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Operator
Welcome to the Geospace Technologies Third 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 Kurta, 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. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star 0. It is now my pleasure to turn the floor over to Rick Wheeler. Sir, you may begin.
Rick Wheeler
All right, thank you. Good morning, and welcome to Geospace Technology's conference call for the third quarter of fiscal year 2022. As mentioned, I'm Rick Wheeler, the company's president and chief executive officer, and I'm joined by Robert Curta, the company's chief financial officer. And also with us this morning is Dr. Mark Tinker, CEO of our subsidiary, Quantum Technology Sciences. I'll initially provide an overview of the third quarter, which Robert will follow up with in-depth commentary on our financial performance. After that, we'll open the line for questions that we'll try to answer. Some of today's statements may be forward-looking as defined in the Private Securities Litigation Reform Act of 1995. 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. very much encourage everyone to browse the site to learn more about GeoSpace and its 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. Yesterday, after the market closed, we released our financial results for the third quarter of fiscal year 2022, which ended June 30, 2022. Although the three- and six-month periods that ended on that date experienced decreases in oil and gas segment revenue from earlier periods, We are nonetheless pleased that demand for our OBX ocean bottom marine recording nodes continued to climb. As such, this led to the highest quarterly figure for rental revenue so far this fiscal year. Evidence of this growing OBX demand was earlier demonstrated in our two recent news announcements of signed OBX rental contracts, valued separately at $4 million and $12 million, respectively. Moreover, the base value of OBX rental contracts signed so far in fiscal year 2022 now exceeds $24 million compared to just $8.2 million in fiscal year 2021. The discussions and quoting activities currently underway with our valued customers gives us increased confidence that demand for the OBX will remain strong. Another important highlight of the quarter is the strong performance of our adjacent market segments. Quarterly revenue from this collection of products reached an all-time high in the third quarter, setting a new company record for this segment. Contributing to this revenue growth is increasing demand for our U.S. manufactured water meter cables and connectors, driven by greater domestic infrastructure spending on smart city projects. Our presence in this market is poised to penetrate even deeper with the rollout to customers of our Aquana smart water valves and cloud control software. which is expected to occur before the end of the fiscal year. Other factors contributing to solid third quarter adjacent market revenue include our Exile electronic pre-press printing solutions. These computer to screen printers bring added automation and time savings to the graphic arts screen printing industry, helping these customers to reduce labor and increase efficiency. In addition, our specialty contract manufacturing business is also seeing positive results as more and more customers want to increase the domestic content and control of their product manufacturing. With that, now I'll turn the call over to Robert to provide more financial detail on the third quarter.
Rick Wheeler
Thanks, Rick. 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, 2022, We reported revenue of 20.7 million compared to last year's revenue of 23.1 million. The net loss for the quarter was 6.6 million or 51 cents per diluted share compared to last year's net loss of 800,000 or six cents per diluted share. For the nine months into June 30th, 2022, we reported revenue of 63.4 million compared to revenue of $75.4 million last year. Our net loss for the nine-month period was $14.8 million or $1.14 per diluted share compared to last year's net loss of $9 million or $0.67 per diluted share. Our adjacent market segment revenue is as follows. Our industrial product revenue for the third quarter of fiscal year 2022 was $7.5 million, an increase of 16% over the third quarter of 2021. Industrial products nine-month revenue for fiscal year 2022 is $18.5 million, an increase over the same period in 2021 of 17%. 