Q4 2022 Geospace Technologies Corp Earnings Call
Welcome to the G O space technologies fourth 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 Kurt is the company's Chief Financial Officer, and Mark Tinker CEO of G.
Yesterday subsidiary Quantum Technology Sciences, today's call is being recorded and will be available in the geospatial 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. If you would like to ask a question at that time. Please press star one on your telephone keypad. If at any point. Your question has been answered your neighbor made yourself from the queue by pressing star two we ask that you. Please pick up your hand.
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Lastly, if you should require operator assistance. Please press star zero. It is now my pleasure to turn the floor over to Rick Wheeler, Sir you may begin.
Thank you Ashley.
Good morning, and welcome to Geospatial Technologies conference call for the fourth quarter and year end fiscal year 2022.
I'm, Rick Wheeler, the company's President and Chief Executive Officer, and as mentioned I'm joined by Robert Kurt is the company's Chief Financial Officer and also on the call. This morning is Dr. Mark Tinker CEO of our subsidiary quantum Technology Sciences.
I'll first provide an overview of the fourth quarter and year end and Robert will follow up with in depth commentary on our financial performance. Afterwards, we'll open the line for questions that we'll try to answer.
Some of today's statements may be forward looking as defined in the private Securities Litigation Reform Act of 1995, and 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.
Unknown risks can lead to performance results to differ.
From what I said or implied today. These risks and uncertainties include those discussed in our SEC Form 10-K, and 10-Q filings for.
For convenience.
A recording of this call on the Investor Relations page of our Geo space Dot Com website, and please take the opportunity to browse the web site and learn more about geo space in our products No information. We record. This morning is time sensitive and may not be accurate at the time, one listens to the replay.
So yesterday after the market close we released our financial results for the fourth quarter and year end fiscal year 2022, which ended September 32022.
Our fourth quarter revenue grew more than 33% over last year's same period escaping the first three quarters of fiscal year 2022.
This was largely attributable to the steady increase in demand for our obs ocean bottom nodes as the year progressed.
And we expect this demand will continue to grow in fiscal year 2023.
Fourth quarter oil and gas segment revenue saw an additional boost as we began scheduled deliveries of specialty geophone sensors and partial fulfillment of a previously announced order that extends into fiscal year 2023.
However, despite the improved Q4 performance revenue for the full fiscal fiscal year amidst the last years total by 6% leading to a net loss for the year of $22 $9 million.
In response, we have begun the implementation of a board approved dynamic plan intended to lead us to consistent profitability.
The plan includes leveraging the successes of our diversification strategy that have created new products and revenue growth in the adjacent market segment. It also includes shedding the manufacturer of some low margin low revenue products and reconfiguring, our production facilities to lower our cost and raise efficiencies.
As part of the plan adjustments have already been made and our workforce since the fiscal year end and are expected to yield an annual savings of more than $2 million and as our plan continues to unfold regular evaluations of each business segment will focus on revenue opportunities as well as additional areas where costs can be reduced.
The fourth quarter and full year losses reported for fiscal year 2022 include a noncash charge of $4 $3 million for the impairment of goodwill related to our 2019 acquisition of quantum.
The technology, we gained through this acquisition remains highly valuable and is in fact being targeted in a variety of new applications with promising revenue potential. However, past performance of our quantum acquisition has not met the necessary expectations require to support its goodwill.
Our reported losses also include a noncash charge of approximately $400000 for the write off of certain heavy machinery and our cable shot.
Over time revenue from goods produced with this equipment has greatly diminished and the space will recover from its removal will allow us to move our obs rental operations from a nearby satellite facility to our main campus. This consolidation should provide much better efficiency and utilization of the factory and in turn reduce costs and.
Increase our profitability.
Recent conversations with our permanent reservoir monitoring or P. R. M system customers have let us to expect additional delays in the timing of a potential tender, although they've indicated that their overall interest in antigens have in no way diminished.
This means the most opportune time for the transformation of our cable shop is now when it should not interfere with the ongoing main campus manufacturing activities, nor disrupt any ongoing ob ex rental operations with the move.
Note also that the ability of our cable shop to build both electrical and optical P. R. M system cables will remain intact after the transition.
While we are certainly encouraged by favorable trends in our oil and gas segment, we are especially pleased with the revenue growth and product expansion of our adjacent market segment.
