10-Q 1 geos-10q_20160331.htm 10-Q geos-10q_20160331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended March 31, 2016 OR

[   ]

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from            to           

Commission file number 001-13601

 

GEOSPACE TECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

Texas

 

76-0447780

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

7007 Pinemont Drive

Houston, Texas  77040-6601

(Address of Principal Executive Offices) (Zip Code)

(713) 986-4444

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    X    No    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes    X    No    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

 

 

 

 

Accelerated filer

X

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

(Do not check if a smaller reporting company)

 

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    No    X

There were 13,328,066 shares of the Registrant’s Common Stock outstanding as of the close of business on April 30, 2016.

 

 

 

 

 


 

Table of Contents

 

 

2


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

 

 

March 31, 2016

 

 

September 30, 2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,438

 

 

$

22,314

 

Short-term investments

 

 

14,898

 

 

 

18,112

 

Trade accounts receivable, net

 

 

8,947

 

 

 

12,693

 

Current portion of notes receivable

 

 

849

 

 

 

2,004

 

Income tax receivable

 

 

7,450

 

 

 

17,369

 

Inventories, net

 

 

114,131

 

 

 

124,800

 

Prepaid expenses and other current assets

 

 

3,876

 

 

 

1,295

 

Total current assets

 

 

178,589

 

 

 

198,587

 

Rental equipment, net

 

 

41,860

 

 

 

46,036

 

Property, plant and equipment, net

 

 

46,593

 

 

 

48,709

 

Deferred income tax assets

 

 

1,796

 

 

 

4,554

 

Non-current notes receivable

 

 

2,352

 

 

 

1,516

 

Prepaid income taxes

 

 

3,382

 

 

 

4,095

 

Other assets

 

 

80

 

 

 

95

 

Total assets

 

$

274,652

 

 

$

303,592

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable trade

 

$

1,503

 

 

$

4,077

 

Accrued expenses and other current liabilities

 

 

5,694

 

 

 

9,679

 

Deferred revenue

 

 

42

 

 

 

165

 

Income tax payable

 

 

71

 

 

 

3

 

Total current liabilities

 

 

7,310

 

 

 

13,924

 

Deferred income tax liabilities

 

 

38

 

 

 

44

 

Total liabilities

 

 

7,348

 

 

 

13,968

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

 

133

 

 

 

131

 

Additional paid-in capital

 

 

75,428

 

 

 

74,160

 

Retained earnings

 

 

206,271

 

 

 

228,278

 

Accumulated other comprehensive loss

 

 

(14,528

)

 

 

(12,945

)

Total stockholders’ equity

 

 

267,304

 

 

 

289,624

 

Total liabilities and stockholders’ equity

 

$

274,652

 

 

$

303,592

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

3


 

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31, 2016

 

 

March 31, 2015

 

 

March 31, 2016

 

 

March 31, 2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

10,106

 

 

$

24,833

 

 

$

21,858

 

 

$

43,296

 

Rental equipment

 

 

4,825

 

 

 

3,109

 

 

 

6,210

 

 

 

5,812

 

Total revenue

 

 

14,931

 

 

 

27,942

 

 

 

28,068

 

 

 

49,108

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

14,914

 

 

 

21,402

 

 

 

30,358

 

 

 

40,015

 

Rental equipment

 

 

4,611

 

 

 

5,124

 

 

 

8,706

 

 

 

7,698

 

Total cost of revenue

 

 

19,525

 

 

 

26,526

 

 

 

39,064

 

 

 

47,713

 

Gross profit (loss)

 

 

(4,594

)

 

 

1,416

 

 

 

(10,996

)

 

 

1,395

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

5,617

 

 

 

5,953

 

 

 

11,191

 

 

 

11,822

 

Research and development expenses

 

 

3,510

 

 

 

3,691

 

 

 

7,115

 

 

 

6,992

 

Bad debt expense (recovery)

 

 

266

 

 

 

321

 

 

 

(623

)

 

 

1,018

 

Total operating expenses

 

 

9,393

 

 

 

9,965

 

 

 

17,683

 

 

 

19,832

 

Loss from operations

 

 

(13,987

)

 

 

(8,549

)

 

 

(28,679

)

 

 

(18,437

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(4

)

 

 

(107

)

 

 

(11

)

 

 

(219

)

Interest income

 

 

62

 

 

 

115

 

 

 

168

 

 

 

174

 

Foreign exchange gains

 

 

679

 

 

 

599

 

 

 

669

 

 

 

2,188

 

Other, net

 

 

(18

)

 

 

(23

)

 

 

(34

)

 

 

(113

)

Total other income, net

 

 

719

 

 

 

584

 

 

 

792

 

 

