Geospace Technologies (GEOS) - 2024 Q4 - Annual Report

FORM 10-K Cover Page Registrant Information Geospace Technologies Corporation, an accelerated filer and smaller reporting company, is listed on NASDAQ under GEOS, with approximately $164 million in non-affiliate common stock market value as of October 31, 2024 - Company type: Accelerated filer and Smaller reporting company[4] - | Indicator | Data | | :--- | :--- | | Ticker | GEOS | | Exchange | The NASDAQ Global Select Market | | Shares Outstanding (as of Oct 31, 2024) | 12,709,381 shares | | Market Value of Non-Affiliate Held Common Stock (as of Mar 31, 2024) | Approx. $164 million | | Closing Price (as of Mar 31, 2024) | $13.19 | | Auditor | RSM US LLP (Houston, Texas) | PART I Item 1. Business Geospace Technologies Corporation designs and manufactures seismic instruments for the oil and gas industry, expanding into energy transition, vibration monitoring, border security, and geotechnical engineering, alongside non-seismic products and contract manufacturing services Business Overview Geospace Technologies Corporation designs and manufactures seismic instruments for the oil and gas industry, expanding into energy transition, vibration monitoring, border security, and geotechnical engineering, alongside non-seismic products and contract manufacturing services - Core business: Designing and manufacturing seismic instruments and equipment, primarily for the oil and gas industry, used for locating, characterizing, and monitoring oil and gas reservoirs[10] - Business diversification: Applying seismic products to energy transition (carbon storage, geothermal, mining), vibration monitoring, border security, and geotechnical engineering[10] - Non-seismic products: Including water meter products, imaging equipment, offshore cables, remote shut-off water valves, and Internet of Things (IoT) platforms[10] - Business segments: Divided into Oil and Gas Markets, Adjacent Markets, and Emerging Markets[10][11] - Adjacent Market growth: Revenue contribution from Adjacent Markets has grown to nearly half of total revenue in recent years, primarily due to water modernization products (waterproof meter connector cable series)[10] Segment and Geographical Information The company reports and evaluates financial information across three business segments: Oil and Gas Markets, Adjacent Markets, and Emerging Markets - Company financial information is reported and evaluated by three business segments: Oil and Gas Markets, Adjacent Markets, and Emerging Markets[11] Products and Product Development Product development spans traditional seismic, wireless seismic, and reservoir monitoring for oil and gas, industrial and imaging for adjacent markets, and security monitoring for emerging markets Oil and Gas Markets The Oil and Gas Markets segment offers traditional seismic exploration products, wireless (node) seismic data acquisition systems, and reservoir monitoring solutions - Traditional products: Include geophones, hydrophones, multi-component sensors, lead-in cables, cables, and connectors, used for land and marine seismic data acquisition[13][14][15] - Wireless products: Developed land-based (Pioneer™) and marine-based (OBX, Mariner™, Aquanaut™) wireless seismic data acquisition systems, characterized by cable-free, lightweight, easy operation, low maintenance, and support for unlimited channel configurations[16][17][19] - | Product | Description | Deployment Depth/Duration | Sales/Lease Quantity (as of Sep 30, 2024) | | :--- | :--- | :--- | :--- | | OBX (Shallow Water) | Marine-based wireless seismic data acquisition system | Up to 750 meters | 29,000 stations sold, 19,000 stations in lease inventory | | OBX (Deep Water) | Marine-based wireless seismic data acquisition system | Up to 3,450 meters | Included in total OBX count | | Mariner™ | Continuous, cable-free, four-channel autonomous shallow water ocean bottom recorder | Up to 750 meters, 70 days continuous recording | 7,600 nodes sold | | Aquanaut™ | Deepwater wireless seismic acquisition node | Up to 3,450 meters, 200 days operation | Newly introduced | | Pioneer™ | Small, lightweight, cable-free, connector-free land-based node | 50 days continuous recording | Newly introduced | | Insight by OptoSeis® | Passive, all-optical downhole sensor network for high-temperature downhole applications | Operates for years at 150 °C | Released Spring 2023 | - Reservoir products: Include permanently installed high-definition reservoir monitoring systems (land and ocean bottom applications), combining electrical and OptoSeis® fiber optic sensing technologies, used for monitoring dynamic changes in oil and gas reservoirs and hydraulic fracturing operations[20][21][23] - PRM systems: No large-scale ocean bottom PRM system orders since November 2012, but received a pre-tender front-end engineering design study request from a major oil and gas producer in July 2024[25] Adjacent Markets The Adjacent Markets segment leverages existing manufacturing and engineering capabilities to offer industrial and imaging products, including water meter connectors, remote shut-off valves, and IoT platforms - Industrial products: Include water meter products (waterproof connectors), remote shut-off water valves and IoT platforms (for leak monitoring and remote control), and seismic sensors for industrial machinery, mine safety, and seismic detection[29][30][31] - Imaging products: Include direct thermal imaging, computer-to-plate printing systems, and digital inkjet printing technology, serving commercial graphics, industrial graphics, textile, and flexographic printing industries[32] - Strategy: Expanding customer markets, particularly in the water utility market, by converting robust engineering and manufacturing expertise through acquisitions like Aquana, LLC (FY2021)[27] Emerging Markets The Emerging Markets segment, primarily Quantum, focuses on the SADAR® detection system for real-time target detection, localization, and tracking in border security and surveillance - Core product: Quantum's SADAR® detection system, used for real-time detection, localization, and tracking of targets[33] - Application areas: Border and perimeter security monitoring, cross-border tunnel detection, motion monitoring, intrusion detection, and situational awareness[33] - Key customers: U.S. government agencies (e.g., Department of Defense, Department of Energy, Department of Homeland Security) and energy companies[33] Business Strategy The company's strategy emphasizes sound financial management, continuous R&D investment, and selective acquisitions to drive growth and diversify revenue, while managing industry cyclicality - Continuous investment in product R&D: Driving growth through internal development of new products, especially in the oil and gas industry (e.g., downhole