Tesco Corporation Reports Q4 2008 and Record 2008 Results
Trading Symbol:
"TESO" on NASDAQ
Revenue was
Summary of Results
(in millions of U.S. $, except per share amounts)
U.S. GAAP-Unaudited
Year Ended
Quarter 4 Quarter 3 December 31,
------------------- --------- ------------------
2008 2007 2008 2008 2007
--------- --------- --------- --------- ---------
Revenues $ 139.4 $ 124.4 $ 140.0 $ 534.9 $ 462.4
Operating Income 16.9 13.3 25.4 75.7 48.5
Net Income 12.0 6.6 17.6 52.9 32.3
EPS (diluted) $ 0.31 $ 0.18 $ 0.46 $ 1.40 $ 0.86
Adjusted EBITDA*
(as defined) $ 28.7 $ 18.9 $ 34.9 $ 115.9 $ 79.2
*See explanation of Non-GAAP measure below
Commentary
Segment Information
(in millions of U.S. $)
Unaudited
Year Ended
Quarter 4 Quarter 3 December 31,
------------------- --------- ------------------
2008 2007 2008 2008 2007
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Revenues:
Top Drives:
Sales $ 43.1 $ 33.9 $ 46.0 $ 164.1 $ 127.6
Aftermarket Support 17.1 15.5 17.0 65.3 51.9
Rental 29.8 28.3 27.7 112.0 109.7
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90.0 77.7 90.7 341.4 289.2
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Tubular Services*:
Conventional 16.8 26.2 18.9 79.4 92.9
Proprietary 26.2 14.2 23.9 87.1 65.7
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43.0 40.4 42.8 166.5 158.6
CASING DRILLING(TM)* 6.4 6.3 6.5 27.0 14.6
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Total Revenues $ 139.4 $124.4 $ 140.0 $ 534.9 $ 462.4
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Operating Income**:
---------------------
Top Drives $ 26.1 $ 20.6 $ 32.1 $ 108.3 $ 80.7
Tubular Services 5.0 5.2 7.4 22.0 23.7
CASING DRILLING(TM) (3.4) (2.2) (3.1) (12.6) (14.1)
Research and
Engineering (2.9) (3.5) (2.6) (11.0) (12.0)
Corporate/Other (7.9) (6.8) (8.4) (31.0) (29.8)
--------- --------- --------- --------- ---------
Total Operating Income $ 16.9 $ 13.3 $ 25.4 $ 75.7 $ 48.5
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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 structure.
** Operating income for the Top Drive, Tubular Services and CASING
DRILLING(TM) segments reflect a change in methodology used to
allocate indirect costs. Total Operating Income did not change.
This change in methodology will be more fully described in Note 12
of the Form 10-K to be filed for the year ended December 31, 2008.
Q4 2008 Financial and Operating Highlights
Top Drives Segment
------------------
- Revenues from the Top Drive segment for Q4 2008 were $90.0 million,
down slightly from the record revenues of $90.7 million in Q3 2008,
primarily due to a decrease in used Top Drive sales. Top Drive sales
for Q4 2008 included a record number of new units (37 new units sold
and 1 from the rental fleet). This compares to 38 units sold in Q3
2008 (32 new units sold and 6 from the rental fleet) and 29 units
sold in Q4 2007 (20 new and 9 from the rental fleet).
- During Q4 2008, we built and delivered 8 units to our rental fleet
(in addition to the 37 new third party units). Our rental fleet now
stands at 126 units as of December 31, 2008 compared to 119 units at
September 30, 2008 and 110 units at December 31, 2007.
- At December 31, 2008, Top Drive backlog was 65 units, with a total
value of $57 million, versus 77 units at September 30, 2008, with a
total value of $72 million. This compares to a backlog of 38 units at
December 31, 2007 with a total value of $39 million.
- Operating days for the Top Drive rental fleet decreased to 5,808 for
Q4 2008 compared to 6,014 in Q3 2008 and 5,978 in Q4 2007, primarily
due to units being removed from our rental fleet in preparation for
sale and the timing of new rental units being activated.
- Our Top Drive operating margins were 29% in Q4 2008 compared to 35%
in Q3 2008 and 27% in Q4 2007. The margin decrease compared to Q3
2008 is a result of fewer sales of used Top Drive units (1 in Q4 2008
compared to 6 in Q3 2008) and costs incurred to prepare additional
used units for sale, partially offset by increased rental margins.
The increase from last year is primarily as a result of better
margins in Top Drive sales and in our after-market sales and service
business.
