Earnings Call
Geospace Technologies Corp (GEOS)
Earnings Call Transcript - GEOS Q4 2022
Operator, Operator
Welcome to the Geospace Technologies Fourth Quarter 2022 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 Mark Tinker, CEO of Geospace subsidiary, Quantum Technology Sciences. Today's call is being recorded and will be available on the Geospace Technologies Investor Relations website following the call. It is now my pleasure to turn the floor over to Rick Wheeler. Sir, you may begin.
Rick Wheeler, President and CEO
All right. Thank you. Good morning, and welcome to Geospace Technologies conference call for the fourth quarter and year end of fiscal year 2022. I'm Rick Wheeler, the company's President and Chief Executive Officer, and as mentioned, I'm joined by Robert Curda, the company's Chief Financial Officer. And also in the call this morning is Dr. Mark Tinker, CEO of our subsidiary, Quantum Technology Sciences. I'll first provide an overview of the fourth quarter and year end, and Robert will follow up with in-depth commentary on our financial performance. Afterwards, we'll open the line for questions, and we'll try to answer. Some of today's statements may be forward-looking as defined in the Private Securities Litigation Reform Act of 1995. And this includes comments about markets, revenue recognition, planned operations, and capital expenditures. Such statements are based on our present awareness, while actual outcomes are affected by factors and uncertainties we cannot predict or control. Both known and unknown risks can lead to performance and results that differ from what we say or imply today. These risks and uncertainties include those discussed in our SEC Form 10-K and 10-Q filings. For convenience, we will link a recording of this call on the Investor Relations page of our geospace.com website. And please take the opportunity to browse the website to learn more about Geospace and our products. Note that the information we record this morning is time-sensitive and may not be accurate at the time one listens to the replay. So yesterday, after the market closed, we released our financial results for the fourth quarter and year end of fiscal year 2022, which ended September 30, 2022. Our fourth quarter revenue grew more than 33% over last year's same period, excluding the first three quarters of fiscal year 2022. This is largely attributable to the steady increase in demand for our OBX ocean bottom nodes as the year progressed. And we expect this demand will continue to grow in fiscal year 2023. Fourth quarter oil and gas segment revenue saw an additional boost as we began scheduled deliveries of specialty geophone sensors and partial fulfillment of a previously announced order that extends into fiscal year 2023. However, despite the improved Q4 performance, revenue for the full fiscal year missed last year's total by 6%, leading to a net loss for the year of $22.9 million. In response, we have begun the implementation of a Board-approved dynamic plan intended to lead us to consistent profitability. The plan includes leveraging the successes of our diversification strategy that have created new products and revenue growth in the adjacent market segment. It also includes shedding the manufacture of some low-margin, low-revenue products and reconfiguring our production facilities to lower our costs and raise efficiencies. As part of the plan, adjustments have already been made in our workforce since the fiscal year end and are expected to yield an annual savings of more than $2 million. And as our plan continues to unfold, regular evaluations of each business segment will focus on revenue opportunities, as well as additional areas where costs can be reduced. Note that the fourth quarter and full-year losses reported for fiscal year 2022 include a non-cash charge of $4.3 million for the impairment of goodwill related to our 2018 acquisition of Quantum. The technology we gained through this acquisition remains highly valuable and is, in fact, being targeted in a variety of new applications with promising revenue potential. However, past performance of our Quantum acquisition has not met the necessary expectations required to support its goodwill. Our reported losses also include a non-cash charge of approximately $400,000 for the write-off of certain heavy machinery in our cable shop. Over time, revenue from goods produced with this equipment has greatly diminished and the space recovered from its removal will allow us to move our OBX rental operations from a nearby satellite facility to our main campus. This consolidation should provide much better efficiency and utilization of the factory and, in turn, reduce costs and increase our profitability. Recent conversations with our permanent reservoir monitoring or PRM system customers have led us to expect additional delays in the timing of a potential tender, although they've indicated that their overall interest and intentions have in no way diminished. This means the most opportune time for the transformation of our cable shop is now when it should not interfere with ongoing main campus manufacturing activities nor disrupt any ongoing OBX rental operations with the move. Note also that the ability of our cable shop to build both electrical and optical PRM system cables will remain intact after the transition. While we are certainly encouraged by favorable trends in our Oil and Gas segment, we are especially pleased with the revenue growth and product expansion of our Adjacent Markets segment. Fourth quarter revenue from our adjacent market's products became the second highest in its history, almost matching the all-time record set in the fiscal year's third quarter. For the full 2022 fiscal year, our adjacent market revenue reached $39.2 million. This outperforms last year's result by 21% and sets yet another full-year record for that segment. Within the segment, our Exile graphic imaging products, water meter cables and connectors, and contract manufacturing services each set new full-year records of their own. In another first, the fourth quarter included the very first shipment of our Aquana smart water valves and subscription-based cloud control software. The dollar amount was not significant, but it nonetheless marks the beginning of what we believe will be another path of profitable expansion in the years to come. Overall, the ramping performance of our Adjacent Markets segment provides strong validation that our strategy of selective diversifications outside of the oil and gas industry is working by broadening our revenue base and moving us forward on a path toward profitability. Now I'll turn the call over to Robert to provide more financial detail on the fourth quarter and full year.
