Earnings Labs

Dawson Geophysical Company (DWSN)

Q3 2011 Earnings Call· Tue, Jul 26, 2011

$3.55

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Transcript

Operator

Operator

Good morning. My name is (Tiffany) and I will be your conference operator today. At this time, I would like to welcome everyone to the Dawson Geophysical Third Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) I would now like to turn the conference over to Steve Jumper. Please go ahead sir. Steve Jumper – President and Chief Executive Officer: Well, thank you, Tiffany. Good morning and welcome to Dawson Geophysical Company’s third quarter 2011 earnings and operations conference call. As Tiffany said, my name is Steve Jumper, President and CEO of the company. Joining me on the call are Christina Hagan, Executive Vice President and Chief Financial Officer; Decker Dawson, Chairman and Founder of the company; and Ray Tobias, Executive Vice President and Chief Operating Officer. Today’s call will be presented in three segments. Following opening remarks, Chris will discuss our financial results. I will then return for an operations update, then open the call for questions. The call is scheduled for 30 minutes and we will not provide any guidance as we have done in the past. At this point, I will turn control of the call over to Chris Hagan, our CFO to discuss our financial results. Chris Hagan – Executive Vice President and Chief Financial Officer: Thank you, Steve. During this conference call, we 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 our current earnings release, a copy of which is located on our website, www.dawson3d.com. As you know, Dawson and TGC Industries have entered into a definitive merger agreement in which subject to the terms and conditions set…

Steve Jumper

Analyst

Good morning, Collin. Collin Gerry – Raymond James: How you are doing?

Steve Jumper

Analyst

Doing good. How are you? Collin Gerry – Raymond James: Excellent. Well, I want to focus in on some of you mentioned in your press release and you also said it on the call. You mentioned the word tremendous upside and that sounds bullish from you and knowing you in the past, I haven’t heard you talk like that. So, you speak of that in terms of efficiency gains and margins improvements for the potential going forward. I wonder if you can just maybe walk us through specifically what that means. I mean is it less downtime in between jobs, as it more accrued utilization on jobs. Like what are the specific mechanical issues that gets you there?

Steve Jumper

Analyst

Well, Collin, first I would comment that what gives me a lot of excitement about the potential going forward it just the strength of the demand out there. It seems to be increasing and we have opened up these oil shales and we are opened up regions that quite honestly we have been talking about it for several quarters now that there is some upside in the western oil shales just based on the fact that they will go more vibrator, they will go less dynamite as a general rule of land ownership positions are much larger. So, the permitting issues while still difficult are not what you would face in the eastern part of the U.S. particularly in the natural gas shale plays, where you’ve got land ownership positions that are very small, lot of permits to get and lot of difficulty in getting those permits. We are going to still have activity in those regions, but the mid-comment to the Western U.S., we can just see some real efficiencies and improvement coming just from a daily production level, which somewhat softens a little bit on the pricing issue. You have as a general rule you are going to have somewhat less exposure to weather. That’s not always going to be a true statement, but as a general rule the weather downtime should be less. So, the fact that the order book is strengthening, we are getting projects in-house. There are various sizes. The mobilization is back and forth across the country. The peer volumes are going to reduce and we are in areas where we are using vibrators we can use crew efficiencies. We have brought the two oil systems on the fully utilized and higher channel counts. We are understanding how to utilize that equipment better and…

Steve Jumper

Analyst

Well, we are operating about the 160,000 channels and we have got spread over 14 operating units right now. And of course, we have talked about this in the past that crew counts not necessarily going to be the measure going forward, it’s going to be more channel count utilization. But we are operating one, if you go back in time, I would say, that we’ve seen increases on average of 2,000 per crew up to an average of 7,000 to 8,000 over a 15-year period. We currently have about 18,000 channels on a I cable-based system. We have II cable-based systems that are about 10,000 or 11,000. We have a couple of RSR crews that are 9,000 or 10,000. We’ve got 14,000 on one OYO crew. We’ve got 10,000 on another OYO crew. So, as we have talked about in the past, I just don’t see any change in channel count demand other than it’s going to continue to go up. Now, with increased channel count column, you bring into play increased efficiencies, better crew days, and there is a balance or a shift in the type of work you are doing. You are going to more channels and more energy sources per square mile. You are getting denser surveys. You are getting higher resolution and you are providing a better product. There is value-added there. There is upside to the crew efficiencies. But handling large channel count continues to be an issue in your industry that I think we are all learning how to do. You are either dealing with a whole lot of wire on the ground which you can have good days and you can have bad days with the wire or you’re handling an awful lot of cable-less equipment that presents a logistical data management…

Operator

Operator

Your next question is from the line of Veny Aleksandrov of Pritchard Capital Partners. Veny Aleksandrov – Pritchard Capital Partners: Good morning.

Steve Jumper

Analyst

Good morning, Veny. How are you doing? Veny Aleksandrov – Pritchard Capital Partners: I’m good. How are you doing?

