Executive Summary / Key Takeaways

• Dawson Geophysical is a specialized provider of onshore seismic data acquisition services in North America, operating in a cyclical industry highly dependent on oil and gas exploration and development spending.
• Recent performance shows a stark contrast between segments: U.S. operations experienced a significant revenue decline in Q1 2025 year-over-year due to lower utilization, while Canadian operations saw strong growth driven by increased utilization and the adoption of single node channel technology.
• The Company is strategically focused on cost control and investing in newer, more efficient technology like single node channels, which management believes will improve crew efficiency, revenue, and margins.
• Despite a challenging market backdrop characterized by E&P capital discipline and lagging seismic demand, management anticipates high utilization for its large U.S. crew and expects U.S. revenue to increase in Q2 2025 based on current backlog.
• Key risks include the inherent volatility of commodity prices and E&P spending, operational challenges like permit delays and weather, and the need for significant capital investment to maintain competitiveness and grow the business.

Setting the Scene: Navigating the Subsurface

Dawson Geophysical Company operates at the foundational layer of hydrocarbon exploration and development, providing critical onshore seismic data acquisition services across the continental United States and Canada. Its business is intrinsically linked to the capital spending cycles of oil and natural gas exploration and production (E&P) companies, as well as multi-client data library providers. In essence, Dawson helps its clients "see" beneath the surface, acquiring and processing 2-D, 3-D, and multicomponent seismic data to identify potential reserves, optimize drilling locations, and manage existing fields.

The company's history reflects the boom-and-bust nature of the energy sector. While experiencing periods of robust activity, such as operating multiple large crews in the U.S. and Canada in early 2020 and successfully acquiring high-density projects in the Permian Basin, Dawson has also faced severe downturns. The period since 2019, exacerbated by the COVID-19 pandemic, has been particularly challenging, characterized by depressed demand, pricing pressure, and significant cost reduction efforts, including a substantial reduction in workforce. This challenging environment has necessitated a strategic focus on efficiency, cost control, and adapting to the evolving needs of its client base.

The Competitive Terrain: Niche Player in a Giant's World

The onshore seismic data acquisition market is part of the broader oilfield services industry, where Dawson competes with much larger, diversified players like Schlumberger (SLB), Halliburton (HAL), and Baker Hughes (BKR), as well as more specialized firms like Oil States International (OIS). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Dawson operates with an estimated 5-10% share in its specific onshore seismic segment, significantly smaller than the estimated 10-25% shares held by the major integrated service providers in the broader oilfield services market.

Dawson's competitive positioning is primarily defined by its specialization in North American land-based seismic and a focus on cost efficiency. Compared to global giants like SLB, which offer integrated digital solutions and advanced seismic processing with estimated 25-50% faster data processing speeds and 20-30% higher ROIC, Dawson positions itself as a more cost-effective provider for clients, particularly independent operators and multi-client firms. While lacking the scale and extensive R&D budgets of the majors, which drive 20-30% higher efficiency in data analytics and broader market penetration (e.g., HAL's integrated services offer 20-30% advantage in project capabilities), Dawson aims to offer potentially 10-15% lower upfront costs for basic seismic services. Its operational simplicity for land-based projects can sometimes lead to faster turnaround for smaller projects.

However, this cost advantage comes with vulnerabilities. Dawson's technological capabilities, while state-of-the-art for land acquisition techniques like high-density, large channel counts, may lag behind the digital and AI-enhanced processing tools offered by larger competitors, potentially increasing its operating costs by 15-20% per project due to less efficient workflows compared to SLB. The competitive landscape has remained relatively stable in terms of key players, but the market itself is difficult for everyone, primarily due to restricted E&P spending rather than a shift in competitive dynamics among providers. Indirect competition from alternative technologies like AI-driven remote sensing and the broader energy transition towards renewables also poses a long-term challenge, potentially eroding market share through cheaper alternatives.

Technology and Operations: Efficiency Through Innovation

Dawson's core technological offering revolves around its equipment base capable of acquiring high-density, large channel count 2-D, 3-D, and multicomponent seismic data. This technology is crucial for generating high-resolution subsurface images, which clients use for improved well planning, geo-steering, geo-hazard identification, and reservoir characterization. The successful acquisition of large surveys in the Permian Basin using these techniques demonstrated the value proposition of improved image quality.

A key technological focus for Dawson, highlighted in recent commentary, is the utilization and planned investment in single node channels. Management attributes the improved operating results in Canada in Q1 2025, in part, to the utilization of this technology. Single node channels are lighter weight and are expected to improve crew efficiency. While specific quantifiable metrics on the degree of efficiency improvement or cost reduction from single node channels were not provided, management explicitly stated that investing in increasing channel count through the purchase of new single node equipment is expected to improve revenue and margins due to this enhanced crew efficiency.

The Company's operational effectiveness is heavily influenced by factors like crew utilization, permit acquisition delays, weather, and the type of contract (turnkey vs. dayrate). Maintaining a comprehensive equipment maintenance program is a strategic priority to ensure readiness when demand materializes. However, the ability to make significant capital investments necessary to acquire newer, more efficient equipment like additional single node channels is constrained by cash flow generation, particularly during periods of low demand. The approved 2025 capital budget of $6.0 million signals an intent to invest, historically funded by operations, reserves, and debt.

