UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

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

 

[X]

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

for the Quarterly Period Ended DecemberMarch 31, 2017 2024OR

[   ]

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

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 Jurisdictionother jurisdiction of

incorporation or organization)

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

7007 Pinemont

Houston, Texas

77040

(Address of principal executive offices)

(Zip Code)

7007 Pinemont Drive

Houston, Texas  77040-6601

(Address of Principal Executive Offices) (Zip Code)

(713) 986-4444

(Registrant’sRegistrants telephone number, including area code)code: (713) 986-4444


Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

GEOS

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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 ☒ No ☐

Yes    X    No 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Yes    No    X

There were 13,563,491As of April 30, 2024, the registrant had 13,362,090 shares of the Registrant’s Common Stock outstanding as of the close of business on January 31, 2018.common stock, $0.01 par value, per share outstanding.



 


Table of Contents

 

Page

Number

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

1715

Item 3. Quantitative and Qualitative Disclosures about Market Risk

2318

Item 4. Controls and Procedures

2419

PART II. OTHER INFORMATION

Item 6. Exhibits

2520

2


PART I - FINANCIALFINANCIAL INFORMATION

Item 1. Financial Statements

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)thousands except share amounts)

(unaudited)

 

 

December 31, 2017

 

 

September 30, 2017

 

 

March 31, 2024

  

September 30, 2023

 

ASSETS

 

 

 

 

 

 

 

 

      

Current assets:

 

 

 

 

 

 

 

 

     

Cash and cash equivalents

 

$

13,923

 

 

$

15,092

 

 $20,762  $18,803 

Short-term investments

 

 

32,085

 

 

 

36,137

 

 30,448  14,921 

Trade accounts receivable, net

 

 

7,011

 

 

 

9,435

 

Financing receivables

 

 

5,793

 

 

 

3,055

 

Income tax receivable

 

 

263

 

 

 

273

 

Inventories

 

 

19,994

 

 

 

20,752

 

Trade accounts and note receivable, net

 15,330  21,373 

Inventories, net

 23,932  18,430 

Prepaid expenses and other current assets

 

 

1,939

 

 

 

1,623

 

  1,611   2,251 

Total current assets

 

 

81,008

 

 

 

86,367

 

 92,083  75,778 

 

 

 

 

 

 

 

 

     

Non-current inventories, net

 18,141  24,888 

Rental equipment, net

 

 

15,542

 

 

 

16,462

 

 15,077  21,587 

Property, plant and equipment, net

 

 

36,475

 

 

 

37,399

 

 24,552  24,048 

Non-current inventories

 

 

56,184

 

 

 

55,935

 

Deferred income tax assets, net

 

 

305

 

 

 

259

 

Non-current financing receivables, net

 

 

7,032

 

 

 

8,195

 

Prepaid income taxes

 

 

56

 

 

 

450

 

Other assets

 

 

619

 

 

 

629

 

Non-current trade accounts receivable

 1,510  

Operating right-of-use assets

 590  714 

Goodwill

 736  736 

Other intangible assets, net

 4,601  4,805 

Other non-current assets

  408   486 

Total assets

 

$

197,221

 

 

$

205,696

 

 $157,698  $153,042 

 

 

 

 

 

 

 

 

     

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

      

Current liabilities:

 

 

 

 

 

 

 

 

     

Accounts payable trade

 

$

3,322

 

 

$

2,599

 

 $4,955  $6,659 

Accrued expenses and other current liabilities

 

 

6,516

 

 

 

6,338

 

Deferred revenue

 

 

1,461

 

 

 

1,568

 

Operating lease liabilities

 257  257 

Other current liabilities

  9,863   12,882 

Total current liabilities

 

 

11,299

 

 

 

10,505

 

 15,075  19,798 

 

 

 

 

 

 

 

 

     

Deferred income tax liabilities

 

 

29

 

 

 

37

 

Non-current operating lease liabilities

 397  512 

Deferred tax liabilities, net

  32   16 

Total liabilities

 

 

11,328

 

 

 

10,542

 

  15,504   20,326 

 

 

 

 

 

 

 

 

     

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

       

 

 

 

 

 

 

 

 

     

Stockholders’ equity:

 

 

 

 

 

 

 

 

     

Preferred stock, 1,000,000 shares authorized, no shares issued and outstanding

 

 

 

 

 

 

    

Common stock, $.01 par value, 20,000,000 shares authorized, 13,560,291 and 13,438,316 shares issued and outstanding

 

 

136

 

 

 

134

 

Common Stock, $.01 par value, 20,000,000 shares authorized; 14,204,082 and 14,030,481 shares issued, respectively; and 13,362,090 and 13,188,489 shares outstanding, respectively

 142  140 

Additional paid-in capital

 

 

84,557

 

 

 

83,733

 

 96,800  96,040 

Retained earnings

 

 

115,686

 

 

 

125,517

 

 70,212  61,860 

Accumulated other comprehensive loss

 

 

(14,486

)

 

 

(14,230

)

 (17,460) (17,824)

Treasury stock, at cost, 841,992 shares

  (7,500)  (7,500)

Total stockholders’ equity

 

 

185,893

 

 

 

195,154

 

  142,194   132,716 

Total liabilities and stockholders’ equity

 

$

197,221

 

 

$

205,696

 

 $157,698  $153,042 

 

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

 

 

 

December 31, 2017

 

 

December 31, 2016

 

Revenue:

 

 

 

 

 

 

 

 

Products

 

$

13,425

 

 

$

10,297

 

Rental equipment

 

 

1,219

 

 

 

4,988

 

Total revenue

 

 

14,644

 

 

 

15,285

 

Cost of revenue:

 

 

 

 

 

 

 

 

Products

 

 

13,243

 

 

 

14,836

 

Rental equipment

 

 

2,369

 

 

 

3,776

 

Total cost of revenue

 

 

15,612

 

 

 

18,612

 

 

 

 

 

 

 

 

 

 

Gross profit (loss)

 

 

(968

)

 

 

(3,327

)

Operating expenses:

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

5,129

 

 

 

5,094

 

Research and development

 

 

3,158

 

 

 

3,372

 

Bad debt expense (recovery)

 

 

350

 

 

 

(482

)

Total operating expenses

 

 

8,637

 

 

 

7,984

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(9,605

)

 

 

(11,311

)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(64

)

 

 

(8

)

Interest income

 

 

263

 

 

 

130

 

Foreign exchange losses, net

 

 

(43

)

 

 

(65

)

Other, net

 

 

(25

)

 

 

(17

)

Total other income, net

 

 

131

 

 

 

40

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(9,474

)

 

 

(11,271

)

Income tax expense

 

 

6

 

 

 

434

 

Net loss

 

$

(9,480

)

 

$

(11,705

)

 

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.72

)

 

$

(0.89

)

Diluted

 

$

(0.72

)

 

$

(0.89

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

13,202,384

 

 

 

13,094,809

 

Diluted

 

 

13,202,384

 

 

 

13,094,809

 

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


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

Three Months Ended

 

 

 

December 31, 2017

 

 

December 31, 2016

 

Net loss

 

$

(9,480

)

 

$

(11,705

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

Change in unrealized losses on available-for-sale securities

 

 

(51

)

 

 

(62

)

Foreign currency translation adjustments

 

 

(205

)

 

 

(306

)

Total other comprehensive loss, net of tax

 

 

(256

)

 

 

(368

)

Total comprehensive loss

 

$

(9,736

)

 

$

(12,073

)

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


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three Months Ended

 

 

 

December 31, 2017

 

 

December 31, 2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,480

)

 

$

(11,705

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Deferred income tax expense (benefit)

 

 

(55

)

 

 

34

 

Rental equipment depreciation

 

 

2,247

 

 

 

3,308

 

Property, plant and equipment depreciation

 

 

1,095

 

 

 

1,313

 

Accretion of discounts on short-term investments

 

 

13

 

 

 

16

 

Stock-based compensation expense

 

 

826

 

 

 

1,375

 

Bad debt expense (recovery)

 

 

350

 

 

 

(482

)

Inventory obsolescence expense

 

 

1,434

 

 

 

4,147

 

Gross profit from sale of used rental equipment

 

 

(2,566

)

 

 

(1,201

)

Realized loss on short-term investments

 

 

 

 

 

1

 

Effects of changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

2,562

 

 

 

2,312

 

Income tax receivable

 

 

10

 

 

 

 

Inventories

 

 

(2,865

)

 

 

(1,507

)

Prepaid expenses and other current assets

 

 

(329

)

 

 

(39

)

Prepaid income taxes

 

 

41

 

 

 

393

 

Accounts payable trade

 

 

723

 

 

 

(348

)

Accrued expenses and other

 

 

267

 

 

 

(257

)

Deferred revenue

 

 

(65

)

 

 

771

 

Income tax payable

 

 

 

 

 

(31

)

Net cash used in operating activities

 

 

(5,792

)

 

 

(1,900

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(218

)

 

 

(106

)

Proceeds from the sale of used rental equipment

 

 

997

 

 

 

1,915

 

Purchases of short-term investments

 

 

(1,905

)

 

 

 

Proceeds from the sale of short-term investments

 

 

5,898

 

 

 

2,674

 

Net cash provided by investing activities

 

 

4,772

 

 

 

4,483

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

 

 

 

50

 

Net cash provided by financing activities

 

 

 

 

 

50

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(149

)

 

 

(101

)

Increase (decrease) in cash and cash equivalents

 

 

(1,169

)

 

 

2,532

 

Cash and cash equivalents, beginning of fiscal year

 

 

15,092

 

 

 

10,262

 

Cash and cash equivalents, end of fiscal period

 

$

13,923

 

 

$

12,794

 

  

Three Months Ended

  

Six Months Ended

 
  

March 31, 2024

  

March 31, 2023

  

March 31, 2024

  

March 31, 2023

 

Revenue:

                

Products

 $19,497  $17,701  $63,211  $37,249 

Rental

  4,773   13,669   11,091   25,230 

Total revenue

  24,270   31,370   74,302   62,479 

Cost of revenue:

                

Products

  14,995   13,196   38,837   28,561 

Rental

  3,394   5,225   7,348   10,435 

Total cost of revenue

  18,389   18,421   46,185   38,996 
                 

Gross profit

  5,881   12,949   28,117   23,483 
                 

Operating expenses:

                

Selling, general and administrative

  6,546   6,387   12,372   12,822 

Research and development

  3,863   3,483   7,465   7,741 

Provision for credit losses

  (22)  17   (51)  137 

Total operating expenses

  10,387   9,887   19,786   20,700 
                 

Gain on disposal of property

     1,315      1,315 
                 

Income (loss) from operations

  (4,506)  4,377   8,331   4,098 
                 

Other income (expense):

                

Interest expense

  (44)  (39)  (100)  (78)

Interest income

  247   127   482   283 

Foreign currency transaction gains (losses), net

  (20)  185   (183)  292 

Other, net

  7   6   (67)  (6)

Total other income, net

  190   279   132   491 
                 

Income (loss) before income taxes

  (4,316)  4,656   8,463   4,589 

Income tax expense

  11   19   111   49 

Net income (loss)

 $(4,327) $4,637  $8,352  $4,540 
                 

Income (loss) per common share:

                

Basic

 $(0.32) $0.35  $0.63  $0.35 

Diluted

 $(0.32) $0.35  $0.62  $0.35 
                 

Weighted average common shares outstanding:

                

Basic

  13,343,793   13,156,715   13,297,324   13,111,866 

Diluted

  13,343,793   13,156,715   13,471,775   13,111,866 

 

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

 

4

 

6


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

  

Three Months Ended

  

Six Months Ended

 
  

March 31, 2024

  

March 31, 2023

  

March 31, 2024

  

