Dawson Geophysical Co (DWSN) 2013 Q2 法說會逐字稿

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, Monday, July 29, 2013. I would now like to turn the conference over to Mr. Jack Lascar. Please go ahead, sir.

Thank you, Damien. Good morning and welcome to the TGC Industries second-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 www.tgcseismic.com or via a recorded instant replay until August 12. 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 29, 2013, and, therefore, you are advised that time sensitive information may 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 risk and uncertainties include the risk factors disclosed by the Company from time to time in its filings with the SEC, including 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 those statements.

With that I will turn the call over to Wayne Whitener.

Thank you, Jack, and good morning to everyone. Thank you for joining us today for our second-quarter 2013 earnings call. I will 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.

As you may know, in our past press release and call we mentioned the softening in demand we were seeing in the US seismic market which began late in the first quarter and continued into the second quarter. After operating 15 crews in North America during the first quarter, nine in the US and six in Canada, we began to idle crews in the US at the beginning of the second quarter in an effort to keep our crew count in line with demand for services.

We idled crews fairly rapidly as demand softened, but we kept key personnel in place to maintain our ability to get crews back in the field as quickly as possible as demands warrant. At the beginning of the third quarter conditions have improved and we are currently operating three crews in the US and intend to field two additional crews in early August, which will bring our crew count to five crews in the US. We expect to operate a minimum of five crews in the US for the remainder of the year and believe business conditions will improve over the balance of 2013 and into 2014.

The significant drop in our US crew count during the second quarter resulted in a substantial amount of costs associated with idling of these crews, which negatively impacted our results. In addition, we experienced a significant increase in shot-hole work during the quarter, which produced higher revenues but has a lower margin.

Canada continues to be a solid market for us. Of course, our Canadian crews were shut down by mid-April with the spring breakup, but we added additional crews for summer work in June and have three Canadian crews currently working and operating. Based on preliminary feedback from our clients, we expect a strong winter season in Canada.

We ended the first quarter with a backlog of $32 million, consisting of both US and Canadian work. Additionally, we have a number of large contracts that are in the final stages of negotiation.

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

Thank you, Wayne, and good morning. Revenues for the second quarter of 2013 were $31 million compared to $30 million in the second quarter of 2012. Cost of services in the second quarter of 2013 was $28 million compared to $25 million in the same quarter a year ago. The increase is primarily due to a significant increase in shot-hole work during the quarter, which carries a lower margin, as well as costs associated with the idling of many of our US crews during the second quarter.

Cost of services as a percentage of revenue in the second quarter of 2013 was 89.8% compared to 82.3% in the second quarter of 2012. Gross profit was $3.2 million in the second quarter of 2013 compared to $5.4 million in the second quarter a year ago. Gross profit margin was 10.2% compared to 17.7% in the second quarter a year ago, primarily due to the lower margin shot-hole work and idled crew costs mentioned earlier.

Our selling, general, and administrative expenses were $2.5 million in the second quarter of 2013 compared to $2.1 million in the second quarter of 2012. As a percentage of revenues, SG&A was 7.8% in this year's second quarter compared to 6.7% in the second quarter a year ago.

Depreciation and amortization expense was $6.4 million compared to $6.2 million in the 2012 second quarter. As a percentage of revenues, depreciation and amortization expense was 20% in the second quarters of both 2013 and 2012.

Interest expense was $308,000 compared to $280,000 a year ago. We reported a net loss of $4 million, or $0.18 per share, compared to a net loss of $2 million, or $0.09 per share, in last year's second quarter.

We recorded an income tax benefit of $1.9 million in the second quarter and effective tax benefit rate of 32%. This compares to an income tax benefit of $1.2 million and effective tax benefit rate of 37% a year ago.

