UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
OR
Commission file number
GEOSPACE TECHNOLOGIES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices)
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(Registrant’s telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act:
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| Name of Each Exchange on Which Registered | |
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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 ☐
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 ☐
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.
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).
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 ☐ | | 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
There were
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.
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PART I
Item 1. Business
Business Overview
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 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 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.
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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 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. |
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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. |
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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.
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 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, |
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| 2023 |
2022 |
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| Traditional seismic exploration product revenue |
$ | 12,183 | $ | 6,597 | ||||
| Wireless seismic exploration product revenue |
60,848 | 40,667 | ||||||
| Seismic reservoir product revenue |
962 | 1,877 | ||||||
| Industrial product revenue |
36,859 | 25,640 | ||||||
| Imaging product revenue |
12,180 | 13,531 | ||||||
| Border & perimeter security product revenue |
1,234 | 711 | ||||||
| Corporate revenue |
243 | 230 | ||||||
| Total revenue |
$ | 124,509 | $ | 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.
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.
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 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.
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 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.
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.
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.
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 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 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.
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:
| Location |
Owned/Leased |
Approximate Square Footage/Acreage | Use |
Segment (see notes below) | ||||||
| Houston, Texas |
Owned |
387,000 | See Note 1 below |
6 and 7 |
||||||
| Houston, Texas |
Owned |
17.3 acres |
See Note 2 below |
6 | ||||||
| Austin, Texas |
Leased |
9,000 | See Note 3 below |
6 | ||||||
| Melbourne, Florida |
Leased |
7,000 | See Note 4 below |
8 | ||||||
| Ufa, Bashkortostan, Russia |
Owned |
120,000 | Manufacturing, sales and service |
6 | ||||||
| Calgary, Alberta, Canada |
Owned |
45,000 | Manufacturing, sales and service |
6 and 7 |
||||||
| Luton, Bedfordshire, England |
Owned |
8,000 | Sales and service |
7 | ||||||
| Bogotá, Colombia |
Owned |
19,000 | Sales and service |
6 | ||||||
| (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 |
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.
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 |
$ | 7.22 | $ | 14.59 | ||||
| Third Quarter |
6.60 | 9.16 | ||||||
| Second Quarter |
3.96 | 7.55 | ||||||
| First Quarter |
3.76 | 4.88 | ||||||
| Year Ended September 30, 2022: |
||||||||
| Fourth Quarter |
$ | 4.10 | $ | 5.45 | ||||
| Third Quarter |
4.64 | 6.72 | ||||||
| Second Quarter |
4.97 | 8.88 | ||||||
| First Quarter |
6.41 | 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.
Securities Authorized for Issuance under Equity Compensation Plans
The following equity plan information is provided as of September 30, 2023:
Equity Compensation Plan Information
| Plan Category |
Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted-average Exercise Price of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | |||||||||
| (In shares) |
(In dollars per share) |
(In shares) |
||||||||||
| 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.
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.
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 |
$ | 12,183 | $ | 6,597 | ||||
| Wireless exploration product revenue |
60,848 | 40,667 | ||||||
| Reservoir product revenue |
962 | 1,877 | ||||||
| Total revenue |
73,993 | 49,141 | ||||||
| Operating income (loss) |
15,759 | (7,539 | ) | |||||
| Adjacent Markets |
||||||||
| Industrial product revenue |
36,859 | 25,640 | ||||||
| Imaging product revenue |
12,180 | 13,531 | ||||||
| Total revenue |
49,039 | 39,171 | ||||||
| Operating income |
11,490 | 6,021 | ||||||
| Emerging Markets |
||||||||
| Revenue |
1,234 | 711 | ||||||
| Operating loss |
(4,003 | ) | (9,128 | ) | ||||
| Corporate |
||||||||
| Revenue |
243 | 230 | ||||||
| Operating loss |
(11,918 | ) | (12,490 | ) | ||||
| Consolidated Totals |
||||||||
| Revenue |
124,509 | 89,253 | ||||||
| Operating income (loss) |
11,328 | (23,136 | ) | |||||
Overview
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.
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.
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.
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 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.
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 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.
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.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
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.
PART IV
Item 15. Exhibits and Financial Statement Schedules
Financial Statements and Financial Statement Schedules
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 |
|
Description of Documents |
| 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 |
| 10.15 |
||
| 10.16 |
|
|
| 10.17 |
||
| 10.18 |
||
| 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 |
||
| 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 |
|
|
| 31.2 |
|
|
| 32.1 |
|
|
| 32.2 |
|
|
| 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.
SIGNATURES
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.
| 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 |
Director, President and Chief Executive Officer |
November 17, 2023 |
||
| Walter R. Wheeler |
(Principal Executive Officer) |
|||
| /s/ ROBERT L. CURDA |
Vice President, Chief Financial Officer and Secretary |
November 17, 2023 | ||
| Robert L. Curda |
(Principal Financial Officer and Principal Accounting Officer) |
|||
| /s/ GARY D. OWENS |
Chairman of the Board |
November 17, 2023 | ||
| Gary D. Owens |
||||
| /s/ MARGARET S. ASHWORTH |
Director |
November 17, 2023 | ||
| Margaret S. Ashworth |
||||
| /s/ THOMAS L. DAVIS |
Director |
November 17, 2023 | ||
| Thomas L. Davis |
||||
| /s/ EDGAR R. GIESINGER, JR. |
Director |
November 17, 2023 | ||
| Edgar R. Giesinger, Jr. |
||||
| /s/ RICHARD F. MILES |
Director |
November 17, 2023 | ||
| Richard F. Miles |
GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
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.
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.
Houston, Texas
November 17, 2023
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.
Houston, Texas
November 17, 2023
Geospace Technologies Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
| AS OF SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current 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: | ||||||||
| Preferred stock, shares authorized, shares issued and outstanding | ||||||||
| Common stock, par value, shares authorized, and shares issued, respectively; and and shares outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, at cost, shares | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
| YEAR ENDED SEPTEMBER 30, |
||||||||
| 2023 |
2022 |
|||||||
| Revenue: |
||||||||
| Products |
$ | $ | ||||||
| Rental equipment |
||||||||
| Total revenue |
||||||||
| Cost of revenue: |
||||||||
| Products |
||||||||
| Rental equipment |
||||||||
| Total cost of revenue |
||||||||
| Gross profit |
||||||||
| 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 |
||||||||
| Gain on disposal of property |
||||||||
| Income (loss) from operations |
( |
) | ||||||
| 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) |
$ | $ | ( |
) | ||||
| Income (loss) per common share: |
||||||||
| Basic |
$ | $ | ( |
) | ||||
| Diluted |
$ | $ | ( |
) | ||||
| Weighted average common shares outstanding: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
| YEAR ENDED SEPTEMBER 30, |
||||||||
| 2023 |
2022 |
|||||||
| 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) |
$ | $ | ( |
) | ||||
The accompanying notes are an integral part of the consolidated financial statements.
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the years ended September 30, 2023 and 2022
(In thousands, except share amounts)
| Common Stock |
Accumulated |
|||||||||||||||||||||||||||
| Shares |
Amount |
Additional Paid-In Capital | Retained Earnings |
Other Comprehensive Loss |
Treasury Stock | Total |
||||||||||||||||||||||
| Balance at October 1, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| 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 |
( |
) | ( |
) | ||||||||||||||||||||||||
| 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 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Geospace Technologies Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
| YEAR ENDED SEPTEMBER 30, |
||||||||
| 2023 |
2022 |
|||||||
| 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 |
$ | $ | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
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 $
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.
The Company sells products to customers throughout the United States and various foreign countries. The Company’s normal credit terms for trade receivables are
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
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
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 $
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:
| Years | ||||
| Rental equipment | ||||
| Property, plant and equipment: | ||||
| Machinery and equipment | ||||
| Buildings and building improvements | ||||
| Other | ||||
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,
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.
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:
| Years | ||||
| Developed technology | ||||
| Trade names | ||||
| Customer relationships | ||||
| Non-compete agreements | ||||
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 | $ |
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.
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.
