Dawson Geophysical Co (DWSN) 2012 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TGC Industries Third Quarter Earnings Conference Call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, November 1, 2012.

At this time, I'd like to turn the conference over to Karen Roan of DRG&L. Please go ahead, ma'am.

Thank you, Vince. Good morning everyone and welcome to the TGC Industries third 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 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 reported on this call speaks only as of today, Thursday, November 1, 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, 2012. 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.

I will now turn over the call to Wayne Whitener.

Thank you, Karen, and good morning everyone. Thank you for joining us today for our third quarter 2012 conference call. I will make some brief comments on the quarter and Jim Brata will provide you with some financial details. Then I will conclude with some remarks about our markets and business going forward.

We generated strong revenue growth in the third quarter, up 35% year-over-year. We benefited from nine crews operating in the US during the third quarter compared to eight working in the third quarter a year ago. We saw some work begin again in Canada during the third quarter and had two crews operating there at the beginning of the quarter, but removed one crew from the field due to land permit constraints.

Therefore, we had an average of one-and-a-half crews working there for the quarter. This compares to two Canadian crews operating in last year's third quarter. We began the fourth quarter with three crews operating in Canada and expect to add one before the end of the year, bringing us to a total of 13 crews operating in North America, nine in the US and four in Canada by year's end.

We anticipate a solid winter season in Canada and we will activate additional crews as conditions warrant. We did incur some increased cost due to higher revenues and ramp-up cost associated with our Canadian operations, which impacted our gross margin, although we still had a $1.6 million increase in gross profit dollars.

We generated a solid third quarter EBITDA of $8.8 million, up more than 28% from a year ago. On a year-to-date basis, our results were solid. Revenues increased 25% to $139 million. Gross profits rose 34% to $45 million. Gross margin was 32% compared to 30% in the first nine months of 2011.

Earnings per share for the first nine months were $0.55 compared to $0.36 a year ago. And year-to-date EBITDA rose 45% to $38 million. We ended the third quarter with backlog of $103 million.

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

Thank you, Wayne, and good morning. Revenues for the third quarter of 2012 were $41.8 million compared to $31 million in the third quarter of 2011. We operated nine crews in the US during the quarter compared to eight crews operating in last year's third quarter.

In Canada, we began the 2012 third quarter with two crews and ended with one due to land permit constraints for an average of one-and-a-half crews. This compares to two crews operating in Canada in the third quarter of last year.

Cost of services in the third quarter of 2012 was $30.9 million compared to $21.7 million in the same quarter a year ago, a 42% increase. Cost of services as a percentage of revenues in the third quarter of 2012 and 2011 was 73.9% and 70% respectively. Gross profit increased 17% to $10.9 million from $9.3 million in the third quarter of 2011. Gross profit margin was 26.1% compared to 30% in the third quarter a year ago.

Selling, general and administrative expenses were $2.1 million in the third quarter of 2012, compared to $2.4 million a year ago. As a percentage of revenues, SG&A expenses declined to 5.1% from 7.9% in the third quarter a year ago.

Depreciation and amortization expense rose 35% to $6.7 million, compared to $5.0 million in the 2011 third quarter, reflecting depreciation on the new advanced wireless equipment 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 about 16% in the third quarters of both 2012 and 2011.

Operating income in the quarter was $2.1 million, compared to $1.9 million in the third quarter a year ago. Interest expense in the third quarter increased to $350,000 from $192,000 a year ago. This increase is due to the large amount of new wireless equipment we have purchased this year.

Net income was $1.1 million or $0.05 per diluted share, compared to $1.0 million or $0.05 per diluted share in last year's third quarter.

We recorded income tax expense of $634,000 for the third quarter and effective tax rate of 36%. This compares to income tax expense of $650,000 and effective tax rate of 38% in the third quarter a year ago. EBITDA for the third quarter increased 28% to $8.8 million, which was an EBITDA margin of 21% compared to $6.9 million and EBITDA margin of 22.1% in the third 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 third quarter, we had long-term debt of $13.7 million, cash and cash equivalents of $21.5 million, our current ratio was roughly 1.4 to 1, and finally working capital was approximately $16.2 million.

And with that, I'll 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 remainder of 2012. We had a total of 10 crews operating in North America by the end of the third quarter, nine in the US and one in Canada. We added two crews in Canada in the early part of the fourth quarter and we anticipate adding another, having 13 crews operating in North America, nine in the US and four in Canada by the end of 2012.

We expect this winter season in Canada to be solid and we'll activate additional crews as needed. We have continued to purchase additional equipment for deployment in key markets in the US and Canada, driven by demand for more complex seismic surveys and higher channel counts.

In mid-October, due to client demand for wireless technology, we purchased another 24,000 channels of GSX wireless recording equipment, along with all peripheral equipment to be deployed in Canada. With this delivery, we now have approximately 70,000 wireless channels enabling us to field one of the largest fleet of Geospace wireless data acquisition units in North America.

Combined with our ARAM systems, we currently have a total of 16 data acquisition crews and a total channel count of approximately 137,000. We ended the third quarter with a solid backlog of $103 million, 24% higher than the $83 million backlog we had a year ago with the same number of crews. However, this is down from the second quarter of $112 million due to an increased level of economic and regulatory uncertainty that is delaying the signing of new contracts in the US.

Overall, there are several encouraging signs that cause us remain cautiously optimistic about the outlook for the seismic market in North America. Natural gas prices have rebounded over the past several weeks and appears to be in an upward trend, and oil prices remain at levels required for continual exploration spending.