Tubular Services Segment
------------------------
- Revenues from the Tubular Services segment for Q4 2008 were
$43.0 million, an increase of $0.2 million from Q3 2008 primarily
related to an increase in the number of proprietary jobs, but offset
by a decline in our conventional revenues. We performed a record
total of 540 proprietary casing running jobs in Q4 2008 compared to
496 in Q3 2008 and 348 in Q4 2007. We remain focused on converting
the market to running casing with our proprietary CDS(TM) technology.
As demand for our proprietary services increases, we expect our
conventional revenue base to continue to decline.
- Operating Income in our Tubular Services segment for Q4 2008 was
$5.0 million, compared to $7.4 million in Q3 2008 and $5.2 million in
Q4 2007. Q4 2008's operating income was unfavorably impacted by
pricing pressures that squeezed revenues while costs increased due to
increased labor and fuel prices associated with the increase in
proprietary jobs performed.
CASING DRILLING(TM) Segment
---------------------------
- CASING DRILLING(TM) revenue in Q4 2008 was $6.4 million, compared to
$6.5 million in Q3 2008, and $6.3 million in Q4 2007. The slight
decrease in Q4 2008 compared to Q3 2008 was primarily due to lower
revenue in North America.
- Operating Loss in our CASING DRILLING(TM) segment for Q4 2008 was
$3.4 million, compared to $3.1 million in Q3 2008 and $2.2 million in
Q4 2007. Q4 2008's operating loss was impacted by increased costs
associated with delivering CASING DRILLING(TM) services around the
world and weaker than expected revenues, particularly in North
America. Q4 2007 included income of $1.0 million for the cancellation
of a job in the North Sea.
Other Segments and Expenses
---------------------------
- Corporate costs for Q4 2008 were $7.9 million, compared to
$8.4 million for Q3 2008. This decrease was primarily due to lower
bonus accruals in Q4. Total Selling, General and Administrative costs
in Q4 2008 amounted to $12.1 million compared to $12.6 million in Q3
2008, also due to the lower bonus accruals recorded in Q4.
- Research and Engineering costs for Q4 2008 of $2.9 million were up
$0.3 million from Q3, primarily due to patent applications made
during Q4 2008.
- Other Income and Expense, excluding net interest expense, for Q4 2008
totaled income of $1.4 million, compared to expense of $0.3 million
for Q3 2008. Other Income for Q4 2008 included a gain of $1.1 million
related to foreign exchange valuations. Other Expense for Q3 2008
included a loss of $0.4 million related to foreign exchange
valuations.
Financial Condition
-------------------
- At December 31, 2008, cash and cash equivalents decreased to
$20.6 million from $23.1 million at December 31, 2007, while debt
decreased during the same period by $31.2 million. Our net debt(1) of
$29.0 million at December 31, 2008 represents a net debt to book
capitalization of 8%(2). Net debt was $57.7 million at December 31,
2007 and $45.6 million at September 30, 2008.
- Total capital expenditures were $21.6 million in Q4 2008. Total
capital expenditures for 2008 were $79.3 million. The majority of our
capital expenditures in 2008 have been directly related to our
strategy to grow and revitalize our Top Drive rental fleet by selling
older rental units and replacing them with newer, higher performance
models as well as the continued expansion of our proprietary
products. We project our total capital expenditures for 2009 to be
approximately $40 to $50 million.
2008 Financial and Operating Highlights
Top Drive Segment
-----------------
- Top Drive sales for 2008 were 137 units (118 new and 19 from the
rental fleet). This compares to 122 units sold in 2007 (102 new and
20 from the rental fleet).
- Operating days for the Top Drive rental fleet increased to 23,171 in
2008 compared to 23,086 in 2007. This increase was primarily due to
an increase in the number of rental units in our fleet, offset by
down time as units were removed from the rental fleet in preparation
for sale prior to new rental units being mobilized and added to the
rental fleet.
- Our Top Drive Operating Income increased to $108.3 million, an
increase of $27.6 million as compared to 2007, primarily due to
increased sales and after-market support activities.
Tubular Services Segment
------------------------
- Tubular Services revenues were $166.5 million for 2008, an increase
of $7.9 million over 2007, primarily due to increased revenues from
our proprietary services, offset by a decline in conventional
services as we shift our focus to our proprietary product offerings.
- For 2008, we completed 1,971 proprietary casing running jobs compared
to 1,406 in 2007, an increase of 40%.
- Operating Income for 2008 from Tubular Services was $22.0 million, a
decrease of $1.7 million from 2007, primarily due to the combination
of competition and inflationary pressures for labor, fuel and
insurance which negatively impacted margins.
