Item 7. Management’s Discussion and Analysis
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Form 10-K. Portions of this document that are not statements of historical or current fact are forward-looking statements that involve risk and uncertainties, such as statements of our plans, business strategy, objectives, expectations and intentions. This discussion contains forward-looking statements that involve risks and uncertainties. Please see “Business,” “Disclosure Regarding Forward-Looking Statements” and “Risk Factors” elsewhere in this Form 10-K.
You should read this discussion in conjunction with the financial statements and notes thereto included elsewhere in this Form 10-K. Unless the context requires otherwise, all references in this Item 7 to the “Company,” “we,” “us” or “our” refer to Dawson Geophysical Company and its consolidated subsidiaries.
Overview
We are a leading provider of North American onshore seismic data acquisition services with operations throughout the continental U.S. and Canada. Substantially all of our revenues are derived from the seismic data acquisition services we provide to our clients. Our clients consist of major oil and gas companies, independent oil and gas operators, and providers of multi-client data libraries. Demand for our services depends upon the level of spending by these companies for exploration, production, development and field management activities, which depends, in large part, on oil and natural gas prices. Significant fluctuations in domestic oil and natural gas exploration and development activities related to commodity prices, as we have recently experienced, have affected, and will continue to affect, demand for our
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services and our results of operations, and such fluctuations continue to be the single most important factor affecting our business and results of operations.
The Company had one large channel crew and three smaller channel crews operating in the fourth quarter in the United States and into the first quarter of 2026. High crew utilization in the fourth quarter resulted in improved margins and profitability, and we expect an increase in utilization and revenue in the first quarter of 2026. We resumed our Canadian operations in the fourth quarter of 2025 with two crews and moved into the first quarter of 2026 with three large channel count crews. We anticipate our Canadian operations to have a successful first quarter.
In August 2025, Dawson Operating LLC (“Dawson Operating”), a wholly-owned subsidiary of Dawson Geophysical Company, entered into an equipment purchase agreement with GTC, Inc. (“GTC”), a wholly-owned subsidiary of Geospace Technologies Corporation (“Geospace”), pursuant to which, among other things, Dawson Operating agreed to acquire new single point node channels from GTC for an aggregate purchase price of approximately $24.2 million (the “Equipment Purchase Agreement”) subject to the terms and conditions thereof. The Company paid cash of approximately $4.8 million upon execution of the Equipment Purchase Agreement, agreed to pay approximately $1.2 million in cash upon final delivery, and agreed to finance approximately $18.2 million through separate promissory notes to be issued in connection with each delivery of equipment (each, a “Geospace Note” and collectively, the “Geospace Notes”). Each Geospace Note is payable by Dawson Geophysical Company and Dawson Operating, jointly and severally, to GTC. The Geospace Notes will each have a term of 36 months, bear a fixed interest rate of 8.75% annually and may be prepaid in whole or in part at any time without penalty. As of December 31, 2025, we have taken delivery of $20.9 million of equipment and issued five Geospace Notes with an aggregate principal of approximately $15.5 million. We have observed significant demand for this new equipment from our customers during 2025, and into the first half of 2026.
While our revenues are mainly affected by the level of client demand for our services, our revenues are also affected by the pricing for our services that we negotiate with our clients and the productivity and utilization level of our data acquisition crews. Factors impacting productivity and utilization levels include client demand, commodity prices, whether we enter into turnkey or day-rate contracts with our clients, the number and size of crews, the number of recording channels per crew, crew downtime related to inclement weather, delays in acquiring land access permits, agricultural or hunting activity, holiday schedules, short winter days, crew repositioning and equipment failure. To the extent we experience these factors, our operating results may be affected and vary from quarter to quarter. Consequently, our efforts to negotiate more favorable contract terms in our supplemental service agreements, mitigate permit access delays and improve overall crew productivity may contribute to growth in our revenues.
The majority of our revenues were derived from turnkey contracts for the years ending December 31, 2025, and 2024. While turnkey contracts allow us to capitalize on improved crew productivity, we also bear more risk related to crew downtime or other operational delays. We expect the majority of our contracts to be turnkey as we continue our operations in the midwest, western and southwestern regions of the U.S. in which turnkey contracts are more common.
