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Tesla Reports 2013 Third Quarter Results
CALGARY, ALBERTA--(Marketwired - Nov. 13, 2013) - Tesla Exploration Ltd. ("Tesla" or the "Company") (TSX:TXL) today announces its 2013 third quarter operating and financial results.
Selected Highlights | |||||||||||||
(000s, except per share data) | Three months ended | Nine months ended | |||||||||||
(unaudited) | September 30, | September 30, | |||||||||||
2013 | 2012 | Change | 2013 | 2012 | Change | ||||||||
$ | $ | % | $ | $ | % | ||||||||
Revenue | 31,812 | 28,853 | 10 | 125,275 | 149,936 | (16 | ) | ||||||
Revenue excluding reimbursables | 25,862 | 24,918 | 4 | 103,587 | 126,739 | (18 | ) | ||||||
Gross margin(1) | 6,571 | 5,827 | 13 | 38,888 | 40,060 | (3 | ) | ||||||
As a % of revenue excluding reimbursables | 25 | % | 23 | % | 38 | % | 32 | % | |||||
Net earnings (loss) | (3,700 | ) | (3,903 | ) | n/m | 2,725 | 6,101 | (55 | ) | ||||
Per share - basic | (0.17 | ) | (0.17 | ) | n/m | 0.12 | 0.27 | (56 | ) | ||||
EBITDA(2) | 1,647 | 1,311 | 26 | 22,801 | 25,620 | (11 | ) | ||||||
Per share - basic | 0.07 | 0.06 | 17 | 1.02 | 1.13 | (10 | ) | ||||||
Cash flow from operations(3) | 3,288 | 2,317 | 42 | 23,298 | 25,129 | (7 | ) | ||||||
Per share - basic | 0.15 | 0.10 | 50 | 1.04 | 1.11 | (6 | ) | ||||||
Weighted average shares outstanding for the period - basic | 22,392 | 22,701 | (1 | ) | 22,464 | 22,725 | (1 | ) | |||||
Capital expenditures | 3,074 | 2,214 | 39 | 20,411 | 23,667 | (14 | ) | ||||||
As at | September 30, | December 31, | Change | |
$ | $ | % | ||
Working capital | 2,373 | 3,330 | (29 | ) |
Total assets | 128,415 | 129,443 | (1 | ) |
Total long-term borrowings(4) | 24,248 | 22,185 | 9 | |
Equity | 65,432 | 63,374 | 3 | |
Gross margin is defined as gross profit before depreciation and amortization. Gross margin is a measure that does not have a meaning prescribed under IFRS in Canada and accordingly, may not be comparable to similar measures used by other companies.
EBITDA is defined as income before interest, taxes, depreciation, amortization and impairments, gains or losses on foreign exchange, gains or losses on sales of capital assets, bad debt provisions and stock-based compensation. EBITDA and EBITDA per share are presented because they are frequently used by securities analysts and others for evaluating companies and their ability to service debt. EBITDA is a measure that does not have any standardized meaning prescribed under IFRS in Canada and accordingly, may not be comparable to similar measures used by other companies. The Company is consistent with its calculation of EBITDA year over year.
Cash flow from operations is defined as "Cash provided by operating activities before changes in non-cash working capital." Cash flow from operations and cash flow from operations per share are measures that provide shareholders and potential investors with additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management utilizes these measures to assess the Company's ability to finance operating activities and capital expenditures. Cash flow from operations and cash flow from operations per share are not measures that have any standardized meaning prescribed by IFRS in Canada, and accordingly, may not be comparable to similar measures used by other companies. The Company is consistent with its calculation of cash flow from operations year over year.
Includes capital lease obligations and long-term debt, including current portions.
Third Quarter Highlights:
Tesla generated $6.6 million of gross margin and $1.6 million of EBITDA(2) on $31.8 million of revenues during the third quarter of 2013, an improvement over the comparative quarter.
Tesla Canada has committed contracts and outstanding proposals for several substantial three- dimensional ("3D") three-component ("3C") projects planned for the upcoming winter. These work commitments will utilize all of the Company's 3C recording equipment along with additional rented 3C cable and wireless multi-component seismic acquisition systems ("Hawk").
