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Operator: Welcome to the Geospace Technologies Third Quarter 2024 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; and Mr. Rich Kelley, the company’s Chief Operating Officer. Today’s call is being recorded and will be available on the Geospace Technologies Investor Relations website following the call. [Operator Instructions] It is now my pleasure to turn the floor over to Rick Wheeler. Sir, you may begin.

Rick Wheeler: Thanks, Jamie. Good morning, and welcome to Geospace Technologies Conference Call for the third quarter of fiscal year 2024. 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; and Rich Kelley, the company’s Chief Operating Officer. In our prepared remarks, I’ll first provide an overview of the third quarter, and Robert will then follow with more in-depth commentary on our financial performance. Following Robert’s update, Rich will speak to some of our operations and shed some light on our strategic direction. I will then give some final comments before opening the line for questions. Today’s commentary on markets, revenue, 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 what we know now, but actual outcomes are affected by uncertainties beyond our control or prediction. 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 browse through and learn more about Geospace, our subsidiaries and our products as well. Note that today’s recorded information 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 and first nine months of fiscal year 2024, which ended June 30, 2024.

With only three months of fiscal year 2024 remaining, we continue to maintain a profitable year, reporting positive net income of $6.3 million or $0.47 per share. In addition, there’s been no change in our long-standing and unwavering commitment towards sustaining a strong balance sheet, which remains firmly intact with zero debt and holdings of $42.5 million in cash and short-term investments as of June 30, 2024. Nonetheless, further gaps in our OBX rental contracts had a negative impact on third quarter revenue from our Oil and Gas Markets segment. This led to a net loss of $2.1 million for the three months ended June 30, 2024. During the quarter, a combination of unexpected weather delays, customers’ operational difficulties and unawarded client surveys contributed to the extended gaps, although some of the work is expected to resume in the fourth quarter.

In quite a contrast, our Adjacent Markets segment generated yet another all-time revenue record for the third quarter, generating $16 million. This represents an increase of $1.1 million over the previous quarterly record, which was set a year ago. The ever-growing industry acceptance of our water meter cables and connectors is a strong enabler for additional revenue from these products. In addition, we anticipate substantial revenue contributions to this segment from our Aquana smart water valve and IOT technology products as market traction grows and increasing sales backlog continues to gather. In combating the very familiar and often extreme volatility we experienced in our Oil and Gas segment, the careful expansion of products and market diversity in our Adjacent Markets segment has been a long-standing part of our strategic vision for Geospace.

The noteworthy continuation of record-setting performances from this segment is strong evidence that this strategy is on track to provide long-term value to our shareholders. Our Emerging Markets segment posted $640,000 of revenue in the third quarter, with the largest portion coming from the fulfillment of a DARPA contract that is now essentially complete. As an outcome of this project and other independent efforts, multiple government agency security projects and advanced energy and energy transition monitoring projects offer future opportunities where this technology can be uniquely applied. In addition, as of June 30, 2024, this business segment had a backlog of approximately $750,000, primarily derived from an extension through April of 2025 of our existing U.S. Border Patrol contract.

In other news, we were pleased to reveal some specifics of the company’s Board of Directors management and leadership succession plan, wherein Rich Kelley will become the company’s President and Chief Executive Officer on October 01, 2024. I have complete confidence in the skills and business acumen exhibited by Rich Kelley in his time with Geospace. As such, I look forward to an effective and smooth transition that will progressively preserve and increase shareholder value. In a few moments, Rich will speak on the call to give additional insight on our operations and strategic direction, but first, I’ll turn the call over to Robert to provide more financial detail on the third quarter and nine-month performance. Robert?

Robert Curda: 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 third quarter ended June 30, 2024, we reported revenue of $25.9 million compared to last year’s revenue of $32.7 million. The net loss for the quarter was $2.1 million or $0.16 per diluted share compared to last year’s net income of $3.2 million or $0.24 per diluted share. For the nine months ended June 30, 2024, we reported revenue of $100.2 million compared to revenue of $95.2 million last year. Our net income for the nine-month period was $6.3 million or $0.47 per diluted share compared to last year’s net income of $7.8 million or $0.59 per diluted share.