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, 2022, we reported revenue of $25.9 million compared to last year's revenue of $19.4 million. The net loss for the quarter was $8 million or $0.62 per diluted share compared to last year's net loss of $5 million or $0.39 per diluted share. For the 12 months ended September 30, 2022, we reported revenue of $89.3 million compared to revenue of $94.9 million last year. Our net loss for the 12-month period was $22.9 million or $1.76 per diluted share compared to last year's net loss of $14.1 million or $1.05 per diluted share. Here is our Oil and Gas market segment revenue. The Oil and Gas market segment produced revenue of $14.8 million for the three months ended September 30, 2022. This compares with revenue of $10.7 million for the same period of the prior fiscal year, an increase of 38%. For the 12-month period ended September 30, 2022, the segment contributed revenue of $49.1 million versus $52.3 million dollars for the same prior year period. The increase for the three-month period is due to higher demand for seismic sensors and a higher level of repair parts and services needed for the repairs of customer-owned marine wireless products. The 12-month decrease in revenue is due to lower demand for the purchase of our land and marine wireless products, partially offset by higher utilization of our marine wireless rental fleet and a higher demand for our seismic sensors. Our Adjacent Markets segment revenue is as follows. Our industrial product revenue for the fourth quarter of fiscal year 2022 was $7.2 million, an increase of 30% over the fourth quarter of 2021. The industrial products 12-month revenue for the fiscal year 2022 is $25.6 million, an increase over the same period in 2021 of 20%. Both periods' revenue increases are due to higher sales of our water meter cable and connector products, industrial sensor products, and contract manufacturing services. Imaging product revenue for the fourth quarter was $3.7 million, an increase of 21% compared to last year's revenue of $3.1 million. The 12-month revenue for the imaging products for fiscal 2022 is $13.5 million, a 22% increase when compared to the same period in 2021. The increase in revenue for both periods is due to a higher demand for our thermal imaging equipment and consumable film products. Finally, revenue from our emerging market segment for the fourth quarter was $140,000 compared to $170,000 for the same period in 2021. The 12-month revenue for the segment for fiscal year 2022 was $711,000 compared to $10.2 million for the same prior year period. The decrease in revenue for both periods is due to meeting contractual obligations in fiscal year 2021 for a contract with the Customs and Border Protection U.S. Border Patrol that was awarded in April of 2020. Our fourth quarter fiscal year 2022 operating expenses increased by $6.1 million compared to the fourth quarter of 2021. The increased operating expenses for the three months ended April 30, 2022, was due to a one-time non-cash charge for the goodwill impairment in the company's emerging market segments, a decrease in favorable non-cash adjustment for contingent consideration related to Quantum and OptoSeis acquisitions, and higher engineering project expenses. The 12-months operating expenses decreased by $8 million or 24% when compared to the same prior year period. The increase in operating expenses is due to the goodwill impairment in the fourth quarter already mentioned, higher engineering project costs, increased personnel costs, incremental operating costs associated with our recent acquisition of Quantum, and increased sales, marketing, and other general business expenses. This increase was partially offset by an increase in favorable non-cash adjustment for contingent consideration related to the Quantum and OptoSeis acquisitions. Our 12-months cash investment into our rental fleet was $4.8 million, and cash investments into property plant and equipment was $1.1 million. Our balance sheet at the end of the fourth quarter reflected $17 million of cash in short-term investments, and we have $8.5 million of additional liquidity from our credit facilities. 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; I'll return the call back to Rick.
