
Competitive geophysical technologies utilizing fiber optic sensing techniques are provided by OptaSense, Fibersensys, Future
Fiber Technologies and other specialty sensor manufacturing firms.
Suppliers
We purchase raw materials from a variety of suppliers located in various countries. We typically have multiple suppliers
for our critical materials. In our oil and gas seismic business segment, certain models of our marine wireless products use a
timing device manufactured by a single supplier. We currently do not possess the ability to manufacture this component and
have no other reliable source for this device. In our Adjacent Markets business segment, we purchase all of our thermal
imaging film from a single supplier. Beyond this film supplier, we know of no other source for thermal film that performs as
well in our imaging equipment. For a discussion of the risks related to our reliance on these suppliers, see “Risk Factors –
We Rely on Key Suppliers for Certain Components Used in Our Products.”
COVID-19 has disrupted the Company’s supply chain, resulting in longer lead times in materials available from suppliers
and extended the shipping time for these materials to reach the Company’s facilities. These disruptions could constrain our
ability to provide products to our customers in the time frame they require.
Product Manufacturing and Assembly
Our manufacturing and product assembly operations consist of machining, molding or cabling the necessary component
parts, configuring these parts along with components received from various vendors and assembling a final product. We
manufacture many of our oil and gas seismic products to the specifications required by our customers. For example, we
assemble geophone strings based on a number of customer choices such as length, gauge, tolerance and color of molded parts.
Upon completion of our manufacturing and assembly operations, we test our final products to the functional and
environmental extremes of product specifications and inspect the products for quality assurance. Consistent with industry
practice, we normally manufacture our products based on firm customer orders, anticipated customer orders and historical
product demand. As a result of the steep decline in product demand that began in fiscal year 2014, further accentuated by the
COVID-19 pandemic creating a global decline in the demand for oil and gas, also aggravated by global supply shortages of
electronic components, we currently hold more than twelve months supply of inventory.
Markets and Customers
Our principal customers for our traditional and wireless seismic products are seismic contractors and, to a lesser extent,
major independent and government-owned oil and gas companies that either operate their own seismic crews or specify
6
seismic instrument and equipment preferences to contractors. For our deepwater PRM products, our customers are generally
large international oil and gas companies that operate long-term offshore oil and gas producing properties. Our industrial
product customers consist of specialty manufacturers, research institutions and industrial product distributors. Our imaging
customers primarily consist of direct users of our equipment as well as specialized resellers that focus on the screen-printing
and flexographic printing industries. Our border and perimeter security customers are primarily government agencies. Our
smart water connectivity customers include municipalities, water utilities, water meter manufacturing companies as well as
asset management firms such as multifamily property owners.
Two customers comprised 26.7% and 11.7% of our revenue during fiscal year 2023. One customer comprised 29.3% of
our revenue during fiscal year 2022. The following table describes our revenue by product type (in thousands):
YEAR ENDED SEPTEMBER 30,
2023
2022
Traditional seismic exploration product revenue ................................................ $
Wireless seismic exploration product revenue ....................................................
Seismic reservoir product revenue ......................................................................
Industrial product revenue ...................................................................................
Imaging product revenue .....................................................................................
Border & perimeter security product revenue .....................................................
Corporate revenue ...............................................................................................
Total revenue ....................................................................................................... $
12,183 $
60,848
962
36,859
12,180
1,234
243
124,509 $
6,597
40,667
1,877
25,640
13,531
711
230
89,253
Intellectual Property
We seek to protect our intellectual property by means of patents, trademarks, trade secrets and other measures. We hold
patents on geophones, micro-geophones, piezo-electric sensors, seismic data acquisition, in-line retrieval devices and water
meter connectors, and we have pending applications on related technology. We do not consider any single patent essential to
our success. Our patents are scheduled to expire at various dates through 2039. We are not able to predict the effect of any
patent expiration. We protect our proprietary rights to our technology through a variety of methods, including confidentiality
agreements and proprietary information agreements with suppliers, employees, consultants and others who may have access
to proprietary information.
Research and Development
We expect to incur significant future research and development expenditures aimed at the development of additional
products for each of our business segments. We have incurred company-sponsored research and development expenses of
$16.0 million and $18.1 million during the fiscal years ended September 30, 2023 and 2022, respectively.
Human Capital, Environmental and Social
In order to continue to produce the most technologically advanced instruments and equipment available for the industrial,
border and perimeter security and seismic data acquisition markets, it is crucial that we continue to attract and retain top
talent. To attract and retain talented employees, we strive to make Geospace Technologies Corporation a diverse and safe
workplace, with opportunities for our employees to receive educational benefits, cross-function skill-development to grow
and develop their careers, all supported by competitive compensation and benefits.
Workforce Composition - At September 30, 2023, we employed 681 people predominantly on a full-time basis, of which
451 were employed in the United States, 209 in the Russian Federation and the remainder in the United Kingdom, Canada,
China and Colombia. Our professional staff includes geoscientists, electrical and mechanical engineers, accountants,
computer and data scientists, marketing and human resource professionals. 65% of our global workforce is employed in
manufacturing, 14% in engineering and 17% in sales and administration. The majority of our employees in the Russian
Federation belong to a regional union for machine manufacturers. Our remaining employees are not unionized. We have
never experienced a work stoppage.
As a global manufacturer of high-tech offerings, we believe that a diverse workforce benefits everyone, from our skilled
workforce, to our valued clients, to our trusted shareholders and our society. Our domestic workforce make-up includes 29%
white, 34% Asian, 24% Hispanic or Latino, 11% Black or African American, and 2% two or more races. Women in
managerial roles represent 3% of our domestic workforce. We proudly employ veterans of the US Armed Forces, who make
up 3% of our domestic workforce.
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Health, Safety and Wellness - The success of our business is fundamentally connected to the well-being of our people.
Accordingly, we are committed to the health and safety of our employees. We provide our full-time employees and their
families with access to healthcare programs. In response to the COVID-19 pandemic, we implemented significant changes
that we determined were in the best interest of our employees, as well as the communities in which we operate, and which
comply with government regulations. This includes having employees work from home, while implementing additional safety
measures for employees continuing critical on-site work.
Compensation and Benefits - We provide competitive compensation and benefits programs to help meet the needs of our
employees. In addition to salaries, these programs (which vary by country/region and employment classification) include an
incentive compensation plan, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts,
paid time off, family leave, tuition assistance and on-site services, among others. We use targeted equity-based grants with
vesting conditions to facilitate retention of personnel, particularly those with critical skills and experience.
Talent Development - We invest resources to develop the talent needed to remain a leading manufacturer and developer
of industrial, border and perimeter security and seismic data acquisition products. We provide our employees training
opportunities and educational benefits to assist in career and skill development. We focus on continuous learning and provide
feedback to assist in the development of talent.
Company Culture – Our Board of Directors established a Code of Business Conduct applicable to all our employees,
directors and officers and a Code of Ethics for Senior Financial Officers in accordance with applicable U.S. federal securities
laws and the NASDAQ Listed Company Manual. The Code of Business Conduct provides guidance on corporate policies
such as anti-harassment, anti-corruption, substance abuse, anti-trust, conflict minerals compliance, international trade
restrictions as well as policies against insider trading, conflict of interest and hedging of our common stock. We offer a
Whistle Blower program designed to protect any employee who reports valid suspicions related to our financial accounting,
internal controls or like matters to management without fear of termination or similar repercussions.
Human Rights – This year, we introduced a Human Rights Policy Statement which demonstrates our commitment to
supporting and promoting human rights that benefit all our stakeholders, including our customers, employees, shareholders,
investors, and the communities in which we live and operate. Our approach is applied in our business operations, across our
supply chain and through ethical business conduct. This policy statement promotes a safe and healthy workplace, diversity
and inclusion, non-discrimination and anti-harassment as well as addresses forced labor, human trafficking, and child labor.
The Human Rights Policy Statement is posted to our corporate website and is adhered through our Business Code of Conduct
and through responsible sourcing practices.
Our values and ethics serve as the guiding force through which we proactively maintain the highest standards of business
conduct. Our Core Values guide our corporate policies and practices and promote ethical business conduct and compliance
with the law. Our employees understand the importance of applying our Core Values toward their daily best practices.
Annually, we hold an internal Core Values survey to inform leadership on the values in action and opportunities to improve.
Governance – We pride ourselves on the highly ethical and transparent standards through the governance under our Board
of Directors.
Board Composition - Our Board of Directors is chaired by a highly experienced, independent Director whose position is
wholly separate and divided from the role of the Chief Executive Officer. Unlike organizations where the two leadership
roles are intertwined, this distinction helps ensure varying viewpoints designed to deliver improved returns for the
shareholders we serve and the communities in which we operate.
Board Charter Reviews - Every twelve-months, we conduct a Board and Board Committee assessment review to review
and ensure that the highest quality standards are met.
Executive Sessions Without Management - In order to ensure original and independent thought, non-management Board
members meet throughout the year.
Audit Policies – Our Audit Committee is comprised of trusted members who ensure the integrity of our financial
statements, internal controls, compliance with legal and regulatory requirements, as well as the performance of our
independent auditor.
8
Enterprise Risk Management ("ERM") – Our Board of Directors takes an enterprise-wide approach to reviewing each of
our business segments, which encompass Oil & Gas, Adjacent Markets, and Emerging Markets operations which include our
Security & Surveillance sector. Board members meet regularly to oversee and ensure that company objectives are met,
shareholder concerns are addressed and ERM policies are maintained.
Environmental – We are committed to zero harm to people, property and the environment. We have an ISO 14001 certified
environmental management system, employed over many health, safety and environmental programs. We do not exist in
isolation. We strive to pursue a strategy of responsibility that not only encompasses all our activities but addresses the needs
of our employees, customers, suppliers and our stakeholders. We operate in communities, which have placed their trust in us.
In doing this, we aim to better our impact on the environment and society, not only of our business but all businesses and
organizations with whom we interact. We integrate responsible and sustainable practices throughout our organization. Our
products are designed to not harm individuals, communities or the environment. We pledge to conduct ourselves in a most
responsible manner in each community.
As a manufacturer, we have a responsibility to reuse or recycle waste materials from our operations. Over the last three
years, we have recycled more than 263 tons of recyclable materials. Year to date 2023, we have recycled over 174 tons of
manufacturing waste materials. This includes production recyclable materials (aluminum, brass, copper, stainless steel, steel,
and titanium as well as armored cable, film, lithium batteries, PCB boards and solder paste) plus paper, plastic, cardboard
and e-waste (electronics).
We produce an Environmental, Society and Governance (ESG) report annually which is made public on our website.
Financial Information by Segment and Geographic Area
For a discussion of financial information by segment and geographic area, see Note 19 to the consolidated financial
statements contained in this Annual Report on Form 10-K. For a description of risks attendant to our foreign operations,
please see “Risk Factors - Our Foreign Subsidiaries and Foreign Marketing Efforts Are Subject to Additional Political,
Economic, Legal and Other Uncertainties Not Generally Associated with Domestic Operations and The Ongoing Armed
Conflict Between Russia and Ukraine Could Adversely Affect Our Business, Financial Condition, and Results of Operations".
Available Information
We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange
Commission (“SEC”). Our SEC filings are available to the public over the internet at the SEC’s website at www.sec.gov. Our
SEC filings are also available to the public free of charge on our website at www.geospace.com. Please note that information
contained on our website, whether currently posted or posted in the future, is not a part of this Annual Report on Form 10-K
or the documents incorporated by reference in this Annual Report on Form 10-K.
Item 1A. Risk Factors
In evaluating the Company’s business, you should consider the following discussion of risk factors, in addition to other
information contained in this report and in the Company’s other public filings with the U.S. Securities and Exchange
Commission. Any such risks could materially and adversely affect our business, financial condition, results of operations,
cash flow and prospects. However, the risks described below are not the only risks facing us. Additional risks and
uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect
our business, financial condition, results of operations, cash flow and prospects.
External Factors that Could Adversely Affect Us
The Ongoing COVID-19 Pandemic Has Significantly Impacted Worldwide Economic Conditions and Could Have a
Material Adverse Effect on Our Operations and Business.
The ongoing COVID-19 pandemic has negatively impacted worldwide economic activity and continues to create
challenges in our markets. The COVID-19 pandemic and the related mitigation measures have disrupted our supply chain,
resulting in longer lead times in materials available from suppliers and extended shipping time for these materials to reach
our facilities. The occurrence or resurgence of global or regional health events such as the COVID-19 pandemic, and the
related government responses, could result in a material adverse effect on our business, financial condition, results of
9
operations and liquidity. As such, we will continue to closely monitor COVID-19 and will continue to reassess our strategy
and operational structure on a regular, ongoing basis.
Oil Commodity Price Levels Could Affect Demand for Our Oil and Gas Products, Which Could Materially and Adversely
Affect Our Results of Operations and Liquidity.
Demand for many of our products and the profitability of our operations depend primarily on the level of worldwide oil
and gas exploration activity. Prevailing oil and gas prices, with an emphasis on crude oil prices, and market expectations
regarding potential changes in such prices significantly affect the level of worldwide oil and gas exploration activity. During
periods of improved energy commodity prices, the capital spending budgets of oil and natural gas operators tend to expand,
which results in increased demand for our customers services leading to increased demand in our products. Conversely, in
periods when these energy commodity prices deteriorate, capital spending budgets of oil and natural gas operators tend to
contract causing demand for our products to weaken. Historically, the markets for oil and gas have been volatile and are
subject to wide fluctuations in response to changes in the supply of and demand for oil and gas, market uncertainty and a
variety of additional factors that are beyond our control. These factors include the level of consumer demand, regional and
international economic conditions, weather conditions, domestic and foreign governmental regulations (including those
related to climate change), price and availability of alternative fuels, political conditions, the war between Russia and Ukraine,
instability and hostilities in the Middle East and other significant oil-producing regions, increases and decreases in the supply
of oil and gas, the effect of worldwide energy conservation measures and the ability of the Organization of Petroleum
Exporting Countries ("OPEC") to set and maintain production levels and prices of foreign imports.
Crude oil prices held above $65 per barrel throughout 2022 and through September 2023, which may result in higher cash
flows for exploration and production companies. Any material changes in oil and gas prices or other market trends, like
slowing growth of the global economy, could adversely impact seismic exploration activity and would likely affect the
demand for the Company's products and could materially and adversely affect its results of operations and liquidity.
Generally, imbalances in the supply and demand for oil and gas will affect oil and gas prices and, in such circumstances,
demand for our oil and gas products may be adversely affected when world supplies exceed demand.
The Ongoing Armed Conflict Between Russia and Ukraine Could Adversely Affect Our Business, Financial Condition,
and Results of Operations, including our ability to repatriate cash from Russia.
A portion of our oil and gas product manufacturing is conducted through our wholly-owned subsidiary, Geospace
Technologies Eurasia LLC ("GTE"), which is based in the Russian Federation. In February 2022, the Russian Federation
launched a full-scale military invasion of Ukraine, and Russia and Ukraine continue to engage in active and armed conflict
as of November 2022. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict
in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets,
as well as supply chain interruptions in addition to any direct impact on our operations in Russia. As a result of the invasion,
the governments of several western nations, including the U.S., Canada, the United Kingdom and the European Union,
implemented new and/or expanded economic sanctions and export restrictions against Russia, Russian-backed separatist
regions in Ukraine, certain banks, companies, government officials, and other individuals in Russia and Belarus. The
implementation of these sanctions and export restrictions, in combination with the withdrawal of numerous private companies
from the Russian market, has had, and is likely to continue to have, a negative impact on the company’s business in the
region. During fiscal year 2023, we imported $3.8 million of products from GTE for resale elsewhere in the world. The rapid
changes in rules and implementation of new rules on imports and exports of goods involving Russia has also led to serious
delays in getting goods to or from Russia as port authorities struggle to keep up with the changing environment. If imports of
these products from the Russian Federation are restricted by government regulation, we may be forced to find other sources
for the manufacturing of these products at potentially higher costs. Likewise, restrictions on our ability to send products to
our subsidiary in Russia may force our subsidiary to have to find other sources for the manufacturing of these products at
potentially higher costs; however, our exports to GTE have historically been limited. Boycotts, protests, unfavorable
regulations, additional governmental sanctions and other actions in the region could also adversely affect our ability to operate
profitably. Delays in obtaining governmental approvals can affect our ability to timely deliver our products pursuant to
contractual obligations, which could result in us being liable to our customers for damages. The risk of doing business in the
Russian Federation and other economically or politically volatile areas could adversely affect our operations and earnings. It
is possible that increasing sanctions, export controls, restrictions on access to financial institutions, supply and transportation
challenges, or other circumstances or considerations could necessitate a reduction, or even discontinuation, of operations by
GTE or other business in Russia.
10
We are actively monitoring the situation in Ukraine and Russia and assessing its impact on our business, including GTE.
The net carrying value of GTE on our consolidated balance sheet at September 30, 2023 was $5.8 million, including cash of
$2.5 million. In response to sanctions imposed by the U.S. and others on Russia, the Russian government has imposed
restrictions on companies’ abilities to repatriate or otherwise remit cash from their Russian-based operations to locations
outside of Russia. As a result, this cash can be used in our Russian operations, but we may be unable to transfer it out of
Russia without incurring substantial costs, if at all. In addition to the $3.8 million of products we imported from GTE in
fiscal year 2023, the subsidiary generated $1.8 million in revenue from domestic sales in fiscal year 2023. We have no way
to predict the duration, progress or outcome of the military conflict in Ukraine. The extent and duration of the military action,
sanctions, and resulting market disruptions could be significant and could potentially have substantial impact on the global
economy and our business for an unknown period of time.
Our Foreign Subsidiaries and Foreign Marketing Efforts Are Subject to Additional Political, Economic, Legal and Other
Uncertainties Not Generally Associated with Domestic Operations.
Based on customer billing data, revenue to customers outside the United States accounted for approximately 50% of our
revenue during fiscal year 2023; however, we believe the percentage of revenue outside the United States is likely higher
since many of our products are first delivered to a domestic location and ultimately shipped to a foreign location. We again
expect revenue outside of the United States to represent a substantial portion of our revenue for fiscal year 2024 and
subsequent years.
Foreign revenue is subject to special risks inherent in doing business outside of the United States, including the risk of
war, terrorist activities, civil disturbances, embargo and government activities, shifting foreign attitudes about conducting
business activities with the United States, restrictions of the movement and exchange of funds, inhibitions of our ability to
collect accounts receivable or repossess our rental equipment, international sanctions, expropriation and nationalization of
our assets or those of our customers, currency fluctuations, devaluations and conversion restrictions, confiscatory taxation or
other adverse tax policies and governmental actions that may result in the deprivation of our contractual rights, all of which
may disrupt markets or our operations.
Foreign revenue is also generally subject to the risk of compliance with additional laws, including tariff regulations and
import and export restrictions. International revenue transactions for our products containing hydrophones require prior U.S.
government approval in the form of an export license, which may be withheld by the U.S. government based upon factors
which we cannot predict.
We may experience difficulties in connection with future foreign revenue. Additionally, due to foreign laws and
restrictions, should we experience substantial growth in certain foreign markets, for example in the Russian Federation, we
may not be able to transfer cash balances to the United States to assist with debt servicing or other obligations.
Increases in Tariffs, Trade Restrictions or Taxes on our Products Could Have an Adverse Impact on our Operations.