Our Oil and Gas Markets segment produced revenue of $9.2 million for the three months ended June 30, 2024. This compares with revenue of $17.7 million for the same period of the prior fiscal year, a decrease of 48%. For the nine-month period, the segment contributed revenue of $59.9 million versus $56.2 million, an increase of 6.6%. The decrease in revenue for the three-month period was due to lower utilization of our OBX rental fleet. The nine-month period increase in revenue is due to the $30 million sale of our Mariner ocean bottom nodes, which occurred in the first quarter of fiscal year 2024, which was partially offset by lower utilization of our OBX rental fleet. Our Adjacent Markets segment revenue for the third quarter of fiscal year 2024 was $16 million compared to $14.9 million for the same prior-year period.

Revenue for the nine-month period ended June 30, 2024, is $38 million, a very modest decrease over the same period in fiscal year 2023 of less than 1%. The increase in revenue for the three-month period is due to higher demand for our water meter cable and connector products, partially offset by a decrease in demand for our contract manufacturing services. Finally, revenue from our Emerging Markets segment for the third quarter was $640,000 compared to $109,000 for the same period in 2023. The nine-month revenue for this segment for fiscal year 2024 was $2 million compared to $400,000 for the same prior-year period. The increase in revenue for both periods is due to revenue recognized from the completion of the DARPA contract we announced in 2023.

Our operating expenses increased by $100,000 for the third quarter of 2024 while they decreased by $800,000 or 2.6% for the nine-month period ended June 30, 2024. The increase in the three-month period is primarily due to higher sales and marketing costs, while the decrease in operating expense for the nine-month period is primarily due to lower personnel costs as a result of our workforce reduction in the first quarter of fiscal year 2023. Our nine-month cash investments into our rental fleet is $8.2 million and property implant and equipment investments are $3.6 million. For fiscal year 2024, we expect to invest a total of $12 million in equipment for our rental fleet and $5 million for our plant and equipment. Our balance sheet at the end of the third quarter reflected $42.5 million of cash and short-term investments.

Our credit facility has available borrowings of $15 million. Thus, our total liquidity is $57.5 million as of June 30, 2024. Lastly, we own real estate holdings in Houston and around the world that are owned free and clear without any leverage. This concludes my discussion. I’ll turn the call to Rich.

Rich Kelley: Thanks, Robert. Greetings, everyone. As Robert mentioned, I am Rich Kelley, Executive Vice President and Chief Operating Officer of Geospace Technologies. Since joining Geospace, the team has been welcoming and supportive. I’ve enjoyed getting to know the company and the team over the past several months. As previously mentioned by management, Geospace has a strategy to diversify beyond the traditional seismic industry given the ongoing challenges in that market. While we will continue to support our customer base and bring new products to market, we will also explore exciting opportunities for growth in our Adjacent and Emerging Markets. As Rick and Robert mentioned, our Adjacent Markets posted record revenue this quarter.

We look forward to expanding this success further. Our Aquana product line continues to gain acceptance in the market and we anticipate continued growth driven by the value of industrial Internet of Things, or IoT, and cloud-based technologies. Our subsidiary, Quantum Technology Sciences, continues to explore interesting uses for its analytics technology outside of traditional markets. Our team is focused on continuing to identify and develop opportunities to leverage our knowledge and expertise in these growth markets. Lastly, I want to thank the Board for having the confidence in my ability to lead the company going forward. I also want to thank Rick for his guidance and support these past few months and look forward to continuing to work with both Robert and Rick as we move along the succession plan through the remainder of the calendar year.

Thank you.

Rick Wheeler: Thanks, Rich. As a final note, I’d like to draw attention to the success of our stock repurchase program authorized by the Board of Directors in May of 2024. Under this program, as of August 7, 2024, the company has repurchased approximately 512,000 of its common shares on the open market. In addition, our Board of Directors has approved an extension of the program that will allow up to an additional $2 million of shares to be repurchased. With that, this concludes our prepared commentary, and I’ll now turn the call back over to Jamie for any questions from the listeners.

