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Cabo Announces Record Quarterly Results

North Vancouver, BC – Cabo Drilling Corp. (“Cabo” or the “Company”) (TSX-V:CBE) today reported results for its fiscal year 2009 first quarter ended September 30, 2008.

(CDN $000s, except earnings per share)

Q1 -09

Sept. 30

Q1 - 08

Sept. 30

FY 2008

June 30

Revenue

16,617

14,339

58,645

Earnings (Loss) Before Interest, Taxes, Amortization, Stock Based Compensation and Other Items  (EBITDA)

2,504

2,349

6,764

Net Earnings (Loss) Before Taxes

1,695

1,759

3,951

Net Earnings (Loss) After Taxes

1,090

1,084

3,203

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

0.05

0.05

0.15

Earnings (Loss) per Share ($) (Basic and Diluted)

0.02

0.03

0.07

Cash from Operations*

1,821

1,572

2,665

Gross Margin %

26.0%

26.1%

24.6%

Working Capital (deficiency)

7,716

6,225

3,272

 *before changes in non-cash working capital items

The Company reports:

  • Record quarterly revenue for the 1st quarter fiscal 2009 of $16.62 million, a 15.9% increase from 1st quarter fiscal 2008 revenue of $14.34 million.
  • 1st quarter fiscal 2009 earnings before interest, taxes, amortization, stock-based compensation and other items of $2.50 million compared to 1st quarter fiscal 2008 earnings before interest, tax, amortization, stock based compensation and other items (EBITDA) of $2.35 million, resulting in 1st quarter fiscal 2009 earnings before interest, taxes, amortization, stock-based compensation and other items of $0.05 per share and $0.05 per share in the 1st quarter of fiscal 2008.
  • Net before tax earnings for the 1st quarter of fiscal 2009 of $1.70 million compared to 1st quarter fiscal 2008 before tax earnings of $1.76 million.
  • Net after tax earnings for the 1st quarter of fiscal 2009 of $1.09 million compared to net after tax earnings for the 1st quarter of fiscal 2008 of $1.08 million, resulting in 1st quarter fiscal 2009 net after tax earnings of $0.02 per share compared to net after tax earnings for 1st quarter fiscal 2008 of $0.03 per share.
  • Gross margin percentage for the 1st quarter fiscal 2009 was 26.0% compared with a gross margin of 26.1% in 1st quarter fiscal 2008 and 20.0% in the 4th quarter of fiscal 2008.
  • Cash from operations, before changes in non-cash working capital items, was $1.82 million for the 1st quarter fiscal 2009 compared to 1st quarter fiscal 2008 cash from operations of $1.57 million.
  • A current asset balance of $27.88 million and working capital of $7.72 million.
  • Total assets of $43.58 million and total liabilities of $22.77 million.

“Cabo recorded its highest ever quarterly revenues for the first quarter fiscal 2009 of $16.62 million compared to our previous high of $16.04 million recorded in the second quarter of fiscal 2008,” said John A. Versfelt, President and CEO of Cabo Drilling Corp.  “This also represents a 16% increase from the $14.34 million recorded during the first quarter of fiscal 2008.  Our international division recorded 27% of the revenues compared to 5% in the first quarter of fiscal 2008 and 19% recorded during fiscal 2008.  Our growth in our international operations is a contributing factor to our record results.  In addition to our revenue growth internationally, our Ontario and Atlantic divisions maintained revenue levels realized in the previous quarters.”

 “Gross margins showed improvement with an increase to 26.0% in the 1st quarter of fiscal 2009 compared to 20.0% in the fourth quarter of fiscal 2008 and is in line with 26.1% in the 1st quarter of fiscal 2008,” stated John A. Versfelt.  “While we are pleased with the improvement in our gross margin from our previous quarter, we will continue to work towards improving our gross margin through improved efficiencies.”

“The Company had strong cash flow from operations in the 1st quarter of fiscal 2009,” said Mr. Versfelt.  “The Company recorded cash flow from operations (before changes in non-cash operating working capital items) of $1.82 million in the 1st quarter of fiscal 2009 compared to $1.57 million in the same period during the prior year, an improvement of 15.9%.”

