Dawson Geophysical Co (DWSN) 2009 Q3 法說會逐字稿

Good morning ladies and gentlemen, thank you for standing by. Welcome to the TGC Industries third quarter 2009 earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions).

This conference is being recorded today, Monday, November 2, 2009. I would now like to turn the conference over to Jack Lascar. Please go ahead sir.

Thank you Brandi. Good morning and welcome to the TGC Industries third quarter 2009 conference call. We appreciate your joining us today. Your hosts are Wayne Whitener, President and Chief Executive Officer, and 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 our office at 713-529-6600 and relay that information to us or you can e-mail us with that information. 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 via recorded instant replay until November 16. Information on how to access the replay was provided in this morning's earnings release.

Information reported on this call speaks only as today, Monday, November 2, 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 risk factors disclosed by the Company from time to time in its filings with the SEC including 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 statements regarding forward-looking statements incorporated in our press release issued this morning and please note that the contents of our conference call are covered by these statements. I will turn the call over now to Wayne Whitener.

Thank you Jack. Good morning to everyone. I would like to welcome you to our third-quarter 2009 conference call. As far as the agenda is concerned, I will provide you with some highlights and Jim Brata will provide you with some financial details. Then I will come back with some final comments.

Let me begin by making some general comments. First regarding our recent disclosed acquisition, on October 19 we announced that we had acquired Eagle Canada, a provider of seismic data acquisition services to the Canadian energy industry based in Calgary. We are extremely pleased to have Eagle Canada as part of our Company and it will play an important role in our strategic operations going forward.

Also while the seismic market continues to be challenging and difficult, we're beginning to see some signs of stability. I'll have additional remarks on both of these points following Jim's discussion of the financials.

After a good first half, we had a disappointing third quarter as the industrywide slowdown in the US had a severe impact on our third-quarter results. The continued weak economic environment, along with depressed natural gas pricing which remained low during most of the quarter, resulted in lower demand for seismic services. We also saw pricing pressures which caused unusually weak margins.

We've responded to this by reducing our cost, reducing our crew count and we expect to keep them in line -- crew count with revenues. We operated four crews for the entire third quarter as we continued to optimize our end utilization, keeping our crew count aligned with demand.

As a reminder, we have had a fairly significant reduction in our crew count this year, down from a peak of nine crews in the first quarter of 2009 to five crews by the end of the second quarter and to four crews at the end of the third quarter.

This led to a significant decline in revenues in the third quarter which negatively impacted margins. Our backlog is currently $35 million, down slightly from $37 million in the previous quarter.

Now I will turn the call over to Jim Brata, who will give you some detailed review of financial results, then I will come back with some final remarks.

Good morning. Revenues for the 2009 third quarter declined 25.4% to $16.1 million compared to $21.6 million in the third quarter of 2008. Cost of services in the third quarter increased 5.6% to $14.1 million from $13.4 million in the third quarter a year ago.

As a percentage of revenues, cost of services in the third quarter of '09 was 87.8% compared to 62.0% in the '08 third quarter, resulting primarily from the decline in revenues due to the reduction in our crew count during the second quarter and the beginning of the third as we continued to respond quickly to the industrywide slowdown. Consequently, gross profit in the '09 third quarter decreased 76.0% to $2.0 million compared to $8.2 million a year ago.

Gross profit margin was 12.2% compared to 38.0% in the third quarter of last year. Selling, general and administrative expenses declined 11.6% to $995,000 or 6.2% of revenue in the third quarter from $1.1 million or 5.2% of revenue in the third quarter a year ago.

Depreciation and amortization expense was $3.4 million compared to $3.5 million a year ago. As a percentage of revenues, depreciation and amortization expense was 21.4% compared to 16.0% in the third quarter of 2008. Interest expense in the third quarter was essentially flat with a year ago, at approximately $246,000.

We recorded a tax benefit for the third quarter of $993,000 and effective tax benefit rate of 36.4% compared to income tax expense of $1.5 million and effective tax expense rate of 44.5% a year ago.

We reported a net loss for the third quarter of $1.7 million compared to net income of $1.9 million in the third quarter of 2008. Loss per share was $0.09 versus earnings per diluted share of $0.10 in the third quarter of 2008. Per share amounts in all periods have been adjusted to reflect the 5% stock dividend paid May 12, 2009 to shareholders of record as of April 28, 2009.

Third quarter '09 EBITDA was $968,000 and EBITDA margin was 6.0% compared to $7.1 million and EBITDA margin of 32.7% in the third quarter of 2008. Our balance sheet remains strong and we continue to generate cash, producing cash flow from operations of $5.8 million during the third quarter. As of September 30, 2009, we had long-term debt of $7.6 million, cash and cash equivalents of approximately $34 million, a current ratio of approximately 3 to 1, and working capital of approximately $27.3 million.