EBITDA for the second quarter was $747,000, which is an EBITDA margin of 2.4%, compared to $3.3 million, an EBITDA margin of 10.9%, in the second 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 second quarter, we had long-term debt of $11.5 million. Cash and cash equivalents of $25 million. Our current ratio was roughly 1.9 to 1. Working capital was approximately $21.2 million and, finally, we generated approximately $18 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 go to questions I would like to briefly summarize where we stand today. As we mentioned in our previous call, due to the softened US market conditions we continue to carefully manage our cost structure and build cash in order to maintain a strong balance sheet, which we were able to accomplish during the second quarter.

In fact, as Jim mentioned, we generated approximately $18 million in cash during the second quarter. And as I mentioned earlier, we are keeping our key personnel in order to maintain the flexibility to get crews back in the field as quickly as client demand warrants.

In closing, I would like to reiterate our geographical diversification, low-cost structures, strong capital structure, and our ability to generate cash. We require -- combined with our new wireless technology position us well to take advantage of the opportunities ahead of us.

This concludes my formal remarks. Now I will take questions.

Veny Aleksandrov, FIG Partners.

My first question is about your comment in the press release that you expect around five crews in the States and five crews in Canada in Q3. Are the contracts for these additional crews already signed and in the backlog, or do you expect to run five in each country because of the new contracts that are in final stages of negotiations?

I don't think I said I was going to run five crews in Canada. We do expect to have a good Canadian season. We will be ramping up for Canada starting in September. As I mentioned, we are operating three crews in Canada right now but we will be ramping up for additional crews starting in September for our Canadian operation.

We are presently in the US operating three crews as I mentioned. We will be fielding two additional crews here at the end of this month, first part of August. The crews in the US have already have contracts in place, plus we have additional contracts that are in the final negotiations, which is in legal right now that we expect to get signed either today or tomorrow. The next few days there.

So we do expect to run at least a minimum of five crews going into the third quarter and fourth quarter.

Okay, I am sorry I misunderstood. Then in terms of Canada, you expect strong winter thanks to indications from clients. Do you think it is going to be stronger than last year or it is shaping to be like last year based on the preliminary indications?

We have some contracts we are working on right now which we have been verbally awarded in Canada, which is early for us. They are very good contracts. They are in legal as well.

We do expect to run at least the same amount of crews as we ran last year, six to seven crews during the height of the season. As I mentioned, we will start putting -- start building on the crews for the season starting in September.

One last question and I will re-queue. In terms of bringing crews back to work, do we have to expect again some costs associated with it? And heavy cost structure in Q3 because you are bringing crews back to work?

Well, there is some costs associated with it because what you have is you have got to get these crews back in the field and then there is an amount of layout days involved in that. So there is some cost associated with getting those crews back in the field.

But as I mentioned, all the key personnel were kept during this time frame so it is just a matter of adding the [laborers] and that sort of thing. We also took advantage of going through and repairing any equipment that needed possible attention, so we had those costs also in this last quarter as far as repairing vibrators And any additional equipment that we had. We took advantage of this time to get everything back up to 100% condition.

Thank you so much.

Joel Luton, Westlake Securities.

Good morning, Wayne. What was your CapEx in the quarter?

Jim, what was that?

It was about $200,000.

Okay. Then looking into 2014, do you have any capital expenditure expectations for that year, or do you think it is going to be relatively low like it has been for this year?

As it stands right now, we are not forecasting a large CapEx for 2014. Of course, that depends on demand for services. That pretty much drives our CapEx.

We do expect business to accelerate in 2014, so if demands are there we may add some additional wireless channels to our operation depending on demand for services.

Okay. Then in your news release you say you have a number of large contracts that are in the final stages of negotiation. When you say number, how many is that?

We have got two in Canada and three here in the US.

Okay. Thank you, guys.

(Operator Instructions) Keith Maher, Singular Research.

Good morning, gentlemen. I was wondering if you could talk a little bit more about what you think is happening in the US market with the softness. Obviously, you are running at crew count numbers that are probably about half what you were doing last year.