In fiscal year 2023, customers outside the United States accounted for approximately 50% of our revenues. We also
purchase a portion of our raw materials from suppliers in China and other foreign countries. The commerce we conduct in
the international marketplace makes us subject to tariffs, trade restrictions and other taxes when the raw materials we
purchase, and the products we ship, cross international borders. Trade tensions between the United States and China, as well
as those between the U.S. and Canada, Mexico and other countries have been escalating in recent years. Trade tensions have
led to a series of tariffs imposed by the U.S. on imports from China, as well as retaliatory tariffs imposed by China on imports
from the U.S. If the U.S. and China are able to negotiate the issues to restore a mutually advantageous and fair trading regime,
the increased tariffs could be eliminated. Certain raw materials we purchase from China are subject to these tariffs which has
increased our manufacturing costs. Products we sell into certain foreign markets could also become subject to similar
retaliatory tariffs, making the products we sell uncompetitive to similar products not subjected to such import tariffs. Further
changes in U.S. trade policies, tariffs, taxes, export restrictions or other trade barriers, or restrictions on raw materials
including rare earth minerals, may limit our ability to produce products, increase our manufacturing costs, decrease our profit
margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase raw materials, which
could have a material adverse effect on our business, results of operations or financial conditions.
Climate Change and Legislation Designed to Reduce Climate Change
The physical and regulatory effects of climate change could have a negative impact on our operations, our customers’
operations and the overall demand for our customers’ products and, accordingly, our services. There is an increasing focus
of local, state, regional, national and international regulatory bodies on Greenhouse Gas ("GHG") emissions and climate
11
change issues. Legislation to regulate GHG emissions has periodically been introduced in the U.S. Congress, and there has
been a wide-ranging policy debate, both in the United States and internationally, regarding the impact of these gases and
possible means for their regulation. These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG
reporting and tracking programs and regulations that directly limit GHG emissions from certain sources. Some of the
proposals would require industries to meet stringent new standards that would require substantial reductions in carbon
emissions. Those reductions could be costly and difficult to implement. In the absence of federal GHG-limiting legislation,
the EPA has determined that GHG emissions present a danger to public health and the environment and has adopted
regulations that, among other things, establish construction and operating permit reviews for GHG emissions from certain
large stationary sources, require the monitoring and annual reporting of GHG emissions from certain oil and natural gas
system sources, implement Clean Air Act emission standards directing the reduction of methane emissions from certain new,
modified, or reconstructed facilities in the oil and natural gas sector, and together with the DOT, implement GHG emissions
limits on vehicles manufactured for operation in the United States.
In April 2016, the United States signed the Paris Agreement, which requires countries to review and “represent a
progression” in their nationally determined contributions, which set emissions reduction goals, every five years. Under the
Paris Agreement, the Biden Administration has committed the United States to reducing its greenhouse gas emissions by 50-
52% from 2005 levels by 2030. In November 2021, the Unites States and other countries entered into the Glasgow Climate
Pact, which includes a range of measures designed to address climate change, including, but not limited to the phase-out of
fossil fuel subsidies, reducing methane emissions 30% by 2030, and cooperating toward the advancement of the development
of clean energy. Several states and geographic regions in the United States have also adopted legislation and regulations to
reduce emissions of GHGs, including cap and trade regimes and commitments to contribute to meeting the goals of the Paris
Agreement.
Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted
in increasing political risks in the United States. President Biden and Congress have identified climate change as a priority,
and it is likely that additional executive orders, regulatory action, and/or legislation targeting greenhouse gas emissions, or
prohibiting or restricting oil and gas development activities in certain areas, will be proposed and/or promulgated during the
Biden Administration. President Biden issued an executive order imposing a moratorium on new oil and gas leasing on federal
lands and offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting
and leasing practices. President Biden’s order also establishes climate change as a primary foreign policy and national security
consideration, affirms that achieving net-zero greenhouse gas emissions by or before midcentury is a critical priority, affirms
the Biden Administration’s desire to establish the United States as a leader in addressing climate change, generally further
integrates climate change and environmental justice considerations into government agencies’ decision-making, and
eliminates fossil fuel subsidies, among other measures. Other actions impacting oil and natural gas production activities that
could be pursued by the Biden administration may include more restrictive requirements for the establishment of pipeline
infrastructure or the permitting of liquified natural gas export facilities.
It is not possible at this time to predict the timing and effects of climate change or whether additional climate-related
legislation, regulations or other measures will be adopted at the local, state, regional, national and international levels.
However, continued efforts by governments and non-governmental organizations to reduce GHG emissions appear likely,
and additional legislation, regulation or other measures that control or limit GHG emissions or otherwise seek to address
climate change could adversely affect our customers and our business. Because our business depends on the level of oil
exploration, existing or future laws or regulations related to GHGs and climate change, including incentives to conserve
energy or use alternative energy sources, our business could be negatively impacted if such laws or regulations reduce demand
for our customers’ products and, accordingly, our services.
These political, litigation, and financial risks may result in our customers restricting or cancelling exploration or
production activities which also could reduce demand for our products and services. In addition to regulatory impacts, the
occurrence of weather events caused or exacerbated by climate change could impact local, national or global commodity
demand or availability in ways that could be material to our business and/or the business of our customers.
We Operate in Highly Competitive Markets and Our Competitors May Be Able to Provide Newer or Better Products Than
We Are Able to Provide
The markets for most of our products are highly competitive. Many of our existing and potential competitors have
substantially greater marketing, financial and technical resources than we do. Some competitors currently offer a broader
range of instruments and equipment for sale than we do and may offer financing arrangements to customers on terms that we
may not be able to match. In addition, new competitors may enter the market and competition could intensify.
12
Revenue from our products may not continue at current volumes or prices if current competitors or new market entrants
introduce new products with better features, performance, price or other characteristics than our products. Competitive
pressures or other factors may also result in significant price competition that could have a material adverse effect on our
results of operations.
A General Downturn in the Economy in Future Periods May Adversely Affect Our Business.
Economic slowdowns, currently or in the future, in the United States, China or India, could adversely affect our business
in ways that we cannot predict. During times of economic slowdown, our customers may reduce their capital expenditures
and defer or cancel pending projects and product orders. Such developments occur even among customers that are not
experiencing financial difficulties. During times of economic slowdowns, some of our customers have (and other customers
may have) undergone restructuring or bankruptcy that has or could adversely impact our revenues and profitability. Any
economic downturn may adversely affect the demand for oil and gas generally or cause volatility in oil and gas commodity
prices and, therefore, adversely affect the demand for delivery of our oil and gas products. It could also adversely affect the
demand for consumer and industrial products, which could in turn adversely affect our Adjacent Markets business segment.
To the extent these factors adversely affect other companies in the industries we serve, there could be an oversupply of
products and services and downward pressure on pricing for our products and services, which could adversely affect us.
Additionally, bankruptcies or financial difficulties among our oil and gas customers could reduce our cash flows and
adversely impact our liquidity and profitability. For a discussion of the customers of our oil and gas products, see “The
Limited Market for Our Oil and Gas Products Can Affect Our Revenue,” below.
Risks Associated with Our Business Strategy and Operations
Our New Products Require a Substantial Investment by Us in Research and Development Expense and May Not Achieve
Market Acceptance.
Our outlook and assumptions are based on various macro-economic factors and internal assessments, and actual market
conditions could vary materially from those assumed. In recent years, we have incurred significant expenditures to fund our
research and development efforts, and we intend to continue those expenditures in the future. However, research and
development is by its nature speculative, and we cannot assure that these expenditures will result in the development of new
products or services or that any new products and services we have developed recently or may develop in the future will be
commercially marketable or profitable to us. In particular, we have incurred substantial expenditures to develop our oil and
gas nodal seismic data acquisition systems, as well as other products for PRM applications. In addition, we try to use some
of our capabilities to supply products to new adjacent and emerging markets. We cannot assure that we will realize our
expectations regarding acceptance of and revenue generated by our new products and services in existing or new markets.
The Short-Term Nature of Our Order Backlog for Sales of Our Oil and Gas Products and Delayed or Canceled Customer
Orders May Cause Us to Experience Fluctuations in Quarterly Results of Operations.
Historically, the rate of new orders for the sale of our oil and gas products has varied substantially from quarter to quarter.
Moreover, we typically operate, and expect to continue operating, on the basis of orders in-hand for our products before we
commence substantial manufacturing “runs.” The short-term nature of our order backlog for most of our oil and gas products
generally does not allow us to predict with any accuracy demand for our products more than approximately three months in
advance. Thus, our ability to replenish orders and the completion of orders, particularly large orders for deep water PRM
projects, can significantly impact our operating results and cash flow for any quarter, and results of operations for any one
quarter may not be indicative of results of operations for future quarters.
Additionally, customers can delay or even cancel orders and rental contracts before product delivery occurs. For larger
orders which generally require us to make a substantial capital investment in our inventories or rental fleet, we attempt to
negotiate for a non-refundable deposit or cancellation penalties depending on our relationship with the customer. However,
such deposits or penalties, even when obtained, may not fully compensate us for our inventory investment and forgone profits
if the order is ultimately cancelled.
These periodic fluctuations in our operating results and the impact of any order delays/cancellations could adversely affect
our stock price.
13
Our Credit Risk Could Increase and We May Incur Bad Debt Write-Offs If Our Customers Continue to Face Difficult
Economic Circumstances.
While we believe that our allowance for bad debts is adequate in light of known circumstances, additional amounts
attributable to uncollectible accounts and notes receivable and bad debt write-offs may have a material adverse effect on our
future results of operations. Many of our oil and gas customers are not well capitalized and as a result cannot always pay our
invoices when due. We have in the past incurred write-offs in our accounts and notes receivable due to customer credit
problems. We have found it necessary from time to time to extend trade credit, including promissory notes, to long-term
customers and others where some risks of non-payment exist. Many of our oil and gas customers continue to experience
significant liquidity difficulties, which increase those credit risks, due to prolonged periods of low crude oil prices. An
increase in the level of bad debts and any deterioration in our credit risk could adversely affect the price of our stock. In
addition, we rent equipment to our oil and gas customers who utilize such equipment in various countries around the world.
If these customers experience financial difficulties, it could be difficult or impossible to retrieve our rental equipment from
foreign countries.
The Industries in Which We Operate are Characterized by Rapid Technological Development and Product Obsolescence,
Which May Affect Our Ability to Provide Product Enhancements or New Products on a Timely and Cost-Effective Basis.
Our instruments and equipment are constantly undergoing rapid technological improvement. Our future success depends
on our ability to continue to:
● improve our existing product lines,
● address the increasingly sophisticated needs of our customers,
● maintain a reputation for technological leadership,
● maintain market acceptance of our products,
● anticipate changes in technology and industry standards,
● respond to technological developments on a timely basis and
● develop new markets for our products and capabilities.
Current competitors or new market entrants may develop new technologies, products or standards that could render our
products obsolete. We cannot assure you that we will be successful in developing and marketing, on a timely and cost-
effective basis, product enhancements or new products that respond to technological developments, that are accepted in the
marketplace or that comply with new industry standards. Additionally, in anticipation of customer product orders, from time
to time we acquire substantial quantities of inventories, which if not sold or integrated into products within a reasonable
period of time, could become obsolete. In such case, we would be required to impair the value of such inventories on our
balance sheet.
The Limited Market for Our Oil and Gas Markets and Emerging Markets' Products Can Affect Our Revenue.
In our Oil and Gas Markets segment, we generally market many of our products to seismic service contractors. We
estimate that fewer than 30 oil and gas seismic contracting companies are currently operating in countries other than those
operating in the Russian Federation and the former Soviet Union, India, the People’s Republic of China and certain Eastern
European countries, where such information is difficult to verify. We estimate that fewer than 15 seismic contractors are
engaged in marine seismic exploration activities. Due to these market factors, a relatively small number of customers, some
of whom are experiencing financial difficulties, account for most of our oil and gas product revenue. From time to time, these
contractors have sought to vertically integrate and acquire our competitors, which has influenced their supplier decisions
before and after such transactions. In addition, consolidation among our customers may further concentrate our business to a
limited number of customers and expose us to increased risks related to dependence on a small number of customers. We
market our seabed PRM systems' products to large oil and gas companies. Since this product’s introduction in 2002, we have
received system orders from three offshore oil and gas operators: BP, Shell and Equinor, which have accounted for a
significant portion of our revenue in fiscal year 2014 and prior fiscal years. We have not received any orders for large-scale
seabed PRM systems since November 2012. Our emerging markets segment primarily sells its products to a small number of
agencies within the U.S. government. The loss of a small number of these customers, and particularly our oil and gas
customers, could materially and adversely impact our future revenues.
14
We Cannot Be Certain of the Effectiveness of Patent Protection on Our Products.
We hold and from time to time apply for certain patents relating to some of our products. We cannot assure you that our
patents will prove enforceable or free of challenge, that any patents will be issued for which we have applied or that
competitors will not develop functionally similar technology outside the protection of any patents we have or may obtain.
Our Strategy of Renting Our Oil and Gas Seismic Products Exposes Us to Additional Risks Relating to Equipment
Recovery, Rental Renewals, Technological Obsolescence and Impairment of Assets.
Our rental fleet of oil and gas seismic equipment represents a significant portion of our assets and accounts for a significant
portion of our revenue. Equipment we rent to our customers is frequently located in foreign countries where retrieval of the
equipment after the termination of the rental agreement is difficult or impossible if the customer does not return the
equipment. The costs associated with retrieving this equipment or the loss of equipment that is not retrieved could be
significant and could adversely affect our operations and earnings.
The advancement of seismic technology having a significant competitive advantage over the equipment in our rental fleet
could have an adverse effect on our ability to profitably rent and/or sell this equipment. Significant improvements in
technology may also require us to record asset impairment charges to write-down the value of our rental fleet investment and
to invest significant sums to upgrade or replace our rental fleet with newer equipment demanded by our customers. In addition,
rental contracts may not be renewed for equipment in our rental fleet. Significant technology improvements by our
competitors could have an adverse effect on our results of operations and earnings.
Our equipment rental business has high fixed costs, which primarily consist of depreciation expenses. In periods of
declining rental revenue, these fixed costs generally do not decline. As a result, any significant decline in rental revenue
caused by reduced demand could adversely affect our results of operations.
Our Expansion into the Border and Perimeter Security Market May Not Be Successful.
We have not previously operated in the border and perimeter security marketplace prior to our 2018 acquisition of
Quantum. Quantum is also a relatively recent entrant into this marketplace, and Quantum was not cash-flow positive when
we acquired it. In fiscal year 2021, we completed our first contract with the U.S. Customs and Border Protection (“CBP”),
except for on-going service and maintenance. While we will continue to devote management time and resources, financial
and otherwise, to develop our business in this marketplace, our lack of experience in this market makes it difficult to estimate
our financial returns from this business. In addition, some of the customers for this business will be governmental entities
and contracting with those entities can be difficult, costly, and unpredictable. We do not have extensive experience in
government contracting, and so we may not win, retain, or perform under such future contracts in a manner that is profitable.
If we are not successful in this emerging market segment, it will negatively impact our financial performance and could
negatively impact our reputation and harm our other business segments.
Cybersecurity Breaches and Other Disruptions of Our Information Technology Network and Systems Could Adversely
Affect Our Business.
We rely on information technology networks and systems, some of which are owned and operated by third parties, to
process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for
a variety of functions, including worldwide financial reporting, inventory management, procurement, invoicing and email
communications. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications
failures, terrorist attacks and similar events. Despite the implementation of network security measures, our systems and those
of third parties on which we rely may also be vulnerable to computer viruses, break-ins, malware and similar disruptions.
Malware, if surreptitiously installed on our systems and not timely detected and removed, could collect and disclose sensitive
information relating to our customers, employees or others, exposing us to legal liability and causing us to suffer reputational
damage. It could also lead to disruptions in critical systems or the corruption or destruction of critical data. If we are unable
to prevent such outages and breaches, these events could damage our reputation and lead to financial losses from remedial
actions, loss of business or potential liability.
We Rely on Key Suppliers for Certain Components Used in Our Products.
Certain models of our oil and gas marine wireless products require a timing device we purchase from a United States
manufacturer. We currently do not possess the ability to manufacture this component and have no other reliable source for
this device. If this manufacturer were to discontinue its production of this timing device, were to become unwilling to contract
15
with us on competitive terms or were unable to supply the component in sufficient quantities to meet our requirements, our
ability to compete in the marine wireless marketplace could be impaired, which could adversely affect our financial
performance.
For our imaging products, we purchase all of our thermal film from one manufacturer. Except for the film sold to us by
this manufacturer, we know of no other source for thermal film that performs as well in our imaging equipment. If the
manufacturer were to discontinue producing thermal film, were to become unwilling to contract with us on competitive terms
or were unable to supply thermal film in sufficient quantities to meet our requirements, our ability to compete in the direct
thermal imaging marketplace could be impaired, which could adversely affect our financial performance.
Our Success Depends Upon a Limited Number of Key Personnel.
Our success depends on attracting and retaining highly skilled professionals. A number of our employees are highly-
skilled engineers and other professionals. In addition, our success depends to a significant extent upon the abilities and efforts
of the members of our senior management team. If we fail to continue to attract and retain such professionals, our ability to
compete in the industry could be adversely affected.
We Have a Minimal Disaster Recovery Program at Our Houston Facilities.
Due to its proximity to the Texas Gulf Coast, our facilities in Houston, Texas are annually subject to the threat of
hurricanes, and the aftermath that follows. Hurricanes may cause, among other types of damage, the loss of electrical power
for extended periods of time. If we lost electrical power at our Pinemont facility, or if a fire or other natural disaster occurred,
we would be unable to continue our manufacturing operations during the power outage because we do not own a generator
or any other back-up power source large enough to provide for our manufacturing power consumption needs. Additionally,
we do not have an alternative manufacturing or operating location in the United States. Therefore, a significant disruption in
our manufacturing operations could materially and adversely affect our business operations during an extended period of a
power outage, fire or other natural disaster. We have a back-up generator to provide power for our information technology
operations. We store our back-up data offsite and we replicate our mission critical data to an alternative cloud-based data
center on a real-time basis. In the event of a major service interruption in our data center, we believe we would be able to
activate our mission critical applications within less than 24 hours.
Our Credit Agreement Imposes Restrictions on Our Business.
We and several of our subsidiaries domiciled in the United States are parties to a credit agreement. Amounts available for
borrowing under the credit agreement are determined by a borrowing base, which is determined based upon certain of our
domestic assets. Borrowings under the credit agreement will be secured by substantially all of our domestic assets, except for
certain excluded property. The credit agreement limits the incurrence of additional indebtedness, contains a covenant that
requires us to maintain a certain amount of consolidated tangible net worth and liquidity, and contains other covenants
customary in agreements of this type. Our ability to comply with these restrictions may be affected by events beyond our
control, including, but not limited to, prevailing economic, financial and industry conditions and continuing declines in our
product revenue. The breach of any of these covenants or restrictions, as well as any failure to make a payment of interest or
principal when due, could result in a default under the credit agreement. Such a default would permit our lender to declare
any amounts borrowed from it to be due and payable, together with accrued and unpaid interest, and our ability to borrow
under the credit agreement could be terminated. If we are unable to repay any debts owed to our lender, the lender could
proceed against the collateral securing such debt. While we intend to seek alternative sources of cash in such a situation, there
is no guarantee that any alternative cash source would be available or would be available on terms favorable to us.
