Q4 2019 Earnings Call

Welcome to the Geospace Technologies' fourth quarter and fiscal year 2019 earnings conference call hosting the call today from Geo space as Mr., Rick Wheeler, President and Chief Executive Officer. He has joined by Tom Mcentire, The company's Vice President and Chief Financial Officer, today's call is being booked.

<unk> and will be available on the Geospace Technologies' Investor Relations website following the call.

At this time, all participants have been placed any listen only mode and the floor will be open for your questions. Following the presentation. If he would like to ask a question at that time. Please press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the killed by pressing the pound key we ask that you. Please pick up your handset to provide.

Optimal sound quality.

Lastly, if you should require operator assistance. Please press star Zero and is now my pleasure to turn the floor <unk> Rick Wheeler, Sir you may begin.

Thank you Catherine.

Good morning, everyone and welcome to Geospace Technologies Conference call for the fourth quarter of our 2019. This fiscal year I work with her the company's President and Chief Executive Officer, and I'm joined by Tom Mcentire, The company's Vice President and Chief Financial Officer, along with Robert occurred at the company's operational controller.

I'll start the call with an overview of the fourth quarter and Tom will then offer an in depth commentary on our financial performance afterwards, I'll make a few final remarks, and then we'll open the line for questions.

Some of today's statements maybe considered forward looking as defined in the private Securities Litigation Reform Act of 1995, including comments about product markets revenue recognition planned operations and capital expenditures.

These statements are based on our president awareness, while actual outcomes are affected by uncertainties and other factors, we cannot control or predict both known and unknown risks can lead to hundreds are more results or performance differences from what we say or implied today, such risks and uncertainties, including those discussed in our FCC Form 10-K , and 10-Q filings.

For convenience, we will make a recording of this call on the Investor Relations page of our Geospace Dot Com website note that information discussed. This morning is time sensitive in may not be accurate at the time, one listens to the replay.

Yesterday after market closed we released our financial results for the fourth quarter in fiscal year ended September Thirtyth 2019, as reported revenue was driven in the fourth quarter and throughout the year by a growing number of rental contracts utilizing our ob ex ocean bottom nodal seismic recorders.

In the fourth quarter revenue surged to 28.9 million in gross profit rose to 10.4 million both amounts reflect the highest quarterly figures and more than five years.

For the full year ends ended September Thirtyth 2019 revenue reached 95.8 million.

Gross profit nearly tripled to 31.4 million.

The improved results in both revenue and gross profit are attributed to our growing rental equipment business.

Our fourth quarter and full year results benefited from two favorable but unusual events. The first is a $7 million gain on the sale of non essential real estate.

And the second is a net reduction of $2.1 million, an earn out liabilities related to our acquisitions of quantum and opto size.

This net adjustment to contingent consideration necessarily flow through the income statement as a charge to operating expenses. If we exclude these favorable adjustments on a pro forma basis, our 2019 fiscal fourth quarter and full year losses worth four cents per share and 70 cents per diluted share for the quarter and year respect.

<unk>.

Our oil and gas market segment produced 20.8 million in revenue for the fourth quarter and over the full fiscal year generated 65 million in revenue. The increase is a 57% in 45% respectively over the equivalent three in 12 month periods a year ago were dominated by our wireless products.

As highlighted earlier this is due to increased rentals of our Ob ex Marine notable recording systems at year end, we had more than 31000, OPX stations and our rental fleet most of which were being utilized on multiple rental contracts with multiple seismic contractors.

As discussions occur with new and existing customers for future OPX rental contracts and extensions to current contracts, we carefully evaluate possible needs for expansion of our <unk> I've RVX rental fleet to satisfy the anticipated growth in demand.

We also note that revenue in the fourth quarter from our wireless products was augmented by the sale of 5000 channels with our GCL, one land recording system to our European contractor.

And as recently announced we expect to fulfill delivery of another bordering 30000 GCL one stations early in our second fiscal quarter, which ends March 31st 2020.

Our traditional seismic products produced revenue with only $600000 in the fourth quarter at historic low for these products and for the year revenue of 9.5 million represents a decrease of 26% from last year.

Lower revenue in both periods as do the lesser demand for our seismic sensors, which was partially offset for the full year period by higher revenue from our marine products.