Tesla Canada also continued to expand the Company's wireless multi-component seismic acquisition system base with the purchase of 6,000 multi-component geophones for utilization this winter.
Tesla USA continued work under an extended seismic services agreement with a multi-client geophysical company utilizing 10,000 stations of Hawk. Existing work commitments extend well into 2014. Tesla USA also utilized its recently purchased 6,000 stations of Hawk and auxiliary equipment on a second crew.
Tesla Offshore continued work on three geophysical vessels throughout the quarter. Tesla Offshore's backlog of turnkey and day rate geophysical projects will allow it to continue operating a geophysical vessel throughout the winter months. This supplemented the summer construction season supporting client operations on up to 11 vessels.
Tesla Offshore's Bluefin Autonomous Underwater Vehicle ("AUV") is expected to be operational in late-November 2013 with projects committed in the Gulf of Mexico.
Tesla International operated two crews during the quarter. One in the UK on hydrocarbon and mineral projects while a crew in Africa completed and ultimately demobilized from a transition zone ("TZ") project in the Democratic Republic of the Congo ("DRC").
Tesla International's contract in Somaliland was terminated by the client due to security concerns prior to start-up. Under terms of the contract, the client has paid a termination fee and is contractually required to pay all committed costs and demobilization fees. This crew is now in the process of mobilizing to a recently signed project in Kenya.
Third Quarter Financial Results:
The Company's consolidated revenues including reimbursables increased 10% in the third quarter of 2013 compared to the third quarter of 2012. The Company's revenue excluding reimbursables increased 4%. Improvements in activity levels for Tesla International and Tesla USA were partially offset by declines in activity levels for Tesla Canada and to a lesser extent Tesla Offshore. The Company's gross margin also improved in the third quarter of 2013 compared to the third quarter of 2012 due to increased revenues for Tesla International and improved margin percentage for Tesla Offshore. Gross margin as a percentage of total revenue (including reimbursables) increased to 21% in the third quarter of 2013 from 20% in the third quarter of 2012 due to a heavier weighting of improved margins for Tesla International and Tesla Offshore partially offset by increased reimbursable revenues for Tesla USA. Gross margin as a percentage of revenue excluding reimbursables also improved to 25% in the third quarter of 2013 compared to 23% in the third quarter of 2012 due to a heavier weighting of improved margins for Tesla International and Tesla Offshore. Reimbursable revenues increased due to front-end work undertaken by Tesla USA preparing fourth quarter programs.
The third quarter remained slow for Tesla Canada with low levels of activity throughout the industry. One crew completed a limited number of small projects during the quarter supplemented by front-end work for fall programs leading to a decline in revenues from the comparative quarter of 2012 when two crews operated periodically. Tesla Canada had negative gross margin during the third quarter of 2013 consistent with the third quarter of 2012 due to low revenues being more than offset by fixed field overhead costs related to maintaining and preparing equipment for the fall and peak winter season.
Despite a softening of the US seismic land acquisition market, Tesla USA saw an increase in revenues mainly driven by increased reimbursables related to front-end activities preparing for fall programs. Activity levels declined slightly with two Hawk crews operating throughout the quarter until early September when the crews stood down between projects until late September. Tesla USA operated two crews throughout the third quarter of 2012. Although revenues decreased, Tesla USA's gross margin percentage improved due to the utilization of additional Hawk equipment purchased in June.
Tesla International's revenues improved significantly from the comparative quarter due to increased revenues from operations in Africa. During the third quarter of 2013, Tesla International completed and demobilized from a transition zone ("TZ") project in the Democratic Republic of the Congo ("DRC"). Tesla International also realized revenues resulting from the client termination of a contract in Somaliland. There was little activity in Africa during the third quarter of 2012. The third quarter of 2013 included a slightly reduced level of activity for the UK crew compared to the third quarter of 2012. Gross margins benefitted from the contracted termination fee on the Somaliland project.
Tesla Offshore's activity declined during the third quarter of 2013 compared to the third quarter of 2012. The third quarter of 2013 continued to benefit from significantly increased activity levels for the geophysical division with both turnkey and day rate work. However, this was offset by an industry-wide reduction in construction activity with reduced trawling and positioning projects and a later start than normal for recurring special project work. Despite the drop in revenue, Tesla Offshore's gross margin improved compared to the prior period due to improved gross margin percentage from a heavier weighting of geophysical work.
