Dawson Geophysical Co (DWSN) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TGC Industries third quarter 2007 earnings conference call. During today's presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference is being recorded today Monday, October 22, 2007. I would now like to turn the conference over to Mr. Jack Lascar. Please go ahead, sir.

Thank you, and good morning everyone. And welcome to the TGC Industries third quarter 2007 conference call. We appreciate you joining us today. Your hosts today will be Wayne Whitener, President and Chief Executive Officer along with Chief Financial Officer, Ken Uselton. Before I turn the call over to management I have a few items to cover. If you would like to be added to the Company's email distribution list, please call our office number at 713-529-6600 and relay that information to us or you can send me an email with that information; you can find my email address on all TGC press releases. If you would like to listen to a replay of today's call it is available via webcast by going to the Investor Relations section of the Company's website at www.tgseismic.com or via recorded instant replay until October 29th. The information was provided in this morning's earnings release.

Information reported on this call speaks only as of today October 22, 2007 and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay. Before we begin, let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements regarding the Company's future are forward-looking statements. These forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors many of which the Company is unable to predict or control that may cause the Company's actual future results or performance to materially differ from any future results or performance express or implied by those statements.

These risks and uncertainties include the risk factors disclosed by the Company from time to time in its filings with the SEC, including in its annual report on form 10-K SB for the year ended December 31, 2006. Furthermore as we start this call please also refer to the statement regarding forward-looking statements incorporated in our press release issued this morning. And please note that the contents of our conference call this morning is covered by those statements.

I will now turn the call over to Wayne Whitener.

Thank you, Jack, and good morning to everyone. I would like to welcome you to our 2007 third quarter conference call. As far as agenda is concerned I will provide you with a few highlights of the quarter and then Ken Uselton will provide you with the financial details. Then I will come back with some final comments.

First, a quick review of the third quarter results. While the weather was much less of a factor in the third quarter compared to previous quarters, we still had a weather impact in the month of July. Revenues were down 18%, and the pretax income was down 62% and compared to the rest of the quarter. In spite of this, we reported a solid third quarter with revenues rising 34.8% over the third quarter of last year, and we currently have a backlog of approximately $54 million, giving us a visibility well into 2008.

We had eight seismic acquisition crews working in the third quarter using six ARAM ARIES systems compared to seven field crews with five ARAM ARIES systems in the third quarter a year ago. EBITDA rose 24.6% to $6.2 million from $5.0 million a year ago.

Let me make a few comments about our decision to change the estimated useful life of certain seismic equipment. We routinely evaluate our estimates of useful life for our equipment. Based on information gained from that process, effectively July 1, 2007 we extended the estimated useful life of certain seismic equipment from five years to seven years. This change was made to better depict the actual useful life of the equipment. In addition, this extension of estimated useful life better aligns TGC with the seismic industry.

Now I would like to turn the call over to Ken Uselton, our Chief Financial Officer, who will give you a detailed review of the financial results. Then I will return with some final comments.

Thank you, Wayne. Wayne covered the revenues, so I'll move on to discuss the costs. Our cost of services in the third quarter was $17.0 million compared with $12.5 million in the third quarter of last year, a 35.5% increase. Cost of services as a percentage of revenue increased to 70.1% in the third quarter of '07 compared to 69.8% a year ago. Gross margin was 29.9% compared to 30.2% a year ago. Depreciation and amortization expense was $2.9 million compared to $2.5 million a year ago, a 16.5% increase.

Third quarter income from operations was $3.3 million, a 32.7% increase from the $2.5 million in the third quarter a year ago. Income from operations as a percentage of revenue declined slightly to 13.5% of revenues from 13.7% of revenues in the third quarter a year ago. Interest expense in the third quarter was $146,000 compared with $199,000 a year ago.

Income before income taxes in the third quarter was $3.1 million compared to $2.3 million, up 37.9% from the third quarter a year ago. Income before income taxes as a percent of revenue was 12.9% compared to 12.6% in the '06 third quarter. Net income for the third quarter was $1.8 million or $0.11 per diluted share compared to net income of $1.3 million or $0.08 per diluted share in the third quarter a year ago. The effective tax rate for the third quarter was 41.5% compared to 40.5% a year ago.

Now for a brief review of the nine months, revenues for the nine months was $64.5 million compared to $47.6 million a year ago, a 35.5% increase. Cost of services for the first nine months was $42.6 million compared to $28.7 million for the same period last year, a 48.6% increase. Cost of services as a percent of revenue increased to 66% in the first nine months compared to 60.2% the same period a year ago.

