Dawson Geophysical Co (DWSN) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you so much for standing by. Welcome to the TGC Industries' first-quarter 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, on Monday, April 28, 2008. I'll now turn the conference over to Ms. Karen Roan of DRG&E. Please go ahead.

Thank you, Michael. Good morning and welcome to the TGC Industries' first-quarter 2008 conference call. We appreciate you joining us today. Your host 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 e-mail distribution list, please call DRG&E office at 713-529-6600 and relay that information to us. Or you can send an e-mail to me with that information at kcroan@drg-e.com. If you would like to listen to a replay of today's call, it is available by webcast by going to the Investor Relations section of the Company's website at www.tgcseismic.com or via an instant recorded replay until May 5. That information was provided in this morning's earnings release.

Information reported on this call speaks only as of today, April 28, 2008, 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, including, without limitation, the Company's expected future financial positions, results of operations, cash flows, funds from operations, financing plans, gross margins, business strategies, budgets, projected costs and expenses, capital expenditures, competitive position, product offering, access to capital and growth opportunities 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 expressed 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 for the year ended December 31, 2007.

Furthermore, as we start this call, please 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 are covered by those statements. Now I will turn the call over to Wayne Whitener.

Thank you, Karen and good morning to everyone. I would like to welcome you to our 2008 first-quarter conference call. As far as the agenda is concerned, I will provide you with some highlights and Ken Uselton will provide you with some financial details. Then I will come back and make some final comments.

First, I would like to discuss a few highlights of the quarter. In spite of some bad weather in specific regions in the month of January, we saw a very good year-over-year revenue growth of 21%. During that month, three of our crews in the field were essentially -- with fixed costs -- were with revenues -- experienced some idle time due to weather. This occurred in a region where the land seismic market is more competitive regarding price and terms of payment of weather recovery. Consequently, our margins were negatively impacted.

We are also seeing and winning some larger projects. On two of these larger projects, our clients are experiencing unanticipated delays in their permitting process, so we plan to idle two of our crews for part of the second quarter, which will affect our revenues and earnings. However, with our current backlog, we expect to have all our crews fully utilized for the second half of the year.

During the last 30 days, bidding activity has been very brisk. We also took the liberty of eight new vibration units and added 3000 channels during the first quarter and we currently have a channel capacity of approximately 43,000. So we are well-positioned for the larger projects that we are seeing ahead.

As far as our financial highlights, we ended the quarter with a strong balance sheet with cash exceeding long-term debt. We generated cash flow from operations of $7.5 million during the quarter and currently, have a solid backlog of approximately $46 million. Now I will turn the call over to Ken Uselton, our Chief Financial Officer, who will give you details and review of the financial results. Then I will come back for some final remarks.

Thank you, Wayne. Revenues for the 2008 first quarter increased 21% to $22.5 million compared to $18.6 million in the first quarter a year ago. Cost of services in the first quarter was $14.9 million compared to $10.8 million in the first quarter a year ago, an increase of 38%. The cost of services as a percentage of revenues was 66% in the '08 first quarter versus 58% in the '07 first quarter. This increase was primarily the result of some weather problems, as well as increased operating expenses, primarily fuel costs. As a result, our gross margin for the first quarter of '08 was 34% compared to 42% a year ago.

SG&A expenses rose to $900,000 in '08 first quarter from $800,000 a year ago, but remained at a low 4% of revenues in both quarters. Depreciation expense was $3.3 million, roughly the same as a year ago. First-quarter '08 income from operations was $3.4 million compared to $3.7 million in the first quarter a year ago. Income from operations as a percent of revenue was 15% compared to 20% in the first quarter a year ago.

Interest expense in the first quarter was $161,000 versus $156,000 a year ago. Our income before income taxes in the first quarter was $3.2 million compared to $3.5 million in the first quarter a year ago. As a percentage of revenues, income before income taxes was 14% in the first quarter compared to 19% a year ago. The effective tax rate for the first quarter of '08 was 38% compared to 41% in the first quarter of '07.

Our net income for the first quarter was $2 million or $0.11 per diluted share compared to net income of $2.1 million or $0.12 per diluted share in the first quarter a year ago. Per-share amounts in all periods have been adjusted to reflect the 5% stock dividend declared on March 20, 2008 to shareholders of record as of April 14 and payable today, April 28. EBITDA and for the first quarter was $6.7 million, an EBITDA margin of 30% compared to $7 million and EBITDA margin of 37% in the '07 first quarter.

Now turning to the balance sheet, at the end of the first quarter, we had long-term debt of approximately $7.5 million, cash and cash equivalents of approximately $8.3 million, a current ratio of $1.8 million and working capital of approximately $8.1 million. With that, I will turn the call back to Wayne.

Thank you, Ken. Before we move to your questions, I would like to make a few additional comments. As we have previously stated, we continue to expect strong capital expenditures from the oil and gas industry in 2008. I think it is fair to say that we did see somewhat of a pause in the first quarter, but the seismic market appears to have regained its momentum.

