Dawson Geophysical CEO Discusses F4Q 2011 Results - Earnings Call Transcript

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 |  About: Dawson Geophysical Company (DWSN)
by: SA Transcripts

Operator

Thank you. (Operator Instructions). Your first audio question comes from the line of Collin Gerry with Raymond James.

Collin Gerry - Raymond James

Hey, good morning, Steve. Good morning Chris.

Chris Hagan

Good morning.

Steve Jumper

Good morning Collin.

Collin Gerry - Raymond James

Well, another solid quarter. I think it’s indicative of kind of the growing market or the strengthening market that you all have talked about. I guess my first question, I am going to lead with pricing, knowing that I usually get very little color from your guys on this. But I mean, you mentioned better terms in your press release. Is that both indicative of net pricing, is it indicative of sort of better terms in the contract as it relates to turn key versus day rate. May be give us a little bit more color to the extent you can on where those are going.

Steve Jumper

Collin we are predominantly on turnkey contracts. I believe from time-to-time we will operate two or three crews on some day rate type agreements, but for the most part we are turnkey. We are seeing improvement in overall contract terms. We are certainly seeing some level of weather protection that we’ve talked about in the past, the weather down time is never full margin coverage. Its right at fixed cost, but none the less that seems to be something that is helping.

I would say pricing generally is trending upwards. Demand is certainly out there to dictate some level of pricing increase. As always, channel count continues to increase and when you get higher channel count operations you get some pricing improvement related to the size of the crew, but you get help from the backside with improved efficiencies.

Most of our work now tends to be west of the Mississippi rive, so we are out in the mid contentment, the Rockies, West Texas where we are not using as much dynamite for energy sources. We are still using some in Oklahoma and parts of the Rockies and we are still going to have some use of helicopters, but these areas tend to be easier to permit larger land track ownership positions. We’ll have – the crew in West Virginia will be moving out mid November.

So they will have some more time coming back west, they will move back probably in the early spring and so as we get farther west, we are going to continue to be more and more turn key and we are seeing quite a bit of improvement in our margin based in these turn keys contracts that we got, predominantly vibratory contracts.

Now we are having weather issues as I mentioned, a little bit of down time protection with that. So in general I think pricing is up. It certainly isn’t moving at a high rate, but it is trending upward.

Collin Gerry - Raymond James

And just on the margin growth that we saw this quarter versus last quarter, is that kind of – is part of that what you just spoke to in terms of seeing a little bit less pass through charges, you know as more of your crews are west Mississippi.

Steve Jumper

You know, in think the third party charges are trending down more towards the historical range of 25% to 35%. We think that trend will continue. The order book has certainly strengthened with projects or various sizes and so our utilization rates are trending upwards.

I think the turnkey projects where as I said in the past, we are taking on more operational risk and more weather risk, but at the same time we are getting more upside on the margin side. I think we had a good run with weather in the fourth quarter and so I think you put all those things together and I think we’ll continue to see throughout the course of fiscal 2012 margins improve.

Collin Gerry - Raymond James

And then last one on that front from, you know its impressive you guys are spending quite a bit of capital this year into the strengthening market and you went through you know the new oil crews and kind of stuff like that. Would you say that the newer equipment is accretive to the margin, and to those better margin crews as we get more efficiently into the system?

Steve Jumper

Our experience today has been yes. The answer to that is yes. You know we’ve had in two very large high channel count projects, we’ve now split some other oil equipment up, which allow us to – you know we can run anywhere from two very large crews to three 8000 channel crews in addition to the three component capability.

We have 4000 stations of the three-component capability and that equipment tends to stay fully utilized. We are doing more and more multi component testing type work and at various projects. But yes, I think we are seeing the crew efficiencies and productivity increase with the use of that particular system.

On the back side of that, you know as I’ve always said, you got the data handling issue which takes a little bit of delay and its overall data delivery, but from a crew standpoint we are seeing improvement; I’m pleased with it so far.

Collin Gerry - Raymond James

All right, very nice. That’s it from me. I’ll turn it back and may be re-queue.

Steve Jumper

Thanks Collin.

Operator

Your next audio question comes from the line of Veny Aleksandrov with Pritchard Capital.

Veny Aleksandrov - Pritchard Capital

Good morning.

Steve Jumper

Good morning, Veny.