Fourth quarter revenue from our adjacent markets products became the second highest in its history almost matching the all time record set in the fiscal year's third quarter.
For the full 2022 fiscal year, our adjacent markets revenue reached $39 $2 million. This outperformed last year's results by 21% in such yet another full year record for that segment.
Within the segment, our exile graphic imaging products water meter cables and connectors and contract manufacturing services, each set new pools Youre records of their own.
In another first the fourth quarter includes the very first shipment of our quantum smartwater valves and subscription based cloud control software. The dollar amount was not significant but nonetheless March at the beginning of what we believe will be another path of profitable expansion in the years to come.
Overall, the ramping performance of our adjacent market segment provides strong validation that our strategy of selective diversification outside of the oil and gas industry is working by broadening our revenue base and moving us forward on our path towards profitability.
Now I'll turn the call over to Robert to provide more financial detail on the fourth quarter and full year.
Thanks, Rick and 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 fourth quarter ended September 32022, we reported revenue of $25 9 million compared to last year's revenue $19 4 million.
The net loss for the quarter was 8 million or <unk> 62 per diluted share compared to last year's net loss of 5 million or 39 cents per diluted share.
For the 12 months ended September 32022, we reported revenue of $89 3 million compared to revenue of $94 9 million last year, our net loss for the 12 month period was $22 9 million or $1 76 per diluted share compared to last year's net loss of $14 one.
$1 million or $1 five per diluted share here's our oil and gas market segment revenue the oil and gas market segment produced revenue of $14 8 million for the three months ended September 32022.
This compares with revenue of $10 7 million for the same period of the prior fiscal year, an increase of 38%.
The 12 month period ended September 32022, the segment contributed revenue of $49 1 million versus 52 three.
$3 million for the same prior year period.
The increase for the three months period is due to higher demand for our seismic sensor.
A higher level of repair parts and services needed for the repairs of customer one marine wireless products.
The 12 month decrease in revenue is due to lower demand for the purchase of our land and marine wireless products, partially offset by higher utilization of our marine wireless rental fleet and a higher demand for our seismic sensors.
Our adjacent market segment revenue is as follows.
Our industrial product revenue for the fourth quarter of fiscal year, 2022 was $7 2 million an increase of 30% over the fourth quarter of 2021.
Industrial products 12 months revenue for the fiscal year two.
2020 to $25 6 million an increase over the same period.
In 2021 of 20%.
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 fourth quarter was $3 7 million, an increase of 21% compared to last year's revenue of $3 1 million.
At 12 months revenue for the imaging products for fiscal year 2022.
$13 5 million or 22% increase when compared to the same period in 2021 the increase in revenue for both periods is due to a higher demand for our thermal imaging equipment and consumable film products.
Finally revenue from our emergence emerging market segment for the fourth quarter was 140000 compared to 170 sales and for the same period in 2021.
12 months.
Revenue for the segment for fiscal year, 2022 was 711000 compared to $10 2 million for the same prior year period.
The decrease in revenue for both periods is due to meeting contractual obligations in fiscal year 2021 for a contract with the customs and border protection U S border patrol that was awarded in April of 2020.
Our fourth quarter fiscal year 2022, operating expenses increased by $6 1 million compared to the fourth quarter of 2021.
The increased operating expenses for the three months ended April 32022 was due to due to a onetime noncash charge for goodwill impairment and the company's emerging market segments.
Decrease in favorable noncash adjustment for contingent consideration related.
And not to size acquisitions, and higher engineering projects project expenses.
The 12 months of operating expenses increased by $8 million or 24% when compared to the same prior year period. The increase in operating expenses is due to the goodwill impairment in the fourth.
In the fourth quarter already mentioned higher engineering project could cost increased personnel costs.
For mineral operating cost associated with our recent acquisition of Quanta and increased sales marketing and other general business expenses.
This increase was partially offset by an increase in favorable noncash adjustment.
For contingent consideration related to the quantum and <unk> acquisitions.
Our 12 months cash investments into our rental fleet was $4 8 million in cash and investments into property plant and equipment was $1 1 million our balance sheet at the end of the fourth quarter reflected $17 million of cash and short term investments and we have $8 5 million of <unk>.
