"TESO" on NASDAQ
Revenue was
Summary of Results
(in millions of U.S. $, except per share amounts)
U.S. GAAP-Unaudited
Quarter 3 Quarter 2 Nine Months Ended
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2009 2008 2009 09/30/09 09/30/08
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Revenue $ 72.6 $ 140.0 $ 88.4 $ 271.2 $ 395.5
Operating Income (Loss) $ 1.7 $ 25.4 $ (7.2) $ (1.5) $ 58.8
Net (Loss) Income $ (0.3) $ 17.6 $ (3.6) $ 0.6 $ 40.9
(Loss) Earnings per
Share (diluted) $ (0.01) $ 0.46 $ (0.10) $ 0.01 $ 1.08
Adjusted EBITDA*
(as defined) $ 10.3 $ 34.9 $ 4.2 $ 29.5 $ 87.2
* See explanation of Non-GAAP measure below
Commentary
Segment Information
(in millions of U.S. $)
Unaudited
Quarter 3 Quarter 2 Nine Months Ended
------------------- --------- -------------------
2009 2008 2009 09/30/09 09/30/08
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Revenue:
--------
Top Drives:
Sales $ 14.4 $ 46.0 $ 27.8 $ 70.9 $ 121.1
Rental Services 20.0 27.7 18.1 61.7 82.2
Aftermarket Sales
and Service 10.8 17.0 11.9 38.5 48.2
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45.2 90.7 57.8 171.1 251.5
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Tubular Services*:
Conventional 4.0 18.9 4.5 18.1 62.6
Proprietary* 20.3 23.9 23.4 71.1 60.7
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24.3 42.8 27.9 89.2 123.3
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CASING DRILLING(TM)* 3.1 6.5 2.7 10.9 20.7
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Total Revenue $ 72.6 $ 140.0 $ 88.4 $ 271.2 $ 395.5
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Operating Income (Loss):
------------------------
Top Drives $ 13.4 $ 32.1 $ 10.2 $ 39.5 $ 82.2
Tubular Services (1.4) 7.4 (1.7) (0.5) 16.9
CASING DRILLING(TM) (3.1) (3.0) (4.9) (9.3) (9.2)
Research and Engineering (2.1) (2.6) (1.8) (6.5) (8.1)
Corporate/Other (5.1) (8.5) (9.0) (24.7) (23.0)
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Total Operating Income
(Loss) $ 1.7 $ 25.4 $ (7.2) $ (1.5) $ 58.8
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* Effective December 31, 2008, we began reporting our CASING DRILLING
(TM) operations as a distinct operating segment separate from our
Tubular Services business and we have recast prior periods to be
presented consistently with this reporting method.
Q3 2009 Financial and Operating Highlights
Top Drives Segment
------------------
- Revenue from the Top Drive segment for Q3 2009 was $45.2 million,
down 22% from revenue of $57.8 million in Q2 2009, primarily due to a
decline in the number of Top Drive units sold during the current
quarter. Revenue for Q3 2008 was $90.7 million.
- Top Drive sales for Q3 2009 included 13 units (10 new and 3 from the
rental fleet), compared to 28 units (27 new and 1 from the rental
fleet) sold in Q2 2009 and 38 units sold in Q3 2008 (32 new and 6
from the rental fleet).
- At September 30, 2009, Top Drive backlog was 3 units, with a total
value of $4.8 million, versus 10 units at June 30, 2009, with a total
value of $10 million. This compares to a backlog of 65 units at
December 31, 2008 with a total value of $56.9 million.
- Operating days for the Top Drive rental fleet increased to 4,441 for
Q3 2009 from 3,682 in Q2 2009 but were down compared to 6,014 in Q3
2008. The improvement from Q2 was primarily due to a recovery in
rental activity throughout our operating units, particularly in the
Asia Pacific region and North America. Pricing pressures from
increased competition and decreased demand continued to reduce
revenue during Q3 2009.
- Revenue from after-market sales and services for Q3 2009 was $10.8
million, down 9% from revenue of $11.9 million in Q2 2009. With the
decrease in active rig count, our customers have decreased their
demand for after-market parts and maintenance and repair services.
- Our Top Drive operating margins were 30% in Q3 2009 compared to 18%
and 35% in Q2 2009 and Q3 2008, respectively. The margin increase
compared to Q2 2009 is primarily due to an increase in the higher
margin rental activities as a component of our total Top Drive
revenues during the current quarter. In addition, we recognized a
one-time gain of $1.6 million on the sale of certain top drive
related assets during Q3 2009.
Tubular Services Segment
------------------------
- Revenue from the Tubular Services segment for Q3 2009 was $24.3
million, down 13% from revenue of $27.9 million in Q2 2009. Revenue
was $42.8 million in Q3 2008. Revenue declined in both our
conventional and proprietary businesses and is directly tied to the
active rig count which has sharply declined over the past nine
months. Proprietary revenue declined compared to Q2 2009 primarily
due to pricing discounts given during the current quarter and lower
revenue from third party CDS(TM) sales. We performed a record total
of 683 proprietary casing running jobs in Q3 2009 compared to 538 in
Q2 2009 and 496 in Q3 2008. We remain focused on converting the
market to running casing with our proprietary CDS(TM) technology.
