Tesco Corporation Reports Q3 2009 Results

"TESO" on NASDAQ

HOUSTON, Nov. 3 /CNW/ - Tesco Corporation ("TESCO" or the "Company") today reported a net loss for the quarter ended September 30, 2009 of $0.3 million, or $0.01 per diluted share. This compares to a net loss of $3.6 million, or $0.10 per diluted share, for the second quarter of 2009, and net income of $17.6 million, or $0.46 per diluted share, for the third quarter of 2008.

Revenue was $72.6 million for the quarter ended September 30, 2009, compared to revenue of $88.4 million for the second quarter of 2009 and $140.0 million for the third quarter of 2008.

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

                                 Quarter 3      Quarter 2  Nine Months Ended
                            ------------------- --------- -------------------
                               2009      2008      2009   09/30/09  09/30/08
                            --------- --------- --------- --------- ---------
    Revenue                  $  72.6   $ 140.0   $  88.4   $ 271.2   $ 395.5

    Operating Income (Loss)  $   1.7   $  25.4   $  (7.2)  $  (1.5)  $  58.8

    Net (Loss) Income        $  (0.3)  $  17.6   $  (3.6)  $   0.6   $  40.9

    (Loss) Earnings per
     Share (diluted)         $ (0.01)  $  0.46   $ (0.10)  $  0.01   $  1.08

    Adjusted EBITDA*
     (as defined)            $  10.3   $  34.9   $   4.2   $  29.5   $  87.2

    * See explanation of Non-GAAP measure below
    

Commentary

Julio Quintana, TESCO's Chief Executive Officer, commented "The continued depressed drilling markets, particularly in North America, have reduced our revenue streams across all our business lines. However, our competitive positioning and balance sheet continue to improve. During the quarter, we generated positive cash flow and reduced our net debt outstanding to a net cash position of $11.9 million. We have taken measures to right size the Company to meet the current economic circumstances and market demands. 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, which we believe will give us the ability to maintain our core strengths and take advantage of opportunities as the market recovers."

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

                                 Quarter 3      Quarter 2  Nine Months Ended
                            ------------------- --------- -------------------
                               2009      2008      2009   09/30/09  09/30/08
                            --------- --------- --------- --------- ---------
    Revenue:
    --------
    Top Drives:
      Sales                  $  14.4   $  46.0   $  27.8   $  70.9   $ 121.1
      Rental Services           20.0      27.7      18.1      61.7      82.2
      Aftermarket Sales
       and Service              10.8      17.0      11.9      38.5      48.2
                            --------- --------- --------- --------- ---------
                                45.2      90.7      57.8     171.1     251.5
                            --------- --------- --------- --------- ---------
    Tubular Services*:
      Conventional               4.0      18.9       4.5      18.1      62.6
      Proprietary*            20.3      23.9      23.4      71.1      60.7
                            --------- --------- --------- --------- ---------
                                24.3      42.8      27.9      89.2     123.3
                            --------- --------- --------- --------- ---------

    CASING DRILLING(TM)*       3.1       6.5       2.7      10.9      20.7
                            --------- --------- --------- --------- ---------
    Total Revenue            $  72.6   $ 140.0   $  88.4   $ 271.2   $ 395.5
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------

    Operating Income (Loss):
    ------------------------
      Top Drives             $  13.4   $  32.1   $  10.2   $  39.5   $  82.2
      Tubular Services          (1.4)      7.4      (1.7)     (0.5)     16.9
      CASING DRILLING(TM)       (3.1)     (3.0)     (4.9)     (9.3)     (9.2)
      Research and Engineering  (2.1)     (2.6)     (1.8)     (6.5)     (8.1)
      Corporate/Other           (5.1)     (8.5)     (9.0)    (24.7)    (23.0)
                            --------- --------- --------- --------- ---------
    Total Operating Income
     (Loss)                  $   1.7   $  25.4   $  (7.2)  $  (1.5)  $  58.8
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------

    * 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.


                 Q3 2009 Financial and Operating Highlights

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

    -   Revenue from the Top Drive segment for Q3 2009 was $45.2 million,
        down 22% from revenue of $57.8 million in Q2 2009, primarily due to a
        decline in the number of Top Drive units sold during the current
        quarter. Revenue for Q3 2008 was $90.7 million.

    -   Top Drive sales for Q3 2009 included 13 units (10 new and 3 from the
        rental fleet), compared to 28 units (27 new and 1 from the rental
        fleet) sold in Q2 2009 and 38 units sold in Q3 2008 (32 new and 6
        from the rental fleet).

    -   At September 30, 2009, Top Drive backlog was 3 units, with a total
        value of $4.8 million, versus 10 units at June 30, 2009, with a total
        value of $10 million. This compares to a backlog of 65 units at
        December 31, 2008 with a total value of $56.9 million.