seismic tools, PRM systems, wireless data acquisition systems) and other business areas to diversify revenue[35] - Selective acquisitions: Seeking opportunities in adjacent and emerging markets that complement existing oil and gas seismic products, engineering, and manufacturing capabilities to diversify revenue and mitigate industry cyclicality (e.g., acquisitions of OptoSeis®, Quantum, Aquana)[36] - Financial management: Managing financial risks by limiting or eliminating debt leverage on the balance sheet, avoiding long-term debt obligations, controlling capital asset investments, and liquidating and appropriately reserving inventory and lease assets; repurchased 1,496,701 shares of common stock since FY2021, but does not anticipate paying cash dividends in the foreseeable future[38] Competition The company faces intense competition in oil and gas products from major players and low-cost manufacturers, diverse competition in adjacent markets, and differentiates in emerging markets with its line-of-sight independent SADAR® technology - Oil and Gas product competition: Primary competitors for traditional seismic products are Sercel and INOVA, along with low-cost Chinese manufacturers; key competitors for land-based wireless data acquisition systems include SmartSolo, Sercel, INOVA, STRYDE, and others; main competitors for ocean bottom node data acquisition systems are Magseis Fairfield ASA, Sercel, and InApril AS; primary competitor for ocean bottom PRM systems is Alcatel-Lucent; key competitors for high-definition downhole seismic data acquisition systems are Avalon Sciences Ltd and Sercel; main competitors in the new energy/energy transition market are Microseismic, Inc., Namometrics, ISTI, and ESG[39][40][43][44][45] - Competitive advantages: In the seismic instrument and equipment market, technological advantages, product durability in harsh field conditions, reliability, size, weight, and customer support are critical success factors[42] - Adjacent Market product competition: Faces competition from numerous domestic and international specialized product manufacturers[46] - Emerging Market product competition: The border and perimeter security market is dominated by large integrated system providers, such as Boeing and Lockheed Martin; the company differentiates with its SADAR® technology, which does not rely on line-of-sight for motion detection[47] Suppliers The company sources raw materials globally, with most critical materials having multiple suppliers, but relies on single suppliers for specific marine wireless product timing devices and imaging thermal films - Single supplier dependency: Certain marine wireless product models' timing devices and imaging products' thermal films rely on single suppliers; issues with these suppliers could impact the company's competitiveness[49] - Supply chain risk: Frequent supply chain disruptions lead to extended material lead times, potentially affecting the company's ability to deliver products to customers on time[49] Product Manufacturing and Assembly Manufacturing and assembly operations encompass machining, molding, cable fabrication, component configuration, and final product assembly, often customized to client specifications with rigorous quality testing - Manufacturing process: Includes machining, molding or cable manufacturing, component configuration, and final product assembly[50] - Customized production: Many oil and gas seismic products are manufactured to customer specifications, such as geophone string length, specifications, tolerances, and molded part colors[50] - Quality control: Final products undergo functional and environmental extreme testing, along with quality assurance checks[50] - Production model: Production is typically based on confirmed customer orders, anticipated customer orders, and historical product demand[50] Markets and Customers The company serves diverse customers including seismic contractors, major oil and gas companies, industrial manufacturers, government agencies for security, and municipalities for smart water solutions - Key customer groups: - Traditional and Wireless Seismic Products: Seismic contractors, and a small number of large independent and government-owned oil and gas companies - Deepwater PRM Products: Large international oil and gas companies - Industrial Products: Specialized manufacturers, research institutions, and industrial product distributors - Imaging Products: Direct equipment users and specialized dealers focusing on screen printing and flexographic printing industries - Border and Perimeter Security Products: Primarily government agencies - Smart Water Connection Products: Municipalities, water utilities, water meter manufacturing companies, and asset management companies such as multi-family residential property owners[51] - 2024 and 2023 Fiscal Year Revenue by Product Type (in thousands of dollars) | Product Type | FY2024 Revenue ($) | FY2023 Revenue ($) | | :--- | :--- | :--- | | Traditional Seismic Exploration Products Revenue | 9,812 | 12,183 | | Wireless Seismic Exploration Products Revenue | 67,059 | 60,848 | | Seismic Reservoir Products Revenue | 584 | 962 | | Industrial Products Revenue | 43,060 | 36,859 | | Imaging Products Revenue | 12,565 | 12,180 | | Border and Perimeter Security Products Revenue | 2,222 | 1,234 | | Corporate Revenue | 296 | 243 | | Total Revenue | 135,598 | 124,509 | - Major customer dependency: In FY2024, two customers contributed 27.4% and 16.0% of the company's total revenue, respectively; in FY2023, two customers contributed 26.7% and 11.7% of the company's total revenue, respectively[52] Intellectual Property The company protects its intellectual property through patents, trademarks, trade secrets, and other measures, with existing patents valid until 2039, though no single patent is deemed critical - Protection methods: Protecting intellectual property through patents, trademarks, trade secrets, and confidentiality agreements[53] - Patent scope: Covers geophones, micro-geophones, piezoelectric sensors, seismic data acquisition, in-line retrieval devices, and water meter connectors, with related technologies pending[53] - Patent importance: No single patent is considered critical to its success[53] - Patent validity: Existing patents are valid until 2039[53] Research and Development The company anticipates significant ongoing R&D expenditures to develop new products across all business segments, with self-funded R&D expenses of $16.3 million in FY2024 - R&D investment: Significant R&D expenditures are expected to continue in the future for developing new products across all business segments[55] - Company Self-Funded R&D Expenses (in millions of dollars) | Fiscal Year | R&D Expenses ($M) | | :--- | :--- | | 2024 | 16.3 | | 2023 | 15.9 | Human Capital, Environmental