<unk> liquidity from our credit facility. In addition, we own numerous real estate holdings and handed in Houston and around the world that are owned free and clear without any leverage.
That concludes my discussion will return the call back to Rick.
Thank you Robert.
The aftermath of the pandemic and the war in Ukraine, and created a broad level of disarray throughout the world Global inflation and threatened energy supplies or the prime examples.
Solving the latter of these is critical and invading the former and provides the only means for US all to move forward. We believe the oil and gas industry is fully engaged in trying to responsibly solve the issue and we believe this offers rationale for an increase in demand for our obs and other oil and gas segment products.
With the successful expansion of our adjacent market products and our structured moves to achieve greater efficiencies. Our confidence is bolstered for increasing revenue maintaining a strong balance sheet and providing profitable returns for our shareholders in the future.
This concludes our prepared commentary so now I will turn the call back over to Ashley for questions from our listeners.
And the 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 has been answered you may remove yourself from the queue by pressing star too again, we do ask that you. While you pose your question that you pick up your handset to provide optimal sound quality.
Thank you and our first question comes from Scott Bundy with Morn Kabat. Please go ahead.
Good morning, gentlemen.
My name is Scott.
Very pleased to hear you guys talking about getting to profitability.
A couple of book keeping things that I'm trying to understand regarding.
The contingent consideration for quantum and enough to size. According to your third quarter 10-Q. The contingent consideration was a couple hundred thousand bucks for quantum.
Zero for up to SAIS.
Also according to the 10-Q the earn out for quantum.
Bart in July of 2022, and four opt to SAIS too.
<unk>.
Any money required contract signings as of I think November of 2022.
So first of all do I have that correct.
Yes, you have that correct.
So we have no, but we have very little contingent consideration for.
Quantum on the books to.
To make our final payment to the former shareholders and then we have no contingent consideration on the books for office sites.
So the comment related to 5 million noncash benefit for change in.
Changes in contingent consideration related to quantum and up to size in your release what is that referencing.
That's referencing that we were reducing the liability we had on the balance sheet, because we didn't need that large of a liability. So that's a favorable adjustment to the P&L.
So it is.
M I.
Is that in fact, an indication then is the $5 million an indication from nothing before an indication of revenues that you anticipate or do I have that wrong.
Well it was.
It was on the books on the balance sheet as a potential obligation.
It needed to be recorded there and now that all those earn out periods or expired.
That is being relinquished offered there that's no longer a liability I think thats the.
The way I would interpret it.
Okay I missed okay.
Thank you very much.
So Rick the Schlumberger CEO .
Lee indicated that.
The pipeline for final investment decisions for deepwater and shallow water was the highest in over 10 years, which is pretty extraordinary.
And the number provided was something in the vicinity of 170 billion. So.
So where are you guys in terms of your discussions with people regarding these markets.
Let's even include PRN, because that's a lot of money and the trend seems to be quite favorable.
No I agree 100% and in fact, that's what we're seeing and largely that's driven the demand for our obs.
Ocean bottom nodes as high as it has and we continue to see that demand growing and its because that marine.
Exploration side, which is a preface before all of these final decisions investment decisions. You are talking about has to occur even the towed streamer operations are seeing some improvement.
To that extent, that's why you see this order that we announced earlier to provide these sensors for Pgs's Geo streamer capabilities is in place.
As it relates to PR M. No difference there I mean, the fact is the interest is still highly expressed with us in conversations going on about these prs projects, but issues have come into play where they need to kind of get their own ducks in a row is the way I would kind of explain it.
Before they can make some of those final decisions and that includes even some initial brownian surveys that they wanted to do so they have a better idea than what they did before as how they want to go forward with a PRN. So all of those things are in play and to your point I think we see the same thing as it intersects are busy.
This that that part of the.
But the marine industry for oil and gas is definitely where the activity is.
You used plural word multiple people that you are talking to at PRA them is that correct yes.
Yes, that's right.
And two other questions. If I may has the stock's valuation had any impact on that.
Contract talks.
But not to this point not at all.
No I think the technology and the fact that we've got a strong balance sheet no debt and all of that plays into our ability to be well represented in the commercial space.
And lastly, if I may for Mark lots of discussion.
In the marketplace regarding C O two sequestration real money.
Being moved in this area.
