Geospace Technologies Corp Q1 FY2020 Earnings Call

Welcome to the Geospace Technologies First Quarter 2020 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rick Wheeler, President and Chief Executive Officer, joined by Robert Curda, Chief Financial Officer. This call is being recorded and will be available on the Geospace Technologies Investor Relations website. I will now hand over the floor to Rick Wheeler. Good morning, and welcome to the Geospace Technologies Conference Call for the First Quarter of our 2020 Fiscal Year. I’m Rick Wheeler, the company’s President and CEO, and I’m accompanied by Robert Curda, our CFO. I’ll start with an overview of the first quarter, and Robert will then provide detailed commentary on our financial performance. After that, I’ll share some final thoughts and open the line for questions. Some remarks today may be forward-looking, as defined in the Private Securities Litigation Reform Act of 1995, including comments on product markets, revenue recognition, planned operations, and capital expenditures. These remarks are based on our current understanding, and actual results could be impacted by uncertainties and factors beyond our control. Risks that could affect our results are discussed in our SEC filings. For convenience, we’ll link to a recording of this call on our Investor Relations page on geospace.com, and please note that information may not be accurate at the time of replay. Yesterday, after the market closed, we announced our financial results for the first quarter of fiscal year 2020, which ended December 31, 2019. The demand for our OBX marine nodal recording systems significantly improved our first-quarter results. Our revenue of $25.7 million for the first quarter was up 44% compared to the same period last year, marking the highest first quarter since fiscal year 2014. Additionally, our gross profits from this revenue more than tripled to $10.5 million compared to last year. Operating expenses increased by 13% over last year due to the acquisition of OptoSeis fiber optic sensing technology and higher R&D expenditures. Despite the rise in operating expenses, we reduced our net loss for the first quarter by 78% compared to last year, to $0.10 per share. Revenue from our oil and gas market segment reached $19.5 million, representing a 77% growth year-over-year, driven by increased rental deployment of our OBX systems. As of December 31, 2019, we had approximately 33,000 OBX stations in our rental fleet, most of which were actively being utilized across various rental contracts globally. We are actively engaging with both new and existing customers to extend current rental agreements and explore future contracts for our OBX stations. We are assessing these activities to determine the potential need for expanding our OBX rental fleet. Based on current demand, we anticipate investing over $8 million into our wireless product rental fleet in fiscal year 2020. Our traditional seismic products generated $2.4 million in revenue during the first quarter, which is a 15% decrease compared to last year, primarily due to lower demand for those products, although there was some offset from increased marine seismic product demand. Our wireless seismic revenue totaled $16.9 million, representing a 132% increase year-over-year, driven by higher rental demand for our OBX marine seismic recorders. In November, we announced a $12.5 million sale of a land system to SAExploration, which includes 30,000 channels of our advanced GCL nodal recorder. This sale was primarily financed through a promissory note due January 2023, and we delivered the system in our second fiscal quarter. First-quarter revenue from our reservoir seismic products was $218,000, down about 77% year-over-year, attributed to decreased demand for these products. We expect this revenue to remain low until we receive contracts for permanent reservoir monitoring systems. Our portfolio of PRM products, including the OptoSeis fiber optic sensing technology, enhances our chances of winning future contracts, although currently there are no open tenders in the industry for our PRM system. We anticipate a tender offering may emerge in fiscal year 2020, but any awarded revenue is not expected within this fiscal year. Revenue from our Adjacent Markets segment totaled $6.1 million, down about 8% from last year, primarily due to unforeseen production delays in certain graphics imaging equipment and reduced demand for film and industrial sensor products. However, this was partly offset by increased demand for our water meter cables and connectors. While our Adjacent Markets segment saw lower revenue than last year, we believe growth opportunities remain, and this segment continues to provide stability amid the volatility in our oil and gas market. Revenue from our Emerging Markets segment was $97,000 in the first quarter, which reflects a 10% increase compared to last year; however, it is not deemed significant for underlying trends. This segment consists solely of products from our subsidiary, Quantum Technology Sciences, offering unique combinations of seismic acoustics and advanced analytics for surveillance and detection applications. We believe these technologies can generate meaningful revenue going forward, and we expect contract opportunities to arise soon, potentially leading to revenue this fiscal year. I will now turn the call over to Robert for more financial details.

