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Geospace Technologies Corp (NASDAQ:GEOS)
Q4 2020 Earnings Call
Nov 20, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Geospace Technologies's Fourth Quarter and Full Year 2020 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.

[Operator Instructions]

And it is now my pleasure to turn the floor over to Rick Wheeler. Sir, you may begin.

Walter Richard Wheeler -- President and Chief Executive Officer

Thank you, Chris. Good morning, and welcome to Geospace Technologies's conference call for the fourth quarter and year-end of our 2020 fiscal year.

I'm Rick Wheeler, the company's President and Chief Executive Officer, and I'm joined by Robert Curda, the company's Chief Financial Officer. We'll also have with us Dr. Mark Tinker, CEO of our Quantum Technology Sciences subsidiary. I'll first give an overview of the fourth quarter and year-end, and Robert will follow with some in-depth commentary on our financial performance. I'll then make a few last remarks before opening the line so that Robert, Mark and I can answer questions.

Some of today's statements may be considered forward-looking as defined in the Private Securities Litigation Reform Act of 1995, including comments about product markets, revenue recognition, planned operations and capital expenditures. These statements are based on our present awareness, while actual outcomes are affected by uncertainties and other factors we cannot control or predict. Both known and unknown risks can lead to undesirable results or performance differences from what we say or imply today. Such risks and uncertainties include those discussed in our SEC Forms 10-K and 10-Q filings.

For convenience, as was mentioned, we will link a recording of this call on the Investor Relations page of our geospace.com website. Our website has actually been recently revamped and refreshed, and I encourage everyone to visit it and have a look. Note that the information discussed this morning and reflected in this recording is time-sensitive, and it may not be accurate at the time one listens to the replay.

Yesterday, after the market closed, we released financial results for our fourth and final quarter of fiscal year 2020 ended September 30, 2020. As we noted, the COVID-19 pandemic, which continues to negatively impact economies everywhere, began relatively early in our 2020 fiscal year. In response, we implemented and still maintain heightened health and safety protocols in our operations to help protect our employees, while ensuring our valued customers are served in the manner to which they've grown accustomed. Despite the negative impact COVID-19 has had on each of our business segments, we are pleased that our fiscal year 2020 total revenue of $87.8 million was within 8% of last year's total. And that's over the course of the year, as we generated over $18 million in cash from operations.

Note also that this reported revenue figure does not include any amounts from our sale in the second quarter of a GCL land recording system to one of our customers. This purchase valued at $12.5 million, included $10 million of financing through a promissory note. By the end of September 2020, almost $5 million had been received toward this system, including interest charges on the note. Principal payment amounts toward this sale are listed on our balance sheet as part of non-current deferred revenue, which we intend to recognize at a later date when collection of the note is likely.

As was the case throughout the fiscal year, our fourth quarter results continued to be fueled by demand for our OBX ocean-bottom recording systems. In fact, rental contracts for our OBX marine systems drove revenue from our wireless exploration products above last year's mark. This helped in partially offsetting reduced demand for other products in our oil and gas segment, as well as the weaker demand we experienced for various products in our Adjacent Markets business. Reduced demand in all cases was largely brought about by the negative effects of COVID-19.

The efforts to combat this disease have driven down the world's demand for oil and gas, which has led to the largest imbalance of supply over demand ever experienced. With the majority of seismic exploration activities currently suspended, demand for our oil and gas products remains limited. Our Adjacent Markets graphic imaging products have also seen setbacks. These products are used in the printing processes, merchandising and promotions of sports, entertainment, schools, tourism and other social gathering events. But due to COVID-19, many of these type activities have been curtailed, thus lowering demand for these products. Recognizing this lower demand for our products and rentals and in keeping with our conservative financial management, we took steps to lower our operating costs with a reduction in force in the third quarter of fiscal year 2020. Although a return to some form of normalcy from these circumstances seems almost certain, the timing and extent of such recovery is unclear.

Late in the fourth quarter of fiscal year 2020, we received a request from a major oil and gas producer to provide a proposal for the manufacture and installation of a large-scale seabed permanent reservoir monitoring, or PRM system. As a matter of note, we have the largest installed base of PRM systems in the world, with configurations utilizing either high-resolution electromagnetic sensors or our unique OptoSeis fiber optic sensor technology. In the event of a favored response, the potential customer is expected to award a contract in the second or third quarter of our 2021 fiscal year. If we were to be awarded the contract, revenue from the contract would not likely be recognized until the latter part of fiscal year 2021 and beyond. Unrelated to this tender, we are also continuing our discussion with other major oil and gas producers for possible PRM systems. And we are also well under way in the execution of a $10 million contract awarded to us in April 2020 by the US Customs and Border Protection US Border Patrol to provide a technology-based border and perimeter security system. Revenue from this contract is expected to be recognized in our 2021 fiscal year, which began October 1, 2020, and end September 30, 2021.