Mark can you just give us an update on the level of interest for.
What you guys are doing in that space.
Yes, I would be delighted to.
Part of our long term plan.
Started to exit Covid.
It was to establish a reference.
System.
Using our state of our technology.
So we just celebrated our one year anniversary of being deployed at a small carbon storage facility in Canada.
Associated with carbon management, Canada.
And based on our results there which has vastly.
Actually exceeded even my own expectation presented a number of papers throughout the last year.
And I'm, putting that brand on the rise thanks, thanks to that validation.
We see a very strong indicator of how SEDAR can come in and actually feel like yeah associated to the measurement modeling verification function.
For carbon storage.
When companies go apply for the full permitting process that this is the reservoir. This is what we're going to deal with there is a component of that that says once the carbon is injected how are we going to know that it's going to stay there.
And they have to have ways of validating that in near real time.
So we are enjoying a significant number of conversations across all the majors.
And some of the service providers, how SEDAR can meet those requirements.
And Mark when when you're just to help us from the outside looking in when we look at this is it a cost issue is it.
Is it is it your technology versus someone else's technology, meaning it's competition can you give us a little flavor of.
The dynamics of decent negotiations sure.
It's first and foremost a disruptive conversation.
Classic ways, when you're trying to understand what's going on in the environment in which you cannot see so we can't see the sub surface. So we have to listen to it.
And Theres two fundamental ways that we look to it we put sensors on the surface of the Earth.
And large channel counts or we put sensors deep into the earth in two bore holes that are either existing or that we have to drill.
Both of those techniques have their benefits and they have their challenges.
Our state of our approach actually split the difference.
It's neither a surface system, nor is it for a whole system.
Shallowly deployed and the upper meters of the Earth.
The other thing is is it permanent.
So that's what I mean by a disruptive conversation Thats why were giving technical papers is to show its performance capabilities.
Relative to something that this industry is very familiar with.
Recall, we are also a passive monitoring technology, so I want to be very clear on that.
Traditional techniques have been used to image the layers of the earth to image reservoirs. So to image something we have to sell energy into the Earth listen ports reflections and then understand what it looks like geometrically right.
Passive technology simply listen listening for.
Listing for these little Microearthquake.
And those micro earthquakes are indicative of what's going on with the reservoir.
We interact with reservoirs in any capacity, whether we're extracting some corporate of hydrocarbon or injecting hydrocarbons. We're injecting carbon are objecting groundwater or whatever it might be that reservoir is going to have an expression that expression is going to be highest nicotine based.
We interact with it.
To have a little creek and cracks that pop off and those aren't microearthquake.
If we can accurately detect and locate those it gives us a very good understanding of what might be happening in the subsurface.
Our value proposition to tactically listen for those and get a real time response.
So what we're doing is we are selling information, we're not selling hardware system selling algorithms, that's part of our full system solution.
And.
The result is telling that information why do I want that information because I'm going to take action.
Tell me to take an action.
We just take a client.
My regulations for carbon storage or anything else that might be leading to monitor for that micro seismic expression of my reservoir.
So is this.
Are there Keith in terms of being compliant here from from a law perspective.
Yes. So these regulations are forming.
You can go Google them and research them that when you inject carbon and you have your reservoir, there's going to be regulations lets say you must by law monitor that reservoir.
Upwards of 99 years in some cases and so it is part of the carbon capture.
Process is part of that complete what I call a kill chain.
So we must understand the reservoir first upfront where are we going to put our wells. All these other things that we don't apply to but once it goes into that ground.
That pressure plume as it's called starts to push through.
Phil that reservoir with carbon we want to know what does that cause I'm doing is it staying below the cap rock.
Escape by breaking the cap rock is escaping due to existing wells and when you think of what it takes.
Our store in carbon.
To make an impact towards global climate change.
Looking at carbon storage reservoirs of the gigaton level of it.
Gigaton reservoir.
It's a very significant expense in terms of its lateral extent, it's much bigger than the city of Houston for example.
How do you monitor something that size.
Honestly.
How do you get a look at what Youre doing to that reservoir of something that many many many square miles.
That's the value proposition that were coming in we can't do it using traditional seismic techniques.
So that's why we create.
Created this technology to give us an understanding of that pressure.
As it pushes out that is going forward as we expect it to do as required to do so.