Rick Wheeler, President and CEO
Thank you, Robert. The aftermath of the pandemic and the war in Ukraine have created a broad level of disarray throughout the world. Global inflation and threatened energy supplies are prime examples. Solving the latter of these is critical, and evading the former provides the only means for us all to move forward. We believe the oil and gas industry is fully engaged and trying to responsibly solve the issue. And we believe this offers rationale for an increase in demand for our OBX and other oil and gas segment products. Coupled with a successful expansion of our adjacent markets products and our structured moves to achieve greater efficiencies, our confidence is bolstered for increasing revenue, maintaining a strong balance sheet, and providing profitable returns for our shareholders in the future. This concludes our prepared commentary. So now I'll turn the call back over to Ashley for questions from our listeners.
Operator, Operator
Thank you. Our first question comes from Scott Bundy with Moors & Cabot. Please go ahead.
Scott Bundy, Analyst
Good morning, gentlemen.
Rick Wheeler, President and CEO
Hi, Scott.
Scott Bundy, Analyst
I'm very pleased to hear you guys talking about getting to profitability. Just a couple of bookkeeping things that I'm trying to understand regarding the contingent consideration for Quantum and OptoSeis. According to your third quarter 10-Q, the contingent consideration was a couple of hundred thousand bucks for Quantum and zero for OptoSeis. Also according to the 10-Q, the earn-out for Quantum expired in July of 2022, and for OptoSeis earn-out, any money required contract signings as of I think November of 2022. So first of all, do I have that correct?
Rick Wheeler, President and CEO
Yes, you have that correct. But we have very little contingent consideration for Quantum on the books to make a final payment to the former shareholders, and then we have no contingent consideration on the books for OptoSeis.
Scott Bundy, Analyst
So the comment related to the $5 million non-cash benefit for changes in contingent consideration related to Quantum and OptoSeis in your release, what is that referencing?
Rick Wheeler, President and CEO
That's referencing that we were reducing the liability we had on the balance sheet because we didn't need that large of a liability. So it's a favorable adjustment to the P&L.
Scott Bundy, Analyst
So is the $5 million an indication from nothing before an indication of revenues that you anticipate or do I have that wrong?
Rick Wheeler, President and CEO
Well, it was on the books, on the balance sheet as a potential obligation that needed to be recorded there. And now that all those earn-out periods are expired, that is being relinquished off there; that's no longer a liability. I think that's the way I would interpret it.
Scott Bundy, Analyst
Thank you very much. Rick, the Schlumberger CEO recently indicated that the pipeline for final investment decisions for deepwater and shallow water is the highest in over 10 years, which is quite extraordinary. The figure mentioned was around $170 billion. Where do you stand in your discussions with stakeholders regarding these markets? Let's also include PRM, as that's a significant amount of money and the trend appears to be favorable.
Rick Wheeler, President and CEO
No, I agree 100%, and in fact, that's what we're seeing, and largely that's driven the demand for our OBX ocean bottom nodes as high as it has, and we continue to see that demand growing. And it's because that marine exploration side, which is a preface before all of these final investment decisions you're talking about, has to occur. Even the towed streamer operations are seeing some improvement to that extent; that's why you see this order that we announced earlier to provide these sensors for PGS's GeoStreamer capabilities is in place. As it relates to PRM, no difference there. I mean, the fact is the interest is still highly expressed with us in conversations going on about these PRM projects. But issues have come into play where they need to kind of get their own ducks in a row is the way I would kind of explain it before they can make some of those final decisions. And that includes even some initial front-end surveys that they want to do, so they have a better idea than what they did before as how they want to go forward with a PRM. So all of those things are in play, and to your point, I think we see the same thing as it intersects our business. That part of the marine industry for oil and gas is definitely where the activity is.
Scott Bundy, Analyst
You used plural, the word multiple people that you are talking to at PRM. Is that correct?
Rick Wheeler, President and CEO
Yes, that's right.
Scott Bundy, Analyst
And two other questions if I may. Has the stock valuation had any impact on contract talks?
Rick Wheeler, President and CEO
Not to this point, not at all. I think the technology and the fact that we've got a strong balance sheet, no debt, and all of that plays into our ability to be well represented in the commercial space.
Scott Bundy, Analyst
And lastly, if I may for Mark, lots of discussion in the marketplace regarding CO2 sequestration, real money being moved in this area. Mark, can you just give us an update on the level of interest in what you guys are doing in that space?
