Little Bravado for Dawson's Shares
Unlike the reverberating acoustic force of an Inova Vibration Machine used in the multi dimensional underground mapping processes of Dawson Geophysical (NASDAQ: DWSN), the company’s stock has moved little in response to this morning’s quarterly earnings report. This leader in seismic data processing who serves numerous oil and gas explorations and production companies, such as Devon Energy (NYSE: DVN) and Chesapeake Energy (NYSE: CHK) to name a few, fell short of consensus expectations by earning $.23 per share for its fiscal first quarter of 2012. This figure excludes the onetime tax benefit relating to the failed merger with TGC Industries of $.18 per share realized during the quarter.
What’s in Quarterly EPS figures anyway?
Although these results don’t look too enticing upon first blush, let’s not get too caught up in the short-term Wall Street earnings game. There is much more behind this story than a simple EPS figure that doesn’t even hint towards seasonality in the underlying business, which by the way the company’s fiscal Q1 has not historically been its strongest. However, compared to last year’s net loss of $.21 per share in the same quarter, things are at definitely on the up and up. On the conference call this morning, the company’s CEO Stephen Jumper highlighted the improving trends in both the company’s financials as well as operations that point to growth opportunities going forward. The company has seen its best start since 2009 and seems bullish over future prospects. Of note is the company’s 27% increase in YoY Q1 revenues as well as its 125% increase in EBITDA margin, which is the income more directly attributable to operations as a percentage of sales. On a year over year basis the EBITDA margin has grown by over 5 percentage points to 11.9%. This more rapid expansion of EBITDA as compared to sales is exactly what we want to see as investors. It could mean one or both of two things: First, based upon improving industry fundamentals pricing for the company’s services may have strengthened; and/or the company’s active fourteen service crews are operating at greater efficiency. This latter point, in fact, was discussed on the call. The trend in increasing channel count per crew, which refers to the capability of the recording technology utilized by Dawson, signifies both operating efficiency as well as increasing demand as Mr. Jumper noted that new projects are becoming larger.
Mapping the companies’ future
The improvement in EBITDA margin is a nice step forward, but many wonder whether the company can rise to former profitability levels in the mid 20% range reached only a few short years ago. Currently, the biggest reason behind today’s margin level is the increase in 3rd part charges, such as permit fees and surveying charges since the company is undertaking projects in more remote locations. But from a long-term cash flow standpoint, these charges are eventually reimbursed by Dawson’s customers; therefore, I wouldn’t necessarily be overly worried about them. Instead, I believe favorable industry conditions, including the expectation of higher oil prices to come over the next few years, as well as projects that are increasing both in number and size and management’s keen focus on margin expansion yields a bright future for this long tenured industry leader.
Motley Fool newsletter services recommendDawson Geophysical Company. The Motley Fool owns shares of Dawson Geophysical Company. Fool blogger Mike Finarelli does not currently own shares in any companies mentioned in this report, but plans on taking a much harder look at Dawson's shares for future investment. 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.