Dawson Geophysical Co (DWSN) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the TGC Industries first-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 April 29, 2013.

I would now like to turn the conference over to Karen Roan. Please go ahead, ma'am.

Thank you, George. Good morning and welcome to the TGC Industries first-quarter 2013 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 TGCseismic.com or by a recorded instant replay until May 14. 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, April 29, 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, 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 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. Thank you for joining us today for our first-quarter 2013 earnings call. I will make some initial comments and Jim Brata will provide you with the financial details then I will conclude with some remarks about our marketing and business going forward.

Our first-quarter results were essentially in line with our forecasts. As previously disclosed, we had expected first-quarter 2013 results to be below last year's record first quarter due to a reserve expense of approximately $1.3 million associated with site cleanup costs related to the ending of the Canadian winter season that we took in the first quarter of 2013 that was not taken in the first quarter of 2012.

We had additional depreciation expense of approximately $1 million. We also experienced land permit delays mainly in the Northeast and difficult winter weather conditions in parts of the US during the first two months of this year.

In the first quarter, we operated nine crews in the US and six crews in Canada. Activity in Canada was solid in the first quarter. Since the beginning of April, we have shut down four crews in Canada due to the Canadian spring break up.

We are experiencing a softening in the US seismic market as our clients are reevaluating reservoir plays and seismic funds are being diverted to drilling programs. As a result, we have idled two US crews but are keeping the key personnel to maintain the flexibility to get these crews back in the field as quickly as client demands warrant.

We believe the softening is temporary but may last into the third quarter. However we believe demand for our services will improve during the latter part of the year.

Our backlog at the end of the first quarter was approximately $40 million consisting primarily of US work.

I will now turn the call over to Jim Brata who will give you a 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 first quarter of 2013 were $63 million compared to $67 million in the record first quarter of 2012. We operated nine crews in the US during the quarter compared to eight crews in last year's first quarter.

In Canada, we operated six crews in this year's first quarter compared to seven crews operating in Canada during the first quarter of 2012.

Cost of services in the first quarter of 2013 was $43 million compared to $39 million in the same quarter a year ago. The increase is primarily due to a reserve expense of approximately $1.3 million associated with site cleanup costs related to the ending of the Canadian winter season that we took in the first quarter of 2013 that was not taken in the first quarter of 2012, certain land permitting delays mainly in the Northeast, and the adverse winter weather conditions in parts of the US during the first two months of this year.

Cost of services as a percentage of revenues in the first quarters of 2013 and 2012 was 68.4% and 57.5% respectively. Gross profit was $20 million in the first quarter of 2013 compared to $28 million in the first quarter a year ago. Gross profit margin was 31.6% compared to 42.5% in the first quarter a year ago primarily due to the reserve associated with site cleanup in Canada, permitting issues and weather conditions mentioned earlier.

Our selling, general and administrative expenses were $2.4 million in the first quarter of 2013 compared to $2.3 million in the first quarter of 2012. As a percentage of revenues, SG&A expense was 3.8% in this year's first quarter compared to 3.4% in the first quarter a year ago.

Depreciation and amortization expense rose 17% in the first quarter to $6.7 million from $5.7 million in the 2012 first quarter reflecting depreciation on the new wireless equipment we purchased in 2012 to meet the requirements of our client base. As a percentage of revenues, depreciation and amortization expense was 10.6% in the first quarter of this year compared to 8.5% in the first quarter a year ago.

Interest expense rose 32% in the first quarter to $320,000 from $242,000 a year ago due to the large amount of new equipment that we purchased in the last 15 months which amounted to approximately $58 million.

Net income was $6.4 million or $0.29 per diluted share compared to $12.4 million or $0.57 per diluted share in last year's first quarter. We recorded income tax expense of $4.2 million in the first quarter and effective tax rate of 40%. This compares to an income tax expense of $7.8 million and an effective tax rate of 39% a year ago.

EBITDA in the first quarter was $17.6 million which is an EBITDA margin of 27.8% compared to $26.2 million, an EBITDA margin of 39% in the first quarter a year ago. An EBITDA reconciliation table was provided in our earnings release issued this morning.

Finally, I will highlight some balance sheet items. As of the end of the first quarter, we had long-term debt of $13.9 million; cash and cash equivalents of $10 million; our current ratio was roughly 1.6 to 1 one; working capital was approximately $21.3 million; and finally, we generated approximately $5.3 million in cash from operations in the quarter.

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 today. We are currently operating seven crews in the US and no crews in Canada. We believe the slow market conditions are temporary and we are keeping our key personnel in order to maintain the flexibility to get crews back in the field as quickly as client demand warrant. However, it is possible that we will idle additional crews depending on demand for our services.

Looking at commodity prices, natural gas remains a major variable. Current prices are hovering around $4 and if they remain firmly around that level or better yet inch higher, we believe that in 2014, we may see some real pick up in seismic spending in dry gas basins.

As far as oil prices are concerned as long as West Texas Intermediate remains close to $90 a barrel, we believe customers will continue their capital spending. If on the other hand West Texas Intermediate falls below $80 a barrel and stays there, we might likely see a decline in activities and cuts and capital budgets.

We now own about 137,000 recording channels which includes 70,000 wireless channels, gives us the ability to field one of the largest fleet 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.