Mark Tinker, CEO, Quantum Technology Sciences
Yes, I'd be delighted to. Part of our long-term plan when we started to exit COVID was to establish a reference system using our SEDAR technology. And so we just celebrated our one-year anniversary being deployed at a small carbon storage facility in Canada associated with carbon management in Canada. And based on our results there, which have vastly exceeded even my own expectations, we presented a number of papers throughout the last year and are putting that brand on the rise. And thanks to that, and that validation, we see a very strong indicator in how SEDAR can come in and actually fill a gap associated with the measurement modeling and verification function for carbon storage. So when companies go apply for the full permitting process that this is the reservoir, this is what we're going to do. There's a component of that that says once carbon is injected, how are we going to know that it's going to stay there? And they have to have ways of validating that in near real-time. And so, we are enjoying a significant number of conversations across all the majors and some of the service providers for how SEDAR can meet those requirements.
Scott Bundy, Analyst
And Mark, when you're just to help us from the outside looking in. When we look at this, is it a cost issue? Is it your technology versus someone else's technology, meaning it's competition can you give us a little flavor of the dynamics of these negotiations?
Mark Tinker, CEO, Quantum Technology Sciences
Sure, it's some of it's first and foremost a disruptive conversation. Classic ways when you're trying to understand what's going on in an environment in which you cannot see. So we can't see the subsurface, so we have to listen to it. And there's two fundamental ways that we listen to it. We put sensors on the surface of the earth, in large channel counts, or we put sensors deep into the earth into boreholes that are either existing or that we have to drill. Both of those techniques have their benefits and they have their challenges. Our state or our approach actually splits the difference. It's neither a surface system nor is it a deep borehole system. It's shallowly deployed in the upper meters of the earth. The other thing is, it's permanent. So that's what I mean by a disruptive conversation. That's why we're giving technical papers is to show its performance capabilities relative to something that this industry is very familiar with. Recall, we are also a passive, monitoring technology. So I want to be very clear on that. Traditional techniques have been used to image the layers of the earth, to image reservoirs. So to image something, we have to send energy into the earth, listen to its reflections, and then understand what it looks like geometrically. A passive technology simply listens, and what's it listening for? It's listening for these little micro earthquakes. And those micro earthquakes are indicative of what's going on with the reservoir. When we interact with reservoirs in any capacity, whether we're extracting some form of hydrocarbon or injecting hydrocarbons or injecting carbon or injecting groundwater, whatever it might be, that reservoir is going to have an expression and an expression is going to be seismically based. When we interact with it, it's going to have little creasing cracks that pop off, and those are micro earthquakes. And if we can accurately detect and locate those, it gives us a very good understanding of what might be happening in the subsurface. And so our value propositions are to passively listen for those and give a real-time response. So what we're doing is we are selling information; we're not selling hardware systems, we're not selling algorithms. That's part of our full-system solution that ends up the result is selling that information. Why do I want that information? Because I'm going to take action; it's going to compel me to take an action that allows me to stay compliant with my regulations for carbon storage or anything else I might be needing to monitor for that micro-seismic expression of my reservoir.
Scott Bundy, Analyst
Are there principles regarding compliance from a legal standpoint?
Mark Tinker, CEO, Quantum Technology Sciences
Yes, so these regulations are forming, and you can go Google them and research them that when you inject carbon and you have your reservoir, there's going to be regulations that say you must by law monitor that reservoir upwards of 99 years in some cases. And so it is part of the carbon capture process. It is part of that complete, what I call a kill chain. So we must understand the reservoir first upfront, where are we going to put our wells, all these other things that we don't apply to. But once it goes into that ground, and that pressure plume, as it's called, starts to push through and fill that reservoir with carbon, we want to know what is that plume doing, is it staying below the cap rock? Is it escaping by breaking the cap rock? Is it escaping due to existing wells? And when you think of what it takes to store enough carbon to make an impact towards global climate change, we're looking at carbon storage reservoirs of the gigaton level, as it says. A gigaton reservoir has a very significant expanse in terms of its lateral extent. It's much bigger than the city of Houston, for example. How do you monitor something that size economically? How do you give a persistent look at what you're doing to that reservoir or something that's many, many, many square miles? That's that value proposition that we're coming in at. We can't do it using traditional seismic techniques. So that's why we created this technology to give us that understanding of that pressure plume as it pushes out that is going forward as we expected to do as required to do. So there is going to be effort to put the carbon there, we have to go to the effort to make sure that it stays there.
Scott Bundy, Analyst
Last question with the recent elections; are you more or less optimistic about activity regarding the border?
Mark Tinker, CEO, Quantum Technology Sciences
It's a very good question. What's been driving that frustratingly long process for our border security technologies is somewhat driven by Congress, but more driven by a border patrol process that they had been following. And now, we're coming towards the end of that process in the next year or so. So we maintain a strong presence on the hill. They understand what our technology is capable of doing, and they are very supportive in a bipartisan way of ensuring the upcoming funds that we're working towards will be in place to follow the border patrol plan.
