Dawson Geophysical Co (DWSN) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you 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, Monday, April 27, 2009. I would now like to turn the conference over to Karen Roan.

Good morning and welcome to the TGC Industries' first-quarter 2009 conference call. We appreciate your joining us today. Your host today will be Wayne Whitener, President and Chief Executive Officer, along with Jim Brata, Chief Financial Officer.

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's office at 713-529-6600 and relay that information to us, or you can send me an e-mail with that information at KCRoan@DRG-E.com.

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.TGCseismic.com, or by a recorded instant replay until May 11. Information on how to access the replay was provided in this morning's earnings release. Information reported on this call speaks only as of today, Monday, April 27, 2009, 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 performance 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, 2008. 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 are covered by these statements.

Now I will turn over the call to Wayne Whitener.

Good morning, everyone. I'd like to welcome you to our first-quarter 2009 conference call. As far as the agenda is concerned, I'll provide you with some highlights and Jim Brata will provide you with the financial details. Then I will come back with some final statements.

Let me begin by making a few general comments. First, I'm very pleased with the record first-quarter results, despite the difficult economic environment and the relatively weak oil and gas prices.

Second, regarding our crew count, as many of you remember late in the fourth quarter of 2008, we placed our ninth seismic crew into the field. For the first entire quarter of 2009, we had all nine of our field crews operating, which helped us optimize our crew productivity.

As a result, our revenues increased 60% over the first quarter of 2008. However, since the beginning of the second quarter, we have experienced a slowdown in demand for our services and, therefore, we have been operating eight field crews since the beginning of the second quarter.

The global economic slowdown, the difficult credit environment, and declining commodity prices have certainly presented challenges for our Company, and the industry, as E&P companies have reduced their capital budgets in the face of lower demand for oil and gas.

During the first quarter, we were not materially impacted as far as experience any significant cancellation to our backlog. However, our backlog has declined from the end of 2008 to approximately $50 million currently.

Having said that, we continue to maintain strong relationships with our customers. We stay in close contact with them, which enables us to move quickly to preserve our financial flexibility by adjusting our crew count and utilization.

Let me point out a few highlights of the quarter. First-quarter EBITDA increased 89% over the same period a year ago. Gross profit margins rose to 38% from 34% a year ago. We continue to generate cash and ended the first quarter with a strong balance sheet, with cash of $24 million, which exceeds our long-term debt by approximately $14 million.

Now, I'll turn the call over to Jim Brata, who will give you some details review of our financial results. Then, I will return with some final remarks.

As Wayne said, revenues for the 2009 first-quarter rose 60% to $36 million, compared to $22.5 million in the first quarter of 2008.

Cost of services in the first quarter increased to $22.2 million from $14.9 million in the first quarter a year ago. Despite this increase as a percentage of revenues, costs of services dropped to 62% in the '09 first quarter, from 66% in the '08 first quarter, primarily due to improved crew productivity as well as favorable weather conditions as compared to a year ago.

Gross profit increased 81% to $13.8 million, from $7.6 million a year ago. Our gross profit margin improved to 38.2% from 33.8% in the first quarter of last year. Selling, general, and administrative expenses were $1.2 million, or 3.3% of revenues, compared to $0.9 million, or 4.2% of revenues, a year ago.

Depreciation and amortization expense increased 16% to $3.8 million, from $3.3 million a year ago. As a percentage of revenues, depreciation and amortization decreased 10.6%, compared to 14.6% in the first quarter of 2008.

First quarter '09 income from operations was $8.8 million, compared to $3.4 million in the first quarter a year ago, an increase of 160%. Income from operations as a percentage of revenues increased to 24.4%, compared to 15.1% in the first quarter of 2008.

Interest expense in the first quarter was $269,000 versus $161,000 a year ago. The effective tax rate for the first quarter of '09 was 40.9%, compared to 38.5% in the first quarter of '08.

Net income for the first quarter of '09 was $5.0 million, compared to $2.0 million in the first quarter of '08, an increase of 154%. As a percentage of revenues, net income was 14.0% for this year's first quarter versus 8.8% for last year's first quarter.

