HOUSTON, May 8, 2015
/PRNewswire/ -- Tesco Corporation ("TESCO" or the "Company")
(NASDAQ: TESO) today reported first quarter 2015 results.
First Quarter Operating Results
Fernando Assing, TESCO's Chief
Executive Officer, commented, "As we have previously discussed, the
rapid decline in energy prices that took place over the last
several months has impacted drilling activity and consequently
reduced our customers' planned spending for both new drilling
equipment as well as drilling-related services during the first
quarter of 2015. Revenue was down sequentially in all product
lines, especially in new top drive sales and land tubular services
in North America. We shipped 14
top drives and booked five new top drives during the first
quarter.
"In light of the current challenging environment, we implemented
during the first quarter a series of restructuring steps that we
expect will provide annualized savings of approximately
$25 million per year, and we expect
to realize the full benefit of these steps in the second half of
2015. In the process, we incurred restructuring costs of
$2.6 million during the first
quarter, and we anticipate incurring additional associated costs as
additional restructuring efforts will continue during the second
quarter. We remain highly focused on returning to profitability and
in continuing to generate positive cash flow within 2015," he
said.
All prior-period financial information in this press release has
been revised as disclosed in the Company's Annual Report on Form
10-K for the year ended December 31,
2014.
Tesco reported a net loss of $8.3
million, or $(0.21) per
diluted share, for the first quarter ended March 31, 2015.
Adjusted net loss for the quarter was $3.3
million, or $(0.08) per
diluted share, which excludes certain special items, including
certain foreign currency losses, additional consulting and audit
fees associated with the 10-K filing, and restructuring costs
associated with right-sizing of the Company. This compares to a net
loss of $2.1 million, or $(0.05) per diluted share, in the fourth quarter
of 2014, and net income of $3.3
million, or $0.08 per diluted
share, for the first quarter of 2014. Adjusted net income in the
fourth quarter of 2014 was $4.8
million, or $0.12 per diluted
share, and in the first quarter of 2014 was $8.4 million, or $0.20 per diluted share. Excluding the
$3.9 million pre-tax impact of the
restructuring and other nonrecurring costs, adjusted operating loss
was $1.7 million. First quarter 2015
revenue was $91.7 million, compared
to $134.5 million for the fourth
quarter of 2014 and to $121.4 million
for the first quarter of 2014, a decrease of 32% and 24%,
respectively.
During the first quarter of 2015, cash and cash equivalents
declined by approximately $3.2 million to
$69.3 million. While we were able to draw down over
$26 million from receivables,
reductions in accounts payable and customer deposits partially
offset this working capital drawdown. Also, increases in inventory
and capital expenditures used nearly $13
million in the first quarter. Combined with the borrowing
capability under our credit facility, overall liquidity is
approximately $185 million for
potential strategic purposes. No shares were repurchased in the
first quarter, and the dividend declared in the first quarter was
not paid until early in the second quarter of 2015. As of
May 7, 2015, the Company remains
debt-free.
Top Drive Segment
- Revenue from the Top Drive segment for Q1 2015 was $50.0 million, a $30.1
million, or 37.6%, decrease from Q4 2014 and a $14.7 million, or 22.7%, decrease from Q1 2014.
- Top Drive sales for Q1 2015 included 14 units (14 new and 0
used), compared to 26 units (26 new and 0 used) sold in Q4 2014 and
20 units (19 new and 1 used) sold in Q1 2014.
- The rental top drive fleet was 135 during the first
quarter.
- Operating income before adjustments in the Top Drive segment
for Q1 2015 was $4.6 million, a
$5.2 million, or 53.1%, decrease from
Q4 2014 and a $6.1 million, or 57.0%,
decrease from Q1 2014. Our Top Drive operating margins before
adjustments were 9% in Q1 2015, a decrease from 12% and 17% in Q4
2014 and Q1 2014, respectively. First quarter operating income and
operating margin after adjustments were $6.0
million and 12.0%, respectively, with sequential decremental
margins of 31%. This decline in profitability is primarily related
to the impact of reduced global top drive sales and North America rental and after-market
sales.
