Dawson Geophysical Co (DWSN) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TGC Industries fourth quarter earnings conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions and instructions will be given at that time.

(Operator Instructions)

This conference is being recorded today, Monday, February 25, 2013. At this time, I would like to turn the conference over to Jack Lascar with Dennard-Lascar Associates. Please, go ahead, sir.

Thank you, Vince. Good morning, and welcome to the TGC Industries fourth quarter and year end 2012 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 the call over 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 tgcseismic.com or via a recorded instant replay until March 11. 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, February 25, 2013, 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 and certainties 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 defer 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 January 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 our conference call are covered by these statements. I will now turn the call over to Wayne Whitener.

Thank you, Jack, good morning, everyone. Thank you for joining us today for our fourth quarter and year end 2012 earnings call. I would like to make some initial comments 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 are extremely pleased with our quarterly and full-year results, both of which reached record levels. I will begin by commenting on the quarter, which was a fourth quarter record in terms of revenue, earnings, and EBITDA. Revenues increased 44% from a year ago to $57 million. Earnings per share rose 18% to $0.20 and EBITDA rose 26% to $14 million. We operated nine crews in the US for the entire fourth quarter and began the quarter with four crews in Canada. As the Canadian winter season progressed, we added an additional crew ending the quarter with five crews working in Canada. Our US crews are currently working in South Texas, Kansas, the Utica Shale, the Marcellus, and the Permian Basin. Our Canadian crews are operating in British Columbia, Alberta, and Saskatchewan.

During the fourth quarter and through 2012, we benefited from the production of our new equipment and enhanced efficiencies of our crews. Over the past three years, we have invested over $100 million in new advanced equipment in order to continue providing our customers with the latest available technology, as well as maintain the optimum crew efficiency. As part of that investment during the last 18 months, we acquired approximately 70,000 wireless channels, enabling us to be one of the largest fleets of Geospace wireless data acquisition units in North America. We believe we now have the latest and most technological advanced seismic acquisition fleet in North America.

At the same time we have continued to maintain our low cost structure, as evidenced with our SG&A expense ratio being that in the 4% range for both the quarter and the year. For 2012, we also generated record revenues in terms of revenues, earnings, and EBITDA. Annual revenues increased 30% to $196 million. Earnings per share rose 42% to $0.75, and EBITDA rose 40% to $52 million. We ended the year with a backlog of $81 million, as we have been efficiently working through our Canadian backlog. Since year end, we have added an additional crew in Canada and now operate 9 crews in the US and 6 crews in Canada for a total of 15 crews. I will now turn over the call to Jim Brata, who will 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. Our revenues for the fourth quarter of 2012 were $57 million compared to approximately $40 million in the fourth quarter of 2011. We operated nine crews in the US during the quarter compared to eight crews in last year's fourth quarter.

In Canada, we began the fourth quarter with four crews and ended with five, which compares with four crews operating in Canada during the entire fourth quarter of last year. Cost of services in the fourth quarter of 2012 was $41 million compared to $26 million in the same quarter a year ago. The increase is primarily due to higher crew counts, certain land permitting delays and increased shot-hole work. Cost of services as a percentage of revenues in the fourth quarter of 2012 and 2011 was 71.5% and 66% respectively. Gross profit increased 21% to $16 million, from $13 million in the fourth quarter of 2011. Gross profit margin was 28.5% compared to 34% in the fourth quarter a year ago, primarily due to the permitting issues and shot-hole work mentioned above.

On higher revenues, our selling, general, and administrative expenses declined 6% to $2.3 million in the fourth quarter of 2012 from $2.4 million a year ago. As a percentage of revenues, SG&A expenses declined to 4% in this year's fourth quarter from 6.1% in the fourth quarter a year ago. Depreciation and amortization expense rose 38% to $6.9 million from $5 million in the 2011 fourth quarter, reflecting depreciation on the new wireless equipment we had purchased in 2012 to meet the requirements of our client base. As a percentage of revenues, depreciation and amortization expense was roughly 12% in the fourth quarters of both 2012 and 2011. Interest expense in the fourth quarter increased to $349,000 from $209,000 a year ago, due to the large amount of new equipment that we had purchased in 2012, which amounted to approximately $57 million.

