TGC Industries, Inc. 2013 Form 10-K Summary
Filing identity: The supplied filing is for TGC Industries, Inc., not Dawson Geophysical Company. It covers the fiscal year ended December 31, 2013, with unaudited quarterly data for the fourth quarter ended December 31, 2013.
Business Context and Reporting Period
TGC provides land-based 3-D seismic data acquisition services in the continental United States and Canada through its wholly owned subsidiary, Eagle Canada. The company primarily serves oil and natural gas exploration and development companies and also supports potash mining activity in Canada. It operated eight crews at December 31, 2013, versus 14 crews at December 31, 2012.
Demand softened beginning early in 2013. Management reduced crew activity, curtailed major equipment purchases, and adopted a maintenance-capital-expenditure program. The company had approximately $52 million of backlog at year-end 2013, compared with $81 million at year-end 2012.
Key Financial Metrics
| Metric | 2013 | 2012 | Change or observation |
|---|---|---|---|
| Revenue | $134.5 million | $196.3 million | Down 31.5% |
| Cost of services | $107.7 million | $135.3 million | Down 20.4%; 80.0% of revenue versus 68.9% |
| SG&A | $9.6 million | $8.8 million | Up 9.6%; 7.1% of revenue versus 4.5% |
| Depreciation and amortization | $24.6 million | $25.5 million | Down 3.4%; 18.3% of revenue |
| Operating income (loss) | $(7.4) million | $26.8 million | Operating margin approximately (5.5%) versus 13.6% |
| Net income (loss) | $(6.3) million | $15.7 million | Basic and diluted EPS $(0.29) versus $0.73 and $0.72 |
| EBITDA | $17.3 million | $52.3 million | Down 67.0%; non-GAAP measure |
| Cash flow from operations | $23.0 million | $39.3 million | Down $16.3 million |
| Capital expenditures | $2.5 million | $57.1 million | Major reduction under maintenance program |
| Cash and cash equivalents | $16.1 million | $8.6 million | Increased $7.5 million |
| Total assets | $98.3 million | $142.0 million | Declined primarily with equipment depreciation and lower working capital |
| Shareholders’ equity | $69.1 million | $78.0 million | Declined with net loss and foreign-currency translation loss |
Fourth-quarter 2013 revenue was $18.7 million, compared with $57.1 million in the fourth quarter of 2012. Fourth-quarter operating loss was $6.8 million and net loss was $4.7 million, compared with operating income of $7.1 million and net income of $4.2 million in the prior-year quarter.
Debt, Liquidity, and Cash Flow
- The company generated $23.0 million of operating cash flow, used $0.7 million in investing activities, and used $15.0 million in financing activities, producing a $7.3 million increase in cash before exchange-rate effects.
- The $5.0 million revolving credit facility was renewed through September 16, 2014. No borrowings were outstanding at December 31, 2013.
- Total notes payable were $14.9 million, including $8.4 million due within one year. Equipment notes carried interest rates of 3.50% to 4.60% and were collateralized by equipment.
- Capital lease obligations totaled approximately $2.3 million, including $1.4 million due within one year.
- Total contractual obligations were approximately $19.1 million, consisting of $14.9 million of debt, $2.3 million of capital leases, and $1.8 million of operating leases.
- Working capital increased to $17.7 million from $12.2 million, despite the annual revenue decline, primarily because of higher cash and prepaid tax balances and lower current liabilities.
Material Changes Versus the Prior Comparable Period
- Revenue declined 31.5% because of weaker seismic-market demand, substantially fewer active crews, and severe fourth-quarter weather in key U.S. and Canadian markets.
- Cost of services increased as a percentage of revenue because of idle-crew costs, adverse weather, more expensive shot-hole work, and Canadian land-permitting issues.
- SG&A increased due to personnel additions and higher share-based compensation.
- The company shifted from significant expansion spending in 2012 to maintenance capital expenditures of approximately $2.5 million in 2013.
- Debt declined from $25.0 million at year-end 2012 to $14.9 million at year-end 2013, reflecting principal payments and repayment of three equipment notes.
- Accumulated other comprehensive income declined by approximately $3.9 million because of Canadian foreign-currency translation losses.
- The company paid no cash dividend in 2013, compared with a $0.15-per-share cash dividend in 2012, but paid a 5% stock dividend in 2013.
Outlook, Management Commentary, Risks, and Unusual Items
Management stated that the 2012 backlog was completed during 2013 and expected the 2013 backlog to be completed during 2014. Management also expected to operate in a “cash building mode” in 2014 and believed current liquidity, operating cash flow, lender borrowings, and the unused revolving facility would be adequate for operations and anticipated 2014 capital expenditures. The filing does not provide formal revenue or earnings guidance.
- Results depend heavily on oil and natural gas exploration budgets, drilling activity, and commodity prices.
- The business has high fixed costs, making downtime, weather delays, permit delays, crew idling, and project cancellations significant risks.
- Debt obligations require substantial monthly payments and are secured by core seismic equipment; deterioration in operations could impair the company’s ability to meet those payments.
- Canadian operations create foreign-currency risk, and the company does not use derivatives to hedge that exposure.
- Operations involve dangerous machinery, explosives, remote locations, environmental risks, and potential liabilities not fully covered by insurance.
- Three customers represented 27%, 16%, and 15% of outstanding accounts receivable at year-end 2013, although the largest customer represented approximately 12% of annual revenue.
- No impairment charge was recorded for 2013, 2012, or 2011. The filing reports no material unresolved staff comments, no off-balance-sheet arrangements, and no material litigation expected from ordinary-course claims.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor Verification Points
- Confirm that the intended issuer is TGC Industries, Inc. rather than Dawson Geophysical Company.
- Reconcile the sharp decline in quarterly crew utilization, revenue, and margins with the $52 million year-end backlog and its expected conversion in 2014.
- Review the $8.4 million of debt and $1.4 million of capital-lease maturities due within one year against expected operating cash flow.
- Assess whether the maintenance-capital program is sufficient to preserve technological competitiveness and operating capacity.
- Monitor oil and gas exploration spending, commodity prices, weather, Canadian permitting, foreign-exchange movements, customer collections, and contract cancellations.
- Evaluate the sustainability of cash generation despite the reported annual net loss and the company’s high depreciation and fixed-cost structure.