Trading Symbol:
"TESO" on NASDAQ
HOUSTON, Nov. 8 /PRNewswire-FirstCall/ - Tesco Corporation ("TESCO" or the "Company") today reported net income for the quarter ended September 30, 2010 of $3.0 million or $0.08 per diluted share. This compares to net income of $0.4 million, or $0.01 per diluted share, for the third quarter of 2009, and a net income of $0.7 million, or $0.02 per diluted share, for the second quarter of 2010. Revenue was $93.1 million for the quarter ended September 30, 2010, compared to revenue of $72.6 million for the comparable period in 2009 and $85.4 million for the second quarter of 2010.
Commentary
Julio Quintana, TESCO's Chief Executive Officer, commented "We are seeing continued momentum in most of our product lines which is translating into improved bottom line results. We are particularly pleased with the recovery of our Top Drive segment. Top Drive revenue was up approximately 15% from Q2 and operating margins improved to 26%. Our Top Drive backlog has grown to 26 units at the end of the third quarter and stands at 25 units today. We have also added 6 rental units since the beginning of the year. With current market conditions and the momentum that we are seeing in the business today, we believe that TESCO is well positioned to deliver profitable growth for the remainder of the year and into 2011."
Summary of Results
(in millions of U.S. $)
Nine months ended
Quarter 3 Quarter 2 September 30,
--------------------- ---------- ---------------------
2010 2009 2010 2010 2009
---------- ---------- ---------- ---------- ----------
Revenue: (Unaudited) (Unaudited) (Unaudited)
-------------------
Top Drives:
Sales $ 19.9 $ 14.4 $ 17.9 $ 54.8 $ 70.9
Rental Services 28.5 20.0 24.8 77.5 61.7
Aftermarket Sales
and Service 13.0 10.8 10.8 34.7 38.5
---------- ---------- ---------- ---------- ----------
61.4 45.2 53.5 167.0 171.1
---------- ---------- ---------- ---------- ----------
Tubular Services :
Proprietary 23.1 20.2 24.9 73.8 71.1
Conventional 5.5 4.1 4.3 15.4 18.1
---------- ---------- ---------- ---------- ----------
28.6 24.3 29.2 89.2 89.2
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CASING DRILLING(TM) 3.1 3.1 2.7 8.3 10.9
---------- ---------- ---------- ---------- ----------
Total Revenue $ 93.1 $ 72.6 $ 85.4 $ 264.5 $ 271.2
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Operating Income
(Loss):
-------------------
Top Drives $ 15.9 $ 14.1 $ 13.0 $ 41.3 $ 41.2
Tubular Services 1.8 (1.4) 1.7 7.1 (0.9)
CASING DRILLING(TM) (2.8) (3.1) (2.9) (8.6) (9.3)
Research and
Engineering (2.3) (2.1) (2.0) (5.9) (6.5)
Corporate/Other (8.0) (5.1) (8.6) (25.1) (25.4)
---------- ---------- ---------- ---------- ----------
Total Operating
Income (Loss) $ 4.6 $ 2.4 $ 1.2 $ 8.8 $ (0.9)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income $ 3.0 $ 0.4 $ 0.7 $ 5.9 $ 3.7
Earnings per share
(diluted) $ 0.08 $ 0.01 $ 0.02 $ 0.15 $ 0.10
Adjusted EBITDA(a)
(as defined) $ 15.1 $ 10.5 $ 11.4 $ 40.1 $ 29.5
-----------------------------
(a) See explanation of Non-GAAP measure on page 5
Q3 2010 Financial and Operating Highlights
Top Drives Segment
------------------
- Revenue from the Top Drive segment for Q3 2010 was $61.4 million, an
increase of 15% from revenue of $53.5 million in Q2 2010, primarily
due to an increase in Top Drive rental activities, an increase in the
number of units sold during the current quarter, and increased after-
market sales and services. Revenue for Q3 2009 was $45.2 million.
- Top Drive sales for Q3 2010 included 18 units (16 new and 2 used),
compared to 13 units (10 new and 3 used) sold in Q2 2010 and 13
units sold in Q3 2009 (10 new and 3 used).
- Operating days for the Top Drive rental fleet were 6,144 for Q3
2010 compared to 5,524 in Q2 2010 and 4,441 for Q3 2009. The
improvement from Q3 2009 was primarily due to a recovery in rental
activity throughout our operating units, particularly in North
America, Russia and Latin America.
- Revenue from after-market sales and service for Q3 2010 was $13.0
million, an increase of 20% from revenue of $10.8 million in both
Q2 2010 and Q3 2009, primarily due to improved demand in North
America.
