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TGC Industries, Inc. (TGE)

Q3 2008 Earnings Call

October 20, 2008 9:30 am ET


Karen Roan – DRG&E

Wayne A. Whitener - President, Chief Executive Officer and Director

James Kevin Brata - Vice President and Chief Financial Officer Designate


Neal Dingmann - Dahlman Rose & Co.

Karen David-Greene - Oppenheimer & Co.

Terese Fabian - Sidoti

[Kerwin Dutton – KLV Investment Management]

Bob Johnson – [Sadwith]



Welcome to the TGC Industries third quarter earnings conference call. (Operator Instructions) At this time I’d like to turn the conference over to Karen Roan with DRG&E.

Karen Roan

We appreciate your joining us today. Your host will be Wayne Whitener, President and Chief Executive Officer, along with Chief Financial Officer, Jim Brata.

Before I turn the call over to management I have a few items to cover. If you would like to be added to the company’s email distribution list, please call DRG&E’s office at 713-529-6600 and relay that information to us or you can send me an email with that information at If you would like to listen to a replay of today’s call, it is available via web cast by going to the Investor Relations section of the company’s website at or via a recorded instant replay until November 3. Information about how to access the replay was provided in this morning’s earnings release.

Information reported on this call speaks only as of today, October 20, 2008 and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay.

Before we begin let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements regarding the company’s future performance are forward-looking statements. These forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the company is unable to predict or control that may cause the company’s actual future results or performance to materially differ from any future results or performance expressed or implied by those statements.

These risks and uncertainties include the risk factors disclosed by the company from time to time in its filings with the SEC including in its annual report on Form 10K for the year ended December 31, 2007. Furthermore, as we start this call please refer to the statement regarding forward-looking statements incorporated in our press release issued this morning and please note that the contents of our conference call this morning are covered by these statements.

I will turn the call now over to Wayne Whitener.

Wayne Whitener

Jim Brata will provide you with the financial details. As many of you know, our former CFO, Ken Uselton, recently retired and Jim joined us in June of this year to fill that position. We are very pleased to have Jim on board. He will begin with the financial highlights and then I will come back with some comments.

James Brata

Revenues for the 2008 third quarter declined 11.0% to $21.6 million compared to $24.2 million in the third quarter of 2007. The revenue decline was primarily due to the following reasons: We had an unusually low amount of shot hole work in the quarter and shot hole works typically generate higher revenues and lower margins because they contain higher third party costs.

Also the two crews idled in the second quarter did not get back into the field until the second half of July. The two hurricanes that hit the Gulf Coast in August and September impacted some of the crews in the field.

Cost of services in the third quarter declined 2% to $13.4 million from $17.0 million in the third quarter a year ago primarily as the result of the unusually low amount of shot hole work that I mentioned previously. Cost of services as a percentage of revenue was 62.0% in the 2008 third quarter versus 70.1% a year ago. As a result, our gross profit margin improved substantially to 38.0% from 29.9% in the third quarter of last year. Gross profit was $8.2 million compared to $7.2 million a year ago, a 13.0% increase.

SG&A expenses were $1.1 million in the 2008 third quarter, relatively the same as the 2007 third quarter. As a percentage of revenues, SG&A expenses remained low at 5.2% in the 2008 third quarter compared to 4.4% a year ago.

Depreciation and amortization expense increased 18.8% to $3.5 million from $2.9 million in the third quarter a year ago as we continue to invest in new equipment for our crews. Third quarter 2008 income from operations increased 10.3% to $3.6 million compared to $3.3 million in the third quarter a year ago. Income from operations as a percentage of revenues increased to 16.7% compared to 13.5% in the third quarter a year ago.

Interest expense in the third quarter was approximately $245,000 versus $146,000 a year ago as we continue to purchase and finance new seismic equipment. Income before income taxes in the third quarter increased 7.6% to $3.4 million compared to $3.1 million in the third quarter a year ago. As a percentage of revenue, income before income taxes was 15.6% in the 2008 third quarter compared to 12.9% a year ago. The effective tax rate for the third quarter was 44.5% compared to 41.5% in the third quarter of 2007.

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