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 third quarter was $3.5 million, an increase of 19% compared to last year's revenue of $2.9 million. The nine-month revenue for imaging products for fiscal year 2022 is $9.8 million, a 23% increase when compared to the same period in 2021. The increase in revenue for both periods is due to higher demand for our thermal imaging equipment and consumable film products. Now our oil and gas market segment revenue. The oil and gas market segment produced revenue of $9.5 million for the three months into June 30, 2022. This compares with revenue of $12.6 million for the same period of the prior fiscal year, a decrease of 26%. For the nine-month period into June 30, 2022, the segment contributed revenue of $34.3 million versus $41.5 million, a decrease of 17%. The decrease in revenue for the three-month and nine-month periods are due to lower demand for our land wireless equipment and marine wireless equipment. Fiscal year 2021 revenue included $12.5 million from a sale of GCL land wireless equipment delivered to a customer in fiscal year 2020. The decrease in revenue is partially offset by higher rental revenue due to increased utilization of the company's OBX rental fleet. Finally, revenue from emerging markets segment for the third quarter was $135,000 compared to $1.1 million for the same period in 2021. The nine-month revenue for this segment for fiscal year 2022 was $571,000 compared to $10 million for the same prior year period. Our third quarter of fiscal year 2022 operating expenses increased by $2.1 million or $21.5 excuse me, 26% compared to the third quarter of 2021. The increased operating expenses for the three months period was due to increases in personnel costs, incremental operating costs associated with our recent acquisition of Aquana, increased sales, marketing, and other general expenses, and a decrease in a favorable non-cash adjustment to the contingent consideration related to our Aquana and Optus ISA. The nine-month operating expenses increased by 2 million or 8% compared to the same prior year period. The increase in operating expenses for the nine-month period is due to higher engineering project costs, increased personnel costs, incremental operating costs associated with our recent acquisition of Aquata, and increased sales, marketing, and other general expenses. The increase was partially offset by an increase in a favorable non-cash adjustment to the contingent consideration related to our quantum and opti-size acquisitions. Our nine-month cash investment into our rental fleet is $4.1 million, and cash investments into our property, plant, and equipment is $900,000. Our balance sheet at the end of the third quarter reflected $9.1 million of cash and short-term investments and we have $8.5 million of additional liquidity from our credit facility. In addition, we own numerous real estate holdings in Houston and around the world that are owned free and clear without any leverage. That concludes my discussions, and I'll turn the call back to Rick.
Rick Wheeler
Thank you, Robert. The past two years have been plagued by COVID-19, supply chain issues, and geopolitical turmoil. And there are many derivative challenges stemming from these issues that remain. However, we are encouraged by the improved market conditions we're experiencing in both our oil and gas and adjacent market segments. The continued improvements in each of these divisions should lead to better performance in future quarters as well as overall improved liquidity. In addition, our ongoing discussions with potential clients for future permanent reservoir monitoring, or PRM, systems continue to be very productive. In fact, in coordination with a potential client, we recently concluded a very successful demonstration of our OptiSize fiber optic PRM technology in real-world field conditions. In closing, I'd like to thank all of our hardworking employees, valued clients, and trusted shareholders for their continued support. So this concludes our prepared commentary, and I'll now turn the call back over to Chelsea for any questions from our listeners.
Operator
Thank you, sir. The floor is now open for questions. At this time, if you have a question or comment, please press star one on your telephone keypad. If at any point your question is answered, you may remove your cell by pressing the pound key. Again, we do ask that while you pose your question that you pick up your handset to provide optimal sound quality. And our first question will come from Scott Bundy with Moores and Cabot.
Scott Bundy
Good morning, guys. Hi, Scott. So there's no question your industry's been in a depression for eight years. Recently, both Schlumberger and Transocean believe that the upcoming cycle will outpace the 2016-2019 cycle of investment and FID activity. So, Rick, when you think about where we are versus the trough of prior cycles, where do you think we are?
Rick Wheeler
Well, some of the examples you just mentioned are definitely earlier signs of things. The seismic instrumentation side of the business always lags a bit from these improvements. But you're absolutely right. We, too, are following those aspects of their business and how they're improving. We're seeing that, in fact, in sort of a feedforward situation as this demand is increasing and contracts being signed. for use of our OBX equipment. So it certainly has every indication that things are moving in the right direction and improving from what would be considered a trough.
Scott Bundy
And this prior, this recent real live test using a PRM, using a PRM system, is this a prior customer or new customer?