Is it just kind of industry-wide slowness? Are you seeing any pricing pressure in the bidding activity? Just any color would be helpful.

Sure. I think if you go back to the beginning of the first quarter of 2012 we started seeing some slowdown in demand for services at that point. At the beginning of the fourth quarter of last year we had a backlog of $103 million and then we ended the year with $81 million and then we ended the first quarter with $40 million. So it has been almost a nine-month scenario that we have seen as far as a softening demand for our services.

We believe this is due to companies that are in drilling phase, as well as people reevaluating the shale plays and what the economics are on those. From our indications from our clients it looks like a lot of bids that we put out in the first quarter. As we have mentioned, bids were pretty brisk in the first quarter. We are starting to see those turn into contracts, so we think things are upbeat about that.

Our thoughts are right now is that things will increase going into the third, fourth quarter and, hopefully, we are expecting a good year in 2014.

Okay. A question on the backlog, $32 million, that is primarily US?

Yes, that is pretty much all US, yes.

And I understand, because in Canada you don't have the permitting delays so time from contract signing to actual work I guess goes a lot quicker. Could you give us any more details on that? Just, say, between Canada and the US you sign a contract, like how quickly do you start working the crew?

Of course, it depends on how far along they are on the E&P company getting their land position in place. But normally -- from the time that we get a contract signed it is normally anywhere from three to six months on a normal job. Now a lot of these jobs have been since the beginning of the year they have been working on the land position, so that could, once the job is awarded, could escalate to where we could go to work on that job in anywhere from two weeks to 30 days.

Of course, in Canada, as you mentioned, people kind of wait till the last minute. But we do have a couple of large contracts that we have been awarded in Canada and that we are in the final stages of legalizing the contracts.

And talking a little bit about the, say, your US crews. I know when we talked in the past I think the mix in Canada was I want to say 20% permanent, 80% contract. I think that was about right. Is it a similar mix in the US? I guess what I'm --

Now what are you talking about as far as percentages here in the US? I wasn't following you on that.

What I am getting at is in the US crews, like how many are permanent employees and how many are contract employees? And what I am getting at is how much flexibility do you have to reducing your employment costs, basically, if these crews aren't working?

Well, of course, you have about seven people on each individual crew that are key personnel that are on salary. The remainder of the crews are laborers that are on by-the-hour. Right now we are running no contract personnel. It is all company personnel, either by the hour or by salary.

We do have the capabilities of hiring contract laborers that are readily available to us through a couple of different firms here in the US. Depending on demand for services, sometimes we use these contractors either for short-term or longer-term jobs depending on our demand for services.

And final question before I jump back in queue. You mentioned this increase in shot-hole work in the quarter. I was just curious as to why you think that is happening.

Well, we had quite a few jobs that we were finishing up in the Northeast in the Marcellus and everything in that area up there -- not everything, but a big majority of it -- is dynamite-type work. So it just happened to fall where we had three crews that were in the Marcellus up there working that was doing dynamite work, which would cause the percentage of our dynamite revenue to go up.

Okay, thanks a lot. Appreciate it. That is all I had.

Veny Aleksandrov, FIG Partners.

One more question on the bidding activity. It was very strong in Q1 and now you are probably signing the contracts that were in the queue back then. How is bidding activity right now?

Bidding activity is pretty much the same as it has been probably in the first quarter going into the second quarter. Bids are steady. Like I say, we had quite a few bids in the first quarter which didn't go to contract which we are seeing them go to contract now.

So bidding seems to be still very good. We are getting a lot of feedback from our clients that are saying that they expect to be very active in 2014 and we are starting to see bids come in for 2014 now.

Okay, thank you so much.

At this time I show there are no further questions. I would like to turn the conference back to management for any closing remarks.

We thank you for joining us and looking forward to talking to you in the next quarter conference call. Thank you.

Ladies and gentlemen, this concludes the TGC Industries second-quarter earnings conference call. Thank you for your participation. You may now disconnect.