Dawson Geophysical Co (DWSN) 2012 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 questions. (Operator Instructions). This conference is being recorded today, July 30, 2012. I would now like to turn the conference over to Karen Roan, of DRG&L. Please go ahead, ma'am.

Thank you, Erin. Good morning and welcome to the TGC Industries second quarter 2012 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 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 August 13. 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, July 30, 2012, 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 in its annual report on Form 10-K for the year ended December 31, 2011. 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 are covered by those statements. Now, I will turn the call over to Wayne Whitener.

Thank you, Karen; and good morning, everyone. Thank you for joining us today for our second quarter 2012 earnings call. 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 remarks about our markets and business going forward.

As we have discussed in previous quarters, our second quarter tends to be the weakest quarter of the year. This is because of the seasonality shut down in Canada due to the spring thaw. After reporting record results in the first quarter, our second quarter was impacted by several factors. We operated no crews in Canada for most of the second quarter but were able to add two crews by the end of the quarter. Due to the large amount of data we acquired in Canada during our first record quarter, we incurred cleanup and personnel costs in the second quarter that were significantly higher than those in the second quarter of last year. Those costs pertain not only to the number of crews working, but to the amount of work that was performed.

In the US, we operated eight crews during the second quarter, the same as a year ago. We also incurred startup costs for our ninth US crew in the second quarter. That crew went into service in July.

That being said, our first six-month results were very solid. Our first-half revenues increased 21% to $97 million. Our gross margin increased from 34.8% from 30.1% in the first half of 2011. Earnings per share for the first half was $0.50 compared to $0.31 a year ago. The first half of 2012 EBITDA rose 52% to almost $30 million. Our backlog currently stands at $112 million which positions us well for the balance of the year and going into 2013.

I will now turn the call over to Jim Brata, who will give you some 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 2012 were $30.4 million compared to $30.2 million in the second quarter of 2011. The flat year-over-year revenue comparison is attributable to roughly the same number of crews operating in the second quarter of both years. In the 2012 second quarter, we operated eight crews in the US; this compares to seven crews operating in the beginning of last year second quarter with an eighth crew added during that quarter. In Canada, we had essentially zero crews operating for much of the second quarter in both 2012 and 2011 due to the seasonal spring thaw. Then we had two crews go back into service in June of both years.

Cost of services in the second quarter of 2012 was $25.0 million compared to $22.0 million in the same quarter a year ago, a 14% increase. Cost of services as a percentage of revenues in the second quarter of 2012 and 2011 was 82% and 73%, respectively. In this year's first quarter, we acquired a large amount of data in Canada and incurred special cleanup costs in the second quarter following the spring thaw. And as Wayne mentioned earlier, we incurred costs in placing our ninth US crew into service in this year's second quarter while that crew did not begin operations until July. As a result, gross profit decreased to $5.4 million from $8.3 million in the second quarter of 2011.

Gross profit margin was 17.7% compared to 27.4% in the second quarter a year ago. Selling, general and administrative expenses were $2.1 million in the second quarter of 2012 compared to $2.3 million in the second quarter a year ago. As a percentage of revenues, SG&A expenses declined to 6.7% from 7.5% in the second quarter a year ago. We continue to maintain tight controls over our cost structure.

Depreciation and amortization rose 29% to $6.2 million compared to $4.8 million in the 2011 second quarter, reflecting depreciation on the new equipment that we have purchased over the past several quarters to meet the requirements of our client base. As a percentage of revenues, depreciation and amortization expense was 20.3%, compared to 15.8% in the second quarter of last year. We reported operating amounts of $2.9 million compared to operating profit of $1.2 million in the second quarter a year ago. Interest expense in the second quarter was $280,000 compared to $192,000 a year ago. Net loss was $2 million or $0.10 loss per share compared to net profit of $587,000 or $0.03 per diluted share in last year's second quarter. We recorded an income tax benefit of $1.2 million for the second quarter, an effective tax benefit rate of 37%. This compares to income tax expense of $435,000, an effective tax rate of 43% in the second quarter a year ago.

EBITDA for the second quarter was $3.3 million which is an EBITDA margin of 10.9% compared to $6.0 million, an EBITDA margin of 19.8% in the second quarter a year ago. An EBITDA reconciliation table is provided in our earnings release issued this morning.