Veny Aleksandrov - Pritchard Capital

Congratulations on a solid quarter.

Steve Jumper

Thank you.

Veny Aleksandrov - Pritchard Capital

My first question is your margins were great in the quarter, but revenues were sequentially down. Can you give us a little bit more detail on that, was it the wheatear or…

Steve Jumper

Veny, I missed a part of that question, can you try again there please.

Veny Aleksandrov - Pritchard Capital

Yes, I’m sorry. The margins were very impressive, but at the same time revenues were sequentially down. Can you give us a little bit of more details what caused that and was it quarter specific or was it weather.

Steve Jumper

I think most of that is related to the third part charges Veny. You know we went though a stretch there where the third part charges were you know trending up very, very high. We’ve seen that reverse in the fourth quarter. Some of those third party charges are actually pass through in advance of crew revenue and so I think there’s a little bit of disconnect on the third party charges as a relate from second third and the fourth quarter. I think going forward we’ll see those third part charges start to level out in the historical 25% to 35% range of overall revenue.

Veny Aleksandrov - Pritchard Capital

Thank you. So my second question is also related to the weather and the Marcellus. How many crews do you currently have in the Marcellus? There were heavy rains in Q3 and continued in Q4, are you going to be effected?

Steve Jumper

Well, we have one crew in the Marcellus that will finish up. It’s the project that we talked about in the past, that we had been a difficult project. We will finish that hopefully in the next week and that crew will move back west and we will be out of the Marcellus for probably until the early part of the spring, in which time we’ll go back.

We had some permit issues on the next project that we were going to do, so that kind of forces to have some more time on that crew. Yes, we had some weather impact in October as well as in early November in that region.

We have a crew in North Dakota that will have move probably in mid December. They will move back south and then they’ll go back up there to finish that project. We will not be there during the harsh winter month like we were last year, but that’s going to be some moving down time.

And during this quarter from a weather standpoint, we didn’t have too much of a weather impact. In Q4 we have had some weather impact here staring Q1, particularly in the Oklahoma region, we have a couple if crews up in Oklahoma, we got a couple of crews in the Barnett. And we’ve had some, we had three crews working in Wyoming and all those have been subject to weather here in the early part of quarter.

So I don’t think the weather impact was huge in Q4, but certainly that is rolled over into some impact in Q1 along with the other issues that we’ve talked about related to hunting, agricultural and shorter days.

Veny Aleksandrov - Pritchard Capital

All right, thank you, and my last question is again on the equipment side. Now with the merger of TGS behind you and the new year has stared, with demand picking up, do you need to acquire more equipment; do you need more equipment as of today.

Steve Jumper

Well I think that the shale account is going to continue to grow and I think we’ve always talked about that. We did have substantial capital expenditure of $59 million in 2011. That was well above the initial capital budget that was approved in September of 2010. Most of that was driven by the rapid expansion into the OYO equipment. I don’t believe we’ll see that level of expansion in 2012, but we will have to wait and see what demand says or dictates.

Going into ’12, we’ve approved an initial budge of $20 million. We are going to purchase more vibrator energy source units, so we will be purchasing some channel count expansion early on and some expanded geophones and then we’ll just wait and see what the market looks like.

We are still operating several, I think four or five RSR crews, all of which are very productive and doing well, but at some point you know we’ll continue to transition in from the RSR into other type of equipment over the next couple of years. But as in the past Veny, we have an initial budget and then we move based on what the market and what the demand looks like and what specific project types come available.

Veny Aleksandrov - Pritchard Capital

Thank you. That’s it from me.

Steve Jumper

Thank you Veny.

Operator

(Operator Instructions) Your next audio question comes form the line of Georg Venturatos with Johnson Rice.

Georg Venturatos - Johnson Rice

Good morning.

Steve Jumper

Good morning George.

Georg Venturatos - Johnson Rice

How are you Steve. Just wanted to talk a little bit more about your CapEx budget plans for ’12. Just in terms of trying to get a sense of the absolute channels we could see next year, do you intend to potentially retire any of those existing channels in ’12?

Steve Jumper

I don’t think so. I think what we’ll see is a redeployment of channels, of like equipment on to like crews and as channel count continues to increase and so, you know I can make a case that we may drop as we have in the past the number of oil crews when you have 20 or close to 40,000 something channels of oil geared; that can be four crews, that can be three crews.