Over time, we have experienced continued increases in recording channel capacity on a per-crew or project basis and high utilization of cableless and multicomponent equipment. This increase in channel count demand is driven by client needs and is necessary in order to produce higher resolution images, increase crew efficiencies and undertake larger scale projects. In response to project-based channel requirements, we routinely deploy a variable number of channels on a variable number of crews in an effort to maximize asset utilization and meet client needs.
While the markets for oil and natural gas have been very volatile and are likely to continue to be so in the future, and we can make no assurances as to future levels of domestic exploration or commodity prices, we believe opportunities exist for us to enhance our market position by responding to our clients’ continuing desire for higher resolution subsurface images.
Our business has two reportable segments, U.S. operations and Canada operations. Tony Clark, Chief Executive Officer, is our current chief operating decision maker. Mr. Clark reviews the discrete segment financial information on a geographic basis for the U.S. operations and Canada operations. The revenue for both segments is generated by the same services, which utilize the same type of equipment and personnel. The performance of our segments is evaluated primarily on Adjusted EBITDA. We define Adjusted EBITDA as our net income (loss), before (i) interest expense, net, (ii) income
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tax expense or benefit, (iii) depreciation and amortization and (iv) (iv) non-recurring and other charges, such as strategic transaction expenses or severance expenses.
Discussions with Controlling Stockholder
As of December 31, 2025, Wilks Brothers, LLC (“Wilks”) and its affiliates control approximately 80% of our common stock. We have been in discussion with Wilks and certain of its affiliates with respect to one or more transactions involving assets owned by Wilks and/or certain of its affiliates, which may include, among other things, asset contributions or sales, a business combination transaction or other similar transactions. In connection with these discussions, we incurred $528,000 in expenses in the fourth quarter of 2025, which is included in general and administrative expense in our consolidated statement of operations for the year ended December 31, 2025.
There is no guarantee that we will enter into a definitive agreement with any such parties regarding any such transaction. The terms of any potential agreement between us and Wilks, and/or any of its affiliates, would be contingent on certain conditions, including completion of due diligence and the negotiation of definitive transaction documents. Our Board of Directors has formed a special committee of independent directors (the “Special Committee”), which has retained independent legal and financial advisors, to evaluate, negotiate and make recommendations to the Board regarding any such transaction with Wilks and/or its affiliates, including whether to pursue or decline to pursue any proposed transaction.
Results of Operations
Year Ended December 31, 2025 versus Year Ended December 31, 2024
U.S. Fee Revenues. Fee revenues for the year ended December 31, 2025, were $46.3 million compared to $40.7 million for the same period of 2024. The increase in revenues was primarily a result of increased demand for our services.
Canadian Fee Revenues. Fee revenues for the year ended December 31, 2025, were $15.5 million compared to $12.7 million for the same period of 2024. The increase in revenues was primarily a result of increased demand for our services in Canada.
Total Revenues. Revenues for the year ended December 31, 2025, were $75.6 million compared to $74.2 million for the same period of 2024.
U.S. Fee Operating Expenses. Fee operating expenses for the year ended December 31, 2025, increased to $37.7 million compared to $32.8 million for the same period of 2024. Acquisition expenses remained approximately 80% of revenues in 2024 and 2025. The increase in operating expenses was due to an overall increase in crew production and utilization.
Canadian Fee Operating Expenses. Fee operating expenses for the year ended December 31, 2025 increased to $11.1 million compared to $9.5 million for the same period of 2024. Acquisition expenses decreased from 75% of revenues to 72% of revenues due to utilization of single node channels in our operations and higher channel count jobs in 2025. The increase in operating expenses was mainly due to increased demand for our services.
Reimbursable Revenues and Costs . These revenues and expenses are passed through to our clients and are job specific and vary significantly from year to year. The costs are agreed to by our clients prior to contracting with outside vendors for the various tasks.
General and Administrative Expenses. General and administrative expenses decreased 9% to $9.0 million for the year ended December 31, 2025, compared to $9.9 million for the same period of 2024. General and administrative expenses in 2025 included $528,000 in strategic transaction costs related to a potential transaction(s) with our largest shareholder, Wilks Brothers, LLC, and/or any of its affiliates, as described above under “Discussions with Controlling Stockholder.” The primary factors for the decrease in general and administrative expenses are related to continued cost management and streamlining procedures. General and administrative expenses did not include any severance expenses for the year ended December 31, 2025, though we did record $0.5 million of severance expenses for the same period of 2024 in connection with the termination of a portion of our workforce. We anticipate general and administrative expenses to remain similar to 2025 during 2026, excluding additional strategic transaction costs.
