DAWSON GEOPHYSICAL CO

Previous wording

Statements other than statements of historical fact included in this Form 10-Q that relate to forecasts, estimates or other expectations regarding future events, including without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” regarding technological advancements and our financial position, business strategy, and plans and objectives of our management for future operations, may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors. These factors include, but are not limited to, the Company’s status as a controlled public company, which exempts the Company from certain corporate governance requirements; the limited market for the Company’s shares, which could result in the delisting of the Company’s shares from Nasdaq and the Company no longer being required to make filings with the SEC; the impact of general economic, industry, market or political conditions; dependence upon energy industry spending; changes in exploration and production spending by our customers and changes in the level of oil and natural gas exploration and development; the results of operations and financial condition of our customers, particularly during extended periods of low prices for crude oil and natural gas; the volatility of oil and natural gas prices; changes in economic conditions; surplus in the supply of oil and the ability of the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, to agree on and comply with supply limitations; the duration and magnitude of the unprecedented disruption in the oil and gas industry currently resulting from the impact of the foregoing factors, which is negatively impacting our business; the potential for contract delays; reductions or cancellations of service contracts; limited number of customers; credit risk related to our customers; reduced utilization; high fixed costs of operations and high capital requirements; operational challenges relating to the effects of the COVID-19 pandemic and certain efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees and remote work

Current wording

Statements other than statements of historical fact included in this Form 10-Q that relate to forecasts, estimates or other expectations regarding future events, including without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” regarding technological advancements and our financial position, business strategy, and plans and objectives of our management for future operations, may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors. These factors include, but are not limited to, our status as a controlled public company, which exempts us from certain corporate governance requirements; the limited market for our common stock, which could result in the delisting of the common stock from Nasdaq; the impact of general economic, industry, market or political conditions; dependence upon energy industry spending; changes in exploration and production spending by our customers and changes in the level of oil and natural gas exploration and development; the results of operations and financial condition of our customers, particularly during extended periods of low prices for crude oil and natural gas; the volatility of oil and natural gas prices; changes in economic conditions; surplus in the supply of oil and the ability of the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, to agree on and comply with supply limitations; the duration and magnitude of the unprecedented disruption in the oil and gas industry currently resulting from the impact of the foregoing factors, which is negatively impacting our business; the potential for contract delays; reductions or cancellations of service contracts; limited number of customers; credit risk related to our customers; reduced utilization; high fixed costs of operations and high capital requirements; operational challenges relating to the effects of the COVID-19 pandemic and certain efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees and remote work arrangements; industry competition; external factors affecting the Company’s crews such as weather interruptions and inability to obtain land access rights of way; whether the Company enters into turnkey or day…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

arrangements; industry competition; external factors affecting the Company’s crews such as weather interruptions and inability to obtain land access rights of way; whether the Company enters into turnkey or day rate contracts; crew productivity; the availability of capital resources; disruptions in the global economy, including unrest in the Middle East, export controls and financial and economic sanctions imposed on certain industry sectors and parties as a result of the developments in Ukraine and related activities, and whether or not a future transaction or other action occurs that causes the Company to be delisted from Nasdaq and no longer be required to make filings with the SEC. The cautionary statements made in this Form 10-Q should be read as applying to all related forward-looking statements wherever they appear in this Form 10-Q. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. A discussion of these and other factors, including risks and uncertainties, is set forth in the Company’s Annual Report on Form 10-K that was filed with the SEC on April 1, 2024 and any subsequent Quarterly Reports on Form 10-Q filed with the SEC. The Company disclaims any intention or obligation to revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Current wording

activities, and whether or not a future transaction or other action occurs that causes the Company to be delisted from Nasdaq and no longer be required to make filings with the SEC. The cautionary statements made in this Form 10-Q should be read as applying to all related forward-looking statements wherever they appear in this Form 10-Q. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. A discussion of these and other factors, including risks and uncertainties, is set forth in the Company’s Annual Report on Form 10-K that was filed with the SEC on April 1, 2024 and any subsequent Quarterly Reports on Form 10-Q filed with the SEC. The Company disclaims any intention or obligation to revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Previous wording

We expect revenue to decrease in the second quarter due to the seasonal nature of our Canadian operations and reduced crew activity in the U.S. However, we are taking proactive steps to significantly reduce our cost structure during this period of low activity to improve our operating cash flows. Bid activity in the U.S. has continually improved and we expect to significantly increase our crew utilization later in the year.

Current wording

We expect revenue in the third quarter to be comparable to the second quarter and to significantly increase in the fourth quarter due to additional jobs scheduled in the U.S. and resumption of our Canadian operations. Bid activity in the U.S. has continued to improve.