“The Company recorded a net income of  $1.09 million during the 1st quarter of fiscal 2009 or $0.02 earnings per share compared $1.08 million or $0.03 earnings per share in the 1st quarter of fiscal 2008,” noted John A. Versfelt.  “EBITDA increased 6.4% to $2.50 million during the first quarter of fiscal 2009, compared to $2.35 million in the previous corresponding period.  While these are good results, we are evaluating all cost areas, particularly general and administrative costs, to improve the bottom line even though gross revenues in the coming quarters are expected to be lower.”

“Cabo’s management reports that drill utilization is decreasing as of the second quarter of fiscal 2009, compared to fiscal 2008. Consequently, we expect that revenues in the balance of 2009, in most of our divisions, will decrease. Seasonal shutdowns are happening earlier this year, particularly in Canada. Although revenues in Canada will be lower, the Company continues to service several longer term, multi-drill projects for intermediate and major mining companies.” stated John A. Versfelt.  “Based on current contracts and bid requests, management believes that around 60% of our international drill fleet of 24 drills will be operating through the balance of the Company’s fiscal year.”

“We were able to react quickly to the dramatic economic downturn, requiring all of the Cabo divisions to re-evaluate and revise fiscal budgets, as well as implement cost reductions. Salaries, wages and consulting fees have been frozen until further notice.  In addition senior management volunteered to take salary cuts,” said Mr. Versfelt.  “Administration, warehouse and maintenance staff levels were reduced by 25% and a number of general administrative and operating cost reduction measures were taken. As a result of the Company’s cost reduction measures, the Company negotiated the return of inventories for credit against accounts payable that should total approximately $1,000,000. We are focused on maintaining and increasing cash flow, tightly managing our inventories and continuing to add to our base of mid-tier and larger capitalized exploration and mining customers with good working capital.”

First quarter ended September 30, 2008
Revenue for the quarter ending September 30, 2008 increased 16% to $16.62 million, compared to $14.34 million in the first quarter of fiscal 2008 and 14% compared to the $14.63 million recorded in the fourth quarter of fiscal 2008. The increase can be attributed primarily to significant growth from our international divisions. Revenues from our international divisions represent 27% of first quarter fiscal 2009 revenues as compared to 5 % in the first quarter of fiscal 2008 and 20% in the fourth quarter of fiscal 2008. Management expects international operations to contribute a growing percentage of the Company’s total revenue stream as the Albanian division, Balkan States Drilling SH.P.K., begins operations in the second quarter of fiscal 2009.

Surface drilling revenues increased $1.71 million to $12.95 million in fiscal 2009 as compared to $11.25 million in the first quarter of fiscal 2008, while underground drilling grew 21% to $3.48 million from $2.76 million in the first quarter of fiscal 2008. Geotechnical drilling decreased significantly as the Quebec division expanded to include reverse circulation drilling in its operations, resulting in over $1.0 million in revenues for the Quebec division during the first quarter of fiscal 2009. 

Direct costs for the quarter ended September 30, 2008 were $12.29 million compared to $10.60 million in the first quarter of fiscal 2008 and $11.72 million in the fourth quarter of fiscal 2008. The increase is a direct result of higher activity, which resulted in higher revenue in fiscal 2008. Gross margins for the quarter ended September 30, 2008 were 26.0% compared to 26.1% during the first quarter of fiscal 2008 and 20.0% in the fourth quarter of the fiscal year 2008. The Company recorded higher gross margins in most divisions during the first quarter of fiscal 2009, but experienced higher costs in the Pacific, United States and Mexico divisions. The lower margins experienced by our Mexico division are a direct result of decreased drill utilization in Mexico during the first quarter of fiscal 2009, as compared to the first quarter of fiscal 2008.

The Company reported EBITDA (earnings before interest, tax, amortization, stock-based compensation and other items) of $2.50 million for the 1st quarter ending September 30, 2009 as compared to $2.35 million in the same quarter fiscal 2008. 

General and administrative expenses decreased by approximately 28.0% or $709 thousand from $2.50 million in the fourth quarter fiscal 2008 to $1.79 million in the first quarter of fiscal 2009. Compared to $1.36 million recorded in the first quarter of fiscal 2008 there was an increase of $160 thousand (10%) in general and administrative expenses. At 10.9%, as a percentage of revenue in fiscal 2008, general and administration costs have increased marginally on a pro-rata quarter to quarter comparison but lower than the 12.4% recorded on an annual basis in fiscal 2008.  Increased costs can be attributed to additional administration personnel in our international operations, higher travel and higher insurance and office costs. Salaries and wages expense increased from $964,598 in the first quarter of fiscal 2008 to $1.05 million in the first quarter of fiscal 2009, as a result of the salary increases that were effected in the second and third quarter of fiscal 2008. The Company’s international expansion caused an increase in corporate travel costs to $119,523 as compared to $67,224 during comparable periods last year. 

