Q3 2022 Geospace Technologies Corp Earnings Call
The program is about to begin.
[music].
Welcome to the G O space technologies third quarter 2022 earnings conference call.
Hosting the call today from Geo space is Mr. Rick Wheeler, President and Chief Executive Officer.
He is joined by Robert <unk>, The company's Chief Financial Officer, and Mark Tinker CEO of G O space subsidiary quantum Technology Sciences.
Today's call is being recorded and will be available on the Geo space technologies Investor Relations website following the call.
At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation.
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It is now my pleasure to turn the floor over to Rick Wheeler, Sir you may begin.
Alright, thank you.
Good morning, and welcome to Geospatial Technologies conference call for the third quarter of fiscal year 2022 is.
As mentioned I'm, Rick Wheeler, the company's President and Chief Executive Officer, and I'm joined by Robert Kurt <unk>, The company's Chief Financial Officer, and also with US. This morning is Dr. Mark Tinker CEO of our subsidiary quantum Technology Sciences.
I will initially provide an overview of the third quarter, which Robert will follow up with in depth commentary on our financial performance. After that we'll open the line for questions I will try to answer.
Some of today's statements may be forward looking as defined in the private Securities Litigation Reform Act of 1995. This includes comments about markets revenue recognition planned operations and capital expenditures.
Such statements are based on our present awareness, while actual outcomes are affected by factors and uncertainties, we cannot predict or control both known and unknown risks can lead to performance and results may differ from what we say or imply today. These risks and uncertainties include those discussed in our SEC Form 10-K, and 10-Q filings.
For convenience, we will link a recording of this call on the Investor Relations page of our Geo stage Dot Com website, and I very much encourage everyone to browse the site to learn more about geo space and its products.
Note that the information when we record. This morning is time sensitive and may not be accurate at the time, one listens to the replay.
Yesterday after the market closed we released our financial results for the third quarter of fiscal year 2022, which ended June 30th 2022.
Although the three and six month periods ended on that date experienced decreases in oil and gas segment revenue from earlier periods. We are nonetheless pleased that demand for our obs Ocean bottom marine recording nodes continued decline at.
As such this led to the highest quarterly figure for rental revenue so far this fiscal year.
Evidence of this growing Ob X demand was earlier demonstrated in our two recent news announcements assigned Ob ex rental contracts valued separately at $4 million and $12 million respectively.
Moreover, the base value of Ob ex rental contract signed so far in fiscal year 2022 now exceeds $24 million compared to just $8 2 million in fiscal year 2021.
The discussions and quoting activities currently underway with our valued customers gives us increased confidence that demand for <unk> will remain strong.
Another important highlight of the quarter is the strong performance of our adjacent market segment quarterly revenue from this collection of products reached an all time high in the third quarter setting a new company record for this segment.
Contributing to this revenue growth is increasing demand for our U S manufactured water meter cables and connectors driven by greater domestic infrastructure spending on smart city projects.
Our presence in this market is poised to printers to penetrate even deeper with the roll out to customers to buy a qantas smartwater valves and cloud control software, which is expected to occur before the end of the fiscal year.
Other factors contributing to solid third quarter adjacent markets revenues include our exalt electronic prepress printing solutions.
These computer to screen printers bring added automation and time savings to the graphic arts screen printing industry, helping these customers to reduce labor and increase efficiency.
In addition, our specialty contract manufacturing business is also seeing positive results as more and more customers want to increase the domestic content and control of their product manufacturing.
With that now I'll turn the call over to Robert to provide more financial detail on the third quarter.
Thanks, Rick Good morning, before I begin I'd like to remind everyone that we will not provide any specific revenue or earnings guidance during our call. This morning.
In yesterday's press release for our third quarter ended June 32022, we reported revenue of $20 7 million compared to last year's revenue of 23.
The net loss for the quarter was $6 6 million or 51 cents per diluted share compared to last year's net loss of 800000 or six cents per diluted share.
For the nine months ended June 32022, we reported revenue of $663 4 million compared to revenue of $75 4 million last year, our net loss for the nine month period was $14 8 million or $1.14 per diluted share compared to last year.
