Dawson Geophysical Company
Q3 2019 Earnings Call Transcript

Published: 2 Nov 2019

[Operator:]

Statements made by management during this call with respect to forecasts, estimates or other expectations regarding future events or which provide any information other than historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.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 the Company's Annual Report on Form 10-K filed with the SEC on March 6, 2019.Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in the company's press release issued this morning, and please note that the contents of the company's conference call this morning is covered by those statements.During this conference call, management will make references to EBITDA, which is a non-GAAP financial measure. A reconciliation of the non-GAAP measure to the applicable GAAP measure can be found in the company's current earnings release, a copy of which is located on the company's website, www.dawson3d.com. The call is scheduled for 30 minutes and the company will not provide any guidance.I would now like to turn the call over to Mr. Steve Jumper, Chairman, President and CEO of Dawson Geophysical Company. Please go ahead, sir.

[Steve Jumper:]

Well thank you Derek and good morning and welcome to Dawson Geophysical Company's third quarter 2019 earnings and operations conference call. As Derek said, my name is Steve Jumper, Chairman, President and CEO of the company. Joining me on the call is Jim Brata, Executive Vice President and Chief Financial Officer.I just have a few things 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 www.dawson3d.com. Information reported on this call speaks only of today, Thursday, October 31, 2019 and therefore you're advised that time sensitive information may no longer be accurate as of the time of any replay listening.Turning to our preliminary third quarter and nine months ended September 30, 2019 financial results, I am pleased to report strong third quarter results for the company. For the quarter ended September 30, 2019, the company reported revenues of $37 million, a decrease of approximately 9% compared to $40 million for the third quarter of September 30, 2018.For the third quarter of 2019, the company reported net income of $2 million or $0.09 income for common share compared to a net loss of $5.2 million or $0.23 loss per common share for the third quarter of 2018. The company reported EBITDA of $7.2 million for the quarter ended September 30, 2019 compared to $1.7 million for the quarter ended September 30, 2018.For the nine month period ended September 30, 2019, the company reported revenues of $112.2 million, a decrease of approximately 11% compared to $126.5 million for the nine months ended September 30, 2018. For the first nine months of 2018 the company reported net loss of $9.4 million or $0.41 loss per common share compared to a net loss of $12.6 million or $0.55 loss per common share for the first nine months of '18.The company reported EBITDA of $7 million for the nine months ended September 30 compared to the $10.2 million for nine months ended September 30, 2018. During the third quarter of '19 the company operated a peak of six crews in the United States and included four large channel account crews compared to a peak of five crews equipped with smaller channel accounts in the US in the second quarter of '19 including microseismic operations and a single small channel account crew in Canada for a short period of time.Based on currently available information we anticipate operating up to five crews in the US during the fourth quarter of 2019 that can result in continued high levels of channel account and energy source utilization during the quarter along with limited activity in Canada in the fourth quarter of '19. We believe based on currently available information and such levels of activity could be sustained into the second quarter of 2020 in the US and up to four crews during the first quarter of 2020 in Canada.We are currently operating five crews in the US and one small crew in Canada as we ramp up the winter season. As in recent quarters the majority of our projects are on behalf of multi-client companies in the US with some limited activity directly for exploration and production company.I'll now turn control of the call over to Jim Brata who will review the financial results. I'll then return with some final remarks and our outlook in the fourth quarter and first and second quarter of 2020. Jim?

[Jim Brata:]