Revenue from our reservoir seismic products for the fourth quarter was only $252000 and for the year totaled 2.7 million.

These reflect respective decreases from their prior comparative periods, a 13% and 44% stemming from lower sales in rentals of our borehole tools and fewer services.

We expect revenue from this product segments remain low unless and until we have a contract for the delivery of a permanent reservoir monitoring our PRM system.

We extended our PR and product offerings in November of 2018 through our acquisition of opt to size fiber optic sensing technology and we believe this augmented product line, along with our President <unk> leadership, and PRM system design enhances our opportunities to receive future contracts.

Currently there are no such contracts up for award, but we are in discussions with multiple oil and gas companies interested in utilizing this technology.

Note that as a result of these expanded discussions we recorded a charge a point $8 million in the fourth quarter, increasing the fair value at the earn out liability, we expect to pay the previous owner adoptive size.

We also believe the climate of current discussions indicates that a tender for a PRM system is likely in the foreseeable future, but we do not expect to earn any revenue if awarded a contract until late in fiscal year 2020 or beyond.

Revenue from our adjacent market segment totaled 8 million in the fourth quarter. This increase of 70% over last years fourth quarter was primarily due to higher sales of our industrial sensors and water meter cables aided by slight increases in revenue from graphic image products and contract manufacturing services.

Total revenue for the full fiscal year from this segment was $30.2 million. This represents an essentially flat year over year performance comprised of revenue reductions from water meter cables balanced by offsetting increases from industrial sensors.

And with relatively unchanged revenue from other contributing products.

We believe our adjacent market segment provides a strategic element of revenue stability amidst the high volatility <unk> volatility experienced fire on oil and gas market segment products.

We also believe this segment continues to exhibit overall revenue growth opportunities. Despite fluctuations that may occur from one period to another.

Revenue from our emerging market segments totaled $14000 in the fourth quarter and $159000 for the full fiscal year ended September Thirtyth 29 team.

These figures reflect respective decreases of 95% and 44% from the same period last year, which are attributed to completion of work for legacy contracts that are last year compared with no significant border or perimeter security contracts during fiscal year 2019.

This market segment is comprised solely of products and services offered by quantum which focuses on specialty products incorporating seismic acoustic technology to monitor monitor protect and secure physical borders and parameters and both domestic and international markets.

While significant revenue country contributions from one of them are not expected in the near term. We believe this unique technology is still capable of creating meaningful future revenue for border and perimeter security system contracts. Since quantum is not received any meaningful border and perimeter security contracts since its acquisition in July of 2018, we were.

Dues, the fair market value of our earn out liability by $2.9 million, resulting in an offsetting 2.9 million dollar credit reduction to our operating expenses.

At this point I'll now turn the call over to Tom for some more financial detail. Thank you Rick and good morning, everyone.

Before I begin I'd like to remind everyone that we will not be providing any specific revenue or earnings guidance. During this morning's call.

In yesterday's press release for fourth quarter ended September Thirtyth 2019, we reported revenue of $28.9 million compared to last year's revenue of $20.6 million.

Net income for the fourth for the quarter was $8.7 million or 63 cents per diluted share.

Compared to last years net loss of $207000 or two cents per diluted share.

For the year ended September Thirtyth 2019, we reported revenue of $95.8 million compared to revenue of 75.7 million last year.

Our net loss for the year was $146000 or a loss of one cents per diluted share.

Compared to last years net loss at 19.2 million or one dollar in 45 cents per diluted share.

Both of the 2019 fiscal year in fourth quarter periods benefited from a $7 million gain for the sale of nonessential real estate.

Yeah, they $2.1 million net reduction to the fair value of contingent earn out liabilities related to our recent acquisitions of quantum and off the size.

Excluding these favorable adjustments for the fourth quarter of 2019, the company would have reported a net loss of $500000 or four cents per diluted share.

And the full year or would have resulted in a net loss of $9.3 million or 70 cents per diluted share.

For comparative purposes. The company also noted that the fourth quarter fiscal year 2018 benefited from the reversal of a $2.3 million bad debt that was previously established in the third quarter fiscal year 2018.

Hey breakdown of our oil and gas product revenue was as follows.

