Dawson Geophysical Company
Q3 2013 Earnings Call Transcript

Published: 6 Aug 2013

[Operator:]

Good morning and welcome to the Dawson Geophysical Second Quarter 2013 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note that this event is being recorded. First I would like to share our Safe Harbor provision. In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, Dawson Geophysical Company cautions that statements made today in this conference call, which are forward-looking and which provide other than historical information, involve risks and uncertainties that may materially affect the company’s actual results of operations. These risks include, but are not limited to the volatility of oil and natural gas prices, dependent upon energy, industry spending, disruptions in the global economy, industry competition, delays, reductions or cancellation of service contracts, high fixed costs of operations, external factors affecting our crude such as weather interruptions, and inability to obtain land access rights of way, whether we enter into turnkey or term contracts, crew productivity, limited number of customers, credit risk related to our customers, the availability of capital resources and operational disruptions. A discussion of these and other factors, including risks and uncertainties is set forth in the Company’s Form 10-K for the fiscal year ended September 30, 2012. Dawson Geophysical Company disclaims any intention or obligation to revise any forward-looking statements, whether as a result of new information, future events or otherwise. During this conference call, we will make references to EBITDA, which is non-GAAP financial measure. A reconciliation of non-GAAP measure to the applicable GAAP measure can be found in our current earnings release, a copy of which is located on our website www.dawson3d.com. I would now like to turn the conference to Steve Jumper. Please go ahead.

[Stephen Jumper:]

