Tesco Corporation (TESO)

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TESCO Corporation (TESO)

Q3 2012 Earnings Call

November 5, 2012 11:00 AM ET


Julio Quintana - President & CEO

Bob Kayl - CFO


Jeff Spittel - Global Hunter Securities

Robert MacKenzie - FBR

Joe Gibney - Capital One

Josh Lingsch - Simmons & Company

Doug Garber - Dahlman Rose

Daniel Burke - Johnson Rice

John Keller - Stephens Inc.



Welcome to the TESCO Corporation third quarter 2012 Earnings Conference Call. (Operator Instructions). I would like to introduce our host for today Mr. Julio Quintana, President and CEO. Sir, please go ahead.

Julio Quintana

Thank you Karen. Good morning ladies and gentlemen and welcome to the TESCO’s third quarter 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 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 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 Regulation 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 diluted EPS Q3 of $9 million or $0.23 per share on a 126.4 million of revenue compared to 13.1 million of net income of $0.34 per share in Q2, 2012 on 136.7 million of revenue. The second quarter included a $13.3 million of pretax gain on the sale of CASING DRILLING business. Operating income decreased during the quarter to 16.2 million down from operating income with 24.6 million primarily due to the aforementioned gain.

Operating margins decreased to 12.8% to Q3 compared to 18% in Q2. Excluding the gain on the sale of our patient growing business in the second quarter operating margins increased to around 8.3% to 12.8% sequentially. Increase in our profitability and return on capital employed have been a stated objective over the last several quarters. We are satisfied with our delivered performance in operating efficiency during this quarter I believe further improvement is possible.

We ended the quarter with a backlog of 30 units with a potential revenue value of 42.4 million. We continue to book an average of six units per month and are prepared for somewhat softer 2013. However we do not believe a dramatic decline of the top price sales market is likely.

We delivered better, normalized operating income during this third quarter and believe this trend should continue. Despite again to see some slowdown in North America we were able to grow our Tubular Services business revenue to record levels and maintain markets.

We are seeing some slowdown in our Top Drive order flow and our backlog stands to 27 units today. Our transformation post-CASING DRILLING is complete. With this increased focus on our base businesses and operational efficiencies we believe we are well positioned for the remainder of 2012 and then in 2013.

I will get into this in more detail after Bob summarizes the financial results. Bob?

Bob Kayl

Thank you Julio. I will discuss our third quarter 2012 operating results by business segment and then give some comments on our corporate and research and engineering expenses. Starting with Top Drives, revenue totaled 79.2 million for the quarter 5% lower than the same period last year and down 12% sequentially from last quarter. The decrease from last quarter is primarily a result of a lower number of Top Drive unit sales and the decrease in the number of operating base for our rental fleet. We sold 28 units for the quarter compared to 34 units in Q2 and 27 units in Q3, 2011.

Off the 28 units sold for the quarter there were 25 new units and 3 used units from our rental fleet. Off the 34 units sold in Q2 there were 33 new units and one used unit. With the 25 new units delivered to our customers in Q3 we ended the quarter with a backlog of 30 Top Drive units with the potential value of 42.4 million down from 41 units with a potential value of 57.3 million at the end of last quarter. During Q3, we saw a decrease in the Top Drive sales activity and today our Top Drive backlog stand 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 28.8 million in Q3 down from 33.9 million in Q2 and 35.1 million in Q3, 2011. The decrease from Q2 was primarily due to an increase in operating days in Russia, Mexico and in North America consistent with the decrease in the number of active rates in the U.S. and Canada. Currently our rental fleet of Top Drive stands at a 135 units up from 130 units at the end of Q2 as we continue to invest in our global fleet.

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