Net loss of 9 million or 67 cents per diluted share.
Our adjacent market segment revenue is as follows our industrial product revenue for the third quarter of fiscal year 2022, with $7 5 million, an increase of 16% over the third quarter of 2021.
That's real products nine months revenue for fiscal year 2022 is $18 5 million an increase over the same period in 2021 at 17%.
Both periods revenue increases are due to higher sales of our water meter cable and connector products industrial sensor products and contract manufacturing services.
Imaging product revenue for the third quarter was $3 5 million, an increase of 19% compared to last year's revenue of 2.9 billion.
Nine month revenues for imaging products for fiscal year 2022 is the.
$9 8 million, a 23% increase when compared to the same period in 2021.
The increase in revenue for both periods is due to higher demand for our thermal imaging equipment and consumable film products now.
There are oil and gas market segment revenue for oil and gas market segment produced revenue of nine and a half million for three months ended June 32022. This compares with revenue of $12 6 million for the same period of the.
For our fiscal year, a decrease of 26%.
For the nine months period ended June 32022, the segment contributed revenue of $34 3 million.
Versus $41 5 million a decrease of 17%.
The decrease in revenue for the three month and nine month periods were due to lower demand for our land wireless equipment and marine wireless equipment.
Fiscal year 2021 revenue included $12 5 million from the sale of GCN holding in wireless equipment delivered to a customer in fiscal year 2020. The decrease in revenue was partially offset by higher rental revenue due to increased utilization of the company's <unk> rental fleet.
Finally revenue from emerging market segment for the third quarter was 135000 compared to $1 1 million for the same period in 2021.
Nine month revenue for this segment for fiscal year, 2022 was 571000 compared to $10 million for the same prior year period.
Our third quarter of fiscal year 2022, operating expenses increased by $2 1 million or 21, 21, excuse me, 26% compared to the third quarter of 2021.
The increased operating expenses for the three months period was due to increases in personnel costs incremental operating costs associated with our recent acquisition of back quanta.
<unk> sales marketing and other general expenses and a decrease in a favorable non cash adjustment to the contingent consideration related to our quantum and <unk> acquisitions.
Nine months operating expenses increased by 2 million or 8% when compared with the same prior year period. The increase in operating expenses for the nine month period was due to higher engineering project costs.
Increased personnel costs incremental operating costs associated with our recent acquisition of the quanta and increased sales marketing and other general expenses. The increase was partially offset by an increase in favorable non cash adjustment to the contingent consideration related to our quantum of doctor sites.
Issues.
Our nine month cash investments into our rental fleet is $4 1 million in cash investments into our property plant and equipment is 900000.
Our balance sheet at the end of the third quarter reflected $9 1 million of cash and short term investments and we have eight and a half million in additional liquidity from our credit facility.
In addition, we own numerous real estate holdings in Houston and around the world that are owned free and clear without any leverage that concludes my discussion and I'll turn the call back to Rick.
Thank you Robert.
The past few years have been plagued by COVID-19 supply chain issues and geopolitical turmoil and there are many derivative challenges stemming from these issues that remain however, we are encouraged by the improved market conditions, we're experiencing in both our oil and gas and adjacent market segments.
Continued improvements in each of these divisions should lead to better performance in future quarters as well as overall improved liquidity.
In addition, our ongoing discussions with potential clients for future permanent reservoir monitoring or P. RM systems continue to be very productive.
In fact in coordination with the potential client. We recently concluded a very successful demonstration of our optum size fiber optic PR M technology and real world field conditions.
Closing I'd like to thank all of our hard working employees valued clients interested shareholders for their continued support. So this concludes our prepared commentary and I'll now turn the call back over to Chelsea for any questions from our listeners.
Thank you Sir.
Floor is now open for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad. If at any point. Your question is answered you may remove yourself queue by pressing the pound key.
Again, we do ask that while you pose your question that you pick up your handset to provide optimal sound quality.
And our first question will come from Scott Bundy with Morgan cabinets.
Good morning, guys.
Hi, Scott.
So theres no question your industry has been under pressure for eight years.