 

2,030

 

Loss before income taxes

 

 

(13,268

)

 

 

(7,965

)

 

 

(27,887

)

 

 

(16,407

)

Income tax benefit

 

 

(2,303

)

 

 

(2,783

)

 

 

(5,880

)

 

 

(5,780

)

Net loss

 

$

(10,965

)

 

$

(5,182

)

 

$

(22,007

)

 

$

(10,627

)

Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.84

)

 

$

(0.40

)

 

$

(1.69

)

 

$

(0.82

)

Diluted

 

$

(0.84

)

 

$

(0.40

)

 

$

(1.69

)

 

$

(0.82

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

13,049,696

 

 

 

13,002,616

 

 

 

13,037,069

 

 

 

12,990,129

 

Diluted

 

 

13,049,696

 

 

 

13,002,616

 

 

 

13,037,069

 

 

 

12,990,129

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

4


 

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31, 2016

 

 

March 31, 2015

 

 

March 31, 2016

 

 

March 31, 2015

 

Net loss

 

$

(10,965

)

 

$

(5,182

)

 

$

(22,007

)

 

$

(10,627

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains on available-for-sale securities, net of tax

 

 

31

 

 

 

23

 

 

 

5

 

 

 

21

 

Foreign currency translation adjustments

 

 

(366

)

 

 

(1,966

)

 

 

(1,588

)

 

 

(4,618

)

Total other comprehensive loss

 

 

(335

)

 

 

(1,943

)

 

 

(1,583

)

 

 

(4,597

)

Total comprehensive loss

 

$

(11,300

)

 

$

(7,125

)

 

$

(23,590

)

 

$

(15,224

)

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

5


 

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Six Months Ended

 

 

 

March 31, 2016

 

 

March 31, 2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(22,007

)

 

$

(10,627

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Deferred income expense (benefit)

 

 

2,786

 

 

 

(2,338

)

Depreciation expense

 

 

10,335

 

 

 

10,096

 

Accretion of discounts on short-term-investments

 

 

70

 

 

 

114

 

Stock-based compensation expense

 

 

2,660

 

 

 

2,327

 

Bad debt expense (recovery)

 

 

(623

)

 

 

1,018

 

Inventory obsolescence expense

 

 

4,201

 

 

 

1,662

 

Write-down of inventories

 

 

617

 

 

 

 

Gross loss (profit) from sale of used rental equipment

 

 

60

 

 

 

(1,349

)

Gain on disposal of property, plant and equipment

 

 

 

 

 

(2

)

Realized loss on short-term investments

 

 

3

 

 

 

 

Excess tax expense from stock-based compensation

 

 

(1,390

)

 

 

(1,065

)

Effects of changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts and notes receivable

 

 

4,599

 

 

 

3,559

 

Income tax receivable

 

 

9,918

 

 

 

(6,287

)

Inventories

 

 

2,212

 

 

 

3,303

 

Prepaid expenses and other current assets

 

 

(2,608

)

 

 

4,645

 

Prepaid income taxes

 

 

712

 

 

 

900

 

Accounts payable trade

 

 

(2,567

)

 

 

(2,064

)

Accrued expenses and other

 

 

(4,534

)

 

 

(11,503

)

Deferred revenue

 

 

(110

)

 

 

(3,197

)

Income taxes payable

 

 

73

 

 

 

255

 

Net cash provided by (used in) operating activities

 

 

4,407

 

 

 

(10,553

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(822

)

 

 

(1,418

)

Investment in rental equipment

 

 

(468

)

 

 

(1,799

)

Proceeds from the sale of used rental equipment

 

 

197

 

 

 

3,570

 

Purchases of short-term investments

 

 

(5,602

)

 

 

(1,875

)

Proceeds from the sale of short-term investments

 

 

8,753

 

 

 

1,715

 

Net cash provided by investing activities

 

 

2,058

 

 

 

193

 

Effect of exchange rate changes on cash

 

 

(341

)

 

 

516

 

Increase (decrease) in cash and cash equivalents

 

 

6,124

 

 

 

(9,844

)

Cash and cash equivalents, beginning of fiscal year

 

 

22,314

 

 

 

33,357

 

Cash and cash equivalents, end of fiscal period

 

$

28,438

 

 

$

23,513

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

6


 

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1.

Significant Accounting Policies

Basis of Presentation

The consolidated balance sheet of Geospace Technologies Corporation and its subsidiaries (the “Company”) at September 30, 2015 was derived from the Company’s audited consolidated financial statements at that date.  The consolidated balance sheet at March 31, 2016 and the consolidated statements of operations and comprehensive loss for the three and six months ended March 31, 2016 and 2015, and the consolidated statements of cash flows for the six months ended March 31, 2016 and 2015 were prepared by the Company without audit.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows were made.  The results of operations for the three and six months ended March 31, 2016 are not necessarily indicative of the operating results for a full year or of future operations.

Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America were omitted pursuant to the rules of the Securities and Exchange Commission.  The accompanying consolidated financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2015.

Reclassifications

Certain amounts previously presented in the consolidated financial statements have been reclassified to conform to the current year presentation.  During the three months ended December 31, 2015, the Company elected to early adopt Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2015-17-Income Taxes (Topic 740) requiring all deferred tax assets and liabilities to be classified as non-current on the balance sheet.  The purpose of this adoption was to simplify the presentation of deferred income taxes.  The accompanying balance sheet as of September 30, 2015 has been retrospectively adjusted to reflect the adoption of this standard.  The effect of the adjustment at September 30, 2015 was a $6.4 million decrease in current assets, a $10,000 decrease in current liabilities, a $3.0 million increase in non-current deferred tax assets and a $3.4 million decrease in non-current deferred tax liabilities.  Such reclassification had no effect on our previously reported net loss, stockholders’ equity or cash flows.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenues and expenses 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 bad debt reserves, inventory obsolescence reserves, self-insurance reserves, product warranty reserves, impairment of long-lived assets 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, the results of which form the basis for making judgments about the carrying values of assets and liabilities which are not readily available from other sources.  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.

Short-term Investments

The Company classifies its short-term investments consisting of corporate bonds, government bonds and other such similar investments as available-for-sale securities.  Available-for-sale securities are carried at fair market value with net unrealized holding gains and losses reported each period as a component of accumulated other comprehensive loss in stockholders’ equity.  See note 2 for additional information.

7


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

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 market 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.

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 March 31, 2016, management reviewed the recoverability of the carrying value of the Company’s long-lived assets based on future undiscounted cash flows and determined that no such impairment of these assets was necessary as the expected future cash flows exceeded the carrying value of the assets.

Revenue Recognition – Products and Services

The Company primarily derives revenue from the sale of its manufactured products, including revenue derived from the sale of its manufactured rental equipment.  In addition, the Company generates revenue from the short-term rental under operating leases of its manufactured products.  The Company recognizes revenue from product sales, including the sale of used rental equipment, when (i) title passes to the customer, (ii) the customer assumes the risks and rewards of ownership, (iii) the product sales price has been determined, (iv) collectability of the sales price is reasonably assured, and (v) product delivery occurs as directed by the customer.  Except for certain of the Company’s reservoir characterization products, 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.  The Company recognizes rental revenue as earned over the rental period.  Rentals of the Company’s equipment generally range from daily rentals to rental periods of up to six months or longer.  Revenue from engineering services are recognized as services are rendered over the duration of a project, or as billed on a per hour basis.  Field service revenue are recognized when services are rendered and are generally priced on a per day rate.

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 accrued expenses and other current liabilities on the consolidated balance sheets.  Changes in the warranty reserve are reflected in the following table (in thousands):

 

Balance at October 1, 2015

 

$

2,326

 

Accruals for warranties issued during the period

 

 

53

 

Settlements made (in cash or in kind) during the period

 

 

(1,801

)

Balance at March 31, 2016

 

$

578

 

 

8


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Recent Accounting Pronouncements

In March 2016, the FASB issued guidance to simplify key components of employee share-based payment accounting. The guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

In February 2016, the FASB guidance requiring a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months.  Consistent with current U.S. generally accepted accounting principles, the recognition, measurement and presentation of expense and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.  However, unlike current U.S. generally accepted accounting principles, which requires only capital leases to be recognized on the balance sheet, this new guidance will require both types of leases to be recognized on the balance sheet.  The guidance also requires disclosures to help investors and other financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases.  These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.  The guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2018 and is to be applied using the modified retrospective approach.  The Company has not yet fully determined or quantified the effect the guidance will have on its consolidated financial statements.

In July 2015, the FASB issued guidance requiring management to measure inventory at the lower of cost or net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  The pronouncement is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period and should be applied retrospectively, with early application permitted.  The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.

In August 2014, the FASB issued guidance requiring management to evaluate whether there are conditions and events that raise substantial doubt about the entity's ability to continue as a going concern and to provide disclosures in certain circumstances.  The new guidance was issued to reduce diversity in the timing and content of footnote disclosures. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2016.  The Company will continue to evaluate any significant impacts of this guidance on consolidated financial statement disclosures.

