Geospace Technologies (GEOS) Q2 2022 Earnings Call Transcript

Geospace Technologies (GEOS -0.40%)
Q2 2022 Earnings Call
May 12, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Geospace Technologies' second 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. 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. [Operator Instructions] It is now my pleasure to turn the floor over to Mr. Rick Wheeler.

Sir, you may begin.

Rick Wheeler -- President and Chief Executive Officer

Thank you very much. Good morning, and welcome to Geospace Technologies' conference call for the second quarter of fiscal year 2022. 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. Also with us this morning is Dr.

Mark Tinker, CEO of our subsidiary Quantum Technology Sciences. First, I'll provide an -- overview of the second quarter and Robert will then follow up with in depth commentary on our financial performance. After that, we'll open the line for questions that Robert, Mark, and I will 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. Such risks and uncertainties include those discussed in our SEC Form 10-K and 10-Q filings.

As mentioned, for convenience, we will link a recording of this call on the investor relations page of our geospace.com website. And I encourage everyone to browse our site 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 when listens to the replay. Yesterday, after the market closed, we released our financial results for the second quarter of fiscal year 2022, which ended March 31, 2022.

We were pleased to see that revenue in the quarter reached $24.7 million, a figure representing the second highest quarterly result in the last two years. Moreover, the quarter reflected positive momentum for the company on several fronts. In March, we recorded our first significant sale of deepwater OBX ocean bottom nodes when a long standing customer exercise to purchase option and an ongoing rental contract. This sale along with our recent announcement of new OBX rental contracts, serves to confirm Geospace's leadership and the ocean bottom node market.

Based on current inquiries, I believe we will see higher utilization of our OBX rental fleet in the second half of fiscal year 2022 and beyond. Although, challenges certainly remain for our oil and gas market segment, increases on OBX inquiries along with our highly engaged discussions with oil and gas companies for permanent reservoir monitoring or PRM systems are encouraging. The rewards of our focus business diversification strategy were resoundingly demonstrated in the second quarter performance for our adjacent market segment. Revenue for the segment increased 21% over last year second quarter topping $9.2 million.

This is the second highest quarterly amount ever recorded for these products. And for the six months ended March 31, 2022, this segment produced $17.4 million in revenue, setting a new company record for this segment's fiscal midyear results. This was notably achieved despite the effects of ubiquitous supply chain problems broadly exhibited throughout all industry. Although this has introduced some delay in the rollout of our Aquana's smart water valves.

The debut of these products is on the near horizon. We expect our industrial internet-of-things enabled smart water valves and cloud management platform, developed through our acquisition of a Aquana LLC last summer, will add yet another vehicle of growth to our already expanding adjacent market segment. Our diversification efforts were also evident in our emerging market segment. Building on the technologies originally invented for advanced border and perimeter security, -- verification tests we performed through our joint industry partnership, with Carbon Management Canada, have proven Quantum Technology Sciences sadar products as a highly effective tool for -- precise microseismic monitoring of subsurface reservoirs.

This has opened doors and established new discussions on how this information can uniquely facilitate high competence decision making and critical applications that include carbon storage, hydraulic fracturing, and steam assisted gravity drainage. In other events, we're pleased to announce the completion of a new credit facility. Robert will provide more details on this arrangement in his remarks. We don't have an anticipated need to use this facility.

However, we believe this proactive step gives us additional financial flexibility. As fiscal year 2022 progresses, we will continue to exercise the conservative financial stewardship that has been a hallmark of Geospace management. With that said, let me now turn over the call to Robert to provide some financial details.

Robert Curda -- Chief Financial Officer

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 second quarter ended March 31, 2022, we reported revenue of $24.7 million compared to last year's revenue of $23.9 million. The net loss for the quarter was $1.5 million, or $0.11 per diluted share compared to last year's net loss of $7.2 million, or $0.53 per diluted share.