Rick Wheeler
Well, this is a customer we have not sold a system to in the past, so I guess in that sense it's a new customer. We have certainly been in discussions with them going over the technology for some time, and they are definitely one of the more interested parties.
Scott Bundy
Okay, great. Thanks, guys.
Operator
Thank you. Our next question comes from Bill Desalim with Teton Capital.
Bill Desalim
Great. Thank you. Following up on that last question, would you explain when you talk about a trial? It's been so long since you've won a PR business. I'm not sure that I understand really what a real-world trial would be or if you have actually done that for prior customers in the past.
Rick Wheeler
Well, we've always done that in some sense with prior customers, both for fiber optic and electrical type systems. Certainly, both of those systems are in actual full exploitation of use by various customers. This particular customer has not had a PRM system in the same respect. To that end, when I say real-world conditions, I mean exactly that. I mean a complete deployment effort with respect to how the equipment is laid into the water examination of the data as it's coming back in real time and processing of data, which is still being examined even today. So in saying a real-world circumstance, what I'm really getting to there is it's not just on a lab bench or laid out somewhere. It's actually a deployed and executed operation.
Bill Desalim
Is that deployed and executed on a field that they are that they are evaluating?
Rick Wheeler
No, this was a test setup that we had access to in conjunction with them. It was not performed on the field of interests that are being examined for the PRM system. But all the circumstances with respect to what one's interested in and how these sorts of systems couple to the earth, underwater, how they're deployed, that sort of thing, and then examining that data in a real-time fashion as it's coming back and recorded. That was all accomplished.
Bill Desalim
That's helpful, Rick. Thank you. And then earlier this fiscal year, you did have a PRM tender that you all chose not to participate in. And I was curious, did that prospective customer ultimately award that or did others also choose not to participate? Where does that PRM stand?
Rick Wheeler
I actually don't have factual knowledge, but we have not heard of any award that was provided for that particular tender. We don't anticipate that others did not provide an offer, but we don't know, not really having privy information there.
Bill Desalim
And has that customer come back to you with questions and conversations?
Rick Wheeler
Well, we still are in discussion with that customer for sure, but I mean, the tender's over and so there aren't any really directly related questions as it would typically apply in that process. But certainly we still have active conversations with that customer, but they're not ones that they're going to reveal to us if there were a competitor involved in the prior attempt. That's not part of what would be the conversation there.
Bill Desalim
Understood. And then lastly, changing subjects entirely, Mark, when you look out at the various opportunities that Quantum has, What would you characterize as the most likely near-term opportunity for quantum?
Rick Wheeler
Well, Mark was on the line earlier, Bill. I'm not sure. It sounds like he's been disconnected for some reason.
Operator
I'm showing he is connected. He may be muted. Mr. Tinker, are you muted by chance?
Rick Wheeler
Well, in answer to your question, Bill, from a near-term point of view, there are several opportunities as it relates to the SADAR system deployment. Certainly, the highest opportunities there of near-term would be with the government. There are a couple of particular use cases that it has not yet been deployed in, but there are active discussions now going on about such a deployment. not necessarily border related in this particular case. There are some other opportunities where the analytics package, not particularly as it relates to SADAR, which is an architectural component of the way that the perimeter system and these other sensing systems that I'm talking about for government are put together. But nonetheless, an analytics package very similar that uses algorithms that's in the oil and gas side of things. And those discussions have been rather recent in their development. Oh, there you go. I'm sorry, Bill.