At this point, I'll now turn the call over to Robert so he can provide more financial detail.

Robert Curda -- Vice President & Chief Financial Officer

Thanks, Rick, and good morning, everyone.

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, 2020, we reported revenue of $21.5 million compared to last year's revenue of $28.9 million. Net loss for the quarter was $3.9 million or $0.29 per diluted share compared to the fourth quarter last year's net income of $8.7 million or $0.63 per diluted share. For the year ended September 30, 2020, we reported revenue of $87.8 million compared to revenue of $95.8 million last year. Our net loss for the year was $19.2 million or $1.42 per diluted share compared to last year's net loss of $146,000 or $0.01 per diluted share. Fiscal year's 2020 net loss was burdened with a $1.1 million net increase in the fair value of contingent earn-out liabilities related to our acquisitions of Quantum and OptoSeis and a $671,000 charge for goodwill impairment in the company's oil and gas business segment. Fiscal year 2019 benefited from a $7 million gain from the sale of non-essential real estate and a $2.1 million net reduction in the fair value of contingent earn-out liabilities related to our acquisitions of Quantum and OptoSeis. Excluding these adjustments for fiscal year 2020, the company would have reported a net loss of $17.5 million or $1.29 per diluted share, while fiscal year 2019 would have resulted in a net loss of $9.3 million or $0.70 per diluted share.

A breakdown of our oil and gas product revenue is as follows. Our traditional product revenue for the fourth quarter was $1.1 million, an increase of 83% compared to revenue of $600,000 last year. Revenue for the year was $6.7 million, a decrease of 30% compared to last year's revenue of $9.5 million. The increase in revenue in the fourth quarter of 2020 is due to comparing to the historic low level of revenue from the same period last year. The revenue decline in the annual period is attributed to lower demand for our traditional products as a result of minimal seismic exploration activity due to the low demand for oil and gas caused by the COVID-19 pandemic.

Our wireless product revenue for the quarter was $13 million, a decrease of 35% compared to revenue of $20 million last year. For the full year, wireless product revenue was $54.1 million, an increase of 2% compared to $52.7 million in the prior year. The fourth quarter decrease is due to lower sales in rental of our wireless products. The modest annual revenue increase for fiscal year 2020 over fiscal year 2019 is the result of demand for our OBX system rental fleet. We expect reduced revenue from the rental of OBX systems in fiscal year 2021 due to the reduced global demand for oil and gas. As a reminder, we have not recognized revenue in fiscal year 2020 for the $12.5 million [Phonetic] product [Phonetic] sale delivered in the second quarter and secured by a $10 million promissory note. As of September 30, 2020, we have received almost $5 million in cash for principal and interest payments from our customer. Our customer continues to remain current on all payment obligations. The principal payments received and cost of revenue associated with the sale have been recorded on our balance sheet as part of long-term deferred revenue and long-term deferred cost of revenue.

We plan to recognize the revenue and cost of revenue for this transaction when we determine the collection of the promissory note is probable. Our reservoir product revenue for the fourth quarter was $110,000, a decrease of 56% compared to revenue of $252,000 last year. Revenue for the full year was $936,000, a decrease of 65% compared to the revenue of $2.7 million last year. Reductions in engineering service and lower demand for the sale of rental and repair of our overhaul tools are responsible for the decrease in both periods. We do not expect meaningful revenue from these products unless and until we are engaged in a contract for the delivery of a permanent reservoir monitoring system. During our fourth quarter, we received a request to quote on a large-scale PRM system from a major oil and gas producer. Provided we reply to the request, we expect the potential customer to award the contract in the second or third quarter of fiscal year 2021. If awarded, the contract revenue will not -- would not likely be recognized until the latter part of fiscal year 2021 and beyond.

