Geospace Technologies - Q4 2023
November 17, 2023
Transcript
Operator (participant)
Welcome to the Geospace Technologies Fourth Quarter and Full-Year 2023 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rick Wheeler, President and Chief Executive Officer. He is joined by Robert Curda, the company's Chief Financial Officer. Today's call is being recorded and will be available on the Geospace 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 open 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, you may remove yourself from the queue by pressing star two. We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, again, please press star zero.
It is now my pleasure to turn the floor over to Rick Wheeler. Sir, you may begin.
Rick Wheeler (President and CEO)
Thank you, Michael. Good morning, and welcome to the Geospace Technologies conference call for the fourth quarter and year-end of fiscal year 2023. As mentioned, I'm Rick Wheeler, the company's President and Chief Executive Officer, and I'm joined by Robert Curda, the company's Chief Financial Officer. In our prepared remarks, I'll first provide an overview of the fourth quarter and year-end, and Robert will then follow up with more in-depth commentary on our financial performance. After some final comments, we'll open the line for questions. Some of today's commentary on markets, revenue recognition, planned operations, and capital expenditures may be considered forward-looking, as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on our present awareness, but actual outcomes are affected by uncertainties we cannot control or predict.
Both known and unknown risks can lead to results that differ from what is said or implied today. Some of these risks and uncertainties are 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 Geospace.com website, which I hope everyone will visit and browse to learn a little bit about the company and our products. Note that the information recorded today 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 fourth quarter and year-end of fiscal year 2023, which ended September 30th of 2023. We were incredibly pleased to announce to our shareholders yet another quarter of positive earnings.
Combined with the successful quarters earlier in the year, fiscal year 2023 closed with an overall net income of $12.2 million. Moreover, full-year revenue of $124.5 million represents the largest figure the company has recorded since 2014. Our improved performance is the result of accelerated efforts by our dedicated employees in reducing costs and streamlining our operations, as well as better market conditions for our products in both the Oil and Gas and Adjacent Market segments. Increases in utilization and rentals of our OBX ocean bottom nodes were the largest revenue driver in fiscal year 2023. In fact, the company's total revenue for rentals more than doubled from last year's figure. Our conservative financial management and preservation of a strong, debt-free balance sheet have given us essential tools needed to maintain leadership in technology innovations, even in depressed markets.
We believe this has strengthened our ability to take advantage of these improving market conditions and will continue to do so in the future. This is strongly evidenced by recent developments in our Oil and Gas Market segment. In the fourth quarter, we announced a $3 million rental agreement for our highly advanced Mariner product, which is a shallow water seabed seismic data acquisition node. In addition, we announced a $5.7 million contract with an international seismic company for specialized geophones designed for use in their proprietary system. And prior to both of these announcements was our announcement in June of a $20 million rental contract for our Mariner ocean bottom nodes. We expect the delivery of this system to complete in the next few weeks, with the rental term commencing thereafter.
While we do expect gaps to occur in some of our OBX rental contracts, we anticipate the ocean bottom node market remaining strong over the coming fiscal year. Results from our Adjacent Market segment proved equally compelling, as total revenue for the fourth quarter and full fiscal year ending September 30th, 2023, came in at $10.6 million and $49 million, respectively. The full-year amount for this segment sets yet another new company record. Our efforts toward revenue diversification have seen some success in the Adjacent Market segment, where several new quarterly records were set over the course of fiscal year 2023. The outstanding performance for the year of our industrial products largely stems from the greater demand for our water meter cables and connectors, which was the primary factor pushing the segment's overall revenue growth 25% over last year's results.
The company's Emerging Market segment generated $0.8 million in the fourth quarter and $1.2 million over the full 2023 fiscal year. During the second fiscal quarter, we announced a $1.5 million contract with the Defense Advanced Research Projects Agency, otherwise known as DARPA. This contract is a phase II Small Business Innovative Research, or SBIR, contract to explore a new radar capability designed to monitor acoustic energy sources of interest on nearby land, water, and air environments. Revenue over the course of fiscal year 2023 for this segment includes amounts derived from this contract, as well as fulfillment of a separate, unrelated contract with a major defense contractor.