Net income was $4.2 million, or $0.20 per diluted share, compared to $3.4 million, or $0.17 per diluted share, in last year's fourth quarter. We recorded income tax expense of $2.6 million for the fourth quarter and effective tax rate of 38%. This compares to income tax expense of $2.4 million, an effective tax rate of 41%, a year ago. EBITDA for the fourth quarter increased 26% to $14 million, which was an EBITDA margin of 24.5% compared to $11 million and EBITDA margin of 27.9% in the fourth quarter a year ago. An EBITDA reconciliation table was provided in our earnings release issued this morning.

Now, I will highlight our full-year results. For 2012 revenues grew 30% to our record $196 million from $151 million last year. Cost of services also rose 30% to $135 million from $104 million last year. As a percentage of revenues, cost of services were 68.9% for both 2012 and 2011. Gross profit for 2012 was $61 million compared to $47 million in 2011, a 30% increase. Gross margin both years was 31%. We reduced our SG&A expense by 9% from a year ago to $8.8 million. As a percentage of revenues, 2012 SG&A expense declined to 4.5% from 6.4% in 2011.

Depreciation and amortization expense rose 33% in 2012 to $26 million as a result of our new equipment purchases. But, as a percentage of revenues, it held fairly steady at roughly 13% in both years. Operating income for 2012 increased 47% to $27 million from $18 million last year. Operating margin was 13.6% compared to 12% a year ago. We reported record net income of $16 million for 2012, a 45% increase over 2011. And, EPS was a record $0.75, up 42% from last year's $0.53. We recorded income tax expense of almost $10 million in 2012, an effective tax rate of 39%. This compares to income tax expense of $7 million in 2011, an effective tax rate of 38%.

EBITDA for the year was also a record, increasing 40% to $52 million, which is an EBITDA margin of 26.6% compared to $37 million and EBITDA margin of 24.7% last year. And finally, I will highlight some balance sheet items. As of the end of the fourth quarter, we had long-term debt of $16.3 million, cash and cash equivalents of $8.6 million. Our current ratio was roughly 1.3 to 1. Working capital is approximately $12.2 million. And finally, for the full year of 2012, we generated approximately $39 million in cash from operations. And with that, I will turn the call back to Wayne for some closing comments.

Thank you, Jim. Before we open the call up for questions, I would like to briefly summarize where we stand to date. We had a total of 15 crews operating in North America by the end -- excuse me, we had 14 crews operating in North America by the end of the fourth quarter, 9 in the US, 5 in Canada. In early January, we added an additional crew in Canada, so we are currently operating 15 crews in North America. We currently anticipate that we will continue operating nine crews in the US well into the year. While we continue to see steady bidding activity, economy and regulatory uncertainties continue to reduce the speed at which new contracts are being signed in the US.

On the equipment side, we have continued to invest in the latest technology in order to provide our customers with the most advanced equipment. Much of this has been wireless equipment utilized in key market areas in the US and Canada, driven by demand for more complex seismic surveys and higher channel counts. We now have approximately 137,000 recording channels, which include 70,000 wireless channels, giving us the ability to field one of the largest fleets of Geospace wireless data acquisition units in North America. We believe we are clearly ahead of the rest of the North American seismic industry in terms of the latest technology and the age of our seismic equipment. As a result, we expect to be more in a cash building mode this year.

Looking at the first quarter of 2013, we are heading into a seasonality strong quarter for the year in terms of revenues and profitability due to the large amount of data we expect to acquire during the first quarter. As a result, and not like -- unlike last year, we plan to incur substantial cleanup costs and personnel costs that will negatively impact the gross margins in the second quarter. In order to reduce the negative impact of the expected cleanup costs during the second quarter of this year, we plan to book some of the costs during the first quarter. As a result, we expect our first quarter results to be lower than last year's first quarter.

In closing, I would like to say that the current oil price environment should support strong levels of exploration in North America in both conventional and shale plays. Our geographical diversification and low cost structure, combined with the new wireless technology provides us -- positions us well to take advantage of the opportunities ahead of us. With that, that concludes my formal remarks and I'll take any questions.

