Dawson(DWSN) - 2021 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for the first nine months of 2021 reflect a significant decline in assets, revenues, and equity, resulting in a substantial net loss Condensed Consolidated Balance Sheets Total assets decreased to $78.5 million by September 30, 2021, driven by reduced cash and property, reflecting net losses and a sharp decline in equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $36,018 | $40,955 | ($4,937) | | Accounts receivable, net | $325 | $7,343 | ($7,018) | | Total current assets | $44,442 | $58,590 | ($14,148) | | Property and equipment, net | $28,941 | $38,900 | ($9,959) | | Total assets | $78,480 | $103,377 | ($24,897) | | Liabilities & Equity | | | | | Total current liabilities | $5,068 | $7,441 | ($2,373) | | Total liabilities | $9,274 | $12,403 | ($3,129) | | Retained deficit | ($85,037) | ($62,927) | ($22,110) | | Total stockholders' equity | $69,206 | $90,974 | ($21,768) | Condensed Consolidated Statements of Operations and Comprehensive Loss Operating revenues dramatically fell to $13.9 million for the first nine months of 2021, leading to a widened net loss of $22.1 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Operating revenues | $1,914 | $8,738 | $13,855 | $77,216 | | Loss from operations | ($7,753) | ($8,098) | ($22,471) | ($5,590) | | Net loss | ($7,865) | ($7,840) | ($22,110) | ($5,347) | | Basic loss per share | ($0.33) | ($0.33) | ($0.94) | ($0.23) | Condensed Consolidated Statements of Cash Flows Operating cash flow reversed to a $5.4 million use for the first nine months of 2021, driven by net loss, resulting in a $4.9 million decrease in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($5,373) | $24,448 | | Net cash provided by (used in) investing activities | $373 | ($804) | | Net cash provided by (used in) financing activities | $42 | ($4,380) | | Net (decrease) increase in cash | ($4,937) | $19,151 | Notes to Condensed Consolidated Financial Statements Notes detail seismic operations, geographic revenue decline, an undrawn credit facility, and a subsequent merger agreement with Wilks Brothers, LLC - The company is a leading provider of North American onshore seismic data acquisition services, serving major and independent oil and gas companies in the U.S. and Canada[23] Operating Revenues by Geographic Region (in thousands) | Region | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | United States | $10,891 | $65,408 | | Canada | $2,964 | $11,808 | | Total | $13,855 | $77,216 | - The company is involved in a legal proceeding with Weatherford regarding alleged groundwater contamination, but management does not expect it to have a material adverse effect[63] - On October 25, 2021, the company entered into a definitive merger agreement with Wilks Brothers, LLC, which commenced a tender offer to acquire all outstanding common stock for $2.34 per share in cash[74][75] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes poor Q3 2021 performance to depressed activity and low utilization, with revenues plummeting 82.1%, offset by cost reductions and an undrawn credit facility Overview Q3 2021 activity was severely depressed with low crew utilization, reflecting a challenging near-term outlook and prompting capital and operating expense reductions - Activity levels in Q3 2021 were depressed, with one seismic data acquisition crew operating in the lower 48 states experiencing extended periods of low utilization[78] - The near-term outlook for seismic activity in the U.S. remains challenged, and bid activity is at historically low levels with limited visibility into 2022[78][80] - The company has responded to market conditions by significantly limiting capital spending, reducing operating expenses, and implementing a comprehensive equipment maintenance program[81] Results of Operations Operating revenues for the first nine months of 2021 plummeted 82.1% to $13.9 million, with significant decreases in operating, G&A, and depreciation expenses due to cost-cutting Year-over-Year Financial Performance Comparison (in thousands) | Metric | 9 Months 2021 | 9 Months 2020 | % Change | | :--- | :--- | :--- | :--- | | Operating Revenues | $13,855 | $77,216 | -82.1% | | Operating Expenses | $18,247 | $58,189 | -68.6% | | General & Administrative | $7,996 | $11,205 | -28.6% | | Depreciation & Amortization | $10,083 | $13,412 | -24.8% | - The decrease in G&A expenses was primarily due to workforce reductions, salary reductions, and continued cost reduction efforts by management[85] Liquidity and Capital Resources Net cash used in operating activities reversed to $5.4 million for the first nine months of 2021, supported by a minimal $1.0 million capital budget and an undrawn $15 million credit facility - Net cash used in operating activities was $5.4 million for the first nine months of 2021, compared to net cash provided of $24.4 million in the same period of 2020, primarily due to a significantly larger net loss[95] - The Board of Directors approved a 2021 capital budget of $1.0 million, limited to necessary maintenance and incremental recording channel replacement[100] - The company extended its Loan and Security Agreement with Dominion Bank, providing a revolving credit facility of up to $15 million, with no amounts borrowed as of September 30, 2021[103] Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from commodity price fluctuations, concentrated credit risk in the oil and gas industry, interest rate risk, and foreign currency exposure - The company's principal market risks include fluctuations in commodity prices, concentration of credit risk within the oil and natural gas industry, interest rate risk, and foreign currency exchange rate risk from Canadian operations[113][116] - The company's allowance for doubtful accounts was $250,000 at September 30, 2021, reflecting ongoing credit evaluations of its clients[116] - As of September 30, 2021, the company had no outstanding debt under its variable interest rate Revolving Credit Facility, mitigating immediate interest rate risk[118] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of September 30, 2021, the company's disclosure controls and procedures were effective in all material respects[120] - No material changes were made to the company's internal control over financial reporting during the quarter ended September 30, 2021[121] Part II. OTHER INFORMATION Legal Proceedings The company is defending a lawsuit by Weatherford International regarding alleged groundwater contamination, not expecting a material adverse financial effect - The company is a defendant in a lawsuit filed by Weatherford International regarding alleged groundwater contamination. The company disputes the allegations and intends to defend itself vigorously[63][123] Risk Factors New risk factors include the potential failure to complete the pending merger with Wilks Brothers, LLC, which could adversely affect stock price and operations - A new risk factor relates to the pending merger with Wilks Brothers, LLC. Failure to complete the transaction could negatively impact the company's stock price and future business[126][127] - The merger's completion is subject to closing conditions, including the tender of at least 80% of the company's outstanding shares[128] Exhibits Exhibits filed with the Form 10-Q include the Second Loan Modification Agreement, officer certifications, and financial statements in Inline XBRL format - Exhibits filed with the report include the Second Loan Modification Agreement with Dominion Bank, CEO/CFO certifications, and financial statements formatted in Inline XBRL[130]