In May 2014, the FASB issued guidance requiring entities to recognize revenue from contracts with customers by applying a five-step model in accordance with the core principle to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this guidance specifies the accounting for some costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition.  In August 2015, the FASB issued guidance deferring the effective date of this guidance to annual periods beginning after December 15, 2017, including interim reporting periods therein. Entities have the option to adopt this guidance either retrospectively or through a modified retrospective transition method.  This new standard will supersede existing revenue guidance and affect the Company's revenue recognition process and the presentations or disclosures of the Company's consolidated financial statements and footnotes. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

 

 

2.

Short-term Investments

 

 

 

As of March 31, 2016 (in thousands)

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Estimated

Fair Value

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

10,692

 

 

$

2

 

 

$

 

 

$

10,694

 

Government bonds

 

 

4,202

 

 

 

2

 

 

 

 

 

 

4,204

 

Total

 

$

14,894

 

 

$

4

 

 

$

 

 

$

14,898

 

9


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

 

 

As of September 30, 2015 (in thousands)

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Estimated

Fair Value

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

15,166

 

 

$

 

 

$

(5

)

 

$

15,161

 

Government bonds

 

 

2,948

 

 

 

3

 

 

 

 

 

 

2,951

 

Total

 

$

18,114

 

 

$

3

 

 

$

(5

)

 

$

18,112

 

 

 

 

3.

Derivative Financial Instruments

At March 31, 2016 and September 30, 2015, the Company’s Canadian subsidiary had $28.1 million of Canadian dollar denominated intercompany accounts payable owed to one of the Company’s U.S. subsidiaries.  In order to mitigate its exposure to movements in foreign currency rates between the U.S. dollar and Canadian dollar, the Company routinely enters into foreign currency forward contracts to hedge a portion of its exposure to changes in the value of the Canadian dollar.  Approximately $3.9 million of these Canadian dollar denominated intercompany accounts payable are considered by management to be of a short-term nature whereby the appreciation or devaluation of the Canadian dollar against the U.S. dollar will result in a gain or loss, respectively, to the consolidated statement of operations.  The Company considers the remaining $24.2 million Canadian dollar denominated intercompany accounts payable to be of a long-term nature and whereby settlement is not planned or anticipated in the foreseeable future; therefore, any resulting foreign exchange gains and losses are reported in the consolidated balance sheets as a component of other comprehensive income in accordance with ASC 830 “Foreign Currency Matters”.  In March 2016, the Company entered into a $3.0 million 90-day hedge contract with a United States bank to hedge a portion of its short-term Canadian dollar foreign exchange rate exposure.  This contract reduces the impact on cash flows from movements in the Canadian dollar/U.S. dollar currency exchange rate, but has not been designated as a hedge for accounting purposes.  At March 31, 2016, the fair value of this contract was $5,000.

The following table summarizes the gross fair value of all derivative instruments, which are not designated as hedging instruments and their location in the consolidated balance sheets (in thousands):

 

Derivative Instrument

 

Location

 

March 31, 2016

 

 

September 30, 2015

 

Foreign Currency Forward Contracts

 

Prepaid Expenses and Other Current Assets

 

$

5

 

 

$

 

Foreign Currency Forward Contracts

 

Accrued Expenses and Other Current Liabilities

 

 

 

 

 

18

 

 

The following table summarizes the Company’s gains on derivative instruments in the consolidated statements of operations for the three and six month periods ended March 31, 2016 and 2015 (in thousands):

 

 

 

 

 

Three Months Ended

  

 

Six Months Ended

 

Derivative Instrument

 

Location of Gain (Loss)

on Derivative Instrument

 

March 31, 2016

 

 

March 31, 2015

 

 

March 31, 2016

  

 

March 31, 2015

 

Foreign Currency Forward Contracts

 

Other Income (Expense)

$

(88

)

 

$

2,023

 

 

$

28

 

 

$

2,948

 

 

Amounts in the above table include realized and unrealized derivative gains and losses.

 

 

4.

Fair Value of Financial Instruments

At March 31, 2016, the Company’s financial instruments included cash and cash equivalents, short-term investments, foreign currency forward contract, trade and notes receivables and accounts payable.  Due to the short-term maturities of cash and cash equivalents, trade and other receivables and accounts payable, the carrying amounts approximate fair value on the respective balance sheet dates.