Reliance on Third Party Subcontractors Could Adversely Affect Our Results of Operations and Reputation.
We may rely on subcontractors to complete certain projects. The quality and timing of production and services by our
subcontractors is not totally under our control. Reliance on subcontractors gives us less control over a project and exposes us
to significant risks, including late delivery, substandard quality and high costs. The failure of our subcontractors to deliver
quality products or services in a timely manner could adversely affect our profitability and reputation.
The High Fixed Costs of Our Operations Could Adversely Affect Our Results of Operations.
We have a high fixed cost structure primarily consisting of (i) depreciation expenses associated with our rental equipment
and (ii) fixed manufacturing costs including salaries and benefits, taxes, insurance, maintenance, depreciation and other fixed
manufacturing costs. In regards to our rental equipment, large declines in the demand for rental equipment could result in
16
substantial operating losses due to the on-going fixed nature of rental equipment depreciation expense. Concerning our
product manufacturing costs, in periods of low product demand our fixed costs generally do not decline or may decline only
in modest increments. Therefore, lower demand for our rental equipment and manufactured products could adversely affect
our results of operations.
Legal and Compliance Risks
Our Global Operations Expose Us to Risks Associated with Conducting Business Internationally, Including Failure to
Comply with U.S. Laws Which Apply to International Operations, Such as the Foreign Corrupt Practices Act and U.S.
Export Control Laws, as Well as the Laws of Other Countries
We have offices in Brazil, Colombia, Canada, the Russian Federation, Kazakhstan and the United Kingdom, in addition
to our offices in the United States. In addition to the risks that are inherent in conducting business internationally, we are also
liable for compliance with international and U.S. laws and regulations that apply to our international operations. These laws
and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import and
trade restrictions, export control laws, U.S. laws such as the Foreign Corrupt Practices Act and similar laws in other countries
which also prohibit certain payments to governmental officials or certain payments or remunerations to customers. Many of
our products are subject to U.S. export law restrictions that limit the destinations and types of customers to which our products
may be sold, or require an export license in connection with revenue transactions outside the United States. Given the high
level of complexity of these laws, there is a risk that some provisions may be inadvertently breached, for example through
the negligent or the unauthorized intentional behavior of individual employees, our failure to comply with certain formal
documentation requirements or otherwise. Additionally, we may be held liable for actions taken by our local dealers and
partners. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our
employees, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to
offer our products in one or more countries and could materially damage our reputation, our brands, our international
expansion efforts, our ability to attract and retain employees, our business and our operating results.
Because We Have No Plans to Pay Any Dividends for the Foreseeable Future, Investors Must Look Solely to Stock
Appreciation for a Return on Their Investment in Us.
We have not paid cash dividends on our common stock since our incorporation and do not anticipate paying any cash
dividends in the foreseeable future. Any payment of cash dividends in the future will be dependent on the amount of funds
legally available, our financial condition, capital requirements, loan covenants and other factors that our Board of Directors
may deem relevant. Accordingly, investors must rely on sales of their common stock after price appreciation, which may
never occur, as the only way to realize any future gains on their investment.
We Have a Relatively Small Public Float, and Our Stock Price May be Volatile.
At September 30, 2023, we have approximately 12.2 million shares outstanding held by non-affiliates. This limited
number of shares outstanding results in a relatively limited market for our common stock. Our daily trading volume for the
year ended September 30, 2023 averaged approximately 41,000 shares. Our small float and daily trading volumes have in the
past caused, and may in the future result in, significant volatility in our stock price.
Financial and Accounting Risks
Unfavorable Currency Exchange Rate Fluctuations Could Adversely Affect Our Results of Operations.
Substantially all of our third-party revenue from the United States is invoiced in U.S. dollars, though from time to time
we may invoice revenue transactions in foreign currencies including intercompany sales. As a result, we may be subject to
foreign currency fluctuations on our revenue. The reporting currency for our financial statements is the U.S. dollar. However,
the assets, liabilities, revenue and costs of our Russian, Canadian and United Kingdom subsidiaries and our Brazilian,
Colombian, and Kazakhstan branch offices are denominated in currencies other than U.S. dollars. To prepare our consolidated
financial statements, we must translate those assets, liabilities, revenue and expenses into U.S. dollars at then-applicable
exchange rates. Consequently, increases and decreases in the value of the U.S. dollar versus these other currencies will affect
the amount of these items in our consolidated financial statements, even if their value has not changed in their original
currency. These translations could result in significant changes to our results of operations from period to period. For the
fiscal year ended September 30, 2023, approximately 5% of our consolidated revenue was related to the operations of our
foreign subsidiaries and branches.
17
Our Long-Lived Assets May be Subject to Impairment.
We periodically assess our long-lived assets for impairment. Significant sustained future decreases in crude oil and natural
gas prices may require us to write down the value of our long-lived assets in our Oil and Gas Markets business segment,
including our manufacturing facilities, manufacturing equipment and rental equipment if future cash flows anticipated to be
generated from these assets fall below the asset’s net book value. Furthermore, we may be required to write down the value
of other intangible assets related to our acquisitions of Quantum, the OptoSeis® fiber optic sensing technology or the goodwill
and other intangible assets related to our Aquana acquisition if sufficient cash flows are not generated to recover the carrying
value of such assets. If we are forced to write down the value of our long-lived assets, these noncash asset impairments could
adversely affect our results of operations.
Should We Fail to Maintain an Effective System of Internal Control Over Financial Reporting, We May Not Be Able to
Accurately Report Our Financial Results and Prevent Material Fraud, Which Could Adversely Affect the Value of Our
Common Stock.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and effectively
prevent and detect material fraud. If we cannot provide reliable financial reports or prevent or detect material fraud, our
operating results could be misstated. There can be no assurances that we will be able to prevent control deficiencies from
occurring which could cause us to incur unforeseen costs, negatively impact our results of operations, cause the market price
of our common stock to decline, or have other potential adverse consequences.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of September 30, 2023, our operations included the following locations:
Owned/
Leased
Location
Houston, Texas ......................... Owned
Houston, Texas ......................... Owned
Austin, Texas ............................ Leased
Melbourne, Florida ................... Leased
Ufa, Bashkortostan, Russia ...... Owned
Calgary, Alberta, Canada ......... Owned
Luton, Bedfordshire, England .. Owned
Bogotá, Colombia ..................... Owned
Approximate
Square
Footage/Acreage
Use
Segment
(see notes below)
387,000 See Note 1 below
17.3 acres See Note 2 below
9,000 See Note 3 below
7,000 See Note 4 below
5 and 6
5
5
7
120,000 Manufacturing, sales and service 5
45,000 Manufacturing, sales and service 5 and 6
8,000 Sales and service
19,000 Sales and service
6
5
(1) This property is located at 7007 Pinemont Drive in Houston, Texas (the “Pinemont Facility”). The Pinemont Facility
contains substantially all manufacturing activities and all engineering, selling, marketing and administrative activities
for us in the United States. The Pinemont Facility also serves as our international corporate headquarters.
(2) This property is located adjacent to the Pinemont Facility. It is currently being used as additional parking for the Pinemont
Facility and legacy structures are being used to support our manufacturing and warehousing operations.
(3) This property is located at 8701 Cross Park Drive, Suite 100, in Austin, Texas. This facility supports the majority of our
OptoSeis® research and development and engineering operations.
(4) This property is located at 5700 N. Harbor City Blvd., Suite 100, in Melbourne, Florida. This facility contains all the
operations of Quantum.
(5) Oil and Gas Markets.
(6) Adjacent Markets
(7) Emerging Markets
18
Item 3. Legal Proceedings
We are involved in various pending legal actions in the ordinary course of our business. Management is unable to predict
the ultimate outcome of these actions, because of the inherent uncertainty of litigation. However, management believes that
the most probable, ultimate resolution of currently pending matters will not have a material adverse effect on our consolidated
financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures
None.
19
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Holders of Record
Our common stock is traded on The NASDAQ Global Select Market under the symbol “GEOS”. On October 31, 2023,
there were approximately 143 holders of record of our common stock, and the closing price per share on such date was $11.99
as quoted by The NASDAQ Global Select Market.
Market Information for Common Stock
The following table shows the high and low per share sales prices for our common stock reported on The NASDAQ
Global Select Market.
Year Ended September 30, 2023:
Low
High
Fourth Quarter ............................................................................................. $
Third Quarter ...............................................................................................
Second Quarter ............................................................................................
First Quarter .................................................................................................
Year Ended September 30, 2022:
Fourth Quarter ............................................................................................. $
Third Quarter ...............................................................................................
Second Quarter ............................................................................................
First Quarter .................................................................................................
7.22 $
6.60
3.96
3.76
4.10 $
4.64
4.97
6.41
14.59
9.16
7.55
4.88
5.45
6.72
8.88
10.27
Dividends
Since our initial public offering in 1997, we have not paid dividends, and we do not intend to pay cash dividends on our
common stock in the foreseeable future. We presently intend to retain our earnings for use in our business, with any future
decision to pay cash dividends dependent upon our growth, profitability, financial condition and other factors our Board of
Directors may deem relevant.
20
Securities Authorized for Issuance under Equity Compensation Plans
The following equity plan information is provided as of September 30, 2023:
Equity Compensation Plan Information
Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
(a)
(In shares)
Weighted-average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
(In dollars per share)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(a)) (c)
(In shares)
Plan Category
Equity Compensation Plans Approved
by Security Holders (1) .......................
377,549
N/A
1,137,509
Equity Compensation Plans Not
Approved by Security Holders ............
Total ........................................................
—
377,549
—
N/A
—
1,137,509
(1) The number of securities shown in column (c) represents number of securities remaining available for issuance
under the Company’s 2014 Long Term Incentive Plan, as amended (the “2014 Plan”). The 2014 Plan allows for the
issuance of restricted stock awards, performance stock awards, performance stock unit awards, restricted stock unit
awards (the foregoing, “Full Value Awards”), stock options and stock appreciation rights. For purposes of
calculating the number of securities remaining under the 2014 Plan in column (c), Full Value Awards are counted
as 1.5 shares for each share awarded. The number of securities shown in column (a) of the table above represents
restricted stock unit awards outstanding under the 2014 Plan. Column (b) excludes restricted stock unit awards.
Recent Sales of Unregistered Securities and Use of Proceeds
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of the major elements of our consolidated financial statements.
You should read this discussion and analysis together with our consolidated financial statements, including the accompanying
notes, and other detailed information appearing elsewhere in this Annual Report on Form 10-K, including under the heading
“Risk Factors.” The discussion of our financial condition and results of operations includes various forward-looking
statements about our markets, the demand for our products and services and our future plans and results. These statements
are based on assumptions that we consider to be reasonable, but that could prove to be incorrect. For more information
regarding our assumptions, you should refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements
and Assumptions” below.
Cautionary Note Regarding Forward-Looking Statements and Assumptions
This Annual Report on Form 10-K and the documents incorporated by reference herein, if any, contain “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. These forward-looking statements can be identified by terminology such as “may”,
“will”, “should”, “intend”, “expect”, “plan”, “budget”, “forecast”, “anticipate”, “believe”, “estimate”, “predict”, “potential”,
“continue”, “evaluating” or similar words. Statements that contain these words should be read carefully because they discuss
our future expectations, contain projections of our future results of operations or of our financial position or state other
forward-looking information. Examples of forward-looking statements include, among others, statements that we make
regarding our expected operating results, the adoption, results and success of our rollout of our Aquana smart water valves
and cloud-based control platform, future demand for our Quantum security solutions, the adoption and sale of our products
in various geographic regions, potential tenders for PRM systems, future demand for OBX rental equipment, the adoption of
Quantum's SADAR® product monitoring of subsurface reservoirs, the completion of new orders for our channels of our GCL
system, the fulfillment of customer payment obligations, the impact of and the recovery from the impact of the coronavirus
(or COVID-19) pandemic, the impact of the current armed conflict between Russia and Ukraine, our ability to manage
changes and the continued health or availability of management personnel, volatility and direction of oil prices, anticipated
levels of capital expenditures and the sources of funding therefor, and our strategy for growth, product development, market
position, financial results and the provision of accounting reserves. These forward-looking statements reflect our current
judgment about future events and trends based on the information currently available to us. However, there will likely be
events in the future that we are not able to predict or control. The factors listed under the caption “Risk Factors”, as well as
cautionary language in this Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our forward-looking statements. Such examples
include, but are not limited to, the failure of the Quantum or OptoSeis® or Aquana technology transactions to yield positive
operating results, decreases in commodity price levels and continued adverse impact of COVID-19 which could reduce
demand for our products, the failure of our products to achieve market acceptance (despite substantial investment by us) our
sensitivity to short term backlog, delayed or cancelled customer orders, product obsolescence resulting from poor industry
conditions or new technologies, bad debt write-offs associated with customer accounts, inability to collect on promissory
notes, lack of further orders for our OBX rental equipment, failure of our Quantum products to be adopted by the border and
perimeter security market, or a decrease in such market due to governmental changes, and infringement or failure to protect
intellectual property. The occurrence of the events described in these risk factors and elsewhere in this Annual Report on
Form 10-K could have a material adverse effect on our business, results of operations and financial position, and actual events
and results of operations may vary materially from our current expectations. 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.
Background
We design and manufacture seismic instruments and equipment and primarily market these products to the oil and gas
industry to locate, characterize and monitor hydrocarbon producing reservoirs. We also market our seismic products to other
industries for vibration monitoring, border and perimeter security and various geotechnical applications. We design and
manufacture other products of a non-seismic nature, including water meter products, imaging equipment and provide contract
manufacturing services. For further information on the nature of our operations, see the information under the heading
“Business” in this Annual Report on Form 10-K.
22
Consolidated Results of Operations
As we have reported in the past, our revenue and operating profits have varied significantly from quarter-to-quarter, and
even year-to-year, and are expected to continue that trend in the future, especially when our quarterly or annual financial
results are impacted by the presence or absence of relatively large, but somewhat erratic, sales of our oil and gas PRM systems
and/or wireless seismic data acquisition systems for land and marine applications.
We report and evaluate financial information for three segments: Oil and Gas Markets, Adjacent Markets and Emerging
Markets. Summary financial data by business segment follows (in thousands):
YEAR ENDED SEPTEMBER 30,
2023
2022
Oil and Gas Markets
Traditional exploration product revenue ........................................................... $
Wireless exploration product revenue ..............................................................
Reservoir product revenue ................................................................................
Total revenue ....................................................................................................
Operating income (loss) ....................................................................................
Adjacent Markets
Industrial product revenue ................................................................................
Imaging product revenue ..................................................................................
Total revenue ....................................................................................................
Operating income ..............................................................................................
Emerging Markets
Revenue ............................................................................................................
Operating loss ...................................................................................................
Corporate
Revenue ............................................................................................................
Operating loss ...................................................................................................
Consolidated Totals
Revenue ............................................................................................................
Operating income (loss) ....................................................................................
Overview
12,183 $
60,848
962
73,993
15,759
36,859
12,180
49,039
11,490
1,234
(4,003)
243
(11,918)
124,509
11,328
6,597
40,667
1,877
49,141
(7,539)
25,640
13,531
39,171
6,021
711
(9,128)
230
(12,490)
89,253
(23,136)
Although in an already depressed oil and gas industry, demand further decreased in February 2020 because of the
oversupply of crude oil due to failed OPEC negotiations that led to a dramatic drop in crude oil prices when combined with
the impact of the COVID-19 pandemic. These declines in the demand for oil and gas have caused oil and gas exploration and
production companies to experience a significant reduction in cash flows, which have resulted in reductions in their capital
spending budgets for oil and gas exploration-focused activities, including seismic data acquisition activities. Crude oil prices
held above $65 per barrel throughout 2022 and through September 2023; however, a lag in time typically occurs between
higher oil prices and greater demand for our Oil and Gas Markets segment products. We believe this lag is the result of
exploration and production (“E&P”) companies allocating their cash flow towards shareholder reward initiatives, such as
stock buy-back programs and dividend payments, or in debt reduction. We believe this lag is a short-term trend that will
continue until E&P companies decide to reinvest capital into exploration activities. As this lag persists, we expect the reduced
levels of demand for our Oil and Gas Markets segment products. We also expect our land-based traditional and wireless
products will continue to experience low levels of product demand until our customers consume their excess levels of
underutilized equipment. During the third quarter of fiscal year 2022, we began to experience an increase in rental demand
for our marine nodal products in the form of additional rental contracts and requests for quotes from existing and new
customers. The increase in demand has led to near full utilization of our marine wireless rental fleet, yet we continue to
experience low levels of demand for our land-based wireless products.
During the first quarter of fiscal year 2023, we implemented a plan to discontinue the manufacture of certain low margin,
low revenue products and reconfigure our production facilities to lower our costs and raise efficiencies. As part of the plan,
reductions were made to our workforce which are expected to yield an annual savings of more than $2 million. In connection
with the plan, we incurred costs of $0.6 million in the first quarter of fiscal year 2023, primarily termination costs related to
the workforce reduction. The costs were recorded both to cost of revenue and operating expenses in the consolidated statement
of operations. No significant future costs are expected.
23
In light of current market conditions, the inventory balances in our Oil and Gas Markets business segment at September
30, 2023 continued to exceed levels we consider appropriate for the current level of product demand. We are continuing to
work aggressively to reduce these legacy inventory balances; however, we are also adding new inventories for new wireless
product developments and for other product demand in our Adjacent Markets segment. During periods of excessive inventory
levels, our policy has been, and will continue to be, to record obsolescence expense as we experience reduced product demand
and as our inventories continue to age. Although the Oil and Gas Markets segment is seeing a recovery after experiencing
difficult market conditions, we have been recording additional expenses for inventory obsolescence and will continue to do
so in the future until product demand and/or resulting inventory turnover return to acceptable levels.
Armed Conflict Between Russia and Ukraine
A portion of our oil and gas product manufacturing is conducted through GTE, which is based in the Russian Federation.
Consequently, our oil and gas business could be directly affected by the current war between Russia and Ukraine. Please see
“Part I—Item 1A.—Risk Factors” for more information.
Coronavirus (COVID-19)
The ongoing COVID-19 pandemic has negatively impacted worldwide economic activity and continues to create
challenges in our markets. The COVID-19 pandemic and the related mitigation measures have disrupted our supply chain,
resulting in longer lead times in materials available from suppliers and extended shipping time for these materials to reach
our facilities. The occurrence or resurgence of global or regional health events such as the COVID-19 pandemic, and the
related government responses, could result in a material adverse effect on our business, financial condition, results of
operations and liquidity. As such, we will continue to closely monitor COVID-19 and will continue to reassess our strategy
and operational structure on a regular, ongoing basis.
Fiscal Year 2023 Compared to Fiscal Year 2022
Consolidated revenue for fiscal year 2023 was $124.5 million, an increase of $35.3 million, or 39.5%, from fiscal year
2022. The increase in revenue was largely due to higher rental revenue from our Oil and Gas Markets segment due to increased
utilization of our OBX rental fleet and an increase in demand for our industrial products from our Adjacent Markets
segment. The increase was partially offset by a decrease in sales of wireless exploration products. Wireless exploration
product revenue for fiscal year 2023 also included $4.0 million from a rental customer as compensation for lost OBX nodes.