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 $
At September 30, 2023, the Company had deferred contract liabilities of $
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 | ||||||||
| Emerging Markets | ||||||||
| Revenue | ||||||||
| Corporate | ||||||||
| Revenue | ||||||||
| Total | $ | $ | ||||||
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 | ||||||||
| $ | $ | |||||||
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.
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.
The Company’s short-term investments were composed of the following (in thousands):
| AS OF SEPTEMBER 30, 2023 | ||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | |||||||||||||
| Short-term investments: | ||||||||||||||||
| Corporate bonds | $ | $ | $ | ( | ) | $ | ||||||||||
| U.S. treasury securities and securities of U.S. government-sponsored agency | ||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| AS OF SEPTEMBER 30, 2022 | ||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | |||||||||||||
| Short-term investments: | ||||||||||||||||
| Corporate bonds | $ | $ | $ | ( | ) | $ | ||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
The Company’s short-term investments have contractual maturities ranging from January 2024 to September 2024.
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 | $ | $ | $ | $ | ||||||||||||
| 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
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 | $ |
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 | Total | ||||||||||
| Balance at October 1, 2021 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Other comprehensive income | ||||||||||||
| Balance at September 30, 2022 | $ | ( | ) | ( | ) | ( | ) | |||||
| Other comprehensive income (loss) | ( | ) | ( | ) | ||||||||
| Balance at September 30, 2023 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
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, | ||||||||
| 2023 | 2022 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| $ | $ | |||||||
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):
| AS OF SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| Notes receivable | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| Non-current notes receivable | $ | $ | ||||||
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 $
7. Inventories
Inventories consisted of the following (in thousands):
| AS OF SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| Obsolescence reserve (net realizable value adjustment) | ( | ) | ( | ) | ||||
| Less current portion | ||||||||
| Non-current portion | $ | $ | ||||||
Inventory obsolescence expense totaled approximately $
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
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 | $ |
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 | $ | $ | ||||||
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 | $ | $ | ||||||
| Weighted average remaining lease term |
|
| ||||||
| Weighted average discount rate | % | % | ||||||
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 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 $
Rental revenue related to leased equipment for fiscal years 2023 and 2022 was $
Future minimum lease obligations due from the Company's leasing customers as of September 30, 2023 were $
Rental equipment consisted of the following (in thousands):
| AS OF SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| Rental equipment, primarily wireless recording equipment | $ | $ | ||||||
| Accumulated depreciation and impairment | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Rental equipment depreciation expense was $
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 -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
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 | ||||
| $ |
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 $
Property, plant and equipment consisted of the following (in thousands):
| AS OF SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| 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 | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Property, plant and equipment depreciation expense was $
10. Goodwill and Other Intangible Assets
At September 30, 2023, the Company had goodwill of $
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 $
Also see Note 1 to these consolidated financial statements.
The Company’s consolidated goodwill and other intangible assets consisted of the following (in thousands):
| Weighted-Average Remaining Useful Lives (in years) | AS OF SEPTEMBER 30, | ||||||||||
| 2023 | 2022 | ||||||||||
| 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 | ( | ) | ( | ) | |||||||
| $ | $ | ||||||||||
Other intangible assets amortization expense for fiscal years 2023 and 2022 was $
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 | ||||
| $ |
11. Long-Term Debt
The Company had
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 $
Debt issuance costs of $
12. Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
| AS OF SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| Deferred revenue | $ | $ | ||||||
| Employee bonuses | ||||||||
| Compensated absences | ||||||||
| Payroll | ||||||||
| Property and sales taxes | ||||||||
| Legal and professional fees | ||||||||
| Medical claims | ||||||||
| Agent commissions | ||||||||
| Product warranty | ||||||||
| Income taxes | ||||||||
| Other | ||||||||
| $ | $ | |||||||
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 $
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 $
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
At September 30, 2023, an aggregate of
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 | Number of RSAs | Weighted Average Grant-date Fair Value per Share | Number of RSUs | 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 | $ | $ | $ | |||||||||||||||||||||
During fiscal years 2023 and 2022, the Company issued
Stock-based compensation expense recognized for the fiscal years ended September 30, 2023 and 2022 was $
15. Income Taxes:
Components of income (loss) before income taxes were as follows (in thousands):
| YEAR ENDED SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ( | ) | ||||
| Foreign | ( | ) | ||||||
| $ | $ | ( | ) | |||||
The provision for income taxes consisted of the following (in thousands):
| YEAR ENDED SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| Current | ||||||||
| Federal | $ | $ | ( | ) | ||||
| Foreign | ||||||||
| State | ||||||||
| Deferred: | ||||||||
| Federal | ||||||||
| Foreign | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| $ | $ | |||||||
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 | YEAR ENDED SEPTEMBER 30, 2022 | |||||||||||||||
| Amount | Percent | Amount | Percent | |||||||||||||
| 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 | $ | % | $ | ( | )% | |||||||||||
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.
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):
| YEAR ENDED SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| 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 | $ | ( | ) | $ | ( | ) | ||
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 $
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 $
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 $
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) per share | $ | $ | ( | ) | ||||
| 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 diluted earnings (loss) per share | ||||||||
| Earnings (loss) per share: | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
For the calculation of diluted earnings (loss) per share for fiscal years 2023 and 2022, RSUs of
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 -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 years of the 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.
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.
18. Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
| YEAR ENDED SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| 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 | ||||||||
19. Segment and Geographic Information
The Company reports and evaluates financial information for
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 | ||||||||
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.
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):
| YEAR ENDED SEPTEMBER 30, | ||||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ||||||
| Canada | ||||||||
| Russian Federation | ||||||||
| United Kingdom | ||||||||
| $ | $ | |||||||
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 | ||||||||
| $ | $ | |||||||
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, | ||||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ||||||
| Canada | ||||||||
| Colombia | ||||||||
| Russian Federation | ||||||||
| United Kingdom | ||||||||
| China | ||||||||
| $ | $ | |||||||
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 $
Geospace Technologies Corporation and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
| Balance at Beginning of Period | Charged to Costs and Expenses, net of Recoveries | 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 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||
| Year ended September 30, 2022 | ||||||||||||||||||||
| Allowance for doubtful accounts on trade accounts and notes receivable | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
Exhibit 10.21
EMPLOYMENT TERMINATION AND CONSULTING AGREEMENT
This Employment Termination and Consulting Agreement (this “Agreement”) is executed as of June 30, 2023 between Geospace Technologies Corporation (the “Company”) and Michael J. Sheen (“Mr. Sheen”). The Company and Mr. Sheen are sometimes referred to herein individually as a “party” and collectively as the “parties.”
WHEREAS, Mr. Sheen’s full-time employment with the Company as Senior Vice President and Chief Technology Officer shall terminate effective at the close of business June 30, 2023; and
WHEREAS, the Company desires to protect and preserve its confidential information, trade secrets, and business practices from revelation to any other party including but not limited to existing or potential competitors; and
WHEREAS, Mr. Sheen agrees to hold such information in strict confidence and in accordance with the terms and conditions contained in this Agreement; and
WHEREAS, the Company desires to retain Mr. Sheen as an independent contractor subsequent to termination on an as needed basis, beginning July 1, 2023 (the “Effective Date”) to provide certain services in accordance with the terms and conditions contained in this Agreement; and
WHEREAS, Mr. Sheen wishes to render such services in accordance with the terms and conditions contained in this Agreement;
NOW, THEREFORE, for valuable consideration given and received, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be legally bound, do hereby agree as follows:
I. TERMINATION COMPENSATION.
Section 1.1 Termination Payment. In conjunction with Mr. Sheen’s termination, the Company agrees to pay Mr. Sheen an amount equal to his annual cash salary as recorded at the time of his termination. This amount shall be paid six-months after the date of his termination and not before January 1, 2024. The Company at its option may choose to pay up to half of the total amount in shares of the Company’s publicly traded common stock. Any amount of said compensation in the form of stock shall be fully vested at the time of issue and the number of shares of Company common stock shall be determined by dividing the amount of the cash compensation being replaced by the closing price per share of the Company’s common stock on the last trading day prior to the issuance. Such payment shall be subject to “claw back” and repayment in full to the Company should Mr. Sheen breach any term or condition contained in this Agreement over its duration. Mr. Sheen acknowledges and agrees that: (a) the payments under this Article I are in lieu of all other severance benefits that he may be entitled to receive from the Company, (b) he hereby waives and releases any entitlement he may have under any severance or similar arrangement maintained by the Company, and (c) except as otherwise provided specifically in this Agreement, the Company does not and will not have any other liability or obligation to the Employee with respect to severance or similar pay.