I think we're going to go to the effort to put the carbon there would have to go to the effort to make sure that it stays there.
Last question with the.
Recent elections.
Are you more or less optimistic about activity regarding the border.
It's a very good question, what's been driving.
That.
Frustratingly long process.
For our border security technologies.
It's somewhat driven by Congress more driven by a border patrol process.
I have been following.
And now we're coming towards the end of that process in the next year or so.
So we maintain a strong presence on the hill.
They.
They understand what our technology is capable of doing and they are very supportive and a bipartisan way.
During the upcoming funds.
We're working towards will be in place to follow the border patrol plan.
If you were to guess would you would you guess that having gone through this process that you.
You would be more successful than you were the first time in terms of size of these contracts.
And I guess I understand it's a guess.
Yes so.
Our first contract was part of this three year process.
It was as designed.
So I'm I'm I'm.
I will guess with you that the.
Follow on work is going to be a very.
We're looking forward to the strategic revenue that we've been positioned for.
In the upcoming years.
Terrific. Thank you very much guys.
Thank you Scott.
And we'll take our next question from.
He also download English.
Okay go ahead.
Thank you I had a couple of questions first one relative to Ob ex Rick you had referenced.
The.
Increase in demand that you have seen did we understand correctly that you believed is that demand growth will continue.
From here and.
I mean given.
But it appears as though the underlying dynamics for the industry or are you anticipating kind of a longer term rate of level of growth for for that <unk> business.
Hi, Bill.
It certainly looks that way when we examine the amount of jobs that.
Various oil.
The oil and gas companies are proffering to be performed and we see this through the eyes of the contractors who are.
That's our customers, we're not dealing directly with the oil companies as it relates to the <unk>.
Some of that May change because of the demand.
For these for this type of equipment and for some of these projects is getting tight enough to where I think that in many cases some of the oil companies.
Others are.
Out there that want these surveys to go forward.
Looking past the contractors.
Try to secure these assets, but nonetheless, the demand is growing and the number of projects is growing and it's certainly something that we see this coming year. Many of these are actually extrapolated out into subsequent years, but you know you don't you don't just jump on your hopes with those are out there because things can turn on a dime.
In this industry and we are quite familiar with that and as Youre well aware.
But we nonetheless have those in our sites with respect to what would be prudent ways to try to accommodate those quite honestly there is not enough equipment in the world to supply.
These projects are all told.
Not only are the number of jobs, increasing the size is.
<unk> of nodes that are required are growing and the length of the jobs are getting longer.
And if we think about the comments in the press release that you anticipate a large portion of your capex.
This coming fiscal year to be tied to the rental fleet is that just another indication to us on the outside of the strength that you see in that business. Since historically, you said you'd be very cautious about.
Expanding the rental fleet until you saw real.
Real strong demand.
No that's absolutely right and that caution has not gone away.
Have that caution for sure.
These.
These sorts of things to do require a commitment on the part of the end users be it the contractors <unk>.
Their clients.
Financial commitments towards those sorts of movements, but.
But certainly the demand is leading them to make those commitments are in many cases in.
That's exactly what we're talking about.
Total investment is.
Certainly there and available to be made.
But it will be a cautionary way forward.
That's helpful. Thank you and then mark relative to.
To your system are you anticipating that.
Border patrol will be the next will.
We will be the next order or would you anticipate that some of the other.
Other entities that you've been in conversation with an referenced in prior calls that they would likely.
Place an order first.
The latter.
Our federal strategy is doing it is in effect in working so.
I anticipate that we will see other federal contracts before the next large ramp on the border patrol.
And Mark if I'm remembering correctly from the last call or maybe the prior one there was a reference to us military.
Is that the area of the federal.
You would anticipate.
The first I guess the first next order or is there another agency our segment of the government that you think could be before the military.
We focused on DHS and Dod.
And so yes.
Yes.
Is the key area.
For our future revenue.
And I'll ask one more question relative to the D O D.
Sizing what would be your expectation of size if they were to place an order.
Relative to come.
To the first border patrol order.
That's a tough question to answer I will say it'll be a phased approach.
While Dod.
Easy to say.
Large and complex.
As an organization when you think across not only the branches of the military but the off as the secretary of defense as well.
And.
I think that.
