Tesco Corporation Reports Q2 2009 Results



    
    Trading Symbol:
    "TESO" on NASDAQ
    

    HOUSTON, TX, Aug. 5 /CNW/ - Tesco Corporation ("TESCO" or the "Company")
today reported a net loss for the quarter ended June 30, 2009 of $3.6 million,
or $0.10 per diluted share. This compares to net income of $4.4 million, or
$0.12 per diluted share, for the first quarter of 2009, and net income of
$12.7 million, or $0.34 per diluted share, for the second quarter of 2008.
Operating income for the current quarter was negatively impacted by $1.6
million in severance costs, a $0.5 million loss on the sale of operating
assets and a $1.8 million write down of scrap equipment held for sale. Without
these items, the net loss would have been $1.8 million, or $0.05 per diluted
share.
    Revenue was $88.4 million for the quarter ended June 30, 2009, compared
to revenue of $110.2 million for the first quarter of 2009 and $126.2 million
for the second quarter of 2008.

    
                             Summary of Results
              (in millions of U.S. $, except per share amounts)
                             U.S. GAAP-Unaudited

                                 Quarter 2      Quarter 1  Six Months Ended
                            ------------------- --------- -------------------
                               2009      2008      2009   06/30/09  06/30/08
                            --------- --------- --------- --------- ---------
    Revenues                 $  88.4   $ 126.2   $ 110.2   $ 198.6   $ 255.5

    Operating (Loss) Income     (7.2)     17.0       4.0      (3.2)     33.4

    Net (Loss) Income           (3.6)     12.7       4.4       0.8      23.4

    (Loss) Earnings per
     Share (diluted)          ($0.10)  $  0.34   $  0.12   $  0.02   $  0.62

    Adjusted EBITDA(*)
     (as defined)            $   4.2   $  28.2   $  15.1   $  19.2   $  52.3

    (*)See explanation of Non-GAAP measure below
    

    Commentary

    Julio Quintana, TESCO's Chief Executive Officer, commented "The ongoing
economic conditions continue to hurt our industry, particularly in North
America. However, despite our loss for the quarter, our balance sheet
continues to improve. During the quarter, we generated positive cash flow and
again reduced our net debt outstanding. While we continue to manage our costs,
we are not certain that TESCO has seen the bottom of this market downturn. We
have taken measures to offset the economic circumstances and have reduced our
global headcount by nearly 30% during the last six months, with almost all
reductions occurring in North America. In addition, we have reduced capital
spending by 70% year over year. Longer term, we believe the fundamentals
driving the growth of our global business remain intact. This should give us
the ability to maintain our core strengths and weather the current downturn
while sustaining free cash flow."

    
                             Segment Information
                           (in millions of U.S. $)
                                  Unaudited

                                 Quarter 2      Quarter 1  Six Months Ended
                            ------------------- --------- -------------------
                               2009      2008      2009   06/30/09  06/30/08
                            --------- --------- --------- --------- ---------
    Revenues:
    ---------
    Top Drives:
      Sales                  $  27.8   $  36.7   $  28.7   $  56.5   $  75.1
      Aftermarket Sales and
       Service                  11.9      16.1      15.8      27.7      31.2
      Rental Services           18.1      26.8      23.6      41.7      54.4
                            --------- --------- --------- --------- ---------
                                57.8      79.6      68.1     125.9     160.7
                            --------- --------- --------- --------- ---------
    Tubular Services(*) :
      Conventional               4.5      20.1       9.6      14.1      43.6
      Proprietary(*)            23.4      18.7      27.4      50.8      37.0
                            --------- --------- --------- --------- ---------
                                27.9      38.8      37.0      64.9      80.6
                            --------- --------- --------- --------- ---------

      CASING DRILLING(TM)(*)     2.7       7.8       5.1       7.8      14.2
                            --------- --------- --------- --------- ---------
    Total Revenues           $  88.4   $ 126.2   $ 110.2   $ 198.6   $ 255.5
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------