Ah recently, both Schlumberger and Transocean believed at the upcoming cycle will outpace the 2016 2019 cycle of investment.
And F D activity.
So so Rick when you think about where we are versus the trough of prior cycles, what where do you think we are.
Well some of the examples you just mentioned are definitely earlier signs of things the seismic instrumentation side of the business always lags a bit from these improvements, but youre absolutely right.
We too are following.
Those aspects of their business and how they are improving we're seeing that in fact and sort of a peak board situation as this demand is increasing.
And contracts being signed or use of our obs equipment. So it certainly has every indication that things are moving in the right direction and improving from what would be considered a trough.
Okay and this prior this recent real live tests using a PRN skus.
Using a pim system is this a prior customer or new customer.
Well this is a customer we have not sold a system to in the past. So I guess in that sense. It's a new customer we have certainly had been in discussions with them going over the technology for some time and they are definitely one of the more interested parties.
Okay, great. Thanks, guys.
Thank you.
Our next question comes from Bill <unk> with <unk> capital.
Great. Thank you.
Following up on that last question what would you explain when you talk about a trial.
It's been so long since you're one of our PR business I'm not sure that I did.
Did I understand really what a real world trial would be.
Or if you have actually done that for a prior customers in the past.
Well, we've always done that in some sense with prior customers both for fiber optic and electrical type systems.
Certainly both of those systems are an actual full exploitation of the use by various customers.
This particular customer.
Has not had a CRM system in the same respect.
To that end when I say real world conditions, I mean, exactly that I mean.
As a complete deployment efforts with respect to how.
How the equipment is laid are.
And to the water examination of the data as it's coming back in real time.
And processing of data, which is still being examined even today, so and they're in.
And saying a real world circumstance, what I'm really getting to there is it's not just on the lab bench or laid out some where it's actually deployed and executed our operation.
Is that the deployed and executed on a field that they are that they are evaluating.
No. This was a test setup.
That we had access to in conjunction but now it was not performed on the field of interests that are being examined for the P. R. M system, but all the circumstances with respect to.
What ones interested in and how these sorts of systems coupled to the yards are underwater how they're deployed that sort of thing and then examining that data.
In a real time fashion has is coming back and and recorded that was all accomplished.
That's helpful. Rick Thank you and then.
Earlier this fiscal year, you did have a PRN.
Tender that you all chose not to participate in and I was curious did that prospective customer ultimately.
Award that or did others also choose not to.
Not to participate where does that where does that PRA understand.
I actually don't have a factual knowledge, but we have not heard of any award that was.
Was it provided for that particular tender.
We don't anticipate that the others did not provide.
An offer but we don't know no not really having pretty information there.
And has that has that customer come back to you with questions.
And.
Yeah.
Well, we are in discussion with that with that customer.
For sure, but I mean, the tenders over and so there aren't any really directly related questions answered.
Would typically apply.
And in that process, but certainly we still have active conversations with that customer, but they're not ones that theyre going to reveal to us.
What if there were a competitor involved in in the prior attempt.
That's not part of what would be the conversation there.
Understood and then lastly, changing subjects entirely yeah, Mark when you look out.
Out at the various opportunities that quantum has what would you characterize as the Uh huh.
That is the most likely near term opportunity for quantum.
Well Mark was on the line earlier.
Bill So I'm not sure.
It sounds like he's.
Been disconnected for some reason is showing he disconnected he may be mute it Mr. Tinker are you muted by chance.
Yeah.
Well in answer to your question Bill there are.
From the near term point of view there are several opportunities.
As it relates to the sale of our system deployment.
Certainly the highest opportunities there of near term would be with the government.
There are a couple of particular use cases.
It has not yet been deployed in but there are active discussions now going on about such a deployment.
No.
Not necessarily border related in this particular case there are some other opportunities where the analytics package not particularly as it relates to SEDAR, which is an architectural component.
The way that the Uh huh parameter.
Parameter system in these other sensing.
Sensing systems that I'm talking about for government or are put together.
But nonetheless, an analytics package very similar.
Similar that uses algorithms that's in the oil and gas side of things and those discussions have.