Thank you, sir.

(Operator Instructions)

Veny Aleksandrov, FIG Partners.

Good morning. And, great results for Q4.

Thank you, Veny. Good to hear from you.

Thank you, my first question is on the revenues. I'm just trying to understand, your revenues were very strong. Was it because you guys were so efficient with the new equipment and you went quick [courage] for the jobs that you had and so realized higher accumulations? Because I remember that we talked about some crews being down in the northeast because of Hurricane Sandy. So, you had some negative impact in the quarter and the same time revenues were so high.

Yes, we had, we had some definitely efficient -- efficiencies from the wireless equipment and other areas. Sandy did impact us some in the fourth quarter. Canada got off to a very good start this year and we were able to ramp up rather fast. So, we had a good kick from Canada this -- that last quarter as well.

Okay, and talking about Canada, I noted the backlog there is much shorter term -- more shorter term than the US one. So, from what you're seeing right now, and we're at the very end of February, do you think you will stay -- the six crews will stay in Canada until the end of March, until the end of Q1?

Yes, we anticipate that. Also, we're having a very cold winter in Canada this year, so that allows us to work even longer into, into the year. So, we are expecting to get a full measure of operations from our Canadian operation through the first quarter into the second quarter.

Okay. That's going to be great. And, my last question and I'll turn it back, last year you had a couple of crews in Canada working during the summer. Do you still intend to keep a couple? Or you're going to wind down all the six and if there is work, you're going to go back with a couple?

Last year in the third quarter we operated 1.5 crews. We operated --.

1.5?

Yes, 1.5. We expect to operate some crews during the second half of the second quarter and some into the third quarter as well.

Thank you, so much, and I will queue back. Thank you.

Joel Lutt, Westlake Security.

Good morning, guys. Congratulations on the good quarter.

Thank you, Keith.

Listen, I know you all -- last time I talked with you all, you all expected to cut back CapEx going into '13. What are your capital expenditures expectations for the year?

Right now, we're expecting pretty much to stay with maintenance CapEx. That being said, I review with the Board every quarter, to review the CapEx expenditures. If opportunities were to present itself, that could definitely change. But, right now, we're looking at starting off the year here with maintenance CapEx since we spent over $100 million in the last three years. Our maintenance CapEx varies between $3 million to $5 million a year.

So, if you saw business picking up more than your expectations, then you might go and increase your CapEx budget?

Yes, yes. It depends on the -- depends on the requirement for our services. If we had the opportunity to take on some new business with a very good client we do have the capital in order to put out additional equipment or meet that client's needs. So, like I say, we review that quarterly.

Okay. And one more question. You said on your first quarter you expect it to be down. Are you talking about revenues or just in terms of profitability, because of the transitioning the crews out of Canada?

Probably more so on the net-net earnings. Like I say, we're doing a reserve to cover some of the bring down costs associated with the second quarter. Even though we don't expect it to be probably as big as it was last year, because we're having a cold winter. And so, there will be some staggering to bringing down the crews this year.

Yes. If I recall, last year everything -- you brought down everything at the same time because winter ended at the same time throughout Canada. Is that correct?

Yes, it was warm. It had a warm winter there last year. So, pretty much all throughout Canada the spring thaw started relatively early, which caused us to basically shut down all operations a little bit earlier than we normally would.

Okay. Okay. Congratulations on a great quarter and a great year. That's all I had.

Keith Maher, Singular Research.

Good morning. I had a question about, just if you could comment on the overall pricing environment out there, what you're seeing, if things are getting better or worse?

I think we're -- they're basically, we're not seeing any real large increases at this moment in time. It's probably pretty much -- I'm talking about in the US. In the US here, it's pretty much what it's been the last couple of years. Things do look like it's going to be pretty brisk. We have a lot of bids right now that are in the mill. So, there may be a possibility to increase US pricing maybe the second half of the year. So, we'll just review that when the opportunity comes available.