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Depreciation Expense. Depreciation for the years ended December 31, 2025 and 2024, was $5.7 million. The stability of our depreciation expense is a result of limiting capital expenditures to necessary maintenance capital requirements in recent years. Our depreciation expense is expected to increase during 2026 primarily due to the asset acquired pursuant to the Equipment Purchase Agreement during the second half of 2025 in addition to our normal maintenance capital expenditures needed to maintain our existing asset base.
Our total operating costs for the year ended December 31, 2025 were $77.2 million, representing a 2% decrease from the corresponding period of 2024. This change was primarily due to the factors described above.
Income Tax (expense) benefit. Income tax expense was $6,000 for the year ended December 31, 2025, compared to $7,000 for the same period of 2024. The effective tax rates for the years ended December 31, 2025, and 2024 were approximately -0.3% and -0.2%, respectively. Our effective tax rates differ from the statutory federal rate of 21% for certain items such as state and local taxes, valuation allowances, and non-deductible expenses.
Use of Adjusted EBITDA (Non-GAAP measure)
We define Adjusted EBITDA as net income (loss) plus interest expense, interest income, income taxes, depreciation, and amortization expense, and non-recurring and other charges, such as strategic transaction expenses or severance expenses. Our management uses Adjusted EBITDA as a supplemental financial measure to assess:
● the financial performance of our assets without regard to financing methods, capital structures, taxes or historical cost basis;
● our operating performance over time in relation to other companies that own similar assets and that we believe calculate Adjusted EBITDA in a similar manner; and
● the ability of our assets to generate cash sufficient for us to pay potential interest costs.
We also understand that such data are used by investors to assess our performance. However, the term Adjusted EBITDA is not defined under generally accepted accounting principles (“GAAP”), and Adjusted EBITDA is not a measure of operating income or operating performance presented in accordance with GAAP. When assessing our operating performance, 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 Adjusted EBITDA may not be comparable to Adjusted EBITDA or similarly titled measures utilized by other companies because other companies may not calculate Adjusted EBITDA in the same manner as us. Further, the results presented by Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes: interest, taxes, and depreciation and amortization.
The reconciliation of our Adjusted EBITDA to our net cash (used in) provided by operating activities and net (loss) income, which are the most directly comparable GAAP financial measures, are provided in the following tables (in thousands):
Year Ended December 31,
2025 US
2025 CA
2025 Consol.
2024 US
2024 CA
2024 Consol.
Net cash provided by (used in) operating activities
$
7,694
$
6,283
$
13,977
$
(2,821)
$
955
$
(1,866)
Changes in working capital and other items
(5,512)
(3,079)
(8,591)
3,928
1,023
4,951
Non-cash adjustments to net (loss) income
(1,004)
(228)
(1,232)
(1,401)
(209)
(1,610)
EBITDA
1,178
2,976
4,154
(294)
1,769
1,475
Strategic transaction costs
528
—
528
—
—
—
Severance expense
—
—
—
486
—
486
Adjusted EBITDA
$
1,706
$
2,976
$
4,682
$
192
$
1,769
$
1,961
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Year Ended December 31,
2025 US
2025 CA
2025 Consol.
2024 US
2024 CA
2024 Consol.
Net (loss) income
$
(4,082)
$
2,141
$
(1,941)
$
(4,907)
$
788
$
(4,119)
Depreciation and amortization
4,859
811
5,670
4,752
984
5,736
Interest expense (income), net
395
24
419
(146)
(3)
(149)
Income tax expense
6
—
6
7
—
7
EBITDA
1,178
2,976
4,154
(294)
1,769
1,475
Strategic transaction costs
528
—
528
—
—
—
Severance expense
—
—
—
486
—
486
Adjusted EBITDA
$
1,706
$
2,976
$
4,682
$
192
$
1,769
$
1,961
Liquidity and Capital Resources
Introduction. Our principal sources of cash are amounts earned from the seismic data acquisition services we provide to our clients. Our principal uses of cash are the amounts used to provide these services, including expenses related to our operations and acquiring new equipment. Accordingly, our cash position depends (as do our revenues) on the level of demand for our services. Management believes cash flow from operations, cash on hand and amounts available under our Revolving Credit Note (defined below) are sufficient to fund operating and investing cash flow requirements, as well as our obligations under the Geospace Notes.