Now I will highlight some balance sheet items. As of the end of the second quarter, we had long-term debt of $15.8 million, cash and cash equivalents of $24 million, our current ratio was roughly 1.3 to 1, and finally, working capital was approximately $12.3 million.

And with that, I will turn the call back to Wayne for some closing comments.

Thank you, Jim. Before we open the call to questions, I would like to briefly summarize where we stand today and what we anticipate for the second half of 2012. We had a total of 10 crews operating in North America by the end of the second quarter -- eight in the US and two in Canada. We have added a ninth crew in the third quarter in the US and we anticipate adding additional crews in Canada as conditions permit. Overall, despite the ongoing volatility in the oil and gas business, the North American seismic acquisition market continues to grow and bidding remains active as new domestic and international players are requiring greater amounts of seismic data before initiating expensive drilling.

While our third quarter will again be impacted to some extent by the normal seasonality in Canada, we remain optimistic about the remainder of the year as the US business remains solid and we are currently anticipating a strong winter season in Canada. We have already started to obtain new contracts for the upcoming winter season starting in the fourth quarter of this year and extending into the first quarter of 2013. As a result, we continue to anticipate a record year in 2012 in terms of revenue, EBITDA, net income and earnings per share. We continue to see demand for larger channel counts in the seismic surveys and have purchased additional equipment to be deployed to key markets in the US. Over the past several quarters due to client demand for the wireless technology, we have purchased approximately 46,000 OYO Geospace wireless channels enabling us to be the largest fleet of wireless data acquisition units in North America.

We currently find ourselves in a very desirable position with a strong backlog which grew sequentially from $96 million in the first quarter to the current $112 million. This backlog is more than twice the size of our backlog at the end of the second quarter of 2011.

Overall, there are several encouraging signs that cause us to remain cautiously optimistic about the outlook for the seismic market in North America. Natural gas prices appear to have bottomed out and appear to be on an upward trend and oil prices remain above levels required for continued exploration spending. We are seeing major global companies continue to enter and work in the US and our backlog keeps us involved in several of the liquid and oil plays. Our geographic diversification, our low cost structure combined with the addition of the new wireless technology positions us among the leading seismic data acquisition companies in the North American market.

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

(Operator Instructions). Veny Aleksandrov, [private investor].

Good morning (inaudible). So my first question is, you're already having the cases in Canada, and it's pretty early. Based on this indication, do you think that this season is going to be much stronger than what we had in 2011-2012?

Well, indications are that the season is going to be very strong in Canada. We believe that we'll probably be operating about the same amount of crews as we did in the first quarter of this year in the fourth quarter of 2011. We will be using more of the wireless technology which should hopefully improve productivity and margins in Canada.

Okay, thank you. And then you said, as conditions allow, we will be adding more crews in Canada. Are you thinking about adding more crews in the US based on the current backlog?

Well, as I said, Veny, we just added a ninth crew here in the US. We are operating two crews in Canada at present, and as I said, as soon as conditions allow, which will be some time here probably towards the end of the third quarter, we will be able to add one crew there and probably additional crews there in the fourth quarter.

Okay. And the other question is about equipment. Based on the equipment that you have on hand, what is the maximum number of crews you can operate? And then once you start adding more crews, do you have a need for more equipment?

Well, yes. Right now, as I mentioned, we are operating nine crews in the US, and we are anticipating operating probably a [max] crew and possibly seven crews in Canada. The good news is we have access to additional wireless equipment through rental opportunities that we have, and so we expect to have enough equipment to meet all the clients' needs in Canada and the US.

Got it, thank you. My last question and I'll turn it back. In terms of backlog, how much visibility in terms of months does the backlog that you have right now give you?

Well, US-wise we expect to operate nine crews through the remainder of this year, and some into next year. In Canada, we are just now are acquiring a backlog there, so the majority of the backlog is US backlog. So we are now getting some contracts in place in Canada, and that's moving forward at a pretty rapid pace.

Really appreciate it, thank you.

AJ Strasser, Cooper Creek Partners.

Hey guys, good morning to you, thank you for taking my questions. (multiple speakers) My first one is on the revenues. Can you just explain -- I am assuming we are getting almost no revenue coming from Canada in the quarter. Why was -- just given what seems like a year improvement in the US, why were revenues flat year-over-year, even though you had probably slightly more crews operating in the US? Is that pricing? Is there some sort of competition? It just seems like they would've been up year over year.

