It's been years since crude oil prices plunged from triple-digit levels, but key players throughout the energy industry have struggled to find relief from tough conditions. Dawson Geophysical (NASDAQ: DWSN) relies on healthy levels of exploration activity for its own success, and those following the company have waited anxiously to see whether some improvement in the oil patch would finally start to show up in the results of the seismic services provider.
Coming into Thursday's third-quarter financial report, Dawson investors were ready to accept substantial losses from the company, but they wanted to see a big revenue jump. Dawson delivered on those expectations, providing even better results than most had anticipated and signaling that the worst of times might finally be coming to an end for the industry. Let's look more closely at Dawson Geophysical and what its performance says about its future.
A nice rebound for Dawson Geophysical
Dawson Geophysical's third-quarter results were extremely encouraging. Revenue soared more than 60% to $45.6 million, comparing quite favorably to the growth rate of about 38% that most investors had anticipated from the seismic specialist. Net losses amounted to $2.76 million, far below the $12.4 million net loss from the previous year's third quarter, and red ink of $0.13 per share was less than half the consensus forecast for a loss of $0.34 per share.
Dawson attributed much of the rebound from increased work activity for the company. Dawson operated between six and eight crews in the U.S. during the quarter, and an additional crew in Canada was active for a short period. By the end of the quarter, Dawson was running six crews in the U.S. and two in Canada. Being able to work its crews more consistently helped keep costs under control, as operating expenses climbed at a rate that was about half the sales gains, and costs for overhead expenses were actually lower compared with year-earlier levels.
Dawson has also seen more success in getting business. Levels of bid activity have remained relatively steady recently, and the company has been awarded a number of micro-seismic projects that began earlier this year and will continue into 2018. Active rig counts have been volatile, but they're still higher than they were this time last year.
CEO Stephen Jumper expressed some confidence in Dawson's rebound. "We are encouraged by our third quarter results," Jumper said, "which from an EBITDA standpoint is our best quarter in two years." The CEO noted that oil prices had climbed back into the mid-$50s recently, which helped to drive increased utilization for the company.
What's next for Dawson Geophysical?
The problem is that future prospects for the industry are extremely uncertain. Jumper noted that analysts expect oil prices of $40 to $65 per barrel, which makes it hard to predict whether exploration companies will look to conduct seismic projects in the immediate future. Rig counts are expected to stay stable, but demand is still well below early 2015 levels.
Looking forward to the current period, fourth-quarter results have historically been challenging, but there's still reason for hope. In the U.S. market, shorter work days and the holiday season have Dawson anticipating declines in utilization, with the company expecting six to seven crews in the field by quarter-end. Canada, however, is seeing its winter season start early, and Dawson expects to have two to three crews operating there this quarter and between three and five in the first quarter of 2018. In the key areas of West Texas, Dawson hopes that higher oil prices will expand the region of viable exploration projects beyond their current emphasis in the Permian and Delaware basins, where the company has to deal with a somewhat challenging and unpredictable business model that involves many seismic services providers aggregating studies into a multi-client data library.
Dawson Geophysical shareholders were pleased with the uptick, and the stock climbed about 10% on Thursday and Friday following the Thursday morning announcement. Ideally, Dawson would prefer to see conditions continue to improve, but even the prospect of better times ahead has many hard-hit investors breathing a sigh of relief.
10 stocks we like better than Dawson GeophysicalWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Dawson Geophysical wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of October 9, 2017