Dawson Geophysical Company (ticker: DWSN) is a leading provider of U.S. onshore seismic data acquisition services in the lower 48 states of the United States. Founded in 1952, Dawson acquires and processes 2-D, 3-D and multi-component seismic data solely for its clients, ranging from major oil and gas companies to independent oil and gas operators, as well as providers of multi-client data libraries.
Dawson released its fiscal 2013 earnings on November 13, 2013. While the company reported revenues of $305.3 million compared to revenue of $319.3 million, Dawson Geophysical did report a 10% increase in revenues net of third party charges. Third-party charges are related to the Company’s use of helicopter support services, specialized survey technologies and dynamite energy sources in areas of limited access. The Company is reimbursed for these expenses by its clients. The decline in third-party charges is primarily a result of the Company’s movement of operations toward the more open terrain of the western United States.
Net income was roughly $10.5 million ($1.31 per share) compared to roughly $11.1 million ($1.40 per share) in 2012. Income from 2013 operations increased 22% to $20.2 million from $16.6 million. EBITDA rose 15% to $57.3 million compared to $49.6 million in 2012.
For Q4’13, the company reported revenues of $69.7 million and a net loss of $2.8 million ($0.35 per share).
Dawson’s balance sheet consists of $79 million of working capital, $13 million of debt, $76 million of cash and cash equivalents and short-term investments, and $115 million of retained earnings. An additional $20 million is available under its undrawn revolving line of credit.
Increased Efficiencies to Drive Growth Opportunities
Increased efficiencies, combined with lower utilization rates, had a negative impact on Dawson’s Q4 results. However, management believes that the efficiencies being generated are creating unique opportunities for increased project workloads. As the company manages project readiness issues more effectively, early project completions may allow Dawson Geophysical to take on more projects, do more work and further grow market share and improve contract terms. Management noted on its Q3 conference call that they believe that the circumstances that negatively impacted the July through October period will be resolved in the first fiscal quarter of 2014.
Utilization Rates Expected to Rise
Lower utilization rates in Q4’13 were primarily due to weather delays, permit issues and soft bidding activity. Management, however, believes that the recent permitting delays and soft bidding activity is starting to ebb as an increase in request for proposals are leading to greater growth opportunities in fiscal Q1 and into calendar year 2014.
DWSN spent approximately $50.1 million in fiscal 2013 on technology upgrades, including Geospace GSX units, recording systems and energy source units. The capital budget for 2014 is anticipated to be $35 million, and Dawson intends to use the industry’s latest technology to maintain its position as a leader in the seismic field. The Company anticipates financing its recent purchase of more than 21,000 units of GSX equipment with a mixture of cash and debt.
The equivalent of eight crews operated in Q4’13 and into Q1’14 and DWSN expects to utilize its full fleet of 12 large crews in addition to the small crew in Canada by the middle of Q1’14. In its conference call, Dawson mentioned the order book for all of its crews is full until Q2’14, and work flow was described as “steady.” For future seasonal problems, Dawson said although the improved efficiency benefits its clients and improves margins, being able to accurately right-size its crews for 2014 will be an ongoing goal.
The order book contains projects primarily in oil and liquids-rich basins such as the Bakken, Niobrara, Mississippi Lime, Permian, Eagle Ford and Marcellus Shale areas. In addition, the Company’s wholly-owned subsidiary, Dawson Seismic Services ULC, has been awarded two multi-component projects in Canada. The Company anticipates operating one crew in Canada on two projects for part of the winter season, and looks to establish its presence and gain exposure in the market.
Oil & Gas 360® compiled a few paragraphs from research analysts who wrote on Dawson Geophysical following the announcement. OAG360 suggests that you contact the analyst and/or salesperson to receive a complete copy of the report. Please read the important disclosures at the end of this note.
Johnson Rice & Company Morning Energy Call – 11.13.13
• Dawson reported a fiscal 4Q13 loss per share of ($0.35), below our estimate of ($0.15) and cons of ($0.08). Operationally, higher G&A offset better-than-expected topline while a lower-than-expected tax rate drove the majority of the remaining variance (- $0.15). Following a difficult 4Q13 that operated an average of 8 crews, Dawson noted improved activity levels and order book strength with expectations to return to full utilization of 12 large channel crews and one crew in Canada by mid-1Q14.
• Dawson reported revenue of $69.7 million, compared to our estimate of $65 million, which decreased 8% sequentially vs. 3Q13 revenue of $76 million. Gross margin was 14.3% vs. our estimate of 15%, decreasing 1,100 bps sequentially compared to 2Q13 gross margins of 25.3%.
• As previously disclosed in Dawson’s operational update in September, 4Q13 results were negatively impacted by lower utilization rates as a result of project readiness issues, weather delays, land permit access and softness in bid activity levels. As a result, DWSN operated 8 crews during 4Q13 as we had anticipated. Looking forward, management reiterated its capacity for 12 large channel count crews and one small crew to be utilized on smaller 2D/3D projects as well as microseismic projects.
• Outlook – Dawson anticipates returning to full utilization with 12 large channel crews in the US and one crew in Canada by the middle of fiscal 1Q14. DWSN noted increased request for proposal activity in early 4Q13 with current bid activity and order book strength likely to result in a return to higher utilization going forward. The order book, which has commitments for full utilization into mid fiscal ’14, remains liquids driven in the Bakken, Niobrara, Miss Lime, Permian and Eagle Ford.
• Dawson Seismic Services has been awarded two multi-component projects in Canada and management expects to operate one crew in Canada on two projects for a portion of the winter season. DWSN noted the Canadian winter season appears softer than initially expected, but the region remains a long-term growth opportunity for the company.
• After spending $50mm in capex in fiscal ’13, Dawson reiterated an initial capital budget of $35mm for fiscal ’14. We note this includes the recent purchase for 9,000 stations of 3-channel GSX wireless with Geospace which Dawson expected to represent the largest order within the company’s currently approved budget for fiscal ’14.
Capital One Southcoast Morning Energy Summary – 11.13.13
Negative qtr, but outlook still intact. Fiscal 4Q EPS of -35c vs our est of 18c and the Street’s -8c. DWSN had already pre-released a qualitative guide down, but the impact was more than expected. Revs came in higher than expected, but margins collapsed q/q from 25.3% to 14.3%. Lower utlz came from project readiness issue due to agricultural operations, weather, land access permit issues, and a softness in bidding. As a result, DWSN operated 8 crews during fiscal 4Q and into fiscal 1Q vs capacity of 12 large crews and 1 small crew. DWSN should be back to full utlz by mid fiscal 1Q, but crews are becoming more efficient. In the short term, this could cause more gaps between contracts, but in the long term, it should allow DWSN to increase its workload. The current order book reflects work to maintain full ops into the middle of fiscal ’14.
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