Our traditional product revenue for the fourth quarter was $600000 a decrease of 82% compared to revenue were 3.3 million last year.

Revenue for the year was $9.5 billion, a decrease of 26% compared to last year's revenue of $12.9 million.

Revenue declines in both periods or attributable to lower demand for our sensor products.

In the year long period.

These decreases were partially offset by increased marine product rather than [noise].

[noise] for wireless product revenue for the quarter was $20 million, an increase of 106% compared to revenue of $9.7 million last year.

For the full year wireless product revenue was 52.8 million, an increase of 94% compared to $27.3 million in the prior year.

These increases were the result of substantial growth and the rental of our OPX Marine nodal systems.

Our reservoir product revenue for the fourth quarter was $252000 a decrease of 13% compared to revenue of $290000 last year.

Revenue for the full year was $2.7 million, a decrease of 44% compared to revenue of $4.8 million last year.

This revenue decrease for both periods, primarily reflects reduced sales of rentals up our borehole tools and reduced demand for support services.

What do not expect meaningful revenue from these products unless and until we are engaged in the contract for the delivery of a permanent reservoir monitoring system. We are however, as Rick said in discussions with multiple oil and gas companies interested in using or Peoria technology.

As a result of these discussions we recorded a charge of $800000 to our operating expenses in the fourth quarter to increase the fair value of the earn out liability, we expect to pay to the previous owner of opto size.

Moving onto our adjacent market segment or industrial product revenue for the fourth quarter was $5.3 million an increase of 23% on.

Compared to last year's revenue of $4.3 million.

This increase was primarily due to higher sales of our industrial sensors and water meter cables.

Revenue for the year was $18.3 million compared to last year's revenue of $18.4 million.

The slight decline in revenue resulted from lower sales over water meter products with an offsetting increase in demand for our industrial sensor products.

Imaging revenue for the fourth quarter was $2.8 million, an increase of 6% compared to last year's revenue of $2.6 million.

Revenue for the full year was $11.8 million, an increase of two per cent compared to $11.6 million in fiscal year 2018.

These increases were caused by improved sales of our equipment in film products.

Finally revenue from our emerging market segment totaled $14000 and $159000, respectively for the three months and full year ended September Thirtyth 2019.

Prior year revenue was 2280 $6000 for both the fourth quarter and full year due to our acquisition of quantum in July 2018.

While we do not anticipate significant revenue contributions from quantum in the near term. We do believe our ongoing efforts are creating future meaningful revenue opportunities.

Since quantum has not yet received any significant border and perimeter security contracts, we reduced the fair value of our earn out liability by $2.9 million, resulting in an offsetting $2.9 billion credit or reduction to our operating expenses.

[noise], our consolidated gross profit for the fourth quarter was $10.4 million, an increase of 98% compared to $5.3 million last year.

Gross profit for the year was $31.4 million, an increase of 186% compared to $11 million last year.

The improvement in our gross profit it resulted from a significant increase in OPX rental revenue.

On a decline in underutilized factory capacity due to the higher manufacturing productivity, we realized from our increased production activities.

When analyzing our 2018 in 2019 operating expenses, we have removed the impact of the $2.1 billion net adjustment recorded in our fourth quarter of 2019 to adjust the fair value.

Contingent earn out consideration related to the acquisitions of quantum and opto size and a $2.3 million bad debt reversal in the fourth quarter of 2018.

After removing these adjustments our 2019 operating expenses for the fourth quarter were $10.2 million, an increase of 22% compared to 8.3 million last year.

Our 2019 operating expenses for the full year were $39.6 million, an increase of 25% compared to last year's operating expenses of $31.7 million.

The increase in operating expenses for both periods resulted from the incremental operating costs associated with our recent acquisitions of quantum but not the size, including intangible asset amortization expenses.

Fiscal year 2019 cash investments into our rental fleet and property plant and equipment were $34.1 million and $1.9 million respectively.

We are estimating that total fiscal year 2020 capital investments into our rental fleet in property plant and equipment.

Big $6 million and $5 billion respectively.

Our rental fleet investments will be closely tied to market demand for our OPX technology.

At September Thirtyth 2019, we had eight and a half a million dollars of accounts receivable.