Thank you, Jessica. Good morning and welcome to Dawson Geophysical Company’s fiscal third quarter earnings and operations call. Just gets in my name is Steve Jumper, Chairman, President and CEO of the company and joining me on the call today is Christina Hagan, Executive Vice President and Chief Financial Officer. We are do this call a little bit differently, instead of reading the press release I would refer you to the press release which was issued this morning and is available on our website www.dawson3d.com. I would run through a quick review of our financial highlights and give an operations update and then we will open the call up for questions. Call is scheduled for 30 minutes and as in the past we will not be providing any guidance. During our third quarter we reported revenues for the quarter ended June 30, 2013 increased to $75.647 million, compared 68.348 million in the quarter ended June 30, 2012. Revenues net of third party reimbursable charges increased 22% in the third fiscal quarter of 2013 compared to the third fiscal of 2013. Income from operations for the quarter ended June 30, 2013 increased to $6.8 million from $1.79 million for the quarter ended June 30, 2012. EBITDA for the quarter ended June 30, 2013 increased to $15.9 million, compared to $10.4 million for the quarter ended June 30, 2012 an increase of 53%. Net income for the quarter ended 30, 2013 increased to $4 million or $0.50 of earnings attributable to common shareholders compared to net income of $1.1 million or $0.14 of earnings attributable to common shareholders for the corresponding 2012 period. The revenue increase in the quarter ended June 30, 2013 from the comparative quarter of fiscal ‘12 was primarily results of improved current utilization rates and more favorable contract terms and increased crew productivity. Third quarter revenues were somewhat impacted by weather issues and lower utilization on several crews late in the quarter particularly our smaller channel count crew that we discussed in our second quarter release. Depreciation expense for the third quarter of fiscal ‘13 ended June 30 increased $900,000 compared to the same period in fiscal ‘12. On the nine months side, we reported revenues during the nine months period ended June 30, 2013 of $235.626 million compared to $246.276 million for the comparable nine month period of fiscal 2012. Net income for the nine months period ended June 30, 2013 increased to $13.2 million or $1.65 earnings attributable to common shareholders compared to net income of $9.9 million or $1.26 earnings attributable to common shareholders for the comparable nine month period of 2012, which included the effect of an $0.18 per share one-time tax benefit taken in the first quarter – first fiscal quarter of 2012 related transaction cost for terminator merger agreement. Excluding the impact of the one-time tax benefit in fiscal 2012 net income and earnings attributable to common shareholders increased 55% and 53% respectively. In the fiscal 2013 nine months period over the corresponding fiscal ‘12 period. EBITDA for nine months periods increased to $50.600 million compared to $38.9 million for the nine months period of fiscal ‘12, an increase of 30%. We ended the quarter with approximately $77 million of working capital, $60 million in cash and $15 million of debt. We have a current portfolio of projects in the Permian Basin of West Texas, South Texas, Kansas, Oklahoma, Pennsylvania, North Dakota, Utah, Mississippi, Nebraska and Colorado. And I would note that during the third fiscal quarter we completed two surface micro seismic projects and secured contracts for two additional projects to be completed in the third or fourth calendar quarter of 2013. Decrease in revenues for the nine months of fiscal 2013 results as compared to the nine months of fiscal 2012 is primarily result of a significant reduction in third party charges for services required were not provided directly by the company. The company is reimbursed for such charges by its clients, the reduction in third party revenues is results of the company’s continued operation in the Western U.S. Despite the impressive year-over-year growth project readiness and permit issues have continue to impact short-term utilization rates. We anticipate utilization on five crews to be temporarily impacted in the fourth fiscal quarter due to the same project readiness and permitting issues. Going forward in an order to better maximize assets utilization over the long-term, meet clients need and maintain strong returns, we’ve made a decision to take one large channel count crew out of service. This is one of our older based crews, our older equipments which quite honestly would be of great value particularly in the Eastern part of U.S., but it’s difficult to place this equipment into service these days. The temporary reduction in crew count will not inhibit our ability to meet client demands or service any of our existing or go forward projects. Demand for services across lower 48 remains somewhat steady and contract terms are favorable as we continue to serve our valued clients through all phases of the demand cycle from expiration to valuation to exploitation. As I said, going forward we’ll operate a total of 13 crews, 12 crews that we categorize as large channel count crews and one crew that we categorize as a small channel count crew the wireless RT 2,000 crew. We will maintain the personal and equipment necessary to redeploy large channel count crew as demand dictates. While project readiness and permit issues have impacted short term utilization rates in the first part of the fourth quarter, it is important to note that from a bid perspective activity appear to return to steady level. The typical summer slowdown in bid activity which we start during the tail end of third quarter in the beginning of the fourth fiscal quarter has since corrected itself and bid activity has returned to reasonable levels. As mentioned contract terms remained favorable and project activity is robust in the liquids rich and oil regions particularly the Permian Basin, South Texas, Kansas, Oklahoma, North Dakota and Nebraska and Colorado. As mentioned we completed two surface micro seismic projects during the quarter and have secured contracts for two additional projects to be completed in the third or fourth calendar quarter of 2013. We anticipate micro seismic services to be a growth opportunity going forward. Our order book reflects commitments sufficient to support ‘13 crews in the calendar ‘14. Of course as we have said in the past our contracts are cancelable can be delayed or modified in size on short notice, and our utilization can be impacted by project readiness and weather among other factors beyond our control. In Canada we anticipate operating one or two crews during the ‘13-14 winter season. We have submitted several tenders for projects in Canada and are confident we will be successful in securing contracts for the season, and believe the Canadian market to provide growth opportunities on a go forward basis as well. In closing, bid activity has picked up in the fourth quarter, request for proposals are coming in. And we believe we see growth prospects as we round up our fiscal ‘13 year and enter ‘14. We anticipate activity into ‘14 to be steady. Our company balance sheet remains strong and I am confident in our commitments, our employees, our clients and shareholders will bring new opportunities for expansion in growth. And with that Jessica, I believe we are ready for questions.

[Operator:]

(Operator Instructions) The first question comes from Marshal Adkins with Raymond James.

[Marshall Adkins:]

Good morning, Steve.

[Stephen Jumper:]

Hey, Marshall.

[Marshall Adkins:]

We’ve heard from a lot of our companies this last quarter had a lot of issues with weather particularly of North. But your utilization seems to have worked right through that. So help me to understand why it was such a good quarter in the phase of somewhat if – whether was it the new equipment you have or is it permitting was easier the bios actually forges vacation last quarter?

[Stephen Jumper:]

Well, actually he was here the whole time I was gone. So that may be more of a factor than anything else and I was expecting you to give me a comment on how well I’ve read by the way.

[Marshall Adkins:]

You are getting better every time.