and Social The company prioritizes attracting and retaining talent, fostering a diverse and safe work environment, offering competitive compensation, and upholding ethical standards, while maintaining ISO 14001 certified environmental management - Employee composition: As of September 30, 2024, 478 people are employed globally, with 461 in the U.S.; 63% are in manufacturing, 19% in engineering, and 18% in sales and administration[57] - Diversity: U.S. domestic workforce composition includes 33% White, 31% Asian, 25% Hispanic or Latino, 10% Black or African American, and 1% two or more races; women in management represent 2% of domestic employees, and veterans represent 5%[58] - Compensation and benefits: Offers competitive compensation and benefits programs, including incentive compensation plans, 401(k) plans, medical insurance, paid time off, tuition assistance, and uses equity incentives to retain key talent[60] - Corporate culture and governance: The Board of Directors has established a Code of Business Conduct applicable to all employees and a Code of Ethics for Senior Financial Officers, along with a whistleblower program; the Board is led by an independent chairman, undergoes regular evaluations, and non-management directors hold regular executive sessions; the Audit Committee ensures the integrity of financial statements and internal controls; the Board employs an Enterprise Risk Management (ERM) approach, overseeing all business segments[62][65][66][67][68][69][70] - Environmental commitment: Holds ISO 14001 certified environmental management system, committed to a "zero harm" goal; over 423 tons of recyclable materials recovered in the past three years, and over 212 tons of manufacturing waste recycled year-to-date in 2024[71][72] Financial Information by Segment and Geographic Area Detailed financial information by segment and geographic area is provided in Note 20 to the consolidated financial statements in this Form 10-K - Detailed financial information: Financial information by segment and geographic area is detailed in Note 20 to the consolidated financial statements[73] Available Information The company files annual, quarterly, and special reports, proxy statements, and other information with the SEC, available free on the SEC and company websites - SEC filings: Company reports filed with the SEC are available at www.sec.gov and the company's website www.geospace.com[74](index=74&type=chunk) Item 1A. Risk Factors The company faces diverse risks including external factors like oil price volatility, geopolitical conflicts, trade restrictions, and climate change legislation, alongside internal operational challenges such as new product development, customer credit, and supply chain dependencies - External risks: Oil price fluctuations impact demand for oil and gas products, the Russia-Ukraine conflict causes market disruptions and supply chain issues, international operations face political, economic, and legal uncertainties, tariffs and trade restrictions increase costs, climate change legislation may reduce oil and gas demand, intense market competition, and economic downturns affect customer spending[77][78][79][82][84][85][86][87][89][90][94][96][98] - Business operational risks: Significant R&D investment with uncertain market acceptance for new products, short-term nature of oil and gas product order backlogs leading to performance volatility, increased customer credit risk, rapid technological advancements causing product obsolescence, limited customer base in oil and gas and emerging markets, uncertainty of patent protection, risks in leasing business (equipment recovery, renewal uncertainty, asset impairment), potential failure of emerging market expansion (e.g., border security), reliance on single suppliers for critical components, loss of key personnel, inadequate disaster recovery capabilities at Houston facilities, fire hazards from lithium battery storage, financial restrictions imposed by credit agreements, reliance on third-party subcontractors, and high fixed costs impacting profitability during demand downturns[99][100][102][103][104][106][107][108][110][111][112][113][114][115][116][118][119][120][121][122][124][125][126] - Legal and compliance risks: Global operations face international legal compliance risks (e.g., Foreign Corrupt Practices Act, export control laws); violations could lead to fines and business restrictions[127] - Financial and accounting risks: No dividend policy means investors rely on stock price appreciation, small public float may lead to stock price volatility, exchange rate fluctuations affect operating results, long-term assets may face impairment, and internal control failures could impact financial reporting accuracy[129][130][131][132][133][134][135] External Factors that Could Adversely Affect Us External risks include global oil and gas price volatility, the Russia-Ukraine conflict, international business uncertainties, tariffs, trade restrictions, climate change legislation, market competition, and economic downturns - Oil price volatility: Global oil and gas exploration activity levels are primarily influenced by oil prices; stable prices may increase cash flow for exploration companies, but any significant changes could affect demand for the company's products and operating results[78][79] - Russia-Ukraine conflict: Ongoing military conflict may lead to market disruptions, commodity price volatility, supply chain disruptions, and potentially restrict imports from the Russian Federation, increasing procurement costs[82][83] - International business risks: In FY2024, revenue from customers outside the U.S. accounted for approximately 53% of total revenue; international operations face political, economic, and legal uncertainties such as war, terrorist activities, sanctions, exchange rate fluctuations, expropriation, confiscatory taxes, and export license restrictions[85][86][87] - Tariffs and trade restrictions: International trade activities expose the company to tariffs, trade restrictions, and tax risks; U.S.