Previous wording

*Total Revenues.*Revenues for the first quarter of 2024 were $31.6 million compared to $29.4 million for the same period of 2023. Total revenues included a decrease of $2.3 million in reimbursable revenues.

Current wording

*Total Revenues.*Revenues for the second quarter of 2024 were $12.5 million compared to $20.2 million for the same period of 2023. Total revenues included a decrease of $5.2 million in reimbursable revenues. Revenues for the first six months of 2024 were $44.1 million compared to $49.6 million for the same period of 2023. Total revenues included a decrease of $7.4 million in reimbursable revenues.

Previous wording

*U.S. Fee Operating Expenses.*Acquisition expenses for the first quarter of 2024 increased 37% to $13.2 million compared to $9.6 million for the same period of 2023. The increase was primarily due to an overall increase in crew production and utilization.

Current wording

*U.S. Fee Operating Expenses.*Acquisition expenses for the second quarter of 2024 decreased 18.6% to $7.9 million compared to $9.6 million for the same period of 2023. The decrease was primarily due to an overall decrease in crew production and utilization during the period. Acquisition expenses for the first six months of 2024 increased 9% to $21.0 million from $19.3 million for the same period of 2023. The increase was primarily due to an increase in crew utilization.

Previous wording

*Canadian Fee Operating Expenses.*Acquisition expenses for the first quarter of 2024 decreased 38% to $4.3 million from $7.0 million for the same period of 2023. The decrease was primarily due to an overall decrease in crew production and utilization.

Current wording

*Canadian Fee Operating Expenses.*Acquisition expenses for the second quarter of 2024 decreased 29% to $0.7 million compared to $0.9 million for the same period of 2023. The decrease was primarily due to an overall decrease in crew production and utilization during

Previous wording

*Canadian Fee Revenues.*Acquisition revenues for the first quarter of 2024 decreased 15% to $8.5 million compared to $10.0 million for the same period of 2023. The decrease was primarily due to decreased crew utilization during 2024.

Current wording

the period. Acquisition expenses for the first six months of 2024 decreased 37% to $5.0 million from $7.9 million for the same period of 2023. The decrease was primarily due to decreased crew utilization.

Previous wording

General and Administrative Expenses. General and administrative expenses were 6% and 12% of revenues in the first quarter of 2024 and 2023, respectively. General and administrative expenses decreased 45% to $1.9 million compared to $3.5 million for the same period of 2023. The decrease was primarily due to our focus on cost reduction initiatives, a decrease in retained legal counsel and a reduction in salary expenses.

Current wording

General and Administrative Expenses. During the second quarter of 2024, general and administrative expenses decreased 27.1% to $2.2 million compared to $3.0 million for the same period of 2023. During the first six months of 2024 general and administrative expenses decreased 37% to $4.1 million compared to $6.5 million for the same period of 2023. The decrease was primarily due to our focus on cost reduction initiatives, a decrease in retained legal counsel and a reduction in salary expenses.

Previous wording

Depreciation and Amortization Expense. Depreciation and amortization expense for the first quarter of 2024 totaled $1.6 million compared to $2.7 million for the same period of 2023. Depreciation expense decreased in 2024 compared to 2023 as a result of multiple years of reduced capital expenditures.

Current wording

Depreciation and Amortization Expense. Depreciation and amortization expenses for the second quarter and first six months of 2024 totaled $1.4 million and $3.0 million, respectively, compared to $2.1 million and $4.8 million for the same periods of 2023. Depreciation expenses decreased in 2024 compared to 2023 as a result of multiple years of reduced capital expenditures.

Previous wording

Total Operating Costs. Total operating costs for the first quarter of 2024 were $25.8 million, representing a 14% decrease from the same period of 2023. The decrease was primarily due to the factors described above.

Current wording

Total Operating Costs. Total operating costs for the second quarter of 2024 were $16.3 million, representing a 34.6% decrease from the same period of 2023. The operating costs for the first six months of 2024 were $42.2 million, representing a 23.3% decrease from the same period of 2023. The decrease in operating costs for the second quarter and first six months of 2024 compared to 2023 was primarily due to the factors described above.

Previous wording

Income Taxes. Income tax expense for the first quarter of 2024 was $202,000 compared to income tax benefit of $17,000 for the same period of 2023. These amounts represent effective tax rates of 3.3% and 4.0% for the first quarters of 2024 and 2023, respectively. The Company’s nominal effective tax rate for the periods above was due to the presence of net operating loss carryovers and adjustments to the valuation allowance on deferred tax assets.