Moving to Adjacent Markets products segment. Our industrial product revenue for the fourth quarter was $4.4 million, a decrease of 16% compared to last year's revenue of $5.3 million. Revenue for the year was $15.6 million, a decrease of 15% compared to last year's revenue of $18.3 million. We believe this decline in revenue for both periods is primarily a result of the COVID-19 pandemic's effect on the demand for our products used in non-oil and gas industrial markets and the need for our contract manufacturing services. Imaging product revenue for the fourth quarter was $2.7 million, a modest decline as compared to last year's revenue of $2.8 million. Revenue for the full year was $9.8 million, a decrease of 17% compared to $11.8 million in fiscal year 2019. We believe these decreases are primarily attributed to the COVID-19 pandemic, causing lower demand for our imaging products.

Revenue from our Emerging Markets segment totaled $177,000 and $734,000, respectively, for the three months and the year ended September 30, 2020. Prior-year revenue was $14,000 for the fourth quarter and $159,000 for the fiscal year 2019. The increase in revenue is due to the sale of border and perimeter security products to a commercial customer, and initial site preparation in engineering related to the US Customs and Border Protection US Border Patrol contract awarded in April 2020. Most of the revenue for the $10 million contract will be recognized in our fiscal year 2021. Our consolidated gross profit for the fourth quarter was $5 million, a decrease of 52% compared to $10.4 million last year. Gross profit for the year was $23.4 million, a decrease of 25% compared to $31.4 million last year. The decline in -- in our gross profit resulted from a significant decline in product sales in the oil and gas and adjacent market business segments due to decline in demand for our products as a result of the COVID-19 pandemic and an increase in underutilized factory capacity due to lower manufacturing productivity.

When analyzing our 2020 and 2019 operating expenses, excluding the effect of non-cash adjustments to the fair value of contingent earn-out liabilities and goodwill impairment, our 2020 operating expenses for the fourth quarter was $9 million, a decrease of 11% compared to $10.2 million last year. 2020 operating expenses for the full year was $39.7 million, virtually equal to last year's operating expenses of $39.1 million. The fourth quarter operating expenses decreased due to the recovery of previously reserved aged accounts receivables, lower engineering project expenditures and reduced sales and marketing expense.

Fiscal year 2020 cash investments into our rental fleet, and property, plant and equipment were $5.5 million and $2.9 million, respectively. We expect fiscal year 2021 capital investment into our rental fleet will be minimal unless new contract -- new rental contracts warrant additions to our fleet. Fiscal year 2021 capital investment in our property, plant and equipment could be as much as $5 million. Our balance sheet at September 30, 2020, reflected $32.7 million of cash and cash equivalents. We had no long-term debt outstanding and the borrowings available under our credit agreement was $17.7 million. We own numerous real estate holdings in Houston and [Phonetic] around [Phonetic] the world that are owned free and clear and without any leverage.

That concludes my discussion, and I'll turn the call back to Rick.

Walter Richard Wheeler -- President and Chief Executive Officer

Thank you, Robert.

COVID-19 continues to tightly grip the economies of countries around the world. And until there is a successful vaccine and infection rates consistently decline, there's really no way to forecast what a recovery will look like. Although the impact of the pandemic on some of our business segments was initially delayed, the negative effects have largely caught up.

Seismic exploration activity will likely remain minimal as long as oil and gas supplies outstrip demand. And the disruption of demand brought about by COVID-19 reinforces this condition. As certain of the businesses of some of our customers suffer from the pandemic's effects, many of our adjacent market products will continue to see weaker demand. However, a large element of our current efforts is focused on longer-term strategic goals and projects of major customers that are looking much further into the future. This includes oil and gas companies eager to find new reserves near existing assets using our OBX systems, as well as those intending to maximize recoveries from existing fields using our PRM systems.

Also, certainly transcending this pandemic is the critical mission of the US Customs and Border Protection US Border Control as we go about fulfilling our contract to provide the Department of Homeland Security with a technology solution to protect our borders and society at large. We believe our strong balance sheet with ample liquidity and no debt gives us the fundamental strength to weather this pandemic and emerge on good footing. As such, we believe we are well positioned to leverage our comprehensive engineering and significant manufacturing operation in pursuit of new specialized industrial manufacturing customers and in support of national and homeland security missions. By maintaining our own manufacturing operation, we de-risked our supply chain and enabled rapid time to market for our new products, all of which makes us highly attractive for partnership and fulfillment of commercial and government contracts.