Thank you, Rick, and good morning, everyone. Before I start, I want to remind you that we will not provide any specific revenue or earnings guidance during this call. In our press release from yesterday, we reported first-quarter revenue of $25.7 million for the period ending December 31, 2019, compared to $17.9 million from the previous year. The net loss for the quarter was $1.3 million, or $0.10 per diluted share, compared to a net loss of $5.9 million, or $0.44 per diluted share, last year. Breaking down our oil and gas product revenue, traditional product revenue for this quarter was $2.4 million, which is a 15% decrease from last year's $2.8 million. This decline is due to lower demand for our traditional sensor products but was partially offset by an increase in demand for our marine seismic products. Our wireless product revenue for the quarter was $16.9 million, marking a 132% increase compared to $7.3 million last year. This growth is attributed to increased rental demand and utilization of our OBX marine nodal systems. Revenue for the first quarter excludes $1.5 million of rental revenue not recognized due to uncertainties regarding a customer's ability to meet its debt obligations. In terms of our reservoir product revenue for this quarter, it was $218,000, down 77% from last year’s $937,000. This drop reflects reduced sales of our borehole tools. We do not expect to see significant revenue from these products until we secure a contract for the delivery of a PRM system. Currently, there are no open tenders for a PRM system, but we believe that a tender offering will likely be released in fiscal year 2020. However, even if Geospace is awarded a PRM contract, we do not anticipate recognizing any revenue within fiscal year 2020. Now moving on to our Adjacent Markets product segment. Our industrial product revenue for the first quarter of fiscal year 2020 was $3.6 million, which is essentially unchanged from the same period last year. Imaging product revenue for the quarter totaled $2.5 million, a 19% decrease compared to last year's $3.1 million. This decline is due to unforeseen delays in the production of certain imaging equipment and a drop in sales of our film products. While this revenue decline was larger than we expected, we do not foresee a continued trend of lower revenues in the future. Revenue from our Emerging Markets segment was $97,000 for the three months ending December 31, 2019, compared to $88,000 for the first quarter the prior year. Although we do not expect significant revenue contributions from Quantum in the near term, we believe our ongoing development efforts are paving the way for meaningful revenue opportunities. Our operating expenses for the first quarter of fiscal year 2020 increased by $1.2 million, or 13%, compared to the same quarter last year. This increase is primarily due to incremental research and development costs related to our acquisition of the OptoSeis business in November 2018, along with additional research and development expenses in our Oil and Gas Markets segment. In terms of cash investments, we allocated $5.2 million to rental equipment and $1.7 million to property, plant, and equipment this quarter. Demand for our marine OBX rental equipment remains strong, and as a result, we anticipate our cash investments into our rental fleet could reach $8 million or more in fiscal year 2020. We estimate total fiscal year 2020 cash investments in property, plant, and equipment could be up to $5 million. As of December 31, 2019, we had $8.7 million in accounts receivable from an international customer currently leasing a substantial portion of our OBX nodal equipment. We have faced ongoing difficulties in collecting cash from this customer throughout fiscal year 2019 and into the first quarter of fiscal year 2020. In late November 2019, we stopped recognizing revenue from this customer and expect to maintain this stance until the customer demonstrates the ability to service its debts. The unrecognized revenue invoice for the first fiscal quarter of 2020 was $1.5 million. We have also begun negotiations with this customer to establish an agreement that would require them to pay part of the trade accounts receivables shortly, adhere to all rental payments on a current basis, and convert the remaining owed amounts into a debt instrument secured by some of the customer's assets. We aim to finalize this agreement by the end of the second quarter on March 31, 2020. We have significant concerns regarding the collection of these accounts receivable, but we do not plan to provide any additional bad debt reserve for this customer's outstanding accounts receivable unless we believe it is likely that they cannot meet their payment obligations to us. Additionally, our current negotiations may not result in an agreement, the fair market value of the customer’s collateral may not cover the accounts receivable balance, or the customer might fail to fulfill their payment obligations. If any of these conditions arise, we may need to record a significant bad debt reserve as early as the second quarter of 2020. At the end of the first quarter, our balance sheet showed $10.1 million in cash and short-term investments. We had no long-term debt, and we had available borrowings of $24.7 million under our credit agreement. Furthermore, we own numerous real estate holdings in Houston and globally, which are owned free and clear without any leverage. That wraps up my discussion, and I'll turn the call back over to Rick.