Recent Performance and Financial Health

The first quarter of 2025 presented a mixed financial picture for Dawson, reflecting the uneven recovery and regional variations in demand. Total operating revenues decreased to $16.1 million for the three months ended March 31, 2025, down significantly from $31.6 million in the same period of 2024. This decline was primarily driven by a substantial 85% decrease in U.S. fee revenue, falling from $18.3 million to $2.7 million, due to lower crew utilization in the U.S. segment compared to the prior year period.

In contrast, the Canada operations demonstrated strong performance, with fee revenues increasing by 48% to $12.5 million in Q1 2025 from $8.5 million in Q1 2024. This growth was attributed to increased crew utilization and the effective deployment of single node channels.

Consolidated operating costs decreased to $15.0 million in Q1 2025 from $25.8 million in Q1 2024, largely mirroring the decrease in U.S. activity. General and administrative expenses saw a slight decrease to $2.0 million from $2.2 million, reflecting ongoing cost reduction efforts. Depreciation and amortization expense also declined to $1.3 million from $1.6 million, a result of reduced capital expenditures over multiple prior years.

Despite the significant top-line decrease, the Company reported net income of $992,000 in Q1 2025, a notable decrease from $5.8 million in Q1 2024. Adjusted EBITDA also decreased to $2.3 million in Q1 2025 from $7.6 million in Q1 2024. The effective tax rate remained low due to net operating loss carryovers and valuation allowance adjustments.

From a liquidity standpoint, Dawson maintained a cash balance of $2.7 million and positive working capital of $6.7 million at March 31, 2025. Net cash provided by operating activities was $1.8 million in Q1 2025, comparable to $1.9 million in Q1 2024, influenced by changes in working capital. Cash used in investing activities decreased significantly, primarily due to zero cash capital expenditures in Q1 2025 compared to $0.7 million in Q1 2024. The termination of the Dominion Loan Agreement and release of the $5.0 million collateral deposit in May 2024 improved financial flexibility. Management believes current cash and working capital are sufficient for continued operations, with the 2025 capital budget expected to be funded by operations and borrowings.

Outlook and Strategic Path Forward

Management's outlook for the remainder of 2025, while not providing specific quantitative revenue or earnings guidance, indicates cautious optimism tempered by the realities of the market. The primary expectation is for the one large channel crew currently operating in the United States to be highly utilized through the end of the year. This anticipated utilization, coupled with a strong backlog, is expected to drive an increase in U.S. revenue in the second quarter of 2025.

However, the broader market context remains challenging. Management has consistently highlighted that demand for North American onshore seismic services lags behind the recovery in drilling and completion activity. E&P companies continue to prioritize capital discipline, shareholder returns, and debt reduction, keeping spending levels below cash flow despite improvements in commodity prices. Historically low bid activity and limited visibility beyond the near term persist. Prices for services have also softened.

Dawson's strategic response centers on maintaining a lean cost structure, maximizing the utilization and efficiency of its operating crews, and selectively investing in technology that can enhance productivity and margins, such as the planned purchase of new single node channels. The historical merger transaction with Wilks Brothers, LLC, which resulted in Wilks Brothers holding approximately 80% of the company's stock, was presented by management as providing compelling value and liquidity to shareholders in a thinly traded stock, and importantly, offering financial flexibility to meet future capital expenditure requirements that would not otherwise be available to the company. This suggests that future significant investments may be contingent on or facilitated by the controlling shareholder.

Risks and Challenges

Investing in Dawson Geophysical involves exposure to significant risks inherent in the energy services sector. The most critical risk is the Company's heavy dependence on the level of spending by oil and natural gas companies, which is highly volatile and directly tied to unpredictable fluctuations in commodity prices. A sustained decline in oil and gas prices would severely impact demand for seismic services, utilization rates, and profitability.

Operational risks include delays in obtaining land access permits, disruptions due to inclement weather, agricultural or hunting activity, and equipment failure, all of which can negatively affect crew productivity and utilization. The inherent volatility of the energy cycle also poses a credit risk, as swift changes in client financial stability could impact the collectability of accounts receivable.

Furthermore, while management believes current liquidity is adequate, the need for significant future capital investments to maintain a competitive equipment base and potentially grow the business could strain financial resources if market conditions do not improve sufficiently to generate strong operating cash flow. The competitive landscape, while stable in terms of players, presents ongoing pressure on pricing and the need for technological relevance. Operating in Canada also exposes the Company to foreign currency exchange rate risk.

Conclusion

Dawson Geophysical operates in a demanding niche within the energy services sector, providing essential onshore seismic data acquisition in North America. The Company's recent performance in Q1 2025 underscores the challenging market dynamics, with a significant year-over-year decline in U.S. revenue contrasting sharply with strong growth in Canada driven by increased utilization and the adoption of single node channel technology.

The core investment thesis for Dawson hinges on its ability to navigate this volatile environment through disciplined cost management, maximizing the efficiency of its operating crews, and making targeted investments in productivity-enhancing technology like single node channels. While the overall market outlook remains cautious due to persistent E&P capital discipline and lagging seismic demand, management's expectation for high utilization of its large U.S. crew and anticipated Q2 2025 revenue increase based on backlog provide some near-term optimism.

However, the long-term viability and growth trajectory are subject to the inherent cyclicality of the industry, the need for sustained capital investment in technology, and the ability to secure consistent project backlog in a competitive landscape dominated by larger, more technologically advanced players. The strategic flexibility potentially afforded by the controlling shareholder following the merger transaction could be a critical factor in addressing future capital requirements and pursuing growth opportunities. Investors must weigh the potential upside from operational efficiency gains and market recovery against the significant risks tied to commodity price volatility and the structural challenges within the North American onshore seismic market.