Section 1.2 Potential Bonus Payment. Should the Company achieve financial performance metrics sufficient to warrant bonus compensation as established by the Company’s Board of Directors for Mr. Sheen for fiscal year 2023, ending September 30, 2023, the Company agrees to provide said compensation to Mr. Sheen in accordance with the plan, prorated by the portion the fiscal year that Mr. Sheen was employed. Any portions of said compensation or performance awards in the form of stock shall be fully vested at the time of issue.
II. TREATMENT OF OUTSTANDING EQUITY AWARDS.
Section 2.1 Vesting of Outstanding Equity Awards. For purposes of the restricted stock and restricted stock unit awards set forth in Exhibit B hereto (the "Equity Awards") that were previously granted to Mr. Sheen under the Geospace Technologies Corporation 2014 Long Term Incentive Plan (the “Plan”), the Company agrees to fully vest all remaining unvested shares in conjunction with Mr. Sheen’s termination of employment.
III. INDEPENDENT CONTRACTOR STATUS; INTELLECTUAL PROPERTY CREATED DURING CONSULTING ACTIVITIES
Section 3.1 Independent Contractor Status and Purpose. The Company hereby retains Mr. Sheen to provide the services set forth in Exhibit A hereto during the Term (defined below). Mr. Sheen shall perform such services for the Company as an independent contractor and not as an agent, employee, joint venturer, partner, or other position. Mr. Sheen shall not have the authority to bind the Company in any way.
Section 3.2 No Provision of Facilities and Equipment. Mr. Sheen shall provide at his own expense his office or place of business, any necessary equipment (including, without limitation, computers, printers, and fax machines), office supplies, and other miscellaneous materials; provided that the Company may, in its sole discretion, permit Mr. Sheen to use the Company’s computer equipment, computer systems, and an assigned office at the Company’s premises.
Section 3.3 Intellectual Property. To the fullest extent permitted by law, Mr. Sheen hereby assigns, and agrees to assign, to the Company all rights worldwide with respect to intellectual property conceived, made, suggested or acquired by Mr. Sheen during his services with the Company under this Article III if such intellectual property results from, or is derived from: (a) the use of the Company’s or any Company affiliate’s equipment, facilities, trade secrets or confidential information, or (b) any work performed by Mr. Sheen for the Company or its affiliates. Mr. Sheen acknowledges that, to the extent permitted by law, each of the copyrightable works made by Mr. Sheen for the Company is “work made for hire” as defined in the Copyright Act of 1976 (17 U.S.C. § 101), and such copyrights are therefore owned exclusively by the Company.
Section 3.4 Remedies. Mr. Sheen acknowledges that the Company will suffer irreparable harm as a result of a breach of this Article III by Mr. Sheen for which an adequate monetary remedy does not exist and a remedy at law may prove to be inadequate. Accordingly, in the event of any actual or threatened breach by Mr. Sheen of this Article III, the Company shall, in addition to any other remedies permitted by law, be entitled to obtain remedies in equity, including, but not limited to, specific performance, injunctive relief, a temporary restraining order, and a preliminary or permanent injunction in any court of competent jurisdiction, and to prevent or otherwise restrain a breach of this Article III without the necessity of proving damages or posting a bond or other security, to the maximum extent permitted by applicable law. Such relief shall be in addition to and not in substitution of any other remedies available to the Company. The Employee shall not defend on the basis that there is an adequate remedy at law but Mr. Sheen shall be entitled to contest on the grounds that no such breach or threatened breach has occurred.
IV. TERM; TERMINATION
Section 4.1 Term. This Agreement shall commence on the Effective Date and shall continue for one year, renewing automatically for subsequent one-year terms thereafter (the “Term”), unless either party provides written notice to the other of its intent to terminate this Agreement not less than 30 days before the end of the then current Term.
Section 4.2 Termination. Notwithstanding the foregoing, the Company shall have the right to immediately terminate this Agreement for cause or discontinue any payments hereunder if Mr. Sheen breaches any provision of this Agreement, including Exhibit A and Exhibit B and any amendments thereto.
V. PAYMENT FOR CONSULTING SERVICES
Section 5.1 Payment. The Company shall pay Mr. Sheen for services rendered as described herein in accordance with Exhibit A to this Agreement.
Section 5.2 No Required Expense Reimbursement. The Company is not required to compensate Mr. Sheen for any expenses unless jointly agreed by the parties in writing. If the Company does agree to reimburse Mr. Sheen for a specific expense, then this expense must be reasonable and subject to the same expense reimbursement policies to which employees of the Company are subject.
Section 5.3 No Benefits. Except as otherwise provided in Section 4.1 with respect to previously granted and unvested awards under the Plan, Mr. Sheen shall not be entitled to participate in any insurance or other benefit programs which may be applicable to employees of the Company. The Company is not providing to Mr. Sheen any health insurance, worker’s compensation insurance, unemployment insurance, retirement plans, or any other benefits.
Section 5.4 No Vacation; Sick Leave. The Company shall not pay Mr. Sheen for any vacations, sick leave, or other leave.
VI. TAX OBLIGATIONS
Section 6.1 Taxes. For all payments made for consulting services under Article V of this Agreement, whether made in cash or by equity awards, Mr. Sheen acknowledges that the Company will not withhold any taxes from such payments. Mr. Sheen accepts and acknowledges that he is responsible for all applicable city, state, federal, and other taxes as required pursuant to any law or governmental regulation or ruling for said payments made under this Agreement. The Company shall report all compensation paid to Mr. Sheen hereunder on an IRS Form 1099-Misc. For all other payments made under this agreement, the Company will withhold taxes in accordance with law and past practice.
VII. UNAUTHORIZED DISCLOSURE
Section 7.1 Unauthorized Disclosure. Mr. Sheen agrees and understands that during the duration of this Agreement and Mr. Sheen’s history with the Company, Mr. Sheen has been and will be exposed to and has and will receive information relating to the confidential affairs of the Company and its affiliates, including, without limitation, technical information, intellectual property, business and marketing plans, strategies, customer information, software, other information concerning the products, promotions, development, financing, expansion plans, business policies and practices of the Company and its affiliates and other forms of information considered by the Company and its affiliates to be confidential or in the nature of trade secrets (including, without limitation, ideas, research and development, know-how, formulas, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals) (collectively, the “Confidential Information”). Mr. Sheen agrees that at all times during the duration of this Agreement, Mr. Sheen shall not disclose such Confidential Information, either directly or indirectly, to any individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof (each, a “Person”) other than in connection with his provision of consulting services to the Company without the prior written consent of the Company and shall not use or attempt to use any such information in any manner other than in connection with his provision of consulting services to the Company, unless required by law to disclose such information, in which case Mr. Sheen shall provide the Company with written notice of such requirement as far in advance of such anticipated disclosure as possible. This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of this Agreement, to the extent requested by the Company, Mr. Sheen shall promptly supply to the Company all property, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines, technical data and any other tangible product or document which has been produced by, received by or otherwise submitted to Mr. Sheen during the duration of this Agreement, and any copies thereof in his (or capable of being reduced to his) possession; provided, however, that Mr. Sheen may retain his full rolodex or similar address and telephone directories.