Cash Flows. The following table shows our sources and uses of cash (in thousands) for the years ended December 31, 2025 and 2024:
Year Ended December 31,
2025
2024
Net cash provided by (used in):
Operating activities
$
13,977
$
(1,866)
Investing activities
(6,733)
(735)
Financing activities
(3,683)
(11,563)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(39)
(223)
Net change in cash and cash equivalents and restricted cash
$
3,522
$
(14,387)
Year Ended December 31, 2025 versus Year Ended December 31, 2024
Net cash provided by operating activities was $14.0 million for the year ended December 31, 2025, and net cash used in operating activities was $1.9 million for the same period of 2024. The increase in cash provided by operating activities to cash used in operating activities was primarily due to an increase in revenue, improved margins and changes in operating assets and liabilities.
Net cash used in investing activities was $6.7 million for the year ended December 31, 2025, and includes cash capital expenditures of $6.8 million and acquisitions of short-term investments of $370,000, offset by $468,000 in proceeds from the disposal of assets. Net cash used in investing activities was $0.7 million for the year ended December 31, 2024, and includes cash capital expenditures of $1.9 million, offset by $533,000 in proceeds from the disposal of assets, $332,000 proceeds from insurance claims and $265,000 proceeds from maturity of short-term investments.
Net cash used in financing activities was $3.7 million for the year ended December 31, 2025, and includes principal payments of $2.7 million on our notes and $934,000 on our finance leases. Net cash used in financing activities was $11.6 million for the year ended December 31, 2024, and includes dividend payment of approximately $9.9 million, principal payments of $947,000 on our notes and $680,000 on our finance leases.
We continually strive to supply our clients with technologically advanced 3-D data acquisition recording services and data processing capabilities. We maintain equipment in and out of service in anticipation of increased future demand for our services.
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Risks and Uncertainties. Our ability to be profitable in the future will depend on many factors beyond our control, but primarily on the level of demand for land-based seismic data acquisition services by oil and natural gas exploration and development companies. We incurred net losses of $1.9 million for the year ended December 31, 2025, and $4.1 million for the year ended December 31, 2024. As of December 31, 2025, we had $4.9 million in cash, and a negative working capital balance of $5.0 million. We believe that our cash flows from operations, and our current financial position are adequate to fund our continued operations and meet our obligations for the next 12 months.
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. Recently, we have funded some of our capital expenditures through finance leases and equipment term loans. From time to time in the past, we have also funded our capital expenditures and other financing needs through public equity offerings. We believe that our capital resources, including our cash and cash flow from operations are sufficient to meet our operational needs.
Equify Credit Facility. On October 31, 2025, Dawson Geophysical Company and Dawson Operating, as borrowers (the “Borrowers”), entered into a Revolving Credit Note (the “Revolving Credit Note”) in favor of Equify Financial, as lender (the “Lender”), a related party affiliated through common control.
Pursuant to the Revolving Credit Note, the Borrowers, jointly and severally, may, from time to time until November 20, 2028, request loans from the Lender for up to an aggregate principal amount of $5,035,032. The loans outstanding under the Revolving Credit Note are payable by the Borrowers in thirty-six (36) monthly installments of principal in the amount of $139,862, together with all accrued and unpaid interest on the outstanding principal balance thereunder, commencing on December 20, 2025, and continuing thereafter until the maturity date. The interest rate applicable to loans outstanding under the Revolving Credit Note is a rate per annum equal to 13%.
The maximum borrowing limit under the Revolving Credit Note is initially $5,035,032, and such amount is reduced by $139,862 on each monthly payment date. The Borrowers may prepay up to 75% of the then outstanding principal and accrued but unpaid interest at any time without a prepayment fee. The obligations under the Revolving Credit Note are secured by a lien on our vibrator energy source vehicles, pursuant to a Security Agreement by and between us and Lender, dated as of October 31, 2025.
All outstanding amounts owed under the Revolving Credit Note become due and payable no later than the maturity date of November 20, 2028, and are subject to acceleration upon the occurrence of events of default which we consider usual and customary for an agreement of this type, including failure to make payments under the Revolving Credit Note, non-performance of covenants and obligations or insolvency or bankruptcy. As of December 31, 2025, there were no outstanding draws on this line of credit and the amount available to borrow was approximately $4.9 million.