Scott Bundy, Analyst
If you were to guess, would you guess that having gone through this process that you would be more successful than you were the first time in terms of size of these contracts? And I understand it's a guess?
Mark Tinker, CEO, Quantum Technology Sciences
Yes, so our first contract was part of this three-year process. It was as designed so I'm - I will guess with you that the follow-on work is going to be a very - we're looking forward to this strategic revenue that we've been positioned for in the upcoming years.
Rick Wheeler, President and CEO
Terrific, thank you very much, guys.
Mark Tinker, CEO, Quantum Technology Sciences
Thank you.
Rick Wheeler, President and CEO
Thank you, Scott.
Operator, Operator
And we'll take our next question from Bill Dezellem with Tieton Capital. Please go ahead.
William Dezellem, Analyst
Thank you. I had a couple of questions. First one relative to OBX, Rick, you had referenced the increase in demand that you have seen. Did we understand correctly that you believe that that demand growth will continue from here? And I mean, given what appears as though the underlying dynamics for the industry, are you anticipating kind of a longer-term rate of level of growth for that OBX business?
Rick Wheeler, President and CEO
Hi, Bill. It certainly looks that way when we examine the amount of jobs that various oil and gas companies are proffering to be performed. And we see this through the eyes of the contractors who are that's our customers. We're not dealing directly with the oil companies as it relates to the OBX. Some of that may change because the demand for this type of equipment and for some of these projects is getting tied enough to where I think that in many cases some of the oil companies and others out there that want these surveys to go forward are looking past the contractors to try to secure these assets. But nonetheless, the demand is growing, and the number of projects is growing, and it's certainly something that we see this coming year. Many of these are actually extrapolated out into subsequent years, but you don't just jump on your hopes with those out there because things can turn on a dime in this industry, and we're quite familiar with that as you're well aware. But we nonetheless have those in our sights with respect to what would be prudent ways to try to accommodate those. Quite honestly, there is not enough equipment in the world to supply these projects all sold.
William Dezellem, Analyst
Not only are the number of jobs increasing; the sizes and number of nodes that are required are growing, and the length of the jobs are getting longer. If we think about the comment in the press release that you anticipate a large portion of your CapEx this coming fiscal year to be tied to the rental fleet. Is that just another indication to us on the outside of the strength that you see in that business since historically, you've said you'd be very cautious about expanding the rental fleet until you saw real strong demand?
Rick Wheeler, President and CEO
No, that's absolutely right. And that caution has not gone away. We still have that caution for sure. These sorts of things do require commitment on the part of the end-users, be it the contractors and or their clients in financial commitments toward those sorts of movements. But certainly, the demand is leading them to make those commitments in many cases, and that's exactly what we're talking about. The capital investment is certainly there and available to be made, but it will be a cautionary way forward.
Mark Tinker, CEO, Quantum Technology Sciences
Our federal strategy is doing - is in effect and working. So I anticipate that we will see other federal contracts before the next margin on the border of control.
William Dezellem, Analyst
And Mark, if I'm remembering correctly from the last call or maybe the prior one, there was a reference to military. Is that the area of the federal that you would anticipate the first, I guess the first next order, or is there another agency or segment of the government that you think could be before the military?
Mark Tinker, CEO, Quantum Technology Sciences
We focus on DHS and DoD and so, yes DoD is a key area for our future revenue.
William Dezellem, Analyst
And I'll ask one more question relative to the DoD sizing. What would be your expectation of size if they were to place an order relative to the first border patrol order?
Mark Tinker, CEO, Quantum Technology Sciences
It's a tough question to answer. I'll say it will be a phased approach. And while DoD is easy to say. It's large and complex as an organization when you think across not only the branches of the military but the office of secretary of Defense as well. And I think that you'll see - what you'll see in the upcoming year where we're headed, Scott. You'll see what's going to happen. Oh sorry, Bill.
William Dezellem, Analyst
No worries, thank you. So kind of tying in to the prior questioner's comments or questions in your comment that the Department of Homeland Security border patrol likely has a year or so process that it would be sometime within the next 12 months that you may see something from the DoD then followed by Homeland Security. Just kind of the cadence that you're thinking right now from what you know how it would unfold. Is that the proper interpretation?