VIII. RELEASE AND COVENANT NOT TO SUE.
Section 8.1 Release. Mr. Sheen, on behalf of himself and his heirs and representatives, hereby irrevocably and unconditionally releases, waives and forever discharges the Company, and its predecessors and successors, assigns, stockholders, subsidiaries, parents, affiliates, officers, directors, trustees, employees, agents and attorneys, past and present and in their respective capacities as such, and their heirs, administrators, estates, representatives, and beneficiaries, successors, and permitted assigns (the Company and each such person or entity is each referred to as a “Released Person”) from all existing, past and present, known and unknown claims, demands, and causes of action, damages and remedies of any nature, which have accrued or which may ever accrue to Mr. Sheen, or to Mr. Sheen’s past, present, and future agents, heirs, executors, legal representatives, successors, or assigns, resulting from or relating to any act or omission occurring on or before the date of the Mr. Sheen’s execution of this Agreement (a) pertaining to Mr. Sheen’s employment relationship with the Company and its affiliates; (b) concerning the terms and conditions of Mr. Sheen’s employment with the Company; (c) concerning Mr. Sheen’s conduct occurring in the course and scope of his employment with the Company; or (d) concerning Mr. Sheen’s termination of employment with the Company, save and except as provided below. This release includes, but is not limited to, any and all claims of race discrimination, sexual discrimination, national origin discrimination, religious discrimination, disability discrimination, age discrimination and unlawful retaliation and any and all claims under the following: Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq.; Civil Rights Act of 1866, 42 U.S.C. § 1981 et seq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601, et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. 2010, et seq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101, et seq.; the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act, 29 U.S.C. § 621, et seq.; Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq.; Rehabilitation Act of 1973, 29 U.S.C. § 706, et seq.; Chapter 21 of the Texas Labor Code; Chapter 61 of the Texas Labor Code; Chapter 451 of the Texas Labor Code; any other state, municipal and other local anti-discrimination statutes; any and all claims for alleged breach of an express or implied contract; any and all tort claims including, but not limited to, alleged retaliation for assertion of workers’ compensation rights; any and all claims under workers’ compensation law; and any and all claims for attorney’s fees.
Section 8.2. Covenant Not to Sue. Mr. Sheen expressly represents that he has not filed a lawsuit or initiated any other administrative proceeding against a Released Person and that he has not assigned any claim against a Released Person. Mr. Sheen further promises not to initiate a lawsuit or to bring any other claim against any Released Person arising out of or in any way related to Mr. Sheen’s employment by the Company or the termination of that employment.
Section 8.3. Limitations. Notwithstanding anything to the contrary in this Agreement, this release does not constitute a release or waiver of any claim by Mr. Sheen (a) solely to enforce this Agreement, (b) for indemnity from the Company arising as a result of Mr. Sheen having been an officer, director or fiduciary of the Company, (c) to continue group health plan coverage under applicable law and the terms of the applicable group health plan or for unemployment or workers’ compensation, (d) for rights vested on the date Mr. Sheens signs this Agreement under the Company’s employee benefit plans, or (e) that may arise after Mr. Sheen signs this Agreement. Further, and notwithstanding anything to the contrary in this Agreement, this release does not constitute a release or waiver of Mr. Sheen’s right to file a charge or participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission (“EEOC”) or any other state or federal governmental entity with jurisdiction to regulate employment conditions or relations; however, Mr. Sheen does release and relinquish any right to receive any money, property, or any other thing of value, or any other financial benefit or award from any Released Person as a result of any proceeding of any kind or character initiated by the EEOC or any other state or federal governmental entity with jurisdiction to regulate employment conditions or relations. In addition, this release shall not affect Mr. Sheen’s rights under the Older Workers Benefit Protection Act to have a judicial determination of the validity of this release and waiver.
IX MISCELLANEOUS
Section 9.1 Applicable Law, Jurisdiction and Mandatory Forum. This Agreement is entered into under, shall be construed and enforced in accordance with, and the rights and obligations of the parties shall be governed for all purposes by, the laws of the State of Texas, without giving effect to the conflicts of law principles thereof, and venue shall be fixed solely and exclusively in Harris County, Texas.
Section 9.2 Successors/Assignment. Mr. Sheen acknowledges and agrees that this Agreement shall be binding upon Mr. Sheen and inure to the benefit of the Company. This Agreement is personal to Mr. Sheen, who shall not be entitled to assign, transfer, or charge any of its rights or obligations under this Agreement, or sub-contract or otherwise delegate any of its rights or obligations to any third party without the written consent of the Company.
Section 9.3 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by
e-mail transmission (with evidence of transmission from the sender) or by registered or certified mail (postage prepaid, return receipt requested). Actual notice is sufficient to be notice hereunder. Such communications must be sent to the respective parties at the following addresses:
If to the Company to: Geospace Technologies Corporation
7007 Pinemont Drive
Houston, Texas 77040
Attn: CEO
E-mail: rwheeler@geospace.com
If to Mr. Sheen to: The address set forth under Mr. Sheen’s name
on the signature page hereto
Any party hereto may change its address for the purpose of receiving notices, demands, and other communications as herein provided by a written notice given in the manner aforesaid to the other party hereto.
Section 9.4 No Waiver. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall (i) be deemed a waiver or similar or dissimilar provisions or conditions at the same or at any prior or subsequent time, or (ii) preclude insistence upon strict compliance in the future.
Section 9.5 Severability. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then, the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect.
Section 9.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same Agreement.
Section 9.7 Headings. The paragraph headings have been inserted for purposes of convenience and shall not be used for interpretive purposes.
Section 9.8 Affiliate. As used in this Agreement, “affiliate” shall mean any Person which directly or indirectly through one or more intermediaries owns or controls, is owned or controlled by, or is under common ownership or control with, the Company.
Section 9.9 Termination. Except as otherwise provided in this Agreement, termination of this Agreement pursuant to the provisions of Article IV hereof shall not affect any right or obligation of either party hereto which is accrued or vested prior to or upon such termination or the rights and obligations set forth in Articles VI and VII hereof.
Section 9.10 Older Workers Benefit Protection Act Representations and Acknowledgements; Period to Consider and Rescission Right. Mr. Sheen expressly acknowledges and recites that he: (a) has carefully read and understands the terms of this Agreement in its entirety; (b) has been given a fair opportunity to discuss and negotiate the terms of this Agreement including the release set out in Section 3 by and through his legal counsel; (c) understands that this Agreement constitutes a complete release and discharge of claims arising under the Age Discrimination in Employment Act, 29 U.S.C. §§621-634, including the Older Workers Benefit Protection Act; (d) has not been influenced to sign this Agreement or provide the release set out in Article VIII by any statement or representation by the Company or its legal counsel not contained in this Agreement; (e) has determined that it is in his best interest to enter into this Agreement and provide the release set out in Article VIII; (f) has entered into this Agreement knowingly and voluntarily, without any duress or coercion, and knowingly and voluntarily intends to be legally bound by the terms of this Agreement; (g) has been advised orally and is hereby advised in writing to consult with an attorney with respect to this Agreement before signing it; (h) acknowledges and understands that rights or claims that may arise after the date this Agreement is executed are not waived; (i) has been provided a period of at least forty-five (45) days after receipt of this Agreement to consider this Agreement and has voluntarily waived the forty-five (45) day review period in which to consider this Agreement; and (j) will be provided seven (7) calendar days from the date of signing of this Agreement by Mr. Sheen to terminate and revoke this Agreement, in which case this Agreement shall be unenforceable, null and void. Mr. Sheen may revoke this Agreement during those seven (7) days by providing written notice of revocation to Rick Wheeler, CEO, of the Company in accordance with Section 8.3.
Section 8.10 Interpretations. For purposes of this Agreement, (a) the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; (c) the word “days” means calendar days; (d) the words “herein,” “hereof,” “hereby,” “hereto” and “hereunder” refer to this Agreement as a whole; (e) the word “any” means any and all; (f) references to any gender shall include each other gender as the context requires; (g) references to the Company are also to its permitted successors and assigns; and (f) all italics are used for emphasis only. Unless the context otherwise requires, any reference herein: (x) to Exhibit A or Exhibit B means Exhibit A or Exhibit B to this Agreement, as applicable; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. Exhibit A referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if it were set forth verbatim herein.
Section 8.11 Entire Agreement. This Agreement and the documents contemplated herein constitutes the entire agreement of the parties with respect to the subject of this Agreement.
Section 8.12 Modifications. No modifications of this Agreement shall be effective unless in writing signed by both parties hereto.
