Dawson Geophysical Company — Q3 2023 Form 10-Q Summary
Business context and reporting period
Dawson provides onshore seismic data acquisition services in the United States and Canada for major and independent oil and gas companies and multi-client data-library providers. The filing covers the three and nine months ended September 30, 2023. Comparative 2022 amounts were retrospectively adjusted to include Breckenridge Geophysical activities under common-control accounting.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Operating revenue | $23.0 million | $7.4 million | $72.6 million | $34.1 million |
| Operating income (loss) | $(5.7) million | $(7.1) million | $(11.0) million | $(16.4) million |
| Net income (loss) | $(5.2) million | $(6.9) million | $(10.0) million | $(15.9) million |
| EBITDA | $(3.4) million | $(4.2) million | $(3.7) million | $(7.0) million |
| Operating margin | (24.8%) | (95.0%) | (15.2%) | (47.9%) |
| Net margin | (22.6%) | (93.0%) | (13.8%) | (46.5%) |
| Loss per share | $(0.20) | $(0.28) | $(0.40) | $(0.64) |
Revenue increased 209.1% in the quarter and 112.7% for the first nine months, primarily because of higher crew utilization. Operating expenses increased 179.1% in the quarter and 127.3% year to date as utilization increased. General and administrative expense declined 16.1% in the quarter and 23.1% year to date, largely because 2022 included transaction costs. Depreciation and amortization also declined because of several years of reduced capital spending.
Nine-month operating cash flow was $2.5 million, compared with $(1.6) million in the prior-year period. The 2023 amount benefited from a $3.0 million employee retention credit. Investing cash flow was $(3.5) million, including $2.6 million of capital expenditures and $1.0 million of short-term investments. Financing cash flow was $(3.7) million.
At September 30, 2023, cash and cash equivalents were $13.9 million, restricted cash was $5.0 million, and short-term investments were $0.3 million. Total cash, restricted cash and short-term investments were $19.2 million. Total assets were $52.9 million and stockholders’ equity was $33.4 million.
Material changes versus the prior comparable period
- Revenue growth reflected materially improved crew utilization, although the company reported a difficult start to July and continued to operate at a loss.
- The company issued 5.8 million shares upon conversion of a $9.9 million convertible note held by Wilks Brothers; the note was extinguished and no interest was charged.
- Total outstanding common shares increased to 30.8 million at September 30, 2023 from 23.8 million at December 31, 2022.
- Cash and cash equivalents declined by $4.7 million from year-end, while total assets declined by $15.8 million, partly reflecting the conversion of the convertible note and the use of cash for investing and financing activities.
- Deferred costs amortized increased substantially to $31.4 million for the first nine months, compared with $2.7 million in the prior-year period, primarily as projects were completed.
Guidance, outlook, risks and unusual items
Management expects two lower-48 crews to operate with improved utilization through the fourth quarter and into the first half of 2024. Canadian activity began in October, with up to three Canadian crews expected to operate by the first quarter of 2024. Management also expects increased carbon-capture-related seismic activity in 2024 and reports an improving order book, particularly in the Permian and Delaware Basins. No formal revenue or earnings guidance was provided.
Third-quarter results included ramp-up costs for additional personnel and equipment maintenance in anticipation of higher future activity. Management stated that utilization improved meaningfully toward the end of the quarter and expects high utilization for the remainder of 2023 and into the first half of 2024, but results remain dependent on customer spending, commodity prices, pricing, crew productivity, permitting, weather and equipment availability.
The company’s $5.0 million revolving credit facility was undrawn at September 30, 2023 and approximately $5.0 million was available. The facility is secured by a $5.0 million certificate of deposit, matures September 30, 2024, and carries interest at the lesser of 7.75% or the greater of the prime rate and 4.75%. Financial covenant testing is suspended while the pledged deposit remains at least equal to indebtedness. Finance lease liabilities were $1.5 million and operating lease liabilities were $3.8 million.
Key risks include dependence on oil and gas industry spending, commodity-price volatility, customer concentration and credit risk, contract delays or cancellations, high fixed costs and capital requirements, crew utilization and productivity, weather and permitting interruptions, foreign-exchange exposure, competition, and potential Nasdaq delisting risk. The company is defending a Weatherford groundwater-contamination action; management believes it is adequately insured or indemnified and that the matter will not have a material adverse effect, although the outcome cannot be predicted.
Facts investors should verify
- Whether the anticipated increase in lower-48 and Canadian crew utilization converts the company’s negative EBITDA and operating losses into sustainable positive cash flow.
- Whether management’s expected 2024 activity, including carbon-capture projects, is supported by signed contracts or only by bids and order-book expectations.
- The timing, terms and collateral requirements of the $5.0 million revolving facility and its September 2024 maturity.
- The dilution and control implications of the 5.8 million shares issued to Wilks and the company’s controlled-public-company status.
- Customer concentration, accounts-receivable collectability and the adequacy of the $250,000 allowance for doubtful accounts.
- The status and potential exposure from the Weatherford litigation and any contractual customer disputes.