We continue to explore further opportunities for contracts with DARPA and other governmental agencies, as well as new private sector applications for radar and Quantum's unique analytics in the energy transition market. Complementing our operational success in fiscal year 2023 were substantive gains on the company's balance sheet. In addition to increasing stockholder equity by more than $11 million, we ended fiscal year 2023 with a total of $33.7 million in cash, cash equivalents, and short-term investments. We further maintained an additional borrowing availability of $13.1 million under an unused bank credit agreement with no borrowings outstanding. As a result, our total liquidity as of September 30, 2023, was $46.8 million. In addition, we own wholly unencumbered properties and real estate in both domestic and international locations.
With that, I'll now turn the call over to Robert to give a little bit more financial detail on the fourth quarter and year-end performance.
Robert Curda (CFO)
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 30, 2023, we reported revenue of $29.3 million, compared to last year's revenue of $25.9 million. The net income for the quarter was $4.4 million or $0.33 per diluted share, compared to last year's net loss of $8 million or $0.62 per diluted share. For the 12 months ended September 30, 2023, we reported revenue of $124.5 million compared to revenue of $89.3 million last year.
Our net income for the 12-month period was $12.2 million or $0.92 per diluted share, compared to last year's net loss of $22.9 million or $0.76 per diluted share. The Oil and Gas Market segment produced revenue of $17.8 million for the three months ended September 30, 2023. This compares with revenue of $14.8 million for the same period of the prior fiscal year, an increase of 20%. For the 12-month period, the segment contributed revenue of $74 million versus $49.1 million for the same prior year period. The increase for the three-month period is due to higher utilization of our OBX rental fleet, increased sales of wireless seismic products, and higher demand for our marine products.
The twelve-month increase in revenue is due to higher high-level utilization of our OBX rental fleet, increased sales of our seismic sensor, and also of our marine products. Our Adjacent Market segment revenue is as follows: Our industrial product revenue for the fourth quarter of fiscal year 2023 was $7.6 million, compared to $7.2 million from the fourth quarter of 2022. Industrial products' twelve-month revenue for fiscal year 2023 was $36.9 million, an increase over the same period in 2022 of 44%. Both periods' revenue increases are due to higher sales of our water meter, cable, and connector products. Imaging product revenue for the fourth quarter was $3 million, a decrease of 18% compared to last year's revenue of $3.7 million.
The twelve-month revenue for imaging products for fiscal year 2023 was $12.1 million versus $13.5 million for the same period in 2022. The decrease in revenue for both periods is due to lower demand for our thermal imaging equipment and consumable film products. Finally, revenue for our Emerging Market segment for the fourth quarter was $800,000, compared to $100,000 for the same period in 2022. The 12-month revenue for this segment for fiscal year 2023 was $1.2 million, compared to $700,000 for the same prior year period. This segment has a backlog of approximately $2 million that will be recognized in fiscal year 2024.
Excluding non-cash decreases to the fair value of contingent earn-out liabilities and non-cash goodwill impairment, both recorded in fiscal year 2022, our operating expenses modestly increased by $500,000 for the fourth quarter and decreased by $200,000 for the 12-month period of 2023. Our 12-month cash investments into our rental fleet was $9.9 million, and cash investments into property, plant, and equipment was $4 million. In fiscal year 2024, we anticipate to invest approximately $9 million into our rental fleet and $4 million into property, plant, and equipment. Our balance sheet at the end of the fourth quarter reflected $34 million of cash and short-term investments, and we have $13 million of 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.
Rick Wheeler (President and CEO)
Thank you, Robert. As we enter the new fiscal year, we're enthusiastic about the plans we've set in motion to continue being profitable. As a part of that, we intend to regularly evaluate each business segment with our efforts focused on driving revenue opportunities and assessing additional areas where costs can be reduced. However, it must be noted that time gaps in our performing seismic industry contracts are likely to result in uneven revenue proportions of the coming year. Despite this expected variability, though, we remain encouraged by the volume of planned exploration activity during the year and the resultant demand for our products it should create.... In conjunction with an approved market, we believe our strong balance sheet and technological leadership will be pivotal to our success in fiscal year 2024.
This concludes our prepared commentary, and now I'll turn the call back over to Michael for any questions from our listeners.
Operator (participant)
Thank you. 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 is answered, you may remove yourself from the queue by pressing star two. Again, we do ask that while you pose your question, that you pick up your handset to provide optimal sound quality. And once again, that was star one if you had any questions or comments. And we do have our first question from Martin Lorenzen, a private investor.
Martin Lorenzen (Analyst)
Good morning, Texas.
Rick Wheeler (President and CEO)
Hi, how are you, Martin?
