Dawson Geophysical Co (DWSN) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. And welcome to the TGC Industries first-quarter earnings conference call. (Operator Instructions). And as a reminder, this call is being recorded today, April 28, 2014. I would now like to turn the call over to Jack Lascar. Please go ahead, sir.

Thank you, Greg. Good morning, and welcome to the TGC Industries first-quarter 2014 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 via a recorded instant replay until May 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, April 28, 2014, 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, 2013. 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.

Now I will turn the call over to Wayne Whitener.

Thank you, Jack, and good morning, everyone. Thank you for joining us today for our first-quarter 2014 earnings call. I will make some initial comments and Jim Brata will provide you with financial details. Then I will conclude with some remarks about the market and business going forward.

We saw improvements in revenue and margins in the first quarter led by our strong performance in Canada. While the Canadian winter season began relatively slowly. as we noted in our fourth-quarter earnings release and call, we produced strong first-quarter results in Canada as the winter season unfolded. We achieved this in spite of the fact that the overall seismic market in Canada was weaker this year than last year.

The oil and gas companies in North America appear to be emphasizing more development and production activities rather than exploration and seismic work. We operated six crews in Canada for most of 2014 first quarter, scaling back to four crews as the Canadian spring breakup began. By mid April we had shut down to two more crews and now with the winter season essentially over we have no crews operating in Canada by the beginning of May.

In the US we continue to see challenging conditions in the first quarter and we operated four crews compared to nine crews a year ago. We expect a gradual improvement in the US seismic demand through the remainder of 2014 even though we believe there is overcapacity in the industry at this time.

I will now turn the call over to Jim Brata who will review the financial results and then I will return with some final remarks about our outlook for the rest of this year.

Thank you, Wayne, and good morning. Revenues for the first quarter of 2014 were $48.8 million compared to $63.2 million in the first quarter of 2013. As Wayne mentioned, we operated four crews in the US in this year's first quarter compared to nine crews in the US in the first quarter of 2013. In Canada we operated six crews for most of the first quarter and ended the quarter with four crews as the winter season began to wind down. We operated six crews in Canada for the entire first quarter of 2013.

Cost of services in the first quarter of 2014 was $33.9 million compared to $43.2 million in the first quarter of 2013. Included in this year's cost of services is a reserve expense of approximately $670,000 or $0.02 per diluted share associated with site cleanup costs related to the ending of the Canadian winter season. In the first quarter of 2013 we recorded a reserve expense for the same purpose of approximately $1.3 million.

Cost of services as a percentage of revenues in the 2014 first quarter was 69.5% compared to 68.4% in last year's first quarter. Gross profit was $14.9 million in the first quarter of 2014 compared to $20 million in the first quarter of last year. Gross profit margin was 30.5% compared to 31.6% in the first quarter a year ago.

Selling, general and administrative expenses were $2.6 million in the first quarter of 2014 compared to $2.4 million in the same quarter of 2013. As a percentage of revenues SG&A expenses for the first quarter of 2014 and 2013 were 5.4% and 3.8% respectively.

Depreciation and amortization expense in the 2014 first quarter was $5.1 million compared to $6.7 million a year ago. As a percentage of revenues depreciation and amortization expense was 10.4% in this year's first quarter compared to 10.6% in the first quarter of 2013.

Interest expense was $182,000 for the first quarter of 2014 compared to $320,000 a year ago. Net income in the 2014 first quarter was $4.3 million or $0.19 per diluted share compared to net income of $6.4 million or $0.29 per diluted share in last year's first quarter.

We recorded an income tax expense of $2.7 million in the first quarter and effective tax rate of 39%. This compares to an income tax expense of $4.2 million and effective tax rate of 40% a year ago.

EBITDA in the first quarter of 2014 was $12.3 million compared to $17.6 million of the first quarter of 2013. As a percentage of revenues EBITDA in the first quarter of 2014 and 2013 was 25.1% and 27.8% respectively. An EBITDA reconciliation table is provided in our earnings release issued this morning.

And now I will highlight some balance sheet items. As of the end of the first quarter of 2014 we had long-term debt of $5.4 million, cash and cash equivalents of $15.3 million. Our current ratio is 1.7 to 1. Working capital is approximately $23.5 million. And finally, we generated approximately $3.2 million in cash from operations.

And with that I'll 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 to date. Our backlog at the end of the first quarter was approximately $43 million, mainly comprised of the US work. This compares to $40 million at the end of last year's first quarter.

While this level of backlog gives us good visibility into the second quarter and the beginning of the third quarter, the US market for seismic data acquisition remains competitive. The positive news is that several oil and gas companies have indicated the potential for several significant projects in coming months.

Inquiries and biddings have remained steady since the beginning of the year, but the pace of contract awards have been slow. We are currently operating four crews and the US and, based on client demand, we anticipate adding one additional crew in June. The Canadian winter season is now over and we will have no crews operating in early May.

In light of the current market conditions we continue to carefully manage our cost structure and build cash in order to maintain a strong balance sheet which we have accomplished over the past year. We remain cautiously optimistic about seismic data acquisition activities in 2014 as preliminary indications from clients point to slightly higher seismic data acquisition spending.

