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Cabo Announces Record Annual Revenue and Earnings and Fourth Quarter Results

North Vancouver, BC – Cabo Drilling Corp. (“Cabo” or the “Company”) (TSX-V: CBE) reports results for its fourth quarter and fiscal year ended June 30, 2008.

4th QUARTER & ANNUAL HIGHLIGHTS

(CDN $000s, except earnings per share)
 

3 months ending June 30-08

3 months ending June 30-07

FY 2008

FY 2007

Revenue

14,634

11,679

58,645

38,447

Net Earnings (Loss) Before Interest, Tax, Amortization, Stock-based Compensation and Other Items (EBITDA)

701

1,420 6,764

3,921

Net Earnings (Loss) Before Taxes

(115) 425 3,951 1,588

Net Earnings (Loss) After Taxes

581 162 3,203 926

Earnings (Loss) per Share ($) Basic Before Interest, Tax, Amortization, Stock-based Compensation and Other Items (EBITDA)

 0.02 0.04 0.15 0.11

Earnings (Loss) per Share ($) Basic

 0.01 0.00 0.07 0.03

Cash from operations*

815 888 5,149 2,665

Gross Margin %

20.0% 26.5% 23.4% 24.6%

Working Capital

7,280 3,272 7,280 3,272
*before changes in non-cash working capital items

The Company reports:

  • Revenue of $14.63 million for the 4th quarter of 2008, an increase of $2.95 million compared to 4th quarter revenue of $11.68 million in fiscal 2007.
  • Net 4th quarter 2008 earnings before interest, tax, amortization, stock-based compensation and other items of $701,078 and net earnings of $581,487 after interest, tax, amortization, stock-based compensation and other items resulting in earnings of $0.02 per share and $0.01 per share, respectively. This compares with the 4th quarter 2007 earnings before interest, tax, amortization, and stock-based compensation of $1.42 million and net earnings of $162,205 after interest, tax, amortization, and stock-based compensation resulting in earnings of $0.04 per share and $0.00 per share respectively, a positive net income swing of $419,282 from 2007 to 2008.
  • Net before tax earnings for fiscal 2008 of $3.95 million compared to a net before tax earnings for fiscal 2007 of $1.59 million, an increase of $2.36 million.
  • Net after tax earnings for the fiscal year 2008 of $3.20 million compared to net after tax earnings for fiscal 2007 of $926,498, an improvement of $2.27 million year over year.
  • Gross margin percentage for the 4th quarter fiscal 2008 was 20.0%, compared with a gross margin of 26.5% in the 4th quarter of fiscal 2007 and 23.4% in fiscal 2008 compared to 24.6% in fiscal 2007.
  • Cash from operations, before changes in non-cash working capital items, was $814,615 for the 4th quarter 2008 and $5.15 million for fiscal 2008, compared to 4th quarter 2007 cash from operations of $888,489 and $2.67 million for the fiscal year 2007.
  • A current asset balance of $23.51 million and working capital of $7.28 million.
  • Total assets of $38.70 million and total liabilities of $18.60 million.

“Cabo recorded its highest revenues and net income ever in fiscal 2008,” Mr. Versfelt stated. “Record revenues for the fiscal year of 2008 were $58.64 million compared to $38.44 million for the fiscal year ending 2007, that’s a 53% increase. In addition to the revenue growth internationally, we also had substantial growth at our Ontario division and continued strong results from our Atlantic division.”
 
“Cabo’s expansion in 2007 and 2008 was fuelled by an increased number of drills in the international market and an increased number of employees worldwide,” stated Mr. Versfelt. “Cabo added eight drills to the international market during the fiscal year 2008 resulting in international revenue growth of 19% of consolidated revenues for the year, compared to 5% in fiscal 2007. This expansion was carried out evenly between the divisions in Spain, Panama, Mexico and the United States.”

“The Company recorded net income, after taxes, of $3.20 million and earnings per share of $0.07,” Mr. Versfelt said. “We also improved our EBITDA (earnings before interest, taxes, amortization, stock-based compensation and other items) by 73% from $3.92 million in fiscal 2007 to $6.76 million in fiscal 2008. The growth within Cabo over the last four years has created a solid foundation for the years ahead.”

“Cabo had gross margin performance of 20.0% for the 4th quarter fiscal 2008 (26.5% 4th quarter fiscal 2007) and 23.4% for the fiscal year 2008 (24.6% for 2007);” Mr. Versfelt stated. “We recorded gross margins in excess of 27% internationally, but this was offset by lower margins earned from our Ontario and Pacific division.”