Do from a large international customer who is currently leasing a significant portion of our OPX nodal equipment.

We have experienced on going cash collection difficulties, but this customer throughout fiscal year 2019.

Just this month, we accepted a payment plan from this customer to bring our unpaid invoices to a satisfactory status.

Plant is expected to be completed during our second fiscal quarter ending March 31st 2020.

While we have significant concerns about the ultimate collection as these receivables we have not and do not intend to provide any significant bad debt reserves toward this customer's outstanding accounts receivable unless and until we believe that in our judgment. It is probable the customer will not be able to.

Hey, it's debts to us.

[noise] our balance sheet at September Thirtyth, 2019 reflected almost $19 million of cash and cash equivalents.

We have no long term debt outstanding in the borrowings under our credit facility or available borrowings under the credit facility were $27 million.

We're pleased to say that our credit agreement with Frost Bank was recently extended to expire in April up 2022.

In August 2019, we sold a non essential real estate property for $8.3 million and recognize the 7 million dollar gain in the fourth quarter.

The majority of our remaining real estate holdings, our own free and clear and without any leverage.

Finally, you may have noticed in yesterday's press release that I plan to retire from Geospace at the end of this calendar year.

During my 22 year career as a CFO at Geospace I've been very blessed to work with a wonderful cast a bright minds and capable business leaders.

Today I'd like to introduce you to Robert Curtis, who will assume the role of Vice President and Chief Financial Officer effective January 1st.

Robert is also a capable later and I'm extremely confident Roberts financial abilities, I know that Robert will support Rick and our board of directors and our shareholders. What the professionalism you would come to expect from a CFO . So Robert I'll turn the microphone over to you.

Thanks, Tom I'm excited about the Chief financial Officer opportunity and Geospace. During my 15 year career at Geospace. Tom has created an excellent environments and prepare me for the additional responsibility responsibilities and duties as the CFO .

What I have learned from time over the years will serve me well in this position. Thank you Tom for mentoring and preparing for this role.

Also Rick and I are looking forward to working with commented consultative manner in the future I.

Now I'll turn the call as the rig for his final comments.

Thanks, Robert and Tom.

I mean, just to add to Robert's comments that Tom has performed as the company CFO for 22 years with the most tenants of integrity and transparency and this monitor is exhibited throughout our financial staff I'm very confident that Robert and all of our staff will continue in this great tradition, providing both our shareholders and our customers with the.

Best in class performance, they've come to know.

We will engage Tom as a consultant from time to time is maybe needed. So we really haven't seen the last of him.

But as both a personal friend and professional colleague we wish him the absolute very best in his retirement.

So back to the business at hand, it. It's notable that certain product lines within our oil and gas market segment continue to experience persistent commercial challenges and this is highly evident for our traditional exploration and reservoir seismic product categories.

In contrast revenue from our wireless seismic products continues to strengthen driven by an expanding list of rental contracts in global projects utilizing our ocean bottom nodal systems.

And also demand for our wireless GSX land products has diminished in recent years due to reduced onshore seismic exploration. The recent orders of our GCL land wireless systems give us confidence that our advanced new technology offers the best chosen value to our customers in this very difficult market.

We're also encouraged by our ongoing discussions with oil and gas companies regarding the deployment of PRM systems. Many of these plans call for timelines of two to three years and couldn't be postpone even further depending on future capital spending budgets.

However, the long term value at PRM systems is well established and we are glad that such dialogues are reestablishing moving for.

Meanwhile, we will continue pursuing our diversification strategies by expanding the product lines within our adjacent market segment and readying, our border and perimeter security solutions developed through our integration of quantum.

This concludes our prepared remarks, and I'll now turn the call back over to Catherine for questions.

The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone.

At any point. Your question is answered your neighbor move yourself from the Q by pressing the pound key.

Again, we do ask that you pose your question that you pick up your handset to provide optimal sound quality.

Yeah.

First question will come today from David Nierenberg with Nierenberg investment Management Company. Please go ahead.

Good morning, guys. Good morning data and good morning.

Thank you for your.

For the company.

Stakeholders particular.

Accomplishments are protecting <unk>.

<unk> balance sheet.

A terrible industry downturn.

