Tesco Corporation (TESO)

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Tesco (TESO)

Q2 2013 Earnings Call

August 07, 2013 9:00 am ET


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

Robert L. Kayl - Chief Financial Officer and Principal Accounting Officer


Ryan Fitzgibbon - Global Hunter Securities, LLC, Research Division

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

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



Good day, ladies and gentlemen, and welcome to the Tesco Corporation Second Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the call over to your host for today, Mr. Julio Quintana, President and Chief Executive Officer. Sir, you may begin.

Julio Manuel Quintana

Thank you, Ben. Good morning, ladies and gentlemen, and welcome to TESCO's second quarter 2013 earnings conference call. I'm Julio Quintana, TESCO's President and CEO, and I will be hosting our call. 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 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 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 the 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 afternoon contains an explanation and a reconciliation of these measures to GAAP measures. And we refer you to that release for additional information.

Now, on to our second quarter results. We reported net income and EPS in Q2 of $10.2 million or $0.26 a share on $129 million of revenue compared to $8.8 million of net income or $0.22 per share in Q1 of 2013 on $127.1 million of revenue. Operating income increased during the quarter to $13.8 million, up from operating income of $11.7 million from Q1. Given our current drilling activity levels in North America, we are pleased with our results for the second quarter of 2013. With strengthening activity on international business unit, our Tubular Services business again enjoyed record revenue and operating income during the second quarter. With increased sales in international markets, our overall Top Drive sales activity continues at a steady space. Today, our Top Drive backlog stands at 30 units. Although our Top Drive rental business has continued to be negatively impacted by the slowdown in North America, our Top Drive rental strategies to ship to international markets, especially to Russia and Latin America, has partially offset the decline we experienced in North America. With the increased focus on our base businesses and continuous improvement in operational efficiency, we are well positioned to meet the challenges and opportunities for the rest of 2013 and beyond.

I'll give more into this in detail after Bob summarizes the results. Bob?

Robert L. Kayl

Thank you, Julio. I will discuss our second quarter 2013 operating results by business segment and then give some comments on our corporate and research and engineering expenses. Starting with Top Drive, revenue totaled $76.1 million for the quarter, a slight increase sequentially from Q1. The increase from Q1 is primarily a result of increased aftermarket sales and services. We sold 24 units, both in Q2 and in Q1 of this year, compared to 34 units in Q2 of 2012. Of the 24 units sold in Q2, there were 21 new units and 3 used units from our rental fleet. In Q1, the 24 units sold consisted of 22 new units and 2 used units from the fleet. With the 21 new units delivered to customers in Q2, we ended the quarter with a backlog off 10 Top Drive units with a potential value of $12.9 million, down from 20 units with a potential value of $28.9 million at the end of Q1. However, several orders that we were expecting to book in June were not booked until the first couple of weeks of July. Today our backlog stands at 30 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 $30.8 million in Q2, up from $29.7 million in Q1, but down from $33.9 million in Q2 2012. Our revenue increased from last quarter primarily due to an increase in operating days in Latin America. Currently, our fleet of rental Top Drive stands at 133 units, a decrease from the 136 units we had at the end of Q1. Aftermarket sales and service revenue was $16.1 million in Q2, up from $13.1 million in Q1 and down from $16.9 million in Q2 2012. The increase from Q1 is due to stronger aftermarket sales, part sales in Russia and North America. Our Top Drive operating margins were 23% in Q2, an increase from 20% in Q1 and a decrease from 25% in Q2 2012. The increase from Q1 is primarily due to the mix of new Top Drive models delivered in Q2 and increased aftermarket sales and service activity.

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