-China trade tensions could increase manufacturing costs and reduce product competitiveness[89] - Climate change legislation: Growing concerns over greenhouse gas emissions and climate change, with related legislation and policies (e.g., Paris Agreement, Glasgow Climate Pact, Biden administration's emission reduction targets) potentially limiting oil and gas development activities, thereby reducing demand for the company's products and services[90][91][92][94] - Market competition: The market for the company's products is highly competitive, with many competitors possessing stronger marketing, financial, and technical resources, potentially offering superior products or more favorable financing terms[96][97] - Economic downturn: Economic slowdowns may lead customers to cut capital expenditures, delay or cancel projects and orders, affecting the company's revenue and profitability, and potentially leading to oversupply and price pressure in the industry[98] Risks Associated with Our Business Strategy and Operations Operational risks include uncertain new product market acceptance, volatile oil and gas order backlogs, increased customer credit risk, rapid technological obsolescence, limited customer base, uncertain patent protection, and risks in leasing and emerging market expansion - New product R&D risk: Significant R&D investment, but new products and services may not achieve commercialization or profitability, with uncertain market acceptance[99][100] - Order backlog and performance volatility: Oil and gas product order backlogs are short-term, making demand prediction beyond three months difficult, potentially leading to significant quarterly performance and cash flow fluctuations; customers may delay or cancel orders, and even with penalties, losses may not be fully recovered[102][103][104] - Customer credit risk: Many oil and gas customers are undercapitalized and face liquidity difficulties, potentially leading to bad debt losses on accounts and notes receivable[106] - Technological development and product obsolescence: The industry in which the company operates experiences rapid technological development, and products may quickly become obsolete, requiring continuous improvement of existing products, development of new products, and adaptation to industry standards; failure to respond promptly could lead to product obsolescence and inventory impairment[107][108] - Limited market: The number of customers in the oil and gas market (especially seismic contractors and deepwater PRM system customers) and emerging markets (U.S. government agencies) is limited; loss of customers could have a significant adverse impact on revenue[110] - Uncertainty of patent protection: Patents may not be enforceable, face challenges, or competitors may develop similar technologies, affecting the effectiveness of patent protection[111] - Leasing business risks: Leased equipment may be difficult to recover abroad, technological advancements may render leased equipment obsolete and require impairment, lease contracts may not be renewed, and high fixed costs could lead to operating losses during demand downturns[112][113][114][115] - Emerging market expansion risk: Lack of experience in border and perimeter security market expansion (through Quantum acquisition); government contracts are complex and unpredictable, potentially affecting financial performance and reputation[116] - Key supplier dependency: Certain marine wireless products and imaging products rely on single suppliers for critical components; issues with these suppliers could harm the company's competitiveness[118][119] - Key personnel dependency: The company's success depends on attracting and retaining highly skilled professionals and senior management team members; loss of talent could affect competitiveness[120] - Disaster recovery capability: Inadequate disaster recovery plans at Houston facilities (e.g., lack of backup generators and alternative manufacturing locations); natural disasters could lead to prolonged disruptions in manufacturing operations[121] - Lithium battery fire risk: Storage of lithium batteries at facilities poses fire hazards, potentially leading to personal injury, facility damage, and manufacturing disruptions[122] - Credit agreement restrictions: Credit agreements impose strict limitations on additional debt, consolidated tangible net worth, liquidity, and current ratio; default could lead to accelerated debt maturity and collateral disposition[124] - Subcontractor dependency: Reliance on third-party subcontractors may lead to reduced project control, risks of delayed delivery, substandard quality, and high costs[125] - High fixed costs: Operations have a high fixed cost structure (depreciation, manufacturing fixed costs), which could lead to operating losses during demand downturns[126] Legal and Compliance Risks Global operations face compliance risks with international and U.S. laws, including anti-corruption and export controls, with potential penalties for violations, and the company's no-dividend policy means investors rely on stock appreciation - International business compliance risks: Global operations face compliance risks with international and U.S. laws and regulations such as data privacy, labor laws, tax laws, antitrust, import/export restrictions, export control laws, and the Foreign Corrupt Practices Act; violations could lead to fines, criminal sanctions, business restrictions, and reputational damage[127] - No dividend policy: The company has not paid cash dividends since its initial public offering in 1997 and does not intend to pay them in the foreseeable future; investors must rely on stock price appreciation for investment returns[129][130] - Small public float: As of September 30, 2024, the company's public float was approximately 11.8 million shares; limited trading volume could lead to significant stock price volatility[131] Financial and Accounting Risks The company faces risks from adverse currency exchange rate fluctuations, potential impairment of long-term assets due to sustained low oil and gas prices, and the risk of inaccurate financial reporting from ineffective internal controls - Exchange rate fluctuation risk: While some revenue is denominated in U.S. dollars, assets, liabilities, revenues, and costs of Canadian and UK subsidiaries, and Brazilian and Colombian branches are denominated in non-U.S. currencies; exchange rate fluctuations could significantly impact consolidated financial statements[132] - Long-term asset impairment: Sustained declines in crude oil and natural gas prices could lead to impairment of long-term assets (including manufacturing facilities, equipment, and leased equipment) in the oil and gas market business; intangible assets related to the OptoSeis® technology acquisition or goodwill and other intangible assets related to the Aquana acquisition may also face impairment[133] - Internal control risk: Failure to maintain effective internal control over financial reporting could lead to inaccurate financial reporting and inability to timely detect fraud, thereby adversely affecting the value of common stock[134][135] Item 1B. Unresolved Staff Comments There are no unresolved staff comments in this report - No unresolved staff comments[136] Item 1C. Cybersecurity The company maintains a comprehensive cybersecurity risk management program, overseen by the SVP of IT and the Board, adhering to NIST framework and best practices, with no significant incidents in the past three years - Cybersecurity management: Managed by the Senior Vice President of Information Technology (also Chief Information Security Officer), with quarterly updates from the IT Steering Team and annual risk assessments by the Board of Directors[138][139] - Security program: Adheres to the NIST Cybersecurity Framework and industry best practices, including MDR, SOC, phishing protection, data loss prevention, vulnerability detection, firewalls, multi-factor authentication, mobile device management, penetration testing, and third-party assessments[140] - Incident history: No significant information security incidents in the past three years, no significant fines or settlement costs incurred, and no material adverse impact on business[141] - Insurance: The company maintains cybersecurity insurance[141] Item 2. Properties As of September 30, 2024, the company owns or leases properties in the U.S., Canada, UK, and Colombia for manufacturing, sales, service, R&D, and administration, including its Houston headquarters and a 17.3-acre adjacent property listed for sale - Company Property Overview as of September 30, 2024 | Location | Ownership/Lease | Approximate Area | Purpose | Segment | | :--- | :--- | :--- | :--- | :--- | | Houston, Texas (Pinemont Facility) | Owned | 387,000 sq ft | Manufacturing, Engineering, Sales, Marketing, Administration, International Headquarters | Oil and Gas Markets, Adjacent Markets | | Houston, Texas (Adjacent to Pinemont Facility) | Owned | 17.3 acres | Additional Parking, Storage (listed as "Property Held for Sale") | Oil and Gas Markets | | Austin, Texas | Leased | 9,000 sq ft | OptoSeis® R&D and Engineering | Oil and Gas Markets | | Melbourne, Florida | Leased | 7,000 sq ft | Quantum Operations | Emerging Markets | | Calgary, Alberta, Canada | Owned | 45,000 sq ft | Manufacturing, Sales, and Service | Oil and Gas Markets, Adjacent Markets | | Luton, Bedfordshire, England | Owned | 8,000 sq ft | Sales and Service | Adjacent Markets | | Bogota, Colombia | Owned | 19,000 sq ft | Sales and Service | Oil and Gas Markets | - Houston Pinemont facility is the company's primary manufacturing, engineering, sales, marketing, and administrative center in the U.S., and also the international corporate headquarters[143] - The 17.3-acre property adjacent to the Houston Pinemont facility is listed as "Property Held for Sale," used for additional parking and supporting manufacturing storage[144] Item 3. Legal Proceedings The company is involved in various routine legal proceedings, which management believes will not materially impact its consolidated financial position, operating results, or cash flows - The company is involved in various pending legal proceedings arising in the ordinary course of business[145] - Management believes the ultimate resolution of these matters will not have a material adverse effect on the company's consolidated financial position, results of operations, or cash flows[145] Item 4. Mine Safety Disclosures There are no mine safety disclosures in this report - No mine safety disclosures[146] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities As of October 31, 2024, the company had approximately 136 record holders of common stock, trading at $11.20, with no cash dividends paid since its 1997 IPO and no future plans - Common stock market: The company's common stock is traded on the NASDAQ Global Select Market under the symbol "GEOS"[149] - Common Stock Market Information (High and Low Prices per Share) | Period | Low Price ($) | High Price ($) | | :--- | :--- | :--- | | FY2024 Q4 | 8.09 | 10.81 | | FY2024 Q3 | 8.49 | 14.83 | | FY2024 Q2 | 11.40 | 17.09 | | FY2024 Q1 | 10.35 | 13.74 | | FY2023 Q4 | 7.22 | 14.59 | | FY2023 Q3 | 6.60 | 9.16 | | FY2023 Q2 | 3.96 | 7.55 | | FY2023 Q1 | 3.76 | 4.88 | - Dividend policy: No cash dividends have been paid since the initial public offering in 1997, and none are anticipated in the foreseeable future[152] - Equity Compensation Plan Information (as of September 30, 2024) | Plan Type | Number of Securities to be Issued (shares) | Weighted-Average Exercise Price per Share ($) | Number of Securities Remaining Available for Future Issuance (shares) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 408,895 | Not Applicable | 827,088 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 408,895 | Not Applicable | 827,088 | - Issuer Purchases of Equity Securities (for the three months ended September 30, 2024) | Period | Total Number of Shares Purchased (shares) | Average Price Paid per Share ($) | Total Number of Shares Purchased as Part of Publicly Announced Plans (shares) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans ($) | | :--- | :--- | :--- | :--- | :--- | | July 1 to July 31, 2024 | 164,048 | 9.09 | 164,048 | 501,000 | | August 1 to August 31, 2024 | 141,695 | 9.23 | 141,695 | 1,186,000 | | September 1 to September 30, 2024 | 57,491 | 9.88 | 57,491 | 615,000 | - Stock repurchase program: The Board of Directors authorized a stock repurchase program of up to $5 million on May 9, 2024, and approved an increase to $7 million on August 8, 2024; the program has no time limit, funded by existing cash or future cash flows; as of September 30, 2024, $0.6 million remained available for repurchase[158] Item 6. [Reserved] This item is reserved - This item is reserved[159] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides detailed financial condition and operating results, including forward-looking statements, with FY2024 total revenue growing 8.9% to $135.6 million, driven by demand across all segments, particularly Adjacent and Emerging Markets - Forward-looking statements: This report contains forward-looking statements regarding future expectations, operating performance forecasts, and financial condition, subject to risks and uncertainties described in the "Risk Factors" section[161] - Business background: The company designs and manufactures seismic instruments and equipment, primarily serving the oil and gas industry, also providing seismic and non-seismic products for other industries, and offering contract manufacturing services[162] - Performance volatility: The company's revenue and operating income have historically been volatile and are expected to continue this trend, particularly influenced by sales of oil and gas PRM systems and wireless seismic data acquisition systems[163] - Financial Data by Business Segment (in thousands of dollars) | Indicator | FY2024 | FY2023 | | :--- | :--- | :--- | | Oil and Gas Markets | | | | Traditional Exploration Products Revenue | $9,812 | $12,183 | | Wireless Exploration Products Revenue | $67,059 | $60,848 | | Reservoir Products Revenue | $584 | $962 | | Total Revenue | $77,455 | $73,993 | | Operating Income | $13,134 | $15,759 | | Adjacent Markets | | | | Industrial Products Revenue | $43,060 | $36,859 | | Imaging