----------------------------------------------------------------------------(000s, except per share data) Three months ended Year Ended(unaudited) December 31 December 31 2012 2011 Change 2012 2011 Change $ $ % $ $ %--------------------------------------------------------------------------------------------------------------------------------------------------------Revenue 41,750 62,319 (33) 191,686 225,450 (15)Revenue excluding reimbursables 36,479 48,559 (25) 163,218 162,107 1Gross margin (1) 11,806 11,691 1 51,866 39,761 30 As a % of revenue excluding reimbursables 32% 24% 32% 25%Net earnings (loss) (566) 719 n/m 5,535 576 861 Per share - basic (0.02) 0.03 n/m 0.24 0.03 863EBITDA (2) 6,125 7,486 (18) 31,745 23,923 33 Per share - basic 0.27 0.33 (18) 1.40 1.05 33Cash flow from operations (3) 5,672 5,933 (4) 30,802 22,277 38 Per share - basic 0.25 0.26 (4) 1.36 0.98 39Weighted average shares outstanding for the year - basic 22,739 22,793 n/m 22,728 22,794 n/mCapital expenditures 5,190 4,642 12 28,857 12,877 124--------------------------------------------------------------------------------------------------------------------------------------------------------As at December December 31 31 2012 2011 Change $ $ %--------------------------------------------------------------------------------------------------------------------------------------------------------Working capital 3,330 10,411 (68)Total assets 129,443 141,088 (8)Total long-term borrowings (4) 22,185 29,073 (24)Equity 63,374 57,993 9(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) 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.(3) 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.(4) Includes capital lease obligations and long-term debt, including current portions.
-- Tesla generated $31.7 million of EBITDA(2) and $5.5 million of net income on $191.7 million of revenues in 2012, a marked improvement over $23.9 million of EBITDA(2) and $0.6 million of net income on $225.4 million of revenues in 2011.-- Tesla's gross margin (1) of $51.9 million (32% of revenues excluding reimbursables) in 2012 was a significant improvement compared to $39.8 million (25%) in 2011.-- Tesla Canada peaked at nine crews and operated over 100,000 channels during the seasonally strong first quarter of 2012 almost all of which was on three-dimensional ("3D") and three-component ("3C") programs. Canadian operations utilized 23,000 stations (69,000 channels) of 3C recording equipment, including 13,000 stations (39,000 channels) owned by the Company.-- The Company entered into an extended seismic services agreement (the "Agreement") with a multi-client geophysical company for an initial 24 month period. In connection with the Agreement, the Company purchased 10,000 stations of a wireless multi-component seismic acquisition system ("Hawk") and auxiliary equipment at a cost of approximately $18.0 million.-- Tesla USA successfully utilized the Hawk system throughout the second half of 2012 under the Agreement before mobilizing the system to Canada for a project during the first quarter of 2013.-- Tesla Trinidad successfully completed the year-long Guayaguayare project in Trinidad in the second quarter of 2012. Additionally, Tesla incorporated a new subsidiary, Tesla Exploration Colombia S.A.S. ("Tesla Colombia") in early 2013 further expanding the Company's geographical footprint in the region.-- Tesla Offshore significantly improved revenues from the comparative year benefitting from work on up to four geophysical vessels, most of which was on large scale day rate projects during the second half of the year. This supplemented the historically strong summer construction season supporting client operations on up to 12 vessels.-- Tesla Offshore expanded its operations outside of the Gulf of Mexico, its historical operating area, with special projects in Alaska, Trinidad, Israel, Argentina and other international locations.-- The Company approved a $6 million capital expenditure to acquire a Bluefin Autonomous Underwater Vehicle ("AUV") which is expected to be operational by September 2013. Tesla Offshore hired several experienced personnel to manage the AUV service line and develop international markets.-- Tesla International operated a crew in the UK and Europe throughout 2012 on hydrocarbon and mineral projects.-- Tesla International secured land and marine projects in Tanzania and the Democratic Republic of the Congo ("DRC") that will operate into May 2013.Tesla International also strengthened its backlog with a contract to provide two crews on a day rate basis in Somaliland for a minimum of 200 operating days beginning in April of 2013.-- The Company hired and appointed Rob Kendall to lead Tesla's Research and Special Projects group focusing on micro-seismic and fibre optic applications.