<unk> been rather recent in their development.
And.
Oh, there you go.
Im sorry, Bill and I'm, sorry to all of our participants we had two different numbers to dial in and only one worked for me and I don't know if that was the glitch, but she just had an audio check with me.
So bill I'll say, what I said already.
Okay.
And again my apologies to everyone on the call for that.
Our strategy of now taking.
Our state our line into both federal and energy is well underway.
And in the federal space.
We're very focused on those next adjacent agencies. So in addition to the department of Homeland Security. We're now across the spectrum of the department of defense as everyone might imagine we have a number of applications. There. So you asked the question of what might be or who might be the next specific customer.
<unk> a large set so it's not a particular.
Singular customer that we're.
We're responding to right now so we are responding to a number of Rfps. We're excited about that it's good to be back in the queue.
They span from Navy.
To the office of the Secretary of Defense and other organizations. So things are things there are moving along and I'm very pleased by that.
The energy side.
Because I think you're aware as well bill the effort that we've done up in Canada has led to not only publications, but now invited presentations and.
So we're having to socialize the power of using phased arrays.
Passive seismic monitoring across the energy space.
And again I'm very pleased with the traction there is other people, we anticipate will be published soon.
And for those who might not be aware, we're getting three presentations at the end of this month at the international meeting for applied Geoscience and energy, which is the large.
Industry meeting for for our interests that occurs in Houston.
That is that that is helpful. Thank you.
And then I have.
I have read that.
P is drilling a carbon sequestration.
In Texas is that something that you all are involved with.
That's correct.
Great. Thank you both.
Alright.
Thank you.
Once again, if you have a question you May press star one on your telephone keypad at this time.
Our next question will come from Michael Cox private Investor.
Hey, guys.
Alright.
Got it.
So just.
Just a couple of questions and.
I recognize that there are some like a lot of momentum on the obs side, which is wonderful but good to hear.
But I wanted to just focus for a second on the most recent quarter and sort of just the <unk>.
Specifics of the financial situation.
You talked about the increase in operating expenses and.
Maybe you could just unpack that a little bit to understand why obviously we had.
In terms of matching we had a pretty significant decrease in overall revenues.
Any significant deterioration in the overall balance sheet quality in the quarter and for the first time since I've been.
Following you guys.
Below $10 million of cash on the balance sheet.
Thats troubling and so I'd just like to understand better what is exactly driving the the operating expense increase quarter year over year.
And.
To what extent that is containable as we move forward and obviously so many of these things are still TBD in terms of when the revenue show up.
Yes so.
Many of those higher costs.
Employee related costs.
We have higher.
Employee benefit related costs like medical benefits and things of that nature.
Slightly higher.
Salaries and salary expenses, primarily things related to increases we've incurred.
Inflationary pressures with our employee base.
<unk>.
Other than that our general general expenses the increases.
Generally come from a higher level of activity.
Mostly because we're coming out of this COVID-19 period, where things like business travel and conferences and trade shows and things of that nature Couldnt happen.
We're also had during this year an increased level.
In engineering related projects part of it associated with this PR and tests that we did for our customer.
So some of these particularly like the engineering expense project expense I don't expect to continue to grow over time I think to the.
The fact, if you're comparing to the third quarter of a year ago. We wouldnt, we wouldnt have any bearing cost for quanta.
The recent acquisition, we did have a ghana as a part of our diversification strategy a strategy, which is what is actually causing the adjacent markets.
To expand are already providing other opportunities for it just fine for sure. So there are efforts there and rolling out that new product, which you know is.
Has every expectation of generating and generating revenue.
Increased opex and some of that endeavor that included some R&D efforts.
There were supply chain issues that really everyone in the world as having to contend with and that certainly impacted the rollout of that particular product where there were certain chips in Ics. They just were not available you couldnt get them in any kind of reasonable timeframe. So our engineers actually we're challenged to go.
Do some redesign on that.
To more.
Available parts and they did that so that.
That is also an element that increase those expenses somewhat like Robert said I don't think all of those are going to be recurring.
Okay.
