Dawson Geophysical Company — Q1 2021 Form 10-Q Summary
Business context and reporting period
Dawson Geophysical provides onshore seismic data acquisition and processing services in the continental United States and Canada for major and independent oil and gas companies and multi-client data-library providers. The filing covers the three months ended March 31, 2021; financial statements are unaudited.
- The company operated one U.S. crew with limited utilization and one Canadian crew during the quarter.
- Management attributed weak demand primarily to low oilfield activity, low crew and bid activity, and continuing effects of the COVID-19 pandemic.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenue | $11.748 million | $38.979 million | Down 69.9% |
| Operating expenses | $10.942 million | $29.016 million | Down 62.3% |
| General and administrative expense | $2.807 million | $3.674 million | Down 23.6% |
| Depreciation and amortization | $3.434 million | $4.904 million | Down 30.0% |
| Loss from operations | $5.435 million | Income of $1.385 million | Material deterioration |
| Net loss | $5.228 million | Net income of $0.993 million | Material deterioration |
| EBITDA | $(1.858) million | $5.831 million | Material deterioration |
| Loss/income per diluted share | $(0.22) | $0.04 | Material deterioration |
| Net cash used in operating activities | $0.172 million | $0.173 million | Nearly unchanged |
Operating costs totaled $17.183 million, or approximately 146.3% of revenue, compared with approximately 96.4% in the prior-year quarter. The filing does not present a GAAP gross margin; the implied operating margin was approximately negative 46.3% in Q1 2021 versus positive 3.6% in Q1 2020.
- Cash and cash equivalents were $41.371 million at March 31, 2021, compared with $40.955 million at December 31, 2020.
- Restricted cash was $5.000 million and short-term investments were $0.583 million; total cash, restricted cash and short-term investments were $46.954 million.
- Total current assets were $55.174 million, versus current liabilities of $5.460 million.
- Total assets were $96.222 million and stockholders’ equity was $86.048 million.
- Net cash from investing activities was $0.094 million, including no capital expenditures and $0.094 million of asset-disposal proceeds.
- Net cash from financing activities was $0.448 million, primarily reflecting $0.550 million of notes payable proceeds, partly offset by debt and finance-lease payments.
Debt, commitments and liquidity
- The Dominion revolving credit facility permits borrowings up to the lesser of $15.0 million or a borrowing-base amount. No amounts were drawn at March 31, 2021.
- The facility matures September 30, 2021 and requires, among other conditions, tangible net worth of at least $75.0 million and specified liquidity and leverage ratios.
- The facility is secured by a $5.0 million restricted deposit, eligible accounts receivable and related collateral.
- Short-term insurance-premium debt totaled $0.501 million at March 31, 2021, bearing interest at 4.99%. Finance-lease liabilities totaled $0.086 million.
- Operating-lease liabilities totaled $5.748 million, including $1.089 million current and $4.659 million long term.
- A $0.583 million letter of credit supports workers’ compensation insurance and is secured by a certificate of deposit.
Material changes, outlook and risks
- Revenue fell sharply because of low crew utilization. Revenue declined in both the U.S., to $8.783 million from $27.188 million, and Canada, to $2.965 million from $11.791 million.
- Management reduced workforce and salaries, limited capital spending, reduced fixed and variable operating costs, and continued equipment maintenance efforts.
- The 2021 capital budget was initially set at $1.0 million, focused on maintenance and incremental recording-channel requirements; no capital expenditures were incurred in Q1.
- Management expected limited second-quarter activity, with up to one U.S. crew operating and periods of low utilization in the second half of 2021. The filing stated that the lower-48 market could reach a low in the second and third quarters, with slight improvement later in 2021.
- The Canadian operating season concluded at the end of the first quarter, and no U.S. crew was deployed at the time of the filing.
- Management believes high-density, large-channel-count surveys may support future demand as customers recognize their improved subsurface imaging value.
- Liquidity was described as adequate for current operational needs and the planned 2021 capital budget, but future liquidity depends on operating performance, customer payment behavior, available borrowing capacity and industry recovery.
- Key risks include dependence on oil and gas spending, commodity-price volatility, customer concentration and credit risk, contract delays or cancellations, reduced utilization, high fixed costs, COVID-19 effects, weather and permitting disruptions, competition and access to capital.
- The company is defending a Weatherford groundwater-contamination lawsuit. The case was stayed pending an appeal, and management believes it will not have a material adverse effect, although the outcome cannot be predicted with certainty.
- On April 8, 2021, the board adopted a shareholder rights plan that expires April 7, 2022 unless earlier terminated.
- The company reported no material changes to the risk factors in its 2020 Form 10-K. Disclosure controls were considered effective as of March 31, 2021.
Investor verification items
- Verify the company’s ability to renew, replace or refinance the Dominion credit facility before its September 30, 2021 maturity.
- Monitor U.S. crew deployment, utilization, bid activity and customer contract awards against management’s expected second-half recovery.
- Assess whether cash reserves can sustain continued operating losses and negative EBITDA if seismic demand remains depressed.
- Review customer concentration, accounts-receivable aging and collectability, including the adequacy of the $0.250 million doubtful-account allowance.
- Track the Weatherford litigation and any related costs, settlements or changes in management’s assessment.
- Evaluate whether the shareholder rights plan affects potential strategic or takeover activity.