- Operating Loss in the Tubular Services segment for Q3 2009 was $1.4
million, compared to a loss of $1.7 million in Q2 2009 and income of
$7.4 million in Q3 2008. Operating results for Q3 2009 were
unfavorably impacted by continued pricing pressures, primarily in
North America.
CASING DRILLING(TM) Segment
---------------------------
- CASING DRILLING(TM) revenue in Q3 2009 was $3.1 million compared to
$2.7 million in Q2 2009 and $6.5 million in Q3 2008. This decrease
was primarily due to lower service revenue and accessory sales in
North America.
- Operating Loss in our CASING DRILLING(TM) segment for Q3 2009 was
$3.1 million, compared to $4.9 million in Q2 2009 and $3.0 million in
Q3 2008.
Other Segments and Expenses
---------------------------
- Corporate costs for Q3 2009 were $5.1 million, compared to $9.0
million for Q2 2009 and $8.5 million in Q3 2008. The decrease from Q2
2009 was primarily due to a $1.9 million decrease in legal costs, a
$0.4 million decrease in compensation costs and a $0.7 million
decrease in non-cash stock compensation expense associated with
performance stock awards, which declined in value in response to the
current year's operating levels. Total Selling, General and
Administrative costs in Q3 2009 were $6.8 million compared to $13.2
million in Q2 2009 and $12.6 million in Q3 2008, due to the
aforementioned decreases for Corporate costs and lower bad debt
expense.
- Research and Engineering costs for Q3 2009 of $2.1 million were up
from $1.8 million in Q2 2009 and down from $2.6 million in Q3 2008.
The overall decrease from prior year is due to our focus on reducing
costs during 2009. We plan to continue to invest in our proprietary
technologies.
- Other Expense, excluding net interest, for Q3 2009 totaled $0.8
million, compared to $0.6 million for Q2 2009 and $0.3 million in Q3
2008. Other Expense for Q3 2009 included $0.8 million of loss on
foreign exchange valuations, compared to a loss of $0.4 million
during Q2 2009. Other Income and Expense for Q3 2008 included a loss
of $0.4 million related to foreign exchange valuations.
- Our effective tax rate for Q3 2009 was 122% compared to 56% in Q2
2009 and 27% in Q3 2008. The increased effective tax rate for Q3 2009
was primarily due to $1.1 million in tax provision to return
adjustments in Canada and the U.S.
Financial Condition
-------------------
- At September 30, 2009, cash and cash equivalents increased to $45.8
million from $20.6 million at December 31, 2008, while total debt
decreased during the same period to $33.9 million from $49.6 million.
Net debt(1) was $29.0 million at December 31, 2008 and $24.0 million
at June 30, 2009. At September 30, 2009 our cash exceeded outstanding
debt by $11.9 million.
- Total capital expenditures were $0.9 million in Q3 2009, compared to
$7.9 million in Q2 2009 and $14.6 million in Q3 2008. We project our
total capital expenditures for 2009 to be approximately $15 million
to $20 million.
Conference Call
The Company will conduct a conference call to discuss its results for the third quarter of 2009 tomorrow (
Tesco Corporation is a global leader in the design, manufacture and service of technology based solutions for the upstream energy industry. The Company's strategy is to change the way people drill wells by delivering safer and more efficient solutions that add real value by reducing the costs of drilling for and producing oil and natural gas. TESCO(R) is a registered trademark in the
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1) Net debt is calculated by subtracting cash and cash equivalents from
the sum of long term debt plus the current portion of long term debt.
Non-GAAP Measures - Adjusted EBITDA (as defined below)
Quarter 3 Quarter 2 Nine Months Ended
------------------- --------- -------------------
(in millions of U.S. $) 2009 2008 2009 09/30/09 09/30/08
--------- --------- --------- --------- ---------
Net (Loss) Income under
U.S. GAAP $ (0.3) $ 17.6 $ (3.6) $ 0.6 $ 40.9
Income Taxes 1.5 6.4 (4.6) (3.9) 13.9
Depreciation and
Amortization 9.1 8.4 9.0 27.4 24.5
Net Interest (income)
expense (0.3) 1.1 0.4 0.6 3.3
Stock Compensation
Expense - non-cash 0.3 1.4 1.2 3.0 4.6
Impairment of Assets -
non-cash - - 1.8 1.8 -
--------- --------- --------- --------- ---------
Adjusted EBITDA $ 10.3 $ 34.9 $ 4.2 $ 29.5 $ 87.2
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Our management reports our financial statements in accordance with U.S. GAAP but evaluates Company performance based on non-GAAP measures, of which a primary performance measure is Adjusted EBITDA. Adjusted EBITDA consists of earnings (net income or loss) available to common stockholders before interest expense, income tax expense, non-cash stock compensation, non-cash impairments, depreciation and amortization and other non-cash items. This measure may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. Adjusted EBITDA should not be considered in isolation or as substitutes for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP.