Thank you, Steve and good morning. We're very pleased to report net income of $2 million for the third quarter of 2019. Revenues for the third quarter of 2019 were $37 million a decrease of approximately 9% compared to $40.4 million for the quarter ended September 30, 2018.As stated in our earnings release issued this morning during the third quarter of 2019 the company operated a peak of six crews in the United States that included four large channel count crews compared to a peak of five crews with smaller channel counts in the US in the second quarter of 2019 and including microseismic operations and a single small channel count crew in Canada for a short of time.Based on currently available information the company anticipates operating up to five crews in the US during the fourth quarter of 2019 that crew is often continued high levels of channel counts and energy source utilization during the quarter along with limited activity in Canada in the fourth quarter of 2019. The company believes based on currently available information that such levels of activity could be sustained into the same quarter of 2020 in the US and up to four crews during the first quarter of 2020 in Canada.The company is currently operating five crews in the US and one small crew in Canada as it ramps up for the winter season. Services in the third quarter of 2019 was $26 million a decrease of 24% compared to $34.4 million in the same quarter of 2018. General and administrative expenses were $3.8 million in the third quarter of 2019 down 8% compared to $4.1 million in the third quarter of 2018.Depreciation and amortization expense in the third quarter of 2019 was $5.2 million a decrease of 26.5% compared to $7.1 million in the same quarter of 2018. Net income for the third quarter of 2019 was $2 million or $0.09 income per share compared to a net loss of $5.2 million or $0.23 loss per share in the third quarter of 2018. We recorded an income tax benefit of $25,000 in the third quarter of 2019 compared to an income tax benefit of $232,000 in the same quarter of 2018.EBITDA in the third quarter of 2019 was $7.2 million compared to $1.7 million in the same period of 2018. An EBITDA reconciliation was provided in our earnings release issued this morning. Now I'll highlight some results for the nine months ended September 30, 2019.Revenues for the nine months ended September 2019 were $112.2 million a decrease of 11% compared to $126.5 million for the nine months ended September 30, 2018. Cost of services for the first nine months of 2019 was $92.2 million a decrease of 12% compared to $104.4 million for the same period of 2018. General and administrative expenses were $13.4 million for the nine months ended September 30, 2019 an increase of 11% compared to $12.1 million in the same period of 2018.Depreciation and amortization expense for the first nine months ended September 30, 2019 was $16.6 million a decrease of 28% compared to $23.2 million in the same period a year ago. Net loss for the nine months ended September 30, 2019 was $9.4 million or $0.41 loss per share compared to a net loss of $12.6 million or $0.55 loss per share in the same period a year ago.EBITDA for the first nine months of 2019 was $7 million compared to $10.2 million in the same period a year ago. An EBITDA reconciliation was provided in our earnings release issued this morning and I'll highlight some balance sheet items.Our balance sheet continues to remains strong. As of September 30, 2019 we had debt including obligations under finance leases of approximately $3.3 million cash and short-term investments of $27.1 million, our current ratio was 2.9

[Steve Jumper:]

Well, thank you, Jim. As we said, we're very pleased to report strong results for our third quarter with net income of $2 million and EBITDA of $7.2 million. Our improved quarter results were attributable to continued diligent efforts designed to further reduce cost and improve productivity, while operating much larger channel count crews, favorable conditions and higher utilization or reporting channels in the quarter.In addition to greatly increased channel utilization compared to the second quarter, we experienced very high utilization of energy source units as well as we continue to move toward a channel and energy source utilization model and a crew based model. Despite challenging times in the oil and gas sector, increased demand for large channel count projects our clients continues to drive today's seismic data acquisition market.During the third quarter we continued operation of the large 44,000 station multi-component crew with 132,000 total channels that we mentioned in our last quarter earnings call and two 35,000 plus channel account crews along with intermittent smaller channel account crews. Each of the crews operated between 16 and 22 energy source units.Several of these projects will continue well in the fourth quarter. We are conducting these projects using our industry-leading inventory of wireless channels and energy source equipment. Our current inventory will tag is sufficient to meet current client needs. Visibility into 2020 appears positive compared to recent quarters. Based on currently available information, we anticipate both channel and source utilization to be much improved over our second quarter, but below the level of our third quarter utilization.Early indications are for Canadian season similar to last year with up to four crews operating and with high channel account and source utilization, in the US in the first quarter of 2020. After the completion of the Canadian season the equipment will redeploy to the lower 48 in the second quarter. We're anticipating strong channel energy source utilization in the second in the US in the second quarter of 2020.As in prior years the winter season in the lower 48 is historically difficult with shorter days, holiday season and increased weather exposure. Capital expenditures for the third quarter were 644,000 and a total of $2.8 million for the first nine months of '19 primarily for maintenance capital items. Our balance sheet as we said, remained strong with $48.3 million of working capital as of September 30, 2018.We have notes payable and finance leases totaling $3.3 million as of September 30. In closing we are pleased to report -- while we're pleased to report solidly improved third quarter results and increased visibility of channel energy source utilization the seismic market and the overall oil and gas sector remains challenging as project delays, cancellations or change in scope continue to be the primary factors and overall activity and utilization. We continue to be encouraged by ongoing conversations with our clients, primarily multi-client companies with regard to future projects.And with that, Derek, I believe we're ready to open the call up for questions.

[Operator:]

Thank you [Operator instructions] And we have a question from John Potratz with Research Investments.

[John Potratz:]

Good morning, Steve. Beautiful, beautiful results. Thank you very much. Just sort of wondering the sense of the market out there. You said like you had some cancellations and -- but very strong prospects. Do you get a sense of the people are talking you about the potentials of projects over the next six-month versus what it might be a year ago that they're at least talking about or talking to see what they could do with you and they might have some -- that they might result in some additional crews being utilized.