Operator: Thank you. [Operator Instructions] We’ll take our first question from Josh Goldberg with G2. Please go ahead.

Josh Goldberg: Hi. Good morning. This question is for Rich. First of all, congratulations on your promotion and certainly excited to see where you’re taking this great company. I guess for me, I just want to hear a little bit more about what you see on the Adjacent Market growth. I think in my own opinion, it probably shouldn’t be called Adjacent Markets anymore, because it’s going to be as meaningful maybe as your Oil and Gas Markets. And what are you thinking about or how are you planning on driving double-digit or more growth at the Adjacent Markets over the next few years?

Rich Kelley: Thank you, Josh. I appreciate the question. Clearly, as we look at what we are — the space we’re playing in today with Adjacent Markets, especially around smart water and water metering, we have seen significant growth in that space year-on-year over the last several years. And so, we have a strategy to continue to diversify in that, growing our existing product lines through consideration of possibly adding to that. That’s always up for discussion and part of our strategy going forward.

Josh Goldberg: You mentioned on the press release that Aquana has a backlog for the first time. Can you tell me a little bit about what that product is and why are you even have a backlog of that product?

Rich Kelley: So, Aquana is our smart valve technology that allows municipalities to control the valve at the point of use. That is gaining traction with municipalities as they look to increase the smartness, the intelligence of their — monitoring their product, which is water. And that is a newer technology to that industry. And it’s taken us a while to educate and grow that technology in that space, which is not really known for technology, but it’s gained some significant traction over the last couple of years, and it’s really — plus the product has matured now. So, we’re really starting to see an uptake and acceptance of that technology. The other place that we’re starting to see growth — so that’s municipalities. We’re also starting to see interest in multifamily usage. So, we’re seeing a lot of growth in that space, if you — as you know, and smart water metering is important to that industry.

Josh Goldberg: Do you have a sense that Aquana could be a $5 million a year business in a year from now?

Rich Kelley: Well, that’s certainly our hope and anticipation for sure.

Josh Goldberg: And regarding your business with Itron, have you disclosed how much of your revenue is coming from that relationship? And what could the opportunity be with them?

Rich Kelley: No. We don’t share that information specific to particular relationships like that.

Josh Goldberg: Okay. But it’s fair to say that with the Aquana coming on stronger and some of the other businesses, Adjacent Markets could be a double-digit grower going forward?

Rich Kelley: We certainly anticipate that. I mean the — if you look at what the industry itself is advertising, they are advertising 10% to 15% growth over the next five to six years. And we are seeing that trend in our water meter business. So, we fully anticipate seeing similar to that, but there’s no guarantees, obviously.

Josh Goldberg: Sure. No, because this year, you guys are down 1% through the first nine months, and I know some of that was inventory issues. So, you should probably not have the same issues next year.

Rick Wheeler: Well, and two, just to add, there is some seasonality to all of this. So, there are always ups and downs, but if you go back and look at the history, and Josh, I know you’ve already done that, but when you look at the history of our Adjacent Markets and in particular, that industrial component, as it’s been reported, it has just done nothing but grow. And we certainly — as Rich just said, we certainly anticipate that to be continued in the future.

Josh Goldberg: Do you think that the Adjacent Market business, pretty good operating margins. You guys are doing about $4.6 million on the $16 million, so close to 25% margins. Does that stay at that level, or does the Aquana make you guys have lower margins going forward?

Rick Wheeler: Well, we’re always going to strive for higher margins. We really beat up on our cost of production and our manufacturing operations. Rich has an extreme acumen in helping with that and is going to make some inroads very prolifically in that regard. But as a company, we need to make margins, but it has to be of value to the customer. So that’s one of the reasons that we’re pursuing technology avenues within that domain because that’s where the value really exists for the customer base and higher technology products can demand higher margins.

Josh Goldberg: Okay, great. Just going to the Oil and Gas segment, I mean, obviously, it is a lumpy business. Sometimes you guys have had a stronger year. Other times, it’s been somewhat weaker. Could you give us any sort of visibility or pipeline on what you think could happen over the next sort of nine to 12 months where you can possibly grow your Oil and Gas business? And I have one more question.