For the 6 months ended March 31, 2022, we reported revenue of $42.7 million compared to revenue of $52.4 million last year. Our net loss for the six-month period was $8.2 million, or $0.64 per diluted share compared to last year's net loss of $8.2 million, or $0.61 per diluted share. Our adjacent markets segment revenue is as follow: Our industrial product revenue in the second quarter of fiscal year 2022 was $6 million, an increase of 20% over the second quarter of 2021; Industrial Products six-month revenue for fiscal year 2022 is $11 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, and higher demand for our industrial sensor products; Image product revenue for the second quarter was $3.2 million, an increase of 23% compared to last year's revenue of $2.6 million.

The six-month revenue for imaging products for fiscal year 2022 is $6.4 million, a 25% 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's segment produced revenue of $15.1 million for the three months ended March 31, 2022.

This compares with revenue of $16.1 million for the same period of prior fiscal year, a decrease of 6%. For the six-month period of fiscal year 2022, the segment contributed revenue of $24.8 million versus $28.9 million, a decrease of 14%. The three and six-month periods of fiscal year 2021 included revenue recognized in the second quarter for a $12.5 million land-based wireless system that was delivered to the customer in the second quarter of 2020. The decrease in revenue is -- for both periods is offset by higher utilization of the company's OBX rental fleet.

Finally, revenue from our emerging markets segment for the second quarter was $299,000 compared to $165,000 for the same period in 2021. The increase in revenue was primarily due to higher service revenue. The six-month revenue for this segment for fiscal year 2022 was $436,000 compared to $9 million for the same period in 2021. Our second quarter of fiscal year 2022 operating expenses decreased by $600,000, or 6% when compared to the second quarter of 2021.

The six-month operating expenses decreased by $200,000, or 1% when compared to the same prior year period. The decrease in operating expenses for the three and six-month periods is due to a noncash decrease to the fair value of contingent earn-out liabilities for our Quantum and OptoSeis acquisitions, offset by an increase in selling, administrative, and engineering costs as well as higher engineering project costs. Our six-month cash investments into our rental fleet is $2.4 million and cash investments into property and plant and equipment is $500,000. Our balance sheet at the end of the second quarter reflected $11.9 million of cash and short terms and investments.

We recently closed on a credit facility with Amerisource Funding Inc. and Wood Force Bank to provide up to $10 million of additional liquidity. In addition, we own numerous real estate holdings in Houston and around the world that are on free and clear without any leverage. That concludes my discussion, and I'll turn the call back to Rick.

Rick Wheeler -- President and Chief Executive Officer

Thank you, Robert. So this concludes our prepared commentary. So I'll now call -- turn the call back over to Chelsea, our moderator, for any questions from our listeners.

Questions & Answers:

Operator

The floor is now open for questions. [Operator Instructions] Our first question will come from Bill Dezellem with Tieton Capital.

Bill Dezellem -- Tieton Capital -- Analyst

Thank you. Let me just start relative to the oil and gas side of the business. Are you seeing the operators and contractor discussions accelerating, really since the invasion and -- of Ukraine and the higher oil prices? And, I guess, an increased question about the global supply?

Rick Wheeler -- President and Chief Executive Officer

We're definitely seeing an increase in the oil companies' interaction with contractors with respect to future projects and subsequent inquiries to us for equipment as it were. Whether it's -- of course, I'm sure it's certainly got a direct relationship of one form or another to the Ukraine situation, which by its effects have raised oil prices as well. But all in all, all of those things are combining together such that there is definitely more interest and more contractor inquiries that are a result of that.

Bill Dezellem -- Tieton Capital -- Analyst

And Rick, is your comment there specific to OBX? Or does it apply also to land and PRM?

Rick Wheeler -- President and Chief Executive Officer

Of any major proportion, as it relates to exploration type equipment, etc., OBX is by far the primary component I'm talking about. There is mild discussion about land type equipment, certainly those -- but that's very sporadic in terms of how that interest manifests. And there's -- and it's not hugely consistent to where I would equate that to an increase related to the factors that you mentioned earlier. PRM is certainly -- a big discussion that's going on with multiple players, multiple oil companies.