The Company's EBITDA increased in the third quarter of 2013 compared to the third quarter of 2012 due to the increase in revenues and absolute gross margin partially offset by an increase in general and administrative costs associated with increased business development expenses. The Company's consolidated net loss was slightly lower than the consolidated net loss in the comparative quarter. The improvement in EBITDA was partially offset by increased depreciation related to the Hawk system along with a reduced tax recovery.
The Company's working capital decreased $1.8 million during the quarter to $2.4 million including net cash of $1.2 million. Operating cash flows and operating lines of credit were used to repay $1.4 million of regular finance leases and fund $4.7 million of capital expenditures during the quarter. Operating lines were utilized to fund ongoing operations in certain jurisdictions.
Total long-term borrowings declined by $1.9 million during the quarter to $24.2 million due to $1.4 million of regular payments made on outstanding finance leases and the strengthening of the Canadian dollar against US dollar denominated long-term borrowings. At September 30, 2013, the Company had $37.6 million of unused committed bank credit and lease facilities.
Shareholders' equity decreased $4.4 million to $65.4 million during the quarter due to the net loss incurred during the quarter. Additionally, there was a decrease in accumulated other comprehensive income due to the strengthening of the Canadian dollar against the functional currency of the Company's US subsidiaries.
2013 Year-to-date Financial Results:
The Company's year-to-date consolidated revenues including reimbursables remain behind 2012 with no contribution from Tesla Trinidad following the conclusion of the Guayaguayare project in April of 2012. The Company's revenue including reimbursables decreased 16% while revenue excluding reimbursables decreased 18%. Improvements in activity levels for Tesla International were more than offset by declines in activity levels for Tesla Canada, Tesla USA and especially Tesla Trinidad. Tesla Offshore had comparable activity levels. Despite the drop in revenues, the Company's gross margin year-to-date was only 3% less than 2012 due to improved margin percentage for Tesla International and Tesla USA. Gross margin as a percentage of total revenue (including reimbursables) increased to 31% in 2013 from 27% in 2012 due to a heavier weighting of improved margins for Tesla International and Tesla USA. Gross margin as a percentage of revenue excluding reimbursables also improved to 38% in 2013 compared to 32% in 2012 for similar reasons.
The Company's EBITDA decreased year-to-date compared to 2012 due to the decline in revenues and absolute gross margin along with an increase in general and administrative costs. The Company's consolidated net income also declined year over year due to the reduction in EBITDA and increased depreciation related to the Hawk system. This was partially offset by a corresponding reduction in tax expense.
Outlook:
After generating positive EBITDA during the third quarter of 2013 despite challenges in certain regions, the outlook remains positive throughout the Company. Significant contracts are in place across all segments and backlog remains strong. Tesla continues to look for ways to expand its service offerings and the geographical areas in which it operates.
North America Land Operations
In Canada, permit delays, a late harvest and wetter than normal ground conditions have delayed exploration activity into the late fall. Further, there appears to be a reduced number of fall programs combined with aggressive competition. Due to weakness in the US, certain competitors are focusing their efforts in Canada. Competitors and equipment rental companies have provided an increased capacity in Canada for both single component and three component wireless equipment which is also contributing to increased pricing pressure. Tesla Canada expected to ramp up operations during October; however, the permit delays and weather related challenges have deferred the start-up of four crews until early November. These crews will utilize the Company's 3C recording equipment along with rented multi- component Hawk systems throughout the quarter. While opportunities for 3D/3C projects (including Hawk) remain strong, the industry will be negatively impacted by the effect of a few larger oil and gas companies cancelling or delaying significant portions of their planned work due to budget cuts and challenges with First Nations approvals. Tesla Canada now plans to operate six crews during the first quarter of 2014 (lower than the previously anticipated activity level), with a continued focus on 3C and wireless technology for oilsands projects and shale plays in western Canada. Despite the recent softening in oil prices, significant oilsands projects continue to be announced. Continued domestic and international funding of these long-term projects will continue to drive demand for exploration and monitoring work commitments in the region.