Operationally, we were very well-positioned. We currently have a backlog of $46 million and our order book is solid. And we expect our eight crews to be fully utilized in the second half of 2008. We continue to assess our channel count and our needs to secure the larger jobs that we are seeing in the marketplace. Based on what we are hearing from our customers, we remain optimistic about the remainder of 2008. This concludes my formal remarks and we will now take any questions.

(OPERATOR INSTRUCTIONS). Neal Dingmann, Dahlman Rose.

Good morning, Wayne. Say, you talked about waiting with the permits with a couple of those larger contracts. Would that have been the same case whether you were term or turnkey on those type contracts or is it more -- I'm trying to get a sense is -- is it because of the type of how those contracts are styled or is it just the nature of the seismic business in general that -- obviously if you have already geared up towards that, there is not much you can do if you see those kind of delays?

Right. It doesn't matter whether -- I will say both of those contracts are turnkey, but if they would have been term, the term wouldn't start until we started the acquisition phase of those jobs. Of course, getting the land position is being done by both clients, so they are taking seismic options and permits at the same time and unfortunately, on both of those jobs, it has fallen back some. So we have hopes to be on both of those jobs in the first quarter and that is being pushed out as I have mentioned.

Okay. And then, Wayne, you sound more positive. You mentioned that you did see a little pause because of weather or what have you in the first quarter, but it seemed like things have really regained. Is that because of more bids out there, increased pricing, what sort of gives you that belief that things are much better now than what you saw in January, maybe early February?

I think what we saw at the end of the year and in the first quarter, I think we saw the E&P companies taking a breath and trying to determine where they were going to spend their dollars. A lot of inquiries by our clients on exactly where we had their crews, what we anticipated here in '08. I think that they pretty much kind of circled the wagons at this point and normally what we would see, the flurry of bids at the end of the fourth quarter, beginning of the first quarter, basically we are seeing that now here at probably the beginning of the second quarter. So the E&P companies, of course, are very well cash-flush at the moment and they are just trying to figure out where to spend their dollars and so we have seen, in the last 30 days, a pretty good increase on the number of bids that we are seeing.

Okay. And then one last question if I could. You gave obviously a pretty good backlog number. It seems to me your peers are a little more hesitant to throw a backlog number out there. Do you have enough confidence that these guys are far enough down the road on these contracts that most of that backlog is pretty definite and how do you sort of gauge that I guess versus some of your peers who are hesitant to put something on that?

Well, what backlog is, that is signed contracts in-house that basically we are working on. So it is totally signed contracts in-house. We feel like that we need to remain pretty transparent for our investors and we feel like that that backlog number is a critical number for our investors to be able to follow. So that is kind of our view on it. I think maybe some of our other competitors feel like that they don't want to put that number out there and I can understand that as well, but we just made a conscious decision to stay as transparent as we can for our investors.

Okay, thanks, Wayne. Look forward to a busy year.

Karen Green, Oppenheimer.

Thank you. Good morning. I was just wondering if you could just expand a little bit on bidding activity. Certainly, you said the order book looks strong. Any particular region and is this work that is expected to be completed in 2008? Could you just give us a little bit more color on that?

Right. We are seeing bids, of course, in our normal area which is the Gulf Coast, West Texas, South Texas. We have won some -- or we feel like we have won some larger jobs in West Texas, so we are making some inroads out there. We are also -- have bid inquiries in the Fayetteville Shale, which we have had a crew in and out of there, which we will send a crew back in the Fayetteville Shale here in a couple of weeks.

Also, we have proposals out there for some very large jobs in the Williston Basin, North Dakota area. Also, some work in the Rocky Mountain area. So it is pretty -- getting a little bit more diverse for us as far as areas that we are -- they are sending us bid proposals on. I think that is probably a function of the clientele out there expanding from some other areas. We still have a crew working in the Barnett Shale, so it is still a good source for work for us, but we are seeing bids from -- into other areas at this time.

And just based on what you're seeing right now, is it possible and likely that when you come out next quarter and talk about backlog that it could exceed that $60 million record level that you hit in 2007?

Well, that is hard to say because we don't know how successful we are going to be in the bidding process. I will say if we had some great luck in the bidding process, we would probably get back up to possibly those levels, but right now, we are where we are and we have a tremendous amount of bids out there.

Great. And all of this is mainly for work in 2008, is that correct?

Yes. Now, with these two larger jobs, since we have been delayed, they will run over into '09 at this point.

Okay. And then going back to those two larger jobs, any idea how long that could be pushed back and what kind of timing you are looking at in 2Q before those get up and running again?

Well, it is a little bit hard to say at this point, but it looks like things are coming together on both of these projects pretty well. So as mentioned, we hope to be back on all cylinders here by the beginning of the third quarter.

Okay, so you are expecting those to be down all second quarter then?

Well, no. We have had eight crews running all through the month of April and it is possible that one of the crews may get back out here, be down maybe just a couple of weeks. It is possible another crew may be down two months here. But we are anticipating these crews back in the field just as soon as possible.

And then do you have a short-term debt number at the end of the quarter?