[Stephen Jumper:]

I am getting better at it. Marshall we had some weather issues particularly in Oklahoma we had some rain in South Texas. I think there are several things that are in play. As we have said in the past, we do contract in various ways, some level of down time for weather protection tip, it’s zero margin fixed cost kind of stuff. And so, we’ve have some help there it’s been fair and reasonable on both sides of the table. We’ve also talked about our contract mix in the last or let’s say 12 to 18 months has been predominantly turnkey contracts. And while we operate under some day rate blended type agreements most of the work we do is turnkey. Which means that the more efficient and more productive we are on a daily basis the better chance we have to improve margins and I think at a crew level all of our crews have been performing at a very high level. I think our ability to get up and running after a weather delay has improved dramatically for variety of reasons. And so I think our ability to make up some loss time has greatly improved from where we were several years ago, partly because of the turnkey contract mix and partly because of where we’re operating. Productivity can be improved in the wide open spaces of the Western U.S. much easier than it can be in the access restricted portions of the Eastern U.S. You asked the question about the equipment and there is no question that the equipment base is making a significant difference. The cable-less equipment is less prone to down time issues related to weather and other operational issues that you face daily in the field. And so, we’re seeing great productivity levels on the cable-less equipment. But we are also seeing improvement in our cable equipment and that’s a direct result of having the cable-less equipment, because it allows us to put the right equipment in the right environment on the right project. And so in years where we would have had a cable crew at an area that might not be as conducive to cable we can put that cable-less equipment there and move the cable equipment into areas that will have certainly less exposure to some of those operational risk. And so, I think there is a combination of things at work there. It also leads to one of the issues of taking a crew out of service. We will maintain the RSR equipment, works well in the East, particularly in the Eastern part of the U.S. it’s going to struggle a little bit when you are in area that require high productivity levels like in the Western part of the U.S. And so it’s just difficult to find the right spot for that gear because the cable and cable-less equipment is doing so well. And so, if work in the Eastern part of the U.S. picks up again and we see some signs that it could then it would be easy to put some of that RSR gear back to work. But I think there is a variety of factors that are helping us, in our contact mix as we talked about in the second quarter, in the first quarter we have some contracts that has turnkey plus some early completion type of bonuses and our payouts related to productivity and quality and those types of things. And I think we’ve executed well on some of those. Micro seismic I think makes certainly helps offset some of those down time issues, it’s not a huge revenue business, but it’s a nice margin business that help to offset some of the down times. So I think there is a variety of factors.

[Marshall Adkins:]

All right. So maybe you had a lot of things there, how do you want to rehash what I heard just to make sure, it sounds like part of it is a little bit more turnkey in the mix, but helping with the turnkey is part geography where you work and or the new equipment and really it’s almost the ability to have the multiple types of equipments, so you put it in a right places. So does that, and weather won’t as big issue as may be it was for some of the other companies?

[Stephen Jumper:]

Yeah, I am not sure we did have quite a few crews that were down certainly in Oklahoma and like I said in South Texas. And so, we probably had two, three crews that were affected during the quarter, but I certainly wouldn’t have characterized this as a real difficult weather quarter for us.

[Marshall Adkins:]

Okay. One more from me, help us understand, it seems like your business is going to a bit of transformation you are doing of the micro seismic that’s going to or the economics similar there as they are on the other type jobs and as we do more and more of these shale plays what are clients using that for, are they using it to place the well bore more specifically or just help us to understand why they are using your services as strongly as they seem to be?

[Stephen Jumper:]

Are you talking about in particular to micro seismic or in general?

[Marshall Adkins:]

More in general on later question, but obviously getting the micro seismic too to help us understand what’s going on there?

[Stephen Jumper:]

