TESO

Tesco Corporation (TESO)

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Tesco (TESO)

Q4 2012 Earnings Call

March 01, 2013 11:00 am ET

Executives

Julio Manuel Quintana - Chief Executive Officer, President and Executive Director

Robert L. Kayl - Former Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Megan Repine - FBR Capital Markets & Co., Research Division

Josh C. Lingsch - Simmons & Company International, Research Division

Joseph D. Gibney - Capital One Southcoast, Inc., Research Division

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Trey Cowan - Clarkson Capital Markets, Research Division

John R. Keller - Stephens Inc., Research Division

Richard Brent Mattis

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the TESCO Corporation Fourth Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Mr. Julio Quintana, President and Chief Executive Officer. Mr. Quintana, please begin.

Julio Manuel Quintana

Thank you, Janine. Good morning, ladies and gentlemen, and welcome to TESCO's fourth quarter and yearend 2012 Earnings Conference Call. I'm Julio Quintana, TESCO's President and CEO and I'll be hosting our call today. Bob Kayl, our Chief Financial Officer, is with me on the call.

I'll begin with some general comments on the quarter, and Bob will give you an overview of our financial results. Following Bob's remarks, I'll return and provide an update on our business and plans for the future.

Before I begin, it is important to note that during the course of this call, Bob and I will make forward-looking statements within the meaning of the Private Securities Litigation Act of 1995 and Canadian Securities Legislation. These statements are based on current expectations that involve risks and uncertainties, which could cause actual results to vary from those anticipated. These risks and uncertainties have been and are more fully described in our annual reports and quarterly reports filed with the SEC and with securities regulatory authorities in Canada. You should not place any undue reliance on these forward-looking statements made in the conference call, nor do we intend to update these forward-looking statements.

Also we will use certain non-GAAP measures. The earnings release issued yesterday contains an explanation and a reconciliation of these measures to GAAP measures, and we refer you to that release for additional information.

Now onto our fourth quarter and yearend results. We reported net income and diluted EPS in Q4 of $13.3 million or $0.34 per share on $137 million of revenue, compared to $9 million of net income or $0.23 per share in Q3 on $126.4 million of revenue. Operating income increased during the quarter to $17 million, up from operating income of $16.2 million for Q3. For all of 2012, we reported revenue of $553 million, a record revenue year for TESCO, and net income of $50 million or $1.27 a share, compared to $513 million of revenue and net income of $27 million or $0.69 per share in 2011.

Operating income increased for 2012 to $76.8 million, also a record for TESCO, up from operating income of $42.5 million for 2011. Operating income for 2012 included a $12.4 million pretax gain on sale of our CASING DRILLING business sold in the second quarter of last year. Excluding this gain, operating income increased by 52% from 2011 to 2012.

You will notice in yesterday's press release and in our public filings that we are not describing our Casing Drive System or CDS-related tubular services as Automated Tubular Services instead of proprietary to better reflect the nature of this product line. We were pleased with the strong finish to 2012, by recording the highest annual revenue and operating income in the company's history. Despite a number of delays and operational challenges last year, we were able to grow both our Tubular Services and Top Drive revenue quarter-over-quarter and year-over-year and improve our margins. Our transformation post-CASING DRILLING continues. Over the coming months, we will begin executing our new strategy for TESCO's growth. With this increased focus on our base businesses and continuous improvements in our operational efficiency, we're excited about the opportunities in 2013.

I will get into this a little bit more after Bob summarizes the financial results. Bob?

Robert L. Kayl

Thank you, Julio. I will discuss our fourth quarter and yearend 2012 operating results by business segment and then give some comments on our corporate and research and engineering expenses. Starting with Top Drives, revenues totaled $86.7 million for the quarter, up 9% sequentially from Q3. The increase from Q3 is primarily a result of a higher number of Top Drive unit sales. We sold 30 units in Q4 compared to 28 units sold in Q3, and 46 units sold in Q4 2011. Of the 30 units sold in Q4, there were 28 new units and 2 used units from our rental fleet. In Q3, the 28 units sold consisted of 25 new units and 3 used units from our rental fleet. With the 28 new units delivered to customers in Q4, we ended the quarter with a backlog of 28 top drive units, with a potential value of $42.2 million, down from 30 units with a potential value of $42.4 million at the end of Q3.

During Q4, we saw steady Top Drive sales in order activity and today, our backlog stands at 27 units with several sales pending. We do not include a sale in our backlog until the contract is signed and we have received a nonrefundable deposit if required by the contract. Top Drive rental revenue was $28.7 million in Q4, down from $28.8 million in Q3, and $32.7 million in Q4 2011. Our revenues held steady from last quarter even with a slight decrease in operating days. Currently, our fleet of rental top drives stands at 135 units, the same number of units we had at the end of Q3.

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