Fourth Quarter Financial Results:
Despite a decline in revenues, gross margin grew slightly in the fourth quarter of 2012 compared to the fourth quarter of 2011. The Company's consolidated revenues including reimbursables decreased 33% in the fourth quarter of 2012 compared to the fourth quarter of 2011 while the Company's revenue excluding reimbursables decreased 25%. Improvements in activity levels for Tesla Canada and Tesla Offshore were more than offset by declines in activity levels for Tesla USA, Tesla International and Tesla Trinidad. The Company had improvements in gross margin from Tesla Canada, Tesla USA and Tesla Offshore which more than offset the decline in Tesla International's gross margin. Gross margin as a percentage of total revenue (including reimbursables) increased to 28% in the fourth quarter of 2012 from 19% in the fourth quarter of 2011 due mainly to the improvement in Tesla USA's operations including the significant decrease in flow-through reimbursables associated with Tesla USA's revenues. Gross margin as a percentage of revenue (excluding reimbursables) improved to 32% in the fourth quarter of 2012 compared to 24% in the fourth quarter of 2011 as improvements in Tesla USA's operations and a reduced weighting of Tesla Trinidad's low margin front-end operations more than offset slight declines for Tesla Canada, Tesla Offshore and Tesla International.
Tesla Canada's revenues improved with an earlier start to winter than the prior year. There were seven crews operating in November 2012, whereas in 2011, Tesla Canada didn't have seven crews operating until December. There was growth in both two-dimensional ("2D") and 3D activity days and similar utilization of Tesla's 3C equipment. Tesla Canada's gross margin benefitted from the increased operating revenues.
Tesla USA's activity declined significantly operating two crews early in the fourth quarter of 2012 including one crew utilizing the Company's Hawk system for a 2D project compared to the operation of three crews continuously throughout the fourth quarter of 2011 on large 3D programs requiring increased levels of equipment and personnel. The Hawk system was put on retainer for part of the quarter under an extended seismic services agreement with a multi-client geophysical company before being moved to Canada for the peak winter season. This decreased activity also led to a corresponding decrease in third-party contractor revenues. Tesla USA's margins improved despite the slight drop in revenues. Margins benefitted from the utilization of the Hawk system, related retainer payments and a significant reduction in rental costs.
Tesla Trinidad completed the Guayaguayare program in April of 2012. As such, no revenues were generated in the fourth quarter of 2012. Significant revenues were generated from this project in the fourth quarter of 2011 relating to front-end operations. Trinidad had limited gross margin during the fourth quarter of 2011 due to the delay in recording start up and ultimate weather shut down during December 2011.
Tesla International's revenues decreased from the comparative quarter due mainly to reduced revenues from operations in Africa. Operating activity for the fourth quarter of 2012 was driven by continuous projects in the UK and Europe for one crew and the startup of a project in Tanzania for one of the African crews. The fourth quarter of 2011 included a full workload for the UK crew along with a full quarter of operating activity, standby and demobilization charges on a program in northern Ethiopia and the startup of a lake project in the Democratic Republic of Congo ("DRC"). Tesla International's gross margin declined from the comparative quarter due to the reduced level of revenues in Africa and limited margins recognized on the extended mobilization and early phase of the Tanzania project in late 2012. The fourth quarter of 2011 had benefitted from a full quarter of operating activities in northern Ethiopia.
Tesla Offshore's activity levels improved dramatically during the fourth quarter of 2012 as compared to the fourth quarter of 2011 driven by a significant increase in geophysical activity with multiple vessels working on lump sum, day rate and deep tow projects. Tesla Offshore's gross margins improved in line with increased activity levels.