Bill
And I'm sorry to all of our participants. We had two different numbers to dial in and only one worked for me. I don't know if that was the glitch, but she just did an audio check with me. So, Bill, I'll say what I said already. And again, my apologies to everyone on the call for that. Our strategy of now taking our SADAR line into both federal and energy is well underway. And in the federal space, we're very focused on those next adjacent agencies. So in addition to Department of Homeland Security, we're now across the spectrum of the Department of Defense, as everyone might imagine. We have a number of applications there. So you asked the question of what might be or who might be the next specific customer. It spans a large set. So it's not a particular singular customer that we're responding to right now. So we are responding to a number of RFPs. We're excited about that. It's good to be back in the queue. But they span from Navy to the Office of Secretary of Defense and other organizations. So things there are moving along, and I'm very pleased by that. On the energy side, as I think you're aware as well, Bill, The effort that we've done up in Canada has led to not only publications, but now invited presentations. And so we're having to socialize the power of using phased arrays for passive seismic monitoring across the energy space. And again, I'm very pleased with the traction there. Another paper we anticipate will be published soon. And for those who might not be aware, we're giving three presentations at the end of this month at the International Meeting for Applied Geoscience and Energy, which is the large industry meeting for our interests that occurs in Houston.
Bill Desalim
That is helpful. Thank you. And then I have read that BP is drilling a carbon sequestration well in Texas. Is that something that you all are involved with? Not directly, no. Great. Thank you both. All right.
Operator
Thank you. Once again, if you have a question, you may press star 1 on your telephone keypad at this time. Our next question will come from Michael Cox, private investor.
Michael Cox
Hey, guys.
Michael Melby
All right.
Michael Cox
Got it. So just a couple of questions, and I recognize that there's a lot of momentum on the OBX side, which is wonderful, good to hear. But I want to just focus for a second on the most recent quarter and sort of just the specifics of the financial situation. You talked about the increase in operating expenses, and maybe you could just unpack that a little bit to understand why. Obviously, we had a In terms of matching, we had a pretty significant decrease in overall revenues, pretty significant deterioration in the overall balance sheet quality in the quarter. And for the first time since I've been following you guys, below $10 million of cash on the balance sheet. And so that's troubling. And so I'd just like to understand better what is exactly driving the operating expense increase quarter year over year. and to what extent that is containable as we move forward. And obviously, so many of these things are still TBD in terms of when the revenues show up.
Rick Wheeler
Yeah, so many of those higher costs, employee-related costs, we have higher employee benefit-related costs like medical benefits and things of that nature. slightly higher salaries and salary expenses, primarily things related to increases we've incurred due to inflationary pressures with our employee base. Other than that, our general expenses, the increase has generally come from a higher level of activity, mostly because we're coming out of this COVID period where Things like business travel and conferences and trade shows and things of that nature couldn't happen. We're also had during this year an increased level of engineering related projects, part of it associated with this PRM test that we did for a customer. So some of these, particularly like the engineering expense, project expense, I don't expect to continue to grow over time.
Rick Wheeler
I think, too, the fact if you're comparing to the third quarter of a year ago, we wouldn't have any bearing of costs for Aquana. So the recent acquisition we did of Aquana is a part of our diversification strategy, which is what is actually causing the adjacent markets to expand, or it's providing other opportunities for it to expand for sure. So there are efforts there in rolling out that new product, which has every expectation of generating revenue, that increased OpEx in some of that endeavor. That included some R&D efforts. There were supply chain issues that really everyone in the world is having to contend with, and that certainly impacted the rollout of that particular product where there were certain chips and ICs that just were not available. You couldn't get them in any kind of reasonable time frame. So our engineers actually were challenged to go do some redesign on that to more available parts, and they did that. So that is also an element that increased those expenses somewhat. Like Robert said, I don't think all of those are going to be recurring, though.
Michael Cox
Okay. And I respect all that. We are approaching something similar. much more alarming in terms of cash, right? I mean, it's great to have all that going on, but now you've got $9 million of cash. And so that's, you know, are there efforts underway, not only to just not incur the one-timers, but really think about this environment, which, you know, continues to baffle, you know, about how do you pull that back down? I mean, because the burden rates that you've had for the first six months of calendar 2022 is not sustainable. So how do you get that under control?