Consolidated gross profit for fiscal year 2023 was $51.7 million, an increase of $33.6 million, or 186.5%, from fiscal year
2022. The increase in gross profit was primarily due to higher gross profits from the increased utilization of our OBX rental
fleet and the increase in industrial product revenue and related gross profits. The increase was partially offset by the decrease
in wireless exploration product revenue and related gross profits.
Consolidated operating expenses for fiscal year 2023 were $41.7 million, an increase of $0.5 million, or 1.2%, from fiscal
year 2022. The increase was primarily due to a (i) $5.0 million favorable non-cash adjustment reported in the prior year
period resulting from a change in the estimated fair value of contingent consideration related to our Quantum and OptoSeis®
acquisitions and (ii) an increase in incentive compensation attributable to the increase in revenue. The increase in operating
expenses were partially offset by a (i) $4.3 million non-cash goodwill impairment charge reported in the prior fiscal year
related to our Quantum acquisition, (ii) reduction in personnel costs attributable to our workforce reduction, (iii) lower
research and development project expenditures and (iv) decrease in bad debt expense resulting from collections of previously
reserved past due receivables.
In February 2023, we sold our real property located at 7310 Langfield Road in Houston, Texas for a cash sales price of
$3.7 million, net of closing costs of $0.3 million. We recognized a gain of $1.3 million from the sale of this property in the
second quarter of fiscal year 2023. The sale was part of our plan to streamline operations and reduce costs.
Consolidated other income for fiscal year 2023 was $1.2 million compared to $0.5 million from fiscal year 2022. The
increase in other income was primarily due to a increase in net foreign currency transaction gains. The increase was partially
offset by a decrease in interest income attributable to lower note receivable balances between periods.
24
Segment Results of Operations
Fiscal Year 2023 Compared to Fiscal Year 2022
Oil and Gas Markets
Revenue
Revenue from our Oil and Gas Markets products for fiscal year 2023 increased $24.9 million, or 50.6%, from fiscal year
2022. The components of this increase were as follows:
● Traditional Exploration Product Revenue – Revenue from our traditional products increased $5.6 million,
or 84.7% from the prior fiscal year. The increase primarily reflects higher demand for our sensor and marine
products.
● Wireless Exploration Product Revenue – Revenue from our wireless exploration products increased $20.2
million, or 49.6%, from the prior fiscal year. The increase was primarily due to increased rental revenue
attributable to higher utilization of our OBX rental fleet. The increase was partially offset by a decrease in
wireless product sales. Wireless product revenue for fiscal year 2023 also included the $4.0 million from a
rental equipment customer as compensation for lost OBX nodes.
Operating Income (Loss)
Operating income associated with our Oil and Gas Markets products for fiscal year 2023 was $15.8 million, compared to
an operating loss of $(7.5) million from the prior fiscal year. The increase in operating income was primarily due to higher
wireless rental revenue and related gross profits due to improved utilization of our OBX rental fleet. The improvement in
operating income was partially offset by a (i) decrease in wireless product revenue and related gross profits and (ii) $4.4
million favorable non-cash adjustment reported in the prior fiscal year related to the estimated fair value of contingent
consideration related to our OptoSeis® acquisition.
Adjacent Markets
Revenue
Revenue from our Adjacent Markets products for fiscal year 2023 increased $9.9 million, or 25.2%, from the prior fiscal
year. The components of this increase were as follows:
●
●
Industrial Product Revenue and Services – Revenue from our industrial products increased $11.2 million, or
43.8%, from the prior fiscal year. The increase was primarily due to higher demand for our water meter products.
Imaging Product Revenue – Revenue from our imaging products decreased $1.4 million, or 10.0%, from the
prior fiscal year. The decrease was primarily due to lower demand for our imaging equipment.
Operating Income
Operating income from our Adjacent Markets products for fiscal year 2023 was $11.5 million, an increase of $5.5 million,
or 90.8% from the prior fiscal year. The increase in operating income was primarily due to the increase in revenue and related
gross profits. The increase was partially offset by (i) an increase in operating expenses resulting from the increased revenue
and (ii) higher research and development expense. Operating income for the prior fiscal year included a $0.4 million
impairment charge on our manufacturing equipment.
Emerging Markets
Revenue
Revenue from our Emerging Markets products for fiscal year 2023 was $1.2 million, compared to $0.7 million from the
prior fiscal year. The increase in revenue was primarily due to revenue of $0.7 million recognized on a security related
contract completed with a commercial customer.
25
Operating Loss
Operating loss from our Emerging Markets products for fiscal year 2023 was $4.0 million, compared to $9.1 million
from the prior fiscal year. The decrease in operating loss for fiscal year 2023 was primarily due a (i) non-cash goodwill
impairment charge of $4.3 million reported in the prior fiscal year and (ii) lower personnel costs attributable to our workforce
reduction. The decrease in operating loss was partially offset by a $0.7 million decrease to a favorable non-cash adjustment
to the estimated fair value of contingent consideration related to our Quantum acquisition when compared to the same period
of the prior fiscal year.
Liquidity and Capital Resources
Fiscal Year 2023
At September 30, 2023, we had approximately $33.7 million in cash, cash equivalents and short-term investments. For
the fiscal year ended September 30, 2023, we generated $15.6 million of cash from operating activities. Sources of cash
included our net income of $12.2 million and net non-cash charges of $19.6 million resulting from deferred income taxes,
depreciation, amortization, accretion, inventory obsolescence, stock-based compensation and bad debt recovery. Other
sources of cash included a (i) $5.4 million increase in other liabilities due to an increase in customer deposits on rental
contracts and accrued employee compensation costs and (ii) $1.3 million decrease in other assets. These sources of cash
were partially offset by (i) a $5.6 million increase in trade accounts and notes receivable primarily due to our increase in
revenue and the timing of collections from customers, (ii) a $11.0 million increase in inventories to meet an increase in
demand for our products, (iii) the removal of $4.4 million gross profit from the sale of used rental equipment and (iv) a $1.1
million of gain from the sale of property and equipment since they are included in investing activities.
For the fiscal year ended September 30, 2023, we used cash of $11.9 million in investing activities. Uses of cash included
(i) $4.0 million for additions to our property, plant and equipment, (ii) $9.9 million for additions to our equipment rental fleet
and (iii) net disbursements of $13.9 million for purchases of short-term investments. These uses of cash were partially offset
by proceeds of (i) $11.5 million from the sale of used rental equipment and (ii) $4.4 million from the sale of property and
equipment. We expect fiscal year 2024 cash investments into our rental fleet will be approximately $9 million. We expect
fiscal year 2024 cash investments in our property, plant and equipment will be approximately $4 million. Our capital
expenditures are expected to be funded from our cash on hand, internal cash flows, cash flows from our rental contracts or,
if necessary, borrowings under our new credit agreement.
For the fiscal year ended September 30, 2023, we used cash of $0.5 million from financing activities consisting of (i)
$0.4 million for debt issuance costs related to our new credit agreement and (ii) $0.2 million for final contingent consideration
payments to the former shareholders of Quantum.
Our available cash, cash equivalents and short-term investments was $33.7 million at September 30, 2023, which
included $3.8 million of cash and cash equivalents held by our foreign subsidiaries and branch offices, of which $2.5 million
was held by our subsidiary in the Russian Federation. In response to sanctions imposed by the U.S. and other countries on
the Russian Federation, the Russian government has imposed restrictions on companies' abilities to repatriate or otherwise
remit cash from their Russian-based operations to locations outside of Russia. As a result, this cash can be used in our Russian
operations, but we may be unable to transfer it out of Russia without incurring substantial costs, if at all. In addition, if we
were to repatriate the cash held by our Russian subsidiary, we would be required to accrue and pay taxes on any amount
repatriated. During fiscal year 2023, in light of recent volatility in the financial markets, we entered into an IntraFi Cash
Service ("ICS") Deposit Placement Agreement with IntraFi Network LLC through our primary bank, Woodforest National
Bank. The ICS program offers us access to unlimited Federal Deposit Insurance Corporation ("FDIC") insurance on
domestically held cash in excess of $5.0 million, thereby mitigating our risk of falling outside of FDIC coverage limits.
In July 2023, we entered into a credit agreement (“the Agreement”) with Woodforest National Bank, as sole lender. The
Agreement refinanced our credit agreement dated May 6, 2022, with Amerisource Funding, Inc., as administrative agent and
as a lender, and Woodforest National Bank, as a lender. The Agreement provides a revolving credit facility with a maximum
availability of $15 million. Availability under the Agreement is determined based upon a borrowing base comprised of
certain of our domestic assets which include (i) 80% of eligible accounts receivable, plus (ii) 90% of eligible foreign insured
accounts, plus (iii) 25% of eligible inventory plus (iv) 50% of the orderly liquidation value of eligible equipment, in each
case subject to certain limitations and adjustments. Interest shall accrue on outstanding borrowings at a rate equal to Term
SOFR (Secured Overnight Financing Rate) plus a margin equal to 3.25% per annum. We are required to make monthly
interest payments on borrowed funds. The Agreement is secured by substantially all of our assets, except for certain excluded
property. The Agreement requires us to maintain a minimum (i) consolidated tangible net worth of $100 million, (ii) liquidity
26
of $5 million, and (iii) current ratio no less than 2.00 to 1.00, in each case tested quarterly. The Agreement also requires us
to maintain a springing minimum interest coverage ratio of 1.50 to 1.00, tested quarterly whenever there is an outstanding
balance. The Agreement expires in July 2025.
At September 30, 2023, we had no outstanding borrowings under the Agreement and our borrowing base availability
under the Agreement was $13.1 million after consideration of a $0.1 million outstanding letter of credit. We were in
compliance with all covenants under the Agreement. We do not currently anticipate the need to borrow under the Agreement;
however, we may decide to do so in the future, if needed.
Our available cash, cash equivalents and short-term investments increased $17.0 million during fiscal year 2023. In the
absence of future profitable results of operations, we may need to rely on other sources of liquidity to fund our future
operations, including executed rental contracts, available borrowings under the Agreement through its expiration in July 2025,
leveraging or sales of real estate assets, sales of rental assets and other liquidity sources which may be available to us. We
currently believe that our cash and cash equivalents will be sufficient to finance any future operating losses and planned
capital expenditures through the next twelve months.
We do not have any obligations which meet the definition of an off-balance sheet arrangement and which have or are
reasonably likely to have a current or future effect on our financial statements or the items contained therein that are material
to investors.
Contractual Obligations
Contingent Compensation Costs
In connection with the acquisition of Aquana in July 2021, we are subject to additional contingent cash payments to the
former members of Aquana over a six-year earn-out period. The contingent payments, if any, will be derived from certain
eligible revenue generated during the earn-out period from products and services sold by Aquana. There is no maximum limit
to the contingent cash payments that could be made. The merger agreement with Aquana requires the continued employment
of a certain key employee and former member of Aquana for the first four years of the six year earn-out period in order for
any of Aquana’s former members to be eligible to receive any earn-out payments. In accordance with ASC 805, Business
Combinations, due to the continued employment requirement, no liability has been recorded for the estimated fair value of
contingent earn-out payments for this transaction. Earn-outs achieved, if any, will be recorded as compensation expense when
incurred.
See Note 17 to our consolidated financial statements in this Annual Report on Form 10-K for more information on our
contractual contingencies.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America requires the use of estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. We consider many factors in selecting appropriate operational and financial accounting policies and
controls and in developing the estimates and assumptions that are used in the preparation of these financial statements. We
continually evaluate our estimates, including those related to revenue recognition, bad debt reserves, inventory obsolescence
reserves, goodwill and long-lived asset impairment. We base our estimates on historical experience and various other factors,
including the impact from the current economic conditions that we believe to be reasonable under the circumstances. Actual
results may differ from these estimates under different conditions or assumptions.
Our normal credit terms for trade receivables are 30 days. In certain situations, credit terms for trade receivables may be
extended to 60 days or longer and such receivables generally do not require collateral. Additionally, we provide long-term
financing in the form of promissory notes and sales-type leases when competitive conditions require such financing and, in
such cases, we may require collateral. We perform ongoing credit evaluations of our accounts and financing receivables, and
allowances are recognized for potential credit losses.
Our long-lived assets are reviewed for impairment whenever an event or change in circumstances indicates the carrying
amount of an asset or group of assets may not be recoverable. The impairment review, if necessary, includes a comparison
of expected future cash flows (undiscounted and without interest charges) to be generated by an asset group with the
associated carrying value of the related assets. If the carrying value of the asset group exceeds the expected future cash flows,
an impairment loss is recognized to the extent that the carrying value of the asset group exceeds its fair value.
27
We conduct our evaluation of goodwill at the reporting unit level on an annual basis as of September 30 and more
frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. The guidance
on the testing of goodwill for impairment provides the option to first assess qualitative factors to determine if the fair value
of a reporting unit exceeds its carrying amount. If, based on the qualitative assessment of events or circumstances, an entity
determines it is more likely than not that the fair value of a reporting unit is more than its carrying amount, then it is not
necessary to perform a quantitative assessment. However, if an entity concludes otherwise, then a quantitative assessment
must be performed. If, based on the quantitative assessment, we determine that the fair value of a reporting unit is less that
its carrying amount, a goodwill impairment is recognized equal to the difference between the carrying amount of the reporting
unit and its fair value, not to exceed the carrying amount of the goodwill.
We record a write-down of our inventories when the cost basis of any manufactured product, including any estimated
future costs to complete the manufacturing process, exceeds its net realizable value. Inventories are stated at the lower of cost
or net realizable value. Cost is determined on a first-in, first-out method, except that our subsidiaries in the Russian Federation
and the United Kingdom use an average cost method to value their inventories.
We periodically review the composition of our inventories to determine if market demand, product modifications,
technology changes, excessive quantities on-hand and other factors hinder our ability to recover our investment in such
inventories. Management’s assessment is based upon historical product demand, estimated future product demand and various
other judgments and estimates. Inventory obsolescence reserves are recorded when such assessments reveal that portions or
components of our inventory investment will not be realized in our operating activities.
The value of our inventories not expected to be realized in cash, sold or consumed during our next operating cycle are
classified as non-current assets in our consolidated balance sheets.
We recognize revenue from product sales and services in accordance with ASC Topic 606, Revenue from Contracts with
Customers. This standard applies to contracts for the sale of products and services and does not apply to contracts for the
rental or lease of products. Under this standard, we recognize revenue when performance of contractual obligations are
satisfied, generally when control of the promised goods or services is transferred to our customers, in an amount that reflects
the consideration we expect to be entitled in exchange for those goods or services. Revenue from product sales is recognized
when obligations under the terms of a contract are satisfied, control is transferred and collectability of the sales price is
reasonably assured. Transfer of control generally occurs with shipment or delivery, depending on the terms of the underlying
contract. Our products are generally sold without any customer acceptance provisions, and our standard terms of sale do not
allow customers to return products for credit. Most of our products do not require installation assistance or sophisticated
instruction. We offer a standard product warranty, which obligates us to repair or replace our products having manufacturing
defects. We maintain a reserve for future warranty costs based on historical experience or, in the absence of historical
experience, management estimates. Revenue from engineering services is recognized as services are rendered over the
duration of a project or as billed on a per hour basis. Field service revenue is recognized when services are rendered and is
generally priced on a per day rate. We recognize rental revenue as earned over the rental period. Rentals of our equipment
generally range from daily rentals to rental periods of up to six months or longer.
We recognize rental revenue in accordance with ASC Topic 842, Leases. In the event collectability of lease payments is
not probable at the lease commencement date, we recognize revenue when payments are received. We regularly evaluate the
collectability of our lease receivables on a lease-by-lease basis. The evaluation primarily consists of reviewing past due
account balances and other factors such as the credit quality of the customer, historical trends of the customer and current
economic conditions. We suspend the recognition of rental revenue when the collectability of amounts due are no longer
probable and record a direct write-off of the lease receivable to rental revenue.
Recent Accounting Pronouncements
Please refer to Note 1 to our consolidated financial statements contained in this Annual Report for a discussion of recent
accounting pronouncements.
Management’s Current Outlook and Assumptions
As further discussed above, there remains uncertainties regarding the duration and to what extent the COVID-19 pandemic
will ultimately impact the demand for our products and services or with our supply chain.
Regarding our Oil and Gas Markets business segment, demand for our products are subject to volatile fluctuations in
crude oil prices. As a result of substantial declines in crude oil prices in recent years combined with the recent reduced global
28
demand for oil and gas as a result of the COVID-19 pandemic, oil and gas exploration and production companies experienced
a significant reduction in cash flows resulting in sharp reductions in their capital spending budgets for oil and gas exploration-
focused activities including seismic data acquisition activities. While we have experienced stronger marine nodal rental
activity in fiscal year 2023, the need for new seismic equipment, particularly land-based equipment, remains restrained due
to our customers’ (i) limited capital resources, (ii) lack of visibility into future demand for their seismic services and (iii) in
some cases, under-utilized legacy equipment. Crude oil prices have rebounded; however, lasting higher levels of oil and gas
commodity pricing may not stabilize in the long term, thus continuing the challenging industry conditions we have
experienced in previous fiscal years.
Many of our land-based traditional seismic products can be damaged, destroyed or otherwise consumed during our
customer’s field operations. We expect fiscal year 2024 demand for our land-based traditional seismic products may increase
slightly over fiscal year 2023 levels.
The vast majority of our oil and gas rental revenue in fiscal year 2023 was derived from short-term rentals of our OBX
ocean-bottom recorder. We believe our OBX rental revenue will increase in fiscal year 2024 as a result of rental contracts
executed during fiscal year 2023 and anticipated new rental contracts, but we can make no assurance in this regard.
We expect that fiscal year 2024 revenue from our oil and gas reservoir products, and principally our borehole tools and
services, will increase slightly over fiscal year 2023 levels. We have not received any orders for a large-scale seabed PRM
system since November 2012, although we do believe opportunities for PRM orders do exist in today's market. If a large
scale PRM order were received in fiscal year 2024, revenue would likely not be recognized until fiscal year 2025 and 2026.
We expect fiscal year 2024 revenue from our Adjacent Markets products to increase over fiscal year 2023 levels due to
our acquisition of Aquana and intergration of Aquana's products into our business and optimism that demand for our
industrial, imaging products and contract manufacturing services will continue to increase in fiscal year 2024.
We expect fiscal year 2024 revenue from our Emerging Markets products to increase over 2023 levels largely due to
optimism of obtaining new security-related contracts and opportunities with oil and gas industry customers.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not required.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements, including the reports thereon, the notes thereto and supplementary data begin at
page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures that are
designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified under SEC’s rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”). Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures will
detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information
otherwise required to be set forth in our reports.
29
In connection with the preparation of this Annual Report on Form 10-K, we carried out an evaluation under the
supervision and with the participation of our management, including the CEO and CFO, as of September 30, 2023 of the
effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act. Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures
are effective as of September 30, 2023.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2023. In
making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") in Internal Control Integrated Framework (2013). Based on this assessment, our management
concluded that, as of September 30, 2023, our internal control over financial reporting is effective based on those criteria.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-
15(f) of the Exchange Act) during the fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
30
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of
September 30, 2023 in connection with our 2024 Annual Meeting of Stockholders under the captions “Election of Directors,”
“Executive Officers and Compensation,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Ethics”
and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of
September 30, 2023 in connection with our 2024 Annual Meeting of Stockholders under the caption “Executive Officers and
Compensation” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of
September 30, 2023 in connection with our 2024 Annual Meeting of Stockholders under the caption “Security Ownership of
Certain Beneficial Owners and Management” and is incorporated herein by reference, and in Item 5, “Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” contained in Part II hereof.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of
September 30, 2023 in connection with our 2024 Annual Meeting of Stockholders under the caption “Certain Relationships
and Related Transactions” and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item is contained in our definitive Proxy Statement to be distributed within 120 days of
September 30, 2023 in connection with our 2024 Annual Meeting of Stockholders under the caption “Independent Public
Accountants” and is incorporated herein by reference.