The Company's EBITDA decreased in the fourth quarter of 2012 compared to the fourth quarter of 2011 due to the growth in absolute gross margin being more than offset by increased general and administrative costs relating to additional bonus accruals and growth in business development costs. The Company incurred a small consolidated net loss in the fourth quarter of 2012 compared to consolidated net income in the fourth quarter of 2011 due to the reduced EBITDA and increased depreciation related to the Hawk system. This was partially offset by a reduction in tax expense.
The Company's working capital increased $2.6 million during the quarter to $3.3 million including a net cash deficit of $5.7 million. Operating lines and a $3.0 million draw on long-term debt were required to fund working capital requirements in certain jurisdictions, repay $1.1 million of regular finance leases and related interest and fund $5.1 million of capital expenditures during the fourth quarter of 2012.
Total long-term borrowings grew by $1.9 million during the quarter to $22.2 million. Draws on long-term debt of $3.0 million were partially offset by regular payments made on outstanding finance leases.
Shareholders' equity increased $0.2 million to $63.4 million during the quarter as the loss incurred during the quarter was more than offset by an increase in accumulated other comprehensive income due to the weakening of the Canadian dollar against the functional currency of the Company's foreign subsidiaries along with an increase in contributed surplus relating to share-based payment charges.
2012 Financial Results:
Gross margin improved in 2012 compared to 2011, despite a drop in revenues. The Company's consolidated revenues including reimbursables decreased 15% in 2012 compared to 2011 while the Company's revenue excluding reimbursables increased 1%. Additional revenues for Tesla Offshore and Tesla Trinidad were more than offset by declines in revenues for Tesla Canada, Tesla USA and Tesla International. The Company had improvements in gross margin across all entities except for Tesla International with the biggest growth coming from North American land operations. Gross margin as a percentage of total revenue (including reimbursables) increased to 27% in 2012 from 18% in 2011 due to improvements from Tesla Canada and Tesla USA, including a significant decrease in flow-through reimbursables associated with these operations. Further, 2011 was negatively impacted by the low margin nature of the front-end phase of the Trinidad operations being conducted mainly by a third-party contractor. Gross margin as a percentage of revenue (excluding reimbursables) improved to 32% in 2012 compared to 25% in 2011 as improvements from Tesla Canada, Tesla USA and Tesla Trinidad more than offset the decline of Tesla International. Tesla Offshore's gross margin as a percentage of revenue (excluding reimbursables) remained consistent with the prior year.
Tesla Canada's revenues remained strong with the decline in total revenue driven entirely by a significant drop in reimbursables. Tesla Canada's gross margin benefitted from improved rates during the peak winter season compared to 2011 driven by continued demand for 3C services, better productivity due to the mild winter and a reduced level of rental equipment.
Tesla USA's revenues decreased with a decline in activity levels and a significant drop in associated reimbursables. Tesla USA's gross margin improved due to the term nature of a large portion of the work performed, the benefits of utilizing the Hawk system and a significant reduction in rental costs.
Tesla Trinidad's operations generated slightly higher revenues from recording activities during the first four months of 2012 exceeding revenues generated from front-end operations completed in 2011. Tesla Trinidad contributed margin during 2012 with almost all of the recording on the Guayaguayare program completed during 2012 allowing for the recognition of turnkey revenues that had been deferred at the end of 2011.
Tesla International's revenues decreased against the comparative period with reduced utilization of crews in eastern Africa. Tesla International's gross margins were negatively impacted by the reduced utilization of crews in east Africa during the year.
Tesla Offshore saw significant growth in both geophysical and construction revenues compared to 2011 when the impact of the Macondo oil spill and resulting lease sale cancelations had limited Tesla Offshore's activity levels in the Gulf of Mexico. Tesla Offshore's gross margin benefitted from increased activity levels in the Gulf of Mexico.