Thank you, Robert. Within our oil and gas market segment, our traditional exploration and reservoir seismic products remain extremely challenged by very low demand. This directly affirms the historic low levels to which seismic exploration activity in the oil and gas industry has fallen, and we see no real indications of improvement for these products on the horizon. These conditions have similarly impacted our wireless seismic products for onshore use, although we believe recent sales of our advanced GCL nodal recording system helped demonstrate the value that our technology offers to our customers while navigating these down conditions. On the other hand, our OBX marine nodal recording systems continue to represent a bright spot in an otherwise dim seismic equipment market. We believe the continued revenue growth and seemingly uninterrupted increase in demand for these products is driven by the renewed focus on offshore reserves by many of today's E&P operators. At the same time, we believe that this increased focus on offshore reserves is creating renewed interest in our PRM systems, which could lead to one or more tenders and opportunities for PRM contracts in fiscal year 2020. That said, we continue to move forward with our diversification strategies for the adjacent and emerging markets in order to help mitigate the volatility we face in our oil and gas market segment. Based on our technological accomplishments, we believe the onset of meaningful Quantum product revenue could start this year from our border and perimeter security customers. This concludes our prepared remarks. And now I'll turn the call back over to Tony for questions.

We'll take our first question from Bill Dezellem with Tieton Capital.

Here in the last couple of weeks, we saw an article from the BBC that said that the U.S. border patrol had found the longest tunnel that they had ever found along the U.S.-Mexican border. I believe it went from Tijuana to the San Diego side. And it was found back in the August time frame. What do you all know about that tunnel? And how that was found?

Well, Bill, what I can say is that the situation really reflects the daily challenges that the border patrol faces. We are aware of the tunnel that was discovered, and it's difficult to determine how much illegal activity has occurred through it, which makes it a risky situation. It's important to acknowledge that the border patrol deals with these issues regularly. I believe it's not my place to comment on any involvement we may have had in that discovery. What's crucial is understanding the significance of this situation for the border patrol, and I trust they are committed to addressing these challenges. The equipment we developed with Quantum is specifically designed to detect such tunnels, and we are eager to support the border patrol in their efforts to tackle this kind of illicit activity.

Rick, I'm going to continue down this path, if that's alright. I'll ask you about the role your equipment may have played. It seems there are two aspects to consider: first, the identification of the tunnel, and second, the mapping of the tunnel. Does the Quantum equipment support both the mapping and the identification, or is it more effective for one than the other? Could you help us understand the capabilities of the equipment from that viewpoint?

I think so. I mean, the detection aspects certainly are something that the Quantum technology can do. Utilization of the tunnel causes seismic activity that is monitored. And through that surveillance is what provides the ability with all of the artificial intelligence and machine learning and other aspects that go into the deep analytics that are performed with the quantum algorithms to make those detections and mappings to that extent as well. So as long as there is seismicity, the Quantum system is going to do well.

So would it be a correct understanding or interpretation that once you have detected a tunnel that you could send some people to walk through the tunnel, the good guys, that is, and you could simply map where that tunnel went and what buildings it was under, etc.?