- At March 31, 2015, Top Drive backlog was 24 units, with a
total potential value of $23.1
million, compared to 33 units at December 31, 2014,
with a potential value of $35.5
million. This compares to a backlog of 45 units
at March 31, 2014, with a potential value of $54.7 million. Approximately half the
backlog at the end of the first quarter is not scheduled to ship
until 2016. Today, our backlog stands at 21 units with a
potential value of $20.0
million.
Tubular Services Segment
- Revenue from the Tubular Services segment for Q1 2015 was
$41.7 million, a $12.7 million, or 23.3%, decrease from Q4 2014
and a $15.0 million, or 26.5%,
decrease from Q1 2014.
- Operating income before adjustments in the Tubular Services
segment for Q1 2015 was $2.0 million,
a $2.1 million, or 51.2%, decrease
from Q4 2014 and an $8.9 million, or
81.7%, decrease from Q1 2014. Our Tubular Services operating
margins were 5% for Q1 2015, down from 8% and 19% in Q4 2014 and Q1
2014, respectively. First quarter operating income and
operating margin after adjustments were $2.9
million and 6.9%, respectively, with sequential decremental
margins of 17%. While sequential profitability in Latin America rebounded, North America profitability was negatively
impacted by pricing and activity declines over the quarter.
Other Segments and Expenses
- Research and engineering costs for Q1 2015 were $2.9 million, compared to $2.8 million in Q4 2014 and $2.5 million in Q1 2014. We continue to
invest in the development, commercialization, and enhancements of
our proprietary technologies relating to our Top Drive and Tubular
Services segments.
- Corporate and other costs for Q1 2015 were $9.3 million, a $0.2
million, or 2.1%, decrease from Q4 2014 and a $0.4 million, or 4.1%, decrease from Q1
2014. Adjusted costs would have been $7.7 million primarily as a result of the
restructuring efforts.
- Net foreign exchange losses for Q1 2015 were $3.2 million, compared to $1.9 million in Q4 2014 and $3.3 million in Q1 2014. The largest
foreign exchange losses were from Latin
America.
- Our effective tax rate for Q1 2015 was a 6% benefit compared to
a 552% expense in Q4 2014 and a 39% expense in Q1 2014. The
effective tax rate on the pre-tax losses in the first quarter was
lower than prior periods primarily due to differences in
profitability in various tax jurisdictions and the
non-deductibility of certain foreign exchange losses.
- Total capital expenditures were $7.3
million in Q1 2015, primarily for tubular services
equipment, a $2.0 million, or 38%,
increase from Q4 2014 and a $0.7
million, or 9%, decrease from Q1 2014.
Outlook
The Company believes that the North American rig count is
starting to stabilize as the pace of decline has slowed over the
last few weeks. However, significant downside risk remains. The
international rig count is expected to continue to decline slightly
over the rest of the year. Requests for additional pricing
concessions in North America have
slowed, while we are facing some requests for moderate pricing
concessions from international customers. The Company expects to
incur an additional operating loss before restructuring charges for
the second quarter of 2015. The Company's restructuring efforts are
targeted to allow Tesco to generate positive operating income in
the second half of 2015.
For the balance of 2015, the Company expects to generate
additional cash through improved profitability, further reductions
in receivables and inventory and lower capital spending. The
Company will continue to assess the timing of additional share
repurchases under the remaining authorization of $73.0 million against other investment
opportunities and short-term cash preservation goals.
Top Drive Segment
- During the second quarter of 2015 the Company expects to ship
approximately 10-12 top drives with new bookings anticipated to be
below this level but at or above booking levels in the first
quarter of 2015, driving a further sequential decline in
revenue.
- Operating margins are expected to moderately improve
sequentially in the second quarter due to the benefit of
restructuring efforts and improved international rental
margins.
Tubular Services Segment
- Revenue from the Tubular Services segment is expected to
decline sequentially in the second quarter of 2015 as the average
North America rig count is
expected to be lower.