10


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The Company measures its short-term investments and derivative instruments at fair value on a recurring basis.  The fair value measurement of the Company’s short-term investments and derivative instruments was determined using the following inputs (in thousands):

 

 

 

As of March 31, 2016

 

 

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

 

 

Significant Other Observable (Level 2)

 

 

Significant Unobservable (Level 3)

 

 

Totals

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

10,694

 

 

$

 

 

$

 

 

$

10,694

 

Government bonds

 

 

4,204

 

 

 

 

 

 

 

 

 

4,204

 

Foreign currency forward contract

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Total

 

$

14,898

 

 

$

5

 

 

$

 

 

$

14,903

 

 

 

 

As of September 30, 2015

 

 

 

Quoted Prices in Active Markets for Identical Assets

(Level 1)

 

 

Significant Other Observable

(Level 2)

 

 

Significant Unobservable (Level 3)

 

 

Totals

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

15,161

 

 

$

 

 

$

 

 

$

15,161

 

Government bonds

 

 

2,951

 

 

 

 

 

 

 

 

 

2,951

 

Foreign currency forward contract

 

 

 

 

 

(18

)

 

 

 

 

 

(18

)

Total

 

$

18,112

 

 

$

(18

)

 

$

 

 

$

18,094

 

 

The Company applies fair value techniques on a non-recurring basis in evaluating potential impairment losses related to long-lived assets.

 

 

5.

Accounts and Notes Receivable

Current trade accounts are reflected in the following table (in thousands):

 

 

 

March 31, 2016

 

 

September 30, 2015

 

Trade accounts receivable

 

$

10,513

 

 

$

15,209

 

Allowance for doubtful accounts

 

 

(1,566

)

 

 

(2,516

)

 

 

$

8,947

 

 

$

12,693

 

 

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 review of its balances.  Accounts receivable balances are charged off against the allowance whenever it is probable that the receivable will not be recoverable.  The Company does not have any off-balance-sheet credit exposure related to its customers.

Notes receivable, net are reflected in the following table (in thousands):

 

 

 

March 31, 2016

 

 

September 30, 2015

 

Notes receivable

 

$

3,201

 

 

$

3,520

 

Allowance for doubtful notes

 

 

 

 

 

 

 

 

 

3,201

 

 

 

3,520

 

Less current portion

 

 

849

 

 

 

2,004

 

Non-current notes receivable

 

$

2,352

 

 

$

1,516

 

11


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

 

6.

Inventories

Inventories consist of the following (in thousands):

 

 

 

March 31, 2016

 

 

September 30, 2015

 

Finished goods

 

$

46,245

 

 

$

55,074

 

Work in process

 

 

2,872

 

 

 

5,632

 

Raw material

 

 

74,380

 

 

 

70,769

 

Obsolescence reserve

 

 

(9,366

)

 

 

(6,675

)

 

 

$

114,131

 

 

$

124,800

 

 

During the six months ended March 31, 2016 and 2015, the Company made non-cash inventory transfers of $1.7 million and $0.1 million, respectively, to its rental equipment fleet.  Raw materials include semi-finished goods and component parts totaling $52.3 million and $48.4 million, respectively, at March 31, 2016 and September 30, 2015.

 

 

7.

Long-Term Debt

The Company had no long-term debt outstanding at March 31, 2016 and September 30, 2015.

On March 2, 2011, the Company entered into a credit agreement with Frost Bank with borrowing availability of $50.0 million (the “Credit Agreement”).  On May 4, 2015, the Company amended the Credit Agreement which reduced its borrowing availability to $30.0 million with amounts available for borrowing determined by a borrowing base.  Under the amendments to the Credit Agreement, the borrowing base is determined based upon certain of the Company’s and its U.S. subsidiaries’ assets which include (i) 80% of certain accounts receivable plus (ii) 50% of certain notes receivable (such result not to exceed $10 million) plus (iii) 25% of certain inventories (excluding work-in-process inventories). As of March 31, 2016, the Company’s borrowing base was $33.4 million resulting in borrowing availability of $30.0 million less $0.1 million of outstanding letters of credit.  The Company’s domestic subsidiaries have guaranteed the obligations of the Company under the Credit Agreement and such subsidiaries have secured their obligations under such guarantees by the pledge of substantially all of the assets of such subsidiaries, except real property assets.  The Credit Agreement expires on May 4, 2018 and all borrowed funds are due and payable at that time.  The Company is required to make monthly interest payments on borrowed funds.  The Credit Agreement as amended limits the incurrence of additional indebtedness, requires the maintenance of a single financial ratio that compares certain of the Company’s assets to certain of its liabilities, restricts the Company and its subsidiaries’ ability to pay cash dividends and contains other covenants customary in agreements of this type.  The interest rate for borrowings under the Credit Agreement as amended is based on the Wall Street Journal prime rate, which was 3.50% at March 31, 2016.  At March 31, 2016, the Company was in compliance with all covenants under the Credit Agreement.