Rick Wheeler
You know, we examine that every day and we're working through that, you know, constantly. You know, one of the things that related to cash flow that we're seeing on the horizon is this uptick in our OBX rental activity. And we expect that to help us generate more cash and help us get into a better position from a liquidity point of view. We don't expect to continue to consume cash at the same rate we have been through the rest of this fiscal year.
Michael Cox
So the cost of this trial for the PRM system, which certainly is exciting in many respects, you bore 100% of that cost? That's not something you get reimbursed to provide?
Rick Wheeler
No, we did not bear entire costs. But then again, we're not going to reveal, you know, what the relationship is there. But certainly some of these costs that were alluded to as it relates to that are the construction of the prototype system, building of the cables, the sensors, and putting all that together. That certainly was something that we took the responsibility for doing.
Michael Cox
Okay, okay. Well, it's exciting to be there, and obviously PRM is a huge, I mean, it's important, so I'm excited to hear that that test took place. Do you have any update on what you think of their timing, this particular customer's, you know, just over what horizon are they considering this project?
Rick Wheeler
Yeah, that's always the important question, Michael. Right. There's still an expectation that a tender could come out before the end of this calendar year. It would be towards the end of it, though, from the conversations that we're having. But that is a possibility. Other than that, you would be looking at you know, that tender coming out in early 2023 calendar year. The facts are that with these systems, there's a considerable amount of manufacturing time that's necessary. And these various customers each have, you know, high ambitions of getting these things producing and these fields going forward. you know, by certain dates that they can't, you know, they just can't miss. I mean, there's lots of money at stake from a revenue standpoint for them getting these deals in production. So that being said, you know, I think that there's certainly an attempt on their part to try to accelerate as much as they can when a tender would be out because they know there's a lead time to getting all this stuff in place.
Michael Cox
Okay, good. Good. Well, that's exciting. That's really wonderful. Mark, you know, this was – and maybe I'm just missing it, but it's like one of the first times in a while that a press release hasn't talked about quantum and the opening comments didn't really talk about quantum so much. But your comments about where you are in terms of your own sort of bidding and project side were much more encouraging. Last time we talked one-on-one, you were saying that you sort of agreed that this was a big year for Quantum to sort of prove its market viability and many other new verticals. Just maybe could you update a little bit on the timing of real revenues on this sort of next wave after the border project of getting, you know, developing something that has a significant impact on the financials of the company or at least a meaningful one?
Bill
Yeah, I won't comment in an absolute sense on the timing. But I will say that pursuing into two major markets of energy in federal with the same product line, that's key to our strategy. Controls costs, common messaging, the differences, the sources of energy that we're monitoring. And that strategy is working. It's allowed us to remain focused. It's allowed us to test the markets. and to do these talks on the energy side, get constructive feedback and enthusiasm for the potential that we bring for the carbon markets, as well as talking to those who need passive seismic monitoring for other applications, whether it's something like geothermal or hydraulic fracturing. So there appears to be some market attachment there that SADAR may be able to fill the niche for because of its unique values that it offers. It's not a traditional monitoring system. And those conversations, again, are going well. Doesn't mean we're going to slam dunk this yet, but they're going very well. On the federal side, where we come from, you know, for over 20 years, I had a high degree of confidence there, and that confidence is very much sustaining right now. So we're The momentum into the federal space is occurring. But again, it's the federal space. It's not much different than energy when you're dealing with a massive organization like the United States government that, too, has volatility every two years with an election. But budgets continue to flow. Requirements remain the same. And we've been aware of those and have targeted certain agencies. And those conversations are proving to be very fruitful right now.
Michael Cox
All right. I recognize your reluctance to comment on the timing side, but sort of, again, thinking about calendar 22, do you think, at least on the federal side where your degree of confidence is high, that there is potentially an announcement of some meaningful thing coming before Christmas this year? Or are we looking at 2023 before there's, you know, something that, you know, there's material that we could point to?