- Operating margins are expected to decline sequentially in the
second quarter of 2015 due to the impact of lower North America activity and pricing as well as
some lower pricing in certain international markets. While the
Company has made progress in addressing profitability through
restructuring efforts, the Company will be making additional
adjustments during the second quarter.
Other Segments and Expenses
- Research and engineering costs are expected to run
approximately $2.5 million per
quarter, and corporate and other costs are expected to run
approximately $7.5 to $8.0 million
per quarter for the balance of 2015.
- The effective tax rate for the full year of 2015 will be
sensitive to the impact of earnings and losses by tax jurisdiction
as well as non-deductible items such as certain foreign exchange
gains and losses.
- Total capital expenditures for 2015 are expected to be
approximately $10 to $20
million.
Assing said, "Despite the current headwinds, we have continued
to implement the strategy we outlined last year. We have been
successful in developing relationships with international rig
builders that should provide more top drive booking opportunities
as the market recovers. In addition, we continued to ramp up our
offshore activities in the North Sea and booked the first
third-party offshore top drive recertification project that opens
up a new market for Tesco. Finally, the new test rig in
Houston is now operational, which
should accelerate Tesco's ability to bring new products to market
faster with a higher degree of quality and reliability.
"While our short-term priorities remain cash generation and the
return to operating profitability, we plan to continue to implement
our strategic plans for shareholder returns, acquisitions and
organic investments as market conditions dictate," he said.
Conference Call
The Company will conduct a conference call to discuss its
results for the first quarter 2015 today at 9:00 a.m. Central Time. To participate
in the conference call, dial 1-877-407-0672 inside the U.S. or
1-412-902-0003 outside the U.S. approximately 10 minutes prior to
the scheduled start time. The conference call and all questions and
answers will be recorded and made available until May 22, 2015. To listen to the replay, call
1-877-660-6853 inside the U.S. or 1-201-612-7415 outside the U.S.
and enter conference ID 13607981#.
The conference call will be webcast live as well as by replay 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® is a registered trademark in the United States and Canada. Casing Drive System™, CDS™, Multiple
Control Line Running System™ and MCLRS™ are trademarks in
the United States and Canada.
For further information please contact:
Chris
Boone (713) 359-7000
Tesco Corporation
Caution Regarding Forward-Looking Information and Risk
Factors
This news 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 news
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 through
www.tescocorp.com and on SEDAR at www.sedar.com. Our U.S. public
filings are available at www.sec.gov and through
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, 2013 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.
(tables to follow)