And I respect all that interest that we are we are approaching something.
Much more alarming in terms of cash right.
Great to have all that going on but now you've got $9 million of cash.
Right.
Are there efforts underway not only just not incurred the one timers, but really think about.
In this environment, which continues to baffle you.
But how do we how do you pull that back down I mean.
The burn rate that you've had for the first six months of calendar 2022 is not sustainable.
How do you get that under control.
We examine that every day, we're working through that.
Constantly.
What are the things that related to cash flow that we're seeing on the horizon as this uptick in our obs rental activity and we expect that to help.
Help us.
Generate more cash in and.
Help us getting to a better.
<unk> from a liquidity point of view.
We don't expect to continue to consume cash at the same rate right and we have been through.
The rest of this fiscal year.
Okay.
So on.
The cost of this trial for the <unk> system, which certainly is exciting and mirrors that you bought 100% of that cost that's not that's not something you get reimbursed.
Provide.
No.
We did not bear entire cost, but then again, we're not going to reveal what the relationship is there, but certainly some of these costs that were alluded to as it relates to that bar. The construction of the prototype system building of the cables of sensors and putting all that together that certainly was something that we took the responsibility for doing.
Okay, Okay, well, it's exciting to be there and obviously <unk> is a.
Huge.
It's important so I'm excited to hear that that test it place do.
Do you have any any update on what you think of their timing this particular customers.
But what we're what horizon or are they considering this project.
Yeah, that's always the important question Michael.
Right.
There is still.
Theres still a expectation that.
Tinder could come out before the end of this calendar year it would be towards the end of it though from.
The.
The conversations that we're having.
But that is a possibility other than that.
You would be looking at.
That tender coming out in early 2023 calendar year.
That's our that with these systems there is a considerable amount of.
Manufacturing time, that's necessary.
And these various customers each half.
Hi ambitions of getting these things are producing.
These fields going.
You know by by certain dates that they can't they just can't Miss I mean, there's there's lots of money at stake from a revenue standpoint for them getting these fields in production so.
That being said you know I think that there's certainly an.
An attempt on their part to try to accelerate as much as they can win a tender would be out because they know there's a lead time to getting all this stuff in place.
Okay. Good well that's exciting that's really wonderful.
Mark.
This was a it was.
And maybe I'm just missing it but like when the first time in a while that our press release hasn't talked about quantum with quantum in the opening comments didn't really talk about quantum so much but your your comments about <unk>.
Where you are in terms of.
Your own sort of bidding and project side, we're much more encouraging.
Last time, we talked one on one you were saying that you have.
Sort of agreed that this was a big year for quantum to sort of prove its market viability.
Are there new verticals.
Maybe could you update a little bit on the timing of our real revenues on this sort of a next wave after the border project of getting getting developing something that has a significant impact on the financials of the company or at least a meaningful one.
Yeah, I won't comment in an absolute sense and the timing.
But I will say that.
Okay.
Pursuing into two major markets of energy and federal with the same product line.
That's key to our strategy.
Controlling costs common messaging.
The difference is the sources of energy that we're monitoring.
And that strategy is working.
Allowed us to remain focused that allowed us to.
To test the market.
In Q2 these talks on the energy side, good constructive feedback and enthusiasm for the potential that we bring for the carbon markets as well as talking to those who need a passive seismic monitoring for other applications, whether it's something like geothermal or hydraulic fracturing.
So there appears to be some market attachment there, let's say it or may be able to fill the niche for.
Because of its unique values that it offers it's not a traditional monitoring system.
And those conversations again are going well.
It doesn't mean, we're gonna Slam dunk this yet, but they are going very well.
On the federal side, where we come from you know for over 20 years.
I had a high degree of confidence there in that competencies.
Very much sustaining right now so the momentum into the federal space is occurring but again into the federal space, it's not much different than energy when youre dealing with a massive organization like United States government.
<unk> has volatility every two years with an election, but budgets continue to flow requirements remain the same and we've been aware of those and have targeted certain agencies and those conversations are proving to be very fruitful right now.
Got it.
I recognize youre reluctant to comment on the timing.