Martin Lorenzen (Analyst)
I'm fine, thank you. Can you please elaborate on the significance of your Itron/Aquana collaboration you posted about in, I think, June of this year? To what degree does it drive your revenue volume within that, Water segment?
Rick Wheeler (President and CEO)
Well, that development is very recent, so it really hasn't manifested into hard revenue as of yet, but we certainly anticipate that it will. It's a great partnership. It puts our Aquana valves into a distribution environment that should be very healthy. So I can't give you exact numbers on that, but look forward to it.
Martin Lorenzen (Analyst)
Great. That's good to hear that it hasn't materialized yet in the numbers. And I guess on the product side, how long would be the life cycle of such a water meter?
Rick Wheeler (President and CEO)
Actually, these systems are designed, you know, for at least 20 years of operation, typically. There is a component that sometimes needs to be replaced after maybe a decade or so, which is a battery that drives some of the electronics in these smart meters, as it were. But, they're designed for quite a long duration.
Martin Lorenzen (Analyst)
Would it be safe to assume that the product is relatively sticky and that your customer base won't erode over time once you gain market share there?
Rick Wheeler (President and CEO)
Well, there are always dynamics in any sort of market as, competition comes up, as, processes change and, approaches change to a technology, such as smart water metering. But our belief is that the smart city, expansion that we see really throughout the country, actually throughout the world, with respect to these types of instruments and, valves, as well as, outside of the water industry, but we expect this to be an ongoing, part of our business for some length of time.
Martin Lorenzen (Analyst)
Okay. And so you try to roll it out in certain geographies, where you think the market is under-penetrated, or how do you, how do you roll out that product?
Rick Wheeler (President and CEO)
Well, it's definitely under-penetrated. As it turns out, in the smart meter industry, the water side of that affair, as opposed to electricity and gas, has generally been the lagger in that sort of deployment. The way you roll it out is through market penetration as in any other market, you know, through your sales efforts, your marketing efforts, and demonstrating the technology.
Martin Lorenzen (Analyst)
Okay. Thank you.
Rick Wheeler (President and CEO)
You're welcome.
Operator (participant)
Just a reminder, that was star one with any questions and/or comments. Our next question comes from Bill Dezellem with Titan Capital.
Bill Dezellem (President and CIO)
Thank you. Just quickly following up on the last question. When does the Itron contract begin producing meaningful revenue?
Rick Wheeler (President and CEO)
I'm not gonna tell you that, Bill, because there are some things in place there that we're not really privy to reveal, as it relates to our partnership with Itron, but we don't anticipate it's gonna be some lengthy period of time. Itron is a well-known organization, and certainly has these contracts already in place that will take place shortly in terms of their deployments.
Bill Dezellem (President and CIO)
Okay, not to pin you too far into a corner, but fiscal 2024, you would anticipate that to begin?
Rick Wheeler (President and CEO)
Yes, we do expect to see returns on that in fiscal year 2024. Exactly right.
Bill Dezellem (President and CIO)
Okay. That's, that's helpful. Moving along, if I may. The utilization, I think, Robert, you'd mentioned that the utilization for your offshore rental fleet was high. What was the utilization rate in fiscal Q4?
Robert Curda (CFO)
It's very similar to fiscal year, very similar to Q3. You know, it's not at full capacity, very close to full capacity.
Bill Dezellem (President and CIO)
That may then explain my next question, which you all have been very cautious about the spending that you will have to build out your rental fleet, and yet you've talked about, I think, 9 million additions to the rental fleet. So would you talk to what you are seeing in terms of demand that is leading to that?
Robert Curda (CFO)
Well, those, those additions are specifically related to the Mariner for the contracts we've received this fiscal year. So those, you know, as you know, those are—that's a new type of node we introduced to the market, and to fulfill those contracts, we have to add those units to our fleet.
Bill Dezellem (President and CIO)
And speaking of Mariner, your $20 million contract, that you're going to have delivered here shortly, that rental lasts how long with the initial period?
Robert Curda (CFO)
A year-long rental.
Bill Dezellem (President and CIO)
And would it be correct to simply take $20 million, divide it by four quarters, and it's gonna be roughly $5 million a quarter? Or are there some meaningful nuances that make that math completely off base?
Robert Curda (CFO)
There's some slight nuances that makes that math not work exactly that way.
Bill Dezellem (President and CIO)
Does it?
Robert Curda (CFO)
We're gonna complete delivery of the units during this quarter, as Rick said, so we're not gonna have an entire quarter of rent from that contract. It doesn't really begin until, you know, within our first quarter of 2024.