In other matters, I take special pleasure in welcoming the recent additions to our Board of Directors of Margaret Sid Ashworth, former Vice President of Government Relations for Northrop Grumman, and Kenneth Asbury, former President and CEO of CACI International. The experience each of them bring from their remarkable careers and accomplishments will bring fresh and diverse perspectives to our Board and future strategies, creating new value for our shareholders.

I'd also like to make note of the stock repurchase program just announced and authorized by our Board of Directors. In accordance with this program, discretionary purchases through open market transactions of up to $5 million in aggregate have been authorized. Actual purchases under the program will depend on various factors, including stock price, trading volume and our general business and market conditions.

In closing, and as we enter this Thanksgiving season, let me give thanks to our hard-working employees who give all -- they're all in supporting our operations and valued customers. And my additional hearty thanks go out to our loyal shareholders, who continue to confidently recognize our value and our ability to withstand and emerge from these uncertain times.

This concludes our prepared remarks, and I'll now turn the call back over to Chris for questions.

Questions and Answers:

Operator

[Operator Instructions]

And our first question comes from Bill Dezellem from Tieton Capital. Please go ahead.

William J. Dezellem -- Tieton Capital Management -- Analyst

Great. Thank you. You've given us a lot to chew on here. Let's start, if we could, with the PRM tender. Is this an existing customer or a new customer that has let this tender out?

Walter Richard Wheeler -- President and Chief Executive Officer

Well, we certainly have experience with this customer, so they're an existing customer. There's -- as you might well know, in all of these endeavors, there's typically many partners involved as it were. But certainly, this customer is one that we dealt with in the past.

William J. Dezellem -- Tieton Capital Management -- Analyst

And so Rick, may we interpret that as the partner would maybe not be the one who made the final decision or was a name that was announced to the public previously, but they were on one of the fields, so they would know the capabilities of your system?

Walter Richard Wheeler -- President and Chief Executive Officer

Well, I think in almost all these circumstances, the partners pretty much make all their names known. So I would say even in earlier work that we've done that their name was certainly mentioned.

William J. Dezellem -- Tieton Capital Management -- Analyst

Understood. Great. Thank you. And so the reason I'm asking the question is with oil prices at a -- uninspiring level, they're making decision to go ahead with a tender. That implies that they have some real -- they have a favorable view of the ROI even at current oil prices. And so that's just my theory. I guess, would you talk to how the customer is viewing this? And how they are -- what ROI they've had in the past? And why they would be letting the tender out now?

Walter Richard Wheeler -- President and Chief Executive Officer

Sure. They don't really reveal their explicit ROIs as it were. But I think you're fundamentally absolutely right in the sense that they recognize the return on these investments. The good news, and it's really along the lines of what I mentioned before, there are certain aspects of looking forward well beyond what COVID-19 is doing. And even prior to the pandemic, there were certainly supply imbalances. But nonetheless, if you're looking longer-term and maximizing the recovery of existing assets you already have, that it makes sense. These systems for -- more than two decades now, have been known to have a beautiful return on the investment in the manner that it allows the reserve to be managed and where to mitigate circumstances where productions are being reduced and get them back up again. So I think this is just a normal course of action for those that are looking longer term, besides the existing very temporal circumstances that we're going through right now.

William J. Dezellem -- Tieton Capital Management -- Analyst

And Rick, do we remember correctly when British Petroleum did their first -- or made their first acquisition of the equipment. The oil prices at that time were in the $20 to $30 level, and they came out with a white paper that indicated that they had a quite a high return on investment, if I'm remembering correctly?

Walter Richard Wheeler -- President and Chief Executive Officer

Yeah, that goes back way far, but you're exactly right. That was 2003 when we created that first system and had it installed. But yes, the answer is yes to that.

William J. Dezellem -- Tieton Capital Management -- Analyst

And so, let me just pick the number of $25 a barrel. With $40 a barrel oil today, what's the difference in how that ROI calculation would be? I guess, what costs have changed over that time period, or could we surmise that even at $25 that there would still be a good ROI, so at $40, it would be even better?

Walter Richard Wheeler -- President and Chief Executive Officer

My recollection may be wrong, but I thought the price of oil at that point in time actually dipped well below that number you mentioned when that first PRM system was put in. In terms of establishing what ROI would be in today's world, I'm sure that would just be a matter of adding [Phonetic] the inflationary aspects across the various market segments that it evolves. But I certainly don't have those numbers right in front of me.

