Tesla Reports 2014 Second Quarter Results
(Marketwire (Canada) Via Acquire Media NewsEdge) CALGARY, ALBERTA--(Marketwired - Aug. 12, 2014) - Tesla Exploration Ltd. ("Tesla" or the "Company") (TSX:TXL) today announces its 2014 second quarter operating and financial results.
(000s, except per share
data) Three months ended Six months ended
(unaudited) June 30, June 30,
2014 2013 Change 2014 2013 Change
$ $ % $ $ %
Revenue 24,630 27,107 (9) 86,123 93,463 (8)
reimbursables 22,398 23,806 (6) 72,382 77,725 (7)
Gross margin(1) 3,644 7,039 (48) 19,968 32,317 (38)
As a % of revenue
reimbursables 16% 30% 28% 42%
Net earnings (loss) (7,002) (3,863) n/m (3,873) 6,426 n/m
Per share - basic (0.32) (0.17) n/m (0.17) 0.29 n/m
Adjusted EBITDA (2) (2,039) 2,079 n/m 8,018 21,155 (62)
Per share - basic (0.09) 0.09 n/m 0.36 0.94 (62)
Cash flow from
operations (1,078) 4,233 n/m 6,264 20,009 (69)
Per share - basic (0.05) 0.19 n/m 0.28 0.89 (69)
Weighted average shares
outstanding for the
period - basic 22,210 22,422 (1) 22,300 22,500 (1)
Capital expenditures 2,643 14,249 (81) 18,853 17,337 9
As at June 30, December 31,
2014 2013 Change
$ $ %
Working capital 419 11,937 n/m
Total assets 128,604 141,616 (9)
Total long-term borrowings (3 ) 32,443 31,608 3
Equity 60,856 65,239 (7)
1. 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.
2. Adjusted 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. Adjusted EBITDA and Adjusted
EBITDA per share are presented because they are frequently used by
securities analysts and others for evaluating companies and their
ability to service debt. Adjusted 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 Adjusted
3. Includes capital lease obligations and long-term debt, including current
2014 Second Quarter Highlights:
-- Tesla generated $3.6 million of gross margin on $24.6 million of
revenues resulting in negative Adjusted EBITDA of $2.0 million and a net
loss of $7.0 million during the second quarter of 2014. Bottom line
improvements for Tesla Canada were more than offset by declines for
Tesla USA, Tesla Offshore and, to a lesser extent, Tesla International.
-- Tesla Canada operated three Hawk crews into April, two of which worked
on large 3D programs until mid-month when western Canada experienced
spring break up as expected.
-- Tesla Canada obtained contracts to keep one crew operational for a good
portion of the third quarter of 2014 and is optimistic regarding early
fall and winter work based upon committed contracts, early bid requests
from new and existing clients.
-- Tesla USA continued work under an extended seismic services agreement
with a multi-client geophysical company utilizing 10,000 Hawk field
station units ("FSUs") (30,000 channels) for a good portion of the
second quarter of 2014.
-- Tesla Offshore's Bluefin Autonomous Underwater Vehicle ("AUV") returned
to operation mid-June and began work on a significant backlog of project
-- Tesla Offshore had two geophysical vessels working on large scale day
rate exploration commitments for most of the quarter and secured a
backlog of turnkey geophysical projects as a direct result of recent
lease sales requiring the mobilization of another geophysical vessel in
early July 2014. The construction division remained challenged with
reduced levels of activity.
-- Tesla International commenced operations on a large three-dimensional
("3D") program in the UK utilizing up to 6,000 of the Company's Hawk
FSUs and has developed a significant backlog of 3D programs for the
remainder of 2014 and early 2015.
-- Tesla International completed the first of four contracted land projects
in Kenya during the second quarter of 2014. Management expects to be
operational in Kenya into early 2015.