31
Item 15. Exhibits and Financial Statement Schedules
Financial Statements and Financial Statement Schedules
PART IV
The financial statements and financial statement schedules listed on the accompanying Index to Financial Statements (see
page F-1) are filed as part of this Annual Report on Form 10-K.
Exhibits
Exhibit
Number
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Description of Documents
Amended and Restated Certificate of Formation of Geospace Technologies Corporation (incorporated by
reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2015, filed May 8, 2015).
Amended and Restated Bylaws of Geospace Technologies Corporation (incorporated by reference to Exhibit
3.2 to the Registrant’s Current Report on Form 8-K filed August 8, 2019).
Employment Agreement dated as of August 1, 1997, between the Company and Michael J. Sheen (incorporated
by reference to the Registrant’s Registration Statement on Form S-1 filed September 30, 1997 (Registration No.
333-36727)).*
Employment Agreement effective as of January 1, 2012, by and between OYO Geospace Corporation and
Walter R. Wheeler (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K
filed December 9, 2011).*
Employment Agreement effective as of January 1, 2012, by and between OYO Geospace Corporation and
Robbin B. Adams (incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K
filed December 9, 2011).*
Geospace Technologies Corporation 2014 Long-Term Incentive Plan (incorporated by reference to Appendix
A to the Company’s Proxy Statement on Schedule 14A filed December 11, 2013).*
First Amendment to the Geospace Technologies Corporation 2014 Long-Term Incentive Plan (incorporated by
reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed December 30, 2020).*
Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the
Registrant’s Form S-8 filed May 21, 2014).*
Form of Employee Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed November 26, 2018).*
Form of Employee Incentive Stock Option Award Agreement (incorporated by reference to Exhibit 10.2 to the
Registrant’s Form S-8 filed May 21, 2014).*
Form of Employee Non-Qualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.3
to the Registrant’s Form S-8 filed May 21, 2014).*
Form of Performance Option Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed November 20, 2015).*
Form of Consultant Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.4 to the
Registrant’s Form S-8 filed May 21, 2014).*
Form of Consultant Stock Option Award Agreement (incorporated by reference to Exhibit 10.5 to the
Registrant’s Form S-8 filed May 21, 2014).*
Form of Director Stock Option Award Agreement (incorporated by reference to Exhibit 10.6 to the Registrant’s
Form S-8 filed May 21, 2014).*
Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.7 to the
Registrant’s Form S-8 filed May 21, 2014).*
32
10.15
Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the
Registrant’s Form 10-Q filed May 3, 2019).*
10.16
Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed November 26, 2018).*
10.17
Form of Amended and Restated Indemnity Agreement (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed May 26, 2015).*
10.18
Geospace Technologies Corporation Annual Bonus Program (incorporated by reference to Exhibit 10.23 to the
Registrant’s Annual Report on Form 10-K for the year ended September 30, 2017 filed December 1, 2017).*
10.19
Credit Agreement dated July 26, 2023 among the Company, and each other person from time to time party
thereto as a borrower, and Woodforest National Bank, as lender (incorporated by reference to Exhibit 10.1 to
the Registrant’s Current Report on Form 8-K filed August 1, 2023).
10.20
Commercial Contract – Improved Property, dated June 3, 2019 by and between GTC, Inc. and Harmony Public
Schools (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June
3, 2019).
10.21
Employment Termination and Consulting Agreement dated June 30, 2023 between the Company and
Michael J. Sheen. **
14.1
21.1
23.1
31.1
General Code of Business Conduct and Supplemental Code of Ethics for CEO and Senior Financial Officers
(incorporated by reference to Exhibit 14.1 to the Registrant’s Current Report on Form 8-K filed February 6,
2019).
Subsidiaries of the Registrant.**
Consent of RSM US LLP.**
Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.**
31.2
Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.**
32.1
Certification of the Company’s Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.**
32.2
Certification of the Company’s Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.**
101
The following financial information from the Company’s Annual Report on Form 10-K for the fiscal year
ended September 30, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the
Consolidated Balance Sheets as of September 30, 2023 and September 30, 2022, (ii) the Consolidated
Statements of Operations for the years ended September 30, 2023 and 2022, (iii) the Consolidated Statements
of Comprehensive Loss for the years ended September 30, 2023 and 2022, (iv) the Consolidated Statements of
Stockholders’ Equity for the years ended September 30, 2023 and 2022, (v) the Consolidated Statements of
Cash Flows for the years ended September 30, 2023 and 2022 and (vi) Notes to Consolidated Financial
Statements.**
104
The cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended September 30,
2023 formatted in iXBRL. **
* This exhibit is a management contract or a compensatory plan or arrangement.
** Filed herewith.
Item 16. Form 10-K Summary
None.
33
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
GEOSPACE TECHNOLOGIES CORPORATION
By: /s/ WALTER R. WHEELER
Walter R. Wheeler, Director, President and
Chief Executive Officer
November 17, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ WALTER R. WHEELER
Walter R. Wheeler
Director, President and Chief Executive Officer
(Principal Executive Officer)
November 17, 2023
/s/ ROBERT L. CURDA
Robert L. Curda
Vice President, Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
November 17, 2023
/s/ GARY D. OWENS
Gary D. Owens
Chairman of the Board
November 17, 2023
/s/ MARGARET S. ASHWORTH Director
Margaret S. Ashworth
/s/ THOMAS L. DAVIS
Thomas L. Davis
Director
/s/ EDGAR R. GIESINGER, JR. Director
Edgar R. Giesinger, Jr.
/s/ RICHARD F. MILES
Richard F. Miles
Director
November 17, 2023
November 17, 2023
November 17, 2023
November 17, 2023
34
GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reports of Independent Registered Public Accounting Firm ........................................................................................... F-2
Consolidated Balance Sheets as of September 30, 2023 and 2022 ................................................................................... F-5
Consolidated Statements of Operations for the Years Ended September 30, 2023 and 2022 .......................................... F-6
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended September 30, 2023 and 2022 ........... F-7
Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2023 and 2022 .......................... F-8
Consolidated Statements of Cash Flows for the Years Ended September 30, 2023 and 2022 ......................................... F-9
Notes to Consolidated Financial Statements .................................................................................................................... F-10
Schedule II—Valuation and Qualifying Accounts ........................................................................................................... F-33
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Geospace Technologies Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Geospace Technologies Corporation and its subsidiaries
(the Company) as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive
income, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial
statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its
cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Inventory Valuation
As described in Note 1 to the consolidated financial statements, the Company’s consolidated inventories balance, which is
stated at lower of cost or net realizable value, was $43.3 million as of September 30, 2023. The valuation of inventories is
based on the Company’s periodic review of the composition of its inventories to determine if market demand, product
modifications, technology changes, excessive quantities on-hand and other factors hinder its ability to recover its investment
in such inventories. The Company’s assessment is based upon historical product demand, estimated future product demand
and various other judgments and estimates. Inventory obsolescence reserves are recorded when such assessments reveal
that portions or components of the Company’s investment will not be realized in its operating activities.
F-2
We identified the valuation of inventories at the lower of cost or net realizable value as a critical audit matter due to the
significant judgment and estimates required by management. Determining whether a decline in value has occurred requires
management to make complex judgments related to (i) historical and estimated future product demand in relation to
quantities on hand and (ii) obsolescence of certain products based on changes in technology and demand. Auditing these
judgments is especially challenging and involved significant auditor judgment due to fluctuations in sales trends and
evolving customer demands.
Our audit procedures related to the Company’s valuation of inventory included the following, among others:
● We evaluated management’s calculation of the inventory valuation reserve by testing the mathematical accuracy
of the calculation.
● We tested the completeness, accuracy, and relevance of the reports and inputs used in the Company’s analysis.
● We evaluated the appropriateness and consistency of management’s methods and assumptions used in
developing their estimate of the inventory valuation reserve, which included consideration of recent changes in
historical usage information.
● We evaluated management’s process for subsequent adjustments to net realizable value by performing a
retrospective review on an individual item basis to test for subsequent changes in the inventory values after the
net realizable value had been established.
● We compared actual purchases and sales data on an individual item basis for all inventory items and aggregated
to perform an independent assessment of the net realizable value of inventory.
Valuation of Long-lived Assets for impairment – Emerging Markets Asset Group
As discussed in Note 10 to the consolidated financial statements, the Company assessed $3.3 million of long-lived assets
associated with its Emerging Markets asset group for recoverability. As part of their quantitative assessment, the Company
performed a recoverability assessment in which its carrying value was compared to estimated undiscounted cash flows over
the remaining useful life of the asset group’s primary asset, its developed technology. Key assumptions in the analyses
include revenue projections, including the probability of obtaining new contracts, and cash flow projections. Estimated
future cash flows of the Company’s Emerging Markets asset group include the Company’s ability to obtain an additional
contract with its significant customer.
We identified the valuation of long-lived assets for the Emerging Market’s asset group as a critical audit matter because of
the significant assumptions management makes in determining the estimate, including revenue and cash flow projections.
Auditing management’s assumptions of revenue and cash flow projections involved a high degree of auditor judgment and
increased audit effort, and changes in these assumptions could have a significant impact on the fair value of the Emerging
Market’s asset group and potential impairment charges.
Our audit procedures related to the Company’s valuation of long-lived assets for the Emerging Markets asset group included
the following, among others:
● We evaluated the reasonableness of management’s revenue and cash flow projections by comparing to historical
results, inquiry of management of the asset group regarding additional contracts with its significant customer,
review of publicly available industry information, and testing the completeness and accuracy of the data used in
the projections.
We have served as the Company’s auditor since 2018.
/s/ RSM US LLP
Houston, Texas
November 17, 2023
F-3
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Geospace Technologies Corporation
Our audits of the consolidated financial statements referred to in our report dated November 17, 2023, (included elsewhere
in this Annual Report on Form 10-K) also included the financial statement schedule of Geospace Technologies Corporation
and its subsidiaries, listed in Item 15(a) of this Form 10-K. This schedule is the responsibility of Geospace Technologies
Corporation's management. Our responsibility is to express an opinion based on our audits of the consolidated financial
statements.
In our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ RSM US LLP
Houston, Texas
November 17, 2023
F-4
Geospace Technologies Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
Current assets:
ASSETS
Cash and cash equivalents ........................................................................................... $
Short-term investments ................................................................................................
Trade accounts and notes receivable, net .....................................................................
Inventories, net ............................................................................................................
Prepaid expenses and other current assets ...................................................................
Total current assets ...................................................................................................
Non-current inventories, net ............................................................................................
Rental equipment, net ......................................................................................................
Property, plant and equipment, net ..................................................................................
Operating right-of-use assets ...........................................................................................
Goodwill ..........................................................................................................................
Other intangible assets, net ..............................................................................................
Other non-current assets ..................................................................................................
Total assets ............................................................................................................... $
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable trade ................................................................................................ $
Contingent consideration .............................................................................................
Operating lease liabilities .............................................................................................
Other current liabilities ................................................................................................
Total current liabilities .............................................................................................
Non-current operating lease liabilities .............................................................................
Deferred tax liabilities, net ..............................................................................................
Total liabilities .........................................................................................................
Commitments and contingencies (Note 17)
Stockholders’ equity:
AS OF SEPTEMBER 30,
2023
2022
18,803 $
14,921
21,373
18,430
2,251
75,778
24,888
21,587
24,048
714
736
4,805
486
153,042 $
6,659 $
—
257
12,882
19,798
512
16
20,326
16,109
894
20,886
19,995
2,077
59,961
12,526
28,199
26,598
957
736
5,573
506
135,056
5,595
175
241
6,616
12,627
769
13
13,409
Preferred stock, 1,000,000 shares authorized, no shares issued and outstanding ........
Common stock, $.01 par value, 20,000,000 shares authorized, 14,030,481 and
13,863,233 shares issued, respectively; and 13,188,489 and 13,021,241 shares
outstanding, respectively ..........................................................................................
Additional paid-in capital ............................................................................................
Retained earnings .........................................................................................................
Accumulated other comprehensive loss .......................................................................
Treasury stock, at cost, 841,992 shares ........................................................................
Total stockholders’ equity ........................................................................................
Total liabilities and stockholders’ equity ................................................................. $
—
—
140
96,040
61,860
(17,824)
(7,500)
132,716
153,042 $
139
94,667
49,654
(15,313 )
(7,500 )
121,647
135,056
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
Revenue:
Products ........................................................................................................................... $
Rental equipment .............................................................................................................
Total revenue ............................................................................................................
Cost of revenue:
Products ...........................................................................................................................
Rental equipment .............................................................................................................
Total cost of revenue ................................................................................................
YEAR ENDED
SEPTEMBER 30,
2023
2022
73,333 $
51,176
124,509
55,136
17,683
72,819
64,109
25,144
89,253
51,649
19,561
71,210
Gross profit ......................................................................................................................
51,690
18,043
Operating expenses:
Selling, general and administrative .................................................................................
Research and development ..............................................................................................
Goodwill impairment ......................................................................................................
Change in estimated fair value of contingent consideration ............................................
Bad debt expense (recovery) ...........................................................................................
Total operating expenses ..........................................................................................
25,952
15,863
—
—
(138)
41,677
23,482
18,104
4,336
(5,035 )
292
41,179
Gain on disposal of property ...........................................................................................
1,315
—
Income (loss) from operations .........................................................................................
11,328
(23,136 )
Other income (expense):
Interest expense ...............................................................................................................
Interest income ................................................................................................................
Foreign currency transaction gains (losses), net ..............................................................
Other, net .........................................................................................................................
Total other income, net ............................................................................................
Income (loss) before income taxes ..................................................................................
Income tax expense .........................................................................................................
Net income (loss) ......................................................................................................... $
(134)
539
994
(158)
1,241
12,569
363
12,206 $
(65 )
976
(397 )
(61 )
453
(22,683 )
173
(22,856 )
Income (loss) per common share:
Basic ................................................................................................................................ $
Diluted ............................................................................................................................. $
0.93 $
0.92 $
(1.76 )
(1.76 )
Weighted average common shares outstanding:
Basic ................................................................................................................................
Diluted .............................................................................................................................
13,146,085
13,215,066
12,987,996
12,987,996
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Net income (loss) ............................................................................................................ $
Other comprehensive income (loss):
Change in unrealized gains on available-for-sale securities, net of tax .......................
Foreign currency translation adjustments ....................................................................
Total other comprehensive income (loss), net .................................................................
Total comprehensive income (loss) ................................................................................. $
YEAR ENDED
SEPTEMBER 30,
2023
2022
12,206 $
(22,856 )
4
(2,515)
(2,511)
9,695 $
—
1,007
1,007
(21,849 )
The accompanying notes are an integral part of the consolidated financial statements.
F-7
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the years ended September 30, 2023 and 2022
(In thousands, except share amounts)
Balance at October 1, 2021 ............. 12,969,542 $
137 $
92,935 $ 72,510 $
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Total
Stock
(16,320) $ (6,805) $ 142,457
Net loss ............................................
Other comprehensive income ..........
Issuance of common stock pursuant
to the vesting of restricted stock
units .............................................
Purchase of treasury stock ...............
Stock-based compensation ..............
Balance at September 30, 2022 ....... 13,021,241
124,262
(72,563)
— —
— —
— (22,856)
—
—
—
1,007
— (22,856)
1,007
—
2
(2)
—
—
— —
139
1,734
—
94,667 49,654
—
(15,313)
—
(695)
—
—
(695)
1,734
(7,500) 121,647
Net income ......................................
Other comprehensive loss ...............
Issuance of common stock pursuant
to the vesting of restricted stock
units .............................................
Stock-based compensation ..............
Balance at September 30, 2023 ....... 13,188,489 $
167,248
1
— —
140 $
— —
— —
— 12,206
—
—
—
(2,511)
— 12,206
(2,511)
—
—
(1)
1,374
—
96,040 $ 61,860 $
—
—
—
1,374
(17,824) $ (7,500) $ 132,716
—
—
The accompanying notes are an integral part of the consolidated financial statements.
F-8
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income (loss) ......................................................................................................... $
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Deferred income tax expense (benefit) ....................................................................
Rental equipment depreciation .................................................................................
Property, plant and equipment depreciation .............................................................
Amortization of intangible assets .............................................................................
Goodwill impairment expense .................................................................................
Property, plant and equipment impairment expense ................................................
Amortization of premiums (accretion of discounts) on short-term investments ......
Stock-based compensation expense .........................................................................
Bad debt expense (recovery) ....................................................................................
Inventory obsolescence expense ..............................................................................
Change in estimated fair value of contingent consideration .....................................
Gross profit from sale of used rental equipment ......................................................
Loss (gain) on disposal of equipment .......................................................................
Gain on disposal of property ....................................................................................
Realized loss on short-term investments ..................................................................
Realized foreign currency translation loss from dissolution of foreign subsidiary ..
Effects of changes in operating assets and liabilities:
Trade accounts and notes receivable ....................................................................
Unbilled receivables .............................................................................................
Inventories ............................................................................................................
Other assets ...........................................................................................................
Accounts payable trade .........................................................................................
Other liabilities .....................................................................................................
Net cash used provided by (used in) operating activities ..................................
Cash flows from investing activities:
Purchase of property, plant and equipment ..............................................................
Investment in rental equipment ................................................................................
Proceeds from the sale of equipment .......................................................................
Proceeds from the sale of property ...........................................................................
Proceeds from the sale of used rental equipment .....................................................
Purchase of short-term investments .........................................................................
Proceeds from the sale of short-term investments ....................................................
Net cash provided by (used in) investing activities ...........................................
Cash flows from financing activities:
Payments of contingent consideration ......................................................................
Debt issuance costs ..................................................................................................
Purchase of treasury stock ....................................................................................
Net cash used in financing activities .................................................................
Effect of exchange rate changes on cash .........................................................................
Increase in cash and cash equivalents .............................................................................
Cash and cash equivalents, beginning of fiscal year .......................................................
Cash and cash equivalents, end of fiscal year ................................................................. $
YEAR ENDED
SEPTEMBER 30,
2023
2022
12,206 $
(22,856 )
3
11,766
3,704
768
—
—
(144)
1,374
(138)
2,229
—
(4,424)
244
(1,315)
—
38
(5,561)
—
(11,026)
442
41
5,351
15,558
(3,964)
(9,920)
724
3,682
11,478
(24,782)
10,900
(11,882)
(175)
(350)
—
(525)
(457)
2,694
16,109
18,803 $
(17 )
13,740
4,143
1,677
4,336
401
96
1,734
292
3,222
(5,035 )
(11,061 )
(54 )
—
22
—
1,751
1,051
(2,357 )
349
(786 )
(683 )
(10,035 )
(1,130 )
(4,832 )
54
—
11,583
(450 )
8,924
14,149
(807 )
(211 )
(695 )
(1,713 )
(358 )
2,043
14,066
16,109
The accompanying notes are an integral part of the consolidated financial statements.