William J. Dezellem -- Tieton Capital Management -- Analyst

Great. Thank you. And then what additional insights would you like to share about the other companies that are evaluating the PRM that you referenced in the press release?

Walter Richard Wheeler -- President and Chief Executive Officer

I think, again, they are looking at the future with the eyes of optimizing their ability to make money on the existing assets that they have. That's what PRM does. In fact, in more recent times, these PRM systems have been evaluated for being put in service very early on in the life of the reserve. So in some cases, in earlier times, these type systems were placed in service after they have been producing from the reservoir for quite some time. These days, because of their understanding of how that optimizes their recoveries, they're considering that in much earlier circumstances.

William J. Dezellem -- Tieton Capital Management -- Analyst

Rick, does that increase the size of the market for you?

Walter Richard Wheeler -- President and Chief Executive Officer

That's hard to say. The market has always been one that's very specific and very sparse, to a large extent. There's not a lot of PRM systems out there. We have almost all of them. I think there's a handful -- two or so that are not ours or not ones that our technology is in place in. As far as whether the market is burgeoning, that's not for me to say. We're out there just trying to service the needs that they raise, and we have a technology that allows them to do so.

William J. Dezellem -- Tieton Capital Management -- Analyst

Great. Thank you. I'm going to switch gears entirely, if I may. The two new directors that you have brought on, what are they thinking that they can bring to the table for you?

Walter Richard Wheeler -- President and Chief Executive Officer

A whole lot. Besides their additional experience in dealing with the government contracts and other services, as it relates to the government, they just bring overall great credentials with respect to business as a general rule. So I'm very much looking forward to their input and pretty much everything that we do. So I don't see any limited area of their contribution at all.

William J. Dezellem -- Tieton Capital Management -- Analyst

No, it looked very qualified. It was certainly not a questioning why you would choose them. I was just wondering if they had something in each of them, in particular, that they're feeling like they can really bring to the fold for you? And in particular, Sid with the experience in the appropriations process from a much larger company perspective, is there anything in particular that may be specifically useful there?

Walter Richard Wheeler -- President and Chief Executive Officer

Well, I believe there is. Fundamentally, that experience helps us develop our strategies. And there's a lot to that. In many cases, we have gone down the path as best we understand, and the guidance that she's going to be able to help provide us in those same endeavors is just going to be remarkable.

William J. Dezellem -- Tieton Capital Management -- Analyst

Great. Thank you. I can either step back in, or I do have some additional questions. Which would you prefer?

Walter Richard Wheeler -- President and Chief Executive Officer

That's up to you and the moderator.

William J. Dezellem -- Tieton Capital Management -- Analyst

Well, unless the moderator cuts me off, I will continue. The Democratic Congresswoman Elissa Slotkin, I believe it is, in Michigan, did put a bill out in September kind of requesting comprehensive Border Patrol plan. I think it was to identify, deploy and integrate the emerging and advanced technologies. And I think there have been also some other bills that kind of under the same vein. What is the implication of such a thing? And has this bill made any progress in Congress?

Walter Richard Wheeler -- President and Chief Executive Officer

The implication is certainly that the technology that she's referencing, there's certainly 100% intersects our technology and capabilities. What we provide is a high-technology solution. It's one that really reaches across the aisle in all regards of those that are concerned with border and perimeter security. I don't know the status of that particular bill. Mark is on the line, he may know a little bit of information on that.

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

Hi Bill. Yeah, I'm not sure of the status either, but it does show that there is -- with the new incoming administration that we might see a bit of a shift from more of a balancing, I would say, between a physical security solution to a balance of both physical security and a technological approach to securing our borders.

William J. Dezellem -- Tieton Capital Management -- Analyst

So Mark, kind of taking that one step further. Are you anticipating that the new administration will net-net be favorable to Quantum's ability to generate more border security revenue?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

The good -- we've not experienced that yet so far. So we'll see how this shakes out. But in our experience on the Hill, the value that we add is very bipartisan. We've not seen any issues, Republican or Democrat, concerning their support of the value that we provide. But what may be beneficial is, like I said, more of a balancing in funding. So while we have that support from a bipartisan standpoint, it is important to get that to reflect back into budgets that would potentially allow the physical versus the technological solutions to be better balanced from a budgetary standpoint.