I guess I would – this by saying that we’re not always privileged to the information that our E&P friends are privileged to. And so, we don’t always have all the correct answers. But I think in general from a surface conventional 3D standpoint. I still think we are a little bit may be in what I’ll call the evaluation phase of where there is probably the majority of it Marshall is being used for hazard avoidance. I think obviously drilling horizontal fracking is not simple, but it’s certainly becoming more common particularly here in the Permian Basin where more and more of these wells are switching from vertical type wells to horizontal type wells. I think there are more than isolated cases or situations where a well performance explanation has been somewhat clarified with the use of seismic information across the fall kind of crafting event or something that cause that lateral well-bore to get out of its prime zone. And so, we hear more and more that, I mean we wouldn’t have drilled that well in that particular spot had we had seismic data. Now that’s not a blanket case, but that’s generally what we hear. And I think this is just part of the cycle went through in the natural gas basins where we had the land rush, we’ve got the drilling rush and now people are little more concerned about locating the wells or cost of wells are going up. We can eliminate some of those bad wells if we eliminate one bad well we in essence paid for ourselves. I think there is a focus on returns that we’re all going through. And so from a geologic standpoint I think at this point we’re probably weighted more towards a geo hazard avoidance type tool. But we’re shooting things in the Western part of the U.S. that have much richer attributes in terms of density and spacing and all that full (inaudible) stuff that we’ve heard people talk about for years that’s easier to do in the Western part of the U.S. where you have more open access than it is in the Eastern part of the U.S. where access is determined by topography and other types of things. And so we’re shooting higher resolution surveys with richer attributes that are beginning to lead down the road of switching from geohazard to more raw fabric, raw metrics type analysis maybe we want to avoid this fall on the lateral it’s hard predict what is out there 5,000 to 7,000 feet we can avoid this fall. But this might be a more lucrative part of the shale based on attributes and how they relate to raw property. We don’t really have enough information on the analytical side and a database of information to really draw those analogies yet, but we’re building that. I think the same thing is happening in micro seismic. We are strictly involved on the surface side of the micro seismic business on the data acquisition side only. We are not in the bore-hole or we are not doing any data processing. So we are somewhat disconnected from the end user as to how they are actually utilizing that micro seismic data. But I think they’re continuing to gather information as to how far the frac moved, how far outer we’re getting, are there any attributes that we can tie back to surface or a bore-hole seismic information that help us design not necessarily the current frac but may the next one. That’s where I think we are Marshall.

[Marshall Adkins:]

That’s helpful, Steve. Thank you.

[Stephen Jumper:]

Thank you, Marshall.

[Operator:]

The next question comes from Rudy Hokanson with Barrington Research.

[Rudy Hokanson:]

Good morning, Steve.

[Stephen Jumper:]

Hey Rudy how are you?

[Rudy Hokanson:]

Fine, thank you. A few questions, I’ll give you the three questions, how you want to them or if you want to answer them. Can you may be talk about some of the key issues in contracts right now that are more favorable? Two, can you give us some feel going into the fourth quarter as to what the relative mix may be in terms of third-party revenue last year compared to what it might be this year just in terms of may be what amount in the fourth quarter last year was third party and what amount you think might be this year? And then third and you sort of guide into this, but I was just wondering when you do a micro seismic shoot is the revenue number related to micro seismic you said they are relatively small right now, but are they priced by surface or they priced by some kind of value add formula? Those are my three questions.

[Stephen Jumper:]

Okay, that’s a lot. Do I have the option of answering one or two out of three?

[Rudy Hokanson:]

You can do whatever you wanted to.

[Stephen Jumper:]

Well, let’s first start with the contract issue and as you are well aware I am always hesitant to talk deeply about contract issues particularly pricing. I think that our industry historically has been pushed for higher quality images and shorter cycle time more cost effectively. That’s not fast or cheap or better but it is. And I think our industry has always been pressed for that and I think we have adapted very well. I think the turnkey contracts, in general if you ask me where is pricing is it up, is it peak level I guess I am smart enough to answer that question, I can tell that pricing is reasonable. There may be in areas of the country spots of pricing issues. I think when you are looking at utilization rates across the industry some pricing issues should come into play so we will be watching that very closely. I think some of the things that are helping us from contract standpoint certainly is the turnkey contract particularly in the Western U.S. as I have iterated more than once probably getting repetitive. We do carry some level of downtime for weather it’s not always full coverage, it’s weather downtime is always a negotiable item nobody likes weather, we don’t like it, our E&P clients don’t like it and we have historically balanced the long-term relationship versus a dairy or weekly impact. But nonetheless I think there are some level of help there. I think we are providing more and more services in the Western part of the U.S. than we were able to do in the Eastern part of the U.S. I think when it comes to surveying services and permitting services I think while we continue to rely on our third party venders for support service and we will always rely on those folks, I think our ability to have more that in-house and more of that control has certainly helped. We have talked in the last few quarters about some contract mix and some incentive type contracts and I won’t go into details on those, but we’ve obviously had some of those. When you ask about third party and you are asking me to project fourth fiscal quarter of ‘13 to fourth fiscal quarter of ‘12. One, I am going to tell you that our third party charges as a percentage of revenue are running well below our historical averages and have been for the last three quarters. That’s several issues; primarily it’s the result that we are less dependent upon third parties in the Western U.S. particularly the more expensive items like helicopter support and dynamite. But we have had growth in our fee revenue at the crew level too and so as that increases you’ve got a two sided effect when it comes to percentage. I think compared to where we were in the fourth quarter of last year, I think from a dollar standpoint we are probably going to be fairly flat to where we were last year and I would anticipate the same on a percentage level obviously as we have said we have been extremely efficient in the first three quarters, we have got some permit issues and some delays coming. So we are going to be impacted in the fourth quarter, five crews with utilization issues which probably indicate that we are going to have reduced revenue for the quarter. And so with little bit of reduced overall revenue we are still going to be doing job prepping for projects in fiscal ‘14 Q1 and the Q2. And so, they could come up on a percentage certainly from where they are now. The micro seismic pricing is, we are new to this business, I think this is a new business all the way around, it’s not priced on any type of added value it’s priced very similar to the way we price conventional services, it’s either a turnkey contract flat rate or it may have a day rate mix to it, it’s a little bit different animal than what we have done in the past. So I think we are just starting to figure it out, it is a lower revenue item, but margins are pretty good on it. So it’s not a game changer for us yet, but it’s a nice offset piece of business.