Bill Dezellem (President and CIO)
And then at that point, it's roughly $5 million per quarter going forward.
Robert Curda (CFO)
Yeah, I would think so. Yes.
Bill Dezellem (President and CIO)
Yeah. Okay. Thank you. Then the $9 million CapEx, how much of that is tied to this contract versus additional business that you anticipate building?
Robert Curda (CFO)
The majority of it is for this contract.
Bill Dezellem (President and CIO)
If over the course of the next year, you end up with additional business that wants to ramp up prior to calendar 2025, then you would need to build additional units?
Robert Curda (CFO)
That's exactly right. You know, we continue our diligence to ensure that, you know, there's this market is growing, can it support the additional nodes before we just go and build them? We don't, we don't wanna build something that's just gonna gather dust.
Rick Wheeler (President and CEO)
I mean, to add some color to what you're asking, Bill, and what Robert really has answered, we're always very cautious about making these capital investments. So the numbers as we reported them or a static view of where we are now and, you know, forthcoming of exactly where things are. That does not mean that if business does not come to us in the future, that we won't make any, you know, we'll limit ourselves to that investment and miss the opportunity. But this is a correct snapshot of where we are today.
Bill Dezellem (President and CIO)
Great. Okay, that's, that's helpful. So kind of using that phrase, because you're hitting what I'm looking for, kind of a snapshot. Correct me if I'm not summarizing this correctly, the OBX has had full utilization Q3 and Q4, and Mariner will have full utilization starting in March. So my question then, if those two statements are accurate, is do you anticipate that OBX will maintain full utilization, roughly, with the standard disclaimers that go in with contract gaps, et cetera, here in the December quarter and moving forward into the foreseeable future?
Rick Wheeler (President and CEO)
No, we do not. That is exactly the reason we mentioned that with respect to some of the OBX equipment that's currently in service, there will be some gaps, and those will be notable, and they will, you know, change revenue in different portions of the year as those gaps occur. But we do see the overall market as remaining strong, even though those gaps will occur, that the OBXs will go back into service, on those or other contracts, that are being booked as we speak.
Bill Dezellem (President and CIO)
Okay, that is helpful. And then if I may, I'd like to jump to a couple of Quantum questions. The first one is the $2 million backlog with the Emerging Markets. Is that the DARPA business or is that something else?
Robert Curda (CFO)
It's a combination of DARPA business and something else.
Bill Dezellem (President and CIO)
Would you like to elaborate on the something else?
Robert Curda (CFO)
I don't think we've announced the something else. It's, you know, it's related to maintenance and assistance, technical assistance on some contracts we performed on in the past.
Bill Dezellem (President and CIO)
Thank you. And, and then, what opportunities, if any, do you see developing for Quantum with the situation in Gaza?
Rick Wheeler (President and CEO)
Well, that that's yet to be seen. Clearly, there were already some track records with respect to how Israel approached some of its perimeter monitoring and all that. It didn't necessarily work as we now understand, and partly, you know, is an element of this intelligence failure that has been pronounced in some of that activity. So we'll have to, you know, it will remain to be seen whether that will have an impact on Quantum in the future. And Rick, that was part of my question. Was it the equipment itself that they had did not work, or was it that the intelligence services did not respond quickly enough? Guess it's, this is an equipment versus a human misstep question.
Robert Curda (CFO)
That's an excellent question, but unfortunately, it's one I have no answer for.
Rick Wheeler (President and CEO)
Okay. Thank you both for the time.
Robert Curda (CFO)
You bet, Bill. Thank you, Bill.
Operator (participant)
We have our next question from Dennis Scannell, with Rutabaga Capital.
Dennis Scannell (Lead Partner and Portfolio Manager)
Yes, good morning, gentlemen. Just a couple-
Operator (participant)
Good morning.
Dennis Scannell (Lead Partner and Portfolio Manager)
couple of quick things for me. Yeah, so following on some questions about the rental business, which has really been a standout performer for the year. So one of the things I did notice was that, you know, boy, a real nice improvement in gross margins, really on a sequential basis, looking at it quarter by quarter, starting your fiscal year at, like, 54.9%, exiting at 76.5%. And so I'm just kind of curious, was that because of different utilizations? Was it because of pricing action taken through the course of the year? Yeah, if you could just shed some light on that.
