Dawson Geophysical Co (DWSN) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to the TGC Industries third-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, November 1, 2010. I would now like to turn the conference over to Karen Roan of DRG&L. Please go ahead.

Thank you, Luke. Good morning, everyone, and welcome to the TGC Industries third-quarter 2010 conference call. We appreciate your joining us today. Your hosts today 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&L's office at 713-529-6600 and relay that information to us. Or you can e-mail us 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 a recorded instant replay until November 15. Information on how to access the replay was provided in this morning's earnings release.

Information on this call speaks only as of today, Monday, November 1, 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 meet 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, 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 over the call to Wayne Whitener.

Thank you, Karen, and good morning, everyone. I would like to welcome you to the third-quarter conference call. As far as the agenda is concerned, I will meet 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. Let me begin by pointing out a few of the highlights for the third quarter.

First, as a reminder this year's first, second and third quarters include operation results from Eagle Canada, which we acquired in mid-October of 2009. As we had anticipated, we operated six crews in the US in the third quarter. We are currently operating crews in Texas, Oklahoma, Kansas and Pennsylvania, including operations in several of the Shale plays. We operated one crew in Canada during the period and brought on a second crew at the end of the third quarter.

Our third-quarter results were impacted by an increased cost related to the current ramp-up in Canada as we prepare for the upcoming winter season. As you know, operations in Canada are seasonal in nature with the strongest activity in the fourth and first quarters. The Canadian seismic market is shaping up to be better than originally anticipated and we have been operating two crews there since early October.

On our last earnings call we stated that we thought the US seismic market was in the early stages of recovery, rebounding from the sharp downturn that occurred in the second half of 2009. We continue to believe this market is gradually recovering as bidding remains relatively active and we are beginning to see a slight improvement in the US.

Our total backlog is currently $63 million consisting of both US and Canada. Our backlog has been steadily increasing since the second quarter of 2009 low of 37 million. Based on our current backlog we operate -- we expect to operate four crews in Canada between now and the end of the year and we'll continue to operate six crews in the lower 48 during that time.

I will now turn the call over 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 third quarter of 2010 rose 42% to $22.8 million compared to $16.1 million in the third quarter of 2009 reflecting a slight improvement in demand in the US. In last year's third quarter we were experiencing reduced demand for seismic services in a competitive pricing environment in the US and thus operated four crews in the lower 48.

Cost of services in the third quarter of 2010 increased 34% to $18.9 million from $14.1 million in the third quarter a year ago. This increase was attributable to the corresponding increase in revenues as well as increased costs as we began to ramp up in Canada for the upcoming winter season.

However, due to the year-over-year increase in revenues cost of services as a percentage of revenues in the 2010 third quarter were 82.9% compared to 87.8% in the 2009 third quarter. As a result, gross profit increased to $3.9 million from $2.0 million in the third quarter a year ago. Gross profit margin was 17.1% compared to 12.2% in the third quarter of last year.

Selling, general and administrative expenses were $1.6 million, slightly less than the previous quarter, but up from $995,000 in the third 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 6.9% compared to 6.2% a year ago.

Depreciation and amortization expense was 12% higher than the year ago at $3.9 million compared to $3.4 million. As a percentage of revenues, depreciation and amortization expense was 16.9% compared to 21.4% in the third quarter of 2009. We reported a loss from operations of $1.5 million compared to a loss from operations of $2.5 million in the third quarter of 2009.

Interest expense in the third quarter was approximately 24% lower than a year ago at $187,000 as we continue to pay down our debt. We reported a net loss of $1.3 million or $0.07 loss per share combined -- compared to a net loss of $1.7 million or a $0.09 loss per share in the third quarter a year ago. We recorded a tax benefit of $448,000 for the third quarter of 2010, an effective tax rate of 26% compared to an income tax benefit of $993,000, an effective tax rate of 36% for the third quarter of 2009.

And all per share amounts have been adjusted to reflect the 5% stock dividend payable on May 14, 2010 to shareholders of record on April 30, 2010. EBITDA for the third quarter was $2.3 million, an EBITDA margin of 10.2% compared to $1.0 million, an EBITDA margin of 6.0% in the third quarter of 2009. And an EBITDA reconciliation is provided in our earnings release.

Now I will briefly summarize our first nine months results. Year to date 2010 revenues were $75.6 million, up slightly from $74.7 million in the same period of 2009. Cost of services was $60.9 million compared to $51.9 million in the nine months of 2009, a 17% increase. Cost of services as a percentage of revenues was 80.5% compared to 69.5% in the first nine months of 2009.