    Operating (Loss) Income:
    ------------------------
      Top Drives             $  10.2   $  26.4   $  16.0   $  26.2   $  50.2
      Tubular Services          (1.7)      3.5       2.7       1.0       9.6
      CASING DRILLING(TM)       (4.9)     (3.5)     (1.4)     (6.3)     (6.1)
      Research and
       Engineering              (1.8)     (2.8)     (2.6)     (4.4)     (5.6)
      Corporate/Other           (9.0)     (6.6)    (10.7)    (19.7)    (14.7)
                            --------- --------- --------- --------- ---------
    Total Operating (Loss)
     Income                  $  (7.2)  $  17.0   $   4.0   $  (3.2)  $  33.4
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------

    (*) 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.


                 Q2 2009 Financial and Operating Highlights

    Top Drives Segment
    ------------------

    -  Revenues from the Top Drive segment for Q2 2009 were $57.8 million,
       down 15% from revenues of $68.1 million in Q1 2009, primarily due to a
       decline in Top Drive rental activity, lower after market sales and
       services and fewer Top Drive units sold during the quarter. Revenues
       for Q2 2008 were $79.6 million.

    -  Top Drive sales for Q2 2009 included 28 units (27 new and 1 from the
       rental fleet), compared to 32 units (31 new and 1 from the rental
       fleet) sold in Q1 2009 and 30 units sold in Q2 2008 (24 new and 6 from
       the rental fleet).

    -  At June 30, 2009, Top Drive backlog was 10 units, with a total value
       of $10 million, versus 35 units at March 31, 2009, with a total value
       of $34 million. This compares to a backlog of 52 units at June 30,
       2008 with a total value of $51 million.

    -  Operating days for the Top Drive rental fleet decreased to 3,682 for
       Q2 2009 compared to 4,673 in Q1 2009 and 5,660 in Q2 2008. This
       decline was primarily due to a continuing decrease in rental activity,
       particularly in North America, directly resulting from the decline in
       rig count. Additionally, pricing pressures from decreased demand
       further reduced revenues earned during Q2.

    -  Revenues from after-market sales and services for Q2 2009 were $11.9
       million, down 25% from revenues of $15.8 million in Q1 2009. Along
       with the decrease in rig count, our customers have decreased their
       demand for after-market parts and maintenance and repair services.

    -  Our Top Drive operating margins were 18% in Q2 2009 compared to 23% in
       Q1 2009 and 33% in Q2 2008. The margin decrease compared to Q1 2009 is
       primarily due to decreased rental activities and lower revenues in our
       aftermarket business. In addition, we incurred $0.5 million of
       severance costs during Q2 2009.

    Tubular Services Segment
    ------------------------

    -  Revenues from the Tubular Services segment for Q2 2009 were $27.9
       million, down 25% from revenues of $37.0 million in Q1 2009. Revenues
       were $38.8 million in Q2 2008. Revenues declined in both our
       conventional and proprietary businesses. Our conventional business is
       primarily conducted in North America and is directly tied to the rig
       count which has sharply declined over the past nine months. Our
       proprietary business declined due to a slightly lower number of
       projects completed during Q2 2009, particularly in North America and
       Latin America. We performed a total of 538 proprietary casing running
       jobs in Q2 2009 compared to 562 in Q1 2009 and 443 in Q2 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 Q2 2009 was $1.7
       million, compared to income of $2.7 million in Q1 2009 and income of
       $3.5 million in Q2 2008. Operating results for Q2 2009 were
       unfavorably impacted by lower activity and pricing pressure in North
       America, a $1.8 million write down of scrap equipment held for sale
       and $0.2 million in severance costs.

    CASING DRILLING(TM) Segment
    ---------------------------

    -  CASING DRILLING(TM) revenue in Q2 2009 was $2.7 million compared to
       $5.1 million in Q1 2009 and $7.8 million in Q2 2008. This decrease was
       primarily due to lower service revenues and accessories sales in North
       America.