But sort of again thinking about calendar 'twenty two do you think.
At least on the federal side, where your degree of confidence is high that there is.
Chile announcement of some meaningful thing coming before Christmas this year or are we looking at 2023 before there's.
And it's something that is material that we could point to.
Too much experience working with the government to make any promises right now.
We can have an end user who said this is great let's get it done and then all of the challenge is always the contract.
But that contract.
To provide so.
Being able to have some error bars on that on the magnitude of a quarter here or quarter. There. It gets a little too uncomfortable for me to make a promise by the end of this calendar year.
Got it.
Any any is it and so you said it's pretty.
Similar in some respects working with the energy side.
Timeframe, then sort of apply to them as well.
Thank you Tim on energy I think is.
That is much more although whereas seeding the status quo.
I think that's an important thing for everybody to realize anytime you're on steep the status quo.
You got it take your lumps if people start to realize Wow. This is effective.
So telling them to beat that horse again, what we're doing in Canada, and publishing newspapers and giving these presentations to show its effectiveness for a reduced footprint of sensors.
So real time monitoring and better results when you think about trying to monitor giga.
Gigaton.
Of carbon.
That is a big field, that's something the size.
Houston.
How are you going to do that the traditional methods would not be economically viable. So we're getting that message out there and then looking to do something similar to what we just did on the PRN side, we just start to prove it out with these studies.
From an industry standpoint past, where we are in Canada.
Got it okay.
One more question.
I'll set up.
This most recent quarter.
It's sort of interesting and again relative to past patterns, but.
On the gross profit side on products.
Is it just looking quarter over quarter in particular, just as a way of example, basically the same cost of revenue line alright.
So call it 70% of the revenues is there a reason why I mean is this a product mix issue et cetera, just what's going on why basically you sold all your products. This last quarter almost for no for no gross profit.
It certainly product mix has an effect on that but I think.
The bigger reason for.
The phenomenon, you're noticing is because we have excess manufacturing capacity here at our factory in Houston.
Predominantly focused on the effort of manufacturing oil and gas related products.
When we don't have.
Activity to absorb those.
Those fixed manufacturing cost.
They flowed straight through to the income statement right.
Got it don't get them into manufacturing equipment will go into our inventory.
Got it. So this is so this is maybe a little bit more of a fixed amortization depreciation side of that speaking through that then the actual products themselves being thing.
Yes, I mean in terms of their cash costs.
Okay. All right. Thank you guys appreciate it.
You bet. Thanks, Michael.
Yep.
Thank you.
Our next question will come from Michael Melby with Gate City capital.
Thanks, Thanks, gentlemen, I was hoping you could provide your comments on the TGF makes sites Fairfield.
Oh, there was announced it looks like it was over $230 million and involves wondering your customers and then your largest <unk> competitor any thoughts on the price paid or the competitive impact it might have on you would be I appreciate it.
No Mike I really don't know what went into coming up with that number.
There's there certainly are.
Some assets involved in that because there's a vessels and things of that nature that go into that number.
The value.
Value of those things or something I don't have any information about.
With respect to the actual acquisition itself I mean, I completely understand why T. G S wood.
Would pursue that.
You know a lot of this has to do with the very thing where we're at.
Reporting which is the increased activity.
This ocean bottom.
Survey actions that are taking place here.
Tcs is a premier seismic library house is certainly going to want to in a domain of tight capacity with respect to the contractors and equipment available.
You want to to try to maximize their.
Their share of that is at work there is enough work out there going on to where the Max size themselves.
You know is just a piece of the entire industry action, that's taking place.
Our customers.
Certainly.
They'll have plenty of work to do and a lot of tenders coming out that is a very much a escalating activity.
And changes on a regular basis.
Somewhat represented by the fact that the amount of signed contracts that we have now compared to last year as a.
Got into the numbers that it has I think in many respects.
This the supply limitation of this type of equipment of which we are.
Big piece of the market share out there is definitely going to be beneficial to us theres going to be plenty of work that these contractors, there's even new contractors coming out.
In this in this acquisition area.
Got it thanks, and maybe to the prior caller's questions.