Current wording

Income Taxes. Income tax benefit for the second quarter of 2024 was $131,000 and income tax expense for the first six months of 2024 was $71,000, respectively, compared to income tax benefits of $82,000 and $99,000 for the same periods of 2023. These amounts represent effective tax rates of 3.6% and 3.0% for the second quarter and first six months of 2024, respectively, compared to 1.8% and 2.0% for the same periods of 2023. The Company’s nominal effective tax rate for the periods above was due to the presence of net operating loss carryovers and adjustments to the valuation allowance on deferred tax assets.

Previous wording

Use of EBITDA (a Non-GAAP measure)

Current wording

Use of Adjusted EBITDA (a Non-GAAP measure)

Previous wording

We define EBITDA as net income (loss) plus interest expense, interest income, income taxes, and depreciation and amortization expense. Our management uses EBITDA as a supplemental financial measure to assess:

Current wording

We define Adjusted EBITDA as our net income (loss), before (i) interest expense, net, (ii) income tax expense or benefit, (iii) depreciation, depletion and amortization and (iv) other unusual or non-recurring charges, such as severance expenses. Our management uses Adjusted EBITDA as a supplemental financial measure to assess:

Previous wording

We also understand that such data are used by investors to assess our performance. However, the term EBITDA is not defined under GAAP, and EBITDA is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP. When assessing our operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income (loss), cash flow from operating activities or other cash flow data calculated in accordance with GAAP. In addition, our EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as us. Further, the results presented by EBITDA cannot be achieved without incurring the costs that the measure excludes: interest, taxes, and depreciation and amortization.

Current wording

We also understand that such data are used by investors to assess our performance. However, the terms EBITDA and Adjusted EBITDA are not defined under GAAP, and neither EBITDA nor Adjusted EBITDA is a measure of operating income, operating performance or liquidity presented in accordance with GAAP. When assessing our operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income (loss), cash flow from operating activities or other cash flow data calculated in accordance with GAAP. In addition, our EBITDA and Adjusted EBITDA may not be comparable to EBITDA, Adjusted EBITDA, or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA or Adjusted EBITDA in the same manner as us. Further, the results presented by EBITDA or Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes: interest, taxes, and depreciation and amortization, and other unusual or non-recurring charges, such as severance expenses.

Previous wording

The reconciliation of our EBITDA to net income (loss) and to net cash provided by (used in) operating activities, which are the most directly comparable GAAP financial measures, are provided in the following tables (in thousands):

Current wording

The reconciliation of our Adjusted EBITDA to net income (loss) and to net cash provided by (used in) operating activities, which are the most directly comparable GAAP financial measures, are provided in the following tables (in thousands):

Previous wording

Cash Flows. Net cash provided by operating activities was $1.9 million for the three months ended March 31, 2024, compared to net cash used in operating activities of $1.8 million for the same period of 2023. This increase was primarily due to net income in 2024 compared to net loss in 2023 along with various changes in the balances of our operating assets and liabilities.

Current wording

Cash Flows. Net cash provided by operating activities was $7.8 million for the six months ended June 30, 2024, compared to net cash provided by operating activities of $5.8 million for the same period of 2023. This increase was primarily due to net income in 2024 compared to net loss in 2023 along with various changes in the balances of our operating assets and liabilities.

Previous wording

Net cash used in investing activities was $0.5 million and $2.6 million for the three months ended March 31, 2024, and 2023, respectively. The decrease in cash used in investing activities between periods of $2.1 million was primarily due to a decrease in cash capital expenditures to $0.7 million for the first three months of 2024 compared to capital expenditures of $1.6 million for the same period of 2023. Additionally, in connection with the Breckenridge asset acquisition in 2023 we acquired $1.0 million of short-term investments.

Current wording

Net cash used in investing activities was $1.3 million and $3.0 million for the six months ended June 30, 2024, and 2023, respectively. The decrease in cash used in investing activities between periods of $1.7 million was primarily due to a decrease in cash capital expenditures to $1.5 million for the first six months of 2024 compared to capital expenditures of $2.0 million for the same period of 2023. Additionally, in connection with the Breckenridge asset acquisition in 2023 we acquired $1.0 million of short-term investments.

Previous wording

Net cash used in financing activities was $0.6 million for the three months ended March 31, 2024, and was primarily comprised of principal payments of $0.4 million and $0.2 million under our notes payable and finance leases, respectively. Net cash used in financing activities was $3.2 million for the three months ended March 31, 2023, and was primarily comprised of principal payments of $0.1 million and $25,000 under our notes payable and finance leases, respectively. Additionally, in connection with the Breckenridge asset acquisition we had cash distributions of $3.1 million.

