Dawson Geophysical Co (DWSN) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to the TGC Industries second-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 question. (Operator Instructions). This conference is being recorded today, Monday, August 2, 2010. I would now like to turn the conference over to Jack Lascar of DRG&E. Please go ahead.

Good morning and thank you, Luke. Welcome to the TGC Industries second-quarter 2010 conference call. We appreciate you joining us today. Your hosts are Wayne Whitener, President and Chief Executive Officer, and Jim Brata, Chief Financial Officer. Before I turn over the call 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 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 website at www.TGCseismic.com or via a recorded instant replay until August 16. 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, August 2, 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 risk factors disclosed by the Company from time to time in its filings with the SEC, including the 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. Now I will turn the call over to Wayne Whitener.

Thank you, Jack, and good morning to everyone. I would like to welcome you to the second-quarter conference call. As far as the agenda is concerned, I will make some brief comments on the quarter and Jim Brata will provide you with the financial details. Then I will come back with some final remarks. I will begin by briefly summarizing the quarter.

This year's first and second quarters include the operating results of Eagle Canada which we acquired in mid-October of 2009. However, as we mentioned in the first quarter conference call, we did not operate any crews in Canada for the entire second quarter as a result of the spring thawing season. This inactivity in Canada contributed to the second-quarter net loss as we incurred the ongoing cost of the Canadian operations during the spring thaw with little corresponding revenue.

Due to the seasonality of the Canadian market the second quarter is the weakest quarter for activity in Canada. However, we do expect increasing levels of seismic activity in that region for the next three quarters beginning with the third quarter. The good news is that since the beginning of 2010 we have been benefiting from additional bidding environment which is ongoing.

In addition, we continue to take steps to improve our margins and are starting to make some progress in that effort through better contract terms. Nevertheless the North American seismic market remains price-sensitive as a result of the excess capacity that's still prevalent in the industry. We used last year's downturn to preserve and improve our operating flexibility and we have the ability to add crews quickly as business conditions improve.

Now I will point out a few highlights of the second quarter. We believe that the seismic market is in the early stages of a recovery, rebounding from the sharp downturn experienced in the second half of last year. We operated six crews in the United States during the entire second quarter and expect to operate at least six crews in the United States for the balance of 2010. We are currently operating crews in the Marcellus Shale, Haynesville Shale and the Eagle Ford Shale.

We have opened a new office in Midland, Texas that is being managed by an experienced and highly regarded professional that came to us from within the industry. That office is already responsible for bringing some new business from West Texas.

After operating five crews in Canada for most of the first quarter we essentially had no crews operating in that region and the second quarter due to the seasonality nature of Canadian operations. That began already to change with the current quarter.

We also continued to generate solid cash flow from operations during the quarter. Overall we are pleased with the fact that the North American seismic acquisition market is in the early stages of recovery. Our total backlog is currently $50 million consisting of both US and Canadian backlog amounts. Our backlog has been steadily increasing since the second quarter of 2009 which was at a low of $37 million.

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

Good morning. Revenues for the second quarter of 2010 were $22.5 million compared to $22.6 million in the second quarter of 2009 reflecting a competitive pricing environment for US seismic services. Cost of services in the second quarter of 2010 increased 18% to $18.3 million from $15.6 million in the second quarter a year ago. Cost of services as a percentage of revenues rose to 81.6% from 68.9% in the 2009 second quarter primarily reflecting pricing pressures in the US.

In addition, shot hole-work accounted for 55% of our revenues during the second quarter of 2010 compared to 36% during the second quarter of last year. As a result gross profit declined 41% to $4.1 million from $7.0 million in the second quarter year ago. Gross profit margin was 18.4% compared to 31.1% in the second quarter of last year.

Selling, general and administrative expenses were $1.7 million, basically flat with the first quarter but up from $968,000 in the second quarter of 2009 mainly due to the inclusion of Eagle Canada in this quarter's results. As a percentage of revenues, SG&A expenses were 7.8% compared to 4.3% a year ago.

Depreciation and amortization expense was 4% higher than a year ago at $3.8 million compared to $3.6 million. As a percentage of revenues, depreciation and amortization expense was 16.9% compared to 16.1% in the second quarter of 2009. We reported a loss from operations of $1.4 million compared to income from operations of $2.4 million in the second quarter of 2009.

Interest expense in the second quarter was approximately 20% lower than a year ago at $214,000 as we continue to pay down our debt. We reported a net loss of $1.2 million or a $0.06 loss per share compared to net income of $1.2 million or $0.06 per diluted share in the second quarter a year ago.