F-9
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
The Company
Geospace Technologies Corporation (“Geospace”) 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.
Geospace also designs and manufactures Adjacent Markets products including industrial products, imaging equipment, and
provides contract manufacturing services, and Emerging Market products consisting of border and perimeter security
products. Geospace and its subsidiaries are referred to collectively as the “Company”.
Basis of Presentation
The accompanying financial statements present the consolidated financial position, results of operations and cash flows
of the Company in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. The Company considers many factors in
selecting appropriate operational and financial accounting policies and controls and in developing the estimates and
assumptions that are used in the preparation of these financial statements. The Company continually evaluates its estimates,
including those related to revenue recognition, bad debt reserves, collectability of rental revenue, inventory obsolescence
reserves, self-insurance reserves, product warranty reserves, useful lives of long-lived assets, impairment of long-lived assets,
impairment of goodwill and other intangible assets, contingent consideration and deferred income tax assets. The Company
bases its estimates on historical experience and various other factors that are believed to be reasonable under the
circumstances. While management believes current estimates are reasonable and appropriate, actual results may differ from
these estimates under different conditions or assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original or remaining maturity at the time of
purchase of three months or less to be cash equivalents. At September 30, 2023 and 2022, the Company had restricted cash
of $0.2 million on deposit with a bank, which serves as collateral on employee issued credit cards. At September 30, 2023,
cash and cash equivalents included $3.8 million held by the Company’s foreign subsidiaries and branch offices, including
$2.5 million held by its subsidiary in the Russian Federation. In response to sanctions imposed by the United States and others
on Russia, the Russian government has imposed restrictions on companies' abilities to repatriate or otherwise remit cash from
their Russian-based operations to locations outside of Russia. As a result, this cash can be used in our Russian operations, but
the Company may be unable to transfer it out of Russia without incurring substantial costs, if at all. In addition, if the Company
were to repatriate the cash held by its Russian subsidiary, it would be required to accrue and pay taxes on any amount
repatriated. During fiscal year 2023, in light of recent volatility in the financial markets, the Company entered into an IntraFi
Cash Service ("ICS") Deposit Placement Agreement with IntraFi Network LLC through its primary bank, Woodforest
National Bank. The ICS program offers access to unlimited Federal Deposit Insurance Corporation ("FDIC') insurance on
the Company's domestically held cash in excess of $5.0 million, thereby mitigating its risk of falling outside of FDIC coverage
limits.
Concentrations of Risk
Credit
The Company maintains its cash in bank deposit accounts that, at times, exceed federally insured limits. Management of
the Company believes that the financial strength of the financial institutions holding such deposits minimizes the credit risk
of such deposits.
F-10
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The Company sells products to customers throughout the United States and various foreign countries. The Company’s
normal credit terms for trade receivables are 30 days. In certain situations, credit terms may be extended to 60 days or longer.
The Company performs ongoing credit evaluations of its customers and generally does not require collateral for its trade
receivables. Additionally, the Company provides long-term financing in the form of promissory notes and sales-type leases
when competitive conditions require such financing. In such cases, the Company may require collateral. Allowances are
recognized for potential credit losses. Two customers comprised 26.7% and 11.7% of the Company’s revenue during fiscal
year 2023. At September 30, 2023, the Company had trade accounts and financing receivables from these customers of $3.5
million and $4.8 million, respectively. One customer comprised 29.3% of the Company’s revenue during fiscal year 2022.
At September 30, 2022, the Company had trade accounts and financing receivables from this customer of $5.5 million.
Supplier
Certain models of the Company’s oil and gas marine wireless products require a timing device it purchases from a United
States manufacturer. The Company currently does not possess the ability to manufacture this component and has no other
reliable source for this device. If this manufacturer were to discontinue its production of this timing device, were to become
unwilling to contract with the Company on competitive terms or were unable to supply the component in sufficient quantities
to meet its requirements, the Company’s ability to compete in the marine wireless marketplace could be impaired, which
could adversely affect its financial performance. The device is used in certain models of the Company’s rental equipment.
Product sales requiring this device represented approximately 4% and 11% of the Company's revenue in fiscal year 2023
and 2022, respectively.
The Company purchases all of its thermal film from one manufacturer for its imaging products. Except for the film sold
to the Company by this manufacturer, the Company knows of no other source for thermal film that performs as well in its
imaging equipment. If the manufacturer were to discontinue producing thermal film, were to become unwilling to contract
with the Company on competitive terms or were unable to supply thermal film in sufficient quantities to meet its requirements,
the Company’s ability to compete in the direct thermal imaging marketplace could be impaired, which could adversely affect
its financial performance. Thermal film sales represented approximately 5% and 8% of the Company’s revenue in fiscal year
2023 and 2022, respectively.
Armed Conflict Between Russia and Ukraine
A portion of the Company's oil and gas product manufacturing is conducted through its wholly-owned subsidiary
Geospace Technologies Eurasia LLC, ("GTE") which is based in the Russian Federation. In February 2022, the Russian
Federation launched a full-scale military invasion of Ukraine. Although the length and impact of the ongoing military conflict
is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity
prices, credit and capital markets, as well as supply chain interruptions in addition to any direct impact on the Company's
operations in Russia. As a result of the invasion, the governments of several western nations, including the United States,
Canada, the United Kingdom, the European Union, implemented new and/or expanded economic sanctions and export
restrictions against Russia, Russian-backed separatist regions in Ukraine, certain banks, companies, government officials,
and other individuals in Russia and Belarus. The implementation of theses sanctions and exports restrictions, in combinations
with the withdrawal of numerous private companies from the Russian market, which has had, and is likely to continue to
have, a negative impact on the Company's business in the region. The rapid changes in rules and implementation of new
rules on imports and exports of goods involving Russia has also led to serious delays in getting goods to or from Russia as
port authorities struggle to keep up with the changing environment. If imports of these products from the Russian Federation
are restricted by government regulation, the Company may be forced to find other sources for the manufacturing of these
products at potentially higher costs. Likewise, restrictions on the Company's ability to send products to GTE, may force our
subsidiary to have to find other sources for the manufacturing of these products at potentially higher costs. However, the
Company's exports to GTE have historically been limited. The risk of doing business in the Russian Federation and other
economically or politically volatile areas could adversely affect the Company's operations and earnings.
The Company is actively monitoring the situation in Ukraine and Russia and assessing its impact on its business, including
GTE. The net carrying value of GTE on the Company's consolidated balance sheet at September 30, 2023 was $5.8 million.
GTE generated $1.8 million in revenue from domestic sales and the Company imported $3.8 million of products from GTE
in fiscal year 2023. The Company has no way to predict the duration, progress or outcome of the military conflict in Ukraine.
The extent and duration of the military action, sanctions, and resulting market disruptions could be significant and could
potentially have substantial impact on the global economy and the Company's business for an unknown period of time.
F-11
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Inventories
The Company records a write-down of its inventories when the cost basis of any manufactured product, including any
estimated future costs to complete the manufacturing process, exceeds its net realizable value. Inventories are stated at the
lower of cost or net realizable value. Cost is determined on the first-in, first-out method, except that certain of the Company’s
foreign subsidiaries use an average cost method to value their inventories.
The Company periodically reviews the composition of its inventories to determine if market demand, product
modifications, technology changes, excessive quantities on-hand and other factors hinder our ability to recover its investment
in such inventories. The Company’s assessment is based upon historical product demand, estimated future product demand
and various other judgments and estimates. Inventory obsolescence reserves are recorded when such assessments reveal that
portions or components of the Company’s inventory investment will not be realized in its operating activities.
The Company reviews it inventories for classification purposes. The value of inventories not expected to be realized in
cash, sold or consumed during its next operating cycle are classified as non-current assets.
Property, Plant and Equipment and Rental Equipment
Property, plant and equipment and rental equipment are stated at cost. Depreciation expense is calculated using the
straight-line method over the following estimated useful lives:
Rental equipment ...................................................................................................................................
Property, plant and equipment:
Machinery and equipment .................................................................................................................
Buildings and building improvements ...............................................................................................
Other ..................................................................................................................................................
Years
2 - 5
3 - 15
10 - 50
5 - 10
Expenditures for renewals and betterments are capitalized. Repairs and maintenance expenditures are charged to expense
as incurred. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts
and any gain or loss thereon is reflected in the statements of operations.
Impairment of Long-lived Assets
The Company’s long-lived assets are reviewed for impairment whenever an event or change in circumstances indicates
the carrying amount of an asset or group of assets may not be recoverable. The impairment review, if necessary, includes a
comparison of expected future cash flows (undiscounted and without interest charges) to be generated by an asset group with
the associated carrying value of the related assets. If the carrying value of the asset group exceeds the expected future cash
flows, an impairment loss is recognized to the extent that the carrying value of the asset group exceeds its fair value.
At September 30, 2023, in light of the Company's historical operating losses on its Emerging Markets reporting unit, the
Company assessed the carrying value of the long-lived assets of its Emerging Markets asset group and determined that the
undiscounted cash flows exceeded the carrying value. As a result, no impairment charges were necessary to the Company's
long-lived assets of this asset group.
Goodwill
The Company conducts its evaluation of goodwill at the reporting unit level on an annual basis as of September 30 and
more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. The
guidance on the testing of goodwill for impairment provides the option to first assess qualitative factors to determine if the
fair value of a reporting unit exceeds its carrying amount. If, based on the qualitative assessment of events or circumstances,
an entity determines it is more likely than not that the fair value of a reporting unit is more than its carrying amount then it is
not necessary to perform a quantitative assessment. However, if an entity concludes otherwise, then a quantitative assessment
must be performed. If, based on the quantitative assessment, the Company determines that the fair value of a reporting unit
is less that its carrying amount, a goodwill impairment is recognized equal to the difference between the carrying amount of
the reporting unit and its fair value, not to exceed the carrying amount of the goodwill.
F-12
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Other Intangible Assets
Intangible assets are carried at cost, net of accumulated amortization. The estimated useful life of the Company’s other
intangible assets are evaluated each reporting period to determine whether events or circumstances warrant a revision to the
remaining amortization period. If the estimate of an intangible asset’s remaining useful life is changed, the amortization
period should be changed prospectively. Amortization expense is calculated using the straight-line method over the following
estimated useful lives:
Developed technology ..............................................................................................................................
Trade names .............................................................................................................................................
Customer relationships .............................................................................................................................
Non-compete agreements .........................................................................................................................
Years
18
5
4
4
Revenue Recognition
See Note 2 to these consolidated financial statements.
Research and Development Costs
The Company expenses research and development costs as incurred. Research and development costs include salaries,
employee benefit costs, department supplies, direct project costs and other related costs.
Product Warranties
Most of the Company’s products do not require installation assistance or sophisticated instructions. The Company offers
a standard product warranty obligating it to repair or replace equipment with manufacturing defects. The Company maintains
a reserve for future warranty costs based on historical experience or, in the absence of historical product experience,
management’s estimates. Reserves for future warranty costs are included within other current liabilities on the consolidated
balance sheets.
Changes in the product warranty reserve are reflected in the following table (in thousands):
Balance at October 1, 2021 ................................................................................................................... $
Accruals for warranties issued during the year......................................................................................
Settlements made (in cash or in kind) during the year ..........................................................................
Balance at September 30, 2022 .............................................................................................................
Accruals for warranties issued during the year......................................................................................
Settlements made (in cash or in kind) during the year ..........................................................................
Balance at September 30, 2023 ............................................................................................................. $
379
1,431
(1,286)
524
1,655
(1,521)
658
Stock-Based Compensation
The Company accounts for stock-based compensation, including grants of restricted awards and unqualified stock options
in accordance with Accounting Standards Codification Topic 718, which requires that all share-based payments (to the extent
that they are compensatory) be recognized as an expense in the Company’s consolidated statements of operations based on
their fair values on the award date and the estimated number of shares it ultimately expects to vest.
The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of
the award. The Company’s stock-based compensation plan and awards are more fully described in Note 14 to these
consolidated financial statements.
F-13
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Foreign Currency Gains and Losses
The assets and liabilities of the Company’s foreign subsidiaries and branch offices that have a foreign currency as their
functional currency have been translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Results
of operations have been translated using the average exchange rates during the year. Resulting translation adjustments have
been recorded as a component of accumulated other comprehensive loss in stockholders’ equity. Foreign currency transaction
gains and losses are included in the statements of operations as they occur. Transaction gains and losses on intra-entity foreign
currency transactions and balances, including advances and demand notes payable on which settlement is not planned or
anticipated in the foreseeable future, are recorded in “accumulated other comprehensive loss” on our consolidated balance
sheets.
Fair Value
Fair value is the price that would be received to sell an asset or the amount paid to transfer a liability in an orderly
transaction between market participants (an exit price) at the measurement date. U.S. GAAP has established a fair value
hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. These levels
are determined based on the lowest level input that is significant to the fair value measurement. Level 1 represents unadjusted
quoted prices in active markets for identical assets and liabilities. Level 2 represents quoted prices for similar assets and
liabilities in active markets (other than those included in Level 1) which are observable, either directly or indirectly. Level 3
represents valuations derived from valuation techniques in which one or more significant inputs or significant value drivers
are unobservable. Also see Note 4 to these consolidated financial statements.
Income Taxes
Income taxes are presented in accordance with the Accounting Standards Codification Topic 740 (“Topic 740”) guidance
for accounting for income taxes. The estimated future tax effects of temporary differences between the tax basis of assets and
liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit
carrybacks and carryforwards are recorded. Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities (temporary differences) and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse. The Company periodically reviews the
recoverability of tax assets recorded on the balance sheet and provides valuation allowances if it is more likely than not that
such assets will not be realized.
The Company follows the guidance of Topic 740 to analyze all tax positions that are less than certain. Topic 740 prescribes
a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. In accordance with Topic 740, the Company recognizes in its financial statements
the impact of a tax position if that position is “more likely than not” to be sustained on audit, based on the technical merits of
the position. The Company’s estimate of the potential outcome of any uncertain tax issue is subject to management’s
assessment of relevant risks, facts, and circumstances existing at that time. The Company classifies interest and penalties
associated with the payment of income taxes, if any, in the Other Income (Expense) section of its consolidated statements of
operations.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued guidance surrounding credit losses for financial instruments that replaces the incurred loss
impairment methodology in U.S. GAAP. The new impairment model requires immediate recognition of estimated credit
losses expected to occur for most financial assets and certain other financial instruments. For available-for-sale debt securities
with unrealized losses, credit losses will be recognized as allowances rather than reductions in the amortized cost of the
securities. As a smaller reporting company, the Company must adopt this standard on October 1, 2023. The standard’s
provisions will be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective
reporting period. The Company will adopt this standard on October 1, 2023 and does not expect the adoption of this standard
to have a material impact on the Company's consolidated financial statements.
F-14
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
2. Revenue Recognition
In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes
revenue when performance of contractual obligations are satisfied, generally when control of the promised goods or services
is transferred to its customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those
goods or services.
The Company primarily derives product revenue from the sale of its manufactured products. Revenue from these product
sales, including the sale of used rental equipment, is recognized when obligations under the terms of a contract are satisfied,
control is transferred and collectability of the sales price is probable. The Company records deferred revenue when customer
funds are received prior to shipment or delivery or performance has not yet occurred. The Company assesses collectability
during the contract assessment phase. In situations where collectability of the sales price is not probable, the Company
recognizes revenue when it determines that collectability is probable or when non-refundable cash is received from its
customers and there is not a significant right of return. Transfer of control generally occurs with shipment or delivery,
depending on the terms of the underlying contract. The Company’s products are generally sold without any customer
acceptance provisions, and the Company’s standard terms of sale do not allow customers to return products for credit.
Revenue from engineering services is recognized as services are rendered over the duration of a project, or as billed on a
per hour basis. Field service revenue is recognized when services are rendered and is generally priced on a per day rate.
The Company also generates revenue from short-term rentals under operating leases of its manufactured products. Rental
revenue is recognized as earned over the rental period if collectability of the rent is reasonably assured. Rentals of the
Company’s equipment generally range from daily rentals to minimum rental periods of up to one year. The Company has
determined that ASC 606 does not apply to rental contracts, which are within the scope of ASC Topic 842, Leases.
As permissible under ASC 606, sales taxes and transaction-based taxes are excluded from revenue. The Company does
not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or
less. Additionally, the Company expenses costs incurred to obtain contracts when incurred because the amortization period
would have been one year or less. These costs are recorded in selling, general and administrative expenses.
The Company has elected to treat shipping and handling activities in a sales transaction after the customer obtains control
of the goods as a fulfillment cost and not as a promised service. Accordingly, fulfillment costs related to the shipping and
handling of goods are accrued at the time of shipment. Amounts billed to a customer in a sales transaction related to
reimbursable shipping and handling costs are included in revenue, and the associated costs incurred by the Company for
reimbursable shipping and handling expenses are reported in cost of revenue. The Company incurred shipping and handling
expenses of $0.5 million and $0.6 million, respectively, for the fiscal years ended September 30, 2023 and 2022, respectively.
At September 30, 2023, the Company had deferred contract liabilities of $0.7 million and no deferred contract costs. At
September 30, 2022, the Company had no deferred contract liabilities or deferred contract cost. During the fiscal years ended
September 30, 2023 and 2022, no revenue was recognized from deferred contract liabilities and no cost of revenue was
recognized from deferred contract costs. At September 30, 2023, all contracts had an original duration of one year or less.
F-15
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
For each of the Company’s operating segments, the following table presents revenue only from the sale of products and
the performance of services under contracts with customers (in thousands). Therefore, the table excludes all revenue earned
from rental contracts.
YEAR ENDED SEPTEMBER 30,
2023
2022
Oil and Gas Markets
Traditional exploration product revenue .......................................................... $
Wireless exploration product revenue .............................................................
Reservoir product revenue ...............................................................................
Total revenue ...................................................................................................
Adjacent Markets
Industrial product revenue ...............................................................................
Imaging product revenue .................................................................................
Total revenue ...................................................................................................
12,081 $
10,168
962
23,211
36,859
12,029
48,888
Emerging Markets
Revenue ...........................................................................................................
1,234
Corporate
Revenue ...........................................................................................................
—
6,558
15,822
1,968
24,348
25,640
13,360
39,000
711
50
Total .................................................................................................................... $
73,333 $
64,109
See Note 19 for more information on the Company’s operating segments.
For each of the geographic areas where the Company operates, the following table presents revenue from the sale of
products and performance of services under contracts with customers (in thousands). Therefore, the table excludes all revenue
earned from rental contracts.
YEAR ENDED SEPTEMBER 30,
2023
2022
Asia (including Russian Federation) ................................................................... $
Canada .................................................................................................................
Europe .................................................................................................................
South America .....................................................................................................
United States .......................................................................................................
Other ....................................................................................................................
$
13,006 $
1,032
5,976
448
49,828
3,043
73,333 $
10,978
890
15,705
719
33,778
2,039
64,109
Revenue is attributable to countries based on the ultimate destination of the product sold, if known. If the ultimate
destination is not known, revenue is attributable to countries based on the geographic location of the initial shipment.
F-16
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
3. Investments
Short-term Investments
The Company classifies its short-term investments as available-for-sale securities. Available-for-sale securities are carried
at fair market value with net unrealized gains and losses reported as a component of accumulated other comprehensive loss
in stockholders’ equity. No gains or losses were realized from the sale of short-term investments for the fiscal year ended
September 30, 2023. The Company realized losses of $22,000 from the sale of short-term investments for the fiscal year
ended September 30, 2022.