As a result, gross margins for the first nine months of '07 were 34% compared with 39.8% in the same period a year ago. Net income for the first nine months was $5.2 million or $0.32 per diluted share compared to net income of $6.2 million or $0.37 per diluted share in the first nine months of last year. EBITDA for the first nine months of '07 was $19.1 million, 29.6% of revenues versus 17.1%, 36% of revenues for the first nine months of '06.

Now turning to the balance sheet as of September 30th we had long-term debt of approximately $1.1 million, cash and cash equivalents of approximately $4.2 million. The current ratio of approximately 1.3 and working capital of approximately $3.5 million. With that, I will turn the call back to Wayne.

Thank you, Ken. As we have stated in previous occasions, the fundamentals behind the US seismic industry remain favorable, and we continue to expect very active land acquisition work to the next several years. We continue to invest in new equipment to maintain productivities and efficient crews. We recently announced purchase of seven new vibration vehicles for delivery in the first quarter of 2008, which will bring our total vibration vehicles up to 55. We also have 11 shot-hole drilling rigs that enable us to better serve our shot-hole clients.

We also announced that we are purchasing our seventh ARAM ARIES seismic recording system to be delivered during the fourth quarter. This will replace one of our older Opseis Eagle systems in the field. Also in August we opened a new office in Denver. The Denver area has been undergoing a resurgence of seismic activity in recent years, and there are a lot of other geographical areas worked out of Denver. We believe our presence there will give us more exposure in the various regions and in the opportunity to expand our business.

Based on the latest information from IHS Energy, the US seismic land crew count is up by seven from last month to 65 crews working currently, and that compares to 56 crews a year ago. We continue to be optimistic about the outlook for the remainder of '07 and well into '08. This concludes my formal remarks, and we will be taking any questions at this time.

(OPERATOR INSTRUCTIONS) Neal Dingmann, Dahlman Rose.

Good quarter. Wayne, let me ask with the addition of the vibroseis, are you still seeing some pricing difference between the dynamite and vibroseis? And then as you sort of go forward, it sounds like there will be a little bit more focus on the vibroseis. Is that going to be the case, or kind of wonder when you look at '08 versus '07?

Well, I think, as I've mentioned in the past, we feel like our best position would be have one crew on dynamite at all times and have the remainder of our crews doing vibroseis. By adding the additional vibroseis units that we're going to take delivery of the first quarter, we feel like we will help the productivity of the vibroseis crews. Also, we are pretty well past the lower prices that we've been getting for our drilling operations and are getting our new pricing. So as far as our drilling and our dynamite work going forward, we feel like margins should improve somewhat on that, as well.

And are you seeing -- it sounds like still as far as adding some vibroseis and adding some -- not sure if you went as far as to say adding more channels, but I guess you're still seeing indications that the demand is there enough to add the channels and add more of the vibroseis trucks. Will you continue to watch and determine that at a point if there is still demand to add another crew? I guess let me leave it at that for now.

Right. We feel like demand is still high for our services. That is why we are purchasing the additional new ARAM system. This ARAM system should help our productivity on the one Opseis crew that we have, given the one Opseis crew additional channels to work with. Also giving us more versatility by having more ARAM equipment to spread out amongst our other crew, depending on demand. So we are optimistic about '08, and we definitely are additionally spending money in the -- for equipment to take advantage of that.

And if I could ask one last one, Wayne, as far as the location, have that location of your crews changed much in the last, let's say last quarter or so, or sort of looking out remainder of this year early next, do you still seeing them in that midcontinent kind of the Barnett range where they've been, or do you see them mobilizing any?

Right now we are pretty much seeing what we have seen previously this year, which is Colorado, Kansas, midcontinent and the Gulf Coast. As I've mentioned, we've opened this office in Denver to look for opportunities possibly in the Rockies or other areas that are worked out of that area there. But right now as far as fourth quarter and going into next year is pretty much areas that we've been very active in.

Okay. Thanks, Wayne.

Karen David-Green, Oppenheimer & Co.

Just had a question, Wayne, with regards to bidding activity. I know your backlog remains relatively strong at $54 million, but in terms of what you're seeing on the horizon bidding wise, can you just touch upon pricing, maybe the size of the jobs, location, any kind of change one way or another in bidding activity?

I think that the only real change that we've seen is maybe the number of bids have decreased. But the size of the jobs that are being bid for '08 are larger than what we've seen in the past. So pretty much a trade-off there. As far as we can tell from our clientele, they plan on having strong budgets for next year, and we expect to see the backlog increase here going into the first quarter.

And pricing is holding up, as well?

Pricing is pretty flat from what we've seen. Of course, a lot of our margins are based on the productivities of the crews. So hopefully we will see some improvement with the drilling operation getting a little bit better pricing and hence the additional new equipment.