We recorded a tax benefit of $392,000 for the second quarter of 2010, net effective tax benefit rate of 24.5% compared to income tax expense of $914,000 and effective tax rate of 42.4% for the second quarter of 2009. And all per share amounts have been adjusted to reflect the 5% stock dividend paid on May 14, 2010 to shareholders of record as of April 30, 2010.

EBITDA for the second quarter was $2.4 million with an EBITDA margin of 10.7% compared to $6.1 million and an EBITDA margin of 26.8% in the second quarter of 2009 and an EBITDA reconciliation table is provided in our earnings release.

Now I will briefly summarize our first six months results. First-half 2010 revenues decreased 9.9% to $52.8 million from $58.6 million in the first half of 2009. Cost of services for the first six months of 2010 was $41.9 million compared to $37.8 million in the first half of 2009, a 10.9% increase. Cost of services as a percentage of revenues was 79.4% compared to 64.5% in the first half of 2009.

Gross profit for the first six months of this year was $10.9 million compared to $20.8 million a year ago, a 48% decline. Gross margin for this year's first half was 20.6% compared to 35.5% in the first half of 2009.

SG&A expenses for the first six months of 2010 rose to $3.4 million from $2.1 million in the first six months of 2009, a 60% increase. The SG&A expenses as a percentage of revenues for the two 6-month periods were 6.5% and 3.7% respectively.

First-half 2010 depreciation and amortization expense was $7.7 million compared to $7.4 million in the first half of 2009, a 3% increase. Depreciation and amortization expense as a percentage of revenues for the two 6-month periods was 14.5% and 12.7% respectively.

We reported a loss from operations for this year's first-half of $233,000 compared to income from operations of $11.2 million in the comparable period last year. Interest expense for the first half of 2010 declined 20% from a year ago to $430,000. We reported a net loss of $660,000 or a $0.03 loss per share for the first six months of 2010 compared to net income of $6.3 million or $0.33 per diluted share for the first half of 2009.

EBITDA for the first six months was $7.4 million, an EBITDA margin of 14.1% compared to $18.6 million and EBITDA margin of 31.8% in the first half of 2009. And now I'll highlight some balance sheet items.

At the end of the second quarter we had long-term debt of $4.3 million, we had cash and cash equivalents of 21.7% and noting that our cash position dropped by approximately $3.8 million since the beginning of the year, we made principal payments of approximately $4.3 million on our notes payable and capital lease obligations.

Our current ratio was approximately 2 to 1 and our working capital was approximately $15.4 million. And during the second quarter we generated approximately $4.9 million in cash from operations. And with that I'll turn the call back to Wayne.

Thank you, Jim. Before we go to your questions I will briefly summarize what we see ahead. Clearly we are slowly but surely emerging from a difficult North American seismic market. During June we took delivery of our new 3,000 channel TSR wireless recording system that can operate either independently or integrated with our ARAM equipment. The system is currently in operation in Canada and we expect the system to have a positive impact on the Company.

We are clearly 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. Based on the level on inquiries in Canada we expect a very good season this year in that region and we are already operating two crews since late July. While we continue to operate in a competitive pricing environment we are taking steps to increase our operating margins.

While the Gulf of Mexico oil spill has created a certain amount of uncertainty we believe that land seismic industry should benefit from any potential transfer of exploration dollars from onshore -- from offshore to onshore US.

In summary, we're growing more optimistic about the outlook for the remainder of 2010. We believe that the long-term fundamentals of our industry remain very positive and we look forward to a strengthening of the business and the environment. I will now take any questions.

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

Hi, good morning and thank you. Can you talk a little bit about your crew utilization in the second quarter, the numbers per crew look fairly good, aside from the dynamite work.

Yes, like I say, we ran six crews for the entire second quarter and utilization was probably right around that 90% to 95% utilization.

And do you think that's because of whether or because of geographies that the crews were working in, because that's a good number?

Yes, I mean, a lot of it has to do with the work that we had prepared and what the crews were able to move on to. So, and we had relatively decent weather here in the second quarter.

Okay. I'll queue backup. Okay, thank you.

Veny Aleksandrov, Pritchard Capital Partners.

Good morning. I have -- my first question is how much of your backlog right now is US and how much is Canada?

Most of the backlog that we're reporting right now is US. Canada does not have very much of a forward-looking backlog as normally they have other crews that do the preparation work in Canada and normally they'll wait to -- late in the third quarter or the beginning of the fourth quarter to award work there. So, I would say probably 90% of the backlog that we're reporting at this time is US.