Products Revenue | $12,565 | $12,180 | | Total Revenue | $55,625 | $49,039 | | Operating Income | $14,152 | $11,490 | | Emerging Markets | | | | Revenue | $2,222 | $1,234 | | Operating Loss | ($6,193) | ($4,003) | | Corporate Level | | | | Revenue | $296 | $243 | | Operating Loss | ($13,976) | ($11,918) | | Consolidated Total | | | | Total Revenue | $135,598 | $124,509 | | Operating Income | $7,117 | $11,328 | - Diversification strategy: The company continues to advance its diversification strategy into non-oil and gas businesses through organic growth and acquisitions, with steady revenue growth in Adjacent Markets[166] - Oil and Gas Markets: A shift from leasing to purchasing OBX marine wireless nodes indicates customer confidence in future orders; increased demand for marine nodes drives oil and gas revenue growth, but the market is expected to saturate, with future leasing demand coming from temporary expansions; the oil and gas market will remain a primary revenue source, but its proportion will gradually decrease[167] - Adjacent Markets: Water meter cables and connectors are widely accepted in the industry and are expected to continue growing; Aquana smart water valves and IoT technology products are anticipated to generate significant revenue; expansion in this segment is a crucial component of the company's diversification strategy[168] - Financial condition: The company maintains a strong, debt-free balance sheet with ample liquidity, supporting future business acquisitions, capital investments, and product R&D[169] Cautionary Note Regarding Forward-Looking Statements and Assumptions This annual report contains forward-looking statements about future expectations and financial performance, subject to various risks and uncertainties, and the company disclaims any obligation to update them - Forward-looking statements: Involve future expectations, operating performance forecasts, financial condition, product adoption, market demand, capital expenditures, and growth strategies[161] - Risk factors: Actual results may materially differ due to risks such as oil price volatility, product market acceptance, order delays or cancellations, product obsolescence, bad debts, and intellectual property infringement[161] - Disclaimer: The company undertakes no obligation to revise or update any forward-looking statements[161] Background The company primarily designs and manufactures seismic instruments for the oil and gas industry, also applying seismic products to other sectors and offering non-seismic products and contract manufacturing - Core business: Designs and manufactures seismic instruments and equipment, primarily serving the oil and gas industry[162] - Diversified applications: Seismic products are also used for vibration monitoring, border security, and geotechnical engineering[162] - Non-seismic products: Include water meter products, imaging equipment, and contract manufacturing services[162] Consolidated Results of Operations The company's revenue and operating income have historically been volatile and are expected to continue this trend, particularly influenced by oil and gas PRM systems and wireless seismic data acquisition system sales - Performance volatility: Revenue and operating income have historically been volatile and are expected to continue this trend, primarily influenced by sales of oil and gas PRM systems and wireless seismic data acquisition systems[163] - Segment reporting: Financial information is reported by three segments: Oil and Gas Markets, Adjacent Markets, and Emerging Markets[165] Overview In FY2024, all business segments saw revenue growth, advancing diversification, with strong Adjacent Market performance and a shift in Oil and Gas from leasing to purchasing, while maintaining a debt-free balance sheet - Revenue growth: All business segments experienced revenue growth in FY2024, indicating progress in diversification strategy[166] - Oil and Gas Markets: Sales of OBX marine wireless nodes replaced leasing, reflecting customer confidence in future orders; demand for marine nodes increased, but the market is expected to saturate[167] - Adjacent Markets: Demand for water meter cables and connectors increased, and Aquana smart water valves and IoT technology products are expected to generate significant revenue, reflecting the success of the company's diversification strategy[168] - Financial condition: The company maintains a strong, debt-free balance sheet with ample liquidity, supporting future acquisitions, capital investments, and product R&D[169] Fiscal Year 2024 Compared to Fiscal Year 2023 Consolidated revenue grew 8.9% to $135.6 million in FY2024, driven by demand across all segments, but operating income declined due to intangible asset impairment and increased expenses, resulting in a net loss after a significant loss on subsidiary sale - 2024财年与2023财年合并财务数据对比（千美元） | Indicator | FY2024 | FY2023 | Change Amount | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Consolidated Revenue | $135,598 | $124,509 | $11,089 | 8.9% | | Consolidated Gross Profit | $52,573 | $51,690 | $883 | 1.7% | | Consolidated Operating Expenses | $45,456 | $41,677 | $3,779 | 9.1% | | Operating Income | $7,117 | $11,328 | ($4,211) | -37.2% | | Net Income (Loss) | ($6,578) | $12,206 | ($18,784) | -153.9% | | Basic Earnings (Loss) Per Share | ($0.50) | $0.93 | ($1.43) | -153.8% | | Diluted Earnings (Loss) Per Share | ($0.50) | $0.92 | ($1.42) | -154.3% | - Revenue growth drivers: Increased demand across all three business segments; Oil and Gas Markets revenue increased by $3.5 million, primarily from Mariner™ and OBX 750E shallow water marine node sales (replacing lease contracts), partially offset by decreased OBX lease fleet utilization and reduced demand for traditional seismic exploration products; Adjacent Markets revenue increased by $6.6 million, primarily from industrial product demand; Emerging Markets revenue increased by $1 million, mainly from government contract completion[171] - Gross profit changes: Adjacent Markets gross profit increased by $4.4 million (due to revenue growth and full absorption of fixed overhead), offsetting a $3.3 million decrease in Oil and Gas Markets gross profit (due to decreased OBX lease fleet utilization)[172] - Operating expense changes: Primarily due to a $2.8 million impairment of intangible assets in Emerging Markets, as well as increased sales and marketing expenses and higher R&D expenses[173] - Asset disposals: Sale of Houston Langfield Road property in February 2023 generated $1.3 million gain; sale of Russian Federation oil and gas product manufacturing business in August 2024 recognized a $14.5 million loss (of which $13.1 million was accumulated foreign currency translation loss), but is not expected to have a material impact on future