 

 

8.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consisted of the following (in thousands):

 

 

 

Unrealized Gains

(Losses) on

Available-for-

Sale Securities

 

 

Foreign

Currency

Translation

Adjustments

 

 

Totals

 

Balance at October 1, 2015

 

$

(3

)

 

$

(12,942

)

 

$

(12,945

)

Changes in unrealized gains on available-for-sale securities, net of tax

 

 

5

 

 

 

 

 

 

5

 

Foreign currency translation adjustments

 

 

 

 

 

(1,588

)

 

 

(1,588

)

Balance at March 31, 2016

 

$

2

 

 

$

(14,530

)

 

$

(14,528

)

 

 

12


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

9.

Stock-Based Compensation 

During the six months ended March 31, 2016, the Company issued 182,400 shares of restricted stock under its 2014 Long Term Incentive Plan, as amended (the “Plan”).  The weighted average grant date fair value of the restricted stock was $14.84 per share.  The grant date fair value of these awards was $2.7 million, which will be charged to expense over the next four years as the restrictions lapse.  Compensation expense for restricted stock awards was determined based on the closing market price of the Company’s stock on the date of grant applied to the total number of shares that are anticipated to fully vest.  Recipients of restricted stock awards are entitled to vote such shares and are entitled to dividends, if paid.

During the six months ended March 31, 2016, the Company also issued 69,300 nonqualified stock options under the Plan.  The options issued are based upon three tiers, each with separate market and service based vesting conditions.  Market based vesting conditions are based on achieving a specified market return on the Company’s stock price.  Compensation expense for the nonqualified stock option awards was determined based on a Monte Carlo simulation, which incorporates the possibility that the market conditions may not be satisfied.   The weighted average grant date fair value of the options issued was determined to be $5.96 per option, with unrecognized compensation costs related to the awards of $0.4 million.  The compensation costs will be charged to expense over the requisite service period of the options, ranging from 18 to 36 months.  

As of March 31, 2016, the Company had unrecognized compensation expense of $9.4 million relating to restricted stock awards.  This unrecognized compensation expense is expected to be recognized over a weighted average period of 3.0 years.  In addition, the Company had $0.4 million of unrecognized compensation expense related to nonqualified stock option awards which is expected to be recognized over a weighted average period of 1.9 years.

As of March 31, 2016, a total of 277,150 shares of restricted stock and 159,000 nonqualified stock options shares were outstanding.

 

 

10.

Loss Per Common Share

The Company applies the two-class method in calculating per share data.  The following table summarizes the calculation of net loss and weighted average common shares and common equivalent shares outstanding for purposes of the computation of loss per share (in thousands, except share and per share data):

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31, 2016

 

 

March 31, 2015

 

 

March 31, 2016

 

 

March 31, 2015

 

Net loss

 

$

(10,965

)

 

$

(5,182

)

 

$

(22,007

)

 

$

(10,627

)

Less: Income allocable to unvested restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

Loss available to common shareholders

 

 

(10,965

)

 

 

(5,182

)

 

 

(22,007

)

 

 

(10,627

)

Reallocation of participating earnings

 

 

 

 

 

 

 

 

 

 

 

 

Loss attributable to common shareholders for diluted earnings per share

 

$

(10,965

)

 

$

(5,182

)

 

$

(22,007

)

 

$

(10,627

)

Weighted average number of common share equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares used in basic loss per share

 

 

13,049,696

 

 

 

13,002,616

 

 

 

13,037,069

 

 

 

12,990,129

 

Common share equivalents outstanding related to stock options

 

 

 

 

 

 

 

 

 

 

 

 

Total weighted average common shares and common share equivalents used in diluted loss per share

 

 

13,049,696

 

 

 

13,002,616

 

 

 

13,037,069

 

 

 

12,990,129

 

Loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.84

)

 

$

(0.40

)

 

$

(1.69

)

 

$

(0.82

)

Diluted

 

$

(0.84

)

 

$

(0.40

)

 

$

(1.69

)

 

$

(0.82

)

 

For the calculation of diluted loss per share for the three and six months ended March 31, 2016 and 2015,  159,000 stock options and 89,700 stock options, respectively, were excluded in the calculation of weighted average shares outstanding as a result of their impact being antidilutive.

 

13


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

11.

Commitments and Contingencies

The Company is involved in various pending or potential 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.  Management is not aware of any material pending or known to be contemplated legal or government proceedings against the Company.

 

 

12.

Segment Information

The Company reports and evaluates financial information for two segments:  Seismic and Non-Seismic. Seismic product lines include: land and marine wireless data acquisition systems, permanent land and seabed reservoir monitoring products and services, geophones and geophone strings, hydrophones, leader wire, connectors, telemetry cables, marine streamer retrieval and steering devices and various other products.  The Non-Seismic product lines include: thermal imaging products and industrial products.