    -   Operating days for the Top Drive rental fleet increased to 4,441 for
        Q3 2009 from 3,682 in Q2 2009 but were down compared to 6,014 in Q3
        2008. The improvement from Q2 was primarily due to a recovery in
        rental activity throughout our operating units, particularly in the
        Asia Pacific region and North America. Pricing pressures from
        increased competition and decreased demand continued to reduce
        revenue during Q3 2009.

    -   Revenue from after-market sales and services for Q3 2009 was $10.8
        million, down 9% from revenue of $11.9 million in Q2 2009. With the
        decrease in active rig count, our customers have decreased their
        demand for after-market parts and maintenance and repair services.

    -   Our Top Drive operating margins were 30% in Q3 2009 compared to 18%
        and 35% in Q2 2009 and Q3 2008, respectively. The margin increase
        compared to Q2 2009 is primarily due to an increase in the higher
        margin rental activities as a component of our total Top Drive
        revenues during the current quarter. In addition, we recognized a
        one-time gain of $1.6 million on the sale of certain top drive
        related assets during Q3 2009.

    Tubular Services Segment
    ------------------------
    -   Revenue from the Tubular Services segment for Q3 2009 was $24.3
        million, down 13% from revenue of $27.9 million in Q2 2009. Revenue
        was $42.8 million in Q3 2008. Revenue declined in both our
        conventional and proprietary businesses and is directly tied to the
        active rig count which has sharply declined over the past nine
        months. Proprietary revenue declined compared to Q2 2009 primarily
        due to pricing discounts given during the current quarter and lower
        revenue from third party CDS(TM) sales. We performed a record total
        of 683 proprietary casing running jobs in Q3 2009 compared to 538 in
        Q2 2009 and 496 in Q3 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 Q3 2009 was $1.4
        million, compared to a loss of $1.7 million in Q2 2009 and income of
        $7.4 million in Q3 2008. Operating results for Q3 2009 were
        unfavorably impacted by continued pricing pressures, primarily in
        North America.

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

    -   CASING DRILLING(TM) revenue in Q3 2009 was $3.1 million compared to
        $2.7 million in Q2 2009 and $6.5 million in Q3 2008. This decrease
        was primarily due to lower service revenue and accessory sales in
        North America.

    -   Operating Loss in our CASING DRILLING(TM) segment for Q3 2009 was
        $3.1 million, compared to $4.9 million in Q2 2009 and $3.0 million in
        Q3 2008.

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

    -   Corporate costs for Q3 2009 were $5.1 million, compared to $9.0
        million for Q2 2009 and $8.5 million in Q3 2008. The decrease from Q2
        2009 was primarily due to a $1.9 million decrease in legal costs, a
        $0.4 million decrease in compensation costs and a $0.7 million
        decrease in non-cash stock compensation expense associated with
        performance stock awards, which declined in value in response to the
        current year's operating levels. Total Selling, General and
        Administrative costs in Q3 2009 were $6.8 million compared to $13.2
        million in Q2 2009 and $12.6 million in Q3 2008, due to the
        aforementioned decreases for Corporate costs and lower bad debt
        expense.

    -   Research and Engineering costs for Q3 2009 of $2.1 million were up
        from $1.8 million in Q2 2009 and down from $2.6 million in Q3 2008.
        The overall decrease from prior year is due to our focus on reducing
        costs during 2009. We plan to continue to invest in our proprietary
        technologies.

    -   Other Expense, excluding net interest, for Q3 2009 totaled $0.8
        million, compared to $0.6 million for Q2 2009 and $0.3 million in Q3
        2008. Other Expense for Q3 2009 included $0.8 million of loss on
        foreign exchange valuations, compared to a loss of $0.4 million
        during Q2 2009. Other Income and Expense for Q3 2008 included a loss
        of $0.4 million related to foreign exchange valuations.

    -   Our effective tax rate for Q3 2009 was 122% compared to 56% in Q2
        2009 and 27% in Q3 2008. The increased effective tax rate for Q3 2009
        was primarily due to $1.1 million in tax provision to return
        adjustments in Canada and the U.S.

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

    -   At September 30, 2009, cash and cash equivalents increased to $45.8
        million from $20.6 million at December 31, 2008, while total debt
        decreased during the same period to $33.9 million from $49.6 million.
        Net debt(1) was $29.0 million at December 31, 2008 and $24.0 million
        at June 30, 2009. At September 30, 2009 our cash exceeded outstanding
        debt by $11.9 million.

    -   Total capital expenditures were $0.9 million in Q3 2009, compared to
        $7.9 million in Q2 2009 and $14.6 million in Q3 2008. We project our
        total capital expenditures for 2009 to be approximately $15 million
        to $20 million.
    