Bill
I have too much experience working with the government to make any promises right now. We can have an end user who says, this is great, let's get it done. And then the challenge is always the contract and what that contract may be able to provide. So being able to have some error bars on that, on the magnitude of a quarter here or a quarter there, gets a little too uncomfortable for me to make a promise by the end of this calendar year.
Michael Cox
Got it. And so you said it's pretty significant. similar in some respects working with the energy side. Does that timeframe then sort of apply to them as well?
Bill
Time frame on energy I think is, that is much more of a, we're unseating the status quo. I think that's an important thing for everybody to realize. Anytime you unseat the status quo, you gotta take your lumps as people start to realize, oh wow, this is effective. And so to beat that horse again of what we're doing in Canada, publishing these papers and giving these presentations to show its effectiveness for a reduced footprint of sensors, for real-time monitoring and better results. When you think about trying to monitor a gigaton of carbon, that is a big field. That's something the size of the city of Houston. How are you going to do that? Traditional methods will not be economically viable. So we're getting that message out there. and then looking to do something similar to what we just did on the PRM side, which is start to prove it out with these studies from an industry standpoint past where we are in Canada.
Michael Cox
Got it. Okay. One more question, and then I'll shut up. This most recent quarter, it was sort of interesting, and again, relative to past patterns, but on the gross profit side on products, you just looking quarter over quarter in particular, just as a way of example, basically the same cost of revenue on about 70% of the revenues. Is there a reason why? I mean, is this a product mix issue, et cetera? Just what's going on? Why basically you sold all your products this last quarter almost for no gross profit?
Rick Wheeler
Certainly product mix has an effect on that, but I think the bigger reason for the phenomenon you're noticing is because we have excess manufacturing capacity here in our factory in Houston that's predominantly focused on the effort of manufacturing oil and gas related products. And when we don't have activity to absorb those fixed manufacturing costs, then they flow straight through to the income statement, right? It'll get absorbed into manufacturing equipment and go into our inventory.
Michael Cox
Got it. So this is maybe a little bit more the fixed amortization depreciation side of that, speaking through than the actual products themselves being released in terms of their cash costs? Got it.
Rick Wheeler
Okay. Thank you, guys.
Michael Cox
I appreciate it.
Rick Wheeler
You bet. Thanks, Michael. Yeah.
Operator
Thank you. Our next question will come from Michael Melby with Gate City Capital.
Michael Melby
Thanks, gentlemen. I was hoping you could provide your comments on the TGF MegSites Fairfield deal that was announced. It looks like it was over $230 million and involves one of your customers and then your largest OBX competitor. Any thoughts on the price paid or the competitive impact it might have on you would be appreciated.
Rick Wheeler
No, Mike, I really don't know what went into coming up with that number. You know, there's certainly some assets involved with that because there's vessels and things of that nature that go into that number. But, you know, value of those things are something I don't have any information about. With respect to the actual acquisition itself, I mean, I completely understand why TGS would pursue that. A lot of this has to do with the very thing we're reporting, which is the increased activity in this ocean bottom survey actions that are taking place here. TGS, as a premier seismic library house, is certainly going to want to, in a domain of tight capacity with respect to the contractors and equipment available, going to want to try to maximize their share of that, as it were. There is enough work out there going on to where that MagSize themselves is just a piece of the entire industry action that's taking place. Our customers certainly still have plenty of work to do and a lot of tenders coming out. That is a very much escalating activity and changes on a regular basis, somewhat represented by the fact that the amount of signed contracts that we have now compared to last year has gotten to the number that it has. I think in many respects, you know, the supply limitation of this type of equipment of which we're a big piece of the market share out there, is definitely going to be beneficial to us. There's going to be plenty of work that these contractors, there's even new contractors coming out in this acquisition area.
Michael Melby
Got it. Thanks. And maybe to the prior caller's questions, the environment's certainly gotten a lot better, but thus far it has not led to dramatic improvements or improvements in your profitability or free cash flow. And maybe it's not the first focus of the board or the management team right now in terms of getting to that level, but I was hoping you could without providing guidance, provide a path to how you see the improving environment translating into the company being free cash flow positive and profitable with the AssetBasey app?