[Steve Jumper:]

Well John, thank you for the comments and the question. I'll just try to answer that as briefly as I can which I know is not common for me, but we really haven’t experienced any cancellations as of late. We continue to deal with some project delays primarily related to land access arrangements, permitting phase getting access information from land and mineral owners continues to be a difficult thing in the seismic market whether it's really worldwide but particularly in the lower 48.So that can affect short-term utilization, obviously from quarter to quarter and those things are beyond our control. We continue to deal with timing of when projects ramp up and the next one begins that could impact utilization due to a molding or de-mobilizing accrue. We are encouraged by our conversations with our client base about opportunities going into 2020. I would caution that the market remains, the overall oil and gas market in capital spending levels remain constrained and tight and so that can always be an issue that we deal with and then our projects can be cancelled on short order.But we are encouraged, we are optimistic looking forward. We think that we're going to continue to have high utilization of both recording channels and energy source units. Whether that will result in additional crews is difficult to say and I can say that we could have one large 30,000 channel crew for a period of time and the net crew can split into two 15 channel.So our equipment base local energy source units and recording channels are very fluid as to the number of crews. That's why we're currently start to looking at channel and source utilization going forward. We're cautious but we're optimistic.

[John Potratz:]

It sounds like when you say that the crews can be split up and reallocated that you have a lot more flexibility in your overall system, that you used to have maybe two years ago which means that you're better able to respond opportunities in the marketplace.

[Steve Jumper:]

Yeah I think this has been something that's been developing. We've talked about it over the years that it's becoming a more channel intensive market which the industry has always done this. It moves from as crews continue to get larger, you have to have an equipment base that can move, have some fluidity and flexibility on getting equipment to crews not only the amount that they need, but when they need it.And I think our operations folks have done a fantastic job over the years of understanding how that works and getting thins where they need to be in a timely manner and so really what's going on is the survey that we're shooting today as we've talked about, they're just larger in scale in aerial extent. So they need more channels from an aerial coverage standpoint and we're putting the men on a tighter grid to create higher resolution images.I don’t see that changing anytime soon. As a fact I see that continuing to increase. We'll just have to see what happens in 2020 with regards to overall spending, which ultimately is the one thing that controls our demand level.

[John Potratz:]

Right expanding is important but the other thing that impressed me last year, you were talking about making the overall operations more efficient and having to manage of the operation and my sense is that's done fairly well and you're feeling that the overall operating costs has come down and you’ve gotten a lot more overall efficiency within the company, that's my feeling sense, is that a good way to look at it.

[Steve Jumper:]

Yeah I think so. I think it's running through the entire operation from operations to the upfront services getting things ready, the data handling guys on the backside are just performing at a very high level when you think how much data we're actually handling today. So I'm very proud of the efforts that our entire team has put into this to get where we're today.

[John Potratz:]

Right but remember have a team and have to have a good leader and for which I'm very appreciative of what you do and I thank you very much and there maybe some other question. Thank you very much for what you do and I know you're following the footsteps of Decker [ph] and you're doing very well, thank you again.

[Steve Jumper:]

Thank you, Sir.

[Operator:]

[Operator instructions] And we do have a question from Michael [ph] with [Operator instructions] Please go ahead.

[Unidentified Conference Call Participant:]

Steve, Jim, good morning and congrats on the improved result. I was curious that you're looking out into 2020 if anything has changed geographically from a demand standpoint and where you might be seeing areas of strength, thanks.

[Steve Jumper:]

I appreciate it Mike, it's good to hear from you. The majority of our work that we're looking at and having conversation about going forward, continues to be in the Permian, it's kind of shifted from the Delaware basin back to more the Permian area. Still a lot of areas that need new data over them I think I am confident in at least I am confident personally that with the data that we're acquiring today the high resolution, the tight grid data that lends itself to much better attribute analysis I am confident that the size and the technology will continue to play a very important role and continue to bring value to the E&P companies end users.We have had some work and recently in the Wyoming. We've some work in Oklahoma. We've had some work down in the Texas side of the Austin. We had to start job in Louisiana and so we continue to have some projects that come up from time to time in other areas but the Permian more so to the Delaware right now continues to be where significant part of our conversations are current.

[Unidentified Conference Call Participant:]

That's helpful and maybe just a little bit more color on areas like the Permian, I guess my sense would be that a fair amount of entities are even shot from a seismic standpoint. Could you talk maybe about the lifecycle of prior shoots and what that might mean as you go forward and reshooting certain areas?

