Dawson(DWSN) - 2023 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements Unaudited Q1 2023 statements show increased revenues and a reduced net loss, retrospectively adjusted for the Breckenridge acquisition Condensed Consolidated Balance Sheets Total assets decreased to $65.7 million while total liabilities increased to $32.5 million, resulting in a significant drop in stockholders' equity | | March 31, 2023 (unaudited) | December 31, 2022 (as adjusted) | | :--- | :--- | :--- | | Total current assets | $42,866 | $43,826 | | Total assets | $65,653 | $68,673 | | Total current liabilities | $18,989 | $16,194 | | Total long-term liabilities | $13,543 | $3,675 | | Total stockholders' equity | $33,121 | $48,804 | | Total liabilities and stockholders' equity | $65,653 | $68,673 | - A new convertible note payable to a controlling shareholder of $9.88 million was added to long-term liabilities in Q1 2023[11] Condensed Consolidated Statements of Operations and Comprehensive Loss Operating revenues increased 34.1% year-over-year to $29.4 million, with the net loss improving significantly to $0.41 million | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 (as adjusted) | | :--- | :--- | :--- | | Operating revenues | $29,408 | $21,934 | | Loss from operations | ($573) | ($1,438) | | Net loss | ($413) | ($1,385) | | Basic and Diluted loss per share | ($0.02) | ($0.06) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $1.8 million, while cash used in investing and financing activities increased | (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 (as adjusted) | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,820) | ($9,149) | | Net cash used in investing activities | ($2,595) | ($18) | | Net cash (used in) provided by financing activities | ($3,224) | $1,647 | | Net decrease in cash | ($7,659) | ($7,520) | | Cash at end of period | $15,944 | $22,856 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from $48.8 million to $33.1 million, primarily due to the accounting for the Breckenridge acquisition - The acquisition of Breckenridge resulted in a charge of $10.565 million to additional paid-in capital, representing the excess of purchase price over the net assets acquired[16][69] Notes to Condensed Consolidated Financial Statements Notes detail the Breckenridge acquisition accounting, disaggregated revenue, debt instruments, and legal contingencies - On March 24, 2023, the Company acquired substantially all seismic data acquisition assets from Breckenridge Geophysical, LLC, a transaction accounted for as a combination of entities under common control with retrospective financial statement revisions[23][24] | Geographic Region | Q1 2023 Revenue (in thousands) | Q1 2022 Revenue (in thousands) | | :--- | :--- | :--- | | United States | $18,796 | $10,758 | | Canada | $10,612 | $11,176 | | Total | $29,408 | $21,934 | - The company has a $9.88 million convertible note payable to Wilks, which can be converted into 5,811,765 shares of common stock at a price of $1.70 per share upon shareholder approval[54] - The company is a defendant in a lawsuit filed by Weatherford International regarding alleged groundwater contamination, but management believes the resolution will not have a material adverse effect on its financials[60] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 34.1% revenue increase to improved market conditions and expects high crew activity for the remainder of 2023 - Demand for seismic services is improving but remains below pre-pandemic levels, with high crew activity expected in late 2023 and early 2024[80] - The first quarter of 2023 was the company's first profitable quarter since 2020, excluding the Breckenridge acquisition's contribution, driven by improved market conditions and operational execution[81] Results of Operations Q1 2023 operating revenues rose 34.1% due to increased crew utilization, while G&A expenses decreased by 40.4% | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Operating Revenues | $29,408,000 | $21,934,000 | +34.1% | | Operating Expenses | $23,782,000 | $14,403,000 | +65.1% | | General & Admin Expenses | $3,499,000 | $5,868,000 | -40.4% | - The decrease in G&A expenses was primarily due to transaction costs of $715,000 in Q1 2023 related to the Breckenridge purchase, compared to $2,872,000 in Q1 2022 related to a previously proposed merger[86] Use of EBITDA (a Non-GAAP measure) EBITDA, a non-GAAP measure used by the company, increased to $2.18 million in Q1 2023 from $1.70 million in Q1 2022 | (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 (as adjusted) | | :--- | :--- | :--- | | Net loss | ($413) | ($1,385) | | Depreciation and amortization | 2,700 | 3,101 | | Interest (income) expense, net | (91) | (15) | | Income tax (benefit) expense | (17) | 1 | | EBITDA | $2,179 | $1,702 | Liquidity and Capital Resources Liquidity is supported by operations, cash reserves, and a revolving credit facility, with a 2023 capital budget of $5.0 million - Net cash used in operating activities decreased to $1.82 million in Q1 2023 from $9.15 million in Q1 2022, primarily due to receiving a $3.035 million employee retention credit[95] - The approved 2023 capital budget is $5.0 million, with $1.117 million spent as of March 31, 2023[98] - The company's revolving credit facility with Dominion Bank was amended, reducing the commitment from $10 million to $5 million, with no amounts borrowed as of March 31, 2023[101][103] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from commodity prices, credit concentration, interest rates, and foreign currency exchange - The company's principal market risks include fluctuations in commodity prices, concentration of credit risk within the oil and natural gas industry, variable interest rate risk, and foreign currency exchange risk from Canadian operations[113][114][116] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - Based on an evaluation as of March 31, 2023, the President and Chief Executive Officer and the Executive Vice President, Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[118] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[119] Part II. OTHER INFORMATION Legal Proceedings The company is a defendant in a lawsuit regarding alleged groundwater contamination but does not expect a material adverse effect - The company is a defendant in a lawsuit filed by Weatherford International in 2019 concerning alleged groundwater contamination and intends to defend itself vigorously[60][121] Risk Factors No material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K are reported for the quarter - There are no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022[122] Exhibits This section lists exhibits filed with the Form 10-Q, including agreements related to the Breckenridge acquisition and officer certifications - Key exhibits filed with this report include the Asset Purchase Agreement with Wilks Brothers, LLC and Breckenridge Geophysical, LLC, a Convertible Note, a Voting Agreement, and CEO/CFO certifications[124]