In the US, a 10,000 station Hawk crew continues work on 3D programs under an agreement with a multi- client geophysical company. This crew will be operating in Pennsylvania into early 2014 with pending projects to follow. Tesla USA is currently working on an extension to the existing multi-year agreement. A second crew utilizing the recently purchased 6,000 station Hawk system is working on a project in Wyoming into mid-November before moving on to projects in North Dakota. Tesla USA is hopeful in securing additional projects for this smaller Hawk system; alternatively the system will be relocated to Canada for the winter season. The US seismic market remains soft with heavy competition for available projects. Pricing of services continues to be the driving factor in this competitive market with requirements for higher channel counts, wireless recording systems and third party multi-client programs driving the demand for services. Activity levels remain focused on oil and liquids rich shale plays such as the Bakken, Utica (eastern Ohio), Marcellus (western Pennsylvania and West Virginia) and Denver-Julesburg ("DJ") Basin.
South and Central America Operations
Tesla Colombia was formed in February 2013 to provide seismic acquisition services to companies in Colombia and to expand the Company's footprint in South and Central America. In recent years there has been increased foreign investment in natural resources, growing exploration activity and a strong demand for experienced and reliable seismic acquisition companies with modern equipment and experience in comparable terrains and environments. Meetings continue to be held and relationships continue to be built with both oil and gas and mining companies operating in South and Central America. Many of these companies are Canadian-based or international operators that Tesla has done work for in other regions of the world. Management has also focused on developing relationships with local companies that can provide support to Tesla's operations in South and Central America and provide access to potential clients. While no projects have been awarded at this time, the management team continues to pursue a number of opportunities that have been identified during Tesla's presence in the region.
International Operations
Tesla International's UK and European crew has seen a sustained demand for acquisition services in both the hydrocarbon and minerals sectors both in the UK and mainland Europe for a prolonged period of time. While there are gaps in the short-term work schedule, bid activity and scoping exercises suggest that this demand will continue in 2014. Management is also pursuing opportunities to expand its European presence.
Tesla International is in the final stages of demobilizing from Somaliland following termination of a contract by the client due to security concerns prior to start-up. Under terms of the contract, the client has paid a termination fee and is contractually required to pay all committed costs and demobilization fees. Tesla International has engaged with the Somaliland Ministry of Energy to leave a limited asset base in Somaliland pending the outcome of active bids in the region.
Equipment and personnel will now be mobilized to a recently signed project in Kenya expected to begin before the end of the year. Tesla International is pursuing additional projects related to the latest concession awards in Kenya and the associated work commitments in the region in order to extend backlog.
Two key areas of East Africa are experiencing greater levels of activity following political stabilisation and the interest of some of the major operators in developing their activities in the area. The first key area involves interests along the Great Rift Valley Trend from Tanzania into Ethiopia. This interest is in chasing analog plays based on the recent discoveries in Uganda and successes in Northern Kenya. There remains significant interest in the lake zones of this Rift Valley Trend with Tesla International well placed to exploit the TZ acquisition opportunities in the area. The second area of increased exploration activity is near coastal blocks from Mozambique northward to Somalia which are hinged on recent major gas discoveries offshore East Africa. Tesla International expects to be successful in obtaining additional work from both these opportunities and from exploiting some potential new areas of activity to extend its current backlog.
The UK technical services office remains steady with a number of in-seam seismic, unconventional gas (coal bed and tight reservoirs), and geophysical interpretation projects and is pursuing additional projects to strengthen backlog.
Offshore Operations
Tesla Offshore saw a continuation of increased activity levels in the Gulf of Mexico through the summer and is expecting the seasonal slowdown of fall and winter to begin impacting activities. However, with Central and Western Gulf of Mexico lease sales returning to their customary schedules during 2013, the expectation is that activity levels should stabilize to pre-BP crisis levels in the foreseeable future. Tesla Offshore has a healthy backlog of not only turnkey work, but also some day rate work, which is an anomaly for this time of the year. Due to an early and unexpected deterioration in the weather, the two large scale day rate exploration projects have ceased operations for this year, but will resume early in 2014.