Earnings per diluted share were $0.28, versus $0.11 in the first quarter of '08. Per-share amounts in all periods have been adjusted to reflect the 5% stock dividend declared on April 16, 2009, to shareholders of record as of April 28, 2009, and payable on May 12, 2009.

First quarter '09 EBITDA increased 89% to $12.6 million, an EBITDA margin of 35.0%, from $6.7 million and EBITDA margin of 29.6% in the first quarter of 2008.

Turning to our balance sheet, our balance sheet remains strong and we continue to generate cash, producing cash flow from operations of $2.3 million during the first quarter. As of March 31, 2009, we had long-term debt of $10.3 million, representing approximately 18.5% our capital; cash and cash equivalents of approximately $24.3 million; a current ratio of 2.4 to 1; working capital of approximately $23.3 million; and a book value per share of $3.05.

With that, I'll turn the call back to Wayne.

Before we go to questions, I would like to briefly summarize where we are today. Given the current economic environment, which has significantly reduced the demand for oil and gas exploration, we remain cautious.

We have seen a slowdown in demand for our services going forward. Also, the industry anticipates a decrease in service revenues during the second half of the year. If this were to occur, it would have an adverse impact on our revenues and earnings.

As we have stated before, we remain close to our customers and are able to respond quickly to such changing conditions, when needed. If that occurs, we would respond by reducing our operating crews in the field and thus maintain optimum crew productivity for the amount of business that we have.

Regarding capital expenditures, we are not planning any for the next several quarters, unless we see a major positive upswing in our backlog. We are continuing to reduce debt. We've reduced it by $1.4 million during the quarter.

We continue to generate cash and have approximately $24 million in cash in the bank.

We are still seeing bidding activity and are actively bidding on a healthy amount of business. However, as expected in this environment, there are some pricing pressure.

Long term, despite the current downturn, our overall outlook remains positive as there are still a demand for seismic services to reduce the finding and development costs for oil and gas companies. With our low debt level, a record amount of cash in the bank, along with our unused line of credit, we believe we are well-positioned financially and operationally to withstand this economic downturn.

This concludes my formal remarks, and we'll take any questions at this time.

(Operator Instructions). Terese Fabian, Sidoti & Company.

Good morning. I have a question on backlog numbers. Can you talk a little bit about the composition of your backlog? Compare it to the size of, say, earlier numbers? Any more coming from new shale plays?

We ended the year at 12-31-'08 with a backlog of $67 million. Of course, we had a great first quarter, which burned through a lot of that backlog. At present, we are sitting with around $50 million in backlog.

As far as the shale plays, we are doing quite a bit of work in the Haynesville Shale at this time.

And your order book, the new orders, were they about $19 million, is that right? The new bookings?

That sounds approximately correct.

That's a relatively good number, I would think. I understand the markets are -- or the environment is a hard environment, but that still compares well. I think you had $9 million in new bookings in the fourth quarter.

Yes.

And you were working on a major contract with an independent seismic data library provider. Is most of that work completed at this time?

Yes, we are still in the process of acquiring that. And also, that work has been extended in that same area. So we have that work continuing on, plus we have additional work in that area.

In terms of the contracts that are coming in, are they from larger or smaller E&P companies? Is that changing at all?

No, the mix has pretty much been -- pretty much the same. It's midsized to smaller E&P companies.

And then, the pricing pressure that you referred to. Is that equal across regions, or is that stronger in some than others?

It's stronger in some areas and weaker in others.

Which would be the weaker areas?

You know, really don't want to go into that. But there is definitely areas where we have a better margin than other areas.

Thank you. I can appreciate that. I'll queue up for my next turn. Thank you.

Neal Dingmann, Wunderlich Securities Inc..

Good morning, Wayne. Say, how -- when -- you mentioned the Haynesville work. How actively today are you mobilizing some of the crews? Or -- now [whether] your crews are working.

