TESO

Tesco Corporation (TESO)

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Tesco (TESO)

Q3 2013 Earnings Call

November 04, 2013 11:00 am ET

Executives

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

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

Analysts

Ryan Fitzgibbon - Global Hunter Securities, LLC, Research Division

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

Marc G. Bianchi - Cowen and Company, LLC, Research Division

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

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the TESCO Corporation Third Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to your host Julio Quintana, President and Chief Executive Officer. Please go ahead.

Julio Manuel Quintana

Thank you, Stephanie. Good morning, ladies and gentlemen, and welcome to TESCO's Third Quarter 2013 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, 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 that involve risks and uncertainties, which could cause 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 this morning 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 third quarter results. We reported net income and EPS in Q3 of $11.7 million or $0.29 per share on $132 million of revenue compared to $10.2 million of net income or $0.26 per share in Q2 of 2013 on $129 million of revenue. Operating income increased during the quarter to $17.8 million, up from operating income of $13.8 million for Q2. This represents a 29% increase in operating income over the second quarter.

Given our current drilling activity levels in North America, we are pleased with our results for the third quarter. With strengthening activity in our international business units, our Tubular Services business enjoyed the highest quarterly revenue in the company's history and exceeded 1,000 automated jobs in the quarter for the first time, closing the quarter with 1,063 jobs performed.

Although our Top Drive business has continued to be negatively impacted by the decreased activity -- active rig count in North America, our Top Drives strategy is shift to international markets, especially to Russia and Latin America has mostly offset the decline we experienced in North America. Today, our Top Drive backlog stands at 27 units. With the increased focus on our base businesses and continuous improvement in our operational efficiency, we are well positioned to meet the challenges and opportunities for the rest of 2013 and beyond. I'll go into this in more detail after Bob summarizes the financial results. Bob?

Robert L. Kayl

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

Starting with Top Drives. Revenue totaled $78 million for the quarter, a slight increase sequentially from Q2. The increase from Q2 is primarily a result of increased Top Drive sales and rental services. We sold 26 units in Q3 compared to 24 units in Q2 and 28 units in Q3 2012. Of the 26 units sold in Q3, there were 21 new units and 5 used units from our rental fleet.

In Q2, the 24 units consisted of 21 new units and 3 used units. With the 21 new units delivered to customers in Q3, we ended the quarter with a backlog of 26 Top Drive units with a potential value of $37.6 million, up from 10 units with a potential value of $12.9 million at the end of Q2.

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 non-refundable deposit, if required by the contract.

Top Drive rental revenue was $32.6 million in Q3, up from $30.8 million in Q2 and $28.8 million in Q3 2012. Our revenue increased from last quarter, primarily due to an increase in operating days in the Asia Pacific region and Russia. Currently, our fleet of rental Top Drives stands at 130 units, a decrease from the 133 units we had at the end of Q2.

Aftermarket sales and service revenue was $14.8 million in Q3, down from $16.1 million in Q2 and $16 million in Q3 2012. The decrease from Q2 is primarily due to a decline in aftermarket part sales in the Middle East.

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