|
|
TESCO
CORPORATION
|
Condensed
Consolidated Statements of Income
|
(in millions,
except per share information)
|
|
|
Three Months
Ended
March 31,
|
|
2015
|
|
2014
|
|
(Unaudited)
|
Revenue
|
$
|
91.7
|
|
$
|
121.4
|
Operating
expenses
|
|
|
|
Cost of sales and
services
|
83.3
|
|
95.9
|
Selling, general and
administrative
|
11.1
|
|
13.9
|
Research and
engineering
|
2.9
|
|
2.5
|
|
97.3
|
|
112.3
|
Operating income
(loss)
|
(5.6)
|
|
9.1
|
Interest expense,
net
|
0.2
|
|
0.3
|
Other expense,
net
|
3.0
|
|
3.4
|
Income (loss) before
income taxes
|
(8.8)
|
|
5.4
|
Income
taxes
|
(0.5)
|
|
2.1
|
Net income
(loss)
|
$
|
(8.3)
|
|
$
|
3.3
|
Earnings (loss) per
share:
|
|
|
|
Basic
|
$
|
(0.21)
|
|
$
|
0.08
|
Diluted
|
$
|
(0.21)
|
|
$
|
0.08
|
Dividends per
share:
|
|
|
|
|
|
Basic
|
$
|
0.05
|
|
$
|
—
|
Weighted average
number of shares:
|
|
|
|
Basic
|
39.0
|
|
39.7
|
Diluted
|
39.2
|
|
40.5
|
|
|
TESCO
CORPORATION
|
Condensed
Consolidated Balance Sheets
|
(in
millions)
|
|
|
March 31,
2015
|
|
December 31,
2014
|
|
(unaudited)
|
|
|
Assets
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
|
69.3
|
|
$
|
72.5
|
Accounts receivable,
net
|
102.9
|
|
128.7
|
Inventories,
net
|
120.2
|
|
114.7
|
Other current
assets
|
41.0
|
|
44.8
|
Total current
assets
|
333.4
|
|
360.7
|
Property, plant and
equipment, net
|
198.0
|
|
202.5
|
Goodwill
|
34.4
|
|
34.4
|
Other
assets
|
23.4
|
|
21.7
|
Total
assets
|
$
|
589.2
|
|
$
|
619.3
|
Liabilities and Shareholders'
Equity
|
|
|
|
Current
liabilities
|
|
|
|
Current portion of
long term debt
|
$
|
—
|
|
$
|
—
|
Accounts
payable
|
28.2
|
|
36.1
|
Accrued and other
current liabilities
|
38.6
|
|
46.7
|
Income taxes
payable
|
6.9
|
|
8.9
|
Total current
liabilities
|
73.7
|
|
91.7
|
Other
liabilities
|
2.5
|
|
2.2
|
Long-term
debt
|
—
|
|
—
|
Deferred income
taxes
|
8.9
|
|
12.3
|
Shareholders'
equity
|
504.0
|
|
513.1
|
Total
liabilities and shareholders' equity
|
$
|
589.2
|
|
$
|
619.3
|
|
|
TESCO
CORPORATION
|
Segment
Results
|
(in millions,
except per share information)
|
|
|
Three Months
Ended
March 31,
|
|
Three Months
Ended
December 31,
|
|
2015
|
|
2014
|
|
2014
|
Segment
revenue
|
(Unaudited)
|
|
(Unaudited)
|
Top Drives
|
|
|
|
|
|
Sales
|
$
|
17.8
|
|
$
|
25.3
|
|
$
|
35.2
|
Rental
services
|
20.1
|
|
24.7
|
|
25.5
|
After-market sales and
service
|
12.1
|
|
14.7
|
|
19.4
|
|
50.0
|
|
64.7
|
|
80.1
|
Tubular
Services
|
|
|
|
|
|
Land
|
30.6
|
|
39.9
|
|
40.6
|
Offshore
|
9.8
|
|
10.8
|
|
7.7
|
CDS, Parts, &
Accessories
|
1.3
|
|
6.0
|
|
6.1
|
|
41.7
|
|
56.7
|
|
54.4
|
|
|
|
|
|
|
Casing
Drilling
|
—
|
|
—
|
|
—
|
Consolidated
revenue
|
$
|
91.7
|
|
$
|
121.4
|
|
$
|
134.5
|
|
|
|
|
|
|
Segment operating
income (loss):
|
|
|
|
|
|
Top Drives
|
$
|
4.6
|
|
$
|
10.7
|
|
$
|
9.8
|
Tubular
Services
|
2.0
|
|
10.9
|
|
4.1
|
Casing
Drilling
|
—
|
|
(0.3)
|
|
—
|
Research and
Engineering
|
(2.9)
|
|
(2.5)
|
|
(2.8)
|
Corporate and
other
|
(9.3)
|
|
(9.7)
|
|
(9.5)
|
Consolidated operating
income
|
$
|
(5.6)
|
|
$
|
9.1
|
|
$
|
1.6
|
Net income
(loss)
|
$
|
(8.3)
|
|
$
|
3.3
|
|
$
|
(2.1)
|
Earnings (loss) per
share (diluted)
|
$
|
(0.21)
|
|
$
|
0.08
|
|
$
|
(0.05)
|
Adjusted
EBITDA(a) (as defined)
|
$
|