I'm sure physically that would make perfect sense. I mean we're not involved in the interdiction of any sort of tunnel activity. What our equipment is designed to do is to detect and identify those sorts of things.

Right. Okay. That is helpful. And then I would like to have some clarification on a couple of things that I thought I heard that may have been in contrast here on the call. And Rick, you were reading your script and said that you do believe that a meaningful Quantum revenue could happen this year from the border security. Robert, I thought that we heard you say that you did not expect meaningful revenue from Quantum in the near term. Are those 2 statements in contrast or not? And would you help clarify for us?

I do think it's possible that we could see some revenue from Quantum this fiscal year. I think I'm just being just a little bit more careful about those statements. But we do think that, that could occur in this fiscal year.

Meanwhile, we'll move to Chris Sansone from Sansone Advisors.

Rick, one for you. The demand you're seeing on the offshore side with the ocean bottom systems. Is that coming at the expense? Or is that gaining market share relative to the streamer technologies? Or is that incremental analysis that they're using the ocean bottom stations for?

I think it's circumstantial in a sense. I think we do believe that certain streamer operations are improving though they're not near what they used to be in times past as far as that goes. But I think it's the manner in which the oil companies have sort of renewed their interest in offshore. In many cases, quite successfully they are looking for discoveries nearby their existing infrastructure. And in that sense, where there are existing platforms, they're not so keen on those streamers getting too close to those platforms. And moreover, in some cases, they need the better imaging that you can get through ocean bottom data where you can shoot under and you can achieve azimuths in your imaging that you cannot do even with wide azimuth streamers. So I think that the type of refocusing that is going on at this point offshore is sort of driving this additional demand for that broader and more resolute imaging that the ocean bottom nodes are providing.

Got it. Got it. And then, Robert, as more of the business shifts to a rental-based business, are you guys considering including EBITDA or adjusted EBITDA during quarterly earnings releases?

We have not considered that. That could be something we could add in the future, but Rick and I have not discussed that at this point.

Yes. I mean, I think it would help tell the story because that's really where the growth is really going to be seen. As you know, in a rental business, the cash was out the door, day 1, and then it comes back to you over the life of the contract. So I think it would be helpful for investors to kind of see how you guys are driving that growth.

Next, we'll move to David Nierenberg with Nierenberg Investment.

As you and others on the call know, we have long been supportive shareholders of this company. We're impressed by your survival instincts and your preservation of cash at a time when competitors were going out of business. We're delighted to see your continuing investment in innovation, gaining market share offshore and starting to get orders onshore in your core business. And we share your hopefulness about the prospects for continued strength in offshore exploration and for new orders for the PRM business. We do have two concerns, neither of which are new to you or to those on the call. One is we would sure like to see Quantum generate orders and revenue. It's been a long time while that has not happened, and we've been incurring operating losses and investments, but our single greatest concern today is about accepting credit risk to risky customers on land and offshore, domestic and foreign, and the risk to the strength of the balance sheet, which results from that. We do not want to see this company becoming that borrower, and I imagine you don't either. But during the time we've been shareholders, the cash balance has sunk from close to $50 million to now about $10 million. We really don't like to see you being a lender because our perception is that both management and the Board of this company lack relevant banking experience, lack asset-based lending experience, lack vendor leasing experience and you're dealing with risky customers in a risky business, and there have been and are likely to continue to be large losses from time to time. And now with this new $12.5 million contract, most of which, if and when it's paid for, is going to be extended out to January 2023, that really concerns us. So our concerns are, is this a prudent business strategy? Is this a prudent financial strategy? Is your accounting and auditing doing the right things in terms of revenue recognition, establishment of loss reserves and realization of those reserves? Why is it a good business if we have to accept this kind of risk from shaky customers? And so I think it's a good time for shareholders to be asking you and the Board to do a thorough review of this company's strategy and ask whether it is right for this company to continue to remain an independent public company or whether or not you should partner? Or consider sum-of-the-parts transactions because the pieces may be worth more than the whole? That's how uncomfortable and troubled I am about the credit risk that you're accepting.