March 31, 2023

 

Net income (loss)

 $(4,327) $4,637  $8,352  $4,540 

Other comprehensive income (loss):

                

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

  (20)  7   (5)  15 

Foreign currency translation adjustments

  (122)  (1,348)  369   (1,342)

Total other comprehensive income (loss)

  (142)  (1,341)  364   (1,327)

Total comprehensive income (loss)

 $(4,469) $3,296  $8,716  $3,213 

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

5

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE six months ended March 31, 2024 and 2023

(in thousands, except share amounts)

(unaudited)

  

Common Stock

          

Accumulated

         
          

Additional

      

Other

         
  

Shares

      

Paid-In

  

Retained

  

Comprehensive

  

Treasury

     
  

Outstanding

  

Amount

  

Capital

  

Earnings

  

Loss

  

Stock

  

Total

 

Balance at October 1, 2023

  13,188,489  $140  $96,040  $61,860  $(17,824) $(7,500) $132,716 

Net income

           12,679         12,679 

Other comprehensive income

              506      506 

Issuance of common stock pursuant to the vesting of restricted stock units

  128,601   2   (2)            

Stock-based compensation

        406            406 

Balance at December 31, 2023

  13,317,090   142   96,444   74,539   (17,318)  (7,500)  146,307 
                             

Net loss

           (4,327)        (4,327)

Other comprehensive loss

              (142)     (142)

Issuance of common stock pursuant to the vesting of restricted stock units

  45,000                   

Stock-based compensation

        356            356 

Balance at March 31, 2024

  13,362,090  $142  $96,800  $70,212  $(17,460) $(7,500) $142,194 
                             

Balance at October 1, 2022

  13,021,241  $139  $94,667  $49,654  $(15,313) $(7,500) $121,647 

Net loss

           (97)        (97)

Other comprehensive income

              14      14 

Issuance of common stock pursuant to the vesting of restricted stock units

  109,748   1               1 

Stock-based compensation

        370         -   370 

Balance at December 31, 2022

  13,130,989   140   95,037   49,557   (15,299)  (7,500)  121,935 
                             

Net income

           4,637         4,637 

Other comprehensive loss

              (1,341)     (1,341)

Issuance of common stock pursuant to the vesting of restricted stock units

  40,500                   

Stock-based compensation

        306            306 

Balance at March 31, 2023

  13,171,489  $140  $95,343  $54,194  $(16,640) $(7,500) $125,537 

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

6

GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

  

Six Months Ended

 
  

March 31, 2024

  

March 31, 2023

 

Cash flows from operating activities:

        

Net income

 $8,352  $4,540 

Adjustments to reconcile net income to net cash used in operating activities:

        

Deferred income tax expense

  15    

Rental equipment depreciation

  6,026   6,442 

Property, plant and equipment depreciation

  1,682   1,896 

Amortization of intangible assets

  204   430 

Amortization of premiums (accretion of discounts) on short-term investments

  (234)  1 

Stock-based compensation expense

  762   676 

Provision for (recovery of) credit losses

  (51)  137 

Inventory obsolescence expense

  110   1,836 

Gross profit from sale of rental equipment

  (20,553)  (3,925)

Gain on disposal of property

     (1,315)

Loss (gain) on disposal of equipment

  10   (464)

Effects of changes in operating assets and liabilities:

        

Trade accounts and note receivable

  5,963   (8,352)

Inventories

  (5,566)  (7,882)

Other assets

  873   1,702 

Accounts payable trade

  (684)  (574)

Other liabilities

  (3,180)  (226)

Net cash used in operating activities

  (6,271)  (5,078)
         

Cash flows from investing activities:

        

Purchase of property, plant and equipment

  (3,166)  (1,126)

Proceeds from the sale of property, plant and equipment

  2   4,221 

Investment in rental equipment

  (3,949)  (635)

Proceeds from the sale of rental equipment

  30,502   8,794 

Purchases of short-term investments

  (19,293)   

Proceeds from the sale of short-term investments

  4,000   900 

Net cash provided by investing activities

  8,096   12,154 
         

Cash flows from financing activities:

        

Payments on contingent consideration

     (175)
         

Effect of exchange rate changes on cash

  134   (205)

Increase in cash and cash equivalents

  1,959   6,696 

Cash and cash equivalents, beginning of period

  18,803   16,109 

Cash and cash equivalents, end of period

 $20,762  $22,805 
         

SUPPLEMENTAL CASH FLOW INFORMATION:

        

Cash paid for income taxes

 $  $26 

Inventory transferred to rental equipment

  5,352   82 

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

7

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, 20172023 was derived from the Company’s audited consolidated financial statements at that date. The consolidated balance sheet at DecemberMarch 31, 20172024 and the consolidated statements of operations, comprehensive lossincome (loss), stockholders’ equity and the consolidated statements of cash flows for the three and six months ended DecemberMarch 31, 2017 2024 and 20162023 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. All significant intercompany balances and transactions have been eliminated. The results of operations for the three and six months ended DecemberMarch 31, 20172024 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 ("U.S. GAAP") 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-K10-K for the Company’s fiscal year ended September 30, 2017.2023.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of AmericaU.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 consolidated financial statements. The Company continually evaluates its estimates, including those related to bad debt reserves,revenue recognition, credit loss, 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 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. ActualWhile 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.

Short-term Investments

The Company classifies its short-term investments consisting of corporate bonds, government bonds  At March 31, 2024, cash 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.

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 ofcash equivalents included $3.3 million held by the Company’s foreign subsidiaries use an average cost methodand branch offices, including $2.0 million held by its subsidiary in the Russian Federation.  In response to valuesanctions 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 inventories.

TheRussian-based operations to locations outside of Russia. As a result, this cash can be used in our Russian operations, but the Company periodically reviewsmay be unable to transfer it out of Russia without incurring substantial costs, if at all. In addition, if the composition ofCompany were to repatriate the cash held by its inventoriesRussian subsidiary, it would be required to determine if market demand, product modifications, technology changes, excessive quantities on-handaccrue 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 inventory investment will not be realized in its operating activities.

The Company reviews its 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 noncurrent assets.

7


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)pay taxes on any amount repatriated.

 

Impairment of Long-lived Assets

The Company’sCompany's long-lived assets are reviewed for impairment whenever an event or change in circumstancescircumstance indicates that the carrying amount of an asset or group of assets may not be recoverable. The impairment review, if necessary, includes a comparison of the 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. 

Revenue Recognition – Products and Services

The Company primarily derives revenue fromDuring the salequarter ended March 31, 2024, no events or changes in circumstances were identified indicating the carrying value 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 allany of the following have occurred: (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.  Although infrequent, in cases where collectability is Company's asset groups may not reasonably assured, the installment or cost recovery method is used.  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 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.

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, 2017

$

508

 

Accruals for warranties issued during the period

 

197

 

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

 

(150

)

Balance at December 31, 2017

$

555

 

8


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) be recoverable.

 

Recently Adopted Accounting Pronouncements

In OctoberJune 2016, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued guidance which eliminates the exception of recognizing, at the time of transfer, current and deferred income taxes for intercompany profits on intra-entity asset transfers other than inventory.  The Company adopted this guidance in its first quarter of its fiscal year ending September 30, 2018 using the modified retrospective approach.  The adoption resulted in a cumulative-effect adjustment to opening retained earnings of $0.4 million.  Under prior guidance, the Company maintained a non-current prepaid income tax asset on its consolidated balance sheets representing income taxes paid in the U.S. on profits realized from the sale of rental equipment to its foreign subsidiaries.  As this rental equipment was depreciated, the prepaid tax was recognized as a current income tax expense in the Company’s consolidated statement of operations.  Under the new guidance, the Company is required to recognize a deferred tax asset related to the intercompany profits realized on the sale of non-inventory assets to its subsidiaries; however, profits realized from the intercompany sale of inventories will continue to be accounted for as a prepaid income tax asset in accordance with the prior guidance.  Under the new guidance, the deferred tax asset resulting from the sale of non-inventory assets is recognized at the jurisdictional tax rate of the subsidiary which purchased the asset.  Any differences between the subsidiary’s jurisdictional tax rate and the seller’s tax rate pertaining to the intercompany profit are charged to seller’s current income tax expense at the time of the sale.  With the recent reduction in the U.S. income tax rate to 21%, and assuming that a majority of the Company’s equipment sales will continue to be made to its Canadian subsidiary having a higher statutory tax rate, the new guidance is expected to have a favorable impact on the Company’s provision for income taxes in future periods.  Due to the fact the Company has a valuation allowance against its net deferred tax assets, the adoption of this guidance had no impact upon the Company’s income tax expense for the three months ended December 31, 2017.

In March 2016, the FASB issued guidance to simplify key components of employee share-based payment accounting.  The new guidance simplifies several aspects of the accounting for share-based payment transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification of excess tax benefits from share-based payments on the statement of cash flows.  The Company adopted this guidance in the first quarter of its fiscal year ending September 30, 2018.  No cumulative effect adjustment to retained earnings was needed upon adoption as the Company has no unrecorded excess tax benefits residing in additional paid-in-capital account.  Under the prior standard, the Company was required to track and record as a component of additional paid-in capital the tax impact of cumulative windfalls, net of any shortfalls, which resulted from excess tax benefits from share-based payments. As a result, the impact of net windfalls has not historically affected the Company’s provision for income taxes or its effective income tax rate.  Under the new guidance, the Company will no longer track windfalls or shortfalls resulting from share-based payments since all future windfalls and shortfalls will be recorded as a component of the Company’s current provision for income taxes.  Depending on the magnitude of future windfalls or shortfalls, this change could significantly affect the Company’s provision for income taxes in a positive or negative direction.  Due to the fact the Company has a valuation allowance against its net deferred tax assets, the adoption of this guidance had no impact upon the Company’s income tax expense for the three months ended December 31, 2017.

In July 2015, the FASB issued guidance requiring management to measure inventory at the lower of cost or net realizable value.  Under the new guidance, net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.    Since the Company is a manufacturer and the nature of its inventory is generally unique to its designs and applications thus preventing the gathering of relevant external market data, its existing practice for calculating net realizable value under the current standard is consistent with the practice prescribed by the new guidance.  The Company adopted this standard in its first quarter of its fiscal year ending September 30, 2018. The adoption did not have a material effect upon the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In November 2016, the FASB issued guidance which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.  Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  This guidance must be adopted by the Company no later than its first quarter of fiscal year 2019 and should be applied on a retrospective transition basis.  The Company has historically not held restricted cash balances and, therefore, does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.  However, upon adoption of this guidance, the Company will make any necessary changes to present restricted cash balances in accordance with the guidance.  

9


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

In June 2016, the FASB issued guidance surrounding credit losses for financial instruments that replaces the incurred loss impairment methodology in current U.S. generally accepted accounting principles (“GAAP”).principles. 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. The standard is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods.  Early adoption for a fiscal year beginning after December 15, 2018 is permitted.  Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period.  The Company expects to adoptadopted this standard during the first quarter of its fiscal year ending September 30, 2021 and is currently evaluating the impacton October 1, 2023. The adoption of this new guidancestandard did not have any material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In February 2016, November 2023, the FASB issued guidance requiring a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months.  Consistent with current GAAP, the recognition, measurement and presentation of expense and cash flows arising from a lease by a lesseewhich updates reportable segment disclosure requirements primarily will depend on its classification of the lease as a finance or operating lease.  However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new guidance will also require operating leases of the lessee to be recognized on the balance sheet if the operating lease term is more than 12 months.  The guidance also requiresthrough enhanced 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.significant segment expenses.  The guidance is effective for fiscal years and interim reporting periods therein, beginning after December 15, 2018 2023, and for interim periods within fiscal years beginning after December 15, 2024.  Early adoption is topermitted.  The guidance shall be applied usingretrospectively to all prior periods presented in the modified retrospective approach.  The Company expects to adopt this standard in its first quarter of its fiscal year ending September 30, 2020.  The Company currently is not a lessee under any lease agreements with a term longer than one year.financial statements.  The Company is routinely a lessor in its rental contracts with customers; however, these rental agreements are generally short-term in nature,currently evaluating the provisions of this guidance and the Company believes would be treated as operating leases underimpact on its consolidated financial statements. 

