Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended March 31, 2013. The filing identifies the registrant as TGC Industries, Inc., although the request metadata identifies Dawson Geophysical Co.; this company-name discrepancy should be verified. TGC provides 3-D seismic data acquisition services to oil and natural gas exploration and development companies in the United States and Canada.
The company operated nine U.S. crews and six Canadian crews during the quarter. Canadian activity was expected to be limited for the following two quarters because of the seasonal thaw.
Financial Metrics
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $63.2 million | $67.0 million | Down 5.7% |
| Income from operations | $10.9 million | $20.5 million | Down 46.7% |
| Net income | $6.4 million | $12.4 million | Down 48.7% |
| Basic EPS | $0.29 | $0.58 | Down $0.29 |
| EBITDA | $17.6 million | $26.2 million | Down 32.9% |
| Cash flow from operations | $5.3 million | $(0.4) million | Improved $5.6 million |
| Cash at period-end | $10.0 million | $10.7 million | Down $0.7 million |
Revenue declined while cost of services increased 12.2% to $43.2 million. SG&A increased 3.5% to $2.4 million, and depreciation and amortization increased 16.8% to $6.7 million. Operating margin fell to approximately 17.3% from 30.5%; net margin fell to approximately 10.0% from 18.5%; and EBITDA margin declined to approximately 27.8% from 39.1%.
Working capital was $21.3 million at March 31, 2013, compared with $12.2 million at December 31, 2012. Current assets were $57.3 million and current liabilities were $35.9 million, implying a current ratio of approximately 1.6. Total assets were $140.0 million, compared with $142.0 million at year-end 2012.
Total notes payable were approximately $22.2 million, including $21.9 million of equipment notes and $0.2 million of insurance-financing notes. Capital lease obligations totaled approximately $3.5 million. The company had no borrowings under its $5.0 million revolving credit facility, which was scheduled to expire September 16, 2013.
Capital expenditures were $0.9 million, funded with $0.6 million of cash and $0.3 million of capital lease obligations. Net cash used in investing activities was $0.5 million, and net cash used in financing activities was $3.3 million, primarily reflecting debt and capital lease repayments.
Material Changes Versus the Prior Comparable Period
- Revenue decreased $3.8 million, primarily because of land-permitting delays, particularly in the Northeast, and adverse winter weather.
- Cost of services increased $4.7 million despite lower revenue. The increase included an approximately $1.3 million reserve for Canadian winter-season site cleanup, as well as weather and permitting impacts.
- Depreciation increased because of additions of seismic recording equipment, vibration vehicles, and other equipment and vehicles.
- Operating income, net income, EPS, and EBITDA declined materially.
- Operating cash flow improved from a use of $0.4 million to generation of $5.3 million, primarily because the prior-year period included a significantly larger use of cash for accounts receivable.
- Capital spending declined from $2.8 million to $0.6 million of cash expenditures.
- Foreign currency translation produced a $1.5 million comprehensive loss in Q1 2013, compared with $0.5 million of income in Q1 2012.
Guidance, Outlook, Risks, and Unusual Items
The filing provides no specific revenue, earnings, or margin guidance. Management stated that current cash and borrowing capacity were expected to be sufficient to fund working capital needs for the next 12 months and that 2013 capital expenditures could be funded through operating cash flow, commercial borrowings, and the revolving credit facility.
Management noted that results are seasonal and that Q1 performance is not necessarily indicative of full-year results. Key risks include dependence on energy-industry spending, oil and natural gas prices, weather, land-permitting delays, contract delays or cancellations, customer liquidity, competition, and availability of capital resources.
The company declared a 5% stock dividend on April 19, 2013, payable May 14, 2013, to shareholders of record on April 30, 2013. Management stated that cash dividends may not be paid in the foreseeable future because earnings are expected to be retained for operations.
The company adopted ASU 2012-02 regarding impairment testing for indefinite-lived intangible assets; management reported no significant effect. The company reported no off-balance-sheet arrangements, no material changes to previously disclosed risk factors, and no legal proceedings expected to result in a significant loss.
Important Facts for Investors to Verify
- Confirm whether the filing belongs to TGC Industries, Inc. rather than Dawson Geophysical Co.
- Assess whether permitting delays, weather disruption, Canadian seasonality, and the $1.3 million cleanup reserve are temporary or could recur.
- Review debt maturities, the September 2013 expiration of the $5.0 million revolving facility, and the April 2013 $2.9 million insurance-financing note entered after quarter-end.
- Evaluate the sustainability of operating cash flow given contract-billing balances, receivables, and seasonal Canadian activity.
- Monitor the effect of lower utilization and rising depreciation on operating and EBITDA margins.
- Review the effect of the 5% stock dividend on per-share comparisons and share counts.