Youll see youll see in the upcoming year, where were headed Scott youll see what's going to happen.
Sorry Bill.
No worries. Thank you so kind of tying in.
Two the prior questioners comments or questions in your comment that.
That.
The department of Homeland security and border patrol.
<unk> has a a year or so process that it would be sometime within the next 12 months that you may see something from the Dod is then followed by homeland security just kind of the cadence that you're thinking right now from what you know how it would unfold is that the proper interpretation.
That's what we're looking at that's what we're preparing for it so we've been performing for so that's the best way I could interpret it right now.
Great. Thank you all for taking the questions.
Welcome. Thank you.
Yes.
And once again as a reminder, that star and one for your questions. We will go next to Brent Miley with where do they get capital. Please go ahead.
Hey, good morning, a couple of questions for you if I could.
Cash flow was good in the fourth quarter wondering if you might comment on that glad to see it and maybe talk a little bit about.
Pacing of your expectations for cash flow and Capex in the 2023, and then secondarily I was curious on the quantum business. The adoption I wondered if the first adoption was a utility or actually our real estate customers.
But for cash flow point of view, yes, we're pleased to see the cash flow.
Improved over the quarter I mean, that's something we've been looking at for quite a while and we monitor very closely.
Going forward we.
We expect there to be growth throughout the next 12 months.
It will dip down early in the year and return.
In Q3 and Q4.
As far as the quantum of sales I believe those were in the utility area.
Okay, Great and then one last one if I could on the PRN front.
Obviously big companies Big projects process has been ongoing.
It's been sort of I don't know if somebody outside looking in sort of incredibly complicated and complex and is there any sense on timing here I mean prices are up efficient desire for using our most efficient assets is incredibly reasonable.
Any sense of when these things might actually get less.
You know Brett that's an excellent question and you know the timing would be implied.
Near term based on all of those are underlying conditions that you were talking about in the price of oil et cetera.
It's just been theres been a complication of conflated issues that have jumped into here.
Did represent instability I guess in the confidence of that market capital expanding in general and some of the oil and gas space.
But as was mentioned earlier by by another color there.
There are movements, where we see that changing and that's the.
The case here too.
Giving you a.
We've had these discussions and we've had promises of one time and then another time that just makes it.
Really difficult to give any sort of real timing issue that you can sink your teeth into.
That being the case.
We're not going to sit on our heels and just not do anything we've got work to do.
And that includes making sure that technology for the PRA work is firmly established in.
Tied up and ribbons so yeah.
And theres other applications for it to that we'll be.
Putting forth.
That also make it better usable.
And the P. R M case.
So I really I really wish I could give you some better aspects about what timing looks like but it seems to me that.
Just moving those dates back and forth as it were makes that hard to do.
Fair enough and it sounds like there have there been any more active test.
Mentioned last call you guys had a pretty comprehensive desk now there may be.
Right now there may be some minor tests coming up in the future, but there have been none.
Field tests are similar to what we had done before which went well by the way.
I think.
Fundamentally.
In many cases it seems like.
Some of these conversations we're having with the oil companies there recognizing as we've moved further down the path towards what needs to be done that there are some loose ends on their side.
And they need to get those tied up so that.
They make the very best investment decision and where these things youre going to go.
What the configurations of the field need to look like those are those are important matters and getting this done and they've identified that maybe they've got some deficits there that they need to clear up first and that's so that timing is not in my hands and therefore, not something I can really comment on.
Okay and then.
Let me just to be clear on that are those technical issues and sort of sort of scope of project issues or is this more of a deal where again. They want is it more contractual where they're trying to get for example, the the folks we're going to lay the cable and so what it is it more of a construction and contract structure issue or is it more technical in and kind of design.
The design of the scope of the actual project issue.
Good question and for clarity the ones that I'm, referring to are more of a technical nature broad scope technical why so not dealing with our specific technology or any of that but just the overall aspects of the science that goes into the permanent reservoir monitoring and the four D processes that.
I need to make sure they have properly put in place.
And have determined what the real areas that they that they want to be monitoring our.
So it's really a technical matter not really a contractual arrangement.
Fair enough appreciate it thank you.
Okay.
Okay. We will take our next question from Glenn <unk> with <unk> Capital Partners. Please go ahead.
Hey, guys good morning, Hi.