Current wording

Net cash used in financing activities was $11.1 million for the six months ended June 30, 2024, and was primarily comprised of dividends paid of $9.9 million, principal payments of $0.8 million and $0.3 million under our notes payable and finance leases, respectively. Net cash used in financing activities was $3.5 million for the six months ended June 30, 2023, and was primarily comprised of principal payments of $0.3 million and $68,000 under our notes payable and finance leases, respectively. Additionally, in connection with the Breckenridge asset acquisition we had cash distributions of $3.1 million.

Previous wording

Capital Expenditures. The Board of Directors approved an initial 2024 capital budget in the amount of $2.5 million for capital expenditures, which was limited to necessary maintenance capital requirements and incremental recording channel replacement or increase. For the three months ended March 31, 2024, we have spent $0.7 million on capital expenditures, primarily for rolling stock and maintenance capital requirements. In recent years, we have funded most of our capital expenditures through cash flow from operations, cash reserves, equipment term loans and finance leases.

Current wording

Capital Expenditures. The Board of Directors approved an initial 2024 capital budget in the amount of $2.5 million for capital expenditures, which was limited to necessary maintenance capital requirements and incremental recording channel replacement or increase. For the six months ended June 30, 2024, we have spent $1.8 million on capital expenditures, primarily for rolling stock and maintenance capital requirements. Historically, we have funded most of our capital expenditures through cash flow from operations, cash reserves, equipment term loans and finance leases.

Previous wording

Capital Resources. Historically, we have primarily relied on cash generated from operations, cash reserves and borrowings from commercial banks to fund our working capital requirements and, to some extent, our capital expenditures. We have funded some of our capital expenditures through commercial bank borrowings, finance leases and equipment term loans.

Current wording

Capital Resources. Historically, we have primarily relied on cash flows from operations, cash reserves and borrowings from commercial banks to fund our working capital requirements.

Previous wording

*Dominion Credit Facility.*On September 30, 2019, we entered into a Loan and Security Agreement with Dominion Bank, a Texas state bank (“Dominion Bank”). On September 30, 2023, we entered into a Fifth Loan Modification Agreement (the “Fifth Modification Agreement”) to the Loan and Security Agreement (as amended by (i) that certain Loan Modification Agreement dated as of September 30, 2020, (ii) that certain Second Loan Modification Agreement dated as of September 30, 2021, (iii) that certain Third Loan Modification Agreement dated as of September 30, 2022, (iv) that certain Fourth Modification Agreement dated as of March 21, 2023, and (v) the Fifth Modification Agreement, the “Loan Agreement”). The Loan Agreement now provides for a secured revolving credit facility (the “Revolving Credit Facility”) in an amount up to the lesser of (I) an amount equal to the Borrowing Base or (II) $5 million. Our obligations under the Loan Agreement are secured by a Certificate of Deposit with Dominion Bank for $5 million (the “Deposit”) in our collateral account. As of March 31, 2024, we had not borrowed any amounts under the Revolving Credit Facility and had approximately $5 million available for

Current wording

*Dominion Credit Facility.*On September 30, 2019, we entered into a Loan and Security Agreement with Dominion Bank, a Texas state bank (“Dominion Bank”). On September 30, 2023, we entered into a Fifth Loan Modification Agreement (the “Fifth Modification Agreement”) to the Loan and Security Agreement (as amended by (i) that certain Loan Modification Agreement dated as of September 30, 2020, (ii) that certain Second Loan Modification Agreement dated as of September 30, 2021, (iii) that certain Third Loan Modification Agreement dated as of September 30, 2022, (iv) that certain Fourth Modification Agreement dated as of March 21, 2023, and (v) the Fifth Modification Agreement, the “Loan Agreement”). The Loan Agreement provided for a secured revolving credit facility (the “Revolving Credit Facility”) in an amount up to the lesser of (I) an amount equal to the Borrowing Base or (II) $5 million. Our obligations under the Loan Agreement was secured by a Certificate of Deposit with Dominion Bank for $5 million (the “Deposit”) in our collateral account. On May 2, 2024, the collateral deposit of $5 million was released and the Loan Agreement was terminated.

Previous wording

As of March 31, 2024, we have one short-term note payable to a finance company for various insurance premiums totaling $526,000.

Current wording

As of June 30, 2024, we have one short-term note payable to a finance company for various insurance premiums totaling $133,000. As of December 31, 2023, we had one short-term note payable to a finance company for various insurance premiums totaling $910,000.

Previous wording

In addition, we lease certain seismic recording equipment and vehicles under leases classified as finance leases. Our Condensed Consolidated Balance Sheet as of March 31, 2024, includes finance leases of $2.1 million.

Current wording

In addition, we lease certain seismic recording equipment and vehicles under leases classified as finance leases. Our Condensed Consolidated Balance Sheet as of June 30, 2024 and December 31, 2023, include finance leases of $2.0 million and $1.8 million, respectively.