[Signature Page Follows] IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the Effective Date.
MR. SHEEN
_/s/ Michael J. Sheen_________________
Michael J. Sheen
GEOSPACE TECHNOLOGIES CORPORATION
By: _/s/ Walter R. Wheeler______________
Name: Walter R. Wheeler
Title: President & Chief Executive Officer
EXHIBIT A
SCOPE OF SERVICES AND COMPENSATION
1. Scope of Services. Mr. Sheen’s services shall include, but are not limited to, advising and assisting the Company in technical matters, business endeavors, commercial tenders, and contract documents, reviewing periodic reports, providing management insight, and making himself available to meet with the Company and its customers if necessary. Mr. Sheen shall provide these and other consulting services to the Company on an as requested basis.
2. Compensation. In consideration of Mr. Sheen providing the services to the Company as outlined herein, the Company agrees to pay Mr. Sheen a fee equal to $250.00 per hour during which Mr. Sheen is engaged in providing the services. Mr. Sheen shall prepare and submit invoices each month showing in reasonable detail any services performed and time spent on such services under this Agreement. Payment of such invoices shall be due thirty days after receipt by the Company.
EXHIBIT B
LIST OF UNVESTED EQUITY AWARDS
1. Nov-19 Unit Grant 2,250
2. Nov-20 Unit Grant 4,750
3. Nov-21 Unit Grant 6,000
4. Nov-22 Unit Grant 2,000
Exhibit 21.1
Subsidiaries of
Geospace Technologies Corporation
GTC, Inc., a Texas corporation
Geospace Technologies Canada, Inc., an Alberta corporation
Geospace Technologies Corporation Azerbaijan Branch, an Azerbaijan company
Geospace Engineering Resources International, Inc., a Texas corporation
Geospace Finance Corp., a Texas corporation
Exile Technologies Limited, a United Kingdom company
Geospace J.V., Inc., a Texas corporation
Geospace Technologies Eurasia, LLC, a Russian limited liability company
Geospace Technologies Kazakhstan LLP, a Kazakhstan limited liability partnership
Geospace Technologies, Sucursal Sudamericana LLC, a Texas limited liability company
Geospace Technologies Sucursal Sudamericana, a Colombia Branch Office
Geospace Brasil Equipmentos Sismicos EIRELI, a Brazilian company
Aquana LLC, a Vermont limited liability company
Quantum Technology Sciences, Inc., a Florida corporation
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (No. 333-259131) on Form S-8 of Geospace Technologies Corporation of our report dated November 17, 2023, relating to the consolidated financial statements and the financial statement schedule of Geospace Technologies Corporation, appearing in this Annual Report on Form 10-K of Geospace Technologies Corporation for the year ended September 30, 2023.
/s/ RSM US LLP
Houston, Texas
Exhibit 31.1
CERTIFICATIONS
I, Walter R. Wheeler, certify that:
1. I have reviewed this annual report on Form 10-K of Geospace Technologies Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Walter R. Wheeler | ||
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Name: |
Walter R. Wheeler |
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Title: |
Director, President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, Robert L. Curda, certify that:
1. I have reviewed this annual report on Form 10-K of Geospace Technologies Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Robert L. Curda |
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Name: |
Robert L. Curda |
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Title: |
Vice President, Chief Financial Officer and Secretary |
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Exhibit 32.1
Informational Addendum to Report on Form 10-K
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Not Filed Pursuant to the Securities Exchange Act of 1934
The undersigned Director, President and Chief Executive Officer of Geospace Technologies Corporation does hereby certify as follows:
Solely for the purpose of meeting the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and solely to the extent this certification may be applicable to this Report on Form 10-K, the undersigned hereby certifies that this Report on Form 10-K fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Geospace Technologies Corporation.
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/s/ Walter R. Wheeler |
||
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Name: |
Walter R. Wheeler |
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Title: |
Director, President and Chief Executive Officer |
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Exhibit 32.2
Informational Addendum to Report on Form 10-K
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Not Filed Pursuant to the Securities Exchange Act of 1934
The undersigned Vice President, Chief Financial Officer and Secretary of Geospace Technologies Corporation does hereby certify as follows:
Solely for the purpose of meeting the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and solely to the extent this certification may be applicable to this Report on Form 10-K, the undersigned hereby certifies that this Report on Form 10-K fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in this Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Geospace Technologies Corporation.
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/s/ Robert L. Curda |
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Name: |
Robert L. Curda |
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Title: |
Vice President, Chief Financial Officer and Secretary |
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Consolidated Balance Sheets (Parentheticals) - $ / shares |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Preferred stock, authorized (in shares) | 1,000,000 | 1,000,000 |
| Preferred stock, issued (in shares) | 0 | 0 |
| Preferred stock, outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, authorized (in shares) | 20,000,000 | 20,000,000 |
| Common stock, issued (in shares) | 14,030,481 | 13,863,233 |
| Common stock, outstanding (in shares) | 13,188,489 | 13,021,241 |
| Treasury stock, shares (in shares) | 841,992 | 841,992 |
Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Net income (loss) | $ 12,206 | $ (22,856) |
| Other comprehensive income (loss): | ||
| Change in unrealized gains on available-for-sale securities, net of tax | 4 | 0 |
| Foreign currency translation adjustments | (2,515) | 1,007 |
| Total other comprehensive income (loss), net | (2,511) | 1,007 |
| Total comprehensive income (loss) | $ 9,695 | $ (21,849) |
Note 1 - Significant Accounting Policies |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies [Text Block] |
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.
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.
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:
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.
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:
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):
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.
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.
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Note 2 - Revenue Recognition |
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| Revenue from Contract with Customer [Text Block] |
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.
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.
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.
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.
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Note 3 - Investments |
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| Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block] |
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):
The Company’s short-term investments have contractual maturities ranging from January 2024 to September 2024.
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Note 4 - Fair Value of Financial Instruments |
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| Fair Value Disclosures [Text Block] |
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):
Assets and Liabilities Measured on a Nonrecurring Basis
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:
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.
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Note 5 - Accumulated Other Comprehensive Loss |
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5. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following (in thousands):
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Note 6 - Trade Accounts and Financing Receivable |
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| Loans, Notes, Trade and Other Receivables Disclosure [Text Block] |
6. Trade Accounts and Financing Receivables
Trade accounts receivable, net (excluding financing receivables) are reflected in the following table (in thousands):
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):
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 -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.
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Note 7 - Inventories |
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| Inventory Disclosure [Text Block] |
7. Inventories
Inventories consisted of the following (in thousands):
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.
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Note 8 - Leases |
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| Leases Disclosure [Text Block] |
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.
Maturities of the operating lease liabilities as of September 30, 2023 were as follows (in thousands):
Lease costs recognized in the consolidated statements of operations for the fiscal years ended September 30, 2023 and 2022 is as follows (in thousands):
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):
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 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.
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 depreciation expense was $11.8 million and $13.7 million in fiscal years 2023 and 2022, respectively.
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 -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):
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Note 9 - Property, Plant and Equipment |
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| Property, Plant and Equipment Disclosure [Text Block] |
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.
Property, plant and equipment consisted of the following (in thousands):
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.
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Note 10 - Goodwill and Other Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Text Block] |
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.
The Company’s consolidated goodwill and other intangible assets consisted of the following (in thousands):
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):
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Note 11 - Long-term Debt |
12 Months Ended |
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Sep. 30, 2023 | |
| Notes to Financial Statements | |
| Debt Disclosure [Text Block] |
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 $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. |
Note 12 - Other Current Liabilities |
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| Other Liabilities Disclosure [Text Block] |
12. Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
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.
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Note 13 - Employee Benefits |
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| Notes to Financial Statements | |
| Retirement Benefits [Text Block] |
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.
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Note 14 - Stockholders' Equity |
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| Equity [Text Block] |
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 years, with the exception of incentive stock options granted to employees owning percent or more of the outstanding shares of common stock, which have a term not to exceed 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 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 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:
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 to 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.
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Note 15 - Income Taxes |
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| Income Tax Disclosure [Text Block] |
15. Income Taxes:
Components of income (loss) before income taxes were as follows (in thousands):
The provision for income taxes consisted of the following (in thousands):
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):
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.