Mark Tinker, CEO, Quantum Technology Sciences
That's what we're looking at. That's what we're preparing for, so we've been performing for. So that's the best way I can interpret it right now.
William Dezellem, Analyst
Great, thank you all for taking the questions.
Rick Wheeler, President and CEO
Welcome Bill.
Mark Tinker, CEO, Quantum Technology Sciences
Thank you.
Operator, Operator
We'll go next to Brent Miley with Rutabaga Capital. Please go ahead.
Brent Miley, Analyst
Hi, good morning. A couple of questions for you if I could, the cash flow was good in the fourth quarter; I wondered if you might comment on that. Glad to see it and maybe talk a little bit about the pacing of your expectations for cash flow and CapEx in 2023? And then secondarily, I was curious on the Quanta business, the adoption? I wondered if the first adoption was a utility or actually a real estate customer.
Robert Curda, CFO
But for cash flow point of view, yes, we're pleased to see the cash flow improve over the quarter. I mean, that's something we've been looking at for quite a while, and we monitor very closely. Going forward, we expect there to be growth throughout the next 12 months. I think it will dip down early in the year and return in Q3 and Q4. As far as the Quantum sales of lead builds were in the utility area.
Brent Miley, Analyst
Okay, great. And then just one last one if I could. On the PRM front, obviously, the big companies, big projects process has been ongoing. It's been sort of - I don't know from the outside looking in sort of incredibly complicated and complex. And is there any sense on timing here? I mean, prices are up; the efficient desire for using our most efficient assets is incredibly reasonable. Is there any sense of when these things might actually get let?
Rick Wheeler, President and CEO
Brett, that's a great question, and the timing seems to be near term considering all the factors you mentioned regarding the price of oil. We've encountered a series of complex issues that contribute to market instability and confidence. While capital spending in the oil and gas sector is generally affected, as noted by another caller, there are shifts that indicate change, and this situation is part of that too. We’ve had discussions and timelines that have shifted repeatedly, making it challenging to provide a definitive timing estimate. However, we are not going to remain inactive; we have work ahead, which includes ensuring that the technology for the PRM project is securely established. There are also other applications that will enhance its usability in the PRM context. I wish I could provide clearer timing insights, but the constant changes in dates complicate that.
Brent Miley, Analyst
Fair enough. And it sounds like, had there been any more active tests, I guess, I think you mentioned in the last call you guys had a pretty comprehensive test…
Rick Wheeler, President and CEO
No, there may be some minor tests coming up in the future, but there have been none in the field tests similar to what we had done before, which went well by the way. I think fundamentally in many cases it seems like in some of these conversations we're having with the oil companies, they're recognizing as we've moved further down the path towards what needs to be done that there are some loose ends on their side that they need to get tied up so that they make the best investment decision. Understanding where these things are going to go and what the configurations of the field need to look like are important matters in getting this done, and they've identified that they may have some deficits there that need to be addressed first. So that timing is not in my hands and therefore not something I can really comment on.
Brent Miley, Analyst
Okay. Just to be clear, are the issues technical and related to the project scope, or is this more about the contract, like getting the people who will lay the cable involved? Is it more about the construction and contract structure, or are we looking at technical aspects and the design of the actual project?
Rick Wheeler, President and CEO
No, right, good question. And for clarity, the ones that I'm referring to are more of a technical nature, broad scope technical wise, so not dealing with our specific technology or any of that. But just the overall aspects of the science that goes into the permanent reservoir monitoring and the 4D processes that they need to make sure they have properly put in place and have determined what the real areas that they want to be monitoring are. So it's really a technical matter, not really a contractual matter.
Brent Miley, Analyst
Fair enough. Appreciate it. Thank you.
Operator, Operator
And we'll take our next question from Glenn Kukla with Kukla Capital Partners. Please go ahead.
Glenn Kukla, Analyst
Hi, guys. Good morning.
Rick Wheeler, President and CEO
Good morning.
Mark Tinker, CEO, Quantum Technology Sciences
Hi, Glenn.
Glenn Kukla, Analyst
My question is regarding the cash on hand and short-term investments. Congratulations on the increase in those areas. I understand the write-down from OptoSeis and the significant one from Quantum that has reduced the liability on the balance sheet. This appears to be a paper write-down rather than an actual cash outflow. However, it seems we have cash inflow, with $9.1 million cash on hand plus short-term investments last quarter, and $17 million this quarter. Great job on that. Could you explain how you transitioned from $9.1 million to $17 million in actual cash and short-term assets?