You also mentioned that if, just, demand wasn't there, you'd maybe pull another crew, other than just the one additional that you pulled recently. I was wondering how active you would move these crews around.

Of course, we've -- our area is anywhere in the lower 48. And that is basically where we are very active in trying to find work anywhere within our area.

So, as demand for different areas presents itself, our crews are able to move from their present location to new locations, if the opportunity presents itself. At present, we are still pretty well booked in our area of midcontinent Gulf Coast, some stuff in the Rocky Mountains, and West Texas.

What about Kansas? Are you still doing some work there (multiple speakers)

Yes, we have work in Kansas as well.

The Rockies, you do still have some -- a crew working up there?

Right. Yes, we do.

In this market, the last question I had was more -- you said to keep these -- you would pull a crew back if you just didn't see demand there, or tell me a bit about pricing. Is it -- how substantial is that coming down, and would you try to keep all eight crews running? I guess what I am asking is sort of a case between pricing and activity. If activity were to come down, would you try to hold pricing if that meant taking another crew or two away?

The one thing we're very fortunate with, I think, as I've mentioned in the past, that we have interchangeable equipment for 99% of our crews out there. So we are able to take the current equipment and spread that amongst what crews are working, which will help their productivity.

Basically, the backlog demand -- pretty much dictates to us on how many crews we are going to be operating. It's very important to us that we do not hesitate, if demand is not there, that we do shut down crews to keep as much financial cash as possible. We do keep the key personnel and spread those amongst the other crew, so, if the opportunity presents itself, we are able to put those crews back out in a very quick and timely fashion.

Let me ask about the backlog. I know your competitor, or two competitors, are hesitant to put out a backlog number because they always mention about how the contracts really could be canceled at any time.

Is that the case with the $50-odd million that you have in backlog? How solid are those contracts? Could those be canceled at any time with or without a penalty?

I would say that we very rarely have a contract canceled. We feel like the contracts that we have out there are very solid.

Basically, our contracts have a 30-day prior written notice of cancellation in them. So -- but we feel like what contracts we have are very solid contracts.

Very good. Thanks.

(Operator Instructions). Terese Fabian, Sidoti & Company.

I have a question of what you are seeing in the competitive landscape and how this compares with the last downcycle in the industry. There are a lot of smaller players out there. Are they shuttering up their shops? Are they wait-and-hold modem? Are they still competing with you?

And then, to follow up on that is you generated a good portion of cash, again, this quarter. You don't have very high debt. How do you stand relative to the last downcycle that you were in?

I think the competitive landscape is much better this time than basically what we saw in the last downturn, which started in roughly 1998. There was a lot of overcapacity during that downturn that the seismic space had to kind of flush out. I think right now there hasn't been an overcapacity in the seismic space.

I think the competitors are pretty much the same as that we have seen in the last three to four years. As far as some of the smaller companies, they are still out there. But they are not having very much of effect on our business.

Could you address what your standing is now in terms of your debt and cash production levels?

Jim, why don't you refer to that?

Our debt right now is -- our long-term portion is $10.3 million. Like we said earlier in the call, we are down about $1.4 million since last quarter. So we are bringing our debt down.

Can you give me a short-term number on that, also?

The short term is $5.8 million.

5.8?

Yes.

Will you be using your cash to pay down more debt? I see you said that you might be, but are there other -- would you just sort of hold it, do you think, or (multiple speakers)

Our thoughts at this time is cash is king, and we have very favorable interest rates on what debt we have out there. All the interest rates are basically around 6% or less.

Okay. And when you look at your competitors, some of the smaller companies, are they also in a low debt position, do you imagine?

Some are, some aren't.

Fair enough. Thank you.

Michael Christodolou, Inwood Capital Management.

Good morning, gentlemen. On your cost of services for the quarter, that's the $22 million. Is that -- if we were to divide by the nine crews you had running, is $2.5 million of operating expense per crew, is that kind of a good number that we should be using, in terms of understanding your flexibility to maybe dial down another crew or two, depending on market conditions?