Again, I think that was already increasing even prior to the Ukraine invasion and even at lower oil prices. But assuredly, that is also emboldening the need for PRM and the interest for it.

Bill Dezellem -- Tieton Capital -- Analyst

So not to put too fine of a point on it, are you indicating that or seeing that PRM interest has increased in the last -- really in the last two or three months?

Rick Wheeler -- President and Chief Executive Officer

There's a longer horizon to all that. It's been increasing for even since then, but the activity is still very much active. There are definite inquiries that are pointing to even other activities in the PRM space that we weren't talking about three months ago. So definitely, there's significant activity in that area.

Bill Dezellem -- Tieton Capital -- Analyst

And are we reading your comments, both today and in the press release, correct that, that your interactions with oil companies is stronger than any time or higher than at any time, say, in the last three years?

Rick Wheeler -- President and Chief Executive Officer

Easily, that's true.

Bill Dezellem -- Tieton Capital -- Analyst

And let me then shift, if I may, to the border security business. Mark, the -- this quarter, we have the first time a service and maintenance contract with the Border Patrol. Would you discuss what that entails and how we should be thinking about this on a go-forward basis?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

Hi, Bill. You bet. Any time you deploy a complex system, these systems have to be maintained. It's always been part of the contractual plan that we would execute additional years of maintenance upon completion of the primary contract.

Bill Dezellem -- Tieton Capital -- Analyst

So this -- even though it is new to us on the outside, the service and maintenance contract, to your point, it's been anticipated all along?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

Yes.

Bill Dezellem -- Tieton Capital -- Analyst

And let me take a very [Inaudible] view here for a moment. And let's say that -- we end up with -- let me just pick a number, 100 miles of the border being -- having your equipment on it. Would we then see a commensurate rise in the service and maintenance contract with the Border Patrol, whatever the increase in the mileage would be versus where you're at today? Or would it really be very similar and it doesn't scale quite one for one like that?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

No, it would be largely linear, one for one.

Bill Dezellem -- Tieton Capital -- Analyst

Great. Thank you both.

Rick Wheeler -- President and Chief Executive Officer

Thanks, Bill.

Operator

Our next question will come from Robert [Inaudible], Private Investor.

Unknown speaker

Hi, Rick and Robert. My question is regarding the 120,000 square feet facility we have in Russia and what's going on with that facility. And how important is it to our business outside of supplying our business outside of Russia? Or is it just solely for sales in Russia?

Rick Wheeler -- President and Chief Executive Officer

Right. No, that's an excellent question, and certainly one that's pertinent in current times. Our Russian activity over there in that facility that we have is not a significant financial component of our business as it were. They do provide a facility for fabricating many of our geophone sensors, which are made over there for us.

There is nothing that is made in our Russian facility in the way of geophone sensors that has not already been built here in Houston and in many cases, the movement of that fabrication of those sensors there is a cost measure to reduce costs and labor costs as they present themselves over there. They are -- there is the ability to get sensors shipped out of Russia, still. There are tariffs now that apply to those things. And so that is something that will have to be dealt with.

Certainly, our people over there are very much taken aback by all of the circumstances that are arising now, and that's a bad situation. It's not one that they're really signed up with. They're trying to earn a living themselves, and they're very concerned about what's going on in their country and how these sanctions and other things will affect their individual lives. But for the most part, -- it's not going to be a major impact to us.

There are clearly adjustments we have to make in terms of fulfilling some orders where we'll have to begin fabricating some of those components here in Houston again. And there will be additional costs to the consumer of those products as a result of that. But moreover, we don't know if that will change, how things might change with respect to those sanctions that are applied at this point. But we're prepared, I believe, for whatever happens.

Unknown speaker

OK. Thank you.

Operator

[Operator Instructions] Our next question comes from Scott Bundy with Moors & Cabot.

Scott Bundy -- Moors and Cabot -- Analyst

Good morning, guys.