Steve Jumper

Analyst

I’m doing fine. Thank you. Veny Aleksandrov – Pritchard Capital Partners: I have a question based on the number of crews and the new crews that you guys deployed. Now you have 14 and the channel count equate, but if in two months, three months you have 16 projects at the same time, do you still have enough people to deploy more crews?

Steve Jumper

Analyst

Veny, we took the channel count on the cable based equipment that we had working in South Texas. If you recall in our last quarter we talked about replacing the equipment in East Texas and oil system when we replace some equipment in South Texas on the oil equipment. So that freed up quite a bit of cable based equipment which we then turned around and redeployed on two additional crews and dispersed some of that equipment out to the other cable based systems. I don’t see an expansion in crew count other than temporary expansions which would be utilization of idle equipment. Our channel count usage is very fluid and so we can move equipment from crew to crew. We can upsize a crew from 5000 to 10,000 channels and downsize it back to 7. We’re very diligent on trying to mange the entire asset base particularly in terms of channel count energy sources. And those assets will be deployed across various platforms where its 14 crews or 15 or 13 as we move forward. And there maybe situations where we combine two to get channel count up to get a project down or there maybe times that we split a 10,000 channel crew to get two 5000 channels. So, I think we’re going to be in a very solid position here to meet what we see as a demand of our services or our order book as it sits right now going forward. Something big happens and something changes as always we’ll react to that. But I think from an equipment standpoint, on a order position we can manage our order book quite well going forward. Veny Aleksandrov – Pritchard Capital Partners: Thank you. And then I don’t know if I have the question for Dawson, but out of the 14 crews working right now, you mentioned that you have backlog with old pricing. Do you know how many of the 14 crews are still working on the contract without pricing?

Steve Jumper

Analyst

Well, we’ve got one certainly right now that work on a project that was priced mid early part of 2010. It’s been delayed by some weather issues back in the winter time. And of course, they are experiencing some weather trouble right now, where they are working. And then we have got a couple of more projects that are not of any grand scale that I am terribly worried about. We’ve got some smaller ones that we are going to need to get but – and finish up. But I believe by the end of the year, we should be through these projects that are difficult on as we do have the one right now that is difficult, but will get it done. Way the issue going forward is with fuel cost rising a little bit and from where they have been and the amount of equipment we are handling, there is still quite a bit of work to do in terms of gaining efficiencies and getting back to where we were in the 2007-2008 range, but I certainly think or feel like it’s within time. It is achievable I should say. Veny Aleksandrov – Pritchard Capital Partners: Thank you. It seems like we are on the right track. Thank you. I really appreciate it.

Steve Jumper

Analyst

Thank you, Veny.

Operator

Operator

(Operator Instructions) Your next question is from the line of Rajen Shah of (indiscernible).

Unidentified Analyst

Analyst

Hi, good morning.

Steve Jumper

Analyst

Good morning.

Unidentified Analyst

Analyst

Just wanted to get an update on the deal, I wasn’t sure if you mentioned it earlier on, so just wanted to find out where the secondary request kind of stood the proxies said that you are expecting the deal to close also end of this quarter. Is there any kind of guidance for that? So, are you expecting the deal to close by the end of September?

Steve Jumper

Analyst

No, we are still in the HSR review. It’s ongoing and we are responding to the government’s questions. And we are working through the SEC process. And as the merger agreements says we haven’t working towards closing this thing for getting the meeting later in August, but that’s really only comment I can make on at this time.

Unidentified Analyst

Analyst

Okay. So is the – that the process, the HSR process is it moving forward? Is there any kind of hurdles that you kind of see or this is more kind of procedural?

Steve Jumper

Analyst

All I can comment on is that the process is continuing and ongoing and we are responding to the government’s questions.

Unidentified Analyst

Analyst

Okay. Just one last point, I know that there is significant shareholder hurdle of 80%. And so have you noticed any kind of shareholder dissent that would prevent this deal from being completed, if all of the approvals are in place on the other price side?

Steve Jumper

Analyst

I don’t think I am in a position to comment on that.

Unidentified Analyst

Analyst

Okay. Fair enough. Thank you very much.

Operator

Operator

There are no further questions at this time. Presenters do you have any closing remarks. Steve Jumper – President and Chief Executive Officer: Yes, Tiffany. I would just like to thank everyone for listening in to the conference call. Once again, I would like to comment that we are extremely proud of our employees who have worked diligently over the last two years and persevered this downturn. We are extremely grateful to them and will remain loyal to them. I want to thank our clients for their continued support and trust and the relationships we have built and I want to thank our shareholders for their continued support. We are optimistic. We are pleased about where we are and we are optimistic about the future of our industry, the future of the business particularly in the lower 48. We are excited about our company and our proposed merger with TGC. Our industry has done a lot of good work. We still have a lot of work left to do and still improvement to come forward, but we are excited about it. We will be presenting I believe in August at the oil and gas conference in Denver, the EnerCom Oil & Gas Conference. So, there will be a webcast of that presentation. I believe it’s on August 14 or 15, something like that. And with that, I will close the call and look forward to hearing from all of you again in 90 days. Thank you.

Operator

Operator

This concludes today’s conference call. You may now disconnect.