Thank you. And also pricing has been the question for a very long time in the US. Do you see any indications of pricing improvements yet?

We're seeing some improvements in pricing. One of the main things we're seeing is improvement in contract terms. So, we're optimistic about that.

Okay, thank you. I'll queue back, thank you.

(Operator Instructions). Bob Sullivan, Satuit Capital Management.

Thank you and nice quarter, guys, given everything that's happening. Can you give me a sense for -- I like the way that the crew growth is moving, I think we all do. Can you give us a sense for -- given your backlog currently, some of the bid activity that you're seeing, can you give us a sense for what you might expect your crew levels to look like at the end of the year in both Canada and the US?

And then my second question would be, can you give us some sort of sense for what the bid activity looks like year-over-year and how you see that progressing throughout the next six to nine months?

All right, as far as the crews, we're anticipating operating six crews here in the US for the rest of the year. It is possible that if we're fortunate in some of our bidding out there that we could add a crew in the fourth quarter.

As far as Canada goes, we're operating two crews right now in Canada and we're expecting a relatively good year. Normally in Canada the first quarter is normally our most busiest time up there, but things start picking up in the third and relatively where we're hoping to operate possibly four crews in Canada in the fourth quarter.

But as I stated, Canada does not have the opportunity that we have as far as getting backlog and advances as far as we do here in the US. So, there's not that much contracts firmed up in Canada right now, but that's normal for that area.

Okay, and then maybe anecdotally how the bid activity looks like compared to last year in the going forward?

I think the bid activity is improved, it's still relatively slow. I think there are uncertainties out there with some of our clients, but we are seeing improvement in contract terms. So we expect things to continue to be on the upswing for the remainder of this year and we're optimistic about the start of next year.

Great, thank you, I'll jump back in queue.

Sure.

Veny Aleksandrov, Pritchard Capital Partners.

My follow-up question -- I know that you just took delivery of the OYO Geospace wireless system. But have you done any tests already and have you seen any results, any efficiency savings? Anything that you can discuss?

Well, we just took delivery of the system, the system just came online in Canada and it's working for a client up there. So far our initial information back to us has been very positive. We also have worked for the GSR system here in the fourth quarter here in the US. So, like I say, we're getting our feet on the ground, but we think it's going to be a very good system for us and have some very good applications in a lot of areas that the ARAM is not real conducive to.

Thank you.

Terese Fabian, Sidoti & Company.

Thank you, again. A question on drilling activity in the US. It's been picking up nicely over the past quarters. But are you in fact seeing more seismic work that underpins this or is that activity, that drilling based on previous seismic work? And if so, when do you think that's going to turn for you?

Well, I think a lot of the drilling is from previous seismic that was done. We're doing a lot of new seismic in the shales that I mentioned, the Marcellus, the Haynesville and the Eagle Ford. So, we're seeing a pickup in all three of those shales. We're also seeing a pickup in some of the oil plays. So, like I say, we're optimistic that the environment is on an upswing and we think things will continue to improve. But I think at a relatively slow level.

Okay. And just a question for Jim maybe. Short-term debt, can you give a number on that?

That's $8.1 million.

Okay, thank you.

(Operator Instructions). Bob Sullivan, Satuit Capital Management.

Thank you. Gentlemen, just wondering if you could give us a sense for the contracts I guess that you're seeing now, and also some of the terms inside of the bidding activity. Are they a little bit longer term type contracts or do you measure that even? And do you get the sense that with the proposals out there that there's a larger sense of commitment by the industry to seismic activity both here and in the states -- both here and in Canada, excuse me.

Sure, I think we are seeing -- of course our contractor is on a per job proprietary basis. And I feel like we are seeing contracts that are of greater size than possibly we saw a year ago. We're able to negotiate better contract terms than we were a year ago.

As far as Canada, like I say, things look positive up there, but the contracts really don't start rolling in until the third quarter and into the fourth quarter. So -- but we're optimistic that the environment in Canada by the crown looks very positive to seismic and oily gas in general up there. So, we feel like that we're going to have a good season there. But back as far as the US goes, we are seeing some larger jobs being awarded down here in the US.

Great, thank you.

Thank you. And there are no further questions. Management, please proceed with any closing remarks.

No, I'd just like to thank everybody for listening to the second-quarter 2010 conference call. And we appreciate your interest in the Company.

Ladies and gentlemen, this concludes the TGC Industries second-quarter earnings conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 with the access code 432-9573. AT&T would like to thank you for your participation. You may now disconnect.