Robert Curda (CFO)
I, you know, I think a lot of it is... has a lot to do with utilization. Units that are out in a customer's hands don't require us to repair them, keep them charged, or do other activities that drag down a unit, drag down the gross profit for items that are out on rent when we have things sitting here on the shelf.
Dennis Scannell (Lead Partner and Portfolio Manager)
Yep.
Robert Curda (CFO)
So that's part of it. We also had, you know, across the company as a whole, a higher utilization of the factory, because we're building these Mariners that are going out into this customer's hands. So as a result of that, we have higher utilization out on the factory floor, higher absorption of fixed costs, which improves-
Dennis Scannell (Lead Partner and Portfolio Manager)
Right
Robert Curda (CFO)
... the gross profit also.
Rick Wheeler (President and CEO)
I think, too-
Dennis Scannell (Lead Partner and Portfolio Manager)
Okay.
Rick Wheeler (President and CEO)
You know, the move that we made-
Dennis Scannell (Lead Partner and Portfolio Manager)
Go ahead, sorry.
Rick Wheeler (President and CEO)
... of bringing our Langfield facility over into our Pinemont location, certainly was a cost reducing mannerism as well, which is going to contribute to gross margin.
Robert Curda (CFO)
Yeah, that's an excellent point.
Dennis Scannell (Lead Partner and Portfolio Manager)
Okay. But the overhead absorption from the production and the plant consolidation, wouldn't that be captured in the product gross margin as opposed to the rental gross margin? Just for clarification.
Rick Wheeler (President and CEO)
Well, from a maintenance point of view, as Robert pointed out, when those units are here, then they require maintenance.
Dennis Scannell (Lead Partner and Portfolio Manager)
Yep
Rick Wheeler (President and CEO)
... in terms of keeping charged, touching them. There are various things that go on when they're in, in our hands and not in the hands of the customers. Those costs were being absorbed by what went on at Langfield.
Dennis Scannell (Lead Partner and Portfolio Manager)
Okay.
Rick Wheeler (President and CEO)
Now, they're going on here, and so that gives a little bit better control of them.
Dennis Scannell (Lead Partner and Portfolio Manager)
Okay, okay. So, and again, looking at just the rental gross margins, you know, exiting the year at 76%, is that something that we can look for going forward, or was that kind of an extraordinary performance in the fourth quarter and, you know, now mid-sixties, 60%-65% is more, you know, a normal level on a go-forward basis?
Robert Curda (CFO)
You know, there's gonna be factors that affect that. You know, obviously, utilization is going to affect that. You know, we have these new units coming into the fleet that are gonna have fresh depreciation that's gonna affect that also.
Dennis Scannell (Lead Partner and Portfolio Manager)
Yep.
Robert Curda (CFO)
I think this last quarter just has the benefit of you know just really favorable things happening, and I wouldn't expect that going forward.
Rick Wheeler (President and CEO)
I think as well, you know, we mentioned that there will be some gaps-
Robert Curda (CFO)
Yeah
Rick Wheeler (President and CEO)
... in some of the OBX rentals. That means they're going to be back here, and so we're gonna have some-
Dennis Scannell (Lead Partner and Portfolio Manager)
Right
Rick Wheeler (President and CEO)
... higher expenses in the maintenance of that. So there's gonna be some ebb and flow to that. That makes it a little bit unpredictable.
Robert Curda (CFO)
Absolutely.
Dennis Scannell (Lead Partner and Portfolio Manager)
Okay. Yeah, no, no, that's fair. So, and do you see the Mariner nodes as kind of cannibalizing OBX potential-
Rick Wheeler (President and CEO)
Well, the mar-
Dennis Scannell (Lead Partner and Portfolio Manager)
- market?
Rick Wheeler (President and CEO)
The market isn't... Yeah, it's a good question. The market is in an expansive mode at this point. I mean, the ocean bottom node in the marine seismic industry is really where most of the activity and any sort of growth seems to be at this point. There is improvements overall in the marine industry, including some of the towed streamer operations, so I don't want to imply that there's nothing going on there. But I do think that the extreme data quality that the libraries and the oil companies have grown now accustomed to from this ocean bottom data really makes them the preferred method whenever possible to do these seismic surveys. So I don't know that there's a cannibalization. I wouldn't really call it that.
I think there is an expansion going on in the market. Clearly, the Mariner will serve in the same functional role as the OBX, so it has that capability of displacing it. But it's new technology as well. It has, you know, features that the OBX doesn't have, and that should extend its acceptance further into the market.