Let's take a quick look at that.

About 3.8, Karen.

Thanks a lot, Ken.

(OPERATOR INSTRUCTIONS). Terese Fabian, Sidoti & Co.

Hi, good morning. I have a question on the weather delays you say you experienced in January I think it was. You said three crews were affected. Can you tell me what region that was in? Was it one specific region and how much time was actually lost? Do you have a number on that?

We don't have the number exactly on the exact number of days, but those crews were crews that were working in the Kansas market for us.

And it was due to rains?

It was due to wet weather, sleet, ice, that inclement weather there in the month of January.

Oh, okay. And then I have a question on the delays in the permitting process. Can you talk a little bit about the mechanics of that for the companies who would be hiring you and can you also give maybe some kind of framework to think about the second quarter? Generally, it should be a rise over the first quarter in terms of weather and work activity? Can you give any light on whether revenues are going to be sort of level with first quarter rather than rising or negatively impacted?

As we stated, revenues and earnings will probably be negative impacted. How much, we are not for sure at this point because we are just in the beginning stages of the second quarter. We feel like that things will pick up, but as far as putting any guidance out there in the second quarter, basically, we are not doing that and we are not for sure exactly what the overall impact is going to be. You are right. The weather should be better. Basically, we are cutting expenses wherever we can on these two crews to maximize the margins the best that we can.

And the mechanics of the permitting process, why the delays? Do you have any light on that?

Well, what happens on that, of course, is that we are under contract to two different oil companies. The oil companies, of course, the way our business starts, they go out and they get a land position. Once their land position is secured, then normally they will come to us and ask us to submit a bid. Once we are successful in that phase, then their land department normally will go back out and secure the seismic permits, which involves naming the contractor, which would be us, TGC Industries, and securing the permits in our name, allowing us to start the GPS survey process of the job and then allowing us to come in and start doing the acquisition.

I think several factors have slowed things down that you are probably aware of. Crops are at record highs, whether you are talking about wheat or whether you are talking about rice or anything along the commodity price. So it is more difficult to deal with landowners than to negotiate the leasing on these jobs.

Also, with the -- on one particular job, I know that there was attorneys that got involved to represent numerous landowners out there and so there was delays involved in that. So unfortunately, that portion of the operation is being handled by our client and we have very little control over that part of the operation and basically they tell us when they feel like that we are able to start our phase, which would be the start of the GPS survey portion of the job and then go into the acquisition portion.

That's really helpful. Thank you. I have some other questions, but I will queue up.

(OPERATOR INSTRUCTIONS). Terese Fabian, please go ahead with your follow-up.

Thank you. On the depreciation and amortization expenses, can you just say whether those seven vibroseis were delivered at the beginning of the quarter? Are these the D&A numbers to work from, as well as the 3000 channels?

The seven vibration vehicles -- excuse me -- eight vibration vehicles were delivered during the first quarter, so you won't see the full impact of the depreciation until the beginning of the second quarter. Also, we took delivery of the 3000 channels in the middle of the quarter as well. So you will not see the full impact of the depreciation until the beginning of the second quarter.

So the run rate will be a little higher than what we see in the first quarter?

Yes.

And then on the financing and debt undertaking, there is some increase. Are interest expenses likely to be also rising in the second quarter?

Yes, somewhat, a little bit, yes.

Okay. And are you getting any bookings from your Denver office?

Yes -- well, let me say this. We are getting some work out of the Denver office. Also, we have some bids out there that came out of our Denver office that are very large jobs that we are hoping to be successful in the bid stage on.

Thank you.

[Kerwin Doughten], KLD Investment Management.

Good morning. Could you elaborate a little bit on the process of leasing land to do your work? You mentioned, in some cases, it may be getting difficult because of high commodity prices that the farmers are enjoying. When you bid on a project, is the land secured or do you have to go through the process of then trying to secure the land? Could you give us a little depth on that?

Sure. Normally what will happen is the E&P company is going out before we ever see anything. They keep where they are working very tight and in what areas they are working. So they will go out and get a land position, get leases in a particular area and that area could be anywhere from 10 square miles to 200 or 300 square miles. Once they feel like their position has been solidified, then they will go to a contractor such as us, show us the area that they want to image and then basically, we will submit a bid at that point.

So it is the client who goes out and secures the land position in advance to make sure that somebody doesn't come in and try to lease in the middle of their jobs or their prospects and cause them additional problems. But even after their land position has been -- their lease position has been secured, once a contractor is selected, then they will go back and permit the surrounding areas in order to image their lease areas that they wish to have and at that point, it is also in their hands as far as normally getting these permits solidified, allowing us to go to work. There is times that we will supply what we call permit agents to work with their lease in order to secure permits. This varies from job to job.

Okay, thank you.

There are no further questions at this time. Please continue with any closing comments.

I think that pretty much concludes our 2008 first-quarter conference call.

Ladies and gentlemen, this does conclude the TGC Industries' first-quarter earnings conference call. At this time, you may disconnect. Have a very pleasant rest of your day.