Hi, good morning.
My question will be about the cash.
Cash on hand, and short term investments good job on increasing that.
I can appreciate the write down.
A little bit from op. Besides a lot from quantum.
<unk> reduces the liability on the balance sheet, obviously, that's a up.
It's a paper write down it's not actual physical cash going out I assume.
But it looks like we have physical looks like we have physical cash coming in last quarter, the $9 1 million cash.
Cash on hand, plus short term investments this quarter $17 million again, good job cut them back could you walk us through.
How you got from $9 1 million to $17 million of physical cash and physical short term assets.
As on past the moving part of that.
Yes, most of that is related to this increase in our <unk>.
Rental activity going on.
And the increase in sales, we're having from our adjacent markets grew.
We also sold some equipment earlier than in the year and we received payments from that customer very timely last day of the quarter in fact that helped with our cash balance at the end.
For the year.
But I would say by and large most of that.
Increase in cash is because of the increase in <unk>.
Great.
I know you don't want to give a forward looking.
Advice or information, but based on the plan that you will implement too.
<unk> cost structure, what impact do you think that'll have on.
<unk> physical cash short term investment liquidity not.
Line of credit liquidity.
I mean there'll be.
I guess.
It's going to depend on what type of.
The changes we make.
We're really just kind of.
White boarding those discussions at this point, we have made some specific changes like we discussed in the press release.
I don't I think we're going to have cost associated with combining our facilities, but I don't expect that to be significant.
Significant in nature.
Okay great.
And then you mentioned here.
Predicting I think it was a $7 million capex for fiscal 'twenty three is that correct.
Yes, Sir.
Do you so.
I'm sorry go ahead.
You go ahead.
I was going to say most of that is related to potential.
Potential increases or additions to our rental fleet.
As we said earlier.
We're not going to make those kind of additions unless we get some financial commitments from our customers.
To help fund those additions.
So would you say that 7 million Capex is not.
Scheduled to be spent just yet.
Earmarked, if and when orders come in.
That's exactly right.
Okay, great, but you were setting that aside.
If orders come in and you have the 7 million Capex remind me remind us how does that compare to last year's 22 fiscal year.
Total capex expense.
Last year, we spent about $4 8 million on our rental fleet additions and a little over $1 billion on property plant and equipment.
Okay.
If we find ourselves at the end of fiscal year 'twenty three and we've spent all 7 billion that's likely because we've seen an increase in orders and.
You have to spend money to make money so would it be fair to assume that having spent $7 million at the end of 'twenty three is likely to result in an increase in revenue.
Yes versus 'twenty two.
Yes, I absolutely expect that.
Okay.
You know that coupled with the cost reduction that looks like a path to profitability.
We believe so.
Okay.
Great well that's my only question guys have a wonderful day.
Thank you very much.
Right.
Thank you.
Well go next to Michael Melby with Gate City Capital Management. Please go ahead.
Hey, good morning, and thanks for taking my questions.
With the movement of the <unk> rental operations from the satellite facility does that being moved from an owned facility.
Yes, yes, we own that facility and we would be moving it from that owned facility into our Pine mine owned facility.
Makes sense and I guess at that.
Current facility, then redundant and something that could be a source of capital going forward.
Yes, Sir exactly.
Got it and just for the colony any sense of what that facility might be worth.
We're in the process of evaluating that right now.
Got it and on the quantum side, you said revenues weren't significant in Q4 do you expect them to be significant in fiscal 2023.
It's going to end up being a ramp up Mike you don't have those kind of things go as a new introduction.
But it was the first month so.
One of those things, where you like for that to happen.
One of the things that we've had to overcome and we've made it very clear and well known as the supply chain problems that often.
Have plagued everyone.
Many of them still continuing but we've worked around a lot of those and.
And put some things in place to try to provide some elasticity going forward for being able to make some of these orders. Despite some of the supply chain problems. So this is going to be a ramping.
The issue with respect to how much revenue you see coming across.
I can't give you a predictive amount of what that's going to be but we are.
Encouraged by the fact that we've taken that first step they're symbolic if nothing else and certainly we're prepared and are building.
Towards orders.
For that those products, there's even some other products.
And some partnered companies so.
That looks good for us.
We're definitely progressing on that well and pudding.
Some resources behind it.