[Rudy Hokanson:]

Thank you very much. You got all three in.

[Stephen Jumper:]

Well I always try to Rudy. I appreciate your help and your support. Thank you.

[Rudy Hokanson:]

Thank you.

[Operator:]

The next question comes from Georg Venturatos with Johnson Rice.

[Georg Venturatos:]

Hey good morning, Steve.

[Stephen Jumper:]

Hey Georg, how are you?

[Georg Venturatos:]

Good. Just wanted to touch on the customer demand side, obviously you mentioned you had some slight declines over the summer months, but those are clearing up, just wanted to see if you have seen any change in terms of demand from the size of the surveys as well as the density of those surveys? And then, I guess depending on your answer do you see the potential to kind of change the crew mix potentially in ‘14 in the sense of incorporating maybe more than one small crew to accomplish what you are seeing out there on the demand side?

[Stephen Jumper:]

Georg we have talked openly for quite sometime that we were not necessarily tied to crewed count of ‘14. I anticipate given what we know today and absent a serious increase in activity in the Eastern part of the U.S. related to natural gas. We keep thinking the natural gas is going to rebound, it hasn’t yet, it’s not terribly active in the Eastern part of the U.S. Absent some change there I anticipate 12 large ones and 1 small crew. I don’t anticipate having an additional small crew in terms of crew count growth, what I do see can happen is we continue to be in a situation going forward as we have in the past where we might take a 10,000 channel GSR crew for example and split them into two 5,000 channel crews and go do two project and then bring them back together. And so we’ll remain very fluid on keeping the six ARAM crews worth of equipment to six GSR crews worth of equipment and the wireless crew, keeping all those assets utilized at a higher rate as we possibly can. We do have some project readiness issues, this permitting issue in the U.S. is continues to be difficult, I think you will hear everybody talk about that. And it’s just our opinion right now that, that we are going to take this crew out of service until something changes in the Eastern part of the U.S. where it has been for most of the last let’s 12 to 18 months. So we are not going abandon that stuff and not be able to go back quickly we’ll keep those key personnel in place. We did see a slowdown in bid activity in June-July timeframe, it’s not unusual to have a slowdown that time of the year, might have been a little more slowdown than we have seen in recent years, could be people being out, could be budget cycle. I think it’s a combination of several thing, I think we had a pretty big rush at least we did in the early part of ‘13 with getting some projects out. We are starting to hear noises and people are making comments about projects they need to do to finish out the ‘13 budget cycle and into ‘14. And so, part of our utilization issue right now of five crews and dropping the one crew. Part of it is project readiness, that’s the majority of our issue, it’s probably not as much as demand related. I think demand continues to be pretty strong in the Permian of the Mississippi line, Kansas, Oklahoma border still got quite a bit of activity in South Texas. I think we’re seeing some uptick in places like North Dakota, interesting projects in Western Nebraska and Colorado and places like that. And so, I think there continues be some shale plays that are opening up not getting a whole lot of activity in the Utica come right now, which is kind of interesting, but Niobrara since be coming back. So we’ve added some nice projects in the third quarter not as many probably I think the comment I would make about the third quarter was we were probably not at replacement level, which we had been up to the third quarter. But we think we can catch up on that replacement level based on what we’re hearing in the fourth quarter and the first quarter of fiscal ‘14 which would be third for calendar quarter ‘13. Project size they continue to be fairly large. There was a time when a small one was 10 to 15 square miles, 20 square miles. I think we still see some of those. But a small one in today’s world maybe 50 to 70 square miles. And a lot of them are getting up in the 200 square mile region and those are nice to have, they’re harder to string back-to-back, they’re harder to get ready. And so what we’re – what I think we’ll continue to work on is seeking out those smaller projects that you can have already to go to continue to help with the utilization issue that we’re facing right now.