Rick Wheeler -- President and Chief Executive Officer

Hi, Scott.

Scott Bundy -- Moors and Cabot -- Analyst

So Rick, just if you can just bear with me here. So let's just assume that you do get a PRM contract, let's just say it's $50 million or $100 million. Where do you guys get the working capital to fulfill that contract?

Rick Wheeler -- President and Chief Executive Officer

Well, in many cases, it's how the contract is arranged as far as how payments are scheduled toward the achievement of that work as it progresses. Certainly, there's also credit facilities that are available. We have the credit facility that Robert discussed that adds $10 million of liquidity to us. You can rest assure that if a project of that scope were to come to us in a committed way, there would be other financial means available to us, should we need them.

But in many respects, I think that we're pretty confident of how we go about building those types of systems and our ability operationally to get the capital necessary.

Scott Bundy -- Moors and Cabot -- Analyst

Thanks. Mark, your podcast with Don Lawton was informative. Every week, there appears to be more real money being spent on CO2 sequestration. In your podcast, your original testing was just a few sensors, but Don alluded to the fact that you might get to the bigger playground.

Where are we? Are we in the playground?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

Well, we're trying to open the gate. For us to have, us as a society, have a significant impact on sequestering carbon in the subsurface, we have to do it at large scales. So we're calling that gigaton scale, like a gigabyte. And so when you do that, you have to have a way of monitoring that it's staying there.

And an MRV or MMD plan, monitoring and verification plan. And these plans are going to be part of the storage contracts and be regulated as such. And so it can get very expensive if you look at the scale of what a gigaton facility looks like and that -- its expression on the surface of the Earth. And it could literally take hundreds of hundreds of hundreds of thousands of sensors to do that monitoring.

So we're working with Don, we're getting the exposure, we're publishing papers. We want the community to know that there is a way to do this, that should be more affordable and equally as effective. So carbon is a key strategic pursuit of ours when it comes to monitoring microseismicity associated to underground reservoirs, and carbon gets put into a reservoir. And if we sense alerting microseismicity, we need to let the stakeholders know.

Rick Wheeler -- President and Chief Executive Officer

I think, too, Scott, that the -- you mentioned just a few sensors. I think one of the things to consider there is that's really a statement of the advancement of the technology that we can do this precise level of monitoring in such an efficient way with respect to the number of sensors. And Mark mentioned that, to the extent that in comparison to hundreds of thousands of sensors for really large-scale reservoirs. So I think, that is one of the elements that is touted about being able to do this with not as many sensors and yet get much more precise data.

Scott Bundy -- Moors and Cabot -- Analyst

So how does the rest of the world find out about what Sadar is?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

So this year, we began an outbound communication strategy, and you're starting to see the initial component of that. It's whether at the podcast, but that's -- things going within the Society of Exploration Geophysicists [Inaudible] to that. But being a joint industry partner with Carbon Management Canada means every quarter, all the results that have come from the facility are briefed to all of the other partners, key stakeholders there, very large oil company. Oil companies are going to be the initial and primary organizations that do this because they're the ones who understand how to interact with fluids and subsurface.

We're also taking it and presenting papers or presenting at the gigaton storage conference in Stanford University coming up in June, and we're going to continue to publish and of course, continue to market it with our direct relationships in -- within oil and gas that we presently have.

Scott Bundy -- Moors and Cabot -- Analyst

Mark, what's going to pay for the additional testing? Will it be us or them or who?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

Well, not much. So right now, using the facility that Carbon Management Canada has is providing a lot of insight. But there's other applications, Scott, that require microseismic monitoring that are going to be potentially, revenue producing before carbon. And we're pushing hard in those applications with companies as we speak and doing that in a manner in which we are compensated.