Dennis Scannell (Lead Partner and Portfolio Manager)
Yep, okay. Fair enough. And then just maybe to push you a little bit on capital allocation. You know, you finished a great year. You know, relative to the recent past, you know, you look like a real company. We've got GAAP net income, really nice cash flow generation, a very attractive multiple. You're trading above book value now, but you're sitting there with $33 million in cash, and if we're looking at strong market demand and, you know, some spending that we're doing on our rental fleet. Is it time to think about repurchasing stock? Or you know, just kind of thinking about if you could help us think about your capital allocation strategy going forward.
Rick Wheeler (President and CEO)
No, that's certainly something that our board considers on a regular basis. You know, we do wanna make sure in our conservative management, which we mentioned, you know, before, is something that keeps us where we are, to be debt free and to be able to fund our operational components that go as we go forward. So, you know, that doesn't preclude the possibility of a stock buyback, again, similar to what we did before, but we will be very cautious about that, but the board will be considering that as it always does over the course of time.
Dennis Scannell (Lead Partner and Portfolio Manager)
Okay. Okay, fair enough. Good luck. Thanks again.
Rick Wheeler (President and CEO)
All right.
Robert Curda (CFO)
Thank you.
Rick Wheeler (President and CEO)
Appreciate it. Thank you.
Operator (participant)
We have our next question from Scott Bundy with Moors & Cabot.
Scott Bundy (SVP of Investments)
Morning, guys.
Rick Wheeler (President and CEO)
Hi, Scott.
Scott Bundy (SVP of Investments)
A couple questions.
Good morning. Are there minimum volume associated with the contract with Itron?
Rick Wheeler (President and CEO)
Minimum volumes? I don't think we have anything, any terms or conditions or anything along that line, business arrangements.
Scott Bundy (SVP of Investments)
Okay. And Robert, non-current inventories jumped a bunch. Can you explain what non-current inventories are?
Robert Curda (CFO)
It's inventory that we don't expect to consume within the next 12 months using our historical usage as an indicator of what could happen in the past. And you know, to be frank, what a lot of that increase in inventory, it's related to components to build items that are gonna go into our rental fleet, which is a non-current asset to begin with. So we're placing those components that are likely gonna end up as non-current asset in the non-current inventory.
Scott Bundy (SVP of Investments)
So, so that would be Mariner, for example?
Robert Curda (CFO)
For example. Yes, sir.
Scott Bundy (SVP of Investments)
Okay, got it. So, so, so Rick, last quarter, regarding Quantum, you made reference to the fact that there may be more clarity on some of the endeavors in the near future related to perimeter security, energy transition, carbon, geothermal mining, et cetera. So what's fascinating to me are the job openings at Quantum. Can you give us... No, no board allows the kind of job openings that you guys are having without some visibility. Can you give us some idea of what's going on there?
Rick Wheeler (President and CEO)
Well, I mean, these contracts that we're already working on have certain requirements to it. And we've actually had, you know, some talent that, you know, unfortunately, we had someone pass away in one circumstance. So there are some definite technical skills that we need to, you know, reassess and put back in place. So I think that's where these are with respect to these technical matters that we need those scientists for.
Scott Bundy (SVP of Investments)
And the more clarity part, do we have more clarity about some of these areas?
Rick Wheeler (President and CEO)
We do, but it's not something we can yet discuss. I mean, the three months between then and now is just not enough to have that manifest. But, you know, the pipeline of those discussions that we're having for some of these things is definitely deepening. And I know that sounds frustrating, but it's just the way it is. We can't really talk about some of these things at this point.
Scott Bundy (SVP of Investments)
PRM, do we hear anything regarding the outlook regarding PRM?
Rick Wheeler (President and CEO)
We do. Those discussions are very active, and in fact, we're even having some more discussions. But the thing is, is none of those are going to generate any revenue in fiscal year 2024, and so that's not anything anyone should anticipate to be the case. There is likely to be some tenders that come out in fiscal year 2024. They're not going to generate any revenue within that year, though. They will be for future deployments. But you likely will hear about some tenders coming out in the next year.
Scott Bundy (SVP of Investments)
Are we talking multiple tenders?
Rick Wheeler (President and CEO)
That is certainly the possibility, and we are, you know, evaluating our capacities, as it relates to that. We feel comfortable at this point in time, with the timing of when we think some of those tenders might come out. But yes, it's certainly the case that we anticipate it could be more than one.