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):
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.
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Note 16 - Income (Loss) Per Common Share |
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| Earnings Per Share [Text Block] |
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):
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.
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Note 17 - Commitments and Contingencies |
12 Months Ended |
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| Notes to Financial Statements | |
| Commitments and Contingencies Disclosure [Text Block] |
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 -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 years of the 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. |
Note 18 - Supplemental Cash Flow Information |
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| Cash Flow, Supplemental Disclosures [Text Block] |
18. Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
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Note 19 - Segment Geographic Information |
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| Segment Reporting Disclosure [Text Block] |
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.
The following tables summarize the Company’s segment information:
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.
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):
A summary of revenue by geographic area is as follows (in thousands):
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):
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Note 20 - Exit and Disposal Activities |
12 Months Ended |
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Sep. 30, 2023 | |
| Notes to Financial Statements | |
| Restructuring and Related Activities Disclosure [Text Block] |
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. |
Schedule II - Valuation and Qualifying Accounts |
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| SEC Schedule, 12-09, Schedule of Valuation and Qualifying Accounts Disclosure [Text Block] |
Geospace Technologies Corporation and Subsidiaries Valuation and Qualifying Accounts (In thousands)
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Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||
| Basis of Accounting, Policy [Policy Text Block] | 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. |
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| Use of Estimates, Policy [Policy Text Block] | 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. |
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| Cash and Cash Equivalents, Policy [Policy Text Block] | 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. |
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| Concentration Risk, Credit Risk, Policy [Policy Text Block] | 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.
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. |
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| Inventory, Policy [Policy Text Block] | 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. |
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| Property, Plant and Equipment, Policy [Policy Text Block] | 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:
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. |
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| Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block] | 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. |
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| Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | 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. |
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| Intangible Assets, Finite-Lived, Policy [Policy Text Block] | 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:
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| Revenue [Policy Text Block] | Revenue Recognition
See Note 2 to these consolidated financial statements. |
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| Research and Development Expense, Policy [Policy Text Block] | 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. |
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| Standard Product Warranty, Policy [Policy Text Block] | 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):
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| Share-Based Payment Arrangement [Policy Text Block] |
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. |
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| Foreign Currency Transactions and Translations Policy [Policy Text Block] | 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. |
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| Fair Value of Financial Instruments, Policy [Policy Text Block] | 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. |
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| Income Tax, Policy [Policy Text Block] | 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. |
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| New Accounting Pronouncements, Policy [Policy Text Block] | 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. |
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Note 1 - Significant Accounting Policies (Tables) |
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| Property, Plant and Equipment, Estimated Useful Life [Table Text Block] |
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| Schedule of Finite-Lived Intangible Assets [Table Text Block] |
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| Schedule of Product Warranty Liability [Table Text Block] |
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Note 2 - Revenue Recognition (Tables) |
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Note 3 - Investments (Tables) |
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| Schedule of Available-for-Sale Securities Reconciliation [Table Text Block] |
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Note 4 - Fair Value of Financial Instruments (Tables) |
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| Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] |
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Note 5 - Accumulated Other Comprehensive Loss (Tables) |
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Note 6 - Trade Accounts and Financing Receivable (Tables) |
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| Schedule of Notes Receivables [Table Text Block] |
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Note 7 - Inventories (Tables) |
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Note 8 - Leases (Tables) |
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Note 9 - Property, Plant and Equipment (Tables) |
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Note 10 - Goodwill and Other Intangible Assets (Tables) |
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| Schedule of Intangible Assets and Goodwill [Table Text Block] |
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Note 12 - Other Current Liabilities (Tables) |
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Note 14 - Stockholders' Equity (Tables) |
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Note 15 - Income Taxes (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Income before Income Tax, Domestic and Foreign [Table Text Block] |
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| Schedule of Components of Income Tax Expense (Benefit) [Table Text Block] |
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| Schedule of Effective Income Tax Rate Reconciliation [Table Text Block] |
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| Schedule of Deferred Tax Assets and Liabilities [Table Text Block] |
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Note 16 - Income (Loss) Per Common Share (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 18 - Supplemental Cash Flow Information (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of Cash Flow, Supplemental Disclosures [Table Text Block] |
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Note 19 - Segment Geographic Information (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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| Schedule of Revenue Generated by the Company's Subsidiaries [Table Text Block] |
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| Reconciliation of Revenue from Segments to Consolidated [Table Text Block] |
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| Schedule of Disclosure on Geographic Areas, Long-Lived Assets in Individual Foreign Countries by Country [Table Text Block] |
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Schedule II - Valuation and Qualifying Accounts (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Table Text Block] |
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Note 1 - Summary of Significant Accounting Policies - Schedule of Estimated Lives of Intangible Assets (Details) |