William J. Dezellem -- Tieton Capital Management -- Analyst

Great. And then I need some help understanding kind of the implications of some things here relative to the border security. So you have the contract, which as a one-year contract beginning in early April of last year or probably this year going through early April of '21. You were fortunate enough to be listed as a Program of Record and also have the SBIR Phase III status. I don't think I understand the implications of each of those two aspects, the Program of Record and the SBIR Phase III status, and what that may or may not mean for the next border security contract on the US-Mexican border.

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

Good points and fair questions. Having a Program of Record means that the government agency is recognizing that they have a capability or a need that they are now intending to address. So to do so, they establish a Program of Record that can then be appropriately funded. And of course, you have to have all the elements lined up to fund it. But the first element you have to have is that bucket, if you will, with its defined scope to receive those funds. And so that was a significant milestone for our customer. It's not unique to -- it doesn't uniquely serve what we provide. It provides funding across the breadth of capabilities that they need. And we are one of those. The SBIR Phase III is something that says that we have the exclusive data rights for our technology to the United States government. So they are not able to field or use our capabilities if provided by somebody else. It's kind of like intellectual property protection. So it doesn't mean they can't use somebody else's solution, but if they want to use our solution, if our solution proves to be the best they've ever seen, then that is uniquely addressed by our company.

William J. Dezellem -- Tieton Capital Management -- Analyst

So I don't want to jump ahead too far here, but is the implication then because you are Program of Record that there is -- nothing is guaranteed, but a high probability is that starting April of this coming year that there will be an additional contract simply because that's part of the solution for the problem that they have identified?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

I wouldn't go that far. I want to be very clear that the Program of Record isn't for Quantum or for Geospace. It is a government Program of Record that allow them to address a certain class of threats, using a wide variety of technologies and techniques. And again, we're a component of that, but it's a key milestone. You got to have it to go forward. It's a very dynamic time in our United States government. We're living in the middle of something that's first in history as we're looking at a transition of power between an outgoing administration and a new administration. And so there's a lot in this dynamic that would be challenging to predict as early as April. So I think that we can look to some of these alignments that are -- that might be looking somewhat favorable, but I don't think it's fair to put a time on them that would be so aggressive.

William J. Dezellem -- Tieton Capital Management -- Analyst

Great. Thank you. And then one additional question, and I think I'll hop back in the queue. You have referenced on one of the recent conference calls that the Border Patrol has selected you for an application, which they are now keeping quiet in terms of what that application is. Are there other applications beyond this first one that are being considered? And if so, where are we at in the process with those?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

There are applications, but we're in the early phases. The combined value of Quantum and Geospace that keeps me excited every day is being able to deliver information from acoustic data. And that has a number of applications, and we are engaged with the government as we speak on the exploration of one of those applications. It's completely early stage, and by early stage, I mean it's -- we're beginning to explore the possibility of there being a solution. So it's years out before that closes, but they are aware of how our capability can be valuable elsewhere.

William J. Dezellem -- Tieton Capital Management -- Analyst

Okay. I misspoke. I am actually going to squeak one more question in. So back on the March quarter call, you had talked about the commercial systems integrator that you were working with. And so even prior to the press release, we were interested in an update since that was several months ago, but there was a sale that was referenced in the release to the commercial integrator. Is it the same one? And right now, the numbers are quite small. So how do we go from numbers in the thousands in order -- business in the thousands of dollars to millions of dollars with the commercial system?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

It's another good observation, Bill. It requires patients. For some of our applications, they go into very sensitive areas. And those sensitive areas require very, very thorough testing. Just use the analogy of any flight system that we brought into operations, whether it's the F-22 or something, it could be decades in development for that to be completely tested before certified as operational. We are part of that team, and we are part of that overall capability. And so we are now in the stages of selling kind of single unit systems in and deploying them for this tiered evaluation process. Because it has to be, again, thoroughly understood, evaluated and then accepted. And so that's how you go from something low order with a high potential.

William J. Dezellem -- Tieton Capital Management -- Analyst

And given the time line that you see today, what would be the expected -- the fiscal year that you would expect meaningful orders in that arena?

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

It's many years out. It's many years out. I like it because it gives us the sense of that strategic revenue that we're positioning ourselves for, but it is many years out.

William J. Dezellem -- Tieton Capital Management -- Analyst

Great. Thank you, both, for the time.

Operator

And our next question comes from Josh Cooley [Phonetic], who is a private investor. Please go ahead.

Josh Cooley -- Private Investor -- Analyst

Hey Rick. I appreciate you all's time. I think the gentleman before me probably asked a little bit more thorough questioning than I have for you guys regarding the seismic technology. And maybe you can speak on any potential opportunities that you guys have abroad internationally with border security?