All other new accounting pronouncements that have been issued, but not yet effective, are currently being evaluated and at this time are not expected to have a material impact on the new guidance; however,Company's financial position or results of operations.

8

2. Revenue Recognition

In accordance with ASC Topic 606,Revenue from Contracts with Customers (“ASC 606”), the Company has not completed a detailed reviewrecognizes revenue when performance of its lease arrangements, and these conclusionscontractual obligations are subject to change.    

In May 2014,satisfied, generally when control of 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 is transferred to its customers, in an amount that reflects the consideration to which the entityit expects to be entitled to in exchange for those goods or services.  In addition, this guidance specifies

The Company primarily derives product revenue from the accounting for some costs to obtain or fulfillsale 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 with a customerare satisfied, control is transferred 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 disclosurescollectability of the Company's consolidated financial statements and footnotes.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 through three primary transactions types:  (i)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 immediate recognitionterms 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.

At March 31, 2024, the Company had deferred contract liabilities of $0.3 million and no deferred contract cost.  At September 30, 2023, the Company had deferred liabilities of $0.7 million and no deferred contract costs.  During the three and six months ended March 31, 2024, revenue of $0.7 million and $0.7 million, respectively, was recognized from deferred contract liabilities.  During the three and six months ended March 31, 2024, no cost of revenue throughwas recognized from deferred contract costs.  During the routine deliverythree and six months ended March 31, 2023, no revenue was recognized from deferred contract liabilities and no cost of revenue was recognized from deferred contract costs.  At March 31, 2024, all contracts had an original expected duration of one year or less.

For each of the Company’s operating segments, the following table presents revenue (in thousands) only from the sale of products to its customers, (ii)and the performance of services under contracts with customers.  Therefore, the table excludes all revenue earned from rental of equipment to its customers through short-term operating leases, and (iii) the recognition of revenue utilizing the percentage of completion method for the delivery of complex products requiring long manufacturing times and substantial engineering resources.  The Company expects to adopt this standard in the first quarter of its fiscal year ending September 30, 2019 and is in the early stages of evaluating the standard, including the method of adoption to determine the impact on its consolidated financial statements.  Further disclosures around policy changes or quantitative effects will be made as the Company moves closer to the adoption of this standard.contracts.

 

2.   Short-term Investments

  

Three Months Ended

  

Six Months Ended

 
  

March 31, 2024

  

March 31, 2023

  

March 31, 2024

  

March 31, 2023

 

Oil and Gas Markets

                

Traditional exploration product revenue

 $3,472  $3,296  $5,234  $6,051 

Wireless exploration product revenue

  2,679   1,411   34,548   7,170 

Reservoir product revenue

  41   132   114   287 

Total revenue

  6,192   4,839   39,896   13,508 
                 

Adjacent Markets

                

Industrial product revenue

  9,023   9,642   15,466   17,572 

Imaging product revenue

  3,169   3,029   6,502   5,885 

Total revenue

  12,192   12,671   21,968   23,457 
                 

Emerging Markets

                

Revenue

  1,113   191   1,347   284 
                 

Total

 $19,497  $17,701  $63,211  $37,249 

 

 

 

As of December 31, 2017 (in thousands)

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair

Value

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

21,739

 

 

$

 

 

$

(67

)

 

$

21,672

 

Government bonds

 

 

10,452

 

 

 

 

 

 

(39

)

 

 

10,413

 

Total

 

$

32,191

 

 

$

 

 

$

(106

)

 

$

32,085

 

See Note 12 for more information on the Company’s operating segments.

9

10


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

As of September 30, 2017 (in thousands)

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair

Value

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

22,829

 

 

$

 

 

$

(31

)

 

$

22,798

 

Government bonds

 

 

13,363

 

 

 

 

 

 

(24

)

 

 

13,339

 

Total

 

$

36,192

 

 

$

 

 

$

(55

)

 

$

36,137

 

 

 

For each of the geographic areas where the Company operates, the following table presents revenue (in thousands) from the sale of products and services under contracts with customers. The table excludes all revenue earned from rental contracts:

  

Three Months Ended

  

Six Months Ended

 
  

March 31, 2024

  

March 31, 2023

  

March 31, 2024

  

March 31, 2023

 

Asia (including Russian Federation)

 $3,672  $1,443  $35,888  $7,977 

Canada

  1,002   333   2,228   1,094 

Europe

  1,507   1,792   2,885   2,926 

United States

  12,831   13,479   21,249   24,070 

Other

  485   654   961   1,182 

Total

 $19,497  $17,701  $63,211  $37,249 

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. 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 have contractual maturities ranging from January 2018 to January 2020.were composed of the following (in thousands):

  

As of March 31, 2024

 
  

Amortized Cost

  

Unrealized Gains

  

Unrealized Losses

  

Estimated Fair Value

 

Short-term investments:

                

Corporate bonds

 $21,937  $  $(14) $21,923 

U.S. treasury securities and securities of U.S. government-sponsored agency

  8,526      (1)  8,525 

Total

 $30,463  $  $(15) $30,448 

 

3.   Derivative Financial Instruments

  

As of September 30, 2023

 
  

Amortized Cost

  

Unrealized Gains

  

Unrealized Losses

  

Estimated Fair Value

 

Short-term investments:

                

Corporate bonds

 $11,310  $  $(15) $11,295 

U.S. treasury securities and securities of U.S. government-sponsored agency

  3,622   4      3,626 

Total

 $14,932  $4  $(15) $14,921 

At December 31, 2017 and September 30, 2017, the Company’s Canadian subsidiary had CAN$32.7 million and CAD$26.1 million, respectively, 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.  On December 29, 2017, the Company entered into a CAN$32.0 million 90-day hedge contract effective January 2, 2018 with a United States bank to reduce 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.  The Company’s derivative instruments had no fair value as of December 31, 2017 and September 30, 2017. 

 

The following table summarizesCompany had no securities in a material unrealized loss position at March 31, 2024 and September 30, 2023 and does not believe these securities represent credit losses based on the Company’sevaluation of evidence, which includes an assessment of whether it is more likely than not it will be required to sell or intend to sell the investment before recovery of the investments amortized cost basis. No gains on derivative instruments inor losses were realized during the consolidated statements of operations for the threesix months ended DecemberMarch 31, 2017 2024 and 2016 (in thousands):2023 from the sale of short-term investments. 

 

 

 

 

 

Three Months Ended

 

Derivative Instrument

 

Location

 

December 31, 2017

 

 

December 31, 2016

 

Foreign Currency Forward Contracts

 

Other Income (Expense)

 

$

158

 

 

$

72

 

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

4. Fair Value of Financial Instruments

At December 31, 2017, the

The Company’s financial instruments includedgenerally include cash and cash equivalents, short-term investments, derivative instruments, trade accounts and financing receivablesnotes receivable and accounts payable. Due to the short-term maturities of cash and cash equivalents, trade accounts and other receivablesnotes receivable and accounts payable, the carrying amounts of these financial instruments are deemed to approximate their fair value on the respective balance sheet dates.

The Company measures its short-term investments and derivative instruments at fair value on a recurring basis.

The following tables present the fair value measurement of the Company’s short-term investments and derivative instruments was determined using the following inputscontingent consideration by valuation hierarchy and input (in thousands):

 

 

 

As of December 31, 2017

 

 

 

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

 

$

23,711

 

 

$

 

 

$

 

 

$

23,711

 

Government bonds

 

 

12,750

 

 

 

 

 

 

 

 

 

12,750

 

Total

 

$

36,461

 

 

$

 

 

$

 

 

$

36,461

 

 

  

As of March 31, 2024

 
  

Quoted Prices in

  

Significant

         
  

Active Markets for

  

Other

  

Significant

     
  

Identical Assets

  

Observable

  

Unobservable

     
  

(Level 1)

  

(Level 2)

  

(Level 3)

  

Totals

 

Short-term investments:

                

Corporate bonds

 $  $21,923  $  $21,923 

U.S. treasury securities and securities of U.S. government-sponsored agency

      8,525       8,525 

Total assets

 $  $30,448  $  $30,448 

11


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

 

As of September 30, 2017

 

 

 

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

 

$

22,798

 

 

$

 

 

$

 

 

$

22,798

 

Government bonds

 

 

13,339

 

 

 

 

 

 

 

 

$

13,339

 

Total

 

$

36,137

 

 

$

 

 

$

 

 

$

36,137

 

 

  

As of September 30, 2023

 
  

Quoted Prices in

  

Significant

         
  

Active Markets for

  

Other

  

Significant

     
  

Identical Assets

  

Observable

  

Unobservable

     
  

(Level 1)

  

(Level 2)

  

(Level 3)

  

Totals

 

Short-term investments:

                

Corporate bonds

 $  $11,295  $  $11,295 

U.S. treasury securities and securities of U.S. government-sponsored agency

     3,626      3,626 

Total assets

 $  $14,921  $  $14,921 

 
 

5. Trade Accounts and Financing ReceivablesNotes Receivable

Trade accounts receivable, net (excluding notes receivable) are reflected in the following table (in thousands):

 

 

December 31, 2017

 

 

September 30, 2017

 

 

March 31, 2024

  

September 30, 2023

 

Trade accounts receivable

 

$

8,265

 

 

$

10,830

 

 $16,907 $20,282 

Allowance for doubtful accounts

 

 

(1,254

)

 

 

(1,395

)

 

$

7,011

 

 

$

9,435

 

Allowance for credit losses

  (67)  (125)

Total

  16,840   20,157 

Less current portion

  (15,330)  (20,157)

Non-current trade accounts receivable

 $1,510 $ 

 

The allowanceTrade accounts receivable at March 31, 2024 included $1.5 million classified as non-current which is due in December 2025.  Credit quality indicators used for doubtful accounts represents the Company’s best estimatenon-current portion of probablethis receivable consisted of historical collection experience, internal credit losses.risk grades and collateral.  The Company determines the allowance based upon historical experience andfor credit losses through a current review of several factors, including historical collection experience, customer credit worthiness, current aging of customer accounts and current financial conditions of its balances.  Accountscustomers. Trade accounts receivable balances are charged off against the allowance whenever it is probable that the receivable balance will not be recoverable.

Financing receivables

Allowance for credit losses related to trade accounts receivable are reflected in the following table (in thousands):

 

 

 

December 31, 2017

 

 

September 30, 2017

 

Promissory notes

 

$

7,062

 

 

$

4,306

 

Sales-type lease

 

 

7,807

 

 

 

8,581

 

Total financing receivables

 

 

14,869

 

 

 

12,887

 

Unearned income:

 

 

 

 

 

 

 

 

   Promissory notes

 

 

(95

)

 

 

(90

)

   Sales-type lease

 

 

(444

)

 

 

(527

)

      Total unearned income

 

 

(539

)

 

 

(617

)

Total financing receivables, net of unearned income

 

 

14,330

 

 

 

12,270

 

Allowance for doubtful promissory notes

 

 

(1,505

)

 

 

(1,020

)

Less current portion

 

 

(5,793

)

 

 

(3,055

)

Non-current financing receivables

 

$

7,032

 

 

$

8,195

 

  

Three Months Ended

  

Six Months Ended

 
  

March 31, 2024

  

March 31, 2023

  

March 31, 2024

  

March 31, 2023

 

Allowance for credit losses:

                

Beginning of period

  92   689   125   591 

Provision for credit losses

  12   98   55   384 

Recoveries

  (34)  (81)  (106)  (247)

Write-offs

        (7)  (6)

Currency translation

  (3)        (16)

End of period

 $67  $706  $67  $706 

 

During the three months ended December 31, 2017, theThe Company issued a $2.8 million promissoryhad one note receivable tofrom a customer at September 30, 2023 with a balance of $1.2 million, which was paid in connection with the sale of rental equipment.  Cash flows from financing receivables related to the sale of rental equipment for the three months ended December 31, 2017 of $0.9 million are presented in proceeds from the sale of used rental equipment in the consolidated statements of cash flows.January 2024.