-- Tesla International completed a marine program in the Democratic
Republic of the Congo ("DRC") during the second quarter of 2014. Tesla
International was awarded a two-dimensional ("2D") land project that
will begin operation in early 2015 following an extended mobilization
-- Tesla International was also recently awarded a significant land,
transition zone ("TZ") and marine program in Ethiopia that will follow a
small program currently underway. The project should last through the
first half of 2015.
-- Tesla International reached a milestone of 2 million man hours without a
-- The Company renewed its Canadian corporate credit facility which
consists of a $15 million operating loan, a $30 million revolving credit
facility and an approximate $25 million finance lease facility. There
was no change in the facility limit and the Current Ratio was removed as
a financial covenant.
Second Quarter Financial Results:
The Company's consolidated revenues including reimbursables decreased 9% in the second quarter of 2014 compared to the second quarter of 2013. The Company's revenue excluding reimbursables decreased 6%. Improvements in activity levels resulted in increased revenues for Tesla International and Tesla Canada but were more than offset by declines in activity levels for Tesla USA and, to a lesser extent, Tesla Offshore. The Company's gross margin declined in the second quarter of 2014 compared to the second quarter of 2013 due to the reduction in revenues and a decline in gross margin percentage. Despite improvements for Tesla Canada, gross margin as a percentage of total revenue (including reimbursables) decreased to 15% in the second quarter of 2014 from 26% in the second quarter of 2013 due to the challenges faced by Tesla USA, Tesla International and Tesla Offshore during the current quarter as noted below. Gross margin as a percentage of revenue excluding reimbursables declined to 16% in the second quarter of 2014 compared to 30% in the second quarter of 2013 for similar reasons. Reimbursable revenues declined as a decrease in front-end work undertaken by Tesla Canada and Tesla USA was partially offset by the increased activity and increased reimbursables for Tesla International.
Tesla Canada's total revenues increased due to a significant improvement in acquisition revenues partially offset by a decline in reimbursable revenues. Despite lower levels of activity across the industry, Tesla Canada operated three Hawk crews into April, two of which worked on large 3D programs until mid- April as spring break-up hit western Canada. A small project was also completed in May. Tesla Canada had two winter crews operate into early April of 2013 but no activity during the remainder of the second quarter of 2013. Tesla Canada's gross margin improved with the rise in operating revenues along with a focus on controlling field overhead costs during the historically slow period following spring break-up.
Tesla USA continues to face a soft US seismic land acquisition market. Tesla USA's total revenues declined significantly driven mainly by decreased activity levels along with a decrease in front-end related reimbursables. Tesla USA continued work under an extended seismic services agreement with a multi- client geophysical company utilizing 10,000 Hawk FSUs for slightly more than half of the second quarter of 2014. In the second quarter of 2013, Tesla USA operated this Hawk crew for the entire quarter while a second Hawk crew operated for most of June 2013. Tesla USA's gross margin decreased with the decline in operating revenues and increased field overhead costs.
Tesla International's revenues improved from the comparative quarter. During the second quarter of 2014, revenues were generated mainly from two projects in Africa. Operational revenues were earned from the completion of a land project in Kenya and a marine project in the DRC. A large 3D project in the UK commenced at the end of the current quarter after permit issues delayed and deferred a planned program for earlier in the quarter. During the second quarter of 2013, Tesla International began a TZ project in the DRC and re-mobilized for a day rate contract in Somaliland following a stand down period that lasted for most of the quarter. Tesla International also completed a number of projects in mainland Europe and the UK. Despite an increase in revenues and strong performance on the project in the DRC, current quarter gross margins declined due to cost overruns incurred in Kenya due to poor weather and high rental costs. Further, the comparative quarter benefitted from a strong contribution from projects in mainland Europe and the UK.
Tesla Offshore's revenue declined slightly during the second quarter of 2014 compared to the second quarter of 2013. Tesla Offshore had two geophysical vessels working on large scale day rate exploration commitments for most of the current quarter consistent with 2013. Tesla Offshore's Bluefin AUV returned to operation mid-June after addressing a number of technical issues resulting in limited revenues during the quarter. In the second quarter of 2013, additional geophysical vessels worked on a backlog of turnkey projects throughout the quarter. The industry-wide decline in construction activity continues. Tesla Offshore's gross margin declined quarter-over-quarter due to the reduced operating revenues and significant costs incurred to address the AUV's technical issues.