“During the first four months of fiscal 2009, seven more drills were added to the Company’s international fleet, now totaling 24 of 111 drills owned by the Company. With the dramatic downturn in the financial and commodity markets, the Company does not expect to increase its fleet, nor make any significant capital expenditures,” Mr. Versfelt said. “On the other hand, it is likely that our drills will be moving between divisions, taking advantage of new contracts in areas that need more drills.”

“In order to improve on profitability in an environment of decreasing demand and volatile commodity prices, we must be relentless on cost control and reducing our spending, while at the same time maintaining our experienced workforce, enforcing our high safety standards, and remaining focused on high employee and customer relations,” Mr. Versfelt stated. “Within in the last year Cabo has employed five general managers with extensive experience in expanding as well as retracting markets. This along with the foundation we built over the last three years will assist us in working through these changing times.”

Fourth quarter ended June 30, 2008

Revenues for the quarter ended June 30, 2008 were $14.63 million compared to $11.68 million in the fourth quarter of fiscal 2007. This represents an increase of $2.95 million or 25% from the fourth quarter of fiscal 2007. During the quarter, we continued to see higher revenues from the international divisions. Net earnings for the quarter were $581,487 compared to net earnings of $162,205 incurred in the fourth quarter of fiscal 2007. This increase in profit is due to increased revenues in fourth quarter year over year and the realization of the future tax asset.

Fourth quarter gross margin of 20.0% is lower than the prior year’s fourth quarter gross margin of 26.5%, primarily due to lower margins earned in the Mexico, Ontario and Pacific divisions.

General and administration expenses increased to $2.50 million in the fourth quarter of fiscal 2008 compared to $1.67 million in the fourth quarter of fiscal 2007. This increase can be attributed to increased travel, an increase in salaries because of additional personnel, additional insurance for the international operations, higher audit fees, and a bad debt allowance of $205,452.

Amortization during the quarter increased $59,158 from $709,391 to $650,233, a relatively insignificant amount.

Interest expense increased to $106,255 during the fourth quarter of fiscal 2008 compared to $94,255 incurred in the fourth quarter of fiscal 2007.

Year ended June 30, 2008

Revenue for the year ending June 30, 2008 was $58.64 million, compared to $38.44 million in 2007. This represents a 53% increase in revenues year over year. The increase can be attributed primarily to significant growth from our international, Ontario and Atlantic divisions. Revenues from our international divisions represent 19% of fiscal 2008 revenues as compared to 5% in fiscal 2007. With an increase in the number of drills at our international divisions, management expects international operations to contribute a growing percentage of the Company’s total revenue stream.

Direct costs for the year ended June 30, 2008 were $44.90 million compared to $28.98 million in fiscal 2007. The increase is a direct result of higher activity, which resulted in higher revenue in fiscal 2008. Gross margins for the year ended June 30, 2008 were 23.4% compared to 24.6% during the fiscal year ending June 30, 2007. The Company recorded gross margins in excess of 27% internationally, but this was offset by lower margins earned from our Ontario and Pacific divisions.

General and administrative expenses increased to $7.28 million in fiscal 2008 as compared to $5.52 million last year. At 12.4% as a percentage of revenue in fiscal 2008, general and administration costs have decreased pro-rata year over year from the 14.4% recorded in fiscal 2007.  Increased costs can be attributed to additional administration personnel in our international operations, higher travel, higher insurance and professional fees. Salaries and wage expense increased from $3.25 million in fiscal 2007 to $4.70 million in fiscal 2008, as a result of hiring additional personnel, but also because this was the most significant year for salary increases for all administration and management personnel who had received marginal increases in previous years.  The Company’s international expansion during fiscal 2008 resulted in increased total corporate travel costs to $461,049 as compared to $206,070 incurred during fiscal 2007.

Amortization of property, plant and equipment for the fiscal year ending June 30, 2008 increased to $2.40 million compared to $1.69 million during fiscal 2007. The increase is due to the acquisition of $5.37 million of capital assets within the last fiscal year.

The Company incurred a $392,804 interest expense during fiscal year ending June 30, 2008, compared to $255,515 incurred during fiscal 2007. Increased interest charges during the year are primarily due to higher utilization of the demand loan and operating line to finance the increased inventory and new capital leases for drilling equipment.

EBITDA (earnings before interest, tax, amortization, stock-based compensation and other items) for fiscal 2008 increased 73% to $6.76 million ($0.15 per share basic dilution) as compared to $3.92 million ($0.11 per share basic dilution) in fiscal 2007. Net income, after taxes, increased to $3.20 million for the fiscal year ending June 30, 2008 as compared to a net income of $926,498 recorded in fiscal 2007.