- Our Top Drive operating margins were 26% in Q3 2010, an increase from
24% in Q2 2010 and a decrease from 31% in Q3 2009. The decrease from
Q3 2009 is primarily due to pricing pressures in Asia-Pacific and
North America as well as increased costs to enter new markets in
Latin America and Russia.
- At September 30, 2010, Top Drive backlog was 26 units, with a total
value of $36.3 million, versus 22 units at June 30, 2010, with a
total value of $28.5 million. This compares to a backlog of 3 units
at September 30, 2009, with a total value of $4.8 million. Today, our
backlog stands at 25 units.
Tubular Services Segment
------------------------
- Revenue from the Tubular Services segment for Q3 2010 was $28.6
million, a decrease of 2% from revenue of $29.2 million in Q2 2010.
Revenue was $24.3 million in Q3 2009. Revenue increased from Q3 2009
due to increased demand from customers active in shale gas
exploration and production in North America, partially offset by a
decline in the North Sea region. We performed a total of 770
proprietary casing running jobs in Q3 2010 compared to 783 in Q2 2010
and 683 in Q3 2009. We remain focused on converting the market to
running casing with our proprietary CDS(TM) technology.
- Operating Income in the Tubular Services segment for Q3 2010 was $1.8
million, compared to income of $1.7 million in Q2 2010 and loss of
$1.4 million in Q3 2009.
CASING DRILLING(TM) Segment
---------------------------
- CASING DRILLING(TM) revenue in Q3 2010 was $3.1 million compared to
$2.7 million in Q2 2010 and the same as Q3 2009 of $3.1 million.
- Operating loss of $2.8 million in our CASING DRILLING(TM) segment for
Q3 2010 was slightly lower from $2.9 million in Q2 2010 and from $3.1
million in Q3 2009. The improved performance in 2010 versus 2009 is
due to cost saving and restructuring initiatives that occurred in
2009.
Other Segments and Expenses
---------------------------
- Corporate costs for Q3 2010 were $8.0 million, compared to $8.6
million for Q2 2010 and $5.1 million in Q3 2009. Total selling,
general and administrative costs in Q3 2010 were $11.4 million
compared to $11.9 million in Q2 2010 and $6.8 million in Q3 2009. The
increase from Q3 2009 is due to increased cash and stock compensation
expense of $1.2 million and increased legal fees of $1.1 million in
Q3 2010. Additionally, Q2 2009 was lower due to the collection of
$1.0 million of accounts receivable previously recorded as bad debt.
Total corporate costs were slightly lower for the nine months ended
September 30, 2010 compared to the same period in 2009.
- Research and engineering costs for Q3 2010 of $2.3 million increased
from $2.0 million in Q2 2010 and $2.1 million in Q3 2009 as we
continue to invest in the development, commercialization and
enhancements of our proprietary technologies.
- Other income and expense, excluding net interest, was negligible in
both Q3 2010 and Q2 2010, compared to expense of $1.1 million in Q3
2009. The decrease in expense from Q3 2009 is primarily due to
changing our functional currency in Canada from the Canadian dollar
to the U.S. dollar, which has decreased our exposure to fluctuations
in the Canadian dollar.
- Our effective tax rate for Q3 2010 was 35% compared to Q2 2010 at 32%
and 77% in Q3 2009.
Financial Condition
-------------------
- At September 30, 2010, cash and cash equivalents were $42.0 million,
compared to $39.9 million at December 31, 2009. During the first
quarter of 2010, we paid the remaining $8.6 million of debt
outstanding under our revolving credit facility and we remain debt-
free at the end of Q3 2010.
- Total capital expenditures were $9.2 million in Q3 2010, compared to
$11.6 million in Q2 2010 and $0.9 million in Q3 2009. We project our
total capital expenditures for 2010 to be between $40 million and $45
million, based on current market conditions.
-----------------------------
Conference Call
The Company will conduct a conference call to discuss its results for the third quarter 2010 today (Monday, November 8, 2010) at 10:00 a.m. CST. Individuals who wish to participate in the conference call should dial US/Canada (877) 312-5422 or International (253) 237-1122 approximately five to ten minutes prior to the scheduled start time of the call. The conference ID for this call is 18935751. The conference call and all questions and answers will be recorded and made available until December 8, 2010. To listen to the recording, call (800) 642-1687 or (706) 645-9291 and enter conference ID 18935751. The conference call will be webcast live as well as for on-demand listening at the Company's web site, www.tescocorp.com. Listeners may access the call through the "Conference Calls" link in the Investor Relations section of the site.