Rick Wheeler: The Oil and Gas business is exactly as you described, it’s very lumpy. It’s very volatile. It’s hard to navigate around that oftentimes, hence, our conservative approach to managing cash and our balance sheet, et cetera. It’s very difficult to predict. It’s something I’d tell you today, tomorrow, when there’s news from the Middle East, that will be entirely false. It will not represent any real truth at that point in time. What we do see is, there’s certainly more recognition worldwide at this point that economies need energy. And the fact is that oil and gas will remain an energy provider of consequence for many, many years to come, if not decades. So that being said, the part of that industry that we are a part of, which is on the very front end of it with respect to instrumentation and sensing and that sort of thing has its ups and downs and is largely volatile because it can be cut off and then turned on in rapid succession.

So, it’s really difficult for me to give you some meaningful prediction as to how that will go, but we’re certainly going to try to take advantage of every one of those opportunities that present themselves by having, as Rich said, continuing to support those customers with good products as time goes on.

Josh Goldberg: Okay. Last one for me on the balance sheet. Clearly, you are bullish on your future with the stock buyback. And I noticed that your inventories also went up quite a bit. But was there — at least your current inventories. Is there a focus on being ahead of the curve with that? Or what was the reason why your current inventories went up so much?

Robert Curda: So, there’s kind of two aspects to that question with the main one being we’re identifying long lead components that we can strategically buy to ensure we have supply when needs come up for our gas components, oil and gas instruments. We’ve also have recently sold some items that have been in inventory and built out of components that have been in an inventory very long time — for a very long time, some of our long-term inventory. So, as a result of that, generating usage and sales, it’s changed the aspect of some of those components as we view them for a long-term versus current estimate.

Rick Wheeler: Adding to what Robert said, Josh, to the extent that we’ve increased some of these inventories on the raw components that Robert mentioned, you’ve got to recall that there have been great upheavals in the supply chain worldwide with respect to components, even things as simple as plastics in some cases. So that definitely throws a curve in terms of managing the business and trying to ensure that we can get our products out. But we do try to diligently examine where some of those components that we assure ourselves will get used are put on the shelf so that we can make production work.

Josh Goldberg: Got you. Well, I just wanted to thank Rick for — I mean, I want to thank Walter for all his hard work over the last few years. I know from a long-term experience how much effort and time and how much value he’s created for the company. I just wanted to wish him much success in the future.

Rick Wheeler: All right. Thank you very much.

Josh Goldberg: We’ll be in touch. Thank you.

Operator: [Operator Instructions] We’ll hear next from Bill Dezellem with Tieton Capital. Please go ahead.

Bill Dezellem: Thank you, and congratulations on your retirement, Rick. We’ll miss having you on the calls.

Rick Wheeler: Thank you very much, Bill.

Bill Dezellem: So, I’m going to assume that others will ask a little bit more about the Oil and Gas Markets and the prior questioner asked about Aquana, so I’m going to jump into what’s currently the smallest business, the Emerging Markets, because it seems like you gave us some insights into what’s going on there. So let’s start, if we could, with the DARPA contract. And would you please talk about the spillover benefits that you’re seeing from that, that were referenced in the press release?

Rich Kelley: Specific to the DARPA contract that went very well for us. We got great feedback from DARPA. And there are a number of opportunities that they’ve identified within the military community where they could potentially apply that technology and that application. And so, even since our report out on that, we’ve had a couple of really good meetings with other parties within the government. So, we do see some really interesting opportunities, nothing that’s been formalized yet, but definitely some interesting conversations and some real interest on their side and including our technology going forward.

Bill Dezellem: And I’m not familiar with how this — those processes work. Talk to us about the timeline? If, in fact, something were to develop, how quickly can that go? And I recognize I won’t ask how long can it go because that could be decades, but how quickly could it go, on the other hand, if things were to move along at a favorable pace?

Rich Kelley: Yeah. So, as you can expect, I mean, dealing especially with anything government-related, we’re at the mercy of appropriations and approvals. Once the money is allocated and the project has kicked off, these projects are not short-lived. They take time to develop. They can be 12 to 24 months type projects in a lot of cases and even longer. They’re not the typical commercial where you get an order and six months later you deliver.