The Company’s short-term investments were composed of the following (in thousands):
Amortized
Cost
AS OF SEPTEMBER 30, 2023
Unrealized
Unrealized
Losses
Gains
Estimated Fair
Value
Short-term investments:
Corporate bonds ................................................ $
U.S. treasury securities and securities of U.S.
government-sponsored agency ......................
Total .................................................................. $
11,310 $
— $
(15 ) $
11,295
3,622
14,932 $
4
4 $
—
(15 ) $
3,626
14,921
Amortized
Cost
AS OF SEPTEMBER 30, 2022
Unrealized
Unrealized
Losses
Gains
Estimated Fair
Value
Short-term investments:
Corporate bonds ................................................ $
Total .................................................................. $
909 $
909 $
— $
— $
(15 ) $
(15 ) $
894
894
The Company’s short-term investments have contractual maturities ranging from January 2024 to September 2024.
F-17
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
4. Fair Value of Financial Instruments
The Company’s financial instruments generally include cash and cash equivalents, short-term investments, trade accounts,
financing receivables and accounts payable. Due to the short-term maturities of cash and cash equivalents, trade accounts
receivable, financing receivables and accounts payable, the carrying amounts approximate fair value on the respective balance
sheet dates. The valuation technique used to measure the fair value of the contingent consideration was derived from models
utilizing market observable inputs.
The Company measures its short-term investments and contingent consideration at fair value on a recurring basis.
The following tables present the fair value of the Company’s short-term investments and contingent consideration by
valuation hierarchy and input (in thousands):
AS OF SEPTEMBER 30, 2023
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Unobservable
(Level 2)
Significant
Unobservable
(Level 3)
Totals
Short-term investments:
Corporate bonds ........................................................ $
U.S. treasury securities and securities of U.S.
government-sponsored agency ..............................
Total assets ............................................................... $
— $
— $
.
11,295 $
3,626
14,921 $
— $
11,295
— $
3,626
14,921
AS OF SEPTEMBER 30, 2022
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Unobservable
(Level 2)
Significant
Unobservable
(Level 3)
Totals
Short-term investments:
Corporate bonds ........................................................ $
Total assets ............................................................... $
Contingent consideration liabilities:
Contingent consideration liabilities ..........................
Total liabilities .......................................................... $
Assets and Liabilities Measured on a Nonrecurring Basis
— $
— $
—
— $
894 $
894 $
— $
— $
—
— $
175
175 $
894
894
175
175
The measurements utilized to determine the implied fair value of the Company's Emerging Markets reporting unit as of
September 30, 2022 represented significant unobservable inputs (Level 3). See Note 10 for discussion of these inputs.
The following table summarizes changes in the fair value of the Company’s Level 3 financial instruments for the fiscal
years ended September 30, 2023 and 2022:
Contingent Consideration balance at October 1, 2021 ............................................................................ $
Fair value adjustments .............................................................................................................................
Payment of contingent consideration ......................................................................................................
Balance at September 30, 2022 ...............................................................................................................
Fair value adjustments .............................................................................................................................
Payment of contingent consideration ......................................................................................................
Balance at September 30, 2023 ............................................................................................................... $
6,017
(5,035)
(807)
175
—
(175)
—
F-18
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Adjustments to the fair value of the contingent consideration are based on internal estimates and management assessments
regarding potential future scenarios. The Company believes its estimates and assumptions are reasonable; however, there is
significant judgment involved. Also see Note 17.
5. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following (in thousands):
Unrealized Losses
on Available-for-
Sale Securities
Foreign Currency
Translation
Adjustments
Balance at October 1, 2021 .............................................. $
Other comprehensive income ...........................................
Balance at September 30, 2022 ........................................ $
Other comprehensive income (loss) .................................
Balance at September 30, 2023 ........................................ $
(15) $
—
(15)
4
(11) $
(16,305) $
1,007
(15,298)
(2,515)
(17,813) $
Total
(16,320 )
1,007
(15,313 )
(2,511 )
(17,824 )
6. Trade Accounts and Financing Receivables
Trade accounts receivable, net (excluding financing receivables) are reflected in the following table (in thousands):
AS OF SEPTEMBER 30,
2022
2023
Trade accounts receivable ............................................................................... $
Allowance for doubtful accounts ....................................................................
$
20,282 $
(125 )
20,157 $
13,252
(591 )
12,661
The allowance for doubtful accounts represents the Company’s best estimate of probable credit losses. The Company
determines the allowance based upon historical experience and a current review of its accounts receivable balances. Accounts
receivable balances are charged off against the allowance whenever it is probable that the receivable balance will not be
recoverable.
Financing receivables are reflected in the following table (in thousands):
Notes receivable .............................................................................................. $
Less current portion .........................................................................................
Non-current notes receivable ........................................................................... $
1,216 $
(1,216 )
— $
8,225
(8,225)
—
AS OF SEPTEMBER 30,
2022
2023
F-19
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Promissory notes receivable are generally collateralized by the products sold. At September 30, 2023, the Company had
one promissory note outstanding from a customer with a face amount of $10.0 million. The note originated during the second
quarter of fiscal year 2020 in connection with a $12.5 million product sale with the customer. The note bears interest at 7.0%
per year and has a three-year term with monthly principal and interest payments of $0.3 million. During the fourth quarter of
fiscal year 2021, the Company granted the customer a six-month principal payment forbearance. The customer recommenced
its monthly payments to the Company in the second quarter of fiscal year 2022. In October 2022, the Company granted the
customer an additional six-month principal payment forbearance. The customer recommenced its monthly payments to the
Company in the third quarter of fiscal year 2023. The customer has made payments totaling $11.3 million (exclusive of
interest) as of September 30, 2023 related to the product sale, and the balance outstanding on the promissory note at September
30, 2023 was $1.2 million. The note matures in January 2024.
7. Inventories
Inventories consisted of the following (in thousands):
Finished goods................................................................................................. $
Work in process ...............................................................................................
Raw materials ..................................................................................................
Obsolescence reserve (net realizable value adjustment)..................................
Less current portion .........................................................................................
Non-current portion ......................................................................................... $
AS OF SEPTEMBER 30,
2022
2023
18,555 $
11,992
26,832
(14,061 )
43,318
18,430
24,888 $
14,653
6,230
25,609
(13,971)
32,521
19,995
12,526
Inventory obsolescence expense totaled approximately $2.2 million and $3.2 million during fiscal years 2023 and 2022,
respectively. Raw materials include semi-finished goods and component parts that totaled approximately $10.6 million and
$9.4 million at September 30, 2023 and 2022, respectively. At September 30, 2023, non-current inventories included raw
materials and work in process totaling $3.2 million that will be transferred to rental equipment during the first quarter of fiscal
year 2024.
8. Leases
As Lessee
The Company has elected not to record operating right-of-use assets or operating lease liabilities on its consolidated
balance sheet for leases having a minimum term of 12 months or less. Such leases are expensed on a straight-line basis over
the lease term. Variable lease payments are excluded from the measurement of operating right-of-use assets and operating
liabilities and recognized in the period in which the obligation for those payments is incurred. As of September 30, 2023, the
Company has two operating right-of use assets related to leased facilities in Austin, Texas and Melbourne, Florida.
F-20
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Maturities of the operating lease liabilities as of September 30, 2023 were as follows (in thousands):
For fiscal years ending September 30,
2024 .........................................................................................................................................................
2025 .........................................................................................................................................................
2026 .........................................................................................................................................................
2027 .........................................................................................................................................................
2028 .........................................................................................................................................................
Future minimum lease payments ............................................................................................................. $
Less interest .............................................................................................................................................
Present value of minimum lease payments .............................................................................................. $
Less current portion .................................................................................................................................
Long-term portion ................................................................................................................................... $
278
186
130
134
91
819
(50)
769
(257)
512
Lease costs recognized in the consolidated statements of operations for the fiscal years ended September 30, 2023 and
2022 is as follows (in thousands):
YEAR ENDED SEPTEMBER 30,
2023
2022
Right-of-use operating lease costs ....................................................................... $
Short-term lease costs ..........................................................................................
Total .................................................................................................................... $
272 $
220
492 $
272
190
462
Right-of-use operating lease costs and short-term lease costs are included as a component of total operating expenses.
Other information related to operating leases is as follows (in thousands):
YEAR ENDED SEPTEMBER 30,
2023
2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases .................................................... $
270 $
262
Weighted average remaining lease term ..............................................................
Weighted average discount rate ...........................................................................
3.9 years
3.25%
4.7 years
3.25 %
The discount rate used on the operating right-of-use assets represented the Company’s incremental borrowing rate at lease
inception.
As Lessor
Equipment
The Company leases equipment to customers which generally range from daily rentals to minimum rental periods of up
to one year. All of the Company's current leasing arrangements, with the Company acting as lessor, are classified as operating
leases. The majority of the Company’s rental revenue is generated from its marine-based wireless seismic data acquisition
system.
The Company regularly evaluates the collectability of its lease receivables on a lease-by-lease basis. The evaluation
primarily consists of reviewing past due account balances and other factors such as the credit quality of the customer,
historical trends of the customer and current economic conditions. The Company suspends revenue recognition when the
collectability of amounts due are no longer probable and concurrently records a direct write-off of the lease receivable to
rental revenue to limit rental revenue recognized to the cash collections received. As of September 30, 2023, the Company’s
trade accounts receivables included lease receivables of $9.0 million.
F-21
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Rental revenue related to leased equipment for fiscal years 2023 and 2022 was $51.0 million and $24.9 million,
respectively.
Future minimum lease obligations due from the Company's leasing customers as of September 30, 2023 were $29.6
million, the majority of which is due within the next 12 months.
Rental equipment consisted of the following (in thousands):
Rental equipment, primarily wireless recording equipment ......................... $
Accumulated depreciation and impairment ..................................................
$
82,926 $
(61,339 )
21,587 $
83,153
(54,954 )
28,199
Rental equipment depreciation expense was $11.8 million and $13.7 million in fiscal years 2023 and 2022, respectively.
AS OF SEPTEMBER 30,
2022
2023
Property
During the first quarter of fiscal year 2022, the Company leased a portion of its property located in Calgary, Alberta,
Canada and fully leased its warehouse in Bogotá, Colombia. The lease in Canada commenced in November 2021 and is for
a five-year term. The lease on the warehouse in Bogotá commenced in December 2021 and is currently on a month-to-month
basis.
Rental revenue related to these two properties was $0.2 million for each of fiscal years 2023 and 2022.
Future minimum lease payments due to the Company as of September 30, 2023 were as follows (in thousands):
For fiscal years ending September 30,
2024 .......................................................................................................................................................
2025 .......................................................................................................................................................
2026 .......................................................................................................................................................
2027 .......................................................................................................................................................
$
128
131
132
11
402
9. Property, Plant and Equipment
In February 2023, the Company sold its satellite property located at 6410 Langfield Road in Houston, Texas for a cash
price of $3.7 million, net of closing costs of $0.3 million, and realized a gain on disposal of $1.3 million. The satellite
property provided additional warehousing and maintenance and repair capacity for the Company’s marine rental equipment
operations. The Company has relocated the operations of this facility to its main campus at 7007 Pinemont Drive in Houston,
Texas. The sale was part of the Company’s plan to streamline operations and reduce costs.
F-22
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Property, plant and equipment consisted of the following (in thousands):
AS OF SEPTEMBER 30,
2022
2023
Land and land improvements .......................................................................... $
Building and building improvements ..............................................................
Machinery and equipment ...............................................................................
Furniture and fixtures ......................................................................................
Tools and molds ..............................................................................................
Construction in progress .................................................................................
Transportation equipment ...............................................................................
Accumulated depreciation and impairment .....................................................
$
7,069 $
21,931
48,877
1,487
3,287
3,343
74
86,068
(62,020 )
24,048 $
7,855
24,588
59,393
1,434
3,243
341
74
96,928
(70,330 )
26,598
Property, plant and equipment depreciation expense was $3.7 and $4.1 million for the fiscal years ended September 30,
2023 and 2022. Impairment expense of $0.4 million was incurred on certain manufacturing equipment in fiscal year 2022.
The impairment expense is included as a component of cost of revenue in the consolidated statement of operations.
10. Goodwill and Other Intangible Assets
At September 30, 2023, the Company had goodwill of $0.7 million and other intangible assets, net of $0.5 million
attributable to its Adjacent Markets reporting unit; other intangible assets, net of $3.0 million attributable to its Emerging
Markets reporting unit; and other intangible assets, net of $1.3 million attributable to its Oil and Gas Markets reporting unit.
Goodwill represents the excess cost of a business acquired over the fair market value of identifiable net assets at the date of
acquisition.
At September 30, 2023, in light of the Company's historical losses on its Emerging Markets reporting unit, the Company
preformed a recoverability assessment on the long-lived assets of its Emerging Markets asset group in which its carrying
value was compared to estimated undiscounted cash flows over the remaining useful life of the asset group's primary asset,
its developed technology. The Company determined that no impairment was necessary as the future undiscounted cash flows
exceeded the carrying value. Key assumptions used in the analysis include revenue, gross margin and cash flow
projections. The estimated cash flows include obtaining additional contracts with CBP and other current customers. The
Emerging Markets asset group could incur impairment charges in the future to its other intangible assets if it is unable to
obtain additional contracts from the CBP or other customers.
At September 30, 2022, the Company assessed the goodwill associated with both its Adjacent Markets and Emerging
Markets reporting units for impairment. As a result of the assessment, the Company determined that the fair value of its
Emerging Markets reporting unit was less than its carrying amount and recorded an impairment charge of $4.3 million for
the entire goodwill associated with this reporting unit for the fiscal year ended September 30, 2022. No impairment charge
to the Adjacent Markets asset group was necessary for the fiscal year ended September 30, 2022 as its future undiscounted
cash flows exceeded the carrying value.
Also see Note 1 to these consolidated financial statements.
F-23
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The Company’s consolidated goodwill and other intangible assets consisted of the following (in thousands):
Weighted-
Average
Remaining
Useful Lives
(in years)
Goodwill:
Emerging Markets reporting unit ...................................
Adjacent Markets reporting unit ....................................
Total goodwill ...................................................................
Accumulated impairment losses ........................................
Other intangible assets:
Developed technology ...................................................
Customer relationships ..................................................
Trade names ...................................................................
Non-compete agreements ..............................................
Total other intangible assets ..............................................
Accumulated amortization ................................................
13.2
—
0.2
0.2
6.8
AS OF SEPTEMBER 30,
2022
2023
$
$
$
$
4,336 $
736
5,072
(4,336)
736 $
6,475 $
3,900
2,022
186
12,583
(7,778)
4,805 $
4,336
736
5,072
(4,336)
736
6,475
3,900
2,022
186
12,583
(7,010)
5,573
Other intangible assets amortization expense for fiscal years 2023 and 2022 was $0.8 million and $1.7 million,
respectively.
As of September 30, 2023, future estimated amortization expense of other intangible assets is as follows (in thousands):
For fiscal years ending September 30,
2024 .........................................................................................................................................................
2025 .........................................................................................................................................................
2026 .........................................................................................................................................................
2027 .........................................................................................................................................................
2028 .........................................................................................................................................................
Thereafter ................................................................................................................................................
$
395
381
374
360
360
2,935
4,805
11. Long-Term Debt
The Company had no long-term debt outstanding at September 30, 2023 or 2022.
On July 26, 2023, the Company entered into a credit agreement (“the Agreement”) with Woodforest National Bank, as
sole lender. The Agreement refinanced the Company's credit agreement dated May 6, 2022, with Amerisource Funding, Inc.,
as administrative agent and as a lender, and Woodforest National Bank, as a lender. The Agreement provides a revolving
credit facility with a maximum availability of $15 million. Availability under the Agreement is determined based upon a
borrowing base comprised of certain of the Company’s domestic assets which include (i) 80% of eligible accounts, plus (ii)
90% of eligible foreign insured accounts, plus (iii) 25% of eligible inventory plus (iv) 50% of the orderly liquidation value
of eligible equipment, in each case subject to certain limitations and adjustments. Interest shall accrue on outstanding
borrowings at a rate equal to Term SOFR (Secured Overnight Financing Rate) plus a margin equal to 3.25% per annum. The
Company is required to make monthly interest payments on borrowed funds. The Agreement is secured by substantially all
of the Company's assets, except for certain excluded property. The Agreement requires the Company to maintain a minimum
(i) consolidated tangible net worth of $100 million, (ii) liquidity of $5 million, and (iii) current ratio no less than 2.00 to 1.00,
in each case tested quarterly. The Agreement also requires the Company to maintain a springing minimum interest coverage
ratio of 1.50 to 1.00, tested quarterly whenever there is an outstanding balance. The Agreement expires in July 2025. At
September 30, 2023, the Company's borrowing availability under the Agreement was $13.1 million after consideration of a
F-24
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
$0.1 million outstanding letter of credit. At September 30, 2023, the Company was in compliance with all covenants under
the Agreement.
Debt issuance costs of $0.4 million were incurred in connection with the Agreement. These costs were capitalized in
other non-current assets on the consolidated balance sheet and are being amortized to interest expense over the term of the
Agreement.
12. Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
AS OF SEPTEMBER 30,
2022
2023
Deferred revenue ....................................................................................................... $
Employee bonuses .....................................................................................................
Compensated absences ..............................................................................................
Payroll .......................................................................................................................
Property and sales taxes ............................................................................................
Legal and professional fees .......................................................................................
Medical claims ..........................................................................................................
Agent commissions ...................................................................................................
Product warranty .......................................................................................................
Income taxes ..............................................................................................................
Other ..........................................................................................................................
$
4,368 $
1,665
1,746
940
974
616
641
211
658
117
946
12,882 $
629
35
1,849
769
991
346
590
142
524
56
685
6,616
The Company is self-insured for certain losses related to employee medical claims. The Company has purchased stop-
loss coverage for individual claims in excess of $175,000 per claimant per year in order to limit its exposure to any significant
levels of employee medical claims. Self-insured losses are accrued based on the Company’s historical experience and on
estimates of aggregate liability for uninsured claims incurred using certain actuarial assumptions followed in the insurance
industry.
13. Employee Benefits
The Company’s United States employees are participants in the Geospace Technologies Corporation’s Employee’s 401(k)
Retirement Plan (the “Plan”), which covers substantially all eligible employees in the United States. The Plan is a qualified
salary reduction plan in which all eligible participants may elect to have a percentage of their compensation contributed to
the Plan, subject to certain guidelines issued by the Internal Revenue Service. The Company’s share of discretionary matching
contributions was $1.3 million and $1.0 million in fiscal years 2023 and 2022, respectively.
The Company’s stock incentive plans in which key employees may participate are discussed in Note 14 to these
consolidated financial statements.