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 United States and Canada. TESCO CASING DRILLING(R) is a registered mark in the United States. CASING DRILLING(R) is a registered mark in Canada and CASING DRILLING(TM) is a trademark in the United States. Casing Drive System(TM), CDS(TM), Multiple Control Line Running System(TM) and MCLRS(TM) are trademarks in the United States and Canada.
Non-GAAP Measure - Adjusted EBITDA (as defined below)
(in millions of Nine months ended
U.S. $) Quarter 3 Quarter 2 September 30,
------------------ --------------------- ---------- ---------------------
2010 2009 2010 2010 2009
---------- ---------- ---------- ---------- ----------
Net income under
U.S. GAAP $ 3.0 $ 0.4 $ 0.7 $ 5.9 $ 3.7
Income tax expense
(benefit) 1.6 1.3 0.3 3.0 (6.8)
Depreciation and
amortization 8.9 8.9 8.8 26.5 27.2
Interest expense,
net 0.2 (0.4) 0.1 0.3 0.6
Stock compensation
expense (non-cash) 1.4 0.3 1.5 4.4 3.0
Impairment of
inventory and
assets (non-cash) - - - - 1.8
---------- ---------- ---------- ---------- ----------
Adjusted EBITDA $ 15.1 $ 10.5 $ 11.4 $ 40.1 $ 29.5
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Our management reports our financial statements in accordance with U.S. GAAP but evaluates our 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 and non-cash impairments) 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 United States securities laws, including the United States Private Securities Litigation Reform Act of 1995. From time to time, our public filings, press releases and other communications (such as conference calls and presentations) will contain forward-looking statements. Forward-looking information is often, but not always identified by the use of words such as "anticipate", "believe", "expect", "plan", "intend", "forecast", "target", "project", "may", "will", "should", "could", "estimate", "predict" or similar words suggesting future outcomes or language suggesting an outlook. Forward-looking statements in this press release include, but are not limited to, statements with respect to expectations of our prospects, future revenue, earnings, activities and technical results.
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 filed for the year ended December 31, 2009 and "Part II, Item 1A - Risk Factors" in our quarterly report on Form 10-Q to be filed for the quarter ended September 30, 2010 for further discussion regarding our exposure to risks. Additionally, new risk factors emerge from time to time and it is not possible for us to predict all such factors, nor to assess the impact such factors might have on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
TESCO CORPORATION
(in millions of U.S. Dollars, except earnings per share)
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
-------------------------------------------------------------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Revenue $ 93.1 $ 72.6 $ 264.5 $ 271.2
Operating expenses
Cost of sales and services 74.8 61.3 215.8 231.7
Selling, general and
administrative 11.4 6.8 34.0 33.9
Research and engineering 2.3 2.1 5.9 6.5
---------- ---------- ---------- ----------
88.5 70.2 255.7 272.1
---------- ---------- ---------- ----------
Operating income 4.6 2.4 8.9 (0.9)
Interest expense, net 0.1 (0.4) 0.3 0.6
Other (income) expense, net (0.1) 1.1 (0.4) 1.6
---------- ---------- ---------- ----------
Income before income taxes 4.6 1.7 8.9 (3.1)
Income taxes 1.6 1.3 3.0 (6.8)
---------- ---------- ---------- ----------
Net income $ 3.0 $ 0.4 $ 5.9 $ 3.7
---------- ---------- ---------- ----------
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Earnings per share:
Basic $ 0.08 $ 0.01 $ 0.16 $ 0.10
Diluted $ 0.08 $ 0.01 $ 0.15 $ 0.10
Weighted average number of
shares:
Basic 37,828 37,620 37,793 37,567
Diluted 38,678 38,348 38,679 38,446
CONDENSED CONSOLIDATED BALANCE SHEETS
September December
30, 2010 31, 2009
----------------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 42.0 $ 39.9
Accounts receivable, net 66.9 54.0
Inventories 70.4 74.3
Other current assets 52.7 43.6
---------- ----------
Current assets 232.0 211.8
Property, plant and equipment, net 177.2 183.0
Goodwill 29.4 29.4
Other assets 16.6 18.4
---------- ----------
$ 455.2 $ 442.6
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 20.0 $ 16.0
Accrued and other current liabilities 48.0 43.3
---------- ----------
Current liabilities 68.0 59.3
Long-term debt - 8.6
Deferred income taxes 13.7 12.5
Shareholders' equity 373.5 362.2
---------- ----------
$ 455.2 $ 442.6
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SOURCE Tesco Corporation
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