Scott Bundy -- Moors and Cabot -- Analyst

So part of your podcast also, Don mentioned the necessity for incentives to handle CO2 sequestration. Some of the discussions in the past have been required testing of sensors like yours or someone else. Where do you think we are with respect to those incentives? Is it carbon credits? What's your take on all that?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

What I've been able to lean to our conversations is carbon is a commodity. And it's going to be pushed through pipes, store, used in enhanced oil recovery. So it's going to become a commodity. And there's going to be incentives to encourage its permanent and long-term storage.

Beyond that, Scott, I don't think I'm the right guy to go into depth with you, especially on this call.

Rick Wheeler -- President and Chief Executive Officer

It's a very good question, Scott. I think that it's questions we ask ourselves because at the -- as you really examine this, this is not a mature industry. It is developing under our feet as we speak. And there's a lot going on with respect to how commerce is going to manifest around all the different components, which includes the transportation aspect of the CO2, the sequestration of it, the monitoring of it.

All of those things are sort of pieces of the puzzle that are sort of aligned themselves in real time as we go.

Scott Bundy -- Moors and Cabot -- Analyst

There's certainly a lot of money out there chasing this CO2 sequestration, and it appears that Sadar is an insurance policy against something blowing up. It's just how it all plays out is quite interesting to me. Thanks, guys.

Rick Wheeler -- President and Chief Executive Officer

Yeah. You're welcome, Scott.

Operator

Our next question comes from Anthony Steinmetz with Shawnee Capital.

Anthony Steinmetz -- Shawnee Capital --

Yeah. Thanks for taking my questions.

Rick Wheeler -- President and Chief Executive Officer

Sure.

Anthony Steinmetz -- Shawnee Capital --

Can you speak a little bit about the competitive landscape for PRM systems? And could you also add a little bit of context about, if you're seeing any company secure contracts for PRM systems in light of the hot oil prices currently?

Rick Wheeler -- President and Chief Executive Officer

There's very limited competition for the PRM type systems. We do have one other competitor that uses a different form of technology of optical fiber methodologies. So it's not a really broad landscape of competition. And what was your other question about the contracts?

Anthony Steinmetz -- Shawnee Capital --

Yeah. I'm just curious to know if you're seeing other company's competition, are they securing contracts? Because I know over the last several quarters, you've reported steady conversations with customers -- potential customers about -- PRM contract but none of them have actually resulted in securing a contract. So I'm wondering if you're seeing competitors secure contracts? Or if not, what do you think the reluctance is with companies in securing PRM systems?

Rick Wheeler -- President and Chief Executive Officer

Right. In the recent circumstances of tenders that have not manifested in work, we're not aware of any contracts being granted or awarded in those circumstances. I mean, the discussions certainly are ongoing, and it's -- there's not a plethora of contracts out there by any means. This interest is one that is pointing to the future.

We expect that, maybe within a year's time, there will be a tender that will come out even to shoot for. And most of these are targeting installations that are 2023 at the very earliest, more likely 2024 and years beyond that. There's a lot of interest and a lot of fields out there that need this monitoring that can go on for quite a long time, but these are not immediate types of contracts that we expect.

Anthony Steinmetz -- Shawnee Capital --

Thank you for that.

Operator

[Operator Instructions] Our next question comes from Bill Dezellem with Tieton Capital.

Bill Dezellem -- Tieton Capital -- Analyst

Thank you. I'd actually like to follow up on prior questioner's -- questions about carbon sequestration. So first of all, relative to Carbon Capture Canada, Mark, you said something in response to a question, and there's a comment in the press release that leads me down the path that I think you were previously trying to prove out your cost benefit trade-off and position within the Carbon Capture Canada testing. Have you reached the conclusion of that? And if so, have you demonstrated that you are, of all the options out there, the best from a cost versus benefit perspective?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

Good question, Bill. We're still in the middle of refining our understanding on that. One of the benefits of working there at CMC, Carbon Management Canada, is they've had that site instrumented using other technologies for a long time. And we are literally doing the analysis on what some of those other capabilities are able to do compared to ours.