14. Stockholders’ Equity
In February 2014, the board of directors and stockholders approved the 2014 Long Term Incentive Plan, as amended (the
“2014 Plan”). Under the 2014 Plan, an aggregate of 3,000,000 shares of common stock may be issued. The Company is
authorized to issue nonqualified and incentive stock options to purchase common stock, restricted stock awards (“RSAs”)
and restricted stock units (“RSUs”) to key employees, directors and consultants under the 2014 Plan. Options have a term not
to exceed ten years, with the exception of incentive stock options granted to employees owning ten percent or more of the
outstanding shares of common stock, which have a term not to exceed five years. The exercise price of any option may not
be less than the fair market value of the common stock on the date of grant. In the case of incentive stock options granted to
an employee owning ten percent or more of the outstanding shares of common stock, the exercise price of such option may
not be less than 110% of the fair market value of the common stock on the date of grant. An RSU represents a contingent
F-25
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
right to receive one share of the common stock upon vesting. Under the 2014 Plan, the Company may issue RSAs and RSUs
to employees for no payment by the employee or for a payment below the fair market value on the date of grant. The RSAs
and RSUs are subject to certain restrictions described in the 2014 Plan.
At September 30, 2023, an aggregate of 1,137,509 shares of common stock were available for issuance under the 2014
Plan.
The following table summarizes the combined activity under the equity incentive plans for the indicated periods:
Number of
Nonqualified
Options
Outstanding
Weighted
Average
Exercise
Price per
Share
Weighted
Average
Grant-date
Fair Value
per Share
Number of
RSAs
Weighted
Average
Grant-date
Fair Value
per Unit
Outstanding at October 1, 2021 .........
Granted ..........................................
Exercised .......................................
Forfeited ........................................
Vested ............................................
Outstanding at September 30, 2022 ...
Granted ..........................................
Exercised .......................................
Forfeited ........................................
Vested ............................................
Outstanding at September 30, 2023 ...
38,800 $
—
—
(38,800 )
—
—
—
—
—
—
— $
21.42
—
—
21.42
—
—
—
—
—
—
—
42,097 $
—
—
—
(41,097 )
1,000 $
—
—
—
(1,000 )
— $
Number of
RSUs
299,374 $
200,350
—
(51,603 )
(124,262 )
323,859 $
228,250
—
(7,312 )
(167,248 )
377,549 $
15.95
—
—
—
14.67
14.59
—
—
—
14.59
—
10.97
8.49
—
9.17
11.20
9.54
4.70
—
8.44
9.94
6.46
During fiscal years 2023 and 2022, the Company issued 228,250 and 200,350 RSUs to certain of its employees, executive
officers and directors under the 2014 Plan. The RSUs issued include both time-based and performance-based vesting
provisions. The weighted average grant date fair value of each RSU issued for fiscal years 2023 and 2022 was $4.70 and
$8.49 per unit, respectively. The total grant date fair value of all RSUs issued for fiscal years 2023 and 2022 was $1.1 million
and $1.7 million, respectively, which will be charged to expense over the next one to four years as the restrictions lapse.
Compensation expense for RSUs was determined based on the closing market price of the Company’s stock on the date of
grant applied to the total number of units that are anticipated to fully vest. All RSUs outstanding at September 30, 2023 and
2022 were issued from the 2014 Plan.
No RSAs have been issued since fiscal year 2019 and none were outstanding at September 30, 2023.
Stock-based compensation expense recognized for the fiscal years ended September 30, 2023 and 2022 was $1.4 million
and $1.7 million, respectively. The Company accounts for forfeitures as they occur and records compensation costs under the
assumption that the holder will complete the requisite service period. As of September 30, 2023, the Company had
unrecognized compensation expense of $1.5 million relating to RSUs which is expected to be recognized over a weighted
average period of 2.4 years.
F-26
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
15. Income Taxes:
Components of income (loss) before income taxes were as follows (in thousands):
United States ....................................................................................................... $
Foreign ................................................................................................................
$
11,190 $
1,379
12,569 $
(19,425)
(3,258)
(22,683)
YEAR ENDED SEPTEMBER 30,
2023
2022
The provision for income taxes consisted of the following (in thousands):
YEAR ENDED SEPTEMBER 30,
2023
2022
Current
Federal ............................................................................................................. $
Foreign .............................................................................................................
State .................................................................................................................
Deferred:
Federal .............................................................................................................
Foreign .............................................................................................................
$
63 $
244
59
366
—
(3 )
(3 )
363 $
(12 )
202
—
190
—
(17 )
(17 )
173
The difference between the effective tax rate reflected in the provision for income taxes and the U.S. federal statutory rate
were as follows (in thousands):
YEAR ENDED
SEPTEMBER 30, 2023
Percent
Amount
YEAR ENDED
SEPTEMBER 30, 2022
Percent
Amount
Expense (benefit) for U.S. federal income tax at
statutory rate ..................................................... $
Research and experimentation tax credit ..............
State income taxes, net of federal income tax
benefit ...............................................................
Nondeductible goodwill .......................................
Change in valuation allowance .............................
Change in fair value of contingent
consideration .....................................................
Disallowed stock compensation ...........................
Impact due to foreign currency translation ...........
Other items ...........................................................
Total tax expense and effective tax rate ............... $
2,639
(480)
302
—
(2,459)
—
171
51
139
363
21.0% $
(3.9)%
2.5%
—
(19.6)%
—
1.4%
0.4%
1.1%
2.9% $
(4,763)
6
(265)
911
3,768
(278)
217
460
117
173
21.0%
(0.1)%
1.2%
(4.0)%
(16.6)%
1.2%
(1.0)%
(2.0)%
(0.5)%
(0.8)%
The income tax expense for fiscal year 2023 primarily reflects tax accrual for U.S. state and Russian income tax. The
income tax expense for fiscal year 2022 primarily reflects withholding tax on rental income earned in foreign jurisdictions.
The Company is currently unable to record any tax benefits for its tax losses in the United States and Canada due to the
uncertainty surrounding its ability to utilize such losses in the future to offset taxable income.
F-27
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the
Company’s net deferred income tax assets (liabilities) were as follows (in thousands):
Deferred income tax assets:
Inventories ................................................................................................................... $
Loss and tax credit carry-forwards ..............................................................................
Accrued compensation .................................................................................................
R&D expenditure capitalization ..................................................................................
Property and equipment ...............................................................................................
Other reserves ..............................................................................................................
Subtotal deferred income tax assets ................................................................................
Valuation allowance ........................................................................................................
Net deferred income tax assets ........................................................................................
Deferred income tax liabilities:
Intangible assets ...........................................................................................................
Property and equipment ...............................................................................................
Other ............................................................................................................................
Total deferred income tax liabilities ................................................................................
Net deferred income tax liabilities .................................................................................. $
YEAR ENDED
SEPTEMBER 30,
2023
2022
8,269 $
29,581
870
1,538
504
590
41,352
(38,917)
2,435
(292)
(2,153)
(6)
(2,451)
(16) $
8,513
34,643
609
—
578
359
44,702
(41,376 )
3,326
(356 )
(2,874 )
(109 )
(3,339 )
(13 )
The financial reporting basis of investments in foreign subsidiaries exceed their tax basis. A deferred tax liability is not
recorded for this temporary difference because the investment is deemed to be permanent. A reversal of the Company’s plans
to permanently invest in these foreign operations would cause the excess to become taxable. On September 30, 2023, the
Company had $3.8 million of cash and cash equivalents held by its foreign subsidiaries. On September 30, 2023 and 2022,
the temporary difference related to undistributed earnings for which no deferred taxes have been provided was approximately
$8.2 million and $6.9 million, respectively.
The Company is subject to taxation in the United States as well as various states and foreign jurisdictions. Tax years that
remain subject to examination by significant tax jurisdictions are the United States for tax years ending after 2016, Russia for
tax years ending after 2020, the United Kingdom for tax years ending after 2021, and Canada for tax years ending after 2019.
As of September 30, 2023, the Company had net operating loss (“NOL”) carry-forwards of approximately $78.2 million
in the United States, $18.9 million in Canada and $0.7 million in Russia which are available to offset future taxable income
in those jurisdictions. The NOL carry-forwards for Canada and Russia begin to expire in 2033 and 2026, respectively. The
NOL carry-forward for the United States which originated prior to the 2017 Tax Act of $32.6 million begins to expire in 2029
and those originating after the 2017 Tax Act of $45.6 million do not expire.
Management of the Company has concluded that it was not more-likely-than-not that its U.S., Canadian and Russian net
deferred tax assets will be realized in accordance with U.S. GAAP. On September 30, 2023 and September 30, 2022, the
Company had a valuation allowance against its U.S. net deferred tax assets of $33.7 million and $35.5 million, respectively.
On September 30, 2023 and September 30, 2022, the Company had a valuation allowance against its Canadian net deferred
tax assets of $4.8 million and $5.2 million, respectively. On September 30, 2023 and September 30, 2022, the Company had
a valuation allowance against its Russian net deferred tax assets of $0.4 million and $0.7 million, respectively.
F-28
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
16. Income (Loss) Per Common Share
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares used in basic earnings (loss) per share during the period. Diluted earnings (loss)
per share is determined on the assumption that outstanding RSUs have been exchanged for common stock and outstanding
dilutive stock options have been exercised and the aggregate proceeds as defined were used to reacquire common stock using
the average price of such common stock for the period.
The following table summarizes the calculation of net income (loss) and weighted average common shares and common
equivalent shares outstanding for purposes of the computation of earnings (loss) per share (in thousands, except share and
per share amounts):
YEAR ENDED SEPTEMBER 30,
2023
2022
Net income (loss) ................................................................................................ $
Less: Income allocable to unvested restricted stock ............................................
Income (loss) attributable to common shareholders for diluted earnings (loss)
12,206 $
—
(22,856)
—
per share ........................................................................................................... $
12,206 $
(22,856)
Weighted average number of common share equivalents:
Common shares used in basic earnings (loss) per share ..................................
Common share equivalents outstanding related to RSUs ....................................
Total weighted average common shares and common share equivalents used in
13,146,085
68,981
12,987,996
—
diluted earnings (loss) per share ......................................................................
13,215,066
12,987,996
Earnings (loss) per share:
Basic ................................................................................................................ $
Diluted ............................................................................................................. $
0.93 $
0.92 $
(1.76)
(1.76)
For the calculation of diluted earnings (loss) per share for fiscal years 2023 and 2022, RSUs of 308,568 and 323,859,
respectively, were excluded in the calculation of weighted average shares outstanding as a result of their impact being
antidilutive.
17. Commitments and Contingencies
Contingent Compensation Costs
In connection with the acquisition of Aquana, LLC ("Aquana") in July 2021, the Company is subject to additional
contingent cash payments to the former members of Aquana over a six-year earn-out period. The contingent payments, if
any, will be derived from certain eligible revenue generated during the earn-out period from products and services sold by
Aquana. There is no maximum limit to the contingent cash payments that could be made. The merger agreement with Aquana
requires the continued employment of a certain key employee and former member of Aquana for the first four years of the
six year earn-out period in order for any of Aquana’s former members to be eligible to any earn-out payments. Due to the
continued employment requirement, no liability has been recorded for the estimated fair value of contingent earn-out
payments for this transaction. Earn-outs achieved, if any, will be recorded as compensation expense when incurred. No
eligible revenue has been generated to date.
Legal Proceedings
The Company is involved in various pending legal actions in the ordinary course of its business. Management is unable
to predict the ultimate outcome of these actions, because of the inherent uncertainty of such actions. However, management
believes that the most probable, ultimate resolution of current pending matters will not have a material adverse effect on the
Company’s consolidated financial position, results of operations or cash flows.
F-29
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
18. Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
Cash paid for income taxes ........................................................................... $
Non-cash investing and financing activities:
Inventory transferred to rental equipment .....................................................
Inventory transferred to property, plant and equipment ................................
Issuance of notes receivables related to sale of used rental equipment .........
151 $
587
—
—
169
1,148
172
11,745
YEAR ENDED SEPTEMBER 30,
2023
2022
19. Segment and Geographic Information
The Company reports and evaluates financial information for three operating business segments: Oil and Gas Markets,
Adjacent Markets and Emerging Markets. The Oil and Gas Markets segment’s products include wireless seismic data
acquisition systems, reservoir characterization products and services, and traditional seismic exploration products such as
geophones, hydrophones, leader wire, connectors, cables, marine streamer retrieval and steering devices and various other
seismic products. The Adjacent Markets segment’s products include imaging equipment, water meter products, remote shut-
off valves and IoT platform, as well as seismic sensors used for vibration monitoring and geotechnical applications such as
mine safety applications and earthquake detection. The Emerging Markets segment designs and markets seismic products
targeted at the border and perimeter security markets.
F-30
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The following tables summarize the Company’s segment information:
YEAR ENDED SEPTEMBER 30,
2023
2022
Revenue:
Oil and Gas Markets ........................................................................................ $
Adjacent Markets .............................................................................................
Emerging Markets ...........................................................................................
Corporate .........................................................................................................
Total .................................................................................................................
Income (loss) from operations:
Oil and Gas Markets ........................................................................................
Adjacent Markets .............................................................................................
Emerging Markets ...........................................................................................
Corporate .........................................................................................................
Total .................................................................................................................
Depreciation and amortization expenses:
Oil and Gas Markets ........................................................................................
Adjacent Markets .............................................................................................
Emerging Markets ...........................................................................................
Corporate .........................................................................................................
Total .................................................................................................................
Impairment, inventory obsolescence and stock-based compensation expenses:
Oil and Gas Markets ........................................................................................
Adjacent Markets .............................................................................................
Emerging Markets ...........................................................................................
Corporate .........................................................................................................
Total .................................................................................................................
Interest income:
Oil and Gas Markets ........................................................................................
Adjacent Markets .............................................................................................
Emerging Markets ...........................................................................................
Corporate .........................................................................................................
Total .................................................................................................................
Interest expense:
Oil and Gas Markets ........................................................................................
Adjacent Markets .............................................................................................
Emerging Markets ...........................................................................................
Corporate .........................................................................................................
Total .................................................................................................................
73,993 $
49,039
1,234
243
124,509
15,759
11,490
(4,003)
(11,918)
11,328
14,428
703
565
542
16,238
2,329
656
52
566
3,603
352
—
—
187
539
105
—
—
29
134
49,141
39,171
711
230
89,253
(7,539)
6,021
(9,128)
(12,490)
(23,136)
16,947
743
1,068
802
19,560
3,612
932
4,423
727
9,694
850
—
—
126
976
65
—
—
—
65
The Company’s manufacturing operations for its business segments are combined. Therefore, the Company does not
segregate and report separate balance sheet accounts for each of its segments and, therefore, no such segment balance sheet
information is presented in the table above.
“Corporate” loss from operations primarily consists of the Company’s Houston headquarters general and administrative
expenses.
F-31
Geospace Technologies Corporation and Subsidiaries
Notes to Consolidated Financial Statements—(Continued)
The Company generates revenue from product sales, product rentals and services from its subsidiaries located in the
United States, Canada, Colombia, the Russian Federation and the United Kingdom. Revenue generated by the Company’s
subsidiaries is as follows (in thousands):
United States ....................................................................................................... $
Canada .................................................................................................................
Russian Federation ..............................................................................................
United Kingdom ..................................................................................................
$
118,017 $
1,924
1,850
2,718
124,509 $
82,332
1,615
1,922
3,384
89,253
YEAR ENDED SEPTEMBER 30,
2023
2022
A summary of revenue by geographic area is as follows (in thousands):
YEAR ENDED SEPTEMBER 30,
2023
2022
Asia (including Russian Federation) ................................................................... $
Canada .................................................................................................................
Europe .................................................................................................................
South America .....................................................................................................
United States .......................................................................................................
Other ....................................................................................................................
$
26,685 $
2,703
20,826
8,166
62,611
3,518
124,509 $
13,823
1,225
28,381
7,547
35,171
3,106
89,253
Revenue is attributed to countries based on the ultimate destination of the product sold, if known. If the ultimate
destination is not known, revenue is attributed to countries based on the geographic location of the initial shipment.
Long-lived assets were as follows (in thousands):
AS OF SEPTEMBER 30,
2022
2023
United States .................................................................................................... $
Canada .............................................................................................................
Colombia ..........................................................................................................
Russian Federation ...........................................................................................
United Kingdom ...............................................................................................
China ................................................................................................................
$
75,321 $
575
442
543
383
—
77,264 $
71,742
1,459
449
1,010
422
13
75,095
Note 20. Exit and Disposal Activities
During the first quarter of fiscal year 2023, the Company implemented a plan to discontinue the manufacture of certain
low margin, low revenue products and reconfigure our production facilities to lower our costs and raise efficiencies. As part
of the plan, reductions were made to the Company's workforce which are expected to yield an annual savings of more than
$2 million. In connection with the plan, the Company incurred costs of $0.6 million in the first quarter of fiscal year 2023,
primarily termination costs related to the workforce reduction. The costs were recorded both to cost of revenue and operating
expenses in the consolidated statement of operations. No significant future costs are expected. As of September 30, 2023,
no liabilities were outstanding related to this plan.
F-32
Schedule II
Geospace Technologies Corporation and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
Charged to
Costs and
Expenses,
net of
Recoveries
Balance at
Beginning
of Period
Charged to
Other
Assets
(Deductions)
and
Additions
Balance at
End of
Period
Year ended September 30, 2023
Allowance for doubtful accounts on trade
accounts and notes receivable ........................... $
591 $
(138 ) $
— $
(328) $
125
Year ended September 30, 2022
Allowance for doubtful accounts on trade
accounts and notes receivable ........................... $
428 $
292 $
— $
(129) $
591
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged to
Other
Assets
(Deductions)
and
Additions
Balance at
End of
Period
Year ended September 30, 2023
Inventory obsolescence reserve ............................ $
Year ended September 30, 2022
Inventory obsolescence reserve ............................ $
13,971 $
2,229 $
— $
(2,139) $
14,061
13,636 $
3,222 $
— $
(2,887) $
13,971
F-33
COMP ANY L EADERSH IP
Edgar R. Giesinger, Jr.
Retired Managing Partner
KPMG, LLP
Tina M. Langtry
Retired Senior Manager
ConocoPhillips
Richard F. Miles
Private Investor
Walter R. Wheeler
President & CEO
BOARD OF DIRECTORS
Gary D. Owens
Chairman of the Board
Margaret “Sid” Ashworth
Retired Legislative Affairs
Northrop Grumman
Thomas L. Davis, Ph.D.
Professor of Geophysics
Colorado School of Mines
OFFICERS
Walter R. Wheeler
President &
Chief Executive Officer
Robbin B. Adams
Senior Vice President &
Chief Technical Officer
Robert L. Curda
Vice President &
Chief Financial Officer
Left to Right - Wheeler, Curda, Adams
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CORP ORA T E HEA DQU ARTERS
Geospace Technologies Corporation, Inc.
7007 Pinemont Drive
Houston, Texas 77040 USA
(713) 986-4444 | geospace.com
Geospace Technologies
Eurasia LLC
Kirovogradskaya, 36,
Ufa, Bashkortostan, Russia 450001
(7) 3472 25 3973 | geospace-ufa.ru
Geospace Technologies
Canada, Inc.
2735-37 Avenue, N.E.
Calgary, Alberta, Canada T1Y 5R8
(403) 250-9600 | geospacetech.ca
Geospace Technologies,
Sucursal Sudamericana
Av. Cra. 9 No. 115-06/30 Piso 17,
Edificio Tierra Firme
Bogotá D.C. - Colombia
57 (1) 639-8313 | geospacetech.co
GL OBAL LO CA TI ON S
Aquana, LLC
AQUANA.com
EXILE Technologies Ltd.
EXILETECH.com
EXILE Technologies Ltd.
EXILETECH.co.uk
Quantum Technology
Sciences, Inc.
QTSI.com
TM
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