Construction activities remain lower than historical levels. While trawling activity has been consistent, there is a reduced level of positioning work in the Gulf of Mexico and special project start dates were later than in previous years. While there are a number of opportunities in play, this department will see reduced activity levels while the industry remains abnormally slow, especially heading into the winter months.
Tesla Offshore continues to pursue opportunities outside the Gulf of Mexico. The multi-year project in Alaska is ongoing; however, the operations have been placed on standby awaiting word of approved permit clarifications and a return to full operations. As long-term clients continue to expand into international areas, Tesla Offshore continues configuring systems and staff to profitably provide services to support those expansions.
Tesla Offshore has completed development, begun submitting proposals and has landed the first major client for the newly developed provision of 3D seismic interpretation. Tesla Offshore continues to pursue alliances and broaden service offerings such as geotechnical acquisition and multi-streamer along with high-resolution shallow seismic services to further expand the Company's opportunities.
As previously disclosed, a significant focus of Tesla Offshore's commitment to expansion centers on the Company's purchase of a Bluefin 21 AUV. The system is currently in the final stages of acceptance testing at the build facility and is expected to be delivered to Tesla Offshore in mid to late November. It appears the delays that Tesla Offshore has experienced have come to an end and target schedules are now more certain. In addition to addressing this much needed service to our existing customer base, offering AUV services worldwide has opened new markets for Tesla Offshore related to deep water oil and gas field development across the globe. Tesla Offshore has customer commitments already in place for the Gulf of Mexico and is optimistic regarding significant AUV work in Southeast Asia. Tesla Offshore has recently hired several experienced personnel to manage and optimize use of state of the art technology in geophysical survey operations, including the AUV service line. This includes the bringing on staff of one of our longstanding top contractors to manage AUV operations, as well as a seasoned AUV Party Chief with thirteen years of experience performing AUV operations worldwide. The company also continues to further the development of geo-hazards interpretation services for local and international clients.
On October 30, 2013, the Company received notice that a claim has been filed against the Company by an unrelated third party in the United States District Court for the Eastern District of Louisiana. The third party is seeking damages from the Company resulting from an incident involving a vessel under contract to the Company in November 2012. The Company's management is consulting with its legal counsel to determine the Company's response to this claim. Although the direction and financial consequences of the claim cannot be determined at this time, the Company expects its regular business insurance will cover any and all claims arising from this matter.
Forward-looking Statements:
Certain information set forth in this press release, including management's assessment of the Company's future plans and operations, contains forward-looking statements, which are based on the Company's current internal expectations, estimates, projections, assumptions and beliefs, which may prove to be incorrect. Some of the forward-looking statements may be identified by words such as "expects", "anticipates", "believes", "projects", "intends", "continues", "estimates", "objective", "ongoing", "may", "will", "should", "might", "plans" and similar expressions. These statements are not guarantees of future performance and undue reliance should not be placed on them. Such forward-looking statements are based on current expectations, estimates and projections that involve a number of known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These include, but are not limited to, the risks outlined in the "Business Risks" section of the Company's MD&A for the three and nine months ended September 30, 2013.
The information contained in this press release should not be considered all-inclusive as it excludes changes that may occur in general economic, political and environmental conditions. The Company cautions that actual performance will be affected by a number of factors, many of which are beyond its control. Investors are cautioned against attributing undue certainty to forward-looking statements. The forward-looking information and statements contained in this press release speak only as of the date hereof and, subject to its obligations under applicable law, the Company does not intend, and does not assume any obligation, to update these forward-looking statements if conditions or opinions should change.
About Tesla
Tesla provides geophysical and related services in Canada through Tesla Exploration Partnership, internationally through its wholly owned subsidiaries Tesla Exploration International Ltd., Tesla Exploration Trinidad Ltd. and Tesla Exploration Colombia S.A.S., and in the United States through Tesla Exploration Inc. and Tesla Offshore LLC. Since the Company's inception in 2000, Tesla has grown both organically and through acquisitions funded by retained earnings and prudent levels of borrowing, from a Canadian focused land seismic business to a global provider of a broad suite of geophysical and related services. Tesla trades on the TSX under the symbol "TXL".