Youre pruning the cost of the company further.

Cash.

Structuring.

The two recent acquisitions to further protect the balance sheet.

The performance risk on the sellers rather than the shareholders.

<unk>.

Yeah. Thank you David for those kind comments I appreciate it.

The only the only blemish I can ask you about and I'll start with this and then going through a couple of other questions.

I think.

Changes.

Credit evaluation of prospective customers or credit monitoring.

Existing customers.

Sure.

<unk>.

In light of this latest disclosure about.

Risks associated with collecting <unk> million dollars.

Accounts receivable.

Hi, David that's a good question. We've you know we do have internal programs for monitoring credit then given out credit and.

You know, there's there's many decisions that or made along with those credit that credit analysis and those decisions include a deploying the equipment that is currently an active and and taken a risk to get the equipment out into the more.

Market, what the customer to produce revenue, even though the customer may not be a the best customer there is and so we look at all that when we're doing that say and we're not afraid the call in the equipment, if we have to.

And then and we don't want to do that we want to try to work what the customer that I referred to and.

We're going to work with them, but if it doesn't work out we're going to recall the equipment and get it redeployed somewhere else.

Uh huh.

Question.

And that is that.

800000, if I can quality markup.

The potential payable.

The sellers of office.

It's an interesting and I think a very positive development wonder if you could the amplify on that please for us to help you understand.

Why.

Committee and your outside Auditor.

After Bill takes.

Taking that markup.

Yeah. Good question, David and just for everybody else. It's on the phone do you know the accounting here is kinda counterintuitive.

The good news is resulting in a charged to the financial statements in the bad news is resulting in a gain on the income statement, but we utilize an outside services firm to help us come up with that estimate we're not staffed a internally to be able to really Uh huh.

The abilities and skills to do that and and so it's all based on projections and estimates and a future revenues and discussions that are going on and the timing of those discussions and and a whole lot of different variables and so when our advisers came up.

With.

The number it of course it was discussed deeply at the audit committee level and a with our external accountants and and so a we agree with it a we're comfortable with it and we're going to move forward with it.

Well, that's great that's not a big number but it's a.

A positive development.

And it is in contrast to a 2.9 million dollar.

Just the other way with respect to a quantum.

And that triggers.

My final question.

Your concluding comments are highlighted.

Three important growth opportunities in the core business.

A continuation of Oh, VX rental business.

I'll now hand wireless system.

The ongoing discussions and hopes about a renewed PRM business.

It's nice to have the potential of a three different.

Apart from the core business firing at the same time.

In light of that.

I hope that.

Without a de motivating the team at quantum.

Uh huh.

Motivate them to do better than $14000 revenue in the quarter.

'cause you've got to capital allocation issue, how do you have three parts of your core business.

Well to grow.

A question becomes a why does it make sense to play venture capitalist.

With quantum.

Those are all very good points, Dave and the fact is a week by no means have given up on the opportunities that are represented with quantum.

Certainly from an accounting.

Principles point of view, these adjustments where necessary and more appropriate to make simply because the the expectations of any contracts have been pushed out.

Largely dealing with the government a in many of these cases, a has bearing oh on all of that.

And at this point in time as you well know the government, sometimes a move things well to the right.

I can tell you that the development efforts a in the technology that we have co developed with quantum during this.

Periods since we acquired them over this year.

We've demonstrated functionality to those interested parties that has never been able to be shown before so we have created something that is unique and very well received so we really do believe the opportunities still remain there a and very strongly.

Its a matter of timing and we fully expect those to manifest as we sit here today Hey, David. This is Tom I would also add to Rick's comment that the quantum opportunities habit disappeared, Rick indicated they've really been pushed out to the right in quantum has a four year earn out.

Period.

And there are more than a year into it so they have less than three years left and so as these projects get pushed out or potentially pushed out to the right.

We have to lower that earn out liability because we may get the revenue, but it may fall out of the.

Earn out period. So that's a lot to do with why there is a negative adjustment on quantum.

One risk about.

To the right, it's not only a calendar <unk> moving to the right is also a political risk.

Yeah.

No no doubt about upon intended Oh <unk> I guess the main thing is that you feel good.

About the growth drivers and Oh.

And and PRM and.

