Earnings Transcript for DWSN - Q3 Fiscal Year 2020

Operator: [Operator instructions]

Unknown Executive: Please stand by. We're about to begin. 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 the 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 of 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, 2020 and any subsequent quarterly reports on Form 10-Q filed with the SEC.:

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 reconciliations of the non-GAAP measure to the applicable GAAP measure can be found in the current earnings release the 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, today's conference is being recorded. I would now like to turn the call over to Stephen Jumper, Chairman, President and CEO of Dawson Geophysical Company. Please go ahead, sir. :

Stephen C. Jumper: Well, thank you Anna. Good morning and welcome to Dawson Geophysical Company's third quarter 2020 earnings and operations conference call. As Anna 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. Before we begin the call with just a few items to cover. If you'd like to listen to a replay of today's call 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 is being done with today, Thursday, Oct 29-2020 and therefore you are 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 9 months ended September 30, 2020 financial results. For the third quarter ended June to September 30, 2020, the company reported revenues of 8.7 million compared to 37 million for the quarter ended September 30 2019 so the third quarter of 2020, the company reported net loss of 7.8 million or $0.33 loss per common share compared to net income of 2 million or $0.09 per common share for the third quarter of 2019. The company reported negative EBITDA of $3.8 million for the quarter ended September 30, 2020 compared to positive EBITDA of $7.2 million for the quarter ended September 30 2019. The 9 months ended September 30, 2020, the company reported revenues of $77.2 million compared to $112.2 million for the 9 months ended September 30 2019.:

The 9 months ended September 30, 2020 the company reported a net loss of $5.3 million or $0.23 loss per common share compared to a net loss of $9.4 million or $0.41 loss per common share for the 9 months ended September 30, 2019. The company reported EBITDA of $7.8 million for the 9 months ended September 30, 2020 compared to EBITDA of $7 million for the 9 months ended September 30, 2019.:

During the third quarter of 2020, the company operated one data acquisition crews with periods of low utilization. The one crew will then active for the latter part of the third quarter and into the fourth quarter. Right-on currently available information, the company anticipates operating one crew with periods of yield of low utilization for the foreseeable future in the United States and up to 2 crews in Canada for the winter season and the late fourth quarter of 2020, in the first quarter of 2021. I will now turn control of the call over to Jim Brata who will review the financial results and I will return with some final remarks. And our outlook into the fourth quarter of 2020 in third quarter of 21. Go ahead, Jim. :

James Brata: Thank you, Steve and good morning. Revenues for the third quarter of 2020 were 8.7 million, a decrease of approximately 76% compared to 37 million for the quarter ended September 30, 2019. As stated in our earnings release issued this morning. During the third quarter of 2020. The Company operated one data acquisition crew with periods of low utilization. The one crew was an after for the latter part of the third quarter and into the fourth quarter. Based on currently available information, the company anticipates operating one crew with periods of low utilization for the foreseeable future. In the US and up to 2 crews in Canada for the winter season in the late fourth quarter of 2020 and the first quarter of 2021. Cost of services in the third quarter of 2020 were 9.4 million, a decrease of 63.7% compared to 26 million in the same quarter of 2019. General and administrative expenses were 3.3 million in the third quarter of 2020, a decrease of 13.9% compared to $3.8 million in the third quarter of 2019. Depreciation and Amortization expense in the third quarter of 2020 was $4.1 million, a decrease of 21.2% compared to $5.2 million in the same quarter of 2019. Net loss for the third quarter of 2020 was $7.8 million or $0.33 loss per share compared to net income of $2 million or $0.09 per share in the third quarter of 2019.

EBITDA in the third quarter of 2020 was negative $3.8 million compared to positive EBITDA of $7.2 million in the same period of 2019. An EBITDA reconciliation was provided in our earnings release issued this morning. Now, I'll highlight some results for the 9 months ended September 30, 2020.:

Revenues for the 9 months ended September 30, 2020 was $77.2 million, a decrease of approximately 31% compared to $112.2 million for the 9 months ended September 30, 2019, also services for the first 9 months of 2020 was $58.2 million, a decrease of approximately 37% compared to $92.2 million during the same period of 2019.:

General and administrative expenses were $11.2 million for the first 9 months of 2020, a decrease of 60.3% compared to $13.4 million for the 9 months ended September 30, 2019. Depreciation and amortization expense for the 9 months ended September 30, 2020 was $13.4 million, a decrease of 19.4% compared to $16.6 million in the same period a year ago.:

Net loss for the 9 months ended September 30, 2020 was $5.3 million or $0.23 loss per share compared to a net loss of $9.4 million or $0.41 loss per share for the 9 months ended September 30, 2019. EBITDA for the first 9 months of 2020 was $7.8 million compared to EBITDA of $7 million in the same period of 2019. An EBITDA reconciliation was provided in our earnings release issued this morning, and now I'll highlight some balance sheet items.:

Our balance sheet continues to remain strong as of September 30, 2020, we had debt including obligations on the financing leases of approximately $266,000 cash and cash equivalents of $45.4 million. Our current ratio was 9.9 to 1, and working capital was approximately 54.8 million and with that I'll turn the call back to Steve for some comments on our operations. :

Stephen C. Jumper: Well, thank you Jim. Reduced demand for oil and gas, resulting primarily from the worldwide COVID-19 boost economic shut down negatively impacted our third quarter operations. Project uncertainties remain high and have led to a substantial reduction in demand for our services going forward. I mean they companies we serve have significantly reduced our capital spending plans for the remainder of 20 and into 2021. Request for proposals for sizing services continue to kind of flowing both the United States and Canada as well as worldwide. While oil prices remaining 40 price per barrel range, I would note that it's down to below 36 today with a strong likelihood of remaining there through the remainder of 2020 that will energy analysts are forecasting meaningful improvements in both oil and natural gas prices in 2021.

Despite current challenges the oil service industry is beginning to experience slight improvements in some areas that include an increase in the number of active rigs and hydraulic fracturing crews deployed in the US. In addition, there has been a recent surge in merger and acquisition activity within the oil and gas exploration and production sector of which the impact upon oil service activities yet to be determined. This recent activity does indicate E&P companies will continue their focus on shareholder return and disciplined capital spending as they seek to develop and for those will increase the efficiencies by drilling more robust locations. As in the most recent down cycles, we anticipate recovery in seismic data acquisition to somewhat lagged behind. Increases in drilling and completion activities. And despite these difficult conditions, we are maintaining our focus on cost saving measures while balancing the ability to respond rapidly when market conditions improve.:

As reported in our previous press releases this year, we have taken steps to outsource several ancillary services. These steps include permitting and surveying has example and have resulted in reduced salary cost and lower general and administrative expenses. Moreover, and as also going forward in our second quarter of 2020 earnings press release, the company anticipates approximately 4.30 annual cost savings as a result of previously enacted cost saving measures and expenditures for the for the third quarter in the first 9 months of 2020 were 58,000 and 2.8 million respectively, primarily for maintenance capital items. As James pointed out earlier, the company's balance sheet remained strong with 45.4 million of cash and cash equivalents in 54.8 million of working capital as of September 30, 2020. The company is nearly debt free having notes and payable and finance leases totaling 266,000 as of September 30, 2020. The current downturn in the oil and gas industry is will most difficult periods I've experienced, not 35 years in the industry, reduce commodity price has triggered by the COVID 19 pandemic an oversupplied oil market continue to weigh on our operations and will likely remain so through the end of the year in the 2021.:

That said, we are well situated at the, the current downturn of their cost-cutting measures, strong balance sheet and invest in the state of the art equipment in years past, has positioned for a strong recovery want the market turn, we continue to believe as we E&P company focused on returns as opposed to grow the use of high-resolution seismic data should play an important role in achieving that goal. As noted in our previous press releases. I want to thank all of our hard working employees, our valued clients and shareholders during these challenging and with that I believe we are ready to open the call up for questions. :

Operator: We will now take a question from John Potratz with Researched Investments.

John Potratz;Researched Investments;President: I was wondering with this downturn, the key thing I think is keeping the crews available for future work. You mentioned about some cost-cutting techniques to give and working on have that cost getting working people also may be resulted in the ability to keep 2 important crews as well as maybe finding new ways to be more efficient during the operations seismic work.

Stephen C. Jumper: John, thank you for the question and as always thank you for your support. I believe your question basically revolves around our ability to deploy crews as needed. If not if when via an uptick in activity occurs and are we doing some things to continue to improve the efficiency part of the operation is it, do I have that paraphrase fairly do.

John Potratz;Researched Investments;President: Key thing is improve the efficiency because as you're cutting back in, you can quite often get together people get together and I think we need to do something different and you can identify what needs to be done more efficiently and so when change does come and we get new contracts you able to go out there and be much more efficient in a field.

Stephen C. Jumper: Let me address that with a couple of comments first of all, it has been a very difficult year, we're not the only company industry sector that had a difficult year with regards to this impact of this COVID-19 shutdown It's been painful, we've lost a lot of good people, a lot of good friends that had been with our Company and others that we work with in terms of clients, and so it has been very painful and I appreciate your comments about that.

