Dawson Geophysical Co (DWSN) 2010 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. This conference call is being recorded today, Monday, May 3, 2010.

I would now like to turn the conference over to Jack Lascar with DRG&E. Please go ahead, sir.

Thank you, Brandy. Good morning and welcome to the TGC Industries first-quarter 2010 conference call. Thank you for joining us this morning. Your hosts today 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 email distribution list, please call us at 713-529-6600 and relay that information to us, or you can email us with that information also.

If you would like to listen to replay of today's call it will be available via webcast by going to the investor relations section of the Company's website at www.tgcseismic.com or via a recorded instant replay until May 17. 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, May 3, 2010; 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 risks 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, 2009.

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. I will now turn the call over to Wayne Whitener.

Thank you, Jack. Good morning to everyone. I would like to welcome you to our first-quarter conference call.

As far as the agenda is concerned I will make some brief comments on the quarter and Jim Brata provide you with the financial details. Then I will come back with some final remarks.

I will begin by briefly summarizing the quarter. We're pleased to have posted a profitable quarter after a very challenging second half of 2009 where demand weakness and seismic market activity declined significantly in North America. In addition, we have experienced substantial pricing pressures in the US, and that will continue.

This year's first quarter includes the operating results of Eagle Canada, which we acquired in mid-October 2009. Results for the first quarter of 2010 benefited from the seasonal nature of our Canadian operations, which compare favorably with the fourth quarter of 2009.

Since the beginning of this industry downturn, we have aggressively managed our costs including our crew count to keep them in line with expected revenues. We reduced our US crew count from a peak of nine crews in the first quarter of last year to four crews in the second half of 2009. The first quarter of last year was a record quarter for us as we operated at full capacity throughout the quarter.

The good news is that during this first quarter we continued to benefit from an improving bidding environment that started in late 2009. In addition, we are taking steps to improve our margins and are starting to make progress in the effort through better contract terms.

Nevertheless, the North American seismic market remains very price sensitive as a result of the excess capacity still prevailing within the industry. We have used the downturn to preserve and improve our operating flexibility, and we have the ability to add crews quickly as business conditions improve, which we did during the first quarter.

We are extremely pleased with our acquisition of Eagle Canada. It is an excellent business that is fully integrated, and it continues to be a positive contributor to our quarterly results as we operated at full capacity in Canada during the first quarter.

However, as most of you know, the Canadian market is seasonal. And as a result of the thawing season, we will experience a significant decline in Canadian activity for the next couple of quarters.

Now I would like to point out a few highlights in the first quarter. We believe that the seismic market is rebounding from the sharp downturn experienced in the second half of last year. We are experiencing increased bidding activities, and in looking at our first-quarter 2010 results as compared to the first quarter of 2009 we are seeing notable improvement.

Revenues in our first quarter were up 92% from the fourth quarter of last year. After operating four seismic acquisition crews in the US for the entire fourth quarter of 2009, we began the first quarter with five crews and ended the quarter with six crews.

We are experiencing an increase in demand for our services in several producing basins, including the Marcellus Shale, the Haynesville Shale, and the Eagle Ford Shale. After operating three crews in Canada for most of the fourth quarter, we operated at full capacity with five crews for most of the first quarter.

Our gross profit margin improved from 14.6% in the fourth quarter to 22.1% in the first quarter. Importantly, we are continuing to work to improve our margins from current levels.

We generated cash flow from the operations in the quarter, and we just signed a commitment letter to purchase a 3,000 channel GSR wireless recording system that can operate either independently or integrate with our ARAM equipment. The GSR system will further strengthen our technical and operational flexibility and improve our efficiency which in turn should lead to improved margins over time.

The operational flexibility of the new system will expand our capabilities since it can operate in many different types of environments. We expect delivery of this system by mid-June. Our channel capacity will then be at 70,000.

Overall, we are cautiously optimistic that conditions have stabilized, and we are already seeing some improvement. Of course, we have the ability to ramp up quickly as conditions continue to improve.

Our total backlog is currently $44 million consisting of both US and Canadian backlog amounts. I will now turn the call over to Jim, who will give you a detailed review of our financial results. Then I will return with some final remarks.

Good morning. Revenues for the 2010 first quarter were $30.3 million compared to $36.0 million in the first quarter of 2009, a 16% decline primarily reflecting the reduced demand for seismic services and a competitive pricing environment in the US. As Wayne said, we began the first quarter with five crews operating in the US and, in response to improved demand, ended the quarter with an additional six crews. In the first quarter a year ago, we operated nine crews in the US.

In Canada, we operated all five of our crews for most of the first quarter due to strong seasonal activity in that region. Of course, since we completed the acquisition of Eagle Canada in October 2009, we had no operations in Canada in the first quarter a year ago.

The seismic business in Canada is very seasonal, and the strongest calendar quarters are the first and the fourth due to the ability to access those producing areas. As Wayne said earlier, we operated three crews in Canada for most of the 2009 fourth quarter.

Cost of services in the first quarter of 2010 increased by 6% to $23.6 million from $22.2 million in the first quarter a year ago. Reflecting the year-over-year decline in revenues and continuing pricing pressure in the US, cost of services as a percentage of revenues rose to 77.9% from 61.8% in '09 first quarter.

As a result, gross profit declined 51% to $6.7 million from $13.8 million in the first quarter a year ago. Gross profit margin was 22.1% compared to 38.2% in the first quarter of last year.