 

12


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)6. Inventories

                                                                                                                                                                                                                                                                              

6.   Inventories

Inventories consist of the following (in thousands):

 

 

December 31, 2017

 

 

September 30, 2017

 

 

March 31, 2024

  

September 30, 2023

 

Finished goods

 

$

32,768

 

 

$

33,690

 

 $19,078 $18,555 

Work in process

 

 

5,837

 

 

 

2,512

 

 6,089 11,992 

Raw material

 

 

68,078

 

 

 

70,099

 

Obsolescence reserve

 

 

(30,505

)

 

 

(29,614

)

 

 

76,178

 

 

 

76,687

 

Raw materials

 26,165 26,832 

Obsolescence reserve (net realizable value adjustment)

  (9,259)  (14,061)

 

 

 

 

 

 

 

 

 42,073  43,318 

Less current portion

 

 

(19,994

)

 

 

(20,752

)

  23,932  18,430 

Non-current portion

 

$

56,184

 

 

$

55,935

 

 $18,141  $24,888 

 

DuringInventory obsolescence expense for the three and six months ended DecemberMarch 31, 2017 and 2016, the Company made non-cash inventory transfers of $2.02024 was $0.1 million and $0.3$0.1 million, respectively, to rental equipment.respectively.  Inventory obsolescence expense for the three and six months ended March 31, 2023 was $0.5 million and $1.8 million, respectively.  Raw materials include semi-finished goods and component parts whichthat totaled approximately $44.1$8.1 million and $43.2$10.6 million at DecemberMarch 31, 20172024 and September 30, 2017,2023, respectively. 

10

7. Rental Equipment

The Company leases equipment to customers which generally range from daily rentals to minimum rental periods of up to one year. All of the Company’s current leasing arrangements, which the Company acts 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 systems.

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 and limits future rental revenue recognition to cash received. As of March 31, 2024, the Company’s trade accounts receivables included lease receivables of $2.8 million.

Rental revenue related to leased equipment for the three and six months ended March 31, 2024 was $4.7 million and $10.9 million, respectively. Rental revenue related to leased equipment for the three and six months ended March 31, 2023 was $13.6 million and $25.1 million, respectively.

Future minimum lease obligations due from the Company’s leasing customers on operating leases executed as of March 31, 2024 were $4.9 million, all of which is expected to be due within the next 12 months.

Rental equipment consisted of the following (in thousands):

  

March 31, 2024

  

September 30, 2023

 

Rental equipment, primarily wireless recording equipment

 $76,909  $82,926 

Accumulated depreciation

  (61,832)  (61,339)
  $15,077  $21,587 

8. Long-Term Debt

The Company had no long-term debt outstanding at DecemberMarch 31, 20172024 and September 30, 2017.2023.

On March 2, 2011, July 26, 2023, the Company entered into a credit agreement (“the Agreement”) with FrostWoodforest National Bank, as sole lender.  The Agreement refinanced the Company's credit agreement dated May 6, 2022, with borrowingAmerisource 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 $50.0 million (the “Credit Agreement”).  On May 4, 2015,$15 million.  Availability under 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.  On October 25, 2017, the Company entered into another amendment to the Credit Agreement which extended its maturity to April 30, 2019.  The 2017 amendment also modified the borrowing base to beis determined based upon a borrowing base comprised of certain of the Company’s domestic assets which include (i) 80% of certaineligible accounts, receivable plus (ii) 50%90% of certain notes receivable (such result not to exceed $10 million)eligible foreign insured accounts, plus (iii) 25% of certain inventories (such result not to exceed $20 million) and requires the Company to maintain unencumbered liquid assets of $10 million.  The 2017 amendment also removed a requirement that the Company maintain a financial ratio that compares certaineligible inventory plus (iv) 50% of the Company’s assetsorderly liquidation value of eligible equipment, in each case subject to certain of its liabilitieslimitations and imposedadjustments.  Interest shall accrue on outstanding borrowings at a new financial covenant that the Company maintainrate equal to Term SOFR (Secured Overnight Financing Rate) plus a minimum amount of certain liquid assets.  As of December 31, 2017, the Company’s borrowing base was $26.6 million.  As of December 31, 2017, the amount available for borrowing was $26.3 million after consideration of $0.3 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.margin equal to 3.25% per annum.  The Company is required to make monthly interest payments on borrowed funds. The Credit Agreement limitsis secured by substantially all of the incurrence of additional indebtedness, restrictsCompany'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 its subsidiaries’ ability(iii) current ratio no less than 2.00 to pay cash dividends and contains other covenants customary1.00, in agreementseach case tested quarterly. The Agreement also requires the Company to maintain a springing minimum interest coverage ratio of this type.1.50 to 1.00, tested quarterly whenever there is an outstanding balance on the revolving credit facility.  The interest rate for borrowingsAgreement expires in July 2025.  At March 31, 2024 the Company's borrowing availability under the Credit Agreement is based on the Wall Street Journal prime rate, which was 4.50% at December$11.3 million after consideration of a $0.1 million outstanding letter of credit. At March 31, 2017.  At December 31, 2017,2024, the Company was in compliance with all covenants under the Credit Agreement.  The Company had no borrowings outstanding under the Agreement at March 31, 2024 and September 30, 2023.

 

 

13


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)9. Stock-Based Compensation

 

8.   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

 

 

Totals

 

Balance at October 1, 2017

 

$

(58

)

 

$

(14,172

)

 

$

(14,230

)

Changes in unrealized losses on available-for-sale

   securities

 

 

(51

)

 

 

 

 

 

(51

)

Foreign currency translation adjustments

 

 

 

 

 

(205

)

 

 

(205

)

Balance at December 31, 2017

 

$

(109

)

 

$

(14,377

)

 

$

(14,486

)

9.   Stock-Based Compensation

During the threesix months ended DecemberMarch 31, 2017,2024, the Company issued 138,650 shares of213,200 restricted stock units (“RSUs”) under its 2014 Long Term Incentive Plan, as amended. The RSUs issued include both time-based and performance-based vesting provisions. The weighted average grant date fair value of the restricted stockeach RSU was $15.54$12.23 per share.unit. The grant date fair value of these awardsthe RSUs was $2.2$2.6 million, which will be charged to expense over the next four years as the restrictions lapse. Compensation expense for restricted stock awardsthe 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 sharesunits that are anticipated to fully vest. RecipientsEach RSU represents a contingent right to receive one share of restrictedthe Company’s common stock awards are entitled to vote such shares and are entitled to dividends, if paid.upon vesting.

 

As of DecemberMarch 31, 2017,2024, there were 400,020 RSUs outstanding. As of March 31, 2024, the Company had unrecognized compensation expense of $4.8$2.9 million relating to restricted stock awards.  This unrecognized compensation expenseRSUs that is expected to be recognized over a weighted average period of 3.12.8 years.  In addition, the Company had $0.3 million of unrecognized compensation expense related to nonqualified stock option awards which is expected to be recognized over a weighted average period of 1.2 years.       

As of December 31, 2017, a total of 300,675 shares of restricted stock and 201,800 nonqualified stock options shares were outstanding.

11

10.   Loss Earnings (Loss) Per Common Share

The Company applies the two -class method in calculating per share data.  

The following table summarizes the calculation of net lossearnings (loss) and weighted average common shares and common equivalent shares outstanding for purposes of the computation of lossearnings (loss) per share (in thousands, except share and per share data):

 

 

 

Three Months Ended

 

 

 

December 31, 2017

 

 

December 31, 2016

 

Net loss

 

$

(9,480

)

 

$

(11,705

)

Less: Income allocable to unvested restricted stock

 

 

 

 

 

 

Loss available to common shareholders

 

 

(9,480

)

 

 

(11,705

)

Reallocation of participating earnings

 

 

 

 

 

 

Loss attributable to common shareholders for diluted

   earnings per share

 

$

(9,480

)

 

$

(11,705

)

Weighted average number of common share equivalents:

 

 

 

 

 

 

 

 

Common shares used in basic loss per share

 

 

13,202,384

 

 

 

13,094,809

 

Common share equivalents outstanding related to

   stock options

 

 

 

 

 

 

Total weighted average common shares and common

   share equivalents used in diluted loss per share

 

 

13,202,384

 

 

 

13,094,809

 

Loss per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.72

)

 

$

(0.89

)

Diluted

 

$

(0.72

)

 

$

(0.89

)

  

Three Months Ended

  

Six Months Ended

 
  

March 31, 2024

  

March 31, 2023

  

March 31, 2024

  

March 31, 2023

 

Net income (loss)

 $(4,327) $4,637  $8,352  $4,540 

Less: Income allocable to unvested restricted stock

            

Income (loss) attributable to common shareholders for diluted earnings (loss) per share

 $(4,327) $4,637  $8,352  $4,540 

Weighted average number of common share equivalents:

                

Common shares used in basic earnings (loss) per share

  13,343,793   13,156,715   13,297,324   13,111,866 

Common share equivalents outstanding related to RSUs

        174,451    

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

  13,343,793   13,156,715   13,471,775   13,111,866 

Earnings (loss) per share:

                

Basic

 $(0.32) $0.35  $0.63  $0.35 

Diluted

 $(0.32) $0.35  $0.62  $0.35 

 

14


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

For the calculation of diluted lossearnings (loss) per share for the three months ended DecemberMarch 31, 2017 2024 and 2016, 201,8002023, there were 400,020 and 206,300 stock options,394,924 non-vested RSUs, respectively, were excluded infrom the calculation of weighted average shares outstanding as a result ofsince their impact beingon diluted earnings (loss) per share were antidilutive. For the calculation of diluted earnings per share for the six months ended March 31, 2024 and 2023, there were 225,569 and 394,924 non-vested RSUs, respectively, excluded from the calculation of weighted average shares outstanding since their impact on diluted earnings per share were antidilutive.

11. Commitments and Contingencies

Contingent Compensation Costs

In connection with the acquisition of Aquana, LLC (“Aquana”) in July 2021, the Company is subject to additional contingent cash payments to the former members of Aquana over a six-year earn-out period. The contingent payments, if any, will be derived from certain eligible revenue generated during the earn-out period from products and services sold by Aquana. There is no maximum limit to the contingent cash payments that could be made. The merger agreement with Aquana requires the continued employment of a certain key employee and former member of Aquana for the firstfour years of the six year earn-out period in order for any of Aquana’s former members to be eligible for any earn-out payments. Due to the continued employment requirement, no liability has been recorded for the estimated fair value of 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 or potential 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 litigation.  Management is not awaresuch actions. However, management believes that the most probable, ultimate resolution of anycurrent pending matters will not have a material pendingadverse effect on the Company’s consolidated financial position, results of operations or known to be contemplated legal or government proceedings against the Company.cash flows.