No, we operated the same amount of crews in the US and the second quarter as we did in 2011. In Canada, we operated two crews, which is the same as 2011. I will say of course that the two crews started later in the second quarter than probably the previous 2011. In the US, we were very productive using the wireless technology here. So that's really the answer. It's pretty much the same amount of crews operated during the quarter as the previous year.

Okay, so just how is kind of the competitive environment out there, the pricing environment as you see it today? Obviously a lot of your peers have gotten hit with some of the shift from gas to oil and just oil volatility on commodities. So can you maybe help us think about where we stand from the environment as you stand today? Are you seeing anything incremental?

Sure. Yes, I think in the US, as you see with our backlog of $112 million, demand for our services is still very robust. Pricing seems to be pretty much stable here in the US from what we have seen in the last probably two quarters. We haven't seen any pullback by any of our clients. We are optimistic about 2013. I think if you take a look in Canada, the demand for services is going to be very strong. As I've mentioned, we are anticipating running probably at least as many crews as we ran in Canada last year. As you know, the first quarter in Canada was a record first quarter. It seems to be that people are reserving crews earlier than ever as far as crews being reserved in Canada. And so we expect to see maybe a little bit quicker improvement here with crews getting back to work than possibly what we saw last season.

Can you talk for a second on what's going on in the margin? How much -- last year's gross margin was about 27% and this year was 17%. So how much -- can you give a sense -- do the costs on the Canadian ramp-down from Q1 to Q2 -- what did that cost you, and then what did adding that ninth accrue in the US cost, just so we can understand the margin coming down?

Well, like I said, we do not give segmented information between Canada and the US. I will say that the cost -- what I can say is that, if you take a look at the first quarter of 2011, cost of services was 82% of the revenue. (multiple speakers) if you look at this past quarter, costs associated with the bring-down was 110% of revenues. So it was a pretty significant cost increase between quarter 2011 and 2012.

How should we be thinking then about the back half in terms of margins?

I think you could take a look at where we were -- what we did last year as far as third quarter, fourth quarter. I think we are pretty probably a little bit more optimistic as far as fourth quarter in Canada, possibly. We did add the ninth crew which went into service here in the third quarter, so we are expecting some additional revenues and, hopefully, profits from that, so we're pretty optimistic about second half of the year.

(Operator Instructions). James Gibson, Punch & Associates.

Hi guys. One of your competitors last quarter spoke about a trend of projects becoming more complex, which for them had led to some delays related to logistics and permits and so forth. And I'm just curious if you've seen that trend and perhaps you could talk about the type of projects you have been taking on recently.

Sure. The jobs are much larger than probably what we have seen in previous years. We are working on a very large project in Utica which is over 400 square miles. We are working on some other large jobs in the Eagle Ford area, that sort of thing. So a lot of the work is of significant size which takes a lot of channels and a lot of preparation work. So there is no question that there is more demand to make sure that our work is prepared prior to our crews getting on location. And we feel like we've been very successful in doing so.

Okay, great. Thank you.

(Operator Instructions). AJ Strasser, Cooper Creek Partners.

Thank you for taking my follow-up question. So I guess the one surprising part of the quarter, Wayne, was the kind of EBITDA being down year-over-year. Just all things considered, would you expect -- should we expect this quarter's EBITDA to be in line with last year, or possibly less?

Well, we don't give guidance; I'll say that. But I will say that I would hope that with the addition of the ninth crew here in the US and with the possibility of adding maybe a crew in Canada in this next quarter, that it should be comparable or possibly better.

Comparable to possibly better, okay, all right, thank you. Could you just give us one last question? Your net debt right now with $24 million of cash, how much debt do you currently have? You mentioned long-term obligations; it's just unclear how much of that is actual debt.

Well, we have long-term debt of $15.8 million, and the current portion of long-term debt is $12.7 million.

Okay. My last question is just one of your competitors has recently decided to enter Canada. Can you maybe talk about whether or not that's causing any type of additional competitive dynamic in that area, or any help there?

We haven't seen any impact so far on that entrance by a competitor.

All right, thank you for taking my question.

Thank you, and I am showing no further questions at this time. I would like to turn the call back to management for any closing remarks.

I think this concludes our second quarter conference, and we appreciate your time in listening to our comments.

Ladies and gentlemen, this does conclude today's conference call. If you'd like to listen to a replay of today's conference call, please dial 303-590-3030 or 1-800-406-7325 and enter access code 454-9037. Thank you for your participation, and you may now disconnect.