Sep. 30, 2023 |
|---|---|
| Developed Technology Rights [Member] | |
| Intangible assets, estimated useful lives (Year) | 18 years |
| Trade Names [Member] | |
| Intangible assets, estimated useful lives (Year) | 5 years |
| Customer Relationships [Member] | |
| Intangible assets, estimated useful lives (Year) | 4 years |
| Noncompete Agreements [Member] | |
| Intangible assets, estimated useful lives (Year) | 4 years |
Note 1 - Summary of Significant Accounting Policies - Changes in Product Warranty Reserve (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Balance | $ 658 | $ 524 | $ 379 |
| Accruals for warranties issued during the year | 1,655 | 1,431 | |
| Settlements made (in cash or in kind) during the year | $ (1,521) | $ (1,286) | |
Note 2 - Revenue Recognition (Details Textual) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Contract with Customer, Liability, Current | $ 700 | $ 0 |
| Capitalized Contract Cost, Net, Current | 0 | 0 |
| Contract with Customer, Liability, Revenue Recognized | 0 | 0 |
| Contract with Customer, Liability, Cost of Revenue Recognized | 0 | 0 |
| Shipping and Handling [Member] | ||
| Cost of Goods and Services Sold | $ 500 | $ 600 |
Note 2 - Revenue Recognition - Revenue by Geographic Area (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Total revenue | $ 124,509 | $ 89,253 |
| Product [Member] | ||
| Total revenue | 73,333 | 64,109 |
| Asia [Member] | Product [Member] | ||
| Total revenue | 13,006 | 10,978 |
| CANADA | Product [Member] | ||
| Total revenue | 1,032 | 890 |
| Europe [Member] | Product [Member] | ||
| Total revenue | 5,976 | 15,705 |
| South America [Member] | Product [Member] | ||
| Total revenue | 448 | 719 |
| UNITED STATES | Product [Member] | ||
| Total revenue | 49,828 | 33,778 |
| Other [Member] | Product [Member] | ||
| Total revenue | $ 3,043 | $ 2,039 |
Note 3 - Investments (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Debt Securities, Realized Gain (Loss), Total | $ 0 | $ (22,000) |
Note 3 - Investments - Summary of Short-term Investments (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Investments, amortized cost | $ 14,932 | $ 909 |
| Investments, unrealized gains | 4 | 0 |
| Investments, unrealized losses | (15) | (15) |
| Investments, fair value | 14,921 | 894 |
| Investments, unrealized losses | 15 | 15 |
| Corporate Debt Securities [Member] | ||
| Investments, amortized cost | 11,310 | 909 |
| Investments, unrealized gains | 0 | 0 |
| Investments, unrealized losses | (15) | (15) |
| Investments, fair value | 11,295 | 894 |
| Investments, unrealized losses | 15 | $ 15 |
| US Treasury and Government Short-Term Debt Securities [Member] | ||
| Investments, amortized cost | 3,622 | |
| Investments, unrealized gains | 4 | |
| Investments, unrealized losses | 0 | |
| Investments, fair value | 3,626 | |
| Investments, unrealized losses | $ 0 |
Note 4 - Fair Value of Financial Instruments - Summary of Changes in Level 3 Financial Instruments (Details) - Contingent Consideration [Member] - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Contingent consideration balance | $ 175 | $ 6,017 |
| Fair value adjustments | 0 | (5,035) |
| Payment of contingent consideration | (175) | (807) |
| Contingent consideration balance | $ 0 | $ 175 |
Note 5 - Accumulated Other Comprehensive Loss - Schedule of Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Balance | $ 121,647 | $ 142,457 |
| Other comprehensive income | (2,511) | 1,007 |
| Balance | 132,716 | 121,647 |
| AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-Sale, Parent [Member] | ||
| Balance | (15) | (15) |
| Other comprehensive income | 4 | 0 |
| Balance | (11) | (15) |
| Accumulated Foreign Currency Adjustment Attributable to Parent [Member] | ||
| Balance | (15,298) | (16,305) |
| Other comprehensive income | (2,515) | 1,007 |
| Balance | (17,813) | (15,298) |
| AOCI Attributable to Parent [Member] | ||
| Balance | (15,313) | (16,320) |
| Other comprehensive income | (2,511) | 1,007 |
| Balance | $ (17,824) | $ (15,313) |
Note 6 - Trade Accounts and Financing Receivable (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Mar. 31, 2020 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Financing Receivable, after Allowance for Credit Loss | $ 1,216 | $ 8,225 | |
| Product [Member] | |||
| Disposal Group, Including Discontinued Operation, Consideration | $ 12,500 | ||
| Promissory Note for Sale of Product [Member] | |||
| Financing Receivable, before Allowance for Credit Loss | 10,000 | ||
| Notes Receivable, Interest Rate, Stated Percentage | 7.00% | ||
| Notes Receivable, Term (Year) | 3 years | ||
| Notes Receivable, Periodic Payment | $ 300 | ||
| Proceeds from Collection of Notes Receivable | 11,300 | ||
| Financing Receivable, after Allowance for Credit Loss | $ 1,200 |
Note 6 - Trade Accounts and Financing Receivable - Schedule of Trade Accounts and Notes Receivable (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Trade accounts receivable | $ 20,282 | $ 13,252 |
| Allowance for doubtful accounts | (125) | (591) |
| Accounts Receivable, after Allowance for Credit Loss, Current | $ 20,157 | $ 12,661 |
Note 6 - Trade Accounts and Financing Receivable - Schedule of Notes Receivable (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Financing Receivable, after Allowance for Credit Loss | $ 1,216 | $ 8,225 |
| Less current portion | (1,216) | (8,225) |
| Non-current notes receivable | $ 0 | $ 0 |
Note 7 - Inventories (Details Textual) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Inventory Write-down | $ 2,229 | $ 3,222 |
| Inventory, Raw Materials, Gross | 26,832 | 25,609 |
| Inventory, Noncurrent | 24,888 | 12,526 |
| Semi-finished Goods and Component Parts [Member] | ||
| Inventory, Raw Materials, Gross | 10,600 | $ 9,400 |
| Raw Materials and Work in Process to Be Transferred to Rental Equipment [Member] | ||
| Inventory, Noncurrent | $ 3,200 | |
Note 7 - Inventories - Schedule of Inventories (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Finished goods | $ 18,555 | $ 14,653 |
| Work in process | 11,992 | 6,230 |
| Raw materials | 26,832 | 25,609 |
| Obsolescence reserve (net realizable value adjustment) | (14,061) | (13,971) |
| Inventory, Current and Noncurrent | 43,318 | 32,521 |
| Less current portion | 18,430 | 19,995 |
| Inventory, Noncurrent | $ 24,888 | $ 12,526 |
Note 8 - Leases (Details Textual) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
|
Sep. 30, 2023
USD ($)
|
Sep. 30, 2022
USD ($)
|
Dec. 31, 2021 |
|
| Number of Operating Right of Use Asset Related to Leased Facility | 2 | ||
| Accounts Receivable, after Allowance for Credit Loss, Current | $ 20,157 | $ 12,661 | |
| Equipment Expense | 11,800 | 13,700 | |
| Lease Receivable [Member] | |||
| Operating Lease, Lease Income | 51,000 | 24,900 | |
| Lessor, Operating Lease, Payment to be Received, Next Rolling 12 Months | 29,600 | ||
| Equipment [Member] | Lease Receivable [Member] | |||
| Accounts Receivable, after Allowance for Credit Loss, Current | $ 9,000 | ||
| Land [Member] | Calgary, Alberta, Canada [Member] | |||
| Number of Operating Right of Use Asset Related to Leased Facility | 2 | ||
| Lessor, Operating Lease, Term of Contract (Year) | 5 years | ||
| Operating Lease, Lease Income | $ 200 | $ 200 | |
| Maximum [Member] | Equipment [Member] | |||
| Lessor, Operating Lease, Term of Contract (Year) | 1 year | ||
Note 8 - Leases - Maturities of Operating Lease Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| 2024 | $ 278 | |
| 2025 | 186 | |
| 2026 | 130 | |
| 2027 | 134 | |
| 2028 | 91 | |
| Future minimum lease payments | 819 | |
| Less interest | (50) | |
| Present value of minimum lease payments | 769 | |
| Less current portion | (257) | $ (241) |
| Long-term portion | $ 512 | $ 769 |
Note 8 - Leases - Lease Costs (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Right-of-use operating lease costs | $ 272 | $ 272 |
| Short-term lease costs | 220 | 190 |
| Total | $ 492 | $ 462 |
Note 8 - Leases - Other Information Related to Operating Leases (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Operating cash flows from operating leases | $ 270 | $ 262 |
| Weighted average remaining lease term (Year) | 3 years 10 months 24 days | 4 years 8 months 12 days |
| Weighted average discount rate | 3.25% | 3.25% |
Note 8 - Leases - Rental Equipment (Details) - Equipment [Member] - USD ($) $ in Thousands |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Rental equipment, primarily wireless recording equipment | $ 82,926 | $ 83,153 |
| Accumulated depreciation and impairment | (61,339) | (54,954) |
| Property, Plant, and Equipment, Lessor Asset under Operating Lease, after Accumulated Depreciation | $ 21,587 | $ 28,199 |
Note 8 - Leases - Future Minimum Lease Payment to be Received (Details) - Land [Member] - Calgary, Alberta, Canada [Member] $ in Thousands |
Sep. 30, 2023
USD ($)
|
|---|---|
| 2024 | $ 128 |
| 2025 | 131 |
| 2026 | 132 |
| 2027 | 11 |