What's going to be our bread and butter for the foreseeable future, let's hope you get the lift.

Anticipate.

Absolutely right.

Thank you.

Thank you.

Our next question comes from they'll develop with Titan capital. Please go ahead.

Thank you I first of all I would like to I sincerely ACO Davids comments that Tom and I have absolutely nothing to say other than repeat what he said so thank you for a for keeping the balance sheet as good as you have yeah.

Let me add let me shift to my questions that Tcl, congratulations, but he orders that.

For me seem to becoming a little bit out of left field given that that you all have and.

Very conservative with your comments on the last Uh Huh last several calls about Oh land based systems would you. Please talk about how not only the order this quarter.

But the larger one that you announced last week.

So those developed.

Sure.

The first order you know had been a something that we had been discussing with that European contractor actually for quite some time, but the that order as well as a this more recent order.

We're all driven by contract negotiations those contractors, we're having with their end clients.

And so it is there was a unnecessary activity for those to close in order to make these these purchases makes sense for them. So.

Largely a it was there were those contingencies, where fulfilled and and hence why these orders of finally manifested.

So you know the discussions do occur, but you know we have discussions all the time in there's no reason to sort of portray those discussions earlier on.

With lots of credibility towards manifesting because many of them do not.

In this particular case, they did and were very appreciative of that and certainly a we we really do feel that our technology.

Which we were careful to develop even during down times represents a you know extreme value a even in a search circumstance where are the commerce is limited at this point in time, such that we would have remained a the best choice. So you know, it's it's really we're into other discussions.

As well, but there's no a strong evidence that some of those may manifest either but if and when they do we would certainly you know make those known.

Rick or the number of conversations even if you're not convinced that they are going to develop any into anything or the number of conversations increasing.

On the land based that GCL.

Not by incredible numbers I mean, a you know they they exist, but I'm not going to tell you that where you know having to a.

Cool off the telephone as his ringing or anything like that.

Understood.

But it does imply if you if you at least have an equal number that we could yeah those conversations.

Those contractors could end up Wendy winning business, which could end up leading to it you having I know it's different lever.

Right, but but certainly and you I'm sure very well aware of this you know the onshore seismic activities are.

At a significant low levels at this point in time, [laughter] and the number of.

Contractors out there.

Has been reduced and you have you know your major players out there functioning right now and they they tend to have a all the equipment they need for their current demands were ready or able and a whenever they need a assistance or health.

And and shoring up their equipment needs, you know, where there to support them and we're ready at any time, but as you know the limited the amount of Commerce is limited right now.

Great. Thank you Andy I gain on sale was at the I guess inner facility. It was.

Okay. Thank you and then let me ask switch if I need to at border security, what still needs to be done with the integration of the quantum software and artificial intelligence machine learning, where youre, a a week or so.

Seismic hardware.

A very little from a functional standpoint, you know there are some next phase types of progression and that integration or from a technology point of view that we certainly have on our roadmap going forward.

I'd say, there's there's not a either you know, it's it's mainly tying a bow around things at this point with respect of how the integration has progressed to present and it's ready to go.

Alright, and then I'd like to tie a couple of things together with a further with the border security.

First of all you.

So you had said that you have demonstrated the functionality a too.

To the outside you didn't say home.

But demonstrated that functionality. So would you. Please talk kind of through have who you are referring to whether that be agencies or countries or or.

However, and what sort of functionality hasn't been demonstrated the floor is that it you all were able to let you demonstrate.

Well I can't get into all of those details, but certainly it's it's primarily governmental agencies and domestic ones that that that our conversations have been with as far as the exact functionalities you know the a again, even some of that is a rather kept close to the best but what we call.

Can say is that the de abilities for these systems to detect a particular aspects of activity that are occurring where there are occurring and the nature of those events is a is pretty remarkable and that's a that's the sort of aspects of technology that we've been able to demonstrate.

Rick I have I don't want us all to at require a security clearance to Uh huh.

To be able to understand more like your comments were pretty vague I would you be able to give US. An example of what you were referring to there.

Well, there's a certain amount of artificial intelligence applied to examining the seismic signals a that they'd come to play and you can well imagine that most a security is monitored through a visual means that cameras and other things of that nature. The problem is there's your often ways of defeating cameras and if you're in an environment that.