The Company’s current cash (cash and cash equivalents) position at June 30, 2008, is $785,261 compared to $422,337 at June 30, 2007. The increase in cash is primarily due to additional deposits at the international divisions.

Short-term investments and marketable securities decreased $88,152, from $204,460 at June 30, 2007, to $116,308 at June 30, 2008.  The decrease can be attributed to the disposition of some marketable securities and changes in market prices at June 30, 2008. We adjusted the value of our holdings at June 30, 2008 as recorded in the comprehensive income statement. At June 30, 2008, the balance of $116,308 consists of shares in Canadian public corporations.

Accounts receivable increased by $3.13 million to $11.96 million at June 30, 2008 from $8.83 million at June 30, 2007. The increase primarily resulted from higher revenues during fiscal 2008. This balance at June 30, 2008 represents 82% of revenues earned during the fourth quarter of fiscal 2008. Management expects to reduce receivables as the business consolidates.

Inventory levels increased by $4.13 million to $9.65 million at June 30, 2008 from $5.52 million at June 30, 2007, as a result of the expansion into Spain, Panama, and Mexico, as well as growth in the Ontario division. Management anticipates the inventory levels to be reduced as the Company rationalizes its inventory between divisions and implements a management information system that will provide just in time inventory information.

Property plant & equipment increased to $14.17 million at June 30, 2008 from $10.82 million at June 30, 2007 an increase of $3.35 million during the year because of additions to the drill and large equipment fleet. The Company invested $5.47 million in new property plant and equipment in the past fiscal year.

Consolidated total assets increased in fiscal 2008 to $38.70 million at June 30, 2008 from $26.97 million at June 30, 2007. The increase is primarily due to additions to our capital asset base, higher inventory and increased total accounts receivable at June 30, 2008. The increase in accounts receivable has grown in conjunction with the increased revenues, whereas inventory increased in all international and the Ontario division.

Consolidated total liabilities increased by $4.94 million to $18.60 million at June 30, 2008, from $13.66 million at June 30, 2007, primarily as a result of the increased term and operating line borrowings required to fund the increased inventory, receivables and capital assets. Accounts payable also increased by 46% to $7.70 million at June 30, 2008 as compared to $5.24 million to fund the increased inventory.

The mineral drilling industry is dependent on demand for precious, base and strategic metals, as well as precious stones. Demand and supply factors for these commodities can change dramatically up and down, as we have witnessed in the past two years, causing dynamic shifts in the supply of drills and drilling personnel from under supply to over supply. The recent financial stress in financial credit and equity markets, as well as significant global currency changes, have caused substantial negative changes to the global metals supply and demand factors, resulting in much uncertainty in the global mining and related services markets. Management has initiated further cost and spending controls, as well as risk management procedures throughout the Company. Largely due to prudent debt management over the past two years, the Company’s banking facilities are safe and debt ratios are low. Senior management is very focused on careful cash management, reduction of debt, high customer relations and high employee relations.

About Cabo Drilling Corp. (TSX-V: CBE)
Cabo Drilling Corp. is a drilling services company headquartered in North Vancouver, British Columbia, Canada. The Company provides mining related and specialty drilling services through its Canadian divisions in Surrey, British Columbia; Montréal, Quebec; Kirkland Lake, Ontario; and Springdale, Newfoundland; as well as Cabo Drilling de Mexico S.A. de C.V. of Hermosillo, Sonora, Mexico; Cabo Drilling (Panama) Corp. of Panama, Republic of Panama; and Cabo Drilling Spain S.L. of Sevilla, Spain. The Company’s common shares trade on the Frankfurt Exchange under the symbol: DHL and on the TSX Venture Exchange under the symbol: CBE.

ON BEHALF OF THE BOARD

     “John A. Versfelt”

John A. Versfelt
Chairman, President and CEO


Further information about the Company can be found on the Cabo website (http://www.cabo.ca) and SEDAR (www.sedar.com) or by contacting Mr. Garett Greene or Mr. John A. Versfelt, Chairman, President & CEO of the Company at 604-984-8894.

*    *    *    *

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.  This news release may contain forward-looking statements including but not limited to comments regarding the timing and content of upcoming work programs, geological interpretations, potential mineral recovery processes and other business transactions timing.  Forward-looking statements address future events and conditions and therefore, involve inherent risks and uncertainties.  Actual results may differ materially from those currently anticipated in such statements.


Last Updated: 10/31/2008