The Company's EBITDA in 2012 was well ahead of 2011 due to the growth in absolute gross margin partially offset by an increase in general and administrative costs. The Company's consolidated net income in 2012 was also a significant improvement over 2011 due to the increased EBITDA partially offset by increased depreciation related to the Hawk system and additional tax expense.
The Company's working capital decreased $7.1 million during the year to $3.3 million including a net cash deficit of $5.7 million. Operating cash flows generated during the year were used to repay $15.3 million of long-term debt and $5.7 million on outstanding finance leases as well as funding $14.6 million of capital expenditures (net of $14.1 million of lease financed expenditures) during 2012. Operating lines were utilized towards the end of 2012 to fund operations in Canada and International.
Total long-term borrowings were reduced by $6.9 million during the year to $22.2 million. Long-term debt was reduced by $15.3 million with cash flow generated mainly from Canada's winter season. Finance lease obligations increased by $8.4 million during the year as regular payments on outstanding finance leases totalling $5.7 million were more than offset by additional lease financing for a portion of the acquisition of the Hawk system and certain vehicles during the year. At December 31, 2012, the Company had $34.7 million of unused committed bank credit and lease facilities.
Shareholders' equity increased $5.4 million to $63.4 million during the year due to the net income generated during the year along with the exercise of options and an increase in contributed surplus relating to share-based payment charges. This was partially offset by a decrease in accumulated other comprehensive income with the strengthening of the Canadian dollar against the US dollar functional currency of the Company's US subsidiaries.
North America Land Operations
Tesla Canada saw an early start to the current winter season but has seen reduced activity levels during the first quarter of 2013 compared to the past two winters. Tesla Canada is operating seven crews and approximately 80,000 channels for a substantial portion of the quarter at comparable rates to the previous winter. Limited winter work will extend into April. Activity levels in Canada continue to be driven by the large number of operators in the oil sands and shale plays, however, the industry has seen several significant projects cancelled or deferred in the first quarter of 2013 due to issues surrounding foreign investment along with challenges obtaining government approvals. The Company has been able to ensure high utilization of its 13,000 3C stations along with additional 3C rental stations. Tesla Canada also utilized the Company's Hawk system on the first phase of a significant program during the first quarter of 2013 with completion of the project expected in the fourth quarter of 2013. Low natural gas prices will continue to limit exploration activity during the summer months. The Company expects to operate one crew periodically during May and June with a second crew operational during the third quarter with activity in both western and eastern Canada.
The 10,000 station Hawk system has recently returned to the US from Canada to continue work on 3D programs under an agreement with a multi-client geophysical company. The Hawk crew should begin work in mid-March with backlog for the remainder of 2013 and should continue to generate improved margins from those realized under current industry metrics. The slow increase in natural gas pricing continues to be reflected within the industry by increased activity levels focused on oil and liquids rich shale plays such as the Bakken, Utica (eastern Ohio) and Marcellus (western Pennsylvania and West Virginia). This has led to additional contract awards and an additional multi-component 3D recording crew in the second half of 2013. The Company is investigating long-term rental and purchase options to service this demand. Activity in the Denver-Julesburg ("DJ") Basin has been slower than projected but is also expected to increase in the second half of 2013. 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.
South America Operations
Tesla Colombia was formed in February 2013 to provide seismic acquisition services to companies in Colombia. An experienced management team has spent the better part of a year researching the South American market. In recent years, there has been increased foreign investment in Colombian 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 have been held and relationships have been built with both oil and gas and mining companies operating in Colombia. 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 Colombia 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 country. Tesla continues to investigate other opportunities in South America, specifically in Trinidad, Ecuador and Suriname.
Tesla International's UK and European crew has seen a sustained demand for acquisition services in both the hydrocarbon and minerals sectors. Indicators suggest that this demand will be maintained. Additional applications of seismic data in the areas of gas storage and CO2 sequestration have been active indicating a possible opportunity for growth in previously non-perspective areas of Europe. This crew should be fully utilized for a good portion of 2013 after securing commitments for a number of projects throughout the year. Management is pursuing opportunities to fill remaining gaps in the current 2013 work schedule.