Bill Dezellem: Okay. So, are you saying that once the money has been allocated, it can take an additional 12 to 24 months before you begin delivery, or once the money has been allocated, the delivery process can be up to a couple of years?

Rich Kelley: I really can’t get into the specifics because every project is unique when dealing with these particular parties. But what I really want to drive home is, there’s not going to be monies allocated, three months later, we’re going to recognize that as revenue as an organization. It will be a partnership that will take time. Government contracts are always phased. And so, there’s a lot of complexity there. So, what’s really more interesting to us is that we are starting to see the technology, actually, be mentioned by name within these organizations and a real interest in that. And so that is really what’s more exciting to us at this point.

Bill Dezellem: Great. Thank you. And let me kind of shift, if I may, to the backlog. It’s referenced that, that’s due to an extension of the Border Patrol contract, which we understand that they have done extensions in the past. But I guess, I’m a little bit surprised with — at least the CBO report would indicate that in the spring, there’s going to be a more significant decision coming. Walk us through that extension, why they would do that in advance of a larger decision? And is this potentially a very positive signal to how the equipment is performing versus the competing products?

Rich Kelley: We can’t speak too much of that because that’s still an ongoing project. And quite honestly, we don’t get a lot of feedback from Border Patrol. We do know that the testing is still ongoing. They’re doing the acceptance testing. That project is due to expire in April of 2025, thus the early Q1, Q2 timeline for the extension. They will make a decision. They are obligated to make a decision next year on how to move forward. And so, we’ll hear — we expect to hear back calendar year Q2 next year.

Bill Dezellem: And actually, allow me to have a little fun with that. Originally, that decision was supposed to be in September, so next month. So, when you say that they’re obligated to make a decision, is that obligated kind of as we might think to pay the IRS? Or is this obligated like I might consider going to friends for dinner next week?

Rich Kelley: Well, I mean, I’m sure all of you are familiar with the way our government has worked in the last few years. And we would hope that at some point, they actually can pass the budget and allocate money appropriately. But we do anticipate being an election year frothiness within our government agencies most likely a continuing resolution. And so, these budgets will probably not firm up until next year. So, our anticipation is, after that’s happened, then these monies will be allocated and projects will move forward.

Bill Dezellem: Okay. That is helpful. And then, would you then take this Quantum discussion towards the energy industry and discuss the comments that you referenced in the release about the energy industry, the application of Quantum and the timing that this could convert to revenue?

Rich Kelley: Sure. So, Aquana has…

Rick Wheeler: Quantum.

Rich Kelley: That’s right. My apologies. Quantum has conducted a number of, I would say, research projects over the past couple of years in the energy industry, particularly with carbon capture and sequestration with some success. But as we know, that industry is still trying to find itself. And while we’ve had success, we don’t really anticipate much opportunity within the next short term, I would say. There are some other applications within the energy industry, which are early days that take advantage of that technology in new and interesting ways, and we do see interest in that. So, we anticipate the possibility of that developing into a commercial, releasable and sellable product within the coming years, I would say.

Bill Dezellem: Great. Thank you. And then, one additional question coming back to Aquana, if I may. That $900,000 of backlog, what were the circumstances that led to that developing?

Rick Wheeler: Sales, really. I mean fundamentally, as traction has been gained on the Aquana product, we’ve seen that sales pipeline start to begin filling. And to that extent, we have these opportunities to deliver these valves. We announced the Jordan order some time ago. And so there’s certainly fulfillment of that that’s taking place as well.

Robert Curda: I’d also like to add to that, Bill, that we’ve been priming that hub for quite a while, supplying customers with valves to test and use to see if they like its performance, if it meets their needs. So, I think what we’re seeing now is that priming is resulting in orders coming our way. And as a result, we now have backlog.