Scott Bundy (SVP of Investments)
My last question: So regarding a tender where a contract was made, I think one of the issues with you guys was you weren't comfortable with the risks associated with that particular contract and decided not to play. Are we feeling more comfortable about how we can address some of the issues that may be going forward, like the one that was outstanding?
Rick Wheeler (President and CEO)
I think so. I think that, really, there's sort of movement on both sides of that equation. There's, I think, better comprehension of what we were presenting as unacceptable risks there. And then I think on top of that, we've, you know, we've sort of evaluated some other business approaches to how we might accommodate that.
Scott Bundy (SVP of Investments)
I'm sorry, I do have one more. So in the event that there was a contract, which is, let's call it out to 2025, would we have the current capacity to handle it?
Rick Wheeler (President and CEO)
I believe so. Yes.
Scott Bundy (SVP of Investments)
Thanks, guys.
Rick Wheeler (President and CEO)
Thank you.
Operator (participant)
You bet, Scott. And we have our next question from Donald Collins with Ironwood.
Donald Collins (Executive Managing Partner and CIO)
The past few years have been challenging ones for you as the Oil and Gas industry experienced a downturn, but you persevered, reserved capital, invested in new technologies. Now that the markets have recovered, you're seeing some good profitable results. So, congratulations are due to you and the entire GEOS team.
Rick Wheeler (President and CEO)
Thank you very much.
Operator (participant)
Our next question comes from Michael Melby with Gate City Capital.
Michael Melby (Founder and Portfolio Manager)
Hey, gentlemen. Yeah, congrats on the good year and the good quarter. Could you comment, do you plan on being free cash flow positive in fiscal 2024?
Rick Wheeler (President and CEO)
Yes.
Michael Melby (Founder and Portfolio Manager)
And then maybe you could expand a little bit, if that's the case, on what you'd need to see to return capital to shareholders. Looks like you have excess cash now and plan on generating more this year.
Rick Wheeler (President and CEO)
Well, we just mentioned there may be some PRM tenders coming out, so, you know, we want to make sure that we have operational wherewithal to accommodate any of these sorts of things that come up. Plus, there are some other aspects within our marine ocean bottom node business that could manifest. They will naturally require some commitment on the part of the potential customers, but those will require some additional effort in the way of cash as well. So it's really a business evaluation, so I can't give you an equation that tells you when that will occur, and there might be a stock buyback.
Michael Melby (Founder and Portfolio Manager)
Okay. Yeah, it feels like, with the cash balance, that it should be sufficient. It's, I think going forward, if you could provide some more color in terms of what criteria you need to do that, it'd be helpful, so we understand kind of the trade-offs between investing in the business or potentially, and returning cash that you've generated to shareholders. That's more of a comment than a question, but, yeah, going forward, do you expect Aquana in fiscal 2024 to generate a meaningful amount of revenues for the company?
Rick Wheeler (President and CEO)
We think so. We absolutely think so.
Michael Melby (Founder and Portfolio Manager)
Got it. Any thought on timing, if that's kind of the next quarter or, in general, when, when we could expect to see a contribution from that?
Rick Wheeler (President and CEO)
I don't think it's gonna be late in the year. I don't know if it'll be in the first quarter, as far as when we see some of that, some of those, initial first fruits, but I think it will, it will come relatively soon.
Michael Melby (Founder and Portfolio Manager)
Got it. Thanks for your help. Best of luck.
Rick Wheeler (President and CEO)
You bet, Mike.
Operator (participant)
Thank you. We have a follow-up from Bill Dezellem with Titan Capital.
Bill Dezellem (President and CIO)
Thank you. I, I actually want to pick up on the Aquana question, first of all. You did in the industrial products revenue a total of $37 million of revenue, and just want to use the language that was just used, a significant increase in revenue. Is that what you're referring to as relative to the $37 million, you would expect a significant increase in that revenue?
Rick Wheeler (President and CEO)
I'm not going to compare it to that because there's such a mixture of products that went into that number, Bill. The industrial products certainly were the driver. Aquana was very little of any contribution to that. It wasn't zero, but it wasn't what you would call meaningful and significant. But there's a mixture of products that went into the overall Adjacent Markets that pushed it up to be the 25% growth that it was. But Aquana will be notable in our estimation of what we see in this coming year.
Bill Dezellem (President and CIO)
All right. Thank you. And then a follow-up relative to reservoir monitoring. I think this is the first time in many, many years that we have heard that there may be multiple tenders or more than one tender within a year. Would you talk to what you think may be changing within the market space? Or if it's just pure random coincidence that there are a couple that might be coming at the same time.