We believe Adjusted EBITDA is useful to an investor in evaluating our operating performance because:
- it is widely used by investors in our industry to measure a company's
operating performance without regard to items such as net interest
expense, depreciation and amortization, which can vary substantially
from company to company depending upon accounting methods and book
value of assets, financing methods, capital structure and the method
by which assets were acquired;
- it helps investors more meaningfully evaluate and compare the results
of our operations from period to period by removing the impact of our
capital structure (primarily interest) and asset base (primarily
depreciation and amortization) and actions that do not affect
liquidity (stock compensation expense) from our operating results;
and
- it helps investors identify items that are within our operational
control. Depreciation and amortization charges, while a component of
operating income, are fixed at the time of the asset purchase in
accordance with the depreciable lives of the related asset and as
such are not a directly controllable period operating charge.
Our management uses Adjusted EBITDA:
- as a measure of operating performance because it assists us in
comparing our performance on a consistent basis as it removes the
impact of our capital structure and asset base from our operating
results;
- as one method we use to evaluate potential acquisitions;
- in presentations to our Board of Directors to enable them to have the
same consistent measurement basis of operating performance used by
management;
- to assess compliance with financial ratios and covenants included in
our credit agreements; and
- in communications with investors, analysts, lenders, and others
concerning our financial performance.
Caution Regarding Forward-Looking Information; Risk Factors
This press release contains forward-looking statements within the meaning of Canadian and
Forward-looking statements and information are based on current beliefs as well as assumptions made by, and information currently available to, us concerning anticipated financial performance, business prospects, strategies and regulatory developments. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. The forward-looking statements in this press release are made as of the date it was issued and we do not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that outcomes implied by forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking statements.
These risks and uncertainties include, but are not limited to, the impact of changes in oil and natural gas prices and worldwide and domestic economic conditions on drilling activity and demand for and pricing of our products and services, other risks inherent in the drilling services industry (e.g. operational risks, potential delays or changes in customers' exploration or development projects or capital expenditures, the uncertainty of estimates and projections relating to levels of rental activities, uncertainty of estimates and projections of costs and expenses, risks in conducting foreign operations, the consolidation of our customers, and intense competition in our industry), risks, including litigation, associated with our intellectual property and with the performance of our technology. These risks and uncertainties may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. When relying on our forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.
Copies of our Canadian public filings are available at www.tescocorp.com and on SEDAR at www.sedar.com. Our U.S. public filings are available at www.sec.gov and at www.tescocorp.com.
The risks included here are not exhaustive. Refer to "Part I, Item 1A - Risk Factors" in our annual report on Form 10-K for the year ended
TESCO CORPORATION
(Millions of U.S. Dollars, except share and per share information)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
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2009 2008 2009 2008
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(unaudited)
REVENUE $ 72.6 $ 140.0 $ 271.2 $ 395.5
OPERATING EXPENSES
Cost of Sales and Services 62.0 99.4 232.6 291.7
Selling, General and
Administrative 6.8 12.6 33.6 36.9
Research and Engineering 2.1 2.6 6.5 8.1
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70.9 114.6 272.7 336.7
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OPERATING INCOME (LOSS) 1.7 25.4 (1.5) 58.8
Interest (Income) Expense,
net (0.3) 1.1 0.6 3.3
Other Expense, net 0.8 0.3 1.2 0.7
---------- ---------- ---------- ----------
INCOME (LOSS) INCOME BEFORE
INCOME TAXES 1.2 24.0 (3.3) 54.8
Income taxes 1.5 6.4 (3.9) 13.9
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NET (LOSS) INCOME $ (0.3) $ 17.6 $ 0.6 $ 40.9
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(Loss) Earnings per share:
Basic ($0.01) $ 0.47 $ 0.01 $ 1.10
Diluted ($0.01) $ 0.46 $ 0.01 $ 1.08
Weighted average number
of shares:
Basic 37,620,269 37,473,597 37,567,286 37,125,680
Diluted 37,620,269 38,024,147 38,289,253 37,733,119
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CONDENSED CONSOLIDATED BALANCE SHEETS
September December
30, 2009 31, 2008
----------- -----------
(unaudited)
ASSETS
Cash and Cash Equivalents $ 45.8 $ 20.6
Accounts Receivable, net 48.7 97.7
Inventories 97.7 96.0
Other Current Assets 37.0 30.8
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Current Assets 229.2 245.1
Property, Plant and Equipment, net 193.3 209.0
Goodwill 29.2 28.7
Other Assets 19.0 16.6
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$ 470.7 $ 499.4
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Maturities of Long Term Debt $ 2.5 $ 10.2
Accounts Payable 21.5 38.9
Accrued and Other Current Liabilities 34.5 50.7
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Current Liabilities 58.5 99.8
Long Term Debt 31.4 39.4
Deferred Income Taxes 14.9 8.2
Shareholders' Equity 365.9 352.0
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$ 470.7 $ 499.4
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%SEDAR: 00002774E
For further information: Julio Quintana, (713) 359-7000; Bob Kayl, (713) 359-7000, Tesco Corporation
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