Gross profit margin for the first nine months of this year was $14.8 million compared to $22.8 million a year ago, a 35% decline. Gross margin was 19.5% compared to 30.5% in the first nine months of 2009. SG&A expenses for the first nine months of 2010 rose to $5.0 million from $3.1 million in the first nine months of 2009. SG&A expenses as a percentage of revenues for the two nine-month periods were 6.6% and 4.2% respectively.

Year to date 2010 depreciation and amortization expense was $11.5 million compared to $10.9 million in the first nine months of 2009, a 6% increase. Depreciation and amortization expense as a percentage of revenues for the two nine-month periods was 15.2% and 14.6% respectively.

We reported a loss from operations of $1.8 million for the first nine months compared to income from operations of $8.7 million in the comparable period last year. We reported a net loss of $1.9 million or a $0.10 loss per share for the first nine months of 2010 compared to net income of $4.5 million or $0.24 per diluted share in the same period of 2009. EBITDA for the first nine months was $9.8 million, and EBITDA margin of 12.9% compared to $19.6 million, an EBITDA margin of 26.3% in the same period of 2009.

Now I will highlight some balance sheet items. At the end of the third quarter we had long-term debt of $4.6 million, cash and cash equivalents of $19.6 million and our cash position has been reduced by about -- approximately $5.9 million since the beginning of the year as we have made principle payments of approximately $6.9 million on our notes payable and capital lease obligations.

Our current ratio is approximately 2 to 1 and working capital is approximately $15.8 million. And during the third quarter we generated approximately $4.1 million in cash from operations. And with that I'll 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. We are slowly but surely emerging from a difficult North American seismic market. In early September we took delivery of a 2,000 channel GSR wireless recording system that can operate either independently or integrated with our ARAM equipment.

Also in October we took delivery of an additional 3,000 channels of GSR equipment. The operational flexibility of this system will expand our capabilities since it can operate in many different types of environments. With this additional equipment our total channel capacity is approximately $70,000.

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 our seismic work. Based on the level on inquiries in Canada we expect a much better season this year in that region. In the US we continue to operate in a competitive pricing environment and continue to take steps to try to increase our operating margins.

Major global companies are moving into the US Shale plays, a very positive sign for long-term gas. However, the current natural gas price is below $4 and is not helping in the near term. In summary, we are growing more optimistic about the outlook for the remainder of 2010 and for 2011. That concludes my formal remarks and we'll now take any q questions.

(Operator Instructions). Veny Aleksandrov, Pritchard Capital.

Good morning. My first question is about Canada. You mentioned that you expect to go up to four crews in Canada. I'm just trying to figure out under your $63 million backlog, are they fully contracted for the rest of the year or because of bidding activity you think you'll be able to sustain four crews?

We feel like that we'll be able to operate the four crews between now and the end of the year and probably into the first quarter of 2011. The backlog works somewhat different in Canada than what we see here in the US. Normally our backlog is roughly six months out from our operations here in the US, where in Canada normally the backlog is on a short fuse of 30 days. So when you're looking at the $63 million in backlog, the majority of that is US backlog.

Got it. Thank you. And then my next question is, bidding activity and pricing in the US, which plays do you see an increase in bidding activity? Is it a pickup in the oil plays or -- and there is still uncertainty in the natural gas plays or is it all around the board?

Well, we are seeing some increases in the oil plays in the Bakken Niobrara areas. There's still, of course, interest in the Shale plays. We're operating crews in the Haynesville and the Eagle Ford shales at this time. We're also operating a crew in the Marcellus in Pennsylvania. But we are seeing somewhat of a move more towards the oil plays at this time.

Thank you. And my last question and I will pass to somebody else. Last question on the GSR system side that you took delivery and that added some more channels. You've had it for what, three months already? Can you -- do you have any data in terms of efficiency savings or can you just give us some details why you like it, what's (inaudible) where it's working right now?

Sure. When we first took delivery of the 2,000 channels that I mentioned earlier, that equipment went to Canada on a term contract up there. The client was very, very pleased with the equipment and the crew and how it operated and they have in turn secured that equipment and crew for the first quarter of 2011.

At present the equipment is working in the US with one of our US crews that is working in Pennsylvania. And we're very satisfied and happy with the way the equipment is working for us. So at present the GSR equipment is working in Pennsylvania and we expect to have that equipment back in Canada in the first part of January for it to go back on that term crew up there.

Thank you so much, (multiple speakers).

Thank you.

(Operator Instructions). And there are no further questions in the queue. Please proceed.

We'd like to thank you for joining us and look forward to talking with you again next quarter.

Ladies and gentlemen, this concludes the TGC Industries third-quarter conference call. If you'd like to listen to a replay of today's conference, please dial 303-590-3030 with the access code 437-2329. ATT would like to thank you for your participation. You may now disconnect.