TESO

Tesco Corporation (TESO)

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Tesco (TESO)

Q1 2013 Earnings Call

May 06, 2013 10:00 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

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

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

John R. Keller - Stephens Inc., Research Division

Gregory M. Macosko - Lord, Abbett & Co. LLC

Trey Cowan - Clarkson Capital Markets, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the TESCO Corporation First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Julio Quintana, President and Chief Executive Officer. Sir, you may begin.

Julio Manuel Quintana

Thank you, Mary. Good morning, ladies and gentlemen, and welcome to TESCO's First Quarter 2013 Earnings Conference Call. I'm Julio Quintana, TESCO's President and CEO, and I will 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. Then, 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 and 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 the Securities Regulatory Authorities in Canada. You should not place any undue reliance on these forward-looking statements made in our conference call nor do we intend to update these forward-looking statements. Also, we will use certain non-GAAP measures. The earnings release issued earlier this morning contains an explanation and/or reconciliation of these measures to GAAP measures, and we refer you to that release for additional information.

Now onto our first quarter results. We reported net income and EPS in Q1 of $8.8 million or $0.22 per share on $127.1 million of revenue compared to $13.3 million of net income or $0.34 per share in Q4 of 2012 on $137.6 million of revenue. Operating income decreased during the quarter to $11.7 million, down from operating income of $17 million for Q4.

Despite the challenges created by the decreased North American rig activity, we are satisfied with our results for the first quarter of 2013. Not only did our Tubular Services business generate record revenue but again did so with improving margin. This is despite the fact that half of our Tubular Services revenue is generated in North America. The company recognized increased demand in Asia-Pacific region, North America and Latin America for automated offerings. This has resulted in improvement in both revenue and operating income during the first quarter of 2013 as compared to the first and fourth quarters of 2012.

As anticipated and discussed in past conference calls, the Top Drive business in North America has experienced some softening. At this point, we believe we have found bottom in North America, and the international activity has helped substantially in offsetting North American softness. Our international focus is paying off greatly, and our activity remains solid in this business, particularly in Russia, Latin America and the Middle East. The net result of these market dynamics is a stabilizing revenue base with a reasonable operating income and what we believe to be the bottom in the North American market. I'll get into this in more detail after Bob summarizes the financial results. Bob?

Robert L. Kayl

Thank you, Julio. I will discuss our first quarter 2013 operating results by business segment and then give some comments on our corporate and research and engineering expenses.

Starting with Top Drives. Revenue totaled $75.6 million for the quarter, down 13% sequentially from Q4. The decrease from Q4 is primarily a result of a fewer number of Top Drive unit sales. We sold 24 units in Q1 compared to 30 units sold in Q4 and 39 units sold in Q1 2012. Of the 24 units sold in Q1, there were 22 new units and 2 used units from our rental fleet. In Q4, the 30 units sold consisted of 28 new units and 2 used units. With the 22 new units delivered to customers in Q1, we ended the quarter with a backlog of 20 top drive units with a potential value of $28.9 million, down from 28 units with a potential value of $42.2 million at the end of Q4. Today, our backlog stands at 18 units.

Top Drive rental revenue was $29.7 million in Q1, up from $28.7 million in Q4 and down from $34.6 million in Q1 2012. The increase from last quarter was primarily due to increased activity Latin America. Currently, our fleet of rental Top Drives stands at 136 units, up from the 135 units that we had at the end of Q4. After-market sales and service revenue was $13.1 million in Q1, down from $15.4 million in Q4 and $16.8 million in Q1 2012. The decrease from Q4 is primarily due to a decline in aftermarket parts sales in North America.

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