[Georg Venturatos:]

Great. And then just wanted to follow-up on the sulphuric seismic side. Apologies I missed this one, are the two new contracts are those kind of that in that same West Texas region as the two you completed this quarter? And then just from where you were from three months ago. I mean you got two more contracts for the back-half of this calendar year. Is that faster than you had expected, three months ago or is that kind of the pace of demand that you thought you’d got?

[Stephen Jumper:]

We’re seeing this as a nice opportunity. We’re going at this from several different angles. We made the hire last quarter, a gentleman in Denver that’s helping us with moving our micro seismic business forward. We got a gentleman here in our Midland office that works closely with him. And I think we’re building some nice relationships. I think it’s moving about like we anticipated. We think it could move little bit quicker. If you just think about the number of wells that are – horizontal wells that are being drilled and fracked and consider the number of wells that are drilled that are inline to be fracked. I think there is lot of opportunity. It works well for us, we understand the permitting, surveying and data acquisition part of the business very well. We do that very well, we’re not on the bore hole. We don’t know how to do that. We’re all in the analytical side processing side, the micro seismic business. And so we’re in the core part of our business which is very similar to what we do every day. You asked about the two projects. I am going to say that they are in the one is in the Northeast Texas and I believe one is in South Texas. And I am 95% sure I am correct on that. But generally I think that’s where they are. And what’s interesting about micro seismic as we move forward, it shale break different ways and things happen differently. And a shale is not a shale even though you may talk Eagle Ford and you may talk – you may talk different shales around the country, they all respond differently. And so part of our business is to first understand which shales are going to break to the point where we can actually hear them and get usable data from surface micro seismic. It may not work everywhere, it may work well in certain areas. And I think we’re as an industry trying to figure that out. I think we’re trying to figure out how that micro seismic tool relates to surface seismic and to bore hole micro seismic. And so this is an exciting part for us. It’s new to us, it’s fairly new to our industry and I guess cautiously optimistic is the right way to say it.

[Georg Venturatos:]

Got you. Great stuff. Thanks for the answer Steve.

[Stephen Jumper:]

Thanks, George.

[Operator:]

The next question comes from Jason Wrangler with Wunderlich Securities.

[Jason Wrangler:]

Good morning, Steve.

[Stephen Jumper:]

Hey, Jason. How are you?

[Jason Wrangler:]

Good. Thanks for the update so far. And really the only thing that I was curious about is obviously the CapEx spend this year you’re pretty much done with it for this fiscal year and you kind of indicated next year is probably going to be lower and obviously the balance sheet is in great shape. Do you have any sense of – are you going to be just stock piling more cash or any plans there to upgrade equipment or anything with just that use of the cash?

[Stephen Jumper:]