Rick Wheeler
Well, we think that in many respects, we're doing that now. I mean, certainly to the extent that we're ramping up in this business side, there's always going to be cost concerns that we will address and size ourselves appropriately. But in this particular case, as the market is increasing with respect to demand for our products, we think that's going to be a big component of it. Certainly PRM opportunities out there would be major events for our company and the organization. So we can't let those go by the wayside either in our attempts to sort of size ourselves appropriately for what's coming. Looking at the forecasts, and discussions with our customers is a major part of how we go about making those decisions.
Michael Melby
Yeah, I guess an additional color, you know, the environment's gotten better, but kind of the pathway that you see forward to being free cash flow positive as it's in the current environment, it's a path that I think if you can provide more information on getting to that point and the revenue number needed to cover the current expenses?
Rick Wheeler
Yeah, a lot of that depends on the product mix, as it were, and the services performed. But certainly within the adjacent markets, you know those things are progressing well. The oil and gas side has been the one that has been the most affected by these recent depressions that particularly got exacerbated throughout COVID. I think fundamentally, you know, it's just an adaptation to what's going on, and there will be cost reductions that we have to consider and go through as we adapt our capabilities for what we see coming.
Michael Melby
Yeah, and from the outside, it appears that kind of a strategy has been to cover your fixed costs by acquiring adjacent businesses. And just given the premium on the MagSite Fairfield deal that's proposed, it feels like it could be advantageous in this environment to have someone bigger that has the ability to cover all the fixed costs, utilize excess capacity and technology and things like that. It looks like that was something they were able to at least carve out in this deal and maybe something that – could be beneficial for geospace and shareholders if that opportunity presents itself.
Rick Wheeler
Yeah, I think in this case, you need to examine that business a little more closely because what you're looking at is a service industry component there with respect to where those costs really lie as it relates to TGS, which is not the same as in a manufacturing organization.
Michael Melby
Yeah, I agree with that.
Rick Wheeler
It's just we're not fully utilized on capacity, and if someone else can utilize that capacity without – Oh, you bet, and that's exactly why the contract manufacturing – you're absolutely right, and that's why the contract manufacturing component has expanded in the way it has, and actually we see growth in that activity too. And to your point, it definitely provides better utilization of the capacity, the manufacturing capacity. Okay.
Michael Melby
Yeah, understood. It just feels like that business is going to have to grow a whole lot to utilize our capacity, and that's holding back our profitability at the current time.
Rick Wheeler
Right. No, it definitely needs to grow, and the two need to meet in the middle. Got it. Thanks.
Operator
Thank you. Our next question will come from Scott Bundy with Moores & Cabot.
Scott Bundy
I have two other quick questions. Am I correct that you have spent or are going to spend roughly $4 million on additional OBX equipment?
Rick Wheeler
We have spent this year $4 million on additional OBX equipment, primarily in deep water models.
Scott Bundy
And then lastly, Rick, if Just to provide some sort of guidelines, would the current potential PRM customers' dollar revenue be in the same range that we've seen in the past? And I'm just going to throw out $30 million to $100 million. Is that sort of the range that we're talking about?
Rick Wheeler
Yeah, that's definitely a good window of what we see these opportunities to represent. Thanks a lot, guys.
Operator
Thank you. Once again, that is star one to ask a question. All right, we have no further questions at this time, so I would like to turn the floor back over to Mr. Rick Wheeler for any additional or closing remarks.
Rick Wheeler
All right. Well, thank you, Chelsea. And thanks to everybody who joined us here for the call today. We look forward to speaking to you again at our next conference call for the fourth quarter of fiscal year 2022, which will occur in November. So thanks again and goodbye.
Operator
Ladies and gentlemen, thank you. This does conclude today's Geospace Technologies third quarter 2022 earnings conference call. Have a wonderful day.
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