Dawson(DWSN) - 2019 Q4 - Annual Report

Part I Business Dawson Geophysical Company provides onshore seismic data acquisition services in North America, with demand highly dependent on volatile oil and gas prices and significant client concentration - The company provides onshore seismic data acquisition services across the continental U.S. and Canada for the oil and natural gas industry[9] - As of December 31, 2019, the company operates 117 vibrator energy source units and approximately 268,000 recording channels[27] - Client concentration is high, with four clients representing approximately 60% of revenues during the twelve months ended December 31, 2019[30] Revenue by Geographic Region (2018-2019, in thousands USD) | Region | 2019 Revenue (in thousands USD) | 2018 Revenue (in thousands USD) | | :--- | :--- | :--- | | U.S. | $129,452 | $137,101 | | Canada | $16,321 | $17,055 | | Total | $145,773 | $154,156 | - The company's primary competitors include publicly traded SAExploration Holdings, Inc. and private companies such as Echo Seismic Ltd., Breckenridge Geophysical Inc., and Paragon Geophysical Services, Inc.[22][38] Risk Factors The company faces substantial risks from the cyclical oil and gas industry, high client concentration, fixed costs, intense competition, and regulatory changes - The company's revenue is highly sensitive to the volatility of oil and gas prices and exploration spending levels[42][43] - A limited number of clients account for a significant portion of revenue; in 2019, the four largest clients represented approximately 60% of total revenues[50] - The company has a history of net losses, reporting a net loss of $15.213 million for 2019 and $24.407 million for 2018[56] - High fixed costs, primarily from depreciation and equipment maintenance, can lead to significant operating losses during periods of low crew utilization[59] - The business faces intense competition, creating downward pricing pressure, with contracts often awarded based on competitive bids[66][67] - Potential legislation and regulation related to climate change and hydraulic fracturing could curtail oil and gas exploration, reducing demand for services[104][110] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[120] Properties The company's headquarters are in a leased 34,570 square foot property in Midland, Texas, with additional owned and leased facilities across several states and Canada - The company's main office is a leased property in Midland, Texas, and it owns a field office, equipment facility, and storage facility in Midland[121] - Additional leased facilities are maintained in Denison, Houston, and Plano, Texas; Denver, Colorado; Oklahoma City, Oklahoma; and Calgary, Alberta[122][123] Legal Proceedings The company is involved in various legal proceedings arising in the ordinary course of business, with specific details provided in Note 16 of the Consolidated Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 16, "Commitments and Contingencies," in the financial statements[125] Mine Safety Disclosures This section is not applicable to the company - Not applicable[130] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is traded on the NASDAQ under "DWSN," experiencing volatility, with no cash dividends paid in 2019 or anticipated soon - The company's common stock trades on the NASDAQ under the symbol "DWSN"[126] Quarterly Stock Price Range (2018-2019, in USD) | Period | High ($) | Low ($) | | :--- | :--- | :--- | | 2018 | | | | Q1 | 6.78 | 4.64 | | Q2 | 8.40 | 5.38 | | Q3 | 8.28 | 5.50 | | Q4 | 6.57 | 3.04 | | 2019 | | | | Q1 | 4.28 | 2.88 | | Q2 | 3.20 | 2.01 | | Q3 | 2.75 | 1.90 | | Q4 | 2.88 | 1.93 | - No cash dividends were paid in 2019, and the company does not expect to pay any in the foreseeable future, though a 5% stock dividend was paid on May 29, 2018[127][128] Selected Financial Data The five-year financial summary highlights declining revenues and persistent net losses from 2015 through 2019, with total assets also decreasing Five-Year Selected Financial Data (in thousands USD, except per share data) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating revenues | $145,773 | $154,156 | $156,532 | $137,640 | $234,685 | | Net loss | $(15,213) | $(24,407) | $(31,790) | $(38,333) | $(26,279) | | Basic loss per share | $(0.66) | $(1.07) | $(1.40) | $(1.69) | $(1.21) | | Total assets | $127,608 | $150,685 | $167,919 | $190,455 | $247,787 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses challenging market conditions driven by constrained capital spending, a shift to a channel and energy source deployment model, and liquidity supported by cash from operations and a new $15 million revolving