Letters of Credit. As of December 31, 2025, we have one letter of credit in the amount of $370,000 to support our insurance policies. The letter of credit is secured by a certificate of deposit with First Financial Bank.
Other Indebtedness. As of December 31, 2025, we have two notes payable to a finance company for various insurance premiums totaling $258,000.
In addition, we lease certain seismic recording equipment and vehicles under leases classified as finance leases. Our Consolidated Balance Sheet as of December 31, 2025 includes finance leases of $2.6 million.
Geospace Notes Payable. In connection with the Purchase Agreement, we have agreed to the terms under the Geospace Notes. We executed our first Geospace Note in August of 2025, for approximately $3.6 million. Our second Geospace Note was executed in September 2025 for approximately $3.9 million. Our third Geospace Note was executed in October of 2025 for approximately $3.5 million. Our fourth Geospace Note was executed in November of 2025 for approximately $3.5 million. Our fifth Geospace Note was executed in December of 2025 for approximately $0.9 million. Each Note will be for a term of 36 months with a fixed interest rate of 8.75% the combined monthly principal and interest payments due on these notes totals approximately $489,000. These notes are collateralized by both the equipment purchased and two owned properties in Midland that consist of a 61,402 square foot property used as a field office and a 6,600 square foot property used as an inventory and storage facility. As of December 31, 2025 we have a principal balance on these five notes payable of $14.7 million. We received the sixth and final delivery of equipment in January of 2026 and executed our sixth note in January of 2026 for approximately $2.7 million.
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Contractual Obligations. We believe that our capital resources, including our cash and cash flow from operations, will be adequate to meet our current operational needs. We believe that we will be able to finance our 2026 capital expenditures through cash flow from operations and borrowings from commercial lenders. However, our ability to meet debt repayment obligations and fund future capital requirements will depend principally upon our future operating performance, which is subject to the risks inherent in our business, and will also depend on the extent to which the current economic climate adversely affects the ability of our customers, and/or potential customers, to promptly pay amounts owing to us under their service contracts with us.
Off-Balance Sheet Arrangements
As of December 31, 2025, we had no off-balance sheet arrangements.
Critical Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires that certain assumptions and estimates be made that affect the reported amounts of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting periods. Because of the use of assumptions and estimates inherent in the reporting process, actual results could differ from those estimates.
Impairment of Long-Lived Assets. Long-lived assets are tested for impairment at the asset group level when events or changes in circumstances indicate the carrying value of the asset group may not be recoverable. Recognition of an impairment charge is required if future expected undiscounted net cash flows are insufficient to recover the carrying value of the asset group and the fair value of the asset group is below its carrying value. Depending upon the facts and circumstances, when indicators of asset impairment exist, management will test the asset group for impairment through developing a forecast of future undiscounted cash flows expected to be generated by the asset group or by estimating the fair value of assets within the asset group in lieu of detailed cash flow projections. If either the future undiscounted cashflows expected to be generated by the asset group or the fair of the assets within the asset group exceeds the carrying value of the asset group no impairment would be recognized. During the year ended December 31, 2024, management tested two of its asset groups for impairment through estimating the fair value of certain assets within the asset groups using a market approach or cost approach, as applicable. Because the fair value of these assets collectively exceeded the carrying value of the asset group, no impairment charges were recognized for the year ended December 31, 2024. No impairment test was required during the year ended December 31, 2025.
Income Taxes. We account for income taxes by recognizing amounts of taxes payable or refundable for the current year, and by using an asset and liability approach in recognizing the amount of deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. We determine deferred taxes by identifying the types and amounts of existing temporary differences, measuring the total deferred tax asset or liability using the applicable tax rate in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates of deferred tax assets and liabilities is recognized in income in the year of an enacted rate change. The deferred tax asset is reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Our methodology for recording income taxes requires judgment regarding assumptions and the use of estimates, including determining our annual effective tax rate and the valuation of deferred tax assets, which can create a variance between actual results and estimates and could have a material impact on our provision or benefit for income taxes. Due to recent operating losses and valuation allowances, we may recognize reduced or no tax benefits on future losses on the Consolidated Statements of Operations and Comprehensive Loss. Our effective tax rates differ from the statutory federal rate of 21% for certain items such as state and local taxes, valuation allowances, and non-deductible expenses. The tax years that are open to examination for the U.S. are for years after 2021, for Canada and Texas it is years after 2020.