Rich Kelley: Yes. As I mentioned, I mean, that’s a new technology to that industry. And it’s taken them a while to really understand the benefit of that. As Robert said, we have provided samples to them to test. And that — as he said, that pipeline is very — it’s got a pretty long pole on it. So, we are just now starting to see the fruits of that labor from Geospace for the last several years in that market. And we anticipate that to grow going forward. As that pipe continues to evolve and grow, we fully anticipate additional revenues from it.

Bill Dezellem: And so, is the $900,000 a single customer order? Is it multiple orders? And is — where is Aquana at in terms of its ability to manufacture?

Rick Wheeler: It’s certainly multiple orders across multiple applications. So, not just municipalities, but also the multifamily application that we discussed. So, we are seeing uptake of that technology and that product across all of the areas we’re interested in. And yeah, I mean we fully expect it to continue.

Rick Wheeler: And on the manufacturing question, we’re there.

Rich Kelley: Oh, yeah. So that product is now released in some of its variants, and we are shipping essentially from inventory.

Bill Dezellem: Great. Okay. So, the backlog is not due to a manufacturing bottleneck, it’s just a shipment timing phenomenon?

Rich Kelley: Exactly. Yeah, the kind of the normal lead time of those orders coming in. And some of those orders are fairly new.

Bill Dezellem: Great. Well, congratulations on that. And I’ll turn the floor over to someone else.

Rich Kelley: Thank you, Bill.

Operator: We’ll go now to Scott Bundy with Moors & Cabot.

Scott Bundy: Good morning, guys.

Rich Kelley: Hi, Scott.

Scott Bundy: Good morning, Rich. Welcome. So, I’m just going to follow up on Aquana for a second. If I were a distributor and I gave you an order for $5 million of the various Aquana products, could you deliver on that?

Rich Kelley: If I had the proper time line, absolutely. Would I deliver tomorrow? No. I mean, we still have a supply chain, we still have ramp-up in manufacturing. But we have the process now. We have the supply chain now. It’s just a matter of the lead time, the componentry and the lead time through manufacturing. But being able to come up to scale — coming up to scale for us, should not be an issue given the facilities that we have, the team that we have, the capabilities that we have.

Scott Bundy: So Rich, timeline is an interesting word. So, could you deliver within a six-month period of time, if, in fact, that happens?

Rich Kelley: You gave me an interesting what-if and put me in the spotlight. I don’t really know I can answer that today, but I would say that we would give it a good go.

Scott Bundy: Okay. Robert, just a quick question. Is the first buyback complete, the first $5 million complete?

Robert Curda: Yeah. As of today, yes, or very close to complete as of today.

Scott Bundy: Okay. Great. And so Rick, just a little background here. Where do you see the seismic market relative to your years in the industry? I mean, you guys are spending $12 million on new equipment that certainly implies utilization of your existing equipment is going to go up. Am I wrong to think that?

Rick Wheeler: Well, not really. I mean, we’ve come out with new designs that incorporate the latest technologies out there. And in fact, that was the large sale that we made in Q1 was a direct result of having technology that didn’t exist in any other quarters. So, the thing is, though, it’s a market that, as you’re well aware, just has significant ups and downs. Certainly, and exactly, as Rich said earlier, we intend to service that market, but we will service that market in a very cautious way to make sure that we don’t overextend ourselves. The market itself lends itself to that sort of approach. We believe our manufacturing capabilities are able to keep up with the demand as it manifests. But the days like it was with geophones, where you keep thousands of those in stock on the shelf ready to go is not — that’s not the situation that we live in these days. So, it’s more of an on-demand situation. But we’re prepared to fulfill that demand as it comes up.

Scott Bundy: So, is bidding activity stronger now than it was, let’s say, 16, 18 months ago? Can you just give us an idea of what sort of activity is going on in that space?

Rick Wheeler: I think compared to 16 to 18 months ago, it probably is. Now, last year was a significant year with respect to activity, particularly in the ocean bottom node market. We’ve seen a lull in that, as we’ve said in the recent quarters and that extended itself into this quarter. So, compared to a year and a half or two years ago, I think it’s an increased level of activity. But I think even our customers, the contractors are very cautious about things and being very selective about how they go about accepting these bids.

Scott Bundy: Rick, is that you think a direct result of the consolidation in the industry?