With that, I will turn the call back to Wayne.

Thank you Jim. Before we go to questions I would like to make some brief summaries about some of the operations that we have ongoing here. Despite the continued volatility of commodity prices and the uncertainty regarding future energy policy that have resulted in weak domestic seismic activity, we have become a little more optimistic because we believe we've reached through the trough of this downturn sometime this past summer. While we expect the balance this year to remain challenging, we're experiencing an increased level of inquiries and we're also seeing an increase in bidding for seismic work.

We've also seen some new opportunities in the Northeast Marcellus shale. However, we are likely to continue operating in a very competitive pricing environment for some time. As you know, we've responded to these weak conditions by reducing our costs to keep them in line with anticipated revenues. We intend to maintain a cost structure aligned with projected demand while maintaining our ability to adjust and add crews quickly when conditions improve.

Given our current backlog, we expect to operate four crews during the fourth quarter in line with our third-quarter level.

I would like to say a few more words about the acquisition of Eagle Canada, Inc., which we believe is an excellent fit with TGC. This acquisition does several things for us. It strengthens our strategic position within the seismic industry, giving us geographic diversification into Canada. It increases our exposure to oil markets while reducing our exposure to natural gas markets.

In addition, it provides us with operational exposure to new markets and new technology since Eagle Canada has extensive experience in 3-C data acquisition in the Canadian oil sands, and their seismic acquisition services are also being used by potash mining industry in Canada. Eagle Canada has specialized expertise in acquisition of seismic data in technically complex and logistically difficult environments and have 3-D heliportable capabilities.

Finally, assuming a typical seismic season in Canada, the acquisition should improve earnings in 2010.

Finally, we continue focusing on strengthening our balance sheet. During the quarter we reduced our long-term obligations $1.4 million and increased cash by $3.5 million, resulting in approximately $34.1 million of cash available at the end of the third quarter. With a substantial amount of cash in the bank, along with an unused line of credit of $5 million, we believe we remain very strongly positioned both financially and operationally to withstand the current industry downcycle which we believe is coming to an end. We're currently not planning any significant capital expenditures for the next couple of quarters unless we see a substantial increase in our backlog.

Despite the current downturn, we expect an improved environment in 2010 with increased seismic activity compared to 2009 but with continued pricing competition. Our long-term outlook remains positive as industry efforts to reduce finding and development costs combined with increasing complex reservoirs and the growing use of directional drilling should sustain a strong base of seismic demand as the energy sector market recovers.

This concludes my formal remarks and now I will take any questions.

(Operator Instructions) Terese Fabian, Sidoti & Co.

Good morning. I have a question on the third quarter and sort of shedding some light on the fourth quarter. You have a relatively high revenue per crew; if I do a straight division of revenue divided by four crews, comes to about $4 million. What is going on there? Are you seeing greater efficiencies or are you having a higher proportion of jobs using dynamite? And going into the fourth quarter, is this going to remain relatively the same?

Yes. We had an increase of dynamite jobs. In the third quarter of '09 we had 66% of revenue was dynamite work versus 22% in the third quarter of '08. And going into the fourth quarter, we expect to have the same amount of dynamite versus vibroseis.

Okay. Did you have any weather effect in the third quarter?

Nothing real significantly, no.

Okay. I think at one time you had said that [65%] or so of revenue is gas oriented leverage. Is that going to be more oil now with the Eagle Canada acquisition?

Well, we'll have to see how the contracts play out. We expect to see probably more oil plays going forward. But as far as percentage, we don't really have a handle on that yet.

Okay. And the fourth quarter generally has some holiday effect and maybe some slow down [per work] with hunting season going on. Do you think that is going to be the same this year?

Yes, normally in the fourth quarter we see some additional weather, holidays and also the hunting effect. So, yes, there will be some of that effect which will be in the fourth quarter.

Okay. And can you just -- my last question for right now, where are your crews working? And what kind of -- where are the inquiries coming from that you're getting?

Right now we have got of course crews working in Texas and in Kansas. As I mentioned we've got some new work we expect to do hopefully in the fourth quarter in the Marcellus which is central Pennsylvania. We also will have some additional work along the coast in South Texas.

Okay. And the current work in Texas, is that East or West?

East Texas.

East Texas? All right. Thank you. I'll queue back up.

Neal Dingmann, Wunderlich Securities.

Morning guys. Two quick questions, first, on -- you mentioned going into the Marcellus, I was wondering sort of the intensity of those sort of shoots. I'm just wondering what is sort of average as far as channels per shoot which you are using sort of Kansas versus Texas? And I'm just kind of curious what that would be at some of these unconventional plays.

It's pretty much -- the parameters are pretty much the same, more or less, that we're using in the Haynesville shale type play, also in the Barnett shale. So, channel demand is not extremely high. There is some additional 2-D there because there's still some areas that are considered frontier work at the moment. So, we're also going to be doing some 2-D work up there as well.