CASING DRILLING(TM) Segment
---------------------------
- CASING DRILLING(TM) revenues for 2008 were $27.0 million, an increase
of $12.4 million or 85%, from $14.6 million in 2007. This growth was
related to significantly increased demand for our CASING DRILLING(TM)
services in Latin America and the Middle East, as well as North
America.
- Operating Loss in our CASING DRILLING(TM) business for 2008 was
$12.6 million, compared to a loss of $14.1 million in 2007. As we
continue to build a global market for this business and gain critical
mass, we expect our margins to continue to improve.
Other Segments and Expenses
---------------------------
- Corporate and Other costs for 2008 totaled $31.0 million compared to
$29.8 million in 2007. This increase was primarily due to increased
incentive accruals related to improved financial performance,
increased salary expenses and increased legal expenses due to the
status of certain ongoing litigation.
- Research and Engineering expenses for 2008 totaled $11.0 million,
down from $12.0 million in 2007. However, we continue to invest in
our CASING DRILLING(TM) and other proprietary technologies.
- Our effective tax rate for 2008 was 27% compared to 24% in 2007. The
2008 effective tax rate was higher due to changes in the values of
our deferred tax assets in Canada.
----------------
(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.
(2) Net debt to book capitalization is calculated by dividing net debt by
the sum of net debt plus shareholders' equity.
Conference Call
The Company will conduct a conference call to discuss its results for the fourth quarter of 2008 and year-end results 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.
Non-GAAP Measures - Adjusted EBITDA (as defined below)
Year Ended
(in millions of U.S. $) Quarter 4 Quarter 3 December 31,
----------------------- ------------------- --------- ------------------
2008 2007 2008 2008 2007
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Net Income $ 12.0 $ 6.6 $ 17.6 $ 52.9 $ 32.3
Income Taxes 5.3 2.2 6.4 19.3 10.2
Depreciation and
Amortization 8.7 6.9 8.4 33.2 27.0
Net Interest Expense 1.0 1.4 1.1 4.2 3.2
Stock Compensation
Expense - Non-Cash 1.7 1.8 1.4 6.3 6.5
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Adjusted EBITDA $ 28.7 $ 18.9 $ 34.9 $ 115.9 $ 79.2
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Our management evaluates Company performance based on non-GAAP measures, of which a primary performance measure is EBITDA. 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. 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 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 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 to be filed for the year ended
TESCO CORPORATION
(Millions of U.S. Dollars, except share and per share information)
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the For the
Three Months Ended Year Ended
December 31, December 31,
----------------------- -----------------------
2008 2007 2008 2007
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(unaudited)
REVENUE $ 139.4 $ 124.4 $ 534.9 $ 462.4
OPERATING EXPENSES
Cost of Sales and
Services 107.5 96.8 399.2 357.9
Selling, General and
Administrative 12.1 10.8 49.0 44.0
Research and Engineering 2.9 3.5 11.0 12.0
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122.5 111.1 459.2 413.9
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OPERATING INCOME 16.9 13.3 75.7 48.5
Interest Expense, net 1.0 1.4 4.2 3.1
Other (Income) Expense,
net (1.4) 3.1 (0.7) 2.9
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 17.3 8.8 72.2 42.5
Income taxes 5.3 2.2 19.3 10.2
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NET INCOME $ 12.0 $ 6.6 $ 52.9 $ 32.3
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Earnings per share:
Basic $ 0.32 $ 0.18 $ 1.42 $ 0.88
Diluted $ 0.31 $ 0.18 $ 1.40 $ 0.86
Weighted average number
of shares:
Basic 37,508,940 36,842,042 37,221,495 36,604,338
Diluted 38,130,859 37,474,760 37,832,554 37,403,932
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS
December December
31, 31,
2008 2007
----------- -----------
(unaudited)
ASSETS
Cash and Cash
Equivalents $ 20.6 $ 23.1
Accounts Receivable, net 97.7 87.9
Inventories 96.0 117.4
Other Current Assets 24.6 24.8
----------- -----------
Current Assets 238.9 253.2
Property, Plant and
Equipment, net 209.0 169.8
Goodwill 28.7 29.8
Other Assets 16.6 20.1
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$ 493.2 $ 472.9
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LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Maturities of
Long Term Debt $ 10.2 $ 10.0
Accounts Payable 38.9 49.7
Accrued and Other
Current Liabilities 44.5 31.1
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Current Liabilities 93.6 90.8
Long Term Debt 39.4 70.8
Deferred Income Taxes 8.2 6.4
Shareholders' Equity 352.0 304.9
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$ 493.2 $ 472.9
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SOURCE Tesco Corporation