And do you care to frame it anymore for investors in terms of what's.
The opportunity set is with the quanta.
Well.
Utility companies are one of the initial.
Targets, there, but we are in fact.
Going after the property markets to where there's significant gains that can be made.
And asset protection and Thats one of the main aspects there the utility companies are more for convenience, reducing their costs with respect to.
Meter shut offs and in turn ons, where they don't have to roll trucks out there to perform those activities Theres certainly a conservation issue that is important when the lakes are detected thats a major a tie back to where these valves are used so that even some automation can be introduced for shutting off water. So <unk>.
<unk> issues there also within municipalities.
For <unk>.
Maintaining their regulatory components.
As they see fit.
It's kind of a broad landscape, but clearly related to.
The municipalities there is issues.
Issues also with the payment.
Or they just have to shut off water and when people move out of houses.
Before new owners move in all of those sorts of things, where they just save the cost and being able to do that from an office.
Yeah makes sense on the use cases could you frame. It did you buy this because he thought it could be a $5 million business of $10 million business I mean.
In terms of how you evaluate the opportunity set here.
Well the opportunities are I'm not going to put a ceiling on the on what that is capable of doing I mean, theres a software as a service component. That's also there these will be new aspects of revenue for us that have not been a historic part of our revenue stream, but in addition, it's a technology buy I mean, we.
We feel that the smart city movement overall is a big movement and extends much more beyond that of these valves. So theres a platform from an engineering standpoint, our guys are putting together that it's fundamental to how these systems work and that Iot platform is going to have some other.
Development capabilities in other product areas.
Got it and could you talk about your expectations for the land seismic business either in the U S or internationally for 2023.
We don't have great ambitions of what we.
What participation.
We will have in that market that just seems to be rather enacted as that goes.
Sure.
Little little pieces here and there coming about but we don't see any kind of resurgence to levels that there were in the past.
Maybe it's too early for that with some of the other improvements, we see which are mostly on the marine world, but overall as the oil and gas industry is.
And speaking of course.
The land hasn't really from our perspective, the land side of the instrumentation market.
It hasn't really manifested.
Got it and just to clarify from other.
Participants you were free cash flow positive in Q4, do you expect to be free cash flow positive in fiscal 2023.
Yes, absolutely.
Thank you.
Thanks, Mike.
And we'll take a follow up from Scott Bundy with morning, Kevin. Please go ahead.
My question was just answered thanks guys.
Thanks, Scott Scott.
And we'll take another follow up from Brian Lalli with Rutabaga capital. Please go ahead.
Hey, Al I had one more if I could the adjacent markets business, obviously, it's been very strong.
Pre COVID-19 those were.
Memory serves incredibly kind of consistent and good market for you all.
Would you say kind of recovered to from kind of from.
Colby I guess and.
Do you expect those to be kind of against steady eddies or a little bit of growth. There. If you could kind of give us some commentary on that I appreciate it.
No I think youre reading it correctly.
The Covid aspect did definitely hit that some of those business and particularly the exile thermal imaging products, which will use a lot for screen printing.
No.
Four major events and things that just got shut down so clearly those things have rebounded much more towards normalcy is not.
Normal levels and it's expanding.
It appears that.
Through the pandemic.
And working through that it sort of jostle things in such a way that that industry has found better ways of doing things with less labor and that involves a oftentimes the benefits that our machinery the exile machines can provide for those.
Those types of businesses. So that has had an impact.
Other aspects of the water meter cable and <unk>.
And connector business.
<unk>.
We believe that's just going to be a growth area in general as more and more <unk>.
Smart city movements take place in these utility TLC companies almost all of them are migrating over the course of time towards these are automatically measured.
<unk>.
Billing processes so.
I think I think COVID-19 is behind us from that market as it stands right now.
Great. Thank you.
And there are no further questions at this time I will turn the floor back over to Rick Wheeler for any additional or closing remarks.
Alright, well, thank you Ashley and thanks to all of you that were listening to our call and ask these great questions. So we look forward to speaking with you again on our conference call for the first quarter of fiscal year, 2023, which will be in February so thanks, again and goodbye.
Thank you and this does conclude today's Geos based technologies fourth quarter 2022 earnings Conference call. Please disconnect. Your lines at this time and have a wonderful day.
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