Walter Richard Wheeler -- President and Chief Executive Officer

Well, there certainly are other opportunities out there internationally. In some of those circumstances, they're not in the mood for purchase at this point in time or development. They are either busy with what they already have. But certainly, there is interest there and where we do have continued discussions on those topics. Again, if Mark wants to make some additional commentary, there he's welcome to.

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

Yeah. The international arena is a very important one to us. And our strategy has been to stage ourselves into that. And to do that and to garner the attention of the international community in the international markets, it's very beneficial to be able to demonstrate that you have past performance or proven system in operations. And that's what we're coming to closure on now with the Board of Patrol. The system we're deploying on the border is very complex, and it's taken a great deal of effort from our combined teams as we merge them together to provide this complete end-to-end system. I'm very excited about that. But it's just been effort, and we wanted to make sure we delivered that first, and then we can look at bringing that past performance into the international market space.

Josh Cooley -- Private Investor -- Analyst

Thank you.

Operator

And our next question comes from Brent Miley from Rutabaga Capital. Please go ahead.

Brent Miley -- Rutabaga Capital -- Analyst

Hi, good morning. I had a few questions for you. One on the capex comments, you mentioned it could be up to $5 million. Is that going to be contingent upon sort of the PRM, the possible awarding of that kind of a contract, or is there more -- other investments there that you're considering?

Robert Curda -- Vice President & Chief Financial Officer

Yeah. I think some of it may be related to PRM, but most of it is related to other opportunities we're looking toward. And we're certainly not going to pull the trigger on any investment unless we think there's opportunities and revenue that comes along with that.

Walter Richard Wheeler -- President and Chief Executive Officer

Right. To further what Robert just said, you're referring to the property, plant and equipment type capex. And large part of that is just normal course of business that we're going through. We have certain projects associated with our automation and other things that do drive revenue. And as growth in those areas continues to manifest, it makes sense. But again, to Robert's point, there's certainly always a review of those prior to the actual expenditure that everything is still aligned for them to happen.

Brent Miley -- Rutabaga Capital -- Analyst

I guess, in that main -- what are the areas that have potential growth into next year? Obviously, the kind of the OBX has really been the main revenue driver. So maybe you could provide -- help me understand what kind of visibility you've got into that? I know some of that's rental some small portion of that is sales. But if you actually are considering some investments in automation and the revenue driven, what are the areas that might kind of be hopefully going to rebound in the coming year or two?

Walter Richard Wheeler -- President and Chief Executive Officer

Well, it's really hard to say what's going to rebound and continue the previous exhibited growth as a function of COVID-19. Certainly, our Adjacent Markets has taken the biggest advantage of any automation efforts that we have put in place to date. And we certainly continue to see those with every potential of continuing to grow. There has, without any doubt whatsoever, been an impact as a result of COVID-19, because in many cases, some of those products are used in the smart city endeavors that are constantly going on. But those have seen some reductions because they can't pursue some of those projects of smart metering and other things that take place in this environment of COVID. So we have no doubt that, that industry is going to recover and continue progressing and growing just simply because of what it represents overall to society and to these utility companies. But the timing on that is just very, very difficult to give you any insight on.

Brent Miley -- Rutabaga Capital -- Analyst

Okay. Fair enough. And how about on the OBX side of things? Again, I know the fleet is not growing currently. But what is -- what kind of visibility do you have into the coming year in terms of utilization and so forth, if any?

Walter Richard Wheeler -- President and Chief Executive Officer

I think that we're seeing a slowdown in that. As I mentioned in our earlier statements, early on, some of the segments had very much a delayed impact with respect to how COVID-19 was having an effect. But we have seen a catch-up on that. So largely, I think that we have every expectation that the OBX rentals are going to subside to some extent. The number of quotes that are coming in are certainly reduced. We also have a different character to some of the quotes. Many of them are calling for deepwater activity, which is highly interesting, and that's a much different product in terms of its capabilities because of the depths that it can reach and all. But in general, we see the OBX continuing, but we certainly believe there's going to be a lessening of demand there as time goes on.