| Lessor, Operating Lease, Payment to be Received | $ 402 |
Note 9 - Property, Plant and Equipment (Details Textual) - USD ($) $ in Thousands |
1 Months Ended | 12 Months Ended | |
|---|---|---|---|
Feb. 28, 2023 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property | $ (244) | $ 54 | |
| Depreciation | 3,700 | 4,100 | |
| Impairment of Intangible Assets, Finite-Lived | $ 0 | $ 401 | |
| Satellite Property [Member] | |||
| Proceeds from Sale of Property, Plant, and Equipment | $ 3,700 | ||
| Payment of Closing Costs for Sale of Property | 300 | ||
| Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property | $ 1,300 | ||
Note 9 - Property, Plant and Equipment - Summary of Property, Plant and Equipment (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Property, Plant and Equipment, Gross | $ 86,068 | $ 96,928 |
| Accumulated depreciation and impairment | (62,020) | (70,330) |
| Property, Plant and Equipment, Net | 24,048 | 26,598 |
| Land and Land Improvements [Member] | ||
| Property, Plant and Equipment, Gross | 7,069 | 7,855 |
| Building and Building Improvements [Member] | ||
| Property, Plant and Equipment, Gross | 21,931 | 24,588 |
| Machinery and Equipment [Member] | ||
| Property, Plant and Equipment, Gross | 48,877 | 59,393 |
| Furniture and Fixtures [Member] | ||
| Property, Plant and Equipment, Gross | 1,487 | 1,434 |
| Tools, Dies and Molds [Member] | ||
| Property, Plant and Equipment, Gross | 3,287 | 3,243 |
| Construction in Progress [Member] | ||
| Property, Plant and Equipment, Gross | 3,343 | 341 |
| Transportation Equipment [Member] | ||
| Property, Plant and Equipment, Gross | $ 74 | $ 74 |
Note 10 - Goodwill and Other Intangible Assets (Details Textual) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Goodwill, Ending Balance | $ 736 | $ 736 |
| Finite-Lived Intangible Assets, Net | 4,805 | 5,573 |
| Goodwill, Impairment Loss | 0 | 4,336 |
| Amortization of Intangible Assets | 768 | 1,677 |
| Adjacent Markets [Member] | ||
| Goodwill, Ending Balance | 700 | |
| Finite-Lived Intangible Assets, Net | 500 | |
| Emerging Markets [Member] | ||
| Finite-Lived Intangible Assets, Net | 3,000 | |
| Goodwill, Impairment Loss | $ 4,300 | |
| Oil and Gas Markets [Member] | ||
| Finite-Lived Intangible Assets, Net | $ 1,300 | |
Note 10 - Goodwill and Other Intangible Assets - Future Estimated Amortization Expense (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| 2024 | $ 395 | |
| 2025 | 381 | |
| 2026 | 374 | |
| 2027 | 360 | |
| 2028 | 360 | |
| Thereafter | 2,935 | |
| Finite-Lived Intangible Assets, Net | $ 4,805 | $ 5,573 |
Note 12 - Other Current Liabilities (Details Textual) |
12 Months Ended |
|---|---|
|
Sep. 30, 2023
USD ($)
| |
| Minimum Amount Per Claimant On Which Company Purchased Stop Loss | $ 175,000 |
Note 12 - Other Current Liabilities - Schedule of Other Current Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|---|---|---|---|
| Deferred revenue | $ 4,368 | $ 629 | |
| Employee bonuses | 1,665 | 35 | |
| Compensated absences | 1,746 | 1,849 | |
| Payroll | 940 | 769 | |
| Property and sales taxes | 974 | 991 | |
| Legal and professional fees | 616 | 346 | |
| Medical claims | 641 | 590 | |
| Agent commissions | 211 | 142 | |
| Product warranty | 658 | 524 | $ 379 |
| Income taxes | 117 | 56 | |
| Other | 946 | 685 | |
| Other Liabilities, Current | $ 12,882 | $ 6,616 |
Note 13 - Employee Benefits (Details Textual) - USD ($) $ in Millions |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Defined Contribution Plan, Employer Discretionary Contribution Amount | $ 1.3 | $ 1.0 |
Note 15 - Income Taxes - Components of Loss Before Income Taxes (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| United States | $ 11,190 | $ (19,425) |
| Foreign | 1,379 | (3,258) |
| Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest | $ 12,569 | $ (22,683) |
Note 15 - Income Taxes - Computation of Provision for Income Taxes (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Current | ||
| Federal | $ 63 | $ (12) |
| Foreign | 244 | 202 |
| State | 59 | 0 |
| Current Income Tax Expense (Benefit) | 366 | 190 |
| Deferred: | ||
| Federal | 0 | 0 |
| Foreign | (3) | (17) |
| Deferred Income Tax Expense (Benefit) | (3) | (17) |
| Income Tax Expense (Benefit) | $ 363 | $ 173 |
Note 16 - Income (Loss) Per Common Share (Details Textual) - shares |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Restricted Stock Units (RSUs) [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 308,568 | 323,859 |
Note 16 - Income (Loss) Per Common Share - Computation of Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Net income (loss) | $ 12,206 | $ (22,856) |
| Less: Income allocable to unvested restricted stock | 0 | 0 |
| Income (loss) attributable to common shareholders for diluted earnings (loss) per share | $ 12,206 | $ (22,856) |
| Common shares used in basic earnings (loss) per share (in shares) | 13,146,085 | 12,987,996 |
| Common share equivalents outstanding related to RSUs (in shares) | 68,981 | 0 |
| Total weighted average common shares and common share equivalents used in diluted earnings (loss) per share (in shares) | 13,215,066 | 12,987,996 |
| Basic (in dollars per share) | $ 0.93 | $ (1.76) |
| Diluted (in dollars per share) | $ 0.92 | $ (1.76) |
Note 17 - Commitments and Contingencies (Details Textual) - Aquana, LLC [Member] - USD ($) $ in Thousands |
1 Months Ended | |
|---|---|---|
Jul. 31, 2021 |
Sep. 30, 2023 |
|
| Business Combination, Contingent Consideration, Earn Out Period (Year) | 6 years | |
| Business Combination, Required Continued Employment of Key Employees, Period (Year) | 4 years | |
| Business Combination, Contingent Consideration, Liability, Total | $ 0 |
Note 18 - Supplemental Cash Flow Information - Supplemental Cash Flow Information Components (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Cash paid for income taxes | $ 151 | $ 169 |
| Non-cash investing and financing activities: | ||
| Inventory transferred to rental equipment | 587 | 1,148 |
| Inventory transferred to property, plant and equipment | 0 | 172 |
| Issuance of notes receivables related to sale of used rental equipment | $ 0 | $ 11,745 |
Note 19 - Segment Geographic Information (Details Textual) |
12 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Number of Operating Segments | 3 |
Note 19 - Segment and Geographic Information - Schedule of Revenue Generated by the Company's Subsidiaries (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Revenues | $ 124,509 | $ 89,253 |
| United States Subsidiary [Member] | ||
| Revenues | 118,017 | 82,332 |
| Canada Subsidiary [Member] | ||
| Revenues | 1,924 | 1,615 |
| Russian Federation Subsidiary [Member] | ||
| Revenues | 1,850 | 1,922 |
| United Kingdom Subsidiary [Member] | ||
| Revenues | $ 2,718 | $ 3,384 |
Note 19 - Segment and Geographic Information - Summary of Revenue by Geographic Area (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Revenues | $ 124,509 | $ 89,253 |
| Asia [Member] | ||
| Revenues | 26,685 | 13,823 |
| CANADA | ||
| Revenues | 2,703 | 1,225 |
| Europe [Member] | ||
| Revenues | 20,826 | 28,381 |
| South America [Member] | ||
| Revenues | 8,166 | 7,547 |
| UNITED STATES | ||
| Revenues | 62,611 | 35,171 |
| Other [Member] | ||
| Revenues | $ 3,518 | $ 3,106 |
Note 19 - Segment and Geographical Information - Long Lived Assets by Location (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Long lived assets | $ 77,264 | $ 75,095 |
| UNITED STATES | ||
| Long lived assets | 75,321 | 71,742 |
| CANADA | ||
| Long lived assets | 575 | 1,459 |
| COLOMBIA | ||
| Long lived assets | 442 | 449 |
| RUSSIAN FEDERATION | ||
| Long lived assets | 543 | 1,010 |
| UNITED KINGDOM | ||
| Long lived assets | 383 | 422 |
| CHINA | ||
| Long lived assets | $ 0 | $ 13 |
Note 20 - Exit and Disposal Activities (Details Textual) - Plan to Lower Costs and Raise Efficiencies [Member] - USD ($) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
Dec. 31, 2022 |
Sep. 30, 2023 |
Mar. 31, 2023 |
|
| Effect on Future Cash Flows, Amount | $ 2,000 | ||
| Restructuring and Related Cost, Incurred Cost | $ 600 | ||
| Restructuring and Related Cost, Expected Cost Remaining | $ 0 | ||
| Restructuring Reserve | $ 0 |
Schedule II - Valuation and Qualifying Accounts - Valuation and Qualifying Accounts (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Allowance For Doubtful Accounts On Accounts And Financing Receivables [Member] | ||
| Balance at beginning of period | $ 591 | $ 428 |
| Charged to costs and expenses, net of recoveries | (138) | 292 |
| Charged to other assets | 0 | 0 |
| (deductions) and additions | (328) | (129) |
| Balance at end of period | 125 | 591 |
| SEC Schedule, 12-09, Reserve, Inventory [Member] | ||
| Balance at beginning of period | 13,971 | 13,636 |
| Charged to costs and expenses, net of recoveries | 2,229 | 3,222 |
| Charged to other assets | 0 | 0 |
| (deductions) and additions | (2,139) | (2,887) |
| Balance at end of period | $ 14,061 | $ 13,971 |
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