The following table summarizes the Company’s segment information (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31, 2016

 

 

March 31, 2015

 

 

March 31, 2016

 

 

March 31, 2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seismic

 

$

8,501

 

 

$

22,781

 

 

$

16,075

 

 

$

38,374

 

Non-Seismic

 

 

6,287

 

 

 

5,019

 

 

 

11,720

 

 

 

10,450

 

Corporate

 

 

143

 

 

 

142

 

 

 

273

 

 

 

284

 

Total

 

$

14,931

 

 

$

27,942

 

 

$

28,068

 

 

$

49,108

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seismic

 

$

(11,834

)

 

$

(5,744

)

 

$

(23,969

)

 

$

(13,129

)

Non-Seismic

 

 

848

 

 

 

502

 

 

 

1,410

 

 

 

1,360

 

Corporate

 

 

(3,001

)

 

 

(3,307

)

 

 

(6,120

)

 

 

(6,668

)

Total

 

$

(13,987

)

 

$

(8,549

)

 

$

(28,679

)

 

$

(18,437

)

 

 

13.

Income Taxes

The Company’s effective tax rates for the three months ended March 31, 2016 and 2015 were (17.4)% and (34.9)%, respectively.  The Company’s effective tax rates for the six months ended March 31, 2016 and 2015 were (21.1)% and (35.2)%, respectively. The United States statutory tax rate for the same periods was 35%. The lower effective tax rates resulted from (i) the provision of a valuation allowance against the Company’s Canadian subsidiary’s deferred tax assets of $0.5 million and $2.5 million, respectively, for the three months and six months ended March 31, 2016, to fully offset the value of its deferred tax assets, and (ii) a net adjustment totaling $1.2 million and $1.0 million, respectively, for the three months and six months ended March 31, 2016 to correct the Company’s fiscal year 2015 income tax benefit.  The Company has concluded that the tax correction was immaterial to its fiscal year 2015 financial statements and, therefore, such adjustments were reported in the Company’s financial statements for each of the periods ended March 31, 2016.

 

 

 

14


 

Item 2. 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 Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q 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 (the “Exchange Act”).  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 and sale of our products in various geographic regions, anticipated levels of capital expenditures and the sources of funding therefore, and our strategy for growth, product development, market position, financial results and reserves.  These forward-looking statements reflect our best 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” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015, as well as other cautionary language in such Annual Report and this Quarterly Report, 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.  The occurrence of the events described in these risk factors and elsewhere in this Quarterly Report on Form 10-Q 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.

Business Overview

Geospace Technologies Corporation is a Texas corporation originally incorporated in Delaware on September 27, 1994.  Unless otherwise specified, the discussion in this Quarterly Report on Form 10-Q refers to Geospace Technologies Corporation and its subsidiaries.

We design and manufacture instruments and equipment used in the acquisition and processing of seismic data as well as in the characterization and monitoring of producing oil and gas reservoirs.  Demand for our products 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” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015.

We have engaged in the seismic instrument and equipment business since 1980 and market our products primarily to the oil and gas industry.  We also design, manufacture and distribute non-seismic equipment including thermal imaging equipment and industrial products.  We report and categorize our customers and products into two different segments: Seismic and Non-Seismic.

Available Information

We file annual, quarterly and current 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 http://www.sec.gov.  You may also read and copy any document we file at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549.  Please call the SEC at 1-800-SEC-0330 for further information on their public reference room.  Our SEC filings are also available to the public on our website at http://www.geospace.com.  From time to time, we may post investor presentations on our website under the “Investor Relations” tab.  Please note that information contained on our website, whether currently posted or posted in the future, is not a part of this Quarterly Report on Form 10-Q or the documents incorporated by reference in this Quarterly Report on Form 10-Q.

15


 

Products and Product Development

Seismic Products

Our seismic 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. Our seismic product lines currently consist of land and marine nodal data acquisition systems, permanent land and seabed reservoir monitoring products and services, geophones and geophone strings, hydrophones, leader wire, connectors, telemetry cables, marine streamer retrieval and steering devices and various other products. Our seismic products are compatible with most major competitive seismic data acquisition systems currently in use. We believe that our seismic 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 which 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 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. Sales result 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.

Our products used in marine seismic data acquisition include our marine seismic streamer retrieval devices (“SRDs”). Occasionally, streamer cables are severed and become disconnected from the vessel as a result of obstacles, inclement weather, vessel traffic or human error. Our SRDs, which are attached to the streamer cables, contain air bags which are designed to inflate automatically at a given water depth, bringing the severed streamer cables to the surface. These SRDs save the seismic contractors significant time and money compared to the alternative of losing the streamer cable. We also produce seismic streamer steering devices, or “birds,” which are fin-like devices that attach to the streamer cable. These birds help maintain the streamer cable at a certain desired depth as it is being towed through the water.