credit facility Overview The company's performance is linked to oil and gas prices, with a strategic shift from traditional crew counts to a channel and energy source deployment model to enhance efficiency amid a challenging market - The company operated a peak of four crews in the U.S. during Q4 2019, primarily in the Permian Basin[146] - The business model is transitioning from a traditional crew count to a channel and energy source model to improve asset utilization and crew efficiency[147][148] - The oil service market remains challenging due to constrained capital spending by E&P companies, and utilization visibility into the second half of 2020 is unclear[149] Results of Operations For 2019, operating revenues decreased to $145.8 million from $154.2 million in 2018, while the net loss improved to $15.2 million from $24.4 million, largely due to reduced depreciation expense Year-over-Year Financial Performance (2018-2019, in thousands USD) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Operating Revenues | $145,773 | $154,156 | -5.4% | | Operating Expenses | $123,024 | $132,937 | -7.5% | | G&A Expenses | $17,169 | $16,287 | +5.4% | | Depreciation Expense | $21,826 | $29,959 | -27.1% | | Net Loss | $(15,213) | $(24,407) | +37.7% | EBITDA Reconciliation (Non-GAAP, in thousands USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net loss | $(15,213) | $(24,407) | $(31,790) | | Depreciation & amortization | $21,826 | $29,959 | $39,235 | | Interest (income) expense, net | $(113) | $8 | $(148) | | Income tax benefit | $(239) | $(798) | $(5,314) | | EBITDA | $6,261 | $4,762 | $1,983 | Liquidity and Capital Resources The company's primary cash source is seismic data acquisition services, with net cash from operations at $9.5 million in 2019, supported by a new $15 million revolving credit facility Summary of Cash Flows (in thousands USD) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash from Operating | $9,480 | $12,871 | | Net cash from/(used in) Investing | $4,185 | $(8,596) | | Net cash (used in)/from Financing | $(11,256) | $2,517 | - On September 30, 2019, the company entered into a new Loan and Security Agreement with Dominion Bank for a revolving credit facility of up to $15 million, maturing September 30, 2020[172][173] - The previous credit line with Veritex Community Bank matured on September 30, 2019, and all amounts owed under its term loan ($4.356 million) were paid off[175] Contractual Obligations as of Dec 31, 2019 (in thousands USD) | Obligation Type | Total | Within 1 Year | 2-3 Years | 4-5 Years | After 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease | $7,140 | $1,200 | $2,008 | $2,044 | $1,888 | | Finance lease | $2,412 | $2,316 | $89 | $7 | $0 | | Debt obligations | $1,746 | $1,746 | $0 | $0 | $0 | | Total | $11,298 | $5,262 | $2,097 | $2,051 | $1,888 | Critical Accounting Policies The company's critical accounting policies involve significant management estimates for doubtful accounts, asset impairment, and revenue recognition, with the new lease accounting standard adopted in 2019 - The company reviews long-lived assets for impairment when triggering events occur, with no impairment charges recognized for the years ended December 31, 2019, 2018, and 2017[186] - On January 1, 2019, the company adopted the new lease standard (Topic 842), resulting in the recognition of right-of-use assets of approximately $7.8 million and operating lease liabilities of $8.3 million[191] - Revenue is recognized as services are performed, generally based on the proportion of square miles of data recorded compared to the total anticipated for a survey[195] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include commodity price fluctuations, significant client concentration, interest rate changes, and foreign currency exchange risk from Canadian operations - The company's principal market risks include fluctuations in commodity prices, concentration of credit risk with clients in the oil and gas industry, interest rate changes, and foreign currency exchange risk[212][213] - During 2019, the four largest clients accounted for approximately 60% of revenue, indicating a high concentration of credit risk[216] Financial Statements and Supplementary Data This section incorporates by reference the company's consolidated financial statements and related notes, detailed on pages F-1 through F-24 of the report - The consolidated financial statements and supplementary data required by this item are located on pages F-1 through F-24 of the Form 10-K[218] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[219] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2019, with no material changes identified - Management concluded that disclosure controls and procedures were effective as of December 31, 2019[220] - Management concluded that internal control over financial reporting was effective as of December 31, 2019, based on the COSO 2013 framework, an assessment audited by RSM US LLP[221][223] - There were no changes in internal control over financial reporting during the fourth quarter of 2019 that materially affected, or are reasonably likely to materially affect, internal controls[224] Other Information The company reports no other information for this item - None[225] Part III Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees Information for Items 10 through 14 is incorporated by reference from the company's forthcoming definitive proxy statement, to be filed within 120 days after the fiscal year-end - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's forthcoming definitive proxy statement[227][228][229][230][231] Part IV Exhibits and Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including consolidated financial statements, and an index of all exhibits - The consolidated financial statements of the company are filed as part of this report and are incorporated by reference into Item 8[234] - All financial statement schedules are omitted because they are not applicable or the required information is included in the financial statements or notes[235] - An index to exhibits is provided, listing all agreements and certifications filed with the Form 10-K[236][239] Financial Statements Reports of Independent Registered Public Accounting Firm RSM US LLP issued unqualified opinions on both the company's consolidated financial statements and the effectiveness of its internal control over financial reporting as of December 31, 2019 - RSM US LLP issued an unqualified opinion, stating the company maintained effective internal control over financial reporting as of December 31, 2019[258] - RSM US LLP issued an unqualified opinion on the consolidated financial statements, stating they present fairly, in all material respects, the financial position and results of operations in conformity with U.S. GAAP[267] Consolidated Financial Statements The consolidated financial statements show a decline in the company's financial position and continued operating losses, with total assets decreasing to $127.6 million in 2019 Consolidated Balance Sheet Data (in thousands USD) | Account | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $65,618 | $77,025 | | Property and equipment, net | $53,549 | $71,541 | | Total Assets | $127,608 | $150,685 | | Total Current Liabilities | $18,257 | $27,288 | | Total Long-Term Liabilities | $6,186 | $6,381 | | Total Liabilities | $24,443 | $33,669 | | Total Stockholders' Equity | $103,165 | $117,016 | Consolidated Statement of Operations Data (in thousands USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Operating revenues | $145,773 | $154,156 | $156,532 | | Loss from operations | $(16,246) | $(25,027) | $(37,964) | | Net loss | $(15,213) | $(24,407) | $(31,790) | | Basic loss per share | $(0.66) | $(1.07) | $(1.40) | Consolidated Statement of Cash Flows Data (in thousands USD) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $9,480 | $12,871 | $(6,703) | | Net cash from/(used in) investing activities | $4,185 | $(8,596) | $16,788 | | Net cash (used in)/from financing activities | $(11,256) | $2,517 | $(3,420) | | Net change in cash | $2,542 | $6,716 | $7,389 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, financial components, and key information, including the adoption of Topic 842, significant NOL carryforwards, and high client concentration - The company adopted the new lease accounting standard, Topic 842, on January 1, 2019, recognizing right-of-use assets and operating lease liabilities of approximately $7.8 million and $8.3 million, respectively[299] - As of December 31, 2019, the company had a U.S. federal Net Operating Loss (NOL) carryforward of approximately $123.434 million, which will begin to expire in 2027[374][375] - In 2019, four major clients accounted for 18%, 16%, 15%, and 11% of operating revenues, respectively, totaling 60%[382] - The company is a defendant in a lawsuit filed by Weatherford International regarding alleged groundwater contamination, but management does not believe the resolution will have a material adverse effect[387] Quarterly Financial Data for 2019 (unaudited, in thousands USD) | Quarter Ended | Operating Revenues (in thousands USD) | Net (Loss) Income (in thousands USD) | | :--- | :--- | :--- | | March 31 | $51,164 | $(137) | | June 30 | $24,076 | $(11,246) | | September 30 | $36,976 | $1,998 | | December 31 | $33,557 | $(5,828) |