ER foggy or nighttime or and in other ways of Contra reverting visibility, that's that's getting problematic and when you're dealing with tunnels, there's no visibility whatsoever.

However, the ability for us to perform a analysis, a seismic events and as you well no.

You might be able to suffered cameras with tunnels and other types of a similar activity.

But you can't do anything without making noise or otherwise inducing some seismicity for those activities the ability to detect those without notice, a and and and call out through the appropriate intelligence or.

What those events represent what type of activities are occurring that they represent and where there are they are occurring is uniquely something that.

The integration with one of the technology has provided.

And how many yet how many different agencies your organizations.

Are you talking way.

I'm not going to tell you that bill.

How about Theres, a huge I ask the whole chain of command of agencies within the government and different branches of the government that these conversations are taking place with.

Okay. So it's not just a single a notch that's not a single agency that no not at all.

And what about actual tests that you have done.

Have you done any actual test and if so what what with the what was the result relative to what.

The organization you were testing for has.

Has seen with other vendors.

They haven't the those with the test haven't performed and the results have never been demonstrated before by any other system.

Okay. One additional question please relative to the federal governments, Oh, and really I'm thinking the president's attention seems now it could be most focused on a trade rather than a a border wall or or.

Border security has that.

Public shift in that and in the commentary coming out of the White House has that had any impact on that your discussions with that the agencies that you've been talking way.

If it has had an impact it's not one that has manifested in any overt way keeping in mind that you know.

Monitoring of activity around the border is important to both parties to both sides of the I'll because you know there isn't a homeland security aspects associated with making sure that our population is safe and that there aren't nefarious activities, taking place through tunneling or other activities.

So that that's important to all parties.

So this is not a phenomenon, where that's an election year.

Next year, and we need to worry about a change or <unk> or not a change in the white House <unk>. It's just it's just not on a non political party related.

That's correct, there's an advocacy on both sides in and out of both parties.

Thank you and and.

One more here if I actually a couple more first of all over the course of the next say three years.

Would you expect a greater contribution from PRM.

Or a greater contribution from a from border security at the moment I recognize it's it's like having to turtles, starting line and which one is playing to go five miles, but I'm still asking the question.

Right well I mean, there's there's really no way to predict that sort of thing there's oh variability that occurs in the discussions on both sides and delays that occur in both sides I think they both have have equal probabilities of manifesting significantly.

How are you thinking both of them I couldn't be meaningful and given that historically PRM has been bigger when when there was a business that havent quite large and <unk> and bigger than that land or.

Our OPX <unk> the implication that we could have both.

Both border security and PRM being larger than that Youre Ob accent GCL businesses.

That's easily possible.

Okay, and then one additional question and I promise I'll step back.

The southern Mexican border.

Has the Mexican government.

Expressed any interest or do you see that as a potential because I I recall a few months ago that was you know a hot button or with the president of wanting to see that border sealed up.

Well I'm sure there's interest and I know, there's interest down there as far as the Mexican governments participation in that in that interest that that's not something that that would directly engage us but would be in engaged through our own government in that situation.

Great. Thank you for taking all the questions you bet.

Yeah.

Once again, if you do have a question you May press star one on your Touchtone phone at this time well now go to connect Fustat lift Myraqa. Please go ahead.

Hi, Good morning, all the here good morning, good morning.

I I have a.

Question about 33 different areas I I'd have that will be ex.

Question than that and the ones that you're writing business and finder went to the balance you put it sort of OPX rental business.

I understand you're not more than 31000 units in your rental.

And I'm wondering are you still building nodes and do you have an estimated throughout many notes you've been doing.

And that these yards are the ones or no.

We are still building some nose to complete or are an initial goals or for inventory of those in our rental fleet at this point in time, where at the tail end of those a new constructions Oh.

We don't have a immediate plans.

To go build a significant number more but I can tell you that we are having discussions with both new customers and some customers that are already renting under a contract our ob exes, where they are negotiating additional contracts with their clients Oh.

On the <unk> with the premise.

And if and only if the additional Ob x's might be made available. So we will be evaluating a the length of those contracts the viability of those contracts the to determine if perhaps we might need to increase a that rental fleet size I'm a little.