The environment, certainly gotten a lot better, but thus far it has not led to.
And dramatic improvement or improvement in your profitability or our free cash flow.
And maybe it's not not the first focus of of the border of the management team right now in terms of getting to that level, but.
I was hoping you could without providing guidance provide a path to how you see the improving environment translating and into the company being free cash flow positive and profitable with the asset base yet.
Well, we think that in many respects.
We're doing that now I mean, certainly to the extent that we're ramping up in this business side, there's always going to be a cost concerns that we will address.
In size of ourselves appropriately.
But in this particular case, you know as the market is increasing and with respect to demand for our products. We think that's going to be a big component of it certainly P. R. M opportunities out there would be a major events for our company and the organization.
<unk>, So we can't let those go by the wayside either.
Our attempts to sort of size ourselves appropriately for what's coming.
Looking at the forecasts.
And discussions with our customers is a major part of how we go about making those decisions.
Yeah.
Yeah, I guess any additional color you know.
The environment has gotten better but are kind of the pathway that you see forward to being free cash flow positive as Oh.
So in the current environment, it's a path that I think if you can provide.
More information on getting to the endpoint in the revenue number needed to to cover the current expenses.
Yeah, a lot of that depends on the product mix as it were and the services performed.
But certainly within the adjacent markets you know those things are progressing well the oil and gas side has been the one that has been the most.
Affected by these these recent depressions.
That particular, it got exacerbated throughout Covid.
I think fundamentally it's just it's an adaptation to what's going on and there will be cost reductions that we have to.
Consider and go through as we adapt the our capabilities for what we see coming.
And from the outside it appears that kind of a strategy has been to cover your fixed costs by by acquiring.
And adjacent businesses and just given the premium on the mix of its Fairfield deal that that's proposed it feels like it could be advantageous in this environment to have someone bigger that has.
Oh, the ability to cover all the fixed costs utilize.
Excess capacity and technology and things like that it looks like that was something they were able to at least a carve out in this deal and maybe something that could.
It could be beneficial for for geospatial shareholders, if that opportunity presents itself.
Yeah, I think in this case, you need to examine that business a little more closely because what you are looking at as a service industry component there with respect to where those costs are really lie as it relates to T. GFS, which is not the same as an event in our manufacturing organization.
Yeah, I agree with that it is just that were not fully utilized on capacity and if someone else can utilize that capacity without a.
Oh, you bet and that's exactly why the contract manufacturing.
You're absolutely right and Thats why the contract manufacturing component has expanded and the way it has and actually we see growth in that activity to and to your point. It definitely provides better utilization of the capacity the manufacturing capacity.
Yeah understood. It just feels like that business is going to have to grow a whole lot to to utilize our capacity and and that pulling back our profitability at the current time.
Yeah.
Right no it definitely needs to grow and and and the two need to meet in the middle.
Got it thanks.
Thank you.
Our next question will come from Scott Bundy with Morrison Cabinet.
Hi, just two other quick questions Alright, and am I correct that you have spent are going to spend roughly 4 million bucks on additional <unk> equipment.
We have spent this year of $4 million on additional obs equipment, primarily in <unk>.
Deep water models.
And then lastly, Rick.
<unk>.
Just to provide some sort of.
Guidelines with.
The current potential customers.
Customers.
Dollar revenue would be in the same range that we've seen in the past and I'm just going to throw out 30 million to 100 million does that sort of range that we're talking about.
Yes, that's definitely a.
A good window of what we see these opportunities to represent.
Thanks, a lot guys.
Thank you.
Once again that is star one to ask a question.
Alright, we have no further questions at this time, so I would like to turn the floor back over to Mr. Rick Wheeler for any additional or closing remarks.
Alright, well, thank you Chelsea and thanks to everybody who joined US here for the call today, we look forward to speaking to you again at our next conference call for the fourth quarter of fiscal year 'twenty to 2022, which will occur in November so thanks, again and goodbye.
Ladies and gentlemen, thank you. This does conclude today's geospatial technologies third quarter 2022 earnings conference call.
Please disconnect. Your line at this time and have a wonderful day.
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