Rick Wheeler (President and CEO)
I don't think it's random. I think that, there's comprehension with the, within the oil companies, that, despite, you know, some of the, the, the, the ill words, shoved in their direction, that Oil and Gas, when properly managed, is going to be, you know, a viable energy source and a required energy source for, you know, decades to come, as any sort of energy transition begins to manifest. So that being said, I think that, some of the fields that they have discovered, they know they can, better manage, at, with lower carbon footprints, if they have a complete assessment of how those reservoirs are changing as they exploit them.
I think largely that, you know, just the mindset of the stability of what the market is going to be has made that more tractable for them to consider.
Bill Dezellem (President and CIO)
Thanks, Rick. And then finally, this may be a silly question, or it may be insightful for us, but your contract manufacturing revenues were down. Was that because you intentionally reduced that business because you needed space for higher value activities? Or was that just simply a function of your customers having lower revenue?
Rick Wheeler (President and CEO)
I think that it's a timing issue. Some of—you know, there's been supply chain issues and inflation issues that have affected our customers in many respects, and so that has been an impact. There has been a certain amount of capacity issue in a few of our areas in manufacturing. We're working on that, by the way. So it does, in fact, have some components of it that are related to exactly what you referred to there. But I think that going forward, we're gonna have mitigated most of those circumstances.
Bill Dezellem (President and CIO)
So it would be fair to say that you are minimizing the contract manufacturing activities in some cases because you need the capacity for the base business?
Rick Wheeler (President and CEO)
Only in a strategic way, because those customers that we service in our contract manufacturing are important to us as well. So we don't freeze them out, as far as that goes, but there are definitely some capacity issues and constraints that sometimes get in the way, but we address.
Bill Dezellem (President and CIO)
Rick, I don't think I've ever asked, but are those customers tending to be in the Oil and Gas arena, and so that their revenues will move up the same time that your energy revenues will move up? Or do they tend to be in completely unrelated industrial businesses?
Rick Wheeler (President and CEO)
They tend to be completely unrelated. That's circumstantial. We're more than happy to do contract work, for, anyone in the Oil and Gas industry, and there are some. But just, you know, to be forthcoming, I think that the primary customer base, that flows through our contract manufacturing, paths is not Oil and Gas related.
Bill Dezellem (President and CIO)
Great. Thank you for taking another round of questions.
Rick Wheeler (President and CEO)
You bet, Bill.
Operator (participant)
We have another follow-up from Scott Bundy with Moors & Cabot.
Scott Bundy (SVP of Investments)
Hey, guys. Is the AVS valve beyond pilot programs, and that's why Itron was interested in what you guys are doing?
Rick Wheeler (President and CEO)
I don't think there's a causal relationship there, Scott, although one might try to draw one. It is commercially available, and it is still in pilot programs with other municipalities as far as that goes. So those kind of act independently. I think, the Itron sees the value of, of that product in some of the contracts that they're going after and, and want to service.
Scott Bundy (SVP of Investments)
And so far, the programs that are out there using this valve have done everything that you guys wanted, or have there been any setbacks? And last question on that is, there have been a component problem in the past for this product. Are there any component problems?
Rick Wheeler (President and CEO)
There are not at this point in time. I mean, we've we've solved that problem by redesigning some of those impossible to get components out. So now the technology just falls into the standard issue of ensuring things work and, you know, refining any manufacturing processes and that sort of thing.
Scott Bundy (SVP of Investments)
So we're really just seeing small amounts of the AVS valve in the marketplace, call it pilot programs. Is that correct?
Rick Wheeler (President and CEO)
To date, that is exactly true.
Scott Bundy (SVP of Investments)
Great. Got it. Thank you.
Operator (participant)
At this time, I'm currently showing no further questions in the queue. I will turn the call back over to Rick Wheeler for any additional closing remarks.
Rick Wheeler (President and CEO)
All right. Well, thank you, Michael. And thanks to everybody for listening to the call today and all the great questions you guys have asked. Hopefully, we've given you some, some good answers. At this point, we look forward to speaking with you again on our conference call for the first quarter of fiscal year 2024, which will occur in February. Thanks again, and goodbye.
Operator (participant)
Thank you. This does conclude today's Geospace Technologies fourth quarter and full year 2023 earnings conference call. Please disconnect your line at this time and have a wonderful day.