More but we'll be very cautious about that.

Okay excellent. So can you say anything about the level of utilization you expect from your rental <unk> going forward in the next quarters are.

Primarily on book.

A utilization the existing contracts give but also a day on the existing contracts you haven't estimates for the utilization of it into <unk>.

Yeah, Hi, Newt. This is Tom we're right now we're pretty close to 90% of utilized on our OPX fleet than we would expect that to continue through the next quarter.

Okay and beyond that.

Beyond that we're not really given any guidance of its hard to say, we do have contracts that go beyond the first quarter, but we're in the process of also trying to renew some contracts so.

Difficult to say, but we certainly don't see demand falling off a significantly and and we.

We would expect the trend up pretty much continue.

Okay excellent. Thank you.

So I have a question about the PRM market segment through and based on what you're going to have the feeling for at the moment.

What's happened with regards to the margin sport for four days a business area.

Future contract I'm thinking that you know there's been kind almost the repricing of everything and the market then and and you have some historic DRM.

Contract deliveries, but but with what the both the margins going forward can you say anything about that.

Well, there's always pressure on margins as you well I can't imagine a that well companies.

Our our very fastidious about examining.

Their costs for these sorts of things, we still believe the margins are Uh huh.

Significantly in our favor in terms of in involving ourselves in that commerce, otherwise, we wouldn't even be having these discussions or we don't really give those margins specifically as a form of guidance or other you know or other types of information that that lend themselves to that but we still.

I think it's it's a beneficial to us to pursue these.

Very good find that.

Or the balance sheet is the richer between the book value in the sense Prize for real estate that was sold does that represent that Richard within.

<unk> American therefore to what the real estate currently on the balance it.

We you know we don't.

Going to appraise, our real estate, but I would suspect that there is certainly a difference and we probably have built in gains on most of our real estate, but I couldn't even begin to estimate what that is.

Okay. Thank you very much that's all for me you May seven day. Thank you. Thank you.

And we'll now take a follow up from David Nierenberg with Nierenberg investment Management Company. Please go ahead.

Given the.

<unk>.

Oh.

Order monitoring capability that you have.

Would you require some sort of export control approval.

To sell it to foreign country.

I I think that as it stands right now that all of those commerce descriptions have already been assessed for that product and I don't think there would be any export problems no. No. Obviously, if any of that word to intersect use of such sensor.

There is as Hydrophones, which do have commerce control associated with them than perhaps that would that would raise its head.

But with Geophones those are not really considered other than through sanctioned entities a problem.

Okay.

After that well, it's good to hear a your answer to Bill's question.

That you see bipartisan political support for better.

Order security and I agree that you're right about that.

What's nonetheless frustrating.

Unbelievable rate of turnover.

Senior executive inside the government Oh.

Border related agencies.

You could be in a position where you could be cultivating something with somebody and if that person has a two or three month half life, which they seem to have you have to start all over again with somebody else, which is why I'm asking the question about export opportunity I think Bill's question to you regarding Mexico may not have been about the Mexican United States.

Border, but rather with respect to Mexico's southern border were they have made certain commitments to off to a apprehend immigrants who are trying to pass through to come through our country and if I'm correct about that.

Dealing with the country of Mexico, with the sovereign buyer not the United States.

I would think you might have similar opportunities in Israel, and maybe similar opportunities in Saudi Arabia, and other nations as well, which is why I ask the question about possible export controls and export opportunity.

Oh very valid points, David and we do have discussions with some of those entities that you mentioned there.

And I actually interpreted Bill's question, a little differently, but to your point if it's a meant to be interpreted in that regard than there are definitely or other opportunities outside of our own government.

Right right.

Thank you.

This does conclude our question and answer session I would now like turn the call back over to Rick Wheeler for any additional remarks.

All right well, thank you Catherine and thanks to everyone, who joined our call today and we look forward to speaking with you.

For our first quarter conference call.

Fiscal year 2020 in February so good bye.

Thank you. This does conclude today's Geospace Technologies' fourth quarter 2019 earnings Conference call. Please disconnect. Your lines at this time and have a wonderful day.

[noise] Oh.

[noise] [noise] Oh.

[noise].