Our geographical diversification and low-cost structure combined with the addition of new wireless technology positions us among one of the leading seismic data acquisition companies in the North American market. Despite the current market uncertainties, we have a strong financial position and operational flexibility to make the most of the market opportunities.

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

Thank you, sir. Veny Aleksandrov, FIG Partners.

Good morning, Wayne and Jim.

Good morning, Veny.

Good morning.

Good morning. My first question is on the revenue line. It seems like you are able to get much better revenues per crew this quarter. And I just want to confirm, this is because crews are getting bigger, they are using more equipment than you're paying, so you're getting paid [more per] crew. Is this the correct trend we're seeing?

Yes. As I mentioned, we operated nine crews in the US. We entered the ninth crew at the beginning of the third quarter. We operated less crews in Canada during the third quarter, but the additional crew was probably the biggest portion of the increase in revenue along with as you've mentioned, we're getting somewhat more for our services for the larger number of channels in the wireless technology.

And on that point, you mentioned that now you have, I wrote it down, 137,000 channels in total, how many did you have last year at that time?

Do we have that?

We ended the year last year with 85,000 channels, and at the end of the third quarter of last year we had 82,000 channels.

And that's including the wireless?

Yes.

Okay. And now we have 137,000 with 70,000 wireless in this 137,000?

Yes.

Yes.

Okay. And staying on the wireless side, when is the Geospace equipment going to be delivered or it's already delivered?

It's already delivered and it's going into service in Canada.

Okay. Are you going to move additional equipment to Canada from the States? Do you have a good idea right now what your equipment needs are going to be there?

We are anticipating moving some wireless equipment to Canada here in the fourth quarter, probably about 12,000 channels will be moved to Canada for their operation. And we'll continue on down here with the ARAM equipment. We expect to operate nine crews here in the US through the end of the year and then like I say, we expect to ramp up to four crews in Canada by the end of the year.

Okay. And talking about Canada, the $103 million number for the backlog, that's only US jobs?

No, there is a Canadian backlog in that as well. The majority of it -- two-thirds of that is or the majority of that is US operations, but there is some Canadian backlog in that number.

Okay. And where we sit today and looking forward to Canada, what do you think about the winter? I mean you said a couple of times it's going to be a very solid winter. But do you -- I know it's very early and I know you cannot have contracts right now for the whole winter, but do you think that seven crews sounds like a good number for the pick in the winter over there?

Well, it's really kind of hard to predict exactly how many crews it's going to be, because like I say the -- a lot of it depends on some last-minute work that's assigned to us up there. We are anticipating a solid quarter. We think we'll operate -- we'll end the year with four crews operating, and we expect to gear up to somewhere five to seven crews possibly in the first quarter depending on demand for services.

Okay. And one question related to Hurricane Sandy, did you get any impact in Q3 -- I'm sorry, in Q4? This was a couple of weeks.

We did have some impact. We had three crews in the Northeast. So we did have some impact on those three crews that were in the Northeast market.

Are they back to work or they're still down?

A couple of them are back to work. We still have another one that's down.

Okay. Do you have an anticipation when it's going back to work?

We would hope in the next few days.

Okay. And bidding activity in the States, do you say that this remains brisk? Can you comment a little bit on that? It seems like the backlog is slightly down because of some permitting issues --

No, as I mentioned, the backlog is down. Bids remained brisk. We're just not getting a whole lot of contract signed right now. I think that's due to the uncertainty in the marketplace, whether you're talking about the election or whether you're talking about next year's taxes. But a lot of people are holding off on signing any contracts at this moment in time, which I think has affected, of course, our backlog.

Thank you. (Operator Instructions) Keith Maher, Singular Research.

Good morning, gentlemen. Just staying on the crew counts, could you just tell us how many -- what was the crew size in the US in last year's Q4 and in Canada?

Yes, last year we had eight crews in the US and we had -- we ended up with four crews at the end of the last year. [Am I correct]?

Yes, at the end of the fourth quarter last year.

Yes.

Okay. All right. Yes, fair enough. Also, on the gross margins, obviously, you mentioned the cost -- bids were a little bit higher, I think, because of some startup costs. Is that really because of what was going on with the Canadian crew, is that what that was about?

Yes, we started a ninth crew in the US and also we're gearing up for the Canadian season, so there is [add-in] there. I think if you look at the gross margin, there is only about a 4% swing in there even though the dollar amounts look pretty large.

Okay, all right. And on the wireless business, is this pretty much -- is it all really being driven just because of customer need and just more detailed surveys, is that really what drives that?

Well, there's several things that drives the wireless. One is the increase in the problems with the land permits that we faced in the US here. Having the wireless allows us to go around no permit areas much more easily. In Canada, because of the remote area and they use everything by helicopter, the less weight of the wireless system is more desired by our clients and allows them to acquire data much quicker with the wireless.

Okay. Well, thanks a lot. Appreciate it.

Thank you.

Thank you. (Operator Instructions) And I'm showing no further questions at this time. I'd like to turn the conference back over to management for any closing remarks.

Thank you. And we'd like to thank everyone for joining us today, and we look forward to talking to you again next quarter. Thank you.

Thank you, sir. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 303-590-3030 using the access code of 4567382 followed by the pound key. This does conclude the TGC Industries third quarter earnings conference call. We'd like to thank you for your participation. You may now disconnect.