Robert Curda, CFO
Yes, most of that increase is due to the rise in our OBX rental activity and the growth in sales from our adjacent markets. We also sold some equipment earlier in the year and received timely payments from that customer, which occurred on the last day of the quarter and contributed to our cash balance at the end of the year. Overall, the significant increase in cash primarily stems from the boost in OBX rental activity.
Glenn Kukla, Analyst
Great. I know you don't want to give forward-looking advice or information, but based on the plan that you will implement to change the cost structure, what impact do you think that will have on physical cash short-term investment liquidity, not line of credit liquidity?
Robert Curda, CFO
The impact will depend on the types of changes we implement. Right now, we're in the initial stages of discussing these changes. We have made some specific adjustments as detailed in the press release, and while there will be costs related to merging our facilities, I don't anticipate these costs being significant.
Glenn Kukla, Analyst
Great. And then you mentioned you're predicting, I think it was a $7 million CapEx for fiscal '23. Is that correct?
Robert Curda, CFO
Yes, sir.
Glenn Kukla, Analyst
So...
Robert Curda, CFO
I was going to say, most of that is related to potential increases or additions to our rental fleet. And as we've said earlier, we're not going to make those kind of additions unless we get some financial commitments from our customers to help fund those additions.
Glenn Kukla, Analyst
So we just say that $7 million CapEx is not scheduled to be spent just yet; it's earmarked if and when orders come in?
Robert Curda, CFO
That's exactly right.
Glenn Kukla, Analyst
Okay, great. But you're setting it aside. If orders come in and you have the $7 million CapEx, remind us, how does that compare to last year's '22 fiscal year total CapEx expense?
Robert Curda, CFO
Last year, we spent about $4.8 million on rental fleet additions and a little over $1 million on property, plant, and equipment.
Glenn Kukla, Analyst
Okay. So if we find ourselves at the end of fiscal year '23, and we've spent all $7 million, that's likely because we've seen an increase in orders, and you have to spend money to make money. So would it be fair to assume that having spent $7 million at the end of '23 is likely to result in an increase in revenue versus '22?
Robert Curda, CFO
Yes. I absolutely expect that.
Glenn Kukla, Analyst
Okay, that coupled with cost reduction that looks like a path to profitability?
Robert Curda, CFO
We believe so.
Glenn Kukla, Analyst
Okay, great. Well that's only question; guys have a wonderful day.
Robert Curda, CFO
Thank you very much.
Rick Wheeler, President and CEO
Thanks, Glenn.
Mark Tinker, CEO, Quantum Technology Sciences
Thank you.
Operator, Operator
We will go next to Michael Melby with Gate City Capital Management. Please go ahead.
Michael Melby, Analyst
Hi, good morning and thanks for taking my questions. With the movement of the OBX rental operations from the satellite facility, is that being moved from an owned facility?
Rick Wheeler, President and CEO
Yes, yes we own that facility, and we would be moving it from that owned facility into our Pinemont owned facility.
Michael Melby, Analyst
Makes sense. And I guess is that current facility then redundant and something that could be a source of capital going forward?
Rick Wheeler, President and CEO
Yes, sir.
Michael Melby, Analyst
Got it. And just for the call, any sense of what that facility might be worth?
Robert Curda, CFO
We're in the process of evaluating that right now.
Michael Melby, Analyst
Got it. And on the Quantum side, you said revenues weren't significant in Q4. Do you expect them to be significant in fiscal 2023?
Rick Wheeler, President and CEO
It's going to end up being a ramp up, Mike, how those kinds of things go as a new introduction. But it was the first one. So it's one of those things where you like for that to happen. One of the things that we've had to overcome, and we've made it very clear and well known, is the supply chain problems that often have plagued everyone. Many of them still continuing, but we've worked around a lot of those. And put some things in place to try to provide some elasticity going forward for being able to make some of these orders despite some of the supply chain problems. So this is going to be a ramping issue with respect to how much revenue you see coming across. I can't give you a predictive amount of what that's going to be, but we are encouraged by the fact that we've taken that first step there, symbolic if nothing else. And certainly, we're prepared and are building towards orders for those products. There's even some other products as part of our development plan going forward that we know there's demand for with conversations with those potential customers and some partnered companies. So that looks good for us. We're definitely progressing on that well and putting some resources behind it.
Michael Melby, Analyst
And do you care to frame it anymore for investors in terms of what the opportunity set is with the Quantum?