Tesla International is currently completing a land and marine project in Tanzania. This project operated during most of the first quarter of 2013 before mobilizing for a land and marine project in the DRC. This project is a continuation of work performed in late 2011 and early 2012. The land portion of this program is expected to begin in late March with the larger marine portion to follow in the second quarter of 2013. There remains significant interest in the lake zones of the Rift Valley with Tesla International well placed to exploit the transition zone ("TZ") acquisition opportunities in the area. As such the TZ crew is expected to remain busy during a significant portion of 2013.
Tesla International is also mobilizing equipment from Djibouti and vibroseis units from Oman to Somaliland after securing work for two crews on a long-term day-rate project beginning in April. The project is expected to last through the end of the year with bonus incentives for early completion.
Two key areas of East Africa are expected to see a return to greater 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 Lakes Trend from Tanzania into Ethiopia. This interest is in chasing analog plays based on the recent discoveries in Uganda and successes in Northern Kenya. 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. Tesla International's branch office in Islamabad continues to explore opportunities in the region.
The UK technical services office remains steady with a number of processing and interpretation projects recently awarded and underway with high utilization of capacity expected to continue.
The Jakarta processing office has recently been awarded some sizable projects that will keep the office fully utilized through early 2013. Additional opportunities continue to be pursued to maintain backlog.
Tesla Offshore is benefitting from increased activity levels in the Gulf of Mexico. The central and eastern Gulf of Mexico lease sale was held on June 20, 2012, the first since the Macondo oil spill in early 2010. The return of lease sales was positive news for Tesla Offshore, as lease sales generally lead to an increase in geophysical operations as operators require geophysical surveys for the purpose of securing drilling permits and evaluating new lease properties. With 2013's Central Gulf lease sale returning to the standard March schedule, a significant increase in opportunities during the fair weather season are expected. In addition, hurricane Isaac's path through the Gulf of Mexico has resulted in government mandated survey requirements for operators in that impact corridor of the Gulf of Mexico. Tesla Offshore has a healthy backlog of both turnkey and day rate work as a direct result of the lease sale and hurricane Isaac that is keeping multiple vessels occupied throughout the first quarter of 2013. In April 2013, Tesla Offshore will remobilize two geophysical vessels to continue the large scale day rate exploration projects that were put on hold for the winter months.
Construction activity has slowed down considerably as is common during the winter months and will stay that way until spring when improved weather allows these types of projects to resume.
Tesla Offshore continues to pursue opportunities outside the Gulf of Mexico and is entering the second year of a multi-year project in Alaska. As long-term clients expand into international areas, Tesla Offshore is configuring systems and staff to profitably provide services to support their operations.
Focusing on this growth plan, Tesla Offshore committed to the purchase of a $6 million Bluefin AUV which has the ability to acquire high resolution ocean bottom data. Tesla Offshore expects the AUV to be delivered and operational in September 2013. In addition to addressing a much needed service to our existing customer base, this will open new markets for Tesla Offshore related to deep water oil and gas field development, along with governmental, environmental and academic applications. Tesla Offshore plans to operate the AUV not only in the Gulf of Mexico, where the US Government now requires data across most of the deep water Gulf of Mexico blocks to be acquired by an AUV, but on a global basis. Tesla Offshore hired several experienced personnel to manage and optimize use of state of the art technology in geophysical survey operations, including the AUV service line, and to further the development of geo-hazards interpretation services for clients worldwide. The AUV team is also in the process of identifying other AUV specialists, to support field operations.
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 twelve months ended December 31, 2012.
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, internationally through its wholly owned subsidiaries Tesla Exploration International Ltd. and Tesla Exploration Trinidad Ltd., 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".
Tesla Exploration Inc.
Mr. Richard Habiak
President and CEO
Tesla Exploration Inc.
Mr. Stuart Craven
Vice President and CFO