revenue, profit, or loss[174][175][177] Segment Results of Operations In FY2024, Oil and Gas revenue grew 4.7% but operating income fell 16.7%, while Adjacent Markets saw 13.4% revenue growth and 23.2% operating income growth, and Emerging Markets revenue surged 80.1% but operating loss widened due to intangible asset impairment Oil and Gas Markets In FY2024, Oil and Gas Markets revenue increased 4.7% to $77.5 million, driven by wireless exploration product sales, but operating income declined 16.7% due to lower OBX lease fleet utilization - Oil and Gas Markets Revenue (in thousands of dollars) | Product Type | FY2024 | FY2023 | Change Amount | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Traditional Exploration Products Revenue | $9,812 | $12,183 | ($2,371) | -19.5% | | Wireless Exploration Products Revenue | $67,059 | $60,848 | $6,211 | 10.2% | | Reservoir Products Revenue | $584 | $962 | ($378) | -39.3% | | Total Revenue | $77,455 | $73,993 | $3,462 | 4.7% | - Wireless exploration product revenue growth: Primarily due to $30 million in Mariner™ shallow water marine node sales and $10.5 million in OBX 750E shallow water node sales, which replaced customer lease contracts; partially offset by decreased OBX lease fleet utilization[179] - Oil and Gas Markets Operating Income (in thousands of dollars) | Indicator | FY2024 | FY2023 | Change Amount | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Operating Income | $13,134 | $15,759 | ($2,625) | -16.7% | - Reasons for operating income decline: Primarily due to decreased OBX lease fleet utilization, whose costs are mainly fixed depreciation; partially offset by reduced R&D costs[181] Adjacent Markets In FY2024, Adjacent Markets revenue grew 13.4% to $55.6 million, driven by industrial and imaging product demand, with operating income increasing 23.2% due to improved gross margins - Adjacent Markets Revenue (in thousands of dollars) | Product Type | FY2024 | FY2023 | Change Amount | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Industrial Products Revenue and Services | $43,060 | $36,859 | $6,201 | 16.8% | | Imaging Products Revenue | $12,565 | $12,180 | $385 | 3.2% | | Total Revenue | $55,625 | $49,039 | $6,586 | 13.4% | - Industrial product revenue growth: Primarily due to increased demand for water meter products[182] - Imaging product revenue growth: Primarily due to increased demand for film products, partially offset by decreased demand for imaging equipment[183] - Adjacent Markets Operating Income (in thousands of dollars) | Indicator | FY2024 | FY2023 | Change Amount | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Operating Income | $14,152 | $11,490 | $2,662 | 23.2% | - Reasons for operating income growth: Primarily due to increased revenue and improved gross margins; partially offset by increased operating expenses and R&D expenses[184] Emerging Markets In FY2024, Emerging Markets revenue increased 80.1% to $2.2 million, driven by a government contract, but operating loss widened to $6.2 million due to a $2.8 million non-cash intangible asset impairment - Emerging Markets Revenue (in thousands of dollars) | Indicator | FY2024 | FY2023 | Change Amount | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Revenue | $2,222 | $1,234 | $988 | 80.1% | - Reasons for revenue growth: Primarily due to the completion of a $1.5 million government contract in the third quarter of FY2024[185] - Emerging Markets Operating Loss (in thousands of dollars) | Indicator | FY2024 | FY2023 | Change Amount | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Operating Loss | ($6,193) | ($4,003) | ($2,190) | 54.7% | - Reasons for increased operating loss: Primarily due to a $2.8 million non-cash impairment of intangible assets[186] Liquidity and Capital Resources As of September 30, 2024, the company held $37.1 million in cash and short-term investments, with $9.1 million cash used in operations, $3.8 million generated from investing, and $6.4 million used in financing, maintaining a $15 million revolving credit facility with no outstanding borrowings - Cash and Cash Equivalents and Short-term Investments (in thousands of dollars) | Indicator | Sep 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $6,895 | $18,803 | | Short-term Investments | $30,227 | $14,921 | | Total | $37,122 | $33,724 | - FY2024 Cash Flows (in thousands of dollars) | Activity Type | Cash Flow | | :--- | :--- | | Operating Activities | ($9,083) | | Investing Activities | $3,824 | | Financing Activities | ($6,385) | - Cash outflow from operating activities: Primarily due to a net loss of $6.6 million, offset by $18.8 million in non-cash expenses (deferred income taxes, depreciation, amortization, impairment, accruals, inventory write-downs, equity-based compensation, allowance for credit losses); other uses include an $11 million increase in inventory and a $3 million decrease in liabilities; partially offset by a $6.6 million decrease in accounts receivable and a $2.7 million increase in accounts payable[187] - Cash inflow from investing activities: Primarily from $32 million in proceeds from the sale of old leased equipment; partially offset by $3.9 million in property, plant, and equipment acquisitions, $8.3 million in leased equipment, $14.7 million net outflow for short-term investments, and $1.2 million cash disposition from subsidiary sale[188] - Cash outflow from financing activities: Primarily for $6.4 million in treasury stock repurchases[189] - Capital expenditure outlook: Expected investments of approximately $3 million in leased equipment and $8 million in property, plant, and equipment for FY2025, funded by existing cash, internal cash flow, cash flow from lease contracts, or borrowings under the credit agreement[188] - Credit agreement: A $15 million revolving credit agreement with Woodforest National Bank, with an interest rate of Term SOFR plus 3.25%; requires maintaining a minimum consolidated tangible net worth of $100 million, liquidity of $5 million, and a current ratio of not less than 2.00:1.00; the agreement matures in July 2025; as of September 30, 2024, there were no outstanding borrowings, $14.9 million available for borrowing, and all covenants were in compliance[191][192] - Liquidity outlook: Existing cash and short-term investments are expected to be sufficient to cover operating losses and planned capital expenditures for the next 12 months[193] Contractual Obligations The company has a six-year contingent cash payment obligation from the Aquana acquisition, based on product revenue with no maximum, treated as compensation expense due to key employee retention requirements - Contingent compensation costs: A six-year contingent cash payment obligation from the Aquana acquisition, based on Aquana product and service revenue, with no maximum limit; not recorded as