I think when you look at the ARAM equipment, you know we currently have a project we have been working on for quite some time, we will finish up in the spring that’s required about 18,000 channels of ARAM. We’ve got central recording units that we could expand the ARAM crew count or we could reduce it just depending on what the ARAM channel count requirements would be and I think we can do the same thing with the RSRs. So I don’t think we will see anything actually go into retirement, but we could see the crew count move to 13 to 15 – it can move around depending on how we have to more equipment.

Now in terms of buying equipment, right now we are in pretty good shape, but you know we are pretty tight based on channel count, particularly in the GSR and ARAM area and so I can make a case that we can see incremental increases, a small increase of channel count throughout the year as project grow and we see improved efficiencies, but as of today, I don’t see a large retirement and a large increase of any particular type of equipment, but having said that, you know we are very early in the fiscal year and the market looks very strong going forward; bids are strong, request for bids are strong, our order book is strong.

Projects are getting bigger, even though we try to keep a well-balanced portfolio of projects and in terms of size you need that to keep your short-term utilization rates high. We are seeing some large projects that are out there and if some of those come to fruition then you know you may need a few thousand channels or something here you know, of this figure equipment type to complete a project and so, I think we will see some incremental increases during the year and if something big comes along that could obviously change.

Our first investment will be into more vibrator energy source units. I think those are on OYO and taking deliver here very shortly.

Georg Venturatos - Johnson Rice

Okay great, and then just real briefly. I mean just in terms of your initial preference, I know its preliminary, but just in terms of potential incremental purchases on the channel side, would prefer cable-lists as opposed to cable-based systems considering it seems like you are coming up to speed on the learning curve with ESR pretty quickly here.

Steve Jumper

I think I would put our personal preference aside and answer the question with the fact that we are very pleased with our equipment base overall. We think it’s well balanced; we think it’s got a great mixture. We do mix and match the cable-lists and the cable systems together depending on what type of project we are on and I think we will just have to wait and see what the market dictates and what our clients are demanding.

The oil equipment is certainly getting acceptance. The efficiencies are higher in certain areas; on the other hand we are having some very nice projects and with the ARAM cable base, so I think it won’t be as much our personal preference as to what particular projects and what our client demands dictate from time-to-time that will guide our decision making going forward.

You know we are not really pushing any technology, we are just providing a suite of services and a suite of technology here that best fits the project mixes that we are looking at going to into 2012 and so, at this point we are pretty happy with our mix, but that could change about the time we get off the phone, so it’s the best I can answer that one George.

Georg Venturatos - Johnson Rice

Right, understood. And then lastly, I just assumed you are, but do you continue to see pretty strong demand for multi component data by customers.

Steve Jumper

Its not large in terms of the revenue mix, in terms of project size, but we’ve got the 4000 stations of the – four channel units, which allow us to do pre component work and we’ve been able to keep that equipment fairly well utilized here for the last nine, 12 months.

For the most part they are smaller projects, they are what we would call embedded projects George, where we may have a large cable based system operating and someone would like to do a three component test within a very large cable project or even a large GSR project and so I think we’ll continue to see that move forward. At what point it becomes a significant player in our overall revenue mix, time will tell.

We’ve don’t quite a few projects with the three component equipment where we have done some frac monitoring and some micro size type of recording and so I think that multi component equipment has a wide range of uses and it is being fully utilized and we’ll just have to see where the market goes.

We are excited about it. It’s a pretty good-sized project that is planned for next year and utilizing that three figure. So I think it’s – here again it’s just another suite of – another tool in our suite of services that we offer that seems to be growing.

Georg Venturatos - Johnson Rice

Great, I appreciate the answer Steve. That’s it from me.

Steve Jumper

All right, thanks George.

Operator

At this time we have no further audio questions.

Steve Jumper

Okay, well I want to thank everybody for listening in. I’m very proud of our people for the hard work in fiscal 2011. I feel like we’ve made a great progress as a company, not just as a company, but as an industry as a whole. I think 2012 looks very promising for us and our industry. We look forward to continue to deliver value for both our value clients and our shareholders of fiscal 2012. We wish everyone a happy holiday season and look forward to talking to you again in February. Thank you very much.

Operator

We thank you for joining today’s teleconference. You may now disconnect.

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