In Canada, it's been a little bit softer this year than last year as far as the number of active crews. But, we've been very fortunate to be operating six crews. We operated seven crews there last year. But, we still think with the six crews, we'll probably generate around the same type of revenue as we did last year because of the efficiency of the wireless equipment in Canada.

Okay, thanks. I had another question about, just to understand the $81 million in backlog. Should we take that to mean that that's almost all US backlog at this point? And, that you've worked down the Canadian backlog that you had in the last quarter?

No, there's Canadian backlog in there, but the majority of it is US backlog. But, there is Canadian backlog in there. Their first quarter in Canada is their largest quarter. So, there is Canadian backlog in there, as well as US.

Okay, sure. And, one final question. You guys have done a great job, obviously, in managing your SG&A expenses. Is there any comparable effort ongoing with regard just to the cost of services? I mean, you've done a good job. Your overall gross margin has been 31% for the past couple of years. But, is there -- I guess what I'm getting at, is there any potential to see a slightly higher gross margin going forward?

Sure. I think that depends on the contracts that we have and the productivity of the crew. Our margins are based on -- a lot of it is based on how productive the crews are. So, hopefully we get a break in the weather here to maybe in the second and third quarter. We could definitely improve margins here in the US if we get a break in the weather here.

Okay. Thanks. That's all I had.

Thank you.

Rhys Williams, Columbia Partners.

Hi, thanks. Excellent quarter. My question really is just a clarification. The timing of the expense shift from the second quarter to the first quarter will artificially depress the first quarter year-over-year. But it's, on the other side, it's going to help the second quarter, correct?

Yes sir, that's correct.

So, anything that -- it's certainly not going to affect the year results it just smoothes out the quarterly earnings a bit?

Right, it takes the lumpiness out of the quarter.

Right, right. And then, with the second half -- you mentioned pricing might even be going up in the second half. That should indicate then, all things being equal, third quarter should look very good year-over-year as well?

That is our hope.

Yes, okay. And then, obviously you're very cheap based on any PE, price to cash flow. With all this cash coming in the door, I realize your liquidity's thin in terms of trading, but would you consider buyback? What -- or special dividend? What would you consider doing with the cash, assuming you don't do more CapEx, more major CapEx?

Right. Our Board reviews that at the end of each quarter. This last year, we paid a cash dividend. It's the first time we have paid a cash dividend. I think that was well received. We've also in the past, we've paid a stock dividend. I think that will be reviewed. I think the Board will, of course, take a look at any possible buybacks. But, our business is such capital intense that we need to have the capital available when the opportunity presents itself. That we're able to quickly take advantage of the opportunities to us to improve the profitability of the Company.

So, I could read that as a special dividend might be more likely than buyback?

Possibly, yes. I would say yes.

Okay, got you. Thanks, very much.

Thank you.

(Operator Instructions)

Veny Aleksandrov, FIG Partners.

I'm sorry, I was on mute. Thank you. Wayne, my last question is the increase in shot-hole work. Where do you see more of this happening? Can we expect even more of this type of work?

Well, the shot-hole work in the last several years has dropped off from historic levels. Prior to that, we're running anywhere probably mid-30%s as far as percentage of dynamite work. And, we've been running around 13% to 15% last couple of years. Of course a lot of that's due where the shale plays are, which is a big part of our work is basically vibrasized-type work. We are seeing some new areas pop up that we'll be doing some dynamite work on over in the Mississippi-Alabama border area over there, also over in Louisiana. So, that's encouraging to see some new areas pop up that will be done dynamite.

And, is this like third party? Does it flow through your income statement? Are you reimbursed by clients?

On the --?

On the dynamite work.

On the shot-hole work --.

Yes, on the shot-hole, I'm sorry.

Yes, no problem. On the shot-hole work, Veny, normally that is in the bid that we supply to the client. Normally, the shot-hole is more expensive than the vibrasized work, strictly because of the additional third party charges associated with the shot-hole work.

Okay. I understand. Thank you, so much.

Thank you.

Thank you. And, at this time, I'm showing no further questions. I would like to turn the conference back over to management for any closing remarks.

We would like to thank everybody for joining us and we look forward to our conference call for the next quarter. Thank you.

Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you, very much, for your participation and you may now disconnect.