Selling, general, and administrative expenses increased approximately 44% to $1.7 million from $1.2 million in the first quarter of '09 primarily due to management and integration costs associated with the Eagle Canada acquisition. As a percentage of revenues SG&A expenses were 5.6% compared to 3.3% a year ago.

Depreciation and amortization expense was slightly higher than a year ago at $3.9 million compared to $3.8 million. As a percentage of revenues, depreciation and amortization expense was 12.8% compared to 10.6% in the first quarter of '09.

Income from operations was $1.2 million compared to $8.8 million in the first quarter of '09. Interest expense in the first quarter was approximately 20% lower than a year ago at $216,000, as we continue to pay down our debt.

We reported net income of $0.6 million or $0.03 per diluted share, compared to $5 million or $0.26 per diluted share in the first quarter a year ago. The effective tax rate for both the first quarter of 2010 and 2009 was approximately 41%.

All per-share amounts have been adjusted to reflect the 5% stock dividend payable on May 14, 2010, to shareholders of record as of April 30, 2010.

During the first quarter, we generated approximately $419,000 in cash from operations. We ended the first quarter with long-term debt of $5.7 million, cash and cash equivalents of $23.2 million.

You'll note that our cash position dropped by approximately $2 million from the year-end 2009. We made principal payments of approximately $1.7 million on our notes payable and principal payments of approximately $265,000 on our capital lease obligations during the quarter.

We had a current ratio of approximately 2-to-1 and working capital of approximately $18.6 million. And with that, I will turn the call back to Wayne.

Thank you, Jim. Before we go to questions I would like to briefly summarize what we see ahead of us.

Clearly we are slowly emerging from a difficult North American seismic market. But we are more optimistic today than we were a few months ago. We are continuing to experience an increased level of inquiries and are also seeing an increase in bidding for seismic work.

While we continue to operate in a competitive pricing environment, we are taking steps to increase our operating margins. We are currently operating six crews in the US; but at this point we are already down to one crew in Canada. The end of the Canadian winter will reduce our Canadian crew count for both the second and third quarters of 2010.

So in summary we are growing more optimistic about the outlook for the remainder of 2010. One major objective for the next several quarters is to increase the US seismic acquisition margins.

On the operating side of the business we have the right equipment, the enhanced geographic diversification, the qualified personnel, the balance sheet, and the liquidity to take advantage of the opportunities that are starting to appear as our industry recovers. I'll close by saying that the long-term fundamentals of our industry remain very positive and we are looking forward to a strengthening of the business environment.

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

(Operator Instructions) Veny Aleksandrov, Pritchard Capital Partners.

Good morning, Wayne and Jim. Great quarter. My first question. Since Eagle Canada, it's only the first quarter that we have the numbers in, can you give us a little bit more details how much of the revenue strength came from Canada and how much was due to the Lower 48?

Well, Veny, we are reporting consolidated numbers.

Right.

So we're not breaking that out. But I will say that the Canadian operation was very significant in the positive numbers in the first quarter.

Okay. Thank you; that's fair. Then my other question is about the new GSR equipment that you are picking up. Have you tested that? Do you have any preliminary idea how it is going to effect efficiency? Do you have any -- have you run any tests with it so far?

Well, what we have done -- we have done extensive research on the equipment with Geospace. We feel like that it is going to fill a niche for the Company that we were needing.

The equipment is very state-of-the-art. The good thing about it, it will integrate with our ARAM system and it will also be able to stand alone in specific environments that we are not able to do with the ARAM. So we feel like it is going to add a lot to our capabilities for the Company.

Great. Thank you. I will requeue for more questions. Thank you.

(Operator Instructions) Terese Fabian, Sidoti & Company.

Thank you. Good morning. Let me try Veny's question another direction. Can you talk about what the revenue level is for your crews in Canada and the US? Are they at comparable levels?

Also, is the proportion of dynamite work in the US -- what was that?

The crew revenue and costs associated with Canada is along the same lines as the present US operations. In the first quarter, our percentage of dynamite was 19%.

So that is lower than it has been in the past, yes?

Yes, the fourth quarter of '09, 60% of revenues were generated from dynamite work.

Okay. Then a little bit on the types of the projects you are seeing in the bidding line. Are they the same size as say they were a year and a half ago or a year ago?

And the locations, are they in comparable locations as far as the US goes?

I would say that we're seeing a lot of the new areas as far as the Marcellus for us; we are actively working up there at this point. As mentioned, we are in the Haynesville. We are in the Eagle Ford Shale, which has really picked up some steam.

As far as the size of the jobs, we are seeing some larger jobs in front of us for the upcoming year.

How do you suppose you would use the wireless system that you are getting? In which locations would they be most applicable?

Well, they work extremely well in the urban environments. They worked extremely well in some wet environments.

Also, we can integrate this system in with our ARAM, so if we have a specific area that has requirements that -- whether it be urban or whether it be wet or other applications -- we can integrate that right with our ARAM system and put that as one system out there.

So it has a lot of capabilities and applications that we feel like that will definitely enhance the Company's capabilities.

Great. And you expect that in the summer, yes?

We're expecting delivery of the system in mid-June.

Okay, thank you. Just let me ask Jim one question. Short-term debt number, Jim?

Our short-term debt is $7.0 million.

Okay. Thank you very much.

(Operator Instructions) At this time there are no further questions. I would like to turn the call back over to management for any closing comments.

I would like to thank everyone that participated in the first-quarter conference call of 2010, and we appreciate your interest in the Company.

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