Conference Call

The Company will conduct a conference call to discuss its results for the third quarter of 2009 tomorrow (Wednesday, November 4, 2009) at 10:00 a.m. CST. 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 36057438. The conference call and all questions and answers will be recorded and made available until December 4, 2009. To listen to the recording call (800) 642-1687 or (706) 645-9291 and enter conference ID 36057438. 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.

    
    --------------
    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.

           Non-GAAP Measures - Adjusted EBITDA (as defined below)

                                 Quarter 3      Quarter 2  Nine Months Ended
                            ------------------- --------- -------------------
    (in millions of U.S. $)    2009      2008      2009   09/30/09  09/30/08
                            --------- --------- --------- --------- ---------
    Net (Loss) Income under
     U.S. GAAP               $  (0.3)  $  17.6   $  (3.6)  $   0.6   $  40.9
    Income Taxes                 1.5       6.4      (4.6)     (3.9)     13.9
    Depreciation and
     Amortization                9.1       8.4       9.0      27.4      24.5
    Net Interest (income)
     expense                    (0.3)      1.1       0.4       0.6       3.3
    Stock Compensation
     Expense - non-cash          0.3       1.4       1.2       3.0       4.6
    Impairment of Assets -
     non-cash                      -         -       1.8       1.8         -
                            --------- --------- --------- --------- ---------
    Adjusted EBITDA          $  10.3   $  34.9   $   4.2   $  29.5   $  87.2
                            --------- --------- --------- --------- ---------
                            --------- --------- --------- --------- ---------
    

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 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 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 September 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.

    
                              TESCO CORPORATION
     (Millions of U.S. Dollars, except share and per share information)

                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                     For the Three           For the Nine
                                     Months Ended           Months Ended
                                     September 30,          September 30,
                               ----------  ----------  ----------  ----------
                                   2009        2008        2009        2008
                               ----------  ----------  ----------  ----------
                                                  (unaudited)

    REVENUE                      $  72.6     $ 140.0     $ 271.2     $ 395.5

    OPERATING EXPENSES
    Cost of Sales and Services      62.0        99.4       232.6       291.7
    Selling, General and
     Administrative                  6.8        12.6        33.6        36.9
    Research and Engineering         2.1         2.6         6.5         8.1
                               ----------  ----------  ----------  ----------
                                    70.9       114.6       272.7       336.7
                               ----------  ----------  ----------  ----------
    OPERATING INCOME (LOSS)          1.7        25.4        (1.5)       58.8
    Interest (Income) Expense,
     net                            (0.3)        1.1         0.6         3.3
    Other Expense, net               0.8         0.3         1.2         0.7
                               ----------  ----------  ----------  ----------
    INCOME (LOSS) INCOME BEFORE
     INCOME TAXES                    1.2        24.0        (3.3)       54.8
    Income taxes                     1.5         6.4        (3.9)       13.9
                               ----------  ----------  ----------  ----------
    NET (LOSS) INCOME            $  (0.3)    $  17.6     $   0.6     $  40.9
                               ----------  ----------  ----------  ----------
                               ----------  ----------  ----------  ----------

    (Loss) Earnings per share:
      Basic                       ($0.01)    $  0.47     $  0.01     $  1.10
      Diluted                     ($0.01)    $  0.46     $  0.01     $  1.08
    Weighted average number
     of shares:
      Basic                   37,620,269  37,473,597  37,567,286  37,125,680
      Diluted                 37,620,269  38,024,147  38,289,253  37,733,119
                              ----------- ----------- ----------- -----------


                    CONDENSED CONSOLIDATED BALANCE SHEETS

                                                       September    December
                                                        30, 2009    31, 2008
                                                      ----------- -----------
                                                            (unaudited)
    ASSETS
      Cash and Cash Equivalents                          $  45.8     $  20.6
      Accounts Receivable, net                              48.7        97.7
      Inventories                                           97.7        96.0
      Other Current Assets                                  37.0        30.8
                                                      ----------- -----------
        Current Assets                                     229.2       245.1
      Property, Plant and Equipment, net                   193.3       209.0
      Goodwill                                              29.2        28.7
      Other Assets                                          19.0        16.6
                                                      ----------- -----------
                                                         $ 470.7     $ 499.4
                                                      ----------- -----------
                                                      ----------- -----------

    LIABILITIES AND SHAREHOLDERS' EQUITY
      Current Maturities of Long Term Debt               $   2.5     $  10.2
      Accounts Payable                                      21.5        38.9
      Accrued and Other Current Liabilities                 34.5        50.7
                                                      ----------- -----------
        Current Liabilities                                 58.5        99.8
      Long Term Debt                                        31.4        39.4
      Deferred Income Taxes                                 14.9         8.2
      Shareholders' Equity                                 365.9       352.0
                                                      ----------- -----------
                                                         $ 470.7     $ 499.4
                                                      ----------- -----------
                                                      ----------- -----------
    

%SEDAR: 00002774E

SOURCE Tesco Corporation

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

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