Dawson Geophysical Keeps Losing Money but Sees Hope Ahead

By Dan CaplingerFool.com

Image: Dawson Geophysical.

It's been no surprise to see the fallout from falling crude oil prices spread well beyond the company's that directly produce oil and natural gas. Dawson Geophysical has had to deal with the weaker financial conditions of its driller-customers, and coming into the company's first-quarter financial report, investors were prepared for more tough times. Yet despite expected losses, Dawson has now completed its merger with TGC Industries and hopes to make the most of improving conditions. Let's look more closely at the latest from Dawson Geophysical and what might be ahead to get shareholders excited again.

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Losses continue at Dawson Geophysical The first quarter didn't do Dawson any big favors when it came to its financial results. Revenue fell 4% to $73.7 million, despite the addition of TGC's results into the consolidated financials. Dawson's continued to bleed money, with comprehensive losses of $7.01 million equating to $0.37 per share, reversing a modest profit in the year-ago quarter.

Looking more closely at the poor showing, Dawson said that a combination of bad factors hurt its performance during the quarter. As expected, low oil prices led some of Dawson's clients to delay previously announced projects, and other companies chose not to move forward with any plans to start new projects going forward until conditions in the industry improve. Moreover, bad weather in many key production areas hampered performance, and Dawson said that a wet spring has continued into April and May, which could have further negative impacts on the company's financials in the current quarter. At its peak during the quarter, the combined company operated 14 seismic data crews in the U.S. and four more in Canada, but longer-term, Dawson thinks that a reduced number of eight to 10 crews in the U.S. is more likely both this quarter and next, with limited activity levels in Canada.

The merger has also led to some dramatic moves from Dawson. Since the combination, Dawson has reduced its workforce by about 20%, paying a combined $3.1 million in merger-related transaction and severance costs during the quarter.

Still, Dawson is trying to keep the long view. As CEO Stephen Jumper said, the past few months "have been challenging times throughout the seismic data acquisition and oil-field service sectors." Jumper continued, "In response to the pullback in activity, we have moved to quickly right-size our crew to meet current and anticipated demand levels."

Image: Dawson Geophysical.

What's ahead for Dawson Geophysical?Nevertheless, in the long run, Jumper thinks that Dawson can pull through. "We believe the combination of Dawson Geophysical and TGC Industries will provide long-term growth opportunities," Jumper said, and "these factors, combined with the earnings power from our existing equipment inventory as well as our strong balance sheet, will enable us to respond quickly when market conditions improve."

Still, Dawson is working under the assumption that the downturn in the energy sector could last for a while. Currently, the company believes that it will spend less than the budgeted $10 million amount for capital expenditures, instead working merely at subsistence levels to perform necessary maintenance to preserve the value of Dawson's assets. With utilization rates still below where the company would like to see them, Dawson is taking every step it can to preserve the strength of its balance sheet. Fortunately, the seismic specialist is in good shape, with about $48 million in cash and equivalents and ample working capital to financing continuing operations.

On the whole, Dawson investors seemed relatively pleased with the company's report, pushing shares up about 2.5% in the first half-hour of after-market trading following the announcement. Long-term investors will have to wait and see how quickly the energy market turns around and therefore when Dawson will see more demand for its services pick up. Nevertheless, with the company working hard to get through the tough times, Dawson Geophysical is putting its best foot forward to survive and thrive in the next cyclical upturn whenever it comes.

The article Dawson Geophysical Keeps Losing Money but Sees Hope Ahead originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Dawson Geophysical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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