And with regards to the new equipment, when exactly in the fourth quarter are you expecting delivery of the new ARAM system?

We are expecting delivery right around mid-November.

Okay, and how about the trucks?

That is all going to be in the first quarter of '08.

And then Ken, real quickly could you give us a short-term debt figure at the end of the quarter, please?

Hold on just a moment. Approximately $4.5 million.

Thanks. That's all I had.

Amit Shah, Thomas Weisel.

Just a couple of questions on the bookings, I guess if my math is right was around $17 million. Can you show us why (inaudible) was a slowdown because the previous quarters had been pretty strong?

Amit Shah, we could not hear you. You sound very faint. Can you raise your telephone.

Sure. I was talking about the bookings number was around $70 million for the quarter. If I take the $54 million backlog; so can you give us some color on the slowdown? Do we expect it to be pulled back going into the quarters ahead?

Normally this time of year we see somewhat of a decrease in the backlog due to people reviewing their budgets for '08. So normally we will start seeing a pickup in the bidding and our securing of additional backlog more in the first quarter.

Okay, and as a follow-up on the revenue number was pretty impressive, so and while the margins declined. So is it like a fair assumption to say that the dynamite work was more again this quarter as compared to the vibroseis?

No, we were pretty well flat. The dynamite work was pretty well flat second quarter versus this quarter. And third quarter of '06 versus third quarter of '07. So basically we had more productivity by the crews. We had some of course, the negative impact of the month of July, where pretax income was impacted by 62%.

Okay, so we are still sticking with like a 20/80 split in revenue?

We couldn't hear that. Say that again.

Are you guys still (technical difficulty) 20/80 revenue split between dynamite and vibroseis?

Yes, we pretty much foresee pretty much the same going forward maybe somewhat less dynamite work going forward.

Okay, and on the backlog how much of the backlog is dynamite work?

Approximately 24, 25%.

And my last question, I know you guys changed the depreciation life, but how do we see depreciation going forward like on a run rate basis?

It's going to be pretty much a straight line over seven years.

And any CapEx guidance for '08?

No.

Thank you.

(OPERATOR INSTRUCTIONS) Terese Fabian, Sidoti & Co.

Good morning. Thank you. I have a question on the depreciation and the change in the estimated life of equipment. Was it an across-the-board evaluation of all the equipment or was it some of the heavier equipment that you extended the life on? And what are the industry standards on that more or less?

What was changed was the heavy equipment, which was the systems itself and the new vibroseis trucks. The other equipment, the wire geophones, none of that was changed. Various companies across the board look at things maybe even more aggressively than us as far as the depreciation. As you know, our Opseis system we have kept those in operation for over twelve years. So we still remain conservative on our depreciation I think compared to possibly other people within the industry.

Thank you. That's helpful. In terms of crew utilization, you have eight crews. How do you turn them around on jobs? I mean, do you have any kind of a utilization sort of parameter that I could think of in that?

The crews have been utilized 95%, 98%. All the crews have been very busy. Of course, as you know, when we have a weather impact these crews are pretty much a fixed cost, so there's not a lot of reduction as far as cost associated with the crew. So we just as soon as the weather clears we are back making up ground as quick as possible.

That's helpful, too. In past quarters you gave numbers of days lost to inclement weather. Is there a number you have for the July period?

We probably lost roughly 14, 15 days in the month of July to inclement weather.

Okay and just one last question. I know is there are a lot of factors that go into the gross margin but is there any target that you are aiming for the next couple of quarters?

We have been running right around 30% here. I think we've been fighting some weather here this year. So we hope to improve on that but we hope to at least do the 30% gross margins going forward.

Excellent. Thank you.

(OPERATOR INSTRUCTIONS) John Langston, Hodges Capital Management.

It's actually Hodges Capital Management. Last quarter you all reported a number of on average how many days your crews were idled. Do you have that statistic this quarter?

I'm saying we had not a lot of impact in the month of August and September so the biggest impact was July, and as I mentioned, probably 13 to 15 days in the month of July were negatively impacted by weather.

Okay, but that's not like on average for the whole quarter for the crews because I think last quarter was definitely worse than this quarter, and it was eleven days with what you all said on average. So it was not that bad this quarter?

No, it was not.

Do you have the percentage of revenues this quarter that was shot-hole drilling versus the vibroseis equipment?

Yes, this quarter 44% of our business was shot-hole related.

Okay, great. Thanks a lot, guys.

There are no additional questions at this time, management. Please continue.

We thank you for joining us, and we look forward to talking to you again next quarter.

Ladies and gentlemen, this does conclude our conference for today. We thank you for your participation and for using ACT Teleconferencing. You may now disconnect.