I will tell you, it looks very promising. Proving out -- proving it out will always be -- a protracted conversation. That's why we are taking it to the technical markets first with geophysicists and others to demonstrate it and to show how well it works, because it is something that is different. It's not done necessarily the same way as other techniques.

And it's not that those techniques are better and worse. They're just tried and true, but for different applications. They never were ever designed to go do something on such a large scale. So we had to bring in a different way of thinking about it, and that's what we're doing.

Bill Dezellem -- Tieton Capital -- Analyst

So essentially, it looks promising, but it's not fully confirmed at this point and hence, your comment that you're at the gate of the playground?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

Yes.

Bill Dezellem -- Tieton Capital -- Analyst

OK. That is helpful. And then I want to come back to the service and maintenance side of Quantum's business. Would service and maintenance also be a part of a field that you would put a raise in with Quantum? Or is there something special about the border where that would not be part of it?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

No. It's definitely something that is under consideration. But there's a number of ways that we're also exploring, Bill, when we look at applying Sadar in this passive persistent permanent reservoir monitoring concept for microseismic monitoring is, end users may not simply want to buy a large system. They may -- we may be able to enter into a different business model for providing information because that's what we're doing is we're providing information.

We're not providing data. So that's some of the key value propositions are is we're giving them information on which they can take action. So the information has to be timely, it has to be accurate. And if that's valuable to them, they're going to be able to make -- have operational efficiencies, they're going to be able to reduce risks.

So how do we want to bring that information to market? There might be subscription models and other models to think through, and we're actually having conversations on that as we speak, and we're exploring ways that would be acceptable. Still, stay tuned. Still a lot to learn here, but it's intriguing when you're selling information what that business model can morph into.

Bill Dezellem -- Tieton Capital -- Analyst

So hearing you say that, I think about how profitable the rental business has historically been for Geospace on the oil and gas side. So those learnings, combined with the subscription concept presumably then? Am I jumping too far ahead? Presumably, that would be a very profitable, very profitable cash flow stream for the business?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

It sure would be desirable to make itself.

Rick Wheeler -- President and Chief Executive Officer

I don't think we'll pursue it if it's not going to be profitable, Bill.

Bill Dezellem -- Tieton Capital -- Analyst

Rick, I think that is a grand -- a grand idea. Robert, thanks for keeping them on track. So in all seriousness, I want to keep down on this service and maintenance for just a moment. If you were to have a different type of border, I'm thinking a military installation, a nuclear installation, whatever it might be, would those also include service and maintenance? I mean, is this something that we ought to just be thinking as a standard part of the future -- if equipment is purchased, rather than under a subscription or a lease model?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

I think that's very fair. And I think that's always been part of the Geospace's model. We maintain field engineers to support our systems throughout the world.

Rick Wheeler -- President and Chief Executive Officer

Yeah. That transcends even to our existing PRM systems. We installed, what, nine PRM systems out there in the course of time. And there are still maintenance aspects and contracts that go on with respect to those activities.

As -- as Mark really mentioned earlier on, these systems have a complexity to them that it just requires certain amounts of attention in an ongoing basis. They do not necessarily, at a maintenance level, represent major revenue sources or anything of that nature, but they are a part and a component of these sorts of contracts.

Bill Dezellem -- Tieton Capital -- Analyst

Right. OK. That's helpful. And then finally, Mark, in response to that same questioner, you said that those -- there was an industry or an application that could happen that would be revenue producing before carbon capture.

What applications were you referring to?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

All right. We'll do a little microsite with one-on-one with all the listeners. So any time you interact with fluids in the subsurface, fluids could be gas, liquids, you're changing the state of pressure and you're -- in so doing, you're changing the state of stress. And when you alter the state of stress, fractures -- little micro fractures slip like a breaking a pencil and release energy, and that's what we call microseismicity.

And there's a lot of it, and we like to know about it. But we really like to know about microseismicity that can be associated to a failure in the integrity of the reservoir or associated to when we're intentionally breaking rock that we call tight shale that might hold gas. So the applications range from carbon, of course, to hydraulic fracturing, to steam-assisted gravity drainage, because when you pump high-pressure steam in the melt, it's like a hockey puck. You extract as that flows, that tar sand out, but holding that in place that high pressure is a cap rock.