[Steve Jumper:]

I think I cannot hear again, I don’t want to say too much and I am accused of that sometimes but we may have mentioned there is really two questions in there Mike. We mentioned in the past that it's been about over 20 years since there has been really any high level of seismic data acquisition activity in the Permian, Delaware areas and that's going back to the mid 90s and then we kind of started back here about 2014, 2015 or so working diligently in the area.And then we've talked about that we have worked in very highly concentrated areas of the Permian. We've been -- we were kind of focused on the southern Permian and then we kind of moved out to the Delaware and we had a lot of focus in the Delaware and so we're kind of moving back into I guess it would be the Northern Midland area of maybe east of the Delaware west of the Midland basins.So there is still some open areas that need to be -- need new data. In terms of the lifecycle, we really haven't gone back over any of the stuff that we've done in recent times I would say last five to seven years but really haven't started back over any of that, but there is some, there is always conversations about new techniques and then today that could lead to that..But we're still getting most of our work from what I'll consider periods that are currently being drilled from a lateral long lateral standpoint, but really haven't had data on.

[Unidentified Conference Call Participant:]

That's helpful and it sounds like utilization of your equipment you expected to be fairly high over the next few periods, any thoughts on the need to expand your equipment base from current levels, thanks.

[Steve Jumper:]

Well, I think our equipment base is in good shape right now. We do anticipate high level of utilization but as Jay kind of eluded to in his question, there is a lot of flexibility in the equipment base and so some of that certainly if needed could be supplemented and we're always looking at those opportunities but we feel pretty comfortable that the way we're operating and the ability to move channels in short order from one area to the next I think we're gained some flexibility there.So we're always looking at that and certainly if the market continues to improve whether it's supplemental or something that might be additive to us, we would certainly take a look at it, but at this point we're comparable with just the capital budget that we've got allocated and we think will be at maintenance levels between here and the end of the year. But having said that, if something comes up that makes sense as always we would certainly take a look at it.

[Unidentified Conference Call Participant:]

Well thank you and congrats again.

[Operator:]

[Operator instructions] We'll next go Bill Silk [ph] from [indiscernible]. Please go ahead.

[Unidentified Conference Call Participant:]

Congratulations on the quarter. Just wonder if you could give little more color, it sounds like you're optimistic on the winter season up in Canada. Could you give a little more color on that is it more oil versus gas any lingering impact from the pipeline issues, just some more color there.

[Steve Jumper:]

Well, Bill I appreciate that, I by no means an Canadian expert. So my understanding is that most of the opportunities that our Canadian group has are more in the heavy area. That's my understanding and I think it looks a lot like last year. It's pretty concentrated area and they're indicating that they think they can get up to four crews and I'm not sure yet today want the channel count impact on those crews are going to be.I don’t know if they will be -- last year we had a one very high channel count job in particular in that. I get the sense that it's some smaller projects with less channel count needed but continues to be a very intense high density type reporting. So just answering the question briefly I think it continues to be heavy oil stuff and in terms of pipeline impact yeah, I'll just say that the Canadian market that I can tell continues to be very challenging for everybody out there but not much work in the gas area.

[Unidentified Conference Call Participant:]

Okay. Fair enough thanks.

[Operator:]

And gentlemen, it does appear we have no further questions in the queue at this time.

[Steve Jumper:]

Well, thank you Derek and I want to thank everybody for listening into our call. Obviously we're very pleased with the quarterly result. We are as we've said on the call in our press release, we're cautiously optimistic going forward at least in the next quarter in terms of channels and energy source utilization.I just want to remind everybody that we've said that the oil and gas market continue to be challenging and spending levels continue to be tight and so we continue to be subject to cancellations, delays and change in scope, but we are optimistic. We're entering again into the fourth quarter with some favorable tailwind but as we've said the fourth quarter continues to be our most challenging in the lower 48 with shorter days and weather exposure and holiday seasons and those types of things and so I would just like to take the moment to express my gratitude to our employees from the field level, hard working folks all the way up the support groups, administrative staff, the midlevel management and in that order importance for their perseverance through some very difficult time, continued hard work and dedication to the company to help us get to this point.I would also like to thank our valued clients for the opportunity they give us and their trust in our services and lastly I'd like to thank our shareholders for their continued support. One the road that would [indiscernible] but it certainly ended one we're pleased to be here and look forward to talking to you at the end of our the fourth quarter and the end of the fiscal year. Thank you.

[Operator:]

Thank you and it does conclude today's call. We do thank you again for your participation. You may now disconnect.