That’s a great Jason. And let’s just start with our CapEx this year. We made a significant spend early in the year. If you look at our I believe we are 47 million through the nine months. I am going to say 30 something, 30 plus million 35 million to that was knocked out in the first quarter. So we had a big cash spend back in Q1. And that was time for a variety of reasons. We anticipate CapEx in ‘14 to be down, we – given current conditions. We would love for the market to grow at a pace, gas prices improve in activity in the Eastern part of U.S. and improves. We hope we have to increase that CapEx. But our equipment base right now is at in as good condition as it has been as long as I’ve been involved here. And we got a nice mix of cable and cable-less. I think one of things that we probably did not explain to the market as well as we should have is that when we move from the Eastern part of the U.S. to the Western part of U.S. we had in addition to cable-less equipment, which is what everybody focus on the CapEx. We had to make significant investment in vibrators, vibrator energy sources. We didn’t have vibrators in the Eastern part of the U.S. for some crews and we had some older units that we had to replace. We’ve pretty well got them all outfit with vibrators. So going into ‘14 and you can call that a maintenance cap type thing. It’s probably not technically growth capital it’s probably maintenance. I think we’ve got another set of vibrators that we’re going to have to replace in ‘14 given where we are now. We’ve got some Canadian equipment that we’re going to have to add to our fleet. Thirdly based on what we’re seeing Canada we probably don’t have enough of certainly the multi component equipment. So we have to look at making some change there and maintenance capital levels are still pretty high. And so I would anticipate for us to have a smaller CapEx number in ‘14, but somewhat front loaded again. I could see us making the spend early in the year and certainly we would look at using cash and or some level of debt service to do that. I think we’re going to be in a position given market conditions as they are to continue generate cash I think we’re going to continue to look at growth opportunities first. I think we’ll continue to see if there is any – if there is technology if there is market opportunities that we need to look if there is other opportunities that might present themselves. We might need capital in the micro seismic side. If that grows we may have to make some adjustment there. So we’re going to watch that very closely. It’s not our intention to just sit here and build cash we are cyclical business. We’re almost a cyclical within a cyclical. And so things can turn we don’t anticipate that happening, but things can turn in very short order. But we’re going to continue to keep a strong balance sheet. And we will continue to examine a proper use of capital that’s in the best interest of our company, our clients and our shareholders all three and we’ll evaluate all those options as we always do on a go forward basis.

[Jason Wrangler:]

It’s good a problem to have, Steve. I appreciate the time. Thank you.

[Stephen Jumper:]

No, I know there is worst problems. So thank you, Jason.

[Operator:]

The next question comes from Veny Aleksandrov with FIG Partners.

[Veny Aleksandrov:]

Good Morning.

[Stephen Jumper:]

Good Morning, Veny.

[Veny Aleksandrov:]

Somehow I didn’t press the button for questions, but anyway. My question that is last Canada, you are saying that you might be operating quantity crews, what are you seeing right now compared to last year? Do you see more work available? You said that you already have some proposals?

[Stephen Jumper:]

You know, Jenny we have submitted a few tenders. We haven’t been successful yet in securing a contract. As we’ve said in the past, the competition in Canada is solid. There is a lot of solid companies out there with a lot of good relationships. And we’ve got a great brand name and a management team that we’re proud of, and we think that can do a great job, but we’re still somewhat the new kids on the block. So we are on more bid list. We are getting more tenders than we did at this time a year ago. This time a year ago we were somewhat off to a late start. We really didn’t get our management team in place until June. We really didn’t get a solid footing until later in the year, later than we anticipated. We have a better footing this year. We’ve gotten our necessary audits, safety audits and those types of things completed. So that opens up opportunities for us. We did completed projects very successfully last year. And so we’ve got that behind us, we are seeing more tenders. I am by no means my next heard on the Canadian market, but from what I understand that activity levels appear to be a little improved from where they were last year, probably not where they were a year before. So I’m anticipating, given what I know today and I will stress by no means an expert, the Canadian market will be somewhere between ‘11-12 and ‘12-13 type season. I think we’ve got some nice opportunities. We’ll just have to wait and see. As I have said in the past, we think it’s a long-term growth opportunity for us and we’ll continue to look at ways to penetrate that market. So we’re not going to take contracts here for the sake of taking contracts. We’re going to go out there and stress quality, build the reputation and try to be profitable along the way. And so, we’re – I still believe and are being told that there are contracts that come out early and then there is a late season flurry. And we kind of hope to be a part of both some of the early contracts that came out and the later, late season flurry of activity. I still don’t think that it’s, in the short-term that the Canadian market is a big game changer in terms of having a big bump in Q1, the one way or the other. I think we’re a ways away from doing that. And so, still want to focus on this thing more of a longer term issue.

[Veny Aleksandrov:]

Appreciate it. Thank you so much.

[Stephen Jumper:]

Thanks, Veny.

[Operator:]

With no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Steve Jumper for any closing remarks.

[Stephen Jumper:]

Alright, well thank you Jessica. Thank you for your help on the call. I would certainly like to thank all of you for participating in the call. I certainly want to thank our clients and our employees and our shareholders for their continued support and trust. I want to note that we will be presenting at the Intercom Oil & Gas Conference, August 12 in Denver and we have webcast of that I believe in late September early October we will be at the Jonson Riles Conference as well, would be giving a presentation. And thank you for your interest and we look forward to talking to you in 90 days. Thank you.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.