And if that cap rock fails, you lose your field. So these are big stakes. And when you can add real-time information, you can significantly improve operational efficiencies. And so let's unpack that just a little bit more.

So what if I can increase my production by some amount, 1% to 3% a day and do so with confidence, because I'm not going to break my cap rock. Then that can be a very incentivized reason to look at what we are able to provide. Now hydraulic fracturing, of course, we do it on purpose. We've been -- we've been monitoring hydraulic fracturing for a long time using techniques.

And what we're proposing is something that's a little bit disruptive. We want to monitor the fracturing field for a very long duration of time, not just for a couple of weeks, and provide that information back in real time, both before, during and after operations. That's a safety thing. It's an induced seismic concern for liabilities but it also allows you to, again, make real-time decisions as you're actively treating the frac field.

Can we do this with certainty yet? No. But we're really good at what we do, and this is where we're going. And these are the things that I think will break loose sooner, as we strategically pursue and shape the monitoring of sequester carbon.

Bill Dezellem -- Tieton Capital -- Analyst

Great. Thank you very much. I appreciate it.

Operator

Thank you. Our next question will come from Scott Bundy with Moors & Cabot.

Scott Bundy -- Moors and Cabot -- Analyst

Mark, one follow-up question, Border Patrol. The -- there's a transcript out there, I forget exactly when it was, but it's within a couple of years that clearly -- by the Board Patrol, that clearly identified 100 miles of areas that you guys could put your sensors. So with the sensors that we now have in place, in your opinion, is it going to take finding tunnel or is it just budgetary item? What gets us to roll out some additional mileage with our sensors?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

It's a protracted engagement, Scott. What gets us there is you got to go to the headwaters of funding, and that's the hill. And Customs and Border Protection in the United States Border Patrol, they have their priorities. And as you know right now, securing our border is not an enviable task.

There's a lot of -- it has a lot of dimensionality to it. So it's -- what gives us there is a little bit of patience, a little bit of proving, and understanding of managing very sophisticated technology. And s,o we want to endure ourselves to always be a teammate of the Border Patrol for things that is completely bipartisan that need to be accomplished. So we're very fortunate, and we're very proud to be a component of that bipartisan pursuit.

But it just takes the -- it's like working a PRM contract. It takes a little bit of fortitude. Luckily, we, again, are very dialed in and we're very proactive, and we have very good relationships. -- So I don't know how to get more specific with your answer.

Scott Bundy -- Moors and Cabot -- Analyst

So do you think that -- and of course, they very rarely disclose except on education, that the system is doing what it's intended to do, meaning, you are finding that people are penetrating without knowing of a tunnel, but it's doing what it's supposed to do, so validating the technology?

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

I can't say what the system is being used for. And now that it is fully operational, how they are using it and what they are discovering is only known to them.

Scott Bundy -- Moors and Cabot -- Analyst

Interesting. Got it. Thank you.

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

You're welcome.

Operator

We have no further questions at this time. So I would like to turn the call back over to Mr. Rick Wheeler for any additional or closing remarks.

Rick Wheeler -- President and Chief Executive Officer

All right. Well, thank you, Chelsea, and thanks to everyone who joined our call today. We look forward to speaking with everyone again on our conference call for the third quarter of fiscal year 2022 in August. So for now, goodbye.

Operator

[Operator signoff]

Duration: 44 minutes

Call participants:

Rick Wheeler -- President and Chief Executive Officer

Robert Curda -- Chief Financial Officer

Bill Dezellem -- Tieton Capital -- Analyst

Mark Tinker -- CEO of Geospace subsidiary Quantum Technology Sciences

Unknown speaker

Scott Bundy -- Moors and Cabot -- Analyst

Anthony Steinmetz -- Shawnee Capital --

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