I think our people have responded very well the morale remains surprisingly very high. I think that's a tribute to the history of our company and the type of people that we have employed here at Dawson and so I just want to put a shout out to those folks that we're very proud of and have worked very hard to not just put us in this position but help us work through this difficult time.:

We are maintaining key personnel. We have talked in the past several maybe years about the, what the seismic industry looks like going forward and that has been trend of fewer crews in higher channel count for a crew. We believe that trend will continue. Although we in times like this, you will continue to get some projects that are quite a bit smaller in nature and that's okay we know how to handle those but generally speaking the projects that we're seeing are higher channel count lower crew count going forward.:

And so when the channel count moves upwards. The number of personnel. It takes to operate that crew does not move linearly with channel count and so I think one of the things that we have looked at going back really into 2018 and 19 is being able to structure the company in a way going forward, it looks like what our anticipated capacity to be and so on anticipated to be -- I think we've done that very well. I think we believe from a key personnel standpoint in relationships that we have within the industry, that we'll be able to respond very quickly and adequately. With regard to the efficiency part of the operation, I think we have shown or have discussed in the last year or 18 months about some of the things that we're doing operationally in terms of getting a project on the -- started sooner, the biggest delay, we continue to have revolves around the permitting process. Just getting the necessary access agreements in place, but with higher channel count, more -- surveys and utilization of more energy sources, I think we are poised to do very well with -- from an efficiency standpoint, not just from a productivity standpoint, that's from a financial efficiency standpoint, which we were able to demonstrate in the first half of 2020.:

And I hope that answers the question John. :

John Potratz;Researched Investments;President: It does give me a sense that you've taken readjusted the organization to be much more cost effective and efficient and that's really very good. And also want to acknowledge the fact in terms of trying to get people motivated and working to realize it, you're willing to take -- you're willing to take a salary cut that part of that to make the organization survive and do well. I think a theory -- great in your part. Have you done the same thing with other higher level managers at the corporate headquarters?

Stephen C. Jumper: We have. There were some salary reductions that were announced back -- I believe in about the April time frame that were corporate wide -- at a certain level of compensation and above. And so we have people in our organization and inside our industry and I would say all across service sector, but understand the cyclical nature of our business. And so I think people understand that sometimes in difficult times, there are sacrifices that need to be made in -- made by the individuals in the families, as well as the corporation. And I think the response to their corporate-wide has been very positive. It's painful. But it's very positive and I appreciate your comments is, it's certainly at difficult times, but it gives me an opportunity to publicly thank all those inside our operation in our company that are sacrificing and in trying to do all they can do from an operational cost savings measure whatever they can to see us through this difficult time and return value to our shareholders over the long run.

John Potratz;Researched Investments;President: Right. I worked with them 40 years ago, I worked in some lowered operations in the Commonwealth of Massachusetts, what we had to take and reduced the cost materially keep in operation in the thing when we work together with everyone else you can achieve in so many efficiencies you didn't do before, you can be so surprised and very happy and I think you are on the path to achieving same types of things, and I thank you very much Stephen. The other thing that you're mentioned here there then TGS worldwide. I've signed a contract to do some business in the Powder River Basin. And you had been, you have done work for them in the past, were you able to talk to them and get their contract to do some physical work for them.

Stephen C. Jumper: Well, John. Appreciate that I can't publicly, talk about the contract situations or any type of negotiations that may or may not be going on that, I will do work for TGS obviously we have in the past and there are very large company, they do quite a bit of work in the Lower 48 they one of the many high-quality good multi-client companies that we work with. And so, it's always a positive when you see some projects are getting out there and getting some legs on and getting started, so we certainly see that as a positive for the lower 48.

John Potratz;Researched Investments;President: The deposit [indiscernible] nothing that you can really talk about at that point. And I guess [indiscernible] you mentioned the use of high-resolution type of data as it been enough significant improvement in the seismic data that you go that's it. Is that have already been he's done years ago might result in new contracts before for your seismic activity. So are you going to work out there in the field.

Stephen C. Jumper: We certainly think so, and we certainly can. I think we can point to a few examples certainly in them in the Permian Basin, where we have gone back in recent time for higher channel more advanced surveys over legacy data that has just been able to give much more clarity in terms of rock properties and rock fabric and those types of things and so if you look at the amount of data that is recorded today compared to what we were doing, let's say the last time the Permian Basin is really active, which was in the mid-'90s. I don't know the numbers probably 100 times more sampling and more energy and more data that is collected. So we certainly believe and historically have been able to show that new vintage seismic data certainly more advantageous, more clarity, higher resolution, and so, yes, we're optimistic. We are certainly in a very difficult situation in terms of capital spending. So we don't see anything that's going to happen in the near term, but certainly, we think over time that will be the transit.