We understand your concerns, David. Overall, we feel confident about our standing regarding the $12.5 million contract you mentioned. The note we're discussing is a secured note and represents an order with upfront cash payments. We run our business in a way that ensures our base costs are covered by the cash that initiates these contracts, including our rental equipment. We are diligent about maintaining a solid financial foundation for these contracts. If the equipment returns to us, it could generate revenue through rentals. We review our cash outlook at the Board level each quarter and assess it against past performance. There are inherent risks in the oil and gas industry, particularly in the services sector, as seen in the offshore OBX rentals case. We own all the equipment involved, which is secure. We believe the debt can be paid off and opportunities for work remain. However, we are navigating some challenging issues with that specific company to stabilize the situation. There are risks, which we've been transparent about to ensure full disclosure of the challenges we face. At this moment, we are optimistic about improving the situation, though we recognize that circumstances can change.

I remain concerned about granting credit risk in a company where I question whether or not the management and the Board have relevant credit granting and oversight expertise. I guess I'm going to follow up on this call by having conversations with the shareholders I know to see whether or not our concerns are shared by others. And then we'll come back to you with our findings. But I'm sorry to have to register this today, but the numbers are so big that it's a serious concern for us at least.

Next, we'll move to Michael Cox with EPG.

I wanted to discuss the current credit situation that is causing concern. This operator has not made payments for some time, as indicated by the fact that you've mentioned this on two consecutive calls. Are they still using the rental equipment they obtained from you?

That is correct. They are still using our equipment on jobs today.

Has there been any consideration regarding the situation where they are using your equipment but have not made any payments? Your comments about this situation seem quite negative. I will follow up in the next discussion to explore ways to avoid a bad debt expense related to this, but it seems like you are indicating that you don't foresee receiving any new payments. Why are you allowing them to continue using your equipment after nearly six months of non-payment?

Well, it's part of the equipment. Some of the equipment is returned to us. To your point, if the equipment is not used, there would be a complete stop to any cash flows. If new demand arises and that equipment could be used more effectively elsewhere, we would certainly consider that. However, at this moment, in our private discussions with the company, we see projected opportunities that could align things better. Therefore, we believe it's in our best interest to let this proceed for now.

Okay. You mentioned that an agreement was made with them in November, and they didn't follow through on it. So, fool me once, shame on you; fool me twice, shame on me. You seem a bit more optimistic this time, but what gives you the confidence that the second round of negotiations will turn out better than the first?

That is a very fair observation. And I can tell you that the agreement that was made in November, there were circumstances that occurred very nearly immediately thereafter that caused some delays in those forward opportunities beginning that we're going to correct those measures. Those have subsequently begun, but because of those delays, the initial payments on that plan were not able to be made. We recognize that. We know what the circumstances are that caused that, and certainly not anything that it was our fault or in our control, but were circumstantial. And now that those are more on the original plan of execution, we believe that this new plan, which will also involve some asset securities, will put us in a better position.

Okay. By the time we speak again at the end of the next quarter, you expect that this situation will be largely resolved. You will either have collected some cash, which would give you more confidence, or you will likely be recording a significant bad debt expense, correct?

I think we completely agree with that. Yes.

Let's discuss the balance sheet for a moment. There was a significant rise in accounts receivable and other receivables this quarter. Is this connected to SAExploration, or what is the cause? Typically, your balance sheet reflects a strong focus on positive free cash flow, but this quarter was clearly not favorable in that regard. Can you walk us through the factors contributing to this situation?

The increase in accounts receivable is not related to SAExploration. We were informed by one of our other OBX nodal customers about a delay in their payments. However, they began making payments as soon as they indicated their cash flow would allow it. We have received that cash flow, and our receivables are now reflecting that.

Okay. So no incremental concerns there, just happened to be right around the end of the quarter?