In closing, I would like to state that our geographic diversification and low-cost structure combined with our new wireless technology positions us well to take advantage of the opportunities ahead of us.

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

(Operator Instructions). Veny Aleksandrov, FIG Partners.

Good morning. So my first question is about the two crews that you are idling and the market conditions right now. You are idling them but you are still keeping key personnel. What is happening from the bidding side and the contract side? Is there a still strong bidding activity and you are hoping that you are going to start signing contracts soon and that is why you are not letting key personnel going home? Can you just give us a little bit more information on that front?

Sure. Yes, the bidding has been brisk -- the bidding has been brisk since the first of the year. I think a lot of people are just looking at the economics of some of these reservoir plays.

Also believe that the budgets came out late this year due to the fact of the election and some of the new tax consequences. So we feel like the second half of the year should pick up and we are poised to put these crews back in the field as soon as the opportunity arises and we are still very positive about what is going to happen between now and the end of the year even though as I said, we have idled two crews and we possibly may idle another crew but we still feel like the second half of the year will be strong.

Thank you. My follow-up question is about Canada. You had two crews working until the end of April. Now you are at zero. But if I remember last year we had some crews working in the summer over there. Is there any chance we might get some crews back working in Canada in the summer?

Yes, we are expecting, we are waiting to get some work prepped in Canada. We are expecting to run one, possibly two crews during the summer in Canada and we are expecting the Canadian season coming up to be as good as it was this past year.

You mean the winter season?

The winter season, yes. But we expect during the summer to run for sure one crew possibly two and then we are expecting the Canadian season starting end of the third quarter, beginning in the fourth quarter to be as good as it was last year.

Thank you and I will requeue. Thank you.

(Operator Instructions). Keith Maher, Singular Research.

Good morning, gentlemen. I was wondering if you could -- kind of following up on what Veny was asking -- I'm just trying to reconcile you are saying we had brisk bidding activity but there is this softening in the US seismic market. So are you saying that the bidding is there but the companies just aren't acting on it, is that how I should read that?

That is correct. They are working on -- they are getting the bids and evaluating where they are going to spend their money but basically they have held off on signing any contracts and that is why our backlog is down at the present time.

And just kind of a question on the plan permit delays you experienced this year in I believe you said the Northwest US, is that something new or is that just kind of it happens from time to time and that is just part of just doing business in this industry?

It happens from time to time as part of doing business. The Northeast seems very prone to that. We are working in the areas of West Virginia and Pennsylvania which these state and also the local people are not used to seismic and so it causes for more possibilities of land delays.

Okay, all right. Thank you.

Rhys Williams, Columbia Partners.

Can you just remind us how much money cost you in the second quarter of last year to take down the Canadian business that you put in the first quarter this year so we can get an idea of the expense savings this quarter?

Last year we did not have any reserve for site cleanup. This year is the first year that we have done that and we put in a reserve of $1.3 million to cover those costs associated with the work that was done in the first quarter and the site cleanup costs that we will incur in the second quarter.

And do you think at that point this $1.3 million looks about right so basically all of the expenses will go into the first quarter where the revenues were?

Yes.

Okay, so we should get that benefit in earnings in the second quarter year-over-year?

Yes.

Thank you.

(Operator Instructions). Veny Aleksandrov.

I want to talk to about the CapEx. Are you still going to spend on maintenance CapEx this year. Is this still the planned no more investment in new equipment at least for now?

Yes, that is correct. We are in maintenance CapEx and of course maintenance CapEx will be down because we are idling some crews. Of course we are taking the opportunity of these crews being idle to review and repair any of our instrumentation or trucking units that we use in our operations but we do expect maintenance CapEx to be probably on the low end of this year and we are going in a cash building mode.

And you are still evaluating your charges in terms of what to do with that cash?

I couldn't hear you on that.

I am sorry. You are still evaluating your options in terms of what to do with the cash that you are going to accumulate?

Right, right. I will point out we did do a cash dividend to our shareholders at the end of last year. You probably just saw that we did a 5% stock dividend here. We just announced that and the Board will review at the end of the year whether we will do another cash dividend at that time or not.

Thank you.

Keith Maher, Singular Research.

I guess I was just wondering about level of depreciation. It was I guess it was about 6.7 million in the quarter. Is this the kind of level we should expect for the balance of the year on a quarterly basis?

Yes, that is going to be about that level for the rest of the year. It is going to decrease very slightly but that is a good level to use in your modeling.

Okay, thanks.

Rhys Williams, Columbia Partners.

This is sort of a follow-up to Veny's question. Given you have a wonderful balance sheet, a lot of cash and you are generating cash, would a regular dividend makes some sense as opposed to just a special? I just want to know what the management is looking for?

The Board reviews that. So far last year was our first year that we did a cash dividend. We have done the stock dividend, the 5% stock dividend for the last five years or so. So the Board will review that and make a decision whether it will be a special dividend or just what we review whether we might start regular dividends.

Thank you.

I am showing no further questions. I will turn the call back to management for closing remarks.

I would like to thank everyone to have been on our call today and we look forward to talking to you again on the next quarterly call. Thank you.

Ladies and gentlemen, this concludes our conference for today. We thank you for your participation. You may now disconnect.