12. Segment Information

The Company reports and evaluates financial information for twothree operating business segments: SeismicOil and Non-Seismic. Seismic product lines include: landGas Markets, Adjacent Markets and marineEmerging Markets. The Oil and Gas Markets segment's products include wireless seismic data acquisition systems, permanent land and seabed reservoir monitoringcharacterization products and services, geophones and geophone strings,traditional seismic exploration products such as geophones, hydrophones, leader wire, connectors, telemetry cables, marine streamer retrieval and steering devices and various other seismic products. The Non-Seismic product linesAdjacent Markets segment's products include imaging equipment, water meter products, remote shut-off valves and industrial products.Internet of Things (IoT) platform, as well as and 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 table summarizes the Company’s segment information (in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

March 31, 2024

  

March 31, 2023

  

March 31, 2024

  

March 31, 2023

 

Revenue:

                

Oil and Gas Markets

 $10,847  $18,419  $50,756  $38,567 

Adjacent Markets

  12,235   12,708   22,050   23,530 

Emerging Markets

  1,113   191   1,347   284 

Corporate

  75   52   149   98 

Total

 $24,270  $31,370  $74,302  $62,479 
                 

Income (loss) from operations:

                

Oil and Gas Markets

 $(3,135) $4,176  $11,428  $6,582 

Adjacent Markets

  2,796   3,055   4,830   4,802 

Emerging Markets

  (651)  (1,007)  (1,276)  (2,220)

Corporate

  (3,516)  (1,847)  (6,651)  (5,066)

Total

 $(4,506) $4,377  $8,331  $4,098 
  

 

 

Three Months Ended

 

 

 

December 31, 2017

 

 

December 31, 2016

 

Revenue:

 

 

 

 

 

 

 

 

Seismic

 

$

8,039

 

 

$

9,406

 

Non-Seismic

 

 

6,454

 

 

 

5,736

 

Corporate

 

 

151

 

 

 

143

 

Total

 

$

14,644

 

 

$

15,285

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

Seismic

 

$

(7,673

)

 

$

(9,453

)

Non-Seismic

 

 

1,029

 

 

 

1,052

 

Corporate

 

 

(2,961

)

 

 

(2,910

)

Total

 

$

(9,605

)

 

$

(11,311

)

12

 

13. Income Taxes

Consolidated income tax expense for the three and six months ended March 31, 2024 was $11,000 and $111,000, respectively.  Consolidated income tax expense for the three and six months ended March 31, 2023 was $19,000 and $49,000, respectively.  The Company’sprimary difference between the Company's effective tax rate and the statutory rate is adjustments to the valuation allowance against deferred tax assets.

14. Risks and Uncertainties

Concentration of Credit Risk

As of March 31, 2024, the Company had combined trade accounts receivable from two customers of $4.0 million and $2.2 million, respectively.  During the three months ended March 31, 2024, revenue recognized from these two customers was $2.3 million and $3.2 million, respectively. During the six months ended March 31, 2024 revenue recognized from these two customers was $33.7 million and $6.7 million, respectively.

COVID-19 Pandemic

The ongoing COVID-19 pandemic has negatively impacted worldwide economic activity and continues to create challenges in the Company’s markets. The COVID-19 pandemic and the related mitigation measures have 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. The occurrence or a 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 the Company's business, financial condition, results of operations and liquidity.  As such, we 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

Demand for many of the Company’s products and the profitability of its 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 the Company’s 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 the threeCompany’s 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 its 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 have stabilized over the past 18 months, ended December 31, 2017 was impacted bywhich 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 Tax Cutsglobal economy, could adversely impact seismic exploration activity and Jobs Act (“would likely affect the Act”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 the Company’s oil and gas products may be adversely affected when world supplies exceed demand.

13

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 was enacted into law on December 22, 2017.  Income tax effects resulting from changes in tax laws are accounted for by the Company in accordance with the authoritative guidance, which requires that these tax effects be recognizedis based in the periodRussian Federation. In February 2022, the Russian Federation launched a full-scale military invasion of Ukraine, and Russia and Ukraine continue to engage in whichactive and armed conflict. Although the lawlength and impact of the ongoing military conflict is enactedhighly 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 effects are recorded as a component of provision for income taxes from continuing operations.Company's 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 exports 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 2023the Company madeimported $3.8 million of products from GTE for resale elsewhere in the world and since then has imported $1.7 million of products during the firstsix months of fiscal year 2024. The rapid changes in rules and implementation of new rules on imports and exports of goods involving Russia has also led to material 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. Boycotts, protests, unfavorable regulations, additional governmental sanctions and other actions in the region could also adversely affect the Company's ability to operate profitably. Delays in obtaining governmental approvals can affect the Company's ability to timely deliver its products pursuant to contractual obligations, which could result in the Company being liable to its provisioncustomers for income tax resulting fromdamages. The risk of doing business in the enactmentRussian Federation and other economically or politically volatile areas could adversely affect the Company's 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 the Act for the three months ended December 31, 2017.operations by GTE or other business in Russia.

 

The Act includes significant changesCompany 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 March 31, 2024 was $5.5 million, including cash of $2.0 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 U.S. corporate income tax system which reducesproducts the U.S. federal corporate tax rateCompany imported from 35.0% to 21.0% as of January 1, 2018; shifts to a modified territorial tax regime which requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred; and creates new taxes on certain foreign-sourced earnings.  The decreaseGTE, the subsidiary generated $1.8 million in the U.S. federal corporate tax raterevenue from 35.0% to 21.0% resultsdomestic sales in a blended statutory tax rate of 24.5% for the Company’s fiscal year ending September 30, 2018. The new taxes for certain foreign-sourced earnings under2023 and has generated $1.5 million from domestic sales during the Act are effective for the Company after the fiscal year ending September 30, 2018.

The Company is currently in the early stages of evaluating the impact of the Act on its consolidated financial statements.  Based on the Company’s initial assessments to date, it expects the one-time transition tax on certain foreign earnings and profits to have a minimal cash impact since it anticipates that it will be able to utilize existing net operating loss carryforwards to substantially offset any taxes payable on foreign earnings and profits.  Additionally, the Company has adjusted its U.S. gross deferred tax assets and

15


GEOSPACE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

liabilities to the new 21% statutory tax rate; however, it also recorded a corresponding adjustment to a valuation allowance which resulted in no net impact to deferred tax assets or provision for income taxes.  Except for the adjustments referred to above,  the Company has not recorded any income tax effects of the Act in its consolidated financial statements (including any provisional amounts) because it does not yet have the necessary information available, prepared or analyzed in reasonable detail to complete the applicable accounting.

The Company’s effective tax rates for the threefirstsix months ended December 31, 2017 and 2016 were (0.1)% and (9.6)% , respectively.  The United States statutory rate for the three months ended December 31, 2017 and 2016 was 24.5% (blended) and 35%, respectively.  Compared to the United States statutory rate, the lower effective tax rates resulted primarily from the provision of a valuation allowance against the Company’s U.S. and Canadian deferred tax assets due to the uncertainty surrounding the Company’s ability to utilize such deferred tax assets in the future to offset taxable income.       

14.   Exit and Disposal Activities

In December 2017, the Company initiated a program to reduce operating costs in light of expected and continuing low levels of seismic product demand.  The program is expected to produce approximately $6 million of annualized cash savings.  The majority of the cost reductions were realized through a reduction of over 60 employees from the Company’s Houston area workforce.   In connection with the workforce reductions, the Company incurred $0.7 million of termination costs in its first quarter of fiscal year 2018.2024. The termination costs were recordedCompany has no way to both costpredict the duration, progress or outcome of revenuethe military conflict in Ukraine. The extent and operating expenses induration of the consolidated statementmilitary 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 operations.  No further termination costs are expected and there are no outstanding liabilities related to this program as of December 31, 2017.    

time.

 


14

Item 2. Management’sManagements Discussion and Analysis ofof 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 and our annual reportAnnual Report on Form 10-K for the year ended September 30, 2017.2023.        

Forward-Looking Statements

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”, “could”, “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 timing, 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 permanent reservoir monitoring systems, future demand for OBX rental equipment, the adoption of Quantum's SADAR®product monitoring of subsurface reservoirs, the completion of new orders for 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 therefore,therefor, and our strategy for growth, product development, market position, financial results and the provision of accounting reserves. These forward-looking statements reflect our bestcurrent 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, 2017,2023, as well as other cautionary language in such Annual Report and this Quarterly Report on Form 10-Q, 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 and OptoSeis® or Aquana technology transactions to yield positive operating results, decreases in commodity price levels, the continued adverse impact of COVID-19 which could reduce demand for our products, the failure of our products to achieve market acceptance despite(despite substantial investment by us,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, and any negative impact frominability to collect on promissory notes, lack of further orders for our restatementOBX rental equipment, failure of our financial statements regarding current assets.Quantum products to be adopted by the border and security perimeter 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 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 reincorporated as a Texas corporation on April 16, 2015.  We originally incorporated as a Delaware corporation 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 principally design and manufacture seismic instruments and equipment used inequipment. These seismic products are marketed to the oil and gas industry to acquire seismic data in orderand used 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, including industrial products, offshore cablesimaging equipment, remote shutoff water valves and imaging equipment.Internet of Things ("IoT") platform and provide contract manufacturing services. We report and categorize our customers and products into twothree different segments: SeismicOil and Non-Seismic.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, which is reflective of our diversification strategy.

We have engaged in the seismic instrument and equipment business since 1980 and market our products primarily to the oil and gas industry.  

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” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2023.

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 Internetinternet 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.

 


Products and Product Development

Seismic Products

Oil and Gas Markets

Our seismicOil 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. OurThis segment’s products include wireless seismic product lines currently consist of land and marine nodal data acquisition systems, permanent land and seabed reservoir monitoringcharacterization products and services, geophones and geophone strings,traditional seismic exploration products such as geophones, 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.products. We believe that our seismicOil 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 whichthat 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.

Our products used in marine seismic data acquisition include our 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.

Wireless Products

We have developed multiple versions of a land-based wireless (or nodal) seismic data acquisition system called the GSX.system. Rather than utilizing interconnecting cables as required by most traditional land data acquisition systems, each GSX station operatesof our wireless stations operate as an independent data collection system, allowing our GSX stations to be deployed infor virtually unlimited channel configurations. As a result, our GSX system requireswireless 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. Our GSX systemEach wireless station is designed into configurations ranging from one to four channels per station.  Since its introductionavailable in 2008 and through December 31, 2017, we have sold 417,000 GSX channels and we have 64,000 GSX channels in our rental fleet.  We expect to make additional investments in our GSX rental fleet in fiscal year 2018 to replenish a sale of used GSX rental equipment in the fourth quarter of fiscal year 2017.single-channel or three-channel configuration.

We have also developed a marine-based wireless seismic data acquisition system called the OBX.OBX, and recently released Mariner™.  Similar to our GSX land-based wireless system, thesystems, these marine OBX system canwireless systems may be deployed in virtually unlimited channel configurations and doesdo not require interconnecting cables between each station. Our deep waterWe have two versions of the OBX systemnodal 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 DecemberMarch 31, 2017,2024, we have sold approximately 60014,000 OBX stations and we currently have 6,70024,000 OBX stations in our rental fleet.  The Mariner™ is 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.  Through March 31, 2024, we have sold 7,600 Mariner™ nodes.

Reservoir Products

Seismic surveys repeated over selected time intervals show dynamic changes within thea producing oil and gas reservoir, and operators can be useduse these surveys to monitor the effects of oil and gas development and production. In this regard, we have developed permanently installed high-definitionThis type of 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 monitoring (“PRM”).  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 inUtilizing these reservoir monitoring tools, producers can enhance the recovery of oil and gas deposits over the life of a compact marine three-component or four-component gimbaled sensor and special-purpose connectors, connector arrays and cases.reservoir.

