Tesco Corporation Reports Q1 2009 Results
Trading Symbol:
"TESO" on NASDAQ
Revenue was
Summary of Results
(in millions of U.S. $, except per share amounts)
U.S. GAAP-Unaudited
Quarter 1 Quarter 4
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2009 2008 2008
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Revenues $ 110.2 $ 129.4 $ 139.4
Operating Income 4.0 16.4 16.9
Net Income 4.4 10.7 12.0
EPS (diluted) $ 0.12 $ 0.29 $ 0.31
Adjusted EBITDA* (as defined) $ 15.1 $ 24.2 $ 28.7
*See explanation of Non-GAAP measure below
Commentary
Segment Information
(in millions of U.S. $)
Unaudited
Quarter 1 Quarter 4
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2009 2008 2008
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Revenues:
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Top Drives:
Sales $ 28.7 $ 38.5 $ 43.1
Aftermarket Support 15.8 15.0 17.1
Rental 23.6 27.7 29.8
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68.1 81.2 90.0
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Tubular Services*:
Conventional 9.6 23.6 16.8
Proprietary 27.4 18.2 26.2
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37.0 41.8 43.0
CASING DRILLING(TM)* 5.1 6.4 6.4
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Total Revenues $ 110.2 $ 129.4 $ 139.4
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Operating Income:
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Top Drives $ 16.0 $ 23.8 $ 26.1
Tubular Services 2.7 6.0 5.0
CASING DRILLING(TM) (1.4) (2.6) (3.4)
Research and Engineering (2.6) (2.8) (2.9)
Corporate/Other (10.7) (8.0) (7.9)
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Total Operating Income $ 4.0 $ 16.4 $ 16.9
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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.
Q1 2009 Financial and Operating Highlights
Top Drives Segment
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- Revenues from the Top Drive segment for Q1 2009 were $68.1 million,
down 24% from revenues of $90.0 million in Q4 2008, primarily due to
a decrease in Top Drive sales. Top Drive sales for Q1 2009 included
32 units (31 new units sold and 1 from the rental fleet). This
compares to record number of 38 units (37 new units sold and 1 from
the rental fleet) sold in Q4 2008 and 31 units sold in Q1 2008 (25
new and 6 from the rental fleet).
- At March 31, 2009, Top Drive backlog was 35 units, with a total value
of $34 million, versus 65 units at December 31, 2008, with a total
value of $57 million. This compares to a backlog of 39 units at
March 31, 2008 with a total value of $41 million.
- Operating days for the Top Drive rental fleet decreased to 4,673 for
Q1 2009 compared to 5,808 in Q4 2008 and 5,689 in Q1 2008, primarily
due to a fall off of rental activity in North America directly
resulting from the decline in rig count.
- Our Top Drive operating margins were 23% in Q1 2009 compared to 29%
in Q4 2008 and 29% in Q1 2008. The margin decrease compared to Q4
2008 is due to the sale of smaller Top Drive units during the current
quarter, decreased rental activities, lower margins in our
aftermarket business and severance costs of $0.4 million.
Tubular Services Segment
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- Revenues from the Tubular Services segment for Q1 2009 were
$37.0 million, a decrease of $6.0 million from Q4 2008, primarily
related to a decline in our conventional revenues, but partially
offset by an increase in our proprietary revenues. Our conventional
business is primarily conducted in North America and is directly tied
to the rig count which has sharply declined over the past six months.
We performed a record total of 562 proprietary casing running jobs in
Q1 2009 compared to 540 in Q4 2008 and 460 in Q1 2008. We remain
focused on converting the market to running casing with our
proprietary CDS(TM) technology.
- Operating Income in our Tubular Services segment for Q1 2009 was
$2.7 million, compared to $5.0 million in Q4 2008 and $6.0 million in
Q1 2008. Q1 2009's operating income was unfavorably impacted by lower
activity and pricing pressure in North America and severance costs of
$0.2 million.
CASING DRILLING(TM) Segment
---------------------------
- CASING DRILLING(TM) revenue in Q1 2009 was $5.1 million, compared to
$6.4 million in Q4 2008 and $6.4 million in Q1 2008. The decrease in
Q1 2009 compared to the Q4 and Q1 2008 was primarily due to lower
revenue in Latin America.
- Operating Loss in our CASING DRILLING(TM) segment for Q1 2009 was
$1.4 million, compared to $3.4 million in Q4 2008 and $2.6 million in
Q1 2008. As a percentage of revenues, operating margin was a loss of
27% compared to a loss of 54% in Q4 2008 and a loss of 41% in Q1
2008. The improvement in our margins was due to strong efforts made
by our CASING DRILLING(TM) team to maximize operating synergies and
reduce costs.