The Company had negative Adjusted EBITDA in the second quarter of 2014, a decline from the positive Adjusted EBITDA generated in the second quarter of 2013. The decline was due to a decrease in absolute gross margin for reasons noted above along with an increase in general and administrative costs quarter-over-quarter. The Company's consolidated net loss increased in the second quarter of 2014 compared with the second quarter of 2013 due to the above noted decline in operating results and increased depreciation related to the Company's recent Hawk and AUV purchases. This was partially offset by a larger income tax recovery.
The Company's working capital decreased $4.6 million during the quarter to $0.4 million including a net cash deficit of $1.1 million. Operating cash flows generated during the first quarter were used to repay $7.3 million on operating lines, repay $1.3 million of regular finance leases, purchase $1.3 million of the Company's shares under its Normal Course Issuer Bid ("NCIB") and fund $4.5 million of capital expenditures during the quarter.
Total long-term borrowings decreased by $1.6 million during the quarter to $32.4 million due to regular payments made on outstanding finance leases and the strengthening of the Canadian dollar against US dollar denominated long-term borrowings.
Shareholders' equity decreased $9.6 million to $60.9 million during the quarter due to the net loss incurred during the quarter, the repurchase of shares under the Company's NCIB and a decrease in accumulated other comprehensive income due to the strengthening of the Canadian dollar against the functional currency of the Company's foreign subsidiaries. This was partially offset by an increase in contributed surplus relating to share-based payment charges.
Despite challenges in certain regions during the first half of 2014, there are many positives for the Company moving forward. Significant contracts are in place across most 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
As expected, Tesla Canada experienced low levels of activity following spring break-up into early summer in western Canada. Tesla Canada had one crew working periodically in July and has contract commitments for a crew during the back half of the third quarter of 2014 that will lead to improved revenues compared to the third quarter of 2013. Tesla Canada anticipates an earlier start to the crew build up this fall compared to 2013 and optimism for another strong winter season based upon the number of bid requests from new clients, First Nations approvals for specific projects and expected recurring work for existing clients. Tesla Canada expects to be able to capitalize on these opportunities utilizing its cable 3C recording equipment along with both owned and rented multi-component Hawk wireless systems.
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. A 10,000 FSU Hawk crew completed its work commitment under an agreement with a multi-client geophysical company. While the strong relationship will be maintained, any future arrangement will likely have a reduced commitment moving forward. There are no additional projects at this time. This allows Tesla USA the opportunity to utilize this system to pursue projects with different clients and diversify its revenue stream. A second crew utilizing a 6,000 FSU Hawk system has projects scheduled for the third quarter of 2014 with a number of additional bids outstanding. With a short-term reduction in utilization in the US, a number of FSUs were relocated to service projects in the UK. Additional FSUs will likely be relocated to support the Canadian winter season.
Tesla continues to allocate personnel and resources into the development of a microseismic business line. The Company has entered into a number of arrangements with complementary entities in the microseismic field that should allow Tesla to provide a more thorough solution to clients in terms of geomechanics and geomodelling.
South and Central America Operations
Tesla continues to pursue opportunities to expand the Company's footprint in South and Central America. Tesla Colombia's office in Bogota continues to provide a base for marketing efforts in the region. Tesla has expanded its marketing efforts by hiring additional nationalized personnel with experience in the relevant countries where work is being pursued. Relationships have been 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 has been successful in expanding the number of bid opportunities it has participated in and is optimistic regarding the upcoming bid rounds in several countries in the region.