    -  Operating Loss in our CASING DRILLING(TM) segment for Q2 2009 was
       $4.9 million, compared to $1.4 million in Q1 2009 and $3.5 million in
       Q2 2008, primarily due to the decreased revenues described above, a
       $0.5 million loss on the sale of operating assets, a $0.6 million
       provision for bad debts and $0.1 million in severance costs incurred
       during Q2 2009.

    Other Segments and Expenses
    ---------------------------

    -  Corporate costs for Q2 2009 were $9.0 million, compared to $10.7
       million for Q1 2009 and $6.6 million in Q2 2008. The decrease from Q1
       was primarily due to a $2.2 million legal settlement incurred in Q1,
       partially offset by higher legal costs incurred during Q2 associated
       with patent litigation. Total Selling, General and Administrative
       costs in Q2 2009 were $13.2 million compared to $13.6 million in Q1
       2009 and $11.0 million in Q2 2008, due to the higher legal costs noted
       above and higher bad debt expense, partially offset by the legal
       settlement recorded in Q1 2009. In addition, we incurred $0.6 million
       in severance costs during Q2 2009.

    -  Research and Engineering costs for Q2 2009 of $1.8 million were down
       from $2.6 million in Q1 2009 and $2.8 million in Q2 2008, primarily
       due to our focus on reducing costs during the current quarter.
       Partially offsetting this decrease was $0.2 million in severance costs
       incurred in Q2 2009. We plan to continue to invest in our proprietary
       technologies.

    -  Other Expense, excluding net interest expense, for Q2 2009 totaled
       $0.6 million, compared to income of $0.1 million for Q1 2009 and
       income of $1.3 million in Q2 2008. Other Expense for Q2 2009 included
       $0.4 million of loss on foreign exchange valuations, compared to a
       gain of $0.1 million during Q1 2009. Other Income and Expense for Q2
       2008 included a gain of $1.4 million related to foreign exchange
       valuations.

    -  Our effective tax rate for Q2 2009 was 56% compared to a benefit of
       21% in Q1 2009 and 26% in Q2 2008. The increased effective tax rate
       was primarily due to the current period loss and the mix of earnings
       in jurisdictions in which we operate. In addition, Q2 2009 includes a
       benefit of $0.7 million related to provision to return adjustments as
       a result of filing our Canadian income tax returns in Q2.

    Financial Condition
    -------------------

    -  At June 30, 2009, cash and cash equivalents decreased slightly to
       $20.4 million from $20.6 million at December 31, 2008, while total
       debt decreased during the same period to $44.4 million from $49.6
       million. Our net debt(1) of $24.0 million at June 30, 2009 represents
       a net debt to book capitalization of 6.3%(2). Net debt was $29.0
       million at December 31, 2008 and $24.6 million at March 31, 2009.

    -  Total capital expenditures were $7.9 million in Q2 2009, compared to
       $5.2 million in Q1 2009 and $23.0 million in Q2 2008. We project our
       total capital expenditures for 2009 to be approximately $15 to $20
       million.
    

    Conference Call

    The Company will conduct a conference call to discuss its results for the
second quarter of 2009 tomorrow (Thursday, August 6, 2009) at 10:00 a.m. CDT.
Individuals who wish to participate in the conference call should dial
US/Canada (866) 433-0163 or International (706) 679-3976 approximately five to
ten minutes prior to the scheduled start time of the call. The conference ID
for this call is 20131277. The conference call and all questions and answers
will be recorded and made available until September 6, 2009. To listen to the
recording call (800) 642-1687 or (706) 645-9291 and enter conference ID
20131277. 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 Measures - Adjusted EBITDA (as defined below)

