Dawson Geophysical Co (DWSN) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and 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 questions. (Operator instructions). This conference is being recorded today, Monday, August 1, 2011. I would now like to turn the conference over to Ms. Karen Roan of DRG&L. Please go ahead, ma'am.

Thank you, Elisa. Good morning and welcome to the TGC Industries second quarter of 2011 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 over the call to management, I have a few items to cover. 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 replay until August 15. 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 1, 2011. 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, 2010.

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 this 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. Thank you for joining us for our second quarter of 2010 earnings 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 conclude with some final remarks about our market outlook.

We are pleased to report a solid second-quarter performance. As expected, the quarter was impacted by the normal seasonality slowdown in Canada due to the spring thaw. However, our US operations performed extremely well as the domestic market continues to strengthen. Also in response to the increased demand from our customers, we added an eighth seismic acquisition crew in the US during the quarter.

In Canada we wound down activities with essentially no crews operating there for most of the second quarter. As you know, operations in Canada have seasonality to them; and, due to the area's normal spring breakup, which results in the fourth and first quarter being the strongest of the year. However, towards the end of the second quarter we obtained new business in Canada and thus activated two crews there.

Looking at our overall financial results for the second quarter, we generated quarterly revenue of 34%, and our first-half revenue growth rose 52% to $80 million compared to the same period a year ago. Our quarterly EBITDA increased 150%, and our year-to-date EBITDA increased over 160%, resulting in almost $20 million compared to the same period a year ago. Finally, our backlog, consisting primarily of US business, rose to $56 million from $49 million in the first quarter.

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

Thank you, Wayne, and good morning. Revenues for the second quarter of 2011 increased 34% to $30.2 million compared to $22.5 million in the second quarter of 2010, which reflects the continuing strength in the US land seismic market. Cost of services in the second quarter of 2011 was $22 million compared to $18.3 million in the same quarter a year ago, a 20% increase. Due to the solid year-over-year revenue increase, cost of service as a percentage of revenues in the second quarter declined to 72.6% from 81.6% in last year's second quarter.

As a result, gross profit almost doubled to $8.3 million from $4.1 million in the second quarter of 2010. Gross profit margin increased to 27.4% from 18.4% in the second quarter of last year.

Selling, general and administrative expenses were $2.3 million in the second quarter of 2011 compared to $1.7 million in the 2010 second quarter. As a percentage of revenues SG&A expenses declined to 7.5% from 7.8% a year ago.

Depreciation and amortization rose 26% to $4.8 million compared to $3.8 million in the 2010 second quarter. As a percentage of revenues depreciation and amortization fell to 15.8% compared to 16.9% in the second quarter a year ago. Interest expense in the second quarter was approximately 10% lower than a year ago at $192,000 as we continued to pay down our debt.

We reported net income of $0.6 million or $0.03 per diluted share compared to a net loss of $1.2 million or a $0.06 loss per share in the second quarter a year ago. Included in the second quarter results are $528,000 of costs related to the proposed merger agreement with Dawson Geophysical Company that was announced on March 21, 2011.

We recorded income tax expense of $0.4 million for the second quarter of 2011 and effective tax rate of 43%. This compares to an income tax benefit of $0.4 million and effective tax benefit rate of 25% in the same quarter a year ago.

EBITDA for the second quarter increased 150% to $6 million, an EBITDA margin of 19.8%, compared to $2.4 million, an EBITDA margin of 10.7% in the second quarter of 2010. An EBITDA reconciliation table is provided in our earnings release.

Now I will briefly review our six-month results. Revenues for the first six months of 2011 grew 52% to $80.5 million from $52.8 million in the first six months of 2010. Cost of services for the 2011 first-half increased 34% to $56.2 million from $41.9 million in the same period a year ago. As a result of the strong first-half revenue growth, cost of services as a percentage of revenues decreased to 69.9% in the first half of 2011 from 79.4% in the first half of 2010.

Gross profit for the first six months of 2011 was $24.2 million, a 30.1% gross profit margin, compared to $10.9 million, a 20.6% gross margin in the first six months of 2010. SG&A expenses in the first half of 2011 were $4.8 million or 5.9% of revenues compared to $3.4 million or 6.5% of revenues in the first half of 2010.

Net income for the first half of 2011 was $6.4 million or $0.33 per diluted share compared to a net loss of $0.7 million or a $0.03 loss per share a year ago. First half 2011 results include $1.1 million of transaction costs related to the proposed merger agreement with Dawson Geophysical Company.

First-half 2011 EBITDA increased 162% to $19.5 million or 24.2% of revenues compared to $7.4 million or 14.1% of revenues in the same period of 2010.

Now I will highlight some balance sheet items. As of the end of the second quarter we had long-term debt of $4.5 million, cash and cash equivalents of almost $22 million. Our current ratio is approximately 2 to 1, and working capital is approximately $19.3 million. And, finally, we generated approximately $24.4 million in cash from operations.

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 where we are today.

We are optimistic about the second half for our North American operations. The upcoming Canadian season looks very promising, and our US backlog is improving. We continue to take concrete steps to address the needs of our customer base. In response to increased demand, we added an eighth seismic acquisition crew in the US during the second quarter and added two crews in Canada late in the quarter.

We also purchased a complete 5000-channel GSR wireless recording system, including all necessary peripheral equipment. This will strengthen our operations by enabling us to free up additional ARAM equipment and utilize it on other crews, which increases the capabilities of our ARAM crews and therefore enhances our overall crew capabilities.

With our current backlog level, strong financial position and increased crew capability along with our flexibility to quickly respond to the needs of our clients, we believe we are well positioned to make the most of the ongoing improving industry conditions and remain optimistic about our performance for the balance of the year and into 2012.

With that, that concludes my remarks and I will take any questions.

(Operator instructions) Veny Aleksandrov, Pritchard Capital Markets.

My first question is about Canada. It was very interesting to read that you picked up some new business there. Can you give us some more details -- what kind of work you are doing and why in the summer and what kind of visibility do you have for these two crews?

Well, late in the quarter we added two crews in Canada. Those crews are doing GSR 2-D work in areas where -- mainly down roads and areas that are not impacted by the spring thaw. We expect those crews to continue to work through most of this quarter, and then that equipment will probably be converted in the fourth quarter to 3-D acquisition.

As I mentioned in the remarks, the Canadian season looks very promising for this year.

Thank you, and then my second question is the $56 million backlog, it's a very good number. How much visibility does this number give you? Do you have visibility for the eighth crew as well into the end of 2011?

Well, as I mentioned, that backlog is pretty much all US and we expect to continue to operate eight crews here in the US through the end of the year.

Okay, thank you. And my last question is on pricing in the US. Do you see pricing continue to improve?

We are seeing pricing improving, not by a tremendous amount, but it is definitely firming up. And we expect it to remain that way through the rest of the year.

Thank you so much.

(Operator instructions) [A.J. Strasser], Cooper Creek Partners.

I had a question on the depreciation. Should we expect the kind of $2.2 million or so going forward, or can you just give us a sense of what the run rate is?

That's a good number going forward. We added a little bit of equipment, and so that's what we expect for the next quarter, something in that range.

(Operator instructions). I am showing no further questions at this time. Management, please continue.

We appreciate everyone to be on our second-quarter conference call, and we look forward to keeping you informed in the future. Thank you.

Ladies and gentlemen, that concludes the TGC Industries second quarter conference call. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325 and enter the access code of 445-6423. Thank you for your participation. You may now disconnect.