Right. That was a timing issue, yes.

Okay. Finally, I’ll hand it back to everyone else. Regarding the PRM side, I understand that there may be some disappointment about your willingness to discuss it at all. I've reviewed your comments over several quarters expressing your optimism for progress. It seems there was a change in the wording that suggests a more positive outlook. Do you feel that 2020 will present opportunities rather than being focused on the short term? Could you elaborate on the nature of those discussions and whether your confidence has grown about developments expected in the next 10 months?

We are quite optimistic about the efficiency and effectiveness of PRM. The science is well-established, but capital investments from oil companies have been notably limited, especially in offshore projects, until very recently. Our increased optimism comes from ongoing discussions that, while confidential, have indicated potential timelines for upcoming tenders. Although there have been delays, we are more confident based on the information we are receiving from oil companies, suggesting that a tender could occur this year. However, it’s important to note that even if a tender or award is announced this fiscal year, it doesn’t guarantee that revenue will be recognized in the same period, as our understanding of the deployment timeline suggests otherwise. Additionally, there are new opportunities arising, with fresh discussions and requests for information being initiated. This indicates a renewed interest in offshore projects, which aligns with observations made by others in the industry. We see that investment strategies in shale are shifting, and many oil companies are reassessing their offshore potential, often utilizing newly developed techniques while maintaining a focus on cost efficiency. Overall, we believe these factors are driving positive momentum.

And next, we'll move to a follow-up from Bill Dezellem.

I'd actually like to continue down the PRM path, if I may. The reference in the press release, was that the same prospective customer that you have been or same perspective tender that you have been talking about? Or is it different than the one that you expected in the past? And I do know that you did say that you had some new requests from new prospective customers. But it sounds like that's a little bit different and more ancillary than the one that you referenced in the release?

Well, there certainly are some new ones. And the press release is trying to reference those too. But I can say that longer-standing ones that we've been in discussion with are also included in that commentary.

And have you previously been under NDA? Or is that a forward step in that process?

That's always a forward step in that process and a consideration that we're always meant to follow.

And when did you go under NDA?

Probably the day we started talking.

Understood. Okay. I would like to revisit the border security business. Last quarter, the press release indicated that you do not anticipate significant revenues from this sector in the near future. However, this quarter's press release mentioned that there are near-term opportunities. Could you please elaborate on what led to this more optimistic outlook in the press release?

Yes. Just to be clear, the near-term opportunities are for contracts, but that does not necessarily mean revenue would be recognized at the onset of that contract. But within those opportunities that we think do exist in the near term, from a contractual point of view, I think it's quite possible that they would lead to revenue recognition before the end of the fiscal year, and there's going to be a timing issue there.

And did something change in the last 3 months or since the last call, I should say, that you're receiving more positive indications from prospective customers?

I think so. It's just timing has passed and some of the steps and necessary actions that needed to be taken by those involved have progressed. And so that just puts it further down the timeline towards reaching an endpoint.

Right. And I'm going to relate the same question back to PRM. With the border security products, are you anticipating revenue recognition on a percentage of completion or on shipment? Or does all that change with ASC 606?

Yes, it has changed, and it would be more likely over a period of time. We would have to examine the contract and determine what those measurable points of time would be to recognize revenue, but it is not exactly the same as percentage completion any longer.

And yet, you do think that the border security probably would be recognized over time rather than in a 1 step?

Yes, that would be my expectation.

And regarding the PRM tender you mentioned, would you anticipate that if you were awarded that, the revenue would be recognized over time or more upon delivery?

Again, it would depend upon the particulars within the contract. But I do expect that we would recognize the revenue over time.

So our experience historically with PRM is that the smaller contracts or tenders you recognized upon shipments and then larger were over time. So would it be fair to infer that the tender that you're talking about would be of a more meaningful size and that's why recognized over time?

I think so. But there are some other opportunities. Certainly, within our discussions, it might fall into a shorter time frame in that regard. But we'll just have to wait and see how those might manifest.