Brent Miley -- Rutabaga Capital -- Analyst

Okay. Fair enough. On the sort of Border Patrol side of things, is -- if you were to frame up the next -- and I understand it's a very complex process and you're dealing with governments and administration changes, as testing. I understand all that. Is -- when you look at the time frame, you've characterized the potential market as being every bit as big as your current core business. Is that sort of over a five-year time horizon? I'm just trying to frame it up for sort of long-term investors, but I do kind of want to understand when in terms of in setting the P&L, that might become sort of more material to kind of to the -- in the external financials as it were?

Walter Richard Wheeler -- President and Chief Executive Officer

No, I understand. And I still think that's going to take some time. The uncertainty of what's going on now is certainly not helping matters as it were. Appropriations are going to be delayed and go through probably a whole another round of deliberation as far as that goes. I think the important thing for us is that the technology we provide is unique. It's a technology that has not existed in the past. It notably performs well in what it does in providing listening and ears capability. Most security aspects are wrapped in terms of line of sight type of approach to things. What we provide is something that doesn't need that, and it certainly can detect and determine events and provide intelligent information that's actionable without that need. So given that the uniqueness of the product, it's going to take a little while for that to introduce itself in the level that we expect. But we do have every confidence that the technology represents itself in a way that can grow to the size of our oil and gas business.

Brent Miley -- Rutabaga Capital -- Analyst

And is the -- [Speech Overlap] the current $10 million contract, I'm assuming that that will be -- the vast majority of that will be recognized, I guess, either in the first or second quarter, given the end date on that contract. Is that correct?

Walter Richard Wheeler -- President and Chief Executive Officer

Yeah, that's right.

Robert Curda -- Vice President & Chief Financial Officer

That's absolutely correct.

Brent Miley -- Rutabaga Capital -- Analyst

Okay. And then is the best way to sort of think about that again, beyond some of the budgeting complexities -- is the best way to think of that as if this project works? And actually, I know that you have to do a lot of testing. So I think it does work. Otherwise, you wouldn't be even in the sort of -- you wouldn't have gotten that contract. But if that works, is this sort of the biggest near-term opportunity basically to get sort of incremental additions to that kind of a rollout? In other words, if you did a mile of fencing a certain area of traffic and whatever there are -- is it is fair to assume that there are many x times similar layouts and opportunities in terms of where you are in the border and so forth. And sorry that's really big. But basically, if you've got 1% penetrated and this thing really works, do you have a chance to get to 100% or 50% penetrated over the next two, three years?

Walter Richard Wheeler -- President and Chief Executive Officer

There is absolutely more opportunity along the lines of what we're putting in now. It's not at all even near the saturable point of what that market demands. So the answer is yes to that. There's plenty of opportunity in that regard.

Brent Miley -- Rutabaga Capital -- Analyst

Okay, great. Appreciate it. Thank you, guys.

Operator

And our next question comes from Scott Bundy from Moors & Cabo. Please go ahead.

Scott Bundy -- Moors & Cabot -- Analyst

Hi Rick, good morning.

Walter Richard Wheeler -- President and Chief Executive Officer

Hi Scott.

Scott Bundy -- Moors & Cabot -- Analyst

Just a quick question. OptoSeis versus prior technology, I think there's only one system out there. What's the value of fiber to your customer versus prior technology?

Walter Richard Wheeler -- President and Chief Executive Officer

There's significant interest in the fiber at this point in time. So I would say that the highest points of interest in these permanent reservoir monitoring systems, as we speak, are looking toward the fiber. The conversation does vacillate a bit back and forth. But certainly, just to be honest, their interest seems to lie in that technology.

Scott Bundy -- Moors & Cabot -- Analyst

Thank you very much.

Operator

And it does appear that there are no further questions over the phone at this time. I'd like to go ahead and turn it back to you, Scott -- Rick, for any closing comments.

Walter Richard Wheeler -- President and Chief Executive Officer

All right. Well, thank you, Chris, and thanks to everyone who joined our call today. And let me encourage everyone to have a very safe and happy Thanksgiving coming up.

With that, we will get back with you on our first quarter of fiscal year 2021 in February. So have a good Thanksgiving. Thanks, and bye-bye.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Walter Richard Wheeler -- President and Chief Executive Officer

Robert Curda -- Vice President & Chief Financial Officer

Mark Tinker -- Chief Executive Officer, Quantum Technology Sciences

William J. Dezellem -- Tieton Capital Management -- Analyst

Josh Cooley -- Private Investor -- Analyst

Brent Miley -- Rutabaga Capital -- Analyst

Scott Bundy -- Moors & Cabot -- Analyst

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