    (in millions of U.S. $)      Quarter 2      Quarter 1  Six Months Ended
                            ------------------- --------- -------------------
                               2009      2008      2009   06/30/09  06/30/08
                            --------- --------- --------- --------- ---------
    Net (Loss) Income under
     U.S. GAAP               $  (3.6)  $  12.7   $   4.4   $   0.8   $  23.4
    Income Taxes                (4.6)      4.5      (0.7)     (5.4)      7.5
    Depreciation and
     Amortization                9.0       8.3       9.3      18.3      16.0
    Net Interest expense         0.4       1.1       0.5       0.9       2.2
    Stock Compensation
     Expense- non-cash           1.2       1.6       1.6       2.8       3.2
    Impairment of Assets-
     non-cash                    1.8         -         -       1.8         -
                            --------- --------- --------- --------- ---------
    Adjusted EBITDA          $   4.2   $  28.2   $  15.1   $  19.2   $  52.3
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------
    

    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 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 revenues,
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 for the year ended December
31, 2008 and "Part II, Item 1A - Risk Factors" in our quarterly report on Form
10-Q to be filed for the quarter ended June 30, 2009 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.

    
    ------------------------------
    (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   For the Six Months Ended
                                 June 30,                    June 30,
                       ------------------------------------------------------
                           2009          2008          2009          2008
                       ------------  ------------  ------------  ------------
                                            (unaudited)

    REVENUE            $      88.4   $     126.2   $     198.6   $     255.5

    OPERATING EXPENSES
    Cost of Sales and
     Services                 80.6          95.4         170.6         192.2
    Selling, General
     and Administrative       13.2          11.0          26.8          24.3
    Research and
     Engineering               1.8           2.8           4.4           5.6
                       ------------  ------------  ------------  ------------
                              95.6         109.2         201.8         222.1
                       ------------  ------------  ------------  ------------
      OPERATING (LOSS)
       INCOME                 (7.2)         17.0          (3.2)         33.4
    Interest Expense,
     net                       0.4           1.1           0.9           2.2
    Other (Income)
     Expense, net              0.6          (1.3)          0.5           0.3
                       ------------  ------------  ------------  ------------
      (LOSS) INCOME
       BEFORE INCOME
       TAXES                  (8.2)         17.2          (4.6)         30.9
    Income taxes              (4.6)          4.5          (5.4)          7.5
                       ------------  ------------  ------------  ------------
                       ------------  ------------  ------------  ------------
      NET (LOSS)
       INCOME          $      (3.6)  $      12.7   $       0.8   $      23.4
                       ------------  ------------  ------------  ------------
                       ------------  ------------  ------------  ------------

    (Loss) Earnings per
     share:
      Basic                 ($0.10)        $0.34         $0.02         $0.63
      Diluted               ($0.10)        $0.34         $0.02         $0.62
    Weighted average
     number of shares:
      Basic             37,565,006    37,057,557    37,540,794    36,951,722
      Diluted           37,565,006    37,723,930    38,330,560    37,586,809


    CONDENSED CONSOLIDATED BALANCE SHEETS
                                                     June 30,    December 31,
                                                       2009          2008
                                                   ------------  ------------
                                                           (unaudited)
    ASSETS
      Cash and Cash Equivalents                    $      20.4   $      20.6
      Accounts Receivable, net                            62.7          97.7
      Inventories                                         98.0          96.0
      Other Current Assets                                35.6          30.8
                                                   ------------  ------------
        Current Assets                                   216.7         245.1
      Property, Plant and Equipment, net                 201.5         209.0
      Goodwill                                            29.0          28.7
      Other Assets                                        19.8          16.6
                                                   ------------  ------------
                                                   $     467.0   $     499.4
                                                   ------------  ------------
                                                   ------------  ------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
      Current Maturities of Long Term Debt         $       5.0   $      10.2
      Accounts Payable                                    19.1          38.9
      Accrued and Other Current Liabilities               36.1          50.7
                                                   ------------  ------------
        Current Liabilities                               60.2          99.8
      Long Term Debt                                      39.4          39.4
      Deferred Income Taxes                                7.4           8.2
      Shareholders' Equity                               360.0         352.0
                                                   ------------  ------------
                                                   $     467.0   $     499.4
                                                   ------------  ------------
                                                   ------------  ------------
    

    %SEDAR: 00002774E




For further information:

For further information: Julio Quintana, (713) 359-7000; Bob Kayl, (713)
359-7000, Tesco Corporation

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