Amortization of property, plant and equipment for the period ending September 30, 2008 increased to $677,574 compared to $516,089 during the first quarter of fiscal 2008. The increase is due to the acquisition of $5.37 million of capital assets during fiscal 2008 and the additional $1.19 million in capital assets acquired during the first quarter of fiscal 2009. The amortization expense of $ 709,000 recorded in the fourth quarter of fiscal 2008 is higher due to an adjustment for lower expenses recorded in prior quarters of fiscal 2008. 

Net earnings for the first quarter in fiscal 2009 were $1.09 million compared to net earnings of $1.08 million earned in the first quarter of fiscal 2008 and compared to a net income of $581,487 in the fourth quarter of fiscal 2008. Although revenues were 16% higher during the first quarter of fiscal 2009 compared to the first quarter of the fiscal 2008, increased general and administration costs resulted in a similar net income for the comparable periods. The increase, as compared to the fourth quarter of fiscal 2008, is due to the higher revenues and gross margins reported during the first quarter of fiscal 2009. 

The Company’s cash (cash and cash equivalents) position at September 30, 2008, is $747,693 compared to $785,261 at June 30, 2008. Short-term investments and marketable securities decreased $28,603, from $116,308 at June 30, 2008, to $87,705 at September 30, 2008. The decrease can be attributed to changes in market prices at September 30, 2008. We have adjusted the value of our holdings at September 30, 2008 as recorded in the comprehensive income statement. At September 30, 2008, the balance of $87,705 consists of shares in Canadian public corporations.

Accounts receivable increased by $2.12 million to $14.08 million at September 30, 2008 from $11.96 million at June 30, 2008. The increase resulted primarily from the record revenues during the first quarter of fiscal 2009. This balance at September 30, 2008 represents 85% of revenues earned during the first quarter of fiscal 2009. Cabo is experiencing a steady reduction of receivables as the business consolidates.

Property plant and equipment increased to $15.35 million at September 30, 2008 from $14.17 million at June 30, 2008, an increase of $1.18 million during the quarter, primarily from the addition of four new drills. The Company invested $5.47 million in new property plant and equipment in fiscal 2008.

Cash flow from operations (before changes in non-cash operating working capital items) was $1.82 million during the 1st quarter of fiscal 2009, as compared $1.57 million in the 1st quarter of fiscal 2008. 

Working capital increased by $1.49 million from $6.23 million at September 30, 2008 to $7.72 million at September 30, 2008.

The mineral drilling industry is dependent on demand for and supply of precious, base and strategic metals, as well as precious stones. Demand and supply factors for these commodities can change dramatically up or 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 oversupply.  The recent financial stress in financial credit and equity markets, as well as significant global currency and economy changes, have caused substantial negative changes to the global metals supply and demand factors. This has led to much uncertainty in the global mining and related service markets. Management’s expectation is that its growth cycle peaked in the first quarter of fiscal 2009. Drill and inventory rationalization in the seven areas of the world, where the Company now works, is taking place on an ongoing basis. Further, management is focused on reducing debt, cutting costs, dramatically reducing capital and inventory expenditures, and increasing cash. Cabo Drilling is fortunate that with five new general managers in the past year it has an excellent team of professionals with many years of experience in expanding, as well as retreating markets.

In order to improve on profitability in an environment of decreasing demand and volatile commodity prices, we must be relentless on cost control and spending reduction, while at the same time maintaining our experienced workforce, enforcing our high safety standards, and remaining focused on high employee relations and customer 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, Mexico; Cabo Drilling (Panama) Corp. of Panama, Republic of Panama; Cabo Drilling Spain S.L. of Sevilla, Spain; Balkan States Drilling SH.P.K. of Tirana, Albania; and Cabo Drilling (International) Inc.  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 Investor Relations, Sheri Barton, at 403-217-5830 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: 12/01/2008