Rick Wheeler, President and CEO
Well, the utility companies are one of the initial targets there, but we are, in fact, going after the property markets too, where there's significant gains that can be made in asset protection. That's one of the main aspects there. The utility companies are more for convenience, reducing their costs with respect to meter shutoffs and turn-ons, where they don't have to roll trucks out there to perform those activities. There's certainly a conservation issue that's important when leaks are detected; that's a major tieback to where these valves are used so that even some automation could be introduced for shutting off water. So conservation issues there, also within municipalities for maintaining their regulatory components as they see fit. It's kind of a broad landscape, but clearly related to the municipalities, there's issues also with payment where they just have to shut off water, and when people move out of houses before new owners move in, all of those sorts of things where they just save the cost of being able to do that from an office.
Michael Melby, Analyst
Makes sense on the use cases. Could you frame it did you buy this because you thought it could be a $5 million business, a $10 million business; I mean in terms of how you evaluate the opportunity set here?
Rick Wheeler, President and CEO
Well, the opportunities are - I'm not going to put a ceiling on what that is capable of doing. I mean there's a software as a service component that's also there. These will be new aspects of revenue for us that have not been a historic part of our revenue stream. But in addition, it's a technology buy. I mean, we feel that the smart city movement overall is a big movement and extends much more beyond these valves. So there's a platform that from an engineering standpoint our guys are putting together that's fundamental to how these systems work. And that IoT platform is going to have some other development capabilities in other product areas.
Michael Melby, Analyst
Got it. And could you talk about your expectations for the land seismic business either in the U.S. or internationally for 2023?
Rick Wheeler, President and CEO
We don't have great ambitions of what participation we will have in that market. It just seems to be rather inactive as that goes. Little pieces here and there coming about, but we don't see any kind of resurgence to levels that there were in the past; maybe it's too early for that with some of the other improvements we see, which are mostly in the marine world. But overall, as the oil and gas industry is plotting in the future, of course, the land hasn't really, from our perspective, the land side of the instrumentation market hasn't really manifested.
Michael Melby, Analyst
Got it. And just to clarify from other participants, you were free cash flow positive in Q4. Do you expect to be free cash flow positive in fiscal 2023?
Robert Curda, CFO
Yes, absolutely.
Michael Melby, Analyst
Thank you.
Rick Wheeler, President and CEO
Thanks, Mike.
Robert Curda, CFO
Thank you.
Operator, Operator
And we'll take a follow-up from Scott Bundy with Moors & Cabot. Please go ahead.
Scott Bundy, Analyst
My question was just answered. Thanks, guys.
Rick Wheeler, President and CEO
Thank you, Scott.
Robert Curda, CFO
Thanks.
Operator, Operator
And we'll take another follow-up from Brent Miley with Rutabaga Capital. Please go ahead.
Brent Miley, Analyst
Hi, I had one more if I could. The adjacent markets business, obviously, has been very strong. Pre-COVID, those were as memory serves incredibly kind of consistent and good markets for you all. Would you say they've kind of recovered from - or from COVID, I guess? And do you expect those to be kind of against steady eddies or a little bit of growth there? If you could kind of give us some commentary on that, I'd appreciate it.
Rick Wheeler, President and CEO
No, I think you're reading it correctly, Brent. The COVID aspect did definitely hit that - some of those businesses, and particularly, the EXILE thermal imaging products, which we used a lot for screen printing and things for major events and things that just got shutdown. So clearly, those things have rebounded much more towards normalcy, if not at normal levels, and it's expanding. It appears that through the pandemic and working through that, it's sort of jostled things in such a way that, that industry has found better ways of doing things with less labor. And that involves oftentimes the benefits that our machinery, the EXILE machines can provide for those types of businesses. So that has had an impact. The other aspect of the water meter cable and connector business, we believe that's just going to be a growth area in general as more and more smart city movements take place in the utility companies; almost all of them are migrating over the course of time towards these automatically measured meters and billing processes. So I think COVID is behind us from that market as it stands right now.
Brent Miley, Analyst
Great, thank you.
Operator, Operator
And there are no further questions at this time. I'll turn the floor back over to Rick Wheeler for any additional or closing remarks.
Rick Wheeler, President and CEO
All right, well thank you, Ashley, and thanks to all of you that were listening to our call and ask these great questions. So we look forward to speaking with you again on our conference call for the first quarter of fiscal year 2023; it will be in February. So thanks again, and goodbye.
Operator, Operator
Thank you. And this does conclude today's Geospace Technologies fourth quarter 2022 earnings conference call. Please disconnect your lines at this time, and have a wonderful day.