John Potratz;Researched Investments;President: You turn to get more data that you do add a lot of value to your clients by going out again, but they're not really spending the money. But if they do, they can really find a lot more data out there about the oil and gas, particularly in the Permian Basin. Is that correct.?

Stephen C. Jumper: Yes.

Operator: There are no further questions at this time. [Operator Instructions] We'll take a question from Michael Melby with Gate City Capital Management.

Michael Melby: I was hoping you could expand on I guess the conversations you're having with either multi-client or the E&P company, how those might be progressing with those 2 separate group of customers?

Stephen C. Jumper: Okay. Thank you, Mike. I think we continue to have conversations with both multi-client and E& P. We do have some projects in the works coming out that are here in the US as well as in Canada that are primarily for an E&P company direct. We have some conversation going on right now. I will emphasize that request continue to be slow. So we are having some conversation ended 21 with direct with the couple of E&P with regards to some projects, I think there, they're fairly significant projects and then of course we continue to have conversations with the multi-client groups. And so in the last couple of years we've primarily been working for the multi-client companies. I think we'll continue to see multi-client data to be a, a big part of our operation going forward, but in terms of flipped out there in conversation. It's probably a 50-50 split that now Mark.

Michael Melby: Got it. And you mentioned consolidation within the energy services space talk about to get your thoughts on potential consolidation within the seismic space. These are possibilities going forward.

Stephen C. Jumper: Well, as the M&A activity that we're referencing is more on the E&P side with couple of the recent announcements that have been made, WPX Conoco Concho Chevron those types of things. Of course we had Pioneer Parker partially and the OSFI Anadarko thing last year and so it will be interesting to see what happens with those combinations, how those effect the seismic space, I think will revolve mainly around the multi-client groups in some of their license agreements and who has data ware and who may need data going forward, which is that it could be a good positive for us in terms of what I see going on in the seismic space, I don't see a whole lot right now that, I would not anticipate a whole lot of things in the seismic space in the near future.

Operator: It appears there are no further -- I'm sorry, actually we do have [ John Reed ]

Unknown Analyst: Mentioning the consolidation within in C&G sector. My sense is when companies are combined together they focus on just trying to get the organization together, it's very hard for them to sort of reach out and do the work and every, my sense is, they're not going to work on the seismic until they get their organization to get them to figure out where the goals and objectives are if you find that that's in the those mergers occur it's sort of business dropped off for a while. And then once they really get refocused on their future they come back to you and say, hey Jumper we need to get to work.

Stephen C. Jumper: You know, it's all different ways. I mean we've been involved in or not been involved but we've watched some M&A activity that kind of accelerated our activity level fairly quickly and then we've been in situations where the M&A activity does slow down overall service activity, I think more so in this case the driving factor in the times we're in, it's just the capital spending levels that companies have and their focus on returns. I think in our press release, we have mentioned and in this call and I believe in the last few downturns, what we've seen. While there has been M&A activity or not.

What we have seen has been seismic activity to be a lag somewhat behind other activity such as drilling and the completions. I think we're starting to see slight increases not, it's not gangbusters stretch of imagination. We're starting to see some slight increases in overall drilling activity rig count up a little bit, the number of frac crews operating is certainly up a little bit. And so we're starting to see some of that activity and so I don't know, I don't really have an answer for you will have to wait and see how this thing settles out as I said earlier, these, these things tend to work out in the seismic space more so on the multi-client side is evaluate what they do, they have Korean post merger and what day to day they may need to go ahead in license internet and lead to Smith an additional activity that I would not anticipate any material changes in our business. Short term related to any of the M&A activity. :

Operator: And there are no further questions at this time, I'd like to turn the conference back over to our presenters for any additional or closing remarks.

Stephen C. Jumper: Well, thank you and I want to thank everybody for taking the time to Join in on our third quarter 2020 earnings and Operations Update Call. I think we lay out of very clear understanding of where we are in terms of activity level and some of the headwinds that we're facing in not distant future.

I want to thank our valued clients for their continued support and want to thank our shareholders for your continued support and really want to take this opportunity to thank our employees for their extreme dedication to the company and to our clients and our shareholders and wish everybody a wonderful holiday season stay safe and COVID free and we'll talk to you here in about 90 days. Thank you. :

Operator: And once again that does conclude today's conference. And we thank you all for your participation, you may now disconnect.