Rick Wheeler: I think that does have a bearing on it. The consolidation in the industry does change the discussions in terms of how the clients, the oil companies and the library houses go about trying to service their own customers and needs. So, it does have a bearing on it, but I don’t think it’s a paradigm shift or anything like that. But it is — there’s always some turmoil when you have consolidation within an industry.

Scott Bundy: And along the lines of PRM, are there still discussions out there? Are they more active? Do you see it — sense any final investment decisions within the next three to nine months?

Rick Wheeler: The nine to nine months, no, I don’t. The discussions, absolutely. Those are continuing and, in fact, extending themselves in many respects. So that is a market that still remains viable, but it is one, as you well know, that is not a steady, ongoing business in terms of the types of contracts that are made available. Very sporadic and long spans of time in between. But those discussions are very active. So, we don’t expect anything to come across that quickly. But in the next several years, we do.

Scott Bundy: And do you — would you anticipate another pilot program similar to the one that was done 18 months or two years ago as checking up the product?

Rick Wheeler: That’s very likely, even if it’s one that we don’t announce or anything of that nature, but yes.

Rich Kelley: I think we still see an interest in PRM for sure. So, the oil companies are still interested in what value that could add over time for their reservoirs.

Scott Bundy: Okay. Terrific. Thank you. I’m just going to — one last question. In the release, when you guys say, I’m not going to quote it correctly here, but significant revenue with Aquana or substantial contribution from Aquana, substantial is different than everybody’s mind, what’s in your mind?

Rick Wheeler: Well, I think what we’re seeing is that it’s going to be noteworthy revenue to where you see it on a — as a line item on our P&L. And to me, that’s significant. To the extent that it’s a notable contribution, not unlike our water meter cables and connectors as it contributes to that particular segment under the industrial market. Now, it was mentioned earlier that maybe that’s not the right name anymore. We’re going to consider how best to sort of organize our filings and our reporting of this data and the revenue that might lend itself a little better to understanding where Aquana fits into all that. But what we mean is something notable that’s going to create value and gross profit and net income.

Scott Bundy: Sorry, last question. Regarding cross-border tunnel threats as it’s related in the CBP, it’s interesting that you can find all the information regarding your subsidiary Quantum, but nothing about the competitors. Is that what you’re finding also?

Rick Wheeler: Isn’t that interesting? Yes, it is the case. I guess us being a public company and certainly making ourselves known in Quantum making sure that they’re represented in the discussion space out there with respect to Homeland Security and other parts of the defense industry. Maybe that contributes to it, but you’re right. There’s not nearly as much information available is what might be available about Quantum.

Scott Bundy: That’s unbelievable. Thank you, guys. Thank you, Rick.

Rick Wheeler: Thank, Scott. Appreciate it.

Operator: Our next question comes from [John Elliott] (ph), private investor.

Unidentified Analyst: Good morning, gentlemen. I was going to ask if PRM was dead, but you briefly discussed that with Scott. Do you know why companies are so slow to use PRM again?

Rick Wheeler: Well, it requires a significant capital investment. And when the oil companies are putting their budgets together, the fight in the boardroom is over projects about LNG facilities, about refineries and other things that draw significantly more on the capital of the organization. Although the operating expense approach, which is to pay for the reservoir monitoring in overtime manner of speaking, where you hire a contractor come in, lay out equipment, record data and then take it all back and then come back a year later or whatever, the time spend may be. Those cost more, and it takes about five to seven years depending on the span of time between these surveys before you recoup your upfront capital investment in a PRM system.

So, there is some concern, I guess, within the oil companies about the volatility they see within their own markets, about laying out capital that spans a length of time like that. Now many of them do realize that benefit and those are exactly the ones that have serious discussions about this. And in the long run, they save money. But it’s really just a matter of balancing their capital budgets as they go forward.

Rich Kelley: One of the [indiscernible] is a lot of these fields have multiple partners and so to come to an agreement across those partners about the capital outlay can add just another level of complexity to the PRM decision.

Rick Wheeler: That’s true.