a fair value liability due to the requirement for key employee continued employment; recognized as compensation expense when paid[196] - FY2024 eligible revenue: $17,000[196] Critical Accounting Estimates Financial statements rely on critical accounting estimates and assumptions for revenue recognition, allowance for doubtful accounts, inventory obsolescence, goodwill, and long-lived asset impairment, which are continuously evaluated - Key estimation areas: Revenue recognition, allowance for doubtful accounts, inventory obsolescence reserve, goodwill, and long-lived asset impairment[198] - Credit losses: Continuous credit assessment of trade accounts receivable, with allowances for potential credit losses based on historical experience, customer creditworthiness, aging, and economic conditions[199] - Long-lived asset impairment: Reviewed when impairment indicators exist, comparing undiscounted future cash flows of an asset group to its carrying value; if carrying value exceeds future cash flows, an impairment loss is recognized at fair value[200] - Goodwill impairment: Goodwill of reporting units is assessed annually on September 30; an impairment loss is recognized if carrying value exceeds fair value[201] - Inventory valuation: Measured at the lower of cost or net realizable value, with cost determined using the first-in, first-out method (some foreign subsidiaries use the average cost method); obsolescence risk is regularly reviewed, and reserves are provided; non-current inventory is classified as non-current assets[203][204] - Revenue recognition: Revenue from product sales and services is recognized under ASC Topic 606, and lease revenue under ASC Topic 842[206][207] Management's Current Outlook and Assumptions Management anticipates increased wireless product sales and lease revenue in FY2025, stable traditional seismic product revenue, slight growth in reservoir products, and continued growth in Adjacent Markets, while Emerging Markets revenue is expected to be flat or slightly up - Oil and Gas Market outlook: - Wireless Products: Sales and lease revenue are expected to exceed FY2024 levels in FY2025, primarily driven by Mariner™ and Pioneer™ systems[212] - Land-based Traditional Seismic Products: Demand is expected to remain at FY2024 levels in FY2025[213] - Reservoir Products: Revenue is expected to be slightly higher than FY2024 in FY2025; a pre-tender front-end engineering design study request for PRM was received in July 2024; if a large-scale PRM order is received in FY2025, revenue recognition may occur in FY2026 and FY2027[214] - Adjacent Market outlook: Revenue is expected to exceed FY2024 levels in FY2025, primarily driven by the integration of Aquana products and continued growth in demand for industrial, imaging products, and contract manufacturing services[215] - Emerging Market outlook: Revenue is expected to be flat or slightly increase in FY2025; efforts are still needed for SADAR technology market acceptance[216] - Macroeconomic factors: Demand for oil and gas products is affected by crude oil price fluctuations; despite oil price recovery, capital expenditures by oil and gas exploration and production companies remain constrained, suppressing demand for new seismic equipment[209] Recent Accounting Pronouncements The company adopted FASB guidance on credit losses for financial instruments in October 2023 with no material impact, is evaluating new segment disclosure requirements, and will adopt improved income tax disclosures in Q4 FY2026 with no expected material impact - Adopted standards: Adopted FASB guidance on credit losses for financial instruments on October 1, 2023, with no material impact on consolidated financial statements[298][323] - Recently issued standards: - Reportable Segment Disclosures: FASB issued an update in November 2023, requiring enhanced segment expense disclosures, effective for fiscal years beginning after December 15, 2023; the company is evaluating its impact[324] - Income Tax Disclosures: FASB issued improved guidance in December 2023, requiring more income tax reconciliation information and income taxes paid disaggregated by jurisdiction; the company will adopt in the fourth quarter of FY2026, with no material impact expected on consolidated financial statements[325][326] Item 7A. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable - This item is not applicable[217] Item 8. Financial Statements and Supplementary Data The company's consolidated financial statements, audit report, notes, and supplementary data commence on page F-1 of this Form 10-K and are incorporated herein by reference - Consolidated financial statements, audit report, notes, and supplementary data begin on page F-1[218] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure in this report - No changes in or disagreements with accountants on accounting and financial disclosure[219] Item 9A. Controls and Procedures Management assessed the effectiveness of disclosure controls and procedures and internal control over financial reporting as effective as of September 30, 2024, having remediated a prior material weakness in segregation of duties - Disclosure controls and procedures: As of September 30, 2024, the company's disclosure controls and procedures were assessed as effective[220] - Internal control over financial reporting: Management assessed that, as of September 30, 2024, the company's internal control over financial reporting was effective[222][223] - Internal control changes: A material weakness in segregation of duties existed in the first two quarters of FY2024, but management remediated it through system configuration changes on July 1, 2024, and believes this weakness did not result in a material misstatement of the financial statements[225] Item 9B. Other Information There is no other information in this report - No other information[227] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection There is no disclosure regarding foreign jurisdictions that prevent inspection in this report - No disclosure regarding foreign jurisdictions that prevent inspection[228] PART III Item 10. Directors, Executive Officers and Corporate Governance Information required for this item is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of Stockholders, covering director elections, executive compensation, Section 16(a) compliance, and code of ethics - Information source: Relevant information is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of Stockholders[231] Item 11. Executive Compensation Information required for this item is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of Stockholders, covering executive compensation - Information source: Relevant information is incorporated by reference from the company's definitive proxy statement for the 2025 Annual Meeting of S