We have not delivered nor diddeveloped 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 receive ordersnow 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 anyboth 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 systems during fiscal year 2017 or during(“PRM”). The modular architecture of these products allows virtually unlimited channel expansion for these systems.

In the first three monthsspring of fiscal year 2018.2023, we released a derivative of the OptoSeis® technology for high temperature downhole applications.  The product known as Insight by OptoSeis offers a passive, all-optical downhole sensor network - no electronics downhole - resulting in years long operational lifetime at 150 °C.

In addition, we produce seismic borehole acquisition systems whichthat 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.

Non-Seismic Products

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 pre-requisite 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 non-seismicAdjacent Markets businesses leverage upon our existing manufacturing facilities and engineering capabilities.  We have found that manycapabilities utilized by our Oil and Gas Markets businesses. Many of ourthe seismic products in our Oil and Gas Markets segment, with little or no modification, have direct application to industries beyond those involvedother industries.

Our business diversification strategy has centered largely on translating expertise in oilruggedized engineering and gas explorationmanufacturing into expanded customer markets. To bolster the solid market share we have established in the water utility market for water meter cables, in fiscal year 2021, we acquired the smart water IoT company, Aquana.

Industrial Products

Our industrial products include water meter products, remote shut-off water valves and development.  For example,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 utilizewith highly reliable automated meter-reading and automated meter infrastructure with our borehole toolsrobust water-proof connectors. Our field splice kits allow for accelerated repairs once identified.

Our remote disconnect values and water IoT platform allows customers that manage multi-family and commercial properties to monitor subsurface carbon dioxide injectionstheir 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 control and monitor water use remotely, discontinue or limit 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.

15

Our seismic sensors provide unique high definition, low frequency sensing that allows for vibration monitoring in industrial machinery, mine safety applications.and earthquake detection.

Imaging Products

Our non-seismicimaging 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.  Our other non-seismic products consist of (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, (iii) water meter cables and connectors, and (iv) other specialty industrial cable and connector products.

 


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. SADAR's technology also provides passive seismic real-time monitoring in emerging energy applications such as Carbon Capture and Storage (CCS) and geothermal energy. 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.

Consolidated Results of Operations

We report and evaluate financial information for twothree segments: SeismicOil and Non-Seismic.Gas Markets, Adjacent Markets and Emerging Markets. Summary financial data by business segment follows (in thousands):

 

 

Three Months Ended

 

 

Three Months Ended

  

Six Months Ended

 

 

December 31, 2017

 

 

December 31, 2016

 

 

March 31, 2024

  

March 31, 2023

  

March 31, 2024

  

March 31, 2023

 

Seismic

 

 

 

 

 

 

 

 

Oil and Gas Markets

        

Traditional exploration product revenue

 

$

3,790

 

 

$

2,570

 

 $3,548  $3,391  $5,311  $6,146 

Wireless exploration product revenue

 

 

3,631

 

 

 

6,323

 

 7,240  14,896  45,313  32,134 

Reservoir product revenue

 

 

618

 

 

 

513

 

  59   132   132   287 

Total revenue

 

 

8,039

 

 

 

9,406

 

 10,847  18,419  50,756  38,567 

Operating loss

 

 

(7,673

)

 

 

(9,453

)

Non-Seismic

 

 

 

 

 

 

 

 

Operating income (loss)

 (3,135) 4,176  11,428  6,582 

Adjacent Markets

        

Industrial product revenue

 

 

3,676

 

 

 

3,079

 

 9,024  9,642  15,467  17,572 

Imaging product revenue

 

 

2,778

 

 

 

2,657

 

  3,211   3,066   6,583   5,958 

Total revenue

 

 

6,454

 

 

 

5,736

 

 12,235  12,708  22,050  23,530 

Operating income

 

 

1,029

 

 

 

1,052

 

 2,796  3,055  4,830  4,802 

Emerging Markets

        

Revenue

 1,113  191  1,347  284 

Operating loss

 (651) (1,007) (1,276) (2,220)

Corporate

 

 

 

 

 

 

 

 

        

Revenue

 

 

151

 

 

 

143

 

 75  52  149  98 

Operating loss

 

 

(2,961

)

 

 

(2,910

)

 (3,516) (1,847) (6,651) (5,066)

Consolidated Totals

 

 

 

 

 

 

 

 

        

Revenue

 

 

14,644

 

 

 

15,285

 

 24,270  31,370  74,302  62,479 

Operating loss

 

 

(9,605

)

 

 

(11,311

)

Operating income (loss)

 (4,506) 4,377  8,331  4,098 

                                            

Overview

Early

Although in calendar year 2014, we beganan already depressed oil and gas industry, demand further decreased in February 2020 because of the oversupply of crude oil due to experiencefailed OPEC negotiations that led to a softeningdramatic drop in crude oil prices when combined with the impact of the COVID-19 pandemic. These declines in the demand for our seismic exploration products, particularly in North America, as capital budgets for oil and gas producers were trending away from exploration-focused activities toward production and exploitation activities.  During this period oil production in North America’s unconventional shale reservoirs increased, as did oil production from other non-OPEC countries, resulting in an oversupply of crude oil in the world market.  Market prices for a barrel of crude oil declined from over $100 in July 2014 to approximately $27 in January 2016, and have recovered somewhat to approximately $64 today.  With this decline in oil and natural gas prices,caused oil and gas exploration and production companies experiencedto experience a significant reduction in cash flows, which have resulted in sharp reductions in their capital spending budgets for oil and gas exploration-focused activities, including seismic data acquisition activities. Crude oil prices have stabilized over the past 18 months; 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 revenue fromthe reduced levels of demand for our seismic products,Oil and in particularGas Markets segment products. We also expect our land-based traditional and wireless products to remain low until crude oil prices stabilize at higher levels and exploration-focused industry conditions improve.  We expect these challenging industry conditions towill continue to negatively impact the demand for our seismic products throughout fiscal year 2018.  

In September 2017, we were notified by a previous PRM system customer that it was in the process of requesting quotes for two new PRM systems which must utilize fiber optic sensor technology.  Since our PRM designs utilize electrical sensor technology, we did not participate with a quotation for the design and manufacture of these PRM systems.  We believe that our PRM system designs, which utilize electrical sensor technology, provide the best long-term functionality and performance of any PRM system, and we continue to aggressively market our PRM systems to major oil and gas companies.  However, the occurrence of this notice, combined with the absence of any new PRM orders of any technology type since November 2012, have caused us to provide additional obsolescence reserves for a substantial portion of our PRM inventories, and we concluded a triggering event occurred and performed an impairment assessment on certain heavy equipment used for the manufacturing of PRM systems, which resulted in an impairment.  Specific to our PRM inventories and manufacturing equipment, we recorded obsolescence reserves of $5.1 million and impairment expense of $5.3 million, respectively, in the fourth quarter of our fiscal year ended September 30, 2017.  

In December 2017, we initiated a program to reduce operating costs in light of expected and continuingexperience low levels of seismic product demand.  The program is expecteddemand until our customers consume their excess levels of underutilized equipment. As discussed below, we had a $30 million wireless product sale to produce approximately $6 million of annualized cash savings.  The majority ofa customer in the cost reductions were realized through a reduction of over 60 employees from our Houston area workforce.  In connection with the workforce reductions, we incurred $0.7 million of termination costs in our first quarter of fiscal year 2018.  The termination costs were recorded to both cost of revenue and operating expenses in the consolidated statement of operations.  No further termination costs are expected and there are no outstanding liabilities related to2024.  However, we do not currently anticipate another product sale this program as of December 31, 2017.      


Three months ended December 31, 2017 compared to the three months ended December 31, 2016

Consolidated revenuelarge for the three months ended December 31, 2017, decreased $0.6 million, or 4.2%, from the corresponding periodremainder of the prior fiscal year.  The decrease in revenue for the three months ended December 31, 2017 was primarily due to a decrease in wireless exploration rental revenue in our seismic business segment.    year 2024.

Consolidated gross profit (loss) for the three months ended December 31, 2017 was a loss of ($1.0) million, compared to a loss of ($3.3) million for the corresponding period of prior fiscal year.  The improvement in gross profit (loss) for the three months ended December 31, 2017 was primarily the result of a decrease in inventory obsolescence and rental equipment depreciation expenses.  These improvements were partially offset by a decrease in wireless exploration rental revenue.  Until seismic product demand increases to historical norms, we expect our consolidated gross margins to remain low.

In light of current market conditions, the inventory balances in our seismic product inventoriesOil and Gas Markets business segment at DecemberMarch 31, 2017 far2024 continued to exceed levels consideredwe consider appropriate for the current level of product demand. While weWe are continuing to work aggressively working to reduce these legacy inventory balances,balances; however, we haveare also addedadding new inventories for recentnew wireless product developments and for other product demand.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 in our consolidated income statement as we experience reduced levels of inventory turnoverproduct demand and as our inventories continue to age. If currentAlthough the Oil and Gas Markets segment is seeing a recovery after experiencing difficult market conditions, continue, we expect to recordhave been recording additional expenses for inventory obsolescence expenseand will continue to do so in fiscal year 2018 and beyondthe future until seismic product demand andand/or resulting seismic inventory turnover returnsreturn to acceptable levels.

16

Armed Conflict Between Russia and Ukraine

A portion of our oil and gas product manufacturing is conducted by Geospace Technologies Eurasia LLC, our wholly-owned subsidiary based in the Russian Federation. Consequently, our oil and gas business could be directly affected by the current war between Russia and Ukraine. See Note 14 in this Quarterly Report on Form 10-Q 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.

Three and six months ended March 31, 2024 compared to the three and six months ended March 31, 2023

Consolidated operating expensesrevenue for the three months ended DecemberMarch 31, 2017 were $8.62024 was $24.3 million, an increasea decrease of $0.7$7.1 million, or 8.2%, from the corresponding period of the prior fiscal year.  This increase was primarily due to a $0.8 million increase in bad debt expense.  Excluding the change in bad debt, consolidated operating expense declined by $0.1 million due to a reduction is stock-based compensation expenses and partially offset by termination costs.

Consolidated other income for the three months ended December 31, 2017 was $131,000, an increase of $91,000 from the corresponding period of the prior fiscal year.  The increase for the three months ended December 31, 2017 was primarily due to an increase in interest income resulting from increased financing receivables.  

Consolidated income tax expense for the three months ended December 31, 2017 was $6,000 compared to $0.4 million for the corresponding period of the prior fiscal year.  Our effective tax rates for the three months ended December 31, 2017 and 2016 were (0.1)% and (9.6)%, respectively.  The United States statutory tax rate for the three months ended December 31, 2017 and 2016 were 24.5% (blended) and 35%, respectively.  Compared to the United States statutory rate, the lower effective tax rates for the three months ended December 31, 2017 and 2016 primarily resulted from our inability to recognize any tax benefits for the tax losses we incurred in the U.S. and Canada due to the uncertainty surrounding our ability to utilize these losses in the future to offset taxable income.    

Seismic Products

Revenue

Revenue from our seismic products for the three months ended December 31, 2017 decreased $1.4 million, or 14.5%, from the corresponding period of the prior fiscal year.  The components of this decrease include the following:

Traditional Exploration Product Revenue– For the three months ended December 31, 2017, revenue from our traditional products increased $1.2 million, or 47.5% from the corresponding period of the prior fiscal year.  The increase was due to an increase in certain specialty sensor product sales and the sale of sensors from our rental fleet.  