Unidentified Analyst: And I believe when Scott was asking some questions, you said that there could be, perhaps — or maybe I misunderstood you, but perhaps a tender in the next several years. So, does that mean you’re not expecting any activity with PRM in 2025 or the near future?

Rick Wheeler: No. To clarify on that, I think a tender could come out much sooner than that, but there would not be any revenue recognition because these systems will take the better part of a year to manufacture with effective design that has to take place upfront with respect to — because each field is a different animal. Each one has its own requirements that have to take place. So, a tender could easily come out sooner than that. But the likelihood of one coming out in three to nine months is — those are short odds, I would think.

Unidentified Analyst: And at one time, it seemed like there were — I can’t remember if the term used was a handful of companies that were interested in PRM, and we’re in discussions with Geospace about that. Would you say that the number of companies who are interested in it, that the number is the same? Has it increased? Has it decreased?

Rick Wheeler: No, I think it’s about the same.

Unidentified Analyst: All right. Well, thank you for answering my questions.

Rick Wheeler: You’re welcome.

Rich Kelley: Thank you, John.

Operator: [Operator Instructions] We’ll return now to Bill Dezellem with Tieton Capital.

Bill Dezellem: Thank you. A couple of additional questions that your comments prompted. The first is, have you considered using your balance sheet for PRM and leasing, lease to own whatever you’d like to call it, or rental to essentially come back to that decision by the oil companies that they don’t want to make a big upfront dollar amount? What’s your view on that?

Rick Wheeler: No, that’s a very good question, Bill. And we actually have considered what other means of approach might be amenable to that sort of thing. As it turns out, generally, within the oil companies, if it’s laying on the bottom of the ocean, they want to own it. So, they’re not really receptive to those sorts of ideas, wherein one would lease the equipment, but have not to date. And we have actually had some discussions, certainly, internally about how we might try to organize an approach like that, but it doesn’t seem to get very much traction when we present something like that.

Bill Dezellem: So, it creates quite a riddle, if they’re not receptive to leasing product on the ocean bottom, but nor are they receptive to writing a check for a product on the ocean bottom?

Rick Wheeler: That’s a hard squeeze, isn’t it?

Bill Dezellem: It certainly is. Okay. And just for clarification, relative to a tender, was the implication of what you said that the second half of fiscal ’25 is when you think a tender could come out? Or are you thinking more second half of calendar ’25?

Rick Wheeler: No. I think second half of ’25 is probably the higher probability, but things could be a little more accelerated than that, but I don’t anticipate that to be true.

Bill Dezellem: Got it. Okay. That’s helpful. And then, you were talking earlier about the seismic exploration market and that the level of demand has taken a pause relative to the high strength that you were seeing. And yet, you invested, I think it was $4.2 million in rental equipment in the third quarter. And you’re planning on another $3.5 million to be invested in the fourth quarter. So that’s a little bit in contrast. It seems like there may be something else going on there. So, why are you investing in the rental business or in rentals if you’re being a bit cautious about the market demand?

Robert Curda: Yeah. A good portion of that is related to us building out Mariners for a rental contract we announced earlier this year. So, we have a contract that is in hand. We’re ready to go, but unfortunately, our customers are not quite ready to go to work yet. So, we’re waiting for them to decide to take the equipment out and start gathering data for us.

Bill Dezellem: And what’s your current understanding is just a comment in the release late in the fourth quarter? Or is that a different contract?

Robert Curda: That’s it.

Bill Dezellem: Great. Okay. Thank you all again.

Rick Wheeler: Thanks, Bill.

Operator: And ladies and gentlemen, as there are no further questions at this time, I’d like to turn the floor back over to Mr. Rick Wheeler for any additional or closing comments.

Rick Wheeler: All right. Well, thank you, Jamie. And thanks to all of you who joined our call today. We certainly appreciate it and appreciate the questions. And we look forward to speaking with you again on our conference call for the fourth quarter and year-end of fiscal year 2024 that will come in November. So, thanks and goodbye.

Operator: Thank you. This does conclude today’s Geospace Technologies third quarter 2024 earnings conference call. Please disconnect your lines at this time, and have a wonderful day.