Source: Dawson Geophysical.

The plunge in oil prices has had consequences throughout the energy industry, and the pain hasn't been limited to oil and gas producers. With production companies having to make hard choices to keep their expenses in line and conserve valuable cash, seismic specialist Dawson Geophysical (NASDAQ:DWSN) has seen its business fall prey to a big drop in demand for its data-acquisition services.

The company quietly released its fiscal first-quarter results Friday afternoon, eschewing its traditional press release in favor of a simple SEC filing as Dawson prepares to consummate its merger with TGC Industries. Let's take a closer look at just how badly Dawson Geophysical got hurt last quarter, and what's in store for its future.

Dawson Geophysical feels the pinch
Dawson saw conditions worsen considerably during its fiscal first quarter. Revenue plunged more than 25%, to $50.8 million, leaving investors shellshocked with their much higher consensus for more than $64 million in sales. Similarly, Dawson's net losses were more than twice as bad as shareholders had feared, climbing 73%, to $5.02 million, equating to a loss of $0.60 per share. Even looking at pre-tax operating income, Dawson saw its results drop by more than 40%, to $2.9 million.

Dawson explained the shortfalls on a number of factors. Utilization rates of Dawson's crews fell sharply during the quarter, with poor weather, project delays from clients, and cutbacks in client spending weighing on demand for Dawson's services. The percentage of reimbursed third-party charges fell toward the low-end of its historical range, although it remained within the bounds of the company's expectations. Dawson operated between eight and 10 data-acquisition crews during the quarter, down from 14 crews in the year-ago quarter.

Source: Dawson Geophysical.

With respect to the bottom line, fixed costs led to expenses representing a much greater proportion of revenue, with general and administrative expenses rising from 6% of sales last year to 10% during the quarter. Much of the increased expenses should go away when the merger with TGC is complete; but even so, Dawson's costs didn't fall by as great an amount as its revenue did, spelling trouble for the company.

Dawson isn't taking an entirely gloomy view of the future. In its comments, the company notes that, despite market volatility, "we believe opportunities exist for us to enhance our market position by responding to our clients' continuing desire for higher resolution subsurface images." Yet even amid that optimism, the company is realistic about the impact of low oil prices, noting that "it would result in diminished demand for our seismic services, could cause downward pressure on the prices we charge, and would affect our results of operations."

Source: Dawson Geophysical.

Can Dawson Geophysical put its worst times behind it?
Given the tough conditions in the oil patch, Dawson Geophysical is likely to see difficult conditions persist for quite a while. Yet in recent weeks, the oil market has looked like it might be closer to reaching a bottom than it was throughout much of Dawson's fiscal first quarter. Once prices stabilize, Dawson should get a better read on what its clients' long-term responses to the situation will be.

Meanwhile, Dawson is looking forward to gaining approval for its merger with TGC Industries. With special shareholders' meetings scheduled for next Monday, Feb. 9, Dawson hopes that favorable results will pave the way for the consummation of the deal.

Assuming regulators approve the deal and it closes, TGC will perform a one-for-three reverse stock split, and then Dawson shareholders will receive 1.76 of the newly reverse-split TGC stock -- which will then somewhat confusingly change its name to Dawson Geophysical. Once the deal is complete, Dawson hopes that it will be able to dominate the geophysical services industry, boosting the number and quality of services it provides to its key customers.

Dawson will benefit from its merger, but it will still need the energy markets to cooperate in order to return to its former growth trajectory. In a cyclical business, Dawson has seen ups and downs before, and the company stands a good chance of weathering the current storm, and eventually giving shareholders the returns they want to see.