Wireless Exploration Product Revenue – For the three months ended December 31, 2017, revenue from our wireless exploration products decreased by $2.7 million, or 42.6%22.6%, from the corresponding period of the prior fiscal year. The decrease was primarily due to a largedecrease in rental revenue due to lower utilization of our OBX rental fleet.  Consolidated revenue for the six months ended March 31, 2024 was $74.3 million, an increase of $11.8 million, or 18.9%, from the corresponding period of the prior fiscal year.  The increase was largely due to a $30.0 million sale of our Mariner™ shallow water ocean bottom nodes in the first quarter of fiscal year 2024, which replaced a rental contract thatwith the customer. We do not expect another product sale this large for the remainder of fiscal year 2024.  The increase was active duringpartially offset by (i) a decrease in rental revenue due to lower utilization of our OBX rental fleet and (ii) a decrease in demand for our industrial products from our Adjacent Markets segment. 

Consolidated gross profit for the three months ended DecemberMarch 31, 2016. This2024 was $5.9 million, a decrease of $7.1 million, or 54.6%, from the corresponding period of the prior fiscal year. The decrease in gross profit was primarily due to decrease in utilization of our OBX rental fleet.  Consolidated gross profit for the six months ended March 31, 2024 was $28.1 million, an increase of $4.6 million, or 19.7%, from the corresponding period of the prior fiscal year. The increase was largely due to gross profit on our Mariner™ sale in the first quarter of fiscal year 2024.   The increase in gross profit was partially offset by increased sales(i) the decrease in utilization of our GSX wireless products from ourOBX rental fleet.fleet and (ii) a higher warranty accrual, primarily related to the Mariner™ sale.

Reservoir Product Revenue – For

Consolidated operating expenses for the three months ended DecemberMarch 31, 2017, revenue from our reservoir products increased $0.12024 were $10.4 million, an increase of $0.5 million, or 20.5%5.1%, from the corresponding period of the prior fiscal year. The increase was primarily due to higher demandresearch and development expense, primarily project expenditures.  Consolidated operating expenses for the six months ended March 31, 2024 were $19.8 million, a decrease of $0.9 million, or 4.4%, from the corresponding period of the prior fiscal year. The decrease was primarily due to lower personnel costs attributable to our borehole andworkforce reduction in first quarter of fiscal year 2023, which included $0.4 million in employee termination costs. 

In February 2023, we sold our property located at 7310 Langfield 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 in the second quarter of fiscal year 2023. 

Consolidated other products, and increased service revenues.  

Operating Loss

Despite decreased revenues, our operating loss associated with our seismic productsincome for the three months ended DecemberMarch 31, 2017 decreased $1.82024 was $0.2 million, or 18.9%,compared to $0.3 million from the corresponding period of the prior year. Consolidated other income for the six months ended March 31, 2024 was $0.1 million, compared to $0.5 million from the corresponding period of the prior year.  The decrease in operating lossfor both periods was


primarily principally due to a decrease in inventory obsolescence and rental equipment depreciation expenses.  These decreases werenet foreign currency transaction losses, partially offset by lower wireless exploration rental revenue.an increase in interest income attributable to short-term investments.  

Non-Seismic Products

Segment Results of Operations

Oil and Gas Markets

Revenue

Revenue from our non-seismicOil and Gas Markets products for the three months ended DecemberMarch 31, 2017 increased $0.72024 decreased $7.6 million, or 12.5%41.1%, from the corresponding period of the prior fiscal year. Revenue from our Oil and Gas Markets products for the six months ended March 31, 2024 increased $12.2 million, or 31.6%, from the corresponding period of the prior fiscal year.  The components of these changes were as follows:

Traditional Exploration Product Revenue– For the three months ended March 31, 2024, revenue from our traditional products increased $0.2 million, or 4.6%, from the corresponding period of the prior fiscal year. The increase was primarily due to an increase in demand for our sensor products, partially offset by lower demand for our marine products. For the six months ended March 31, 2024, revenue from our traditional products decreased $0.8 million, or 13.6%, from the corresponding period of the prior fiscal year. The decrease was primarily due to lower demand for our sensor and marine products.

Wireless Exploration Product Revenue – For the three months ended March 31, 2024, revenue from our wireless exploration products decreased $7.7 million, or 51.4%, from the corresponding period of the prior fiscal year. The decrease was primarily due to a decrease in rental revenue due to lower utilization of our OBX rental fleet.  For the six months ended March 31, 2024, revenue from our wireless exploration products increased $13.2 million, or 41.0%, from the corresponding period of the prior fiscal year.  The increase was primarily due to a $30.0 million sale of our Mariner™ shallow water ocean bottom nodes, in the first quarter of fiscal year 2024, which replaced a rental contract with the customer.  The increase was partially offset by a decrease in  rental revenue attributable to lower utilization of our OBX rental fleet. 

Operating Income (Loss)

Operating income (loss) associated with our Oil and Gas Markets products for the three months ended March 31, 2024 was $(3.0) million, a decrease of $7.3 million from the corresponding period of the prior fiscal year. The decrease was primarily due to lower wireless rental revenue and related gross profits due to a decrease in the utilization of our OBX rental fleet.  Operating income associated with our Oil and Gas Markets products for the six months ended March 31, 2024 was $11.4 million, an increase of $4.8 million from the corresponding period of the prior fiscal year. The increase in operating income was related to gross profits related to the Mariner™ sale.  The income was partially offset by lower wireless rental revenue and related gross profits due to a decrease in the utilization of our OBX rental fleet.

17

Adjacent Markets

Revenue

Revenue from our Adjacent Markets products for the three months ended March 31, 2024 decreased $0.5 million, or 3.7%, from the corresponding period of the prior fiscal year. Revenue from our Adjacent Markets products for the six months ended March 31, 2024 decreased $1.5 million, or 6.3%, from the corresponding period of the prior fiscal year. The components of this increase included the following:decrease was as follows:

Industrial Product Revenue

Industrial Product Revenue and Services – For the three months ended March 31, 2024, revenue from our industrial products decreased $0.6 million, or 6.4%, from the corresponding period of the prior fiscal year. For the six months ended March 31, 2024, revenue from our industrial products decreased $2.1 million, or 12.0%, from the corresponding period of the prior fiscal year.  The decrease for both periods was primarily due to lower demand for both our water meter products and industrial sensor products, partially offset by an increase in demand for our contract manufacturing services.

Imaging Product Revenue – For the three months ended March 31, 2024, revenue from our imaging products increased $0.1 million, or 4.7%, from the corresponding period of the prior fiscal year.  For the six months ended March 31, 2024, revenue from our imaging products increased $0.6 million, or 10.5%, from the corresponding period of the prior fiscal year.  The increase for both periods was primarily due to higher demand for our film products.

Operating Income

Operating income from our Adjacent Markets products for the three months ended DecemberMarch 31, 2017, revenue from our industrial products increased $0.62024 was $2.8 million, a decrease of $0.3 million, or 19.4%8.5%, from the corresponding period of the prior fiscal year. The increasedecrease was primarily attributabledue to higher demanda decrease in revenue and related gross profits.  Operating income from our Adjacent Markets products for our water meter products.  

Imaging Product Revenue – For the threesix months ended DecemberMarch 31, 2017, revenue from our imaging products increased $0.12024 was $4.8 million, an increase $28,000, or 4.6%0.6%, from the corresponding period of the prior fiscal year.  The increase in operating income was primarily due to higher demandresearch and development costs, largely offset by gross margin improvements. 

Emerging Markets

Revenue

Revenue from our Emerging Markets products was $1.1 million for our equipment and film products.

Operating Income

Our operating income associated with sales of our non-seismic products for the three months ended DecemberMarch 31, 2017 declined $23,0002024 compared to $0.2 million from the corresponding period of the prior fiscal year.  Revenue from our Emerging Markets products was $1.3 million for the six months ended March 31, 2024 compared to $0.3 million from the corresponding period of the prior fiscal year.  The decline resulted from reduced gross profit marginsincrease in revenue for both periods was primarily due to higher manufacturingrevenue recognized on a $1.5 million government contract.  The unrecognized revenue on this contract is approximately $0.3 million which will be recognized upon the expected completion of this contract in the fourth quarter of fiscal year 2024.

Operating Loss

Operating loss from our Emerging Markets products for the three months ended March 31, 2024 was $0.7 million, a decrease of $0.4 million, or 35.4%, from the corresponding period in the prior fiscal year. Operating loss for the six months ended March 31, 2024 was $1.3 million, a decrease of $0.9 million, or 42.5%, from the corresponding period of the prior fiscal year.  The decrease in operating loss for both periods was primarily due to an increase in revenue and related gross profits.  The decrease for the six months ended March 31, 2024 was also attributable to lower personnel costs and increased operating expenses resulting from increased sales and marketing expenses.attributable to our workforce reduction in the first quarter of fiscal year 2023. 

 

Liquidity and Capital Resources

At DecemberMarch 31, 2017,2024, we had approximately $13.9$51.2 million in cash and cash equivalents and $32.1 million in short-term investments.  For the threesix months ended DecemberMarch 31, 2017,2024, we used $5.8$6.3 million of cash infrom operating activities.  Our net lossThese uses of $9.1cash included (i) the removal of $20.6 million wasgross profit from the sale of rental equipment is included in investing activities, a (ii)  $5.6 million increase in inventories for the strategic purchase of long lead components needed for use in wireless products, valves and contract manufacturing and (iii) $3.2 million decrease in other liabilities due to the return of customer deposits and lower accrued employee compensation costs, partially offset by an increase in our product warranty accrual and (iv) $0.7 million decrease in accounts payable due to timing of payments to our suppliers. These uses of cash were partially offset by (i) our net income of $8.4 million and net non-cash charges of $5.9$8.5 million resulting from deferred income taxes, depreciation, amortization, accretion, inventory obsolescence, stock-based compensation and bad debts, (ii)provision for credit losses.  Other sources of cash included a $2.6(i) $6.0 million decrease in trade accounts and notes receivable resulting fromprimarily due to the timing of collections from customers and (iii) a $0.7(ii) $0.9 million increasedecrease in accounts payable primarily due to an increase in inventories and the timing of payments to suppliers. Other uses of cash in our operations included (i) a $2.9 increase in inventories for the replenishment of rental equipment sold to customers and the purchase of raw materials for new product production and (ii) the removal of a $2.6 million gross profit from the sale of used rental equipment since such gross profit is reflected in the proceeds from the sale of used rental equipment under investing activities.other assets.

 

For the threesix months ended DecemberMarch 31, 2017,2024, we generated cash of $4.8$8.1 million fromin investing activities. Sources of cash included (i) $4.0 millionprimarily consisted of net proceeds from the sale of short-term investments and (ii) $1.0$30.5 million of proceeds from the sale of rental equipment.  TheseOffsetting sources of cash were partially offset by an investmentincluded (i) $15.3 million in purchases of $0.2short-term investments, net, (ii) $3.9 million infor additions to our equipment rental fleet and (iii) $3.2 million for additions to our property, plant and equipment.  We estimate totalexpect cash investments into our rental fleet will be approximately $7 million in fiscal year 20182024.  We expect our cash investments in our property, plant and equipment will be approximately $3 million.  We expect$5 million in fiscal year 2018 cash investments into our rental fleet to be approximately $2 million in order to replenish land-based wireless rental fleet equipment recently sold to customers.2024.  Our capital expenditures are expected to be funded from our cash on hand, internal cash flowflows, including cash flows from rental contracts or, if necessary, from borrowings under our new credit agreement.

For the threesix months ended DecemberMarch 31, 2017,2024 we had no cash flows from financing activities.  We had no long-term debt outstanding throughout the fiscal year ended September 30, 2017 or for the three months ended December 31, 2017.