I think that's a roughly accurate way to judge it, yes.

You mentioned no CapEx plans for the next several quarters. Is there any -- is there just a de minimus maintenance level, or -- ?

We have maintenance CapEx. Of course, the maintenance CapEx depends on the amount of crew we are operating. But if we are operating at strong levels, our maintenance CapEx runs between $2 million to $2.5 million.

Per year?

Per year, yes.

Given that you've had the nine crews for -- and the nine machines for the last quarter, is the $3.8 million per quarter of D&A a good number so we could annualize that to $15 million?

I think that's a roughly good number to use, yes.

Thank you, gentlemen.

(Operator Instructions). Richard [Cabot], [Amtech] Financial Group.

Congratulations on an excellent quarter. I was wondering if you could give us sort of how you see the big long-term picture, rather than just the next couple of quarters. What do you see out over the next few years in terms of projects? And from what I understand, just for the industry to maintain current levels of production, they need tremendous amounts of new discovery over the next five years.

I think if you look at the overall picture, one thing we are looking at right now is the land crew count has dropped over 50%. It's continuing to drop. I think the forecast is that they expect to see the rig count drop to somewhere around the 700 level.

That said, of course, that's going to reduce the amount of new natural gas coming online.

We see that the demand for oil has basically -- semi-seemed to have leveled in around the $50 mark.

I think the over -- the overall long-term picture for energy is still very strong. I think, as soon as we see a turn in the economy, that demand for oil and natural gas will be there.

I think there will be pressures as far as converting maybe some of the coal-fired energy plants to natural gas, which will have stronger demand for natural gas as well.

All that said, I don't think anybody really knows exactly when the turn of the economy is going to happen. Normally, commodity prices are some of the first things that come back.

So -- that said, in my earlier statement -- we feel like that there will be some slowdown, especially in the second half of this year, unless we see some type of new input into the energy demand that we are not aware of at this time.

Thank you.

Terese Fabian, Sidoti & Company.

I have, actually, a follow-up on the per-crew revenue generation in the quarter. It looks like you generated about $4 million per crew, which is substantially above the approximately $3 million in the fourth quarter. Is this because of the mix of dynamite and [vibroslice] work that you're doing, and is this something that we could model out for the fourth -- for the second quarter?

Let me say this. In the first quarter, 32% of our revenue was derived from dynamite revenue versus last year, 18%. So there is definitely dynamite work involved in the first quarter.

And I think -- do you have what we had in the fourth quarter? I don't remember offhand as far as dynamite work. I think we were around 28%.

Yes, that's correct.

We were around 28% in the fourth quarter of dynamite work. So there was definitely an increase in the first quarter as far as revenue for dynamite work. We anticipate probably 28% to 30% probably in the second quarter as far as dynamite revenue, somewhere in there.

Thank you.

[Bob Johnson], [Statute] Capital Management.

It's not a question, it's just an observation that, at long last, it's a pleasure to see the real earning power of the Company being demonstrated, even if we are seeing slowdown ensuing after that. But the management team and the crews deserve a great deal of credit. It shows what good weather can do, and I just wanted to extend my thanks, as the previous speaker did, for a job well done.

Thank you. We appreciate that, and I know the crews put in a lot of hard work in order to achieve these numbers. There was nothing we would rather see than to be able to annualize this quarter, but market conditions, of course, dictates what -- basically, what we are able to do.

Great. Keep it up.

At this time, there are no further questions. I'd like to turn the call back over to Jack Lascar for any closing remarks.

Actually, this is Karen Roan with management. Wayne, do you have a final remark?

No, I'd just like to thank everybody for listening to our 2009 first-quarter conference call, and we hope to hear from you next quarter.

Thank you.

Ladies and gentlemen, this concludes the TGC Industries' first-quarter earnings conference call. This conference will be available for replay today through May 11, 2009, at midnight Eastern Standard Time. You may access the replay system at any time by dialing 303-590-3000, and entering the access code of 111-292-32. Thank you for your participation. You may now disconnect.