Okay, so said another way, you have both small opportunities and big opportunities in the PRM arena?

I think that's a fair statement.

Okay, that's helpful. And then one additional question before I step back. The incremental revenue or incremental margin on your incremental revenue was somewhere in the neighborhood of 95% this quarter. Is that the sort of incremental profitability that we should anticipate as the rental business grows? And granted, coming back to the earlier point about getting paid. That's an important piece of all this, too. But assuming that you are paid, that, that's the right way to be thinking about margin? Or is there something special this quarter where that incremental margin was higher than normal?

No, there is nothing particularly unique about this quarter concerning our rental revenue and the margins we anticipate. The rental equipment primarily has fixed costs. As more of that equipment is utilized and generates revenue, we expect to see an increase in profit.

That's correct. In addition to depreciation, we had maintenance costs for equipment that's unutilized also. So those costs don't go away.

And next, we'll move to a follow-up from David Nierenberg.

This question is probably for Robert. I noticed that this past quarter, there was a $1.42 million income tax charge, which was way beyond the operating profit that was reported, which I think was only about $170,000. Could you please explain to us what was going on with taxes in this quarter that made that number pop up so large?

Yes. Those taxes are associated with withholding tax in foreign countries where our rental equipment is used, our OBX nodes are used. Our rental revenue contemplates that tax, and that tax is remitted on our behalf by our customers.

And do we wind up having to pay that tax regardless of whether or not we get paid for the rental of the equipment?

In situations where we have withholding tax, the tax is actually remitted to the taxing authority by the customer.

And I'm unclear about why it appears on our P&L.

Well, it appears on our P&L because we have increased our rental revenue to include that tax and they are paying us a lesser amount. They are paying us net of the tax.

And next, we'll move to Michael Melby with Gate City Capital.

My question was answered.

And next, we'll move to Damon Benedict with D3.

I thought I heard you mention in response to David's question about the GCL order that you'd received some cash upfront. How much was that? And how much of your cost to produce those GCL units, how much of your cost to produce was offset by that cash you've already received?

Actually, Dan, it's a great question, but we don't reveal the costs on those units. I mean our competitors would love us to do that, but we're not willing to do that.

Without giving a dollar number, could you just let us know roughly what percent of your cost is already recovered and derisked.

No. I'm afraid I couldn't, but I believe the down payment on that was something like 10% or something along those lines, if I'm not mistaken.

Okay. And was the cost, sorry, I missed those in the prepared remarks, but with the...

I'm sorry, Robert just corrected me and said it was 20%.

Okay. And was the cost already reflected in your P&L in this past quarter? Or is that going to be reflected in the upcoming quarter, the cost to produce that? Sorry, if I missed it.

Yes. Delivery didn't occur until our second quarter. So we would not reflect any cost until we recognize the revenue.

Okay. And on the promissory note, is there any payment in the meantime? Or is it all just one bullet in '23?

No. They'll make scheduled payments, monthly payments throughout the life of the note.

Okay. And then last one, on the $8 million of projected CapEx related to the rental fleet for this year, how much was already in this fiscal first quarter versus how much for the next 3 quarters?

I mean that $8 million includes $5 million we incurred in this quarter. And I'm not really sure I know the timing on a quarter basis through the rest of this year for the rest of those.

Okay. So only $3 million more over the next 3 quarters?

Yes.

And at this time, we have no further questions. I will turn the floor back over to Mr. Rick Wheeler for any additional or closing remarks.

All right. Well, thank you, Tony. And thank you, everyone, who joined our call, and we definitely appreciate the very valuable and good questions you've asked. And hopefully, we've been able to give you some good answers. So we look forward to speaking to you again in our conference call for the second quarter of fiscal year 2020 in May. So thanks again, and goodbye.

Thank you. This does conclude today's Geospace Technologies First Quarter 2020 Earnings Conference Call. Please disconnect your lines at this time, and have a wonderful day.