While crude oil prices have recently increased to their highest level in three years, the current level of crude oil prices remain significantly below the peak price levels seen in 2014.  These lower crude oil prices combined with an ample supply of crude oil in the world market do not support the investment required by many exploration and production companies to explore and develop new frontier areas for oil and gas development and production.  In addition, many smaller exploration and production companies are under-capitalized and their capital spending budgets for exploration-focused activities, including seismic activities, are financial restrained.  As a result, our seismic business segment continues to experience lower levels of product orders and associated revenue, resulting in substantial operating losses and the continued depletion of our cash balances.  Due to the uncertainty concerning a recovery of crude oil prices to levels capable of sustaining increased seismic exploration activities, we expect these depressed seismic market conditions to continue through fiscal year 2018.

Our available cash, cash equivalents and short-term investments totaled $46.0was $51.2 million at DecemberMarch 31, 2017, including $8.42024, which included $3.3 million of cash and cash equivalents held by our foreign subsidiaries and branch offices.offices, of which $2.0 million was held by our subsidiary in the Russian Federation. In lightresponse 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 the Tax Cuts and Jobs Act signed into law on December 22, 2017 which requires companiesRussia. As a result, this cash can be used in our Russian operations, but we may be unable to pay a one-time transition tax on undistributed earningstransfer it out of foreign


subsidiaries, we are currently re-evaluating our prior intent to permanently reinvest these undistributed earnings.  IfRussia without incurring substantial costs, if at all.  In addition, if we were to repatriate the cash held by our foreign subsidiaries,Russian subsidiary, we would be required to accrue and pay taxes on any amountsamount repatriated.

Our

On July 26, 2023, we entered into a credit agreement allows for borrowings(“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 up to $30.0 million with such amounts available for borrowing$15 million.  Availability under the Agreement is determined bybased upon a borrowing base.  In October 2017, we extended the maturitybase 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 on the revolving credit agreement from May 2018 to April 2019.  facility.  The Agreement expires in July 2025.

At DecemberMarch 31, 2017,2024 we had no outstanding borrowings under the credit agreementAgreement and our borrowing base availability under the Agreement was $11.3 million after consideration of $0.3a $0.1 million outstanding letter of outstanding letters of credit, our borrowing availability under the credit facility was $26.3 million.  At December 31, 2017, wecredit. We were in compliance with all covenants under the credit agreement.Agreement.   We currently do not currently anticipate the need to borrow under the credit agreement;Agreement, however, we can make no assurance that we will notmay decide to do so.  so in the future, if needed.

In fiscal years 2016

Our total available cash, cash equivalents and 2017, we received income tax refundsshort-term investments increased $17.5 million during the six months ended March 31, 2024, largely due to the collection of $18.3 million and $12.8 million, respectively, from the U.S. Department of Treasury.  These refunds were a result of the significant tax losses we experienced in fiscal year 2016 and 2015, which we elected to carryback and recoup taxes previously paid.  For U.S. income tax purposes, we are now in a loss carryforward position in regardsan account receivable related to our tax losses for fiscal year 2017 and beyond.  As a result, we will not receive any additional U.S. federal income tax refunds as a result of our current tax losses.  The tax refunds we received in fiscal years 2016 and 2017 have been significant contributors to our overall liquidity.first quarter 2024 Mariner™ sale.  In the absence of future profitable results of operations, we may need to rely on other sources of liquidity to fund our future operating results,operations, including liquidating short-term investments, executed rental contracts, available borrowings under our credit agreementthe Agreement through its expiration in April 2019,July 2025, leveraging or salesales of real estate assets, sales of rental assets and other liquidity sources which may be available to us. However,We currently we believe that our cash, cash equivalents and short-term investment balancesinvestments will be sufficient to finance ourany future operating losses and planned capital expenditures through December 2018.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 for any of Aquana’s former members to be eligible to 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 13 to our consolidated financial statements in this Quarterly Report on Form 10-Q for more information on our contractual contingencies.

Critical Accounting PoliciesEstimates

During the threesix months ended DecemberMarch 31, 2017,2024, there has been no material change to our critical accounting policiesestimates discussed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017 other than the adoption of Accounting Standards Update 2016-09, “Improvements to Employee Share-Based Payment Accounting” and 2016-16, “Accounting for Income Taxes:  Intra-Entity Transfers of Assets Other Than Inventory”.2023.

Recent Accounting Pronouncements

Please refer to Note 1 to our consolidated financial statements contained in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We have market risk relative to our short-term investments, foreign currency rates and interest rates.  We do not engage in commodity or commodity derivative instrument purchase or sales transactions.  Becauseare a smaller reporting company as defined by Rule 12b-2 of the inherent unpredictabilityExchange Act and are not required to provide the information under this item, in accordance with Item 305(e) of foreign currency rates and interest rates, as well as other factors, actual results could differ materially from those projected in this Item.Regulation S-K.

Foreign Currency and Operations Risk

18

One of our wholly-owned subsidiaries, Geospace Technologies Eurasia, is located in the Russian Federation.  In addition, we operate a branch office, Geospace Technologies Sucursal Sudamericana, in Colombia.  Our financial results for these entities may be affected by factors such as changes in foreign currency exchange rates, weak economic conditions or changes in the political climate.  Our consolidated balance sheet at December 31, 2017 reflected approximately USD $6.0 million and USD $0.2 million of foreign currency denominated net working capital related to our Russian and Colombian operations, respectively.  Both of these entities receive a portion of their revenue and pay a majority of their expenses primarily in their local currency.  To the extent that transactions of these entities are settled in their local currency, a devaluation of these currencies versus the U.S. dollar could reduce any contribution from these entities to our consolidated results of operations and total comprehensive income as reported in U.S. dollars.  We do not hedge the market risk with respect to our operations in these countries; therefore, such risk is a general and unpredictable risk of future disruptions in the valuation of such currencies versus U.S. dollars to the extent such disruptions result in any reduced valuation of these foreign entities’ net working capital or future contributions to our consolidated results of operations.  At December 31, 2017, the foreign exchange rate for $1.00 (one U.S. dollar) was equal to approximately 57.61 Russian Rubles and 2,973 Colombian Pesos, respectively.  If the value of the U.S. dollar were to strengthen by ten percent against these foreign currencies, our working capital in the Russian Federation and in Colombia would decline by USD $0.6 million and USD $20,000, respectively.


Foreign Currency Intercompany Accounts and Notes Receivable

From time to time, we may provide access to capital to our foreign subsidiaries through U.S. dollar denominated interest bearing promissory notes.  Such funds are generally used by our foreign subsidiaries to purchase capital assets and for general working capital needs.  In addition, we sell products to our foreign subsidiaries on trade credit terms in both U.S. dollars and in the subsidiary’s local currency.  At December 31, 2017, we had outstanding Canadian-dollar denominated intercompany accounts receivable of CAN $33.6 million, which we consider to be of a short-term nature.  The appreciation or devaluation of the Canadian dollar against the U.S. dollar will result in a gain or loss, respectively, to our consolidated statement of operations.  At December 31, 2017, the foreign exchange rate for USD $1.00 was equal to approximately CAN $1.26.  On December 29, 2017 we entered into a CAN $32.0 million 90-day hedge agreement effective January 2, 2018 with a United States bank to hedge a portion of our Canadian dollar foreign exchange rate exposure, resulting in an under-hedged position of approximately CAN $1.6 million.  At December 31, 2017, if the U.S. dollar exchange rate were to strengthen by ten percent against the Canadian dollar, we would recognize a foreign exchange loss of USD $0.1 million in our consolidated financial statements.

Floating Interest Rate Risk

Our credit agreement contains a floating interest rate which subjects us to the risk of increased interest costs associated with any upward movements in bank market interest rates.  Under our credit agreement our borrowing interest rate is the Wall Street Journal prime rate, which was 4.50% at December 31, 2017.  As of December 31, 2017 and September 30, 2017, there were no borrowings outstanding under our credit agreement.

Item 4. 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 the 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 our companyCompany and consolidated subsidiaries to report material information otherwise required to be set forth in our reports.

In connection with the preparation of this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including the CEO and CFO, as of DecemberMarch 31, 2017,2024, of the effectiveness of our 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 were effective as of DecemberMarch 31, 2017.2024.

Changes in Internal Control over Financial Reporting

We previously reported a material weakness

There were no changes in our internal control over financial reporting.  Asreporting (as defined in Rule 13a-15(f) and 15d-15(f) of September 30, 2017, we did not maintain effective controls concerning our classification of current assets with respect to inventories.  We determined that a portion of our inventories should have been classified as noncurrent assets, as all inventories were not reasonably expected to be realized in cash, sold or consumedthe Exchange Act) during our next operating cycle.  

This error was subsequently identified and corrected, and resulted in a restatement to the consolidated balance sheets as of September 30, 2016 and 2015 and as of December 31, 2016,fiscal quarter ended March 31, 2017 and June 30, 2017, which was included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.  The error had no impact upon previously reported total assets, total liabilities, revenues, net loss, net loss per share,2024 that have materially affected, or cash flows.

To remediate the material weakness described above we have designed and implemented a quarterly controlare reasonably likely to determine the value of inventories expected to be realized in cash, sold or consumed during the next operating cycle.  This control, which encompasses a review by senior management, utilizes a combination of forecasts and historical trends to determine our future expected inventory utilization.  

We believe that this measure remediates the material weakness identified and strengthensmaterially affect, our internal controlscontrol over financial reporting.

 


19

PART II - OTHEROTHER INFORMATION

Item 6. Exhibits

The following exhibits are filed with this Report on Form 10-Q or are incorporated by reference

 

3.1

Amended and Restated Certificate of Formation of Geospace Technologies Corporation (incorporated by reference to Exhibit 3.1 to the Registrant’sCompany’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed May 8, 2015).

3.2

Amended and Restated Bylaws of Geospace Technologies Corporation (incorporated by reference to Exhibit 3.2 to the Registrant’sCompany’s Current Report on Form 8-K filed April 17, 2015)August 8, 2019).

10.131.1*

Fourth Amendment to Loan Agreement dated October 25, 2017 among Geospace Technologies Corporation, as borrower, certain subsidiaries of Geospace Technologies Corporation, as guarantors, and Frost Bank, as lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed October 27, 2017).

31.1

Certification of the Chief Executive Officer pursuant to Section 302 ofRule 13a-14(a) under the Sarbanes-OxleySecurities and Exchange Act of 2002.1934.

31.2*

Certification of the Chief Financial Officer pursuant Rule 13a-14(a) under the Securities and Exchange Act of 1934.

31.232.1**

Certification of the Chief Executive Officer pursuant 18 U.S.C. Section 1350.

32.2**

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 302 of the Sarbanes-Oxley Act of 2002.1350.

101*

The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets at March 31, 2024 and September 30, 2023 , (ii) the Consolidated Statements of Operations for the three and six months ended March 31, 2024 and 2023, (iii) the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended March 31, 2024 and 2023, (iv) the Consolidated Statements of Stockholders’ Equity for the three and six months ended March 31, 2024 and 2023, (v) the Consolidated Statements of Cash Flows for the six months ended March 31, 2024 and 2023 and (vi) Notes to Consolidated Financial Statements.

32.1

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

104*

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 formatted in Inline XBRL and contained in Exhibit 101.

32.2

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

Interactive data file.

 


* Filed with this Quarterly Report on Form 10-Q

** Furnished with this Quarterly Report on Form 10-Q

SIGNATURES

Pursuant to the requirements 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

 

Date:

February 7, 2018May 10, 2024

By:

/s/ Walter R. Wheeler

Walter R. Wheeler, President

and Chief Executive Officer

(duly authorized officer)

 

(duly authorized officer)

Date:

February 7, 2018 May 10, 2024

By:

/s/ Thomas T. McEntireRobert L. Curda

Thomas T. McEntire,Robert L. Curda, Vice President,

and Chief Financial Officer and Secretary

(principal financial officer)

(principal financial officer)

 

26

20