9.6
|
|
$
|
22.0
|
|
$
|
22.6
|
|
(a) See
explanation of Non-GAAP measure below
|
|
|
TESCO
CORPORATION
|
Non-GAAP Measure -
Adjusted EBITDA (1)
|
(in
millions)
|
|
|
Three Months
Ended
March 31,
|
|
Three Months
Ended
December 31,
|
|
2015
|
|
2014
|
|
2014
|
Net income (loss)
under U.S. GAAP
|
$
|
(8.3)
|
|
$
|
3.3
|
|
$
|
(2.1)
|
Income tax expense
(benefit)
|
(0.5)
|
|
2.1
|
|
1.8
|
Depreciation and
amortization
|
10.1
|
|
9.7
|
|
11.5
|
Net interest
expense
|
0.2
|
|
0.3
|
|
0.2
|
Stock compensation
expense—non-cash
|
1.0
|
|
1.7
|
|
0.8
|
Severance &
executive retirement charges
|
2.6
|
|
—
|
|
2.8
|
Bad debt from certain
accounts
|
—
|
|
1.6
|
|
—
|
Foreign exchange
(gain) loss
|
3.2
|
|
3.3
|
|
1.9
|
Venezuela
charges
|
—
|
|
—
|
|
3.1
|
Warranty & legal
reserves
|
—
|
|
—
|
|
2.6
|
Additional 10-K
costs
|
1.3
|
|
—
|
|
—
|
Adjusted
EBITDA
|
$
|
9.6
|
|
$
|
22.0
|
|
$
|
22.6
|
|
(1)
|
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, foreign
exchange gains or losses, noted income or charges from certain
accounts, non-cash stock compensation, non-cash impairments,
depreciation and amortization, gains or losses from merger and
acquisition transactions 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), merger and
acquisition transactions (primarily gains/losses on sale of a
business), 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.
|
|
TESCO
CORPORATION
|
Reconciliation of
GAAP Net Income to Adjusted Net Income
(2)
|
(in millions.
except earnings per share data)
|
|
|
Three Months
Ended
March 31,
|
|
Three Months
Ended
December 31,
|
|
2015
|
|
2014
|
|
2014
|
Net income (loss)
under U.S. GAAP
|
$
|
(8.3)
|
|
$
|
3.3
|
|
$
|
(2.1)
|
Severance &
executive retirement charges
|
1.8
|
|
—
|
|
2.1
|
Warranty & Legal
reserves
|
—
|
|
—
|
|
1.9
|
Certain foreign
exchange losses
|
2.4
|
|
2.9
|
|
0.6
|
Bad debt on certain
accounts
|
—
|
|
1.6
|
|
—
|
Certain tax-related
charges
|
—
|
|
0.6
|
|
—
|
Venezuela
charges
|
—
|
|
—
|
|
2.3
|
Additional 10-K
costs
|
0.8
|
|
—
|
|
—
|
Adjusted Net Income
(Loss)
|
$
|
(3.3)
|
|
$
|
8.4
|
|
$
|
4.8
|
|
|
|
|
|
|
Diluted earnings
(loss) per share:
|
|
|
|
|
|
Net income (loss)
under U.S. GAAP
|
$
|
(0.21)
|
|
$
|
0.08
|
|
$
|
(0.05)
|
Severance &
executive retirement charges
|
0.05
|
|
—
|
|
0.05
|
Warranty & Legal
reserves
|
—
|
|
—
|
|
0.05
|
Certain foreign
exchange losses
|
0.06
|
|
0.07
|
|
0.01
|
Bad debt on certain
accounts
|
—
|
|
0.04
|
|
—
|
Certain tax-related
charges
|
—
|
|
0.01
|
|
—
|
Venezuela
charges
|
—
|
|
—
|
|
0.06
|
Financial revision
costs
|
0.02
|
|
—
|
|
—
|
Adjusted Net Income
(Loss)
|
$
|
(0.08)
|
|
$
|
0.20
|
|
$
|
0.12
|
|
(2)
|
Adjusted net income
is a non-GAAP measure comprised of net income attributable to Tesco
excluding the impact of certain identified items. The Company
believes that adjusted net income is useful to investors because it
is a consistent measure of the underlying results of the Company's
business. Furthermore, management uses adjusted net income as a
measure of the performance of the Company's operations.
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/tesco-corporation-reports-first-quarter-2015-results-300080156.html
SOURCE Tesco Corporation