Okay. So really no reason to add any channels at this point, I think, as you said in the press release.

No, there's no need to add channels at this point.

Okay. Then just lastly, I know you mentioned nothing on the near-term to look for acquisitions, but would you consider going international, such as Latin America, if the opportunity arose?

Sure. We continue to look at all opportunities that will increase shareholder value.

Okay. Thanks, guys.

(Operator Instructions) Veny Aleksandrov, Pritchard Capital Partners.

Good morning gentlemen. I have a question about the slightly improving bidding activity. What do you see in terms of jobs, the size of the jobs, the duration of the jobs? Are those dynamics improving?

Well, I think we're seeing an increase in inquiries as far as the amount of bids that we are seeing. I don't think we're seeing really any huge increase in sizes. It pretty much varies anywhere from the small 3-Ds up to 50, 60 square.

There -- we expect to see maybe some larger 3-Ds come out next year. But right now it seems to be pretty well in line with what we've seen in the past as far as size of the 3-Ds.

Okay, thank you. My next question, this quarter you're going to have a little bit of the Eagle Canada contribution. What can we expect in terms of gross margins?

Well, we're still actually -- we just finished the acquisition here a little over a week ago. So we're working through the numbers and working through the combined financials, and so we don't feel like we have a real good handle on that yet. But we are working through that at this time.

Okay, thank you. And in terms of Eagle Canada what are your internal projections? How many crews do you expect Eagle to operate in the heart of winter in Canada?

Well, they have the capabilities of operating five crews. At present they're operating two crews and they expect to build on that towards the end of the fourth quarter and into the first quarter.

Thank you so much. Those are my questions. Thanks.

Terese Fabian, Sidoti & Co.

And I have a follow-up on the Eagle questions also, I know it is hard to get -- since you just did the acquisition to get a whole sense of it, but does Eagle Canada operate with a backlog? And is their revenue per crew in terms of modeling higher or lower than yours? Do they do less dynamite work? If you can just talk about that a little bit.

Like I say, they are operating two crews at the moment. Their revenue should be pretty much in line with our crews that we have down here. The dynamite mix has been more towards the dynamite than the vibroseis up there. So, we expect the revenues to be more in line with the dynamite crews.

Okay, do they generally operate with a backlog? Is that included in your number now?

It is not. There is nothing in Eagle in the financials or in the backlog that reflects anything with Eagle Canada and they do operate with a backlog.

It works a little different up there than what we have. Most of their clientele wait 'til August/September and then start awarding the jobs. And of course then that's when they start building their backlog. So, we build our backlog throughout the year. So, they come and have a flat backlog during the summer and then it builds up starting in the August/September time frame.

Okay and the management of Eagle is going to be staying, the team there?

Yes. All the management will be remaining in place in Eagle Canada.

In terms of their channel count they have 16,000 ARAM channels. Are those relatively new also, because I think that your equipment base is fairly new, very new?

Yes. They have 10,000 of new ARAM ARIES channels which directly match up with our new ARAM ARIES channels. So during the off-season that will give us an opportunity to utilize those channels possibly in areas in the US.

Okay. And there is no problem in terms of border crossings, bringing them down?

No, none whatsoever.

Okay. And then just a quick question. On the short-term debt number, do you have one or does Jim have one?

Yes. The current portion is $6.5 million.

Okay and then just the last question. Mostly I think your work is with independents. Are you seeing them come back? Is that where the inquiries are coming from?

Pretty much so. Pretty much most of our work in bidding is with spec companies and mid to smaller size E&P companies.

Okay, thank you.

(Operator Instructions) Terese Fabian.

Okay, thank you. A remaining question on 3-C data acquisition. Can you describe how that differs from other work that you are doing?

Well, it's three-component. Basically, they have access as well as we do to three-component equipment and three-component has been very popular in the oil sands up there. In previous years they've leased the equipment and done three-component work in the oil sands.

And what does it give you, that 2-D or 3-D?

It's additional information. It has P-wave and shear wave information. Normally in the 3-D world or 2-D world we're dealing with P-wave, so it gives you additional information for the subsurface mapping. It's normally used in very complex areas to help define certain information.

Okay. And who are the other players in that market in terms of comparable data acquisition surveying?

Veritas CGG is in that market. Another company by the name of [Tesla] is a Canadian company up there. They're probably the two other players of size in that Canadian market.

And contracts there generally work on relationship and pricing?

Yes, that is correct.

Okay. Thank you.

Thank you and at this time there are no further questions. I would like to turn the call back over to management for any closing remarks.

Well, we thank you for joining us for the third quarter conference call and we look forward to talking to you again.

Thank you. Ladies and gentlemen this concludes the TGC Industries third quarter 2009 earnings conference call. You may now disconnect. Thank you for using ACT Teleconferencing.