Other Segments and Expenses
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- Corporate costs for Q1 2009 were $10.7 million, compared to
$7.9 million for Q4 2008 and $8.0 million in Q1 2008. This increase
was primarily due to a litigation settlement of $2.2 million,
$0.6 million in severance costs recorded in Q1 2009 and higher legal
costs incurred during the quarter associated with patent litigation.
Total Selling, General and Administrative costs in Q1 2009 were
$13.6 million compared to $12.1 million in Q4 2008 and $13.4 million
in Q1 2008, due to the litigation settlement and severance costs
discussed above, partially offset by lower bonus accruals recorded in
Q1 2009 compared to Q4 2008.
- Research and Engineering costs for Q1 2009 of $2.6 million were down
from $2.9 million in Q4 2008 and $2.8 million in Q1 2008. We plan to
continue to invest in our proprietary technology through 2009.
- Other Income and Expense, excluding net interest expense, for Q1 2009
totaled income of $0.2 million, compared to income of $1.4 million
for Q4 2008 and expense of $1.6 million in Q1 2008. Other Income for
Q1 2009 included $0.1 million of gains on foreign exchange
valuations, while Other Income for Q4 2008 included a gain of
$1.1 million related to foreign exchange valuations. Other Expense
for Q1 2008 primarily consisted of $1.7 million in foreign exchange
losses.
- Our effective tax rate for Q1 2009 was a benefit of 21% compared to a
provision of 31% in Q4 2008 and a provision of 22% in Q1 2008. During
the first quarter of 2009, a new Canadian tax law was passed, and the
effect was a one-time tax benefit of $1.6 million to the Company's
income tax expense. Excluding this one-time tax benefit, our
effective tax rate was a provision of 24%.
Financial Condition
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- At March 31, 2009, cash and cash equivalents increased to $22.3
million from $20.6 million at December 31, 2008, while debt decreased
during the same period by $2.7 million. Our net debt(1) of $24.6
million at March 31, 2009 represents a net debt to book
capitalization of 6.4%(2). Net debt was $29.0 million at December 31,
2008 and $71.7 million at March 31, 2008.
- Total capital expenditures were $5.2 million in Q1 2009, compared to
$21.6 million in Q4 2008 and $20.1 million in Q1 2008. We project our
total capital expenditures for 2009 to be approximately $20 to
$30 million.
Conference Call
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The Company will conduct a conference call to discuss its results for the first 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.
Non-GAAP Measures - Adjusted EBITDA (as defined below)
(in millions of U.S. $) Quarter 1 Quarter 4
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2009 2008 2008
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Net Income $ 4.4 $ 10.7 $ 12.0
Income Taxes (0.7) 3.0 5.3
Depreciation and Amortization 9.3 7.8 8.7
Net Interest expense 0.5 1.1 1.0
Stock Compensation Expense -
non-cash 1.6 1.6 1.7
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Adjusted EBITDA $ 15.1 $ 24.2 $ 28.7
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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 for the year ended
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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.
(2) Net debt to book capitalization is calculated by dividing net debt by
the sum of net debt plus shareholders' equity.
TESCO CORPORATION
(Millions of U.S. Dollars, except share and per share information)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months
Ended March 31,
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2009 2008
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(unaudited)
REVENUE $ 110.2 $ 129.4
OPERATING EXPENSES
Cost of Sales and Services 90.0 96.8
Selling, General and Administrative 13.6 13.4
Research and Engineering 2.6 2.8
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106.2 113.0
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OPERATING INCOME 4.0 16.4
Interest Expense, net 0.5 1.1
Other (Income) Expense, net (0.2) 1.6
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INCOME BEFORE INCOME TAXES 3.7 13.7
Income taxes (0.7) 3.0
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NET INCOME $ 4.4 $ 10.7
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Earnings per share:
Basic $ 0.12 $ 0.29
Diluted $ 0.12 $ 0.29
Weighted average number of shares:
Basic 37,516,582 36,845,888
Diluted 38,347,352 37,410,041
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2009 2008
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(unaudited)
ASSETS
Cash and Cash Equivalents $ 22.3 $ 20.6
Accounts Receivable, net 78.1 97.7
Inventories 105.9 96.0
Other Current Assets 29.7 24.6
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Current Assets 236.0 238.9
Property, Plant and Equipment, net 204.2 209.0
Goodwill 28.7 28.7
Other Assets 18.3 16.6
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$ 487.2 $ 493.2
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Maturities of Long Term Debt $ 7.5 $ 10.2
Accounts Payable 33.6 38.9
Accrued and Other Current Liabilities 41.7 44.5
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Current Liabilities 82.8 93.6
Long Term Debt 39.4 39.4
Deferred Income Taxes 7.7 8.2
Shareholders' Equity 357.3 352.0
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$ 487.2 $ 493.2
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SOURCE Tesco Corporation