Tesla International's UK and European crew has seen a sustained demand for acquisition services in both the hydrocarbon and renewables sectors both in the UK and mainland Europe. Despite delays in the current work schedule due to permit challenges, this crew has a backlog of 2D and 3D programs that should see the crew highly utilized throughout 2014 and into 2015. Several of these programs will utilize a portion of the Company's inventory of Hawk FSUs including a current project which sees the first use of 3C sensors on a large scale 3D project in the region.
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 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. 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 has been successful in obtaining work from both these opportunities and from exploiting some new areas of activity to extend its current backlog.
Tesla International completed operations on the first of a series of 2D projects in Kenya during the second quarter of 2014 with three additional programs contracted to follow that will keep this African crew busy into 2015. 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 in the country.
Following the recent completion of a marine project in the DRC, Tesla International was awarded a 2D land project in the country. Following an extended mobilization for the project, the crew should begin acquisition in early 2015.
A third African crew has also been mobilized for projects in Ethiopia. During the third quarter of 2014, Tesla International will work on a small 2D land project before expanding the crew and equipment base for a recently awarded significant land, TZ and marine program. Mobilization will begin shortly and acquisition operations are expected to last through the first half of 2015. This project will utilize the asset base that has been stored in Somaliland and will require additional capital expenditure.
The Company's Funded Debt to EBITDA covenant has been renegotiated for September 30, 2014, December 31, 2014 and March 31, 2015 to accommodate the anticipated capital spending for these secured African contracts.
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.
While several projects have been completed with Tesla Offshore's Bluefin AUV, a number of technical issues continue to impact the system's ability to continuously address the backlog of projects that have been secured. In-depth meetings between Tesla Offshore personnel and Bluefin's engineers have defined a set of action items meant to bring the AUV system to an acceptable level of dependability.
In addition to providing 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. In addition to the previously reported activities in Southeast Asia and Brazil, Tesla Offshore has recently responded to bids for projects in Angola, West Africa and Turkey. Tesla Offshore has hired additional 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 recruitment of an additional AUV Project Manager and a number of seasoned AUV Operators with experience performing AUV operations worldwide. The AUV Project Manager was previously utilized by Tesla Offshore for custom software development as a contractor but now provides an advantage to Tesla Offshore by providing his equal AUV experience and the ability to develop needed applications for handling AUV and other sensor data sets. The company also continues to further the development of geo-hazards interpretation services for local and international clients.
Tesla Offshore's geophysical activities have increased to typical summer levels. Tesla Offshore's dedicated geophysical vessel is supporting the AUV operations. Two geophysical vessels continue producing on large scale day-rate exploration projects and are expected to work continuously until the end of the third quarter of 2014. A fourth geophysical vessel was mobilized at the beginning of the third quarter to service a backlog of turnkey work generated from the Central and Eastern Gulf of Mexico lease sales that took place in March 2014.
Construction activities remain lower than historical levels driven by a reduction in drilling activity on the shelf of the Gulf of Mexico. In addition to a reduced level of trawling and positioning work in the Gulf of Mexico, special project work relating to survey support for removal systems has also been delayed again this year. While there are a number of opportunities in play, the construction division will see reduced activity levels while the industry remains abnormally slow.
Tesla Offshore continues to pursue opportunities outside the Gulf of Mexico. Management has formed an alliance with a representative in Brazil and has held meetings with potential clients in the country and is utilizing an in-country manager to pursue opportunities. Tesla Offshore will continue to support long-term clients as they expand into international areas.
Tesla Offshore has completed development for the provision of 3D seismic interpretation and completed its first project in early May, with a second project well under way at that time. The backlog of awarded prospects for this new service continues to grow. To date, the 3D seismic interpretation projects awarded to Tesla Offshore have been in conjunction the AUV utilization to perform the required Archaeological Survey aspect for these project areas. 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.
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 six months ended June 30, 2014.
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.
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".
FOR FURTHER INFORMATION PLEASE CONTACT:
Requests for shareholder information should be directed to:
Mr. Richard Habiak
President and CEO
Mr. Stuart Craven
Vice President and CFO
Source: Tesla Exploration Ltd.
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