Our wholly-owned subsidiary in the Russian Federation manufactures international standard geophones, sensors, seismic leader wire, seismic telemetry cables and related seismic products for customers in the Russian Federation and other international seismic marketplaces. We have a branch office in Colombia that primarily rents seismic equipment to our customers in the South American market.

Wireless Products

We have developed a land-based wireless (or nodal) seismic data acquisition system called the GSX.  Each GSX station operates independently and therefore can be deployed in virtually unlimited channel configurations.  Rather than utilizing interconnecting cables as required by most traditional land data acquisition systems, each GSX station operates as an independent data collection system.  As a result, our GSX system requires 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.  Our GSX system is designed into configurations ranging from one to four channels per station.  Since its introduction in 2008 and through March 31, 2016, we have sold 332,000 GSX channels and we have 130,000 GSX channels in our rental fleet.  Due to depressed seismic industry conditions, we do not expect to expand our GSX rental fleet in the foreseeable future.

We have also developed a marine-based wireless seismic data acquisition system called the OBX.  Similar to our GSX land-based wireless system, the marine OBX system can be deployed in virtually unlimited channel configurations and does not require interconnecting cables between each station.  Our deep water versions of the OBX system can be deployed in depths of up to 3,450 meters.  Through March 31, 2016, we have sold 460 OBX stations and we have 5,100 OBX stations in our rental fleet.  

16


 

Reservoir Products

Seismic surveys repeated over selected time intervals show dynamic changes within the reservoir and can be used to monitor the effects of oil and gas production. In this regard, we have developed permanently installed high-definition reservoir monitoring systems for land and ocean-bottom applications in producing oil and gas fields. We also produce a retrievable version of our ocean-bottom system for use on fields where permanently installed systems are not appropriate or economical. Utilizing these tools, producers can enhance the recovery of oil and gas deposits over the life of a reservoir.

Our high-definition reservoir monitoring products include the HDSeis™ product line and a suite of borehole and reservoir monitoring products and services. Our HDSeis™ system is a high-definition seismic data acquisition system with flexible architecture that allows it to be configured as a borehole seismic system or as a subsurface system for both land and marine reservoir-monitoring projects. The scalable architecture of the HDSeis™ system enables custom designed system 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 imaging and monitoring. Modular architecture allows virtually unlimited channel expansion. In addition, multi-system synchronization features make the HDSeis™ system well suited for multi-well or multi-site acquisition, simultaneous surface and downhole acquisition and continuous reservoir monitoring projects.

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. We believe our HDSeis™ system and tools, designed for cost-effective deployment and lifetime performance, will make borehole and seabed seismic acquisition a cost-effective and reliable process for the challenges of reservoir monitoring. Our multi-component seismic product developments 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 not delivered nor did we receive orders for any permanent reservoir monitoring systems during fiscal year 2015 or during the first six months of fiscal year 2016.

In addition, we produce seismic borehole acquisition systems which 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 fracturing operations.

Non-Seismic Products

Our non-seismic businesses leverage upon our existing manufacturing facilities and engineering capabilities. We have found that many of our seismic products, with little or no modification, have direct application to industries beyond those involved in oil and gas exploration and development. For example, our customers utilize our seismic borehole tools to monitor subsurface carbon dioxide injections and for mine safety applications.

Our non-seismic products include thermal imaging products targeted at the commercial graphics industry as well as various industrial products including (i) sensors and tools for vibration monitoring, mine safety application and earthquake detection, (ii) cables for power and communication for the offshore oil and gas and offshore construction industries, and (iii) water meter cables and other specialty cable and connector products.

17


 

Consolidated Results of Operations

We report and evaluate financial information for two segments: Seismic and Non-Seismic.  Summary financial data by business segment follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

March 31, 2016

 

 

March 31, 2015

 

 

March 31, 2016

 

 

March 31, 2015

 

Seismic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Traditional exploration product revenue

 

$

3,205

 

 

$

9,569

 

 

$

8,192

 

 

$

17,290

 

Wireless exploration product revenue

 

 

4,714

 

 

 

12,085

 

 

 

6,604

 

 

 

17,779

 

Reservoir product revenue

 

 

582

 

 

 

1,127

 

 

 

1,279

 

 

 

3,305

 

Total revenue

 

 

8,501

 

 

 

22,781

 

 

 

16,075

 

 

 

38,374

 

Operating loss

 

 

(11,834

)

 

 

(5,744

)

 

 

(23,969

)

 

 

(13,129

)

Non-Seismic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

6,287

 

 

 

5,019

 

 

 

11,720

 

 

 

10,450

 

Operating income

 

 

848