In closing, we remain well-positioned within the industry. We have the most advanced state-of-the-art equipment available. We have a strong capital structure and ability to generate cash. And we are prepared to capitalize on improvements in the marketplace. This concludes my formal remarks and now I'll take questions.

(Operator Instructions). Veny Aleksandrov, FIG Partners.

My first question is about the US. You said in your prepared remarks that you expect gradual improvement and you are thinking about [this crew] in June. Do you have [any idea], can we have more than a fifth crew, can we go to a sixth crew later in the year? Or that will depend on the mix of orders that might or might not happen in the next couple of months?

Well, of course adding additional crews beyond the fifth crew depends on our success rate on getting some contracts signed. So, right now we're of course very confident we are going to put out the fifth crew in -- sometime during June. And if we're successful in some additional contracts that are in the queue there, it's possible we could put out an additional crew sometime before the end of the year.

Okay. And how many channels are these pipe crews going to be operating in total?

We are probably averaging right around 10,000 channels per crew.

Per crew, okay.

Yes.

Okay. And then Canada, I'm sorry I missed that. So you started the quarter with four crews, you went immediately to six. And then Q2 how did you wind them down? How many we've working at the very beginning of Q2?

Well, we started the year in January with six crews. And by the end of the quarter we were down to four crews. And we're winding down with the last crew this week in Canada.

Okay. So we're going to have some work in Q2 from Canada?

Yes.

Okay.

Yes.

And then the last -- in the past years somehow some work has been showing up in Canada in the summer. Are you -- is there a possibility we can get some of that or we don't know yet?

We don't know yet. In the past we have had some work and we have the equipment up there to do some work if the opportunity presents itself.

Okay, thank you so much.

Joel Luton, Westlake Securities.

What was your CapEx in the quarter?

It was $1 million.

Okay, and do you have any expectations for the year?

We're on a maintenance CapEx program right now, so it's going to be between $3 million and $5 million.

Okay. And also with the Canadian job, didn't you lease some equipment? And if so what happens -- I mean is the least essentially over with the jobs winding down or do you retain control of that equipment?

We did lease some equipment up there. We do have control over that equipment. So we'll be using some of that same equipment next year. It's possible we may be using some of that equipment here in the US during the third and fourth quarter possibly.

Okay. And do you all have any guesses on Canada on the coming season or is it just too early to say?

It's too early to say as far as what Canada is going to look like this next season.

Okay. Okay, thank you.

Evan Richert, Sidoti & Company.

I know you talked about the market in the US being competitive, and I know you don't get guidance on gross margins, but I was wondering if you can talk directionally about what you think they will be for 2014 relative to 2013.

Well, like I say, as you mentioned, we don't give guidance, but we're looking at -- we operated four crews last year and we anticipate operating four crews here in the US basically for most of this quarter. And then going to five crews in -- end of this quarter going into the fourth quarter. So we are seeing some pressure from on the margins just due to the overcapacity within the space at this time. So -- but we don't give out really any real guidance on gross margin.

Okay, great. And just one last question. I know you said you seem to be seeing -- talking to some customers and seeing some potential bidding for some bigger project. Is that one or two specific customers or is that kind of across the board -- people that are bidding on deals right now?

It is kind of across the board, we are seeing it from several of our clients. Like I say, it seems to be a little bit slow from the time that we've submitted our bid proposals to the time that jobs are being awarded or whether they are getting awarded or not. But we are optimistic that things will pick up in the second half of the year here.

All right, thanks. I'll hop back in the queue.

(Operator Instructions). Rebecca Simmons, DRZ Inc.

I wanted to know if you could give a little more color on what you're hearing from your customers, what's their sentiment right now and the commentary you're getting from them?

Well, it's a little bit mixed. A lot of our clients have been in the drilling mode and are in the acquiring land mode and that sort of thing. But we're starting to see a movement back towards additional seismic a lot in the shale plays. We're actually seeing some activity in the dry gas areas again. So as I mentioned, we're somewhat optimistic about the second half of the year.

Okay. So looking at the opportunities you're seeing right now, I mean it sounds like directionally you should start to get some improvement in the backlog. I mean is this kind of level -- I know it typically may be a seasonal low, is that the way to think of it? Or how should we kind of think of that going forward just directionally?

Yes, our backlog is not where we'd like it. Normally this time of year it's a little bit higher. Compared to this time last year, as I mentioned earlier, we've got $40 million, so we're up $3 million from the same time last year. Last year was not really a robust year for us. So we hope to see improvements going forward here in this quarter to improve the backlog and improve the number of crews and opportunities for the Company.

Okay, great. And then lastly, how should we think of your cash base? I know you talked about being in maintenance mode. Should we think of that as building and what your priorities are there?

Yes, that's the main thing right now, we're in maintenance CapEx and we probably anticipate staying in that mode unless we get demand for services that would require us to look at adding additional equipment to the Company. So we remain flexible in that mode.

Okay, and overall priorities for cash is just building up cash right now?

Right now, yes.

Okay. All right, that is all I had, thank you.

And at this time there are no further questions. I would like to turn the call back over to management for any closing comments.

We'd like to thank you for joining us and look forward to talking to you again next quarter.

Thank you. Ladies and gentlemen, that will conclude the conference call for today. We do thank you for your participation. You may now disconnect your lines at this time.