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Cabo Announces 2nd Quarter Results

North Vancouver, BC – Cabo Drilling Corp. (“Cabo” or the “Company”) (TSX-V:CBE) today reported results for its fiscal year 2009 second quarter ended December 31, 2008.

2nd QUARTER HIGHLIGHTS  

(CDN $000s, except earnings per share)

3 months ending Dec. 31/08

3 months ending Dec. 31/07

6 months ending
Dec. 31/08

6 months ending

Dec. 31/07

Revenue

11,825

13,635

28,442

27,974

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

1,437

1,854

3,941

4,203

Net Earnings (Loss) Before Taxes

506

1,212

2,201

2,971

Net Earnings (Loss) After Taxes

330

807

1,420

1,890

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

0.03

0.04

0.08

0.09

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

0.01

0.02

0.03

0.04

Cash from Operations*

924

1,236

2,745

2,912

Gross Margin %

26.1%

25.0%

26.0%

25.6%

Working Capital (deficiency)

7,765

7,056

7,765

7,056 

 *before changes in non-cash working capital items

The Company reports:

  • Quarterly revenue for the 2nd quarter fiscal 2009 of $11.82 million compared to $13.63 million revenue in the 2nd quarter of fiscal 2008.
  • 2nd quarter fiscal 2009 earnings before interest, taxes, amortization, stock-based compensation and other items (EBITDA) of $1.44 million compared to 2nd quarter fiscal 2008 earnings before interest, tax, amortization, stock based compensation and other items (EBITDA) of $1.85 million, resulting in 2nd quarter fiscal 2009 earnings before interest, taxes, amortization, stock-based compensation and other items of $0.03 per share and $0.04 per share in the 2nd quarter of fiscal 2008.
  • Net before tax earnings for the 2nd quarter of fiscal 2009 of $505,951 compared to 2nd quarter fiscal 2008 before tax earnings of $1.21 million.
  • Net after tax earnings for the 2nd quarter of fiscal 2009 of $330,288 compared to net after tax earnings for the 2nd quarter of fiscal 2008 of $806,971, resulting in 2ndquarter fiscal 2009 net after tax earnings of $0.01 per share compared to net after tax earnings for 2nd quarter fiscal 2008 of $0.02 per share.
  • Gross margin percentage for the 2nd quarter fiscal 2009 was 26.1% compared with a gross margin of 25.0% in 2nd quarter fiscal 2008 and 26.0% in the 1stquarter of fiscal 2009.
  • Cash from operations, before changes in non-cash working capital items, was $924,014 for the 2nd quarter fiscal 2009 compared to 2nd quarter fiscal 2008 cash from operations of $1.24 million.
  • A current asset balance of $22.03 million and working capital of $7.77 million.
  • Total assets of $38.23 million and total liabilities of $16.74 million.

 “The Company recorded revenues for the second quarter, fiscal 2009 of $11.82 million compared to the $13.63 million recorded in the second quarter of fiscal 2008,” said John A. Versfelt, President and CEO of Cabo Drilling Corp.  “The strength of our international divisions sector continues as 39% of quarterly revenues came from the international sector as compared to 19% in fiscal 2008. The Company has seen a decrease in gross revenue from our Canadian divisions due to decreased demand for drilling and resulting lower prices, because of the economic downturn. Management expects gross revenue from the Canadian divisions to remain low until late 2009.  We are also experiencing lower demand for drilling services in our Mexico division.”

 “Gross margins showed a slight improvement with an increase to 26.1% in the 2nd quarter of fiscal 2009 compared to 26.0% in the 1st quarter of fiscal 2009 and 25.0% in the 2nd quarter of fiscal 2008,” stated John A. Versfelt.  “While we appreciate that we have experienced 26% plus gross margins for two consecutive quarters, in these difficult times, we are going to continue to work hard  towards improving this number through more  cost cutting measures.”

“The Company recorded cash flow from operations in the 2nd quarter of fiscal 2009 of $924,014,” said Mr. Versfelt.  “This is comparable to $1.24 million in the 2nd quarter of fiscal 2008.  It is our belief that we will be able to generate sufficient cash flow through 2009 to meet current and future working capital, capital expenditure and debt obligation requirements.”

“The Company recorded a net income of $330,288 during the 2nd quarter of fiscal 2009 or $0.01 earnings per share compared to $806,971 or $0.02 earnings per share in the 2nd quarter of fiscal 2008,” noted John A. Versfelt.  “EBITDA decreased 22.4% to $1.44 million during the second quarter of fiscal 2009, compared to $1.85 million in the previous corresponding period.  This is a direct result of a decrease in gross revenue from our Canadian divisions caused by decreased demand for drilling and resulting lower prices brought about by the economic downturn.”

“Management is very focused on increasing cash flow, decreasing general and administration expenditures, tightly managing inventories and continuing to add to our base of mid-tier and larger capitalized exploration and mining customers with good working capital,” noted Mr. Versfelt.  “As a result of the oversupply of drills in Canada, there is a continued pressure to reduce drilling prices. Consequently, the Company initiated a cost reduction plan which included releasing approximately 25% of the support personnel, instituting a wage and hiring freeze and reducing Management salaries. We are also experiencing reduced supply and fuel costs which help to decrease the per meter bid prices.”

“Overall, Management’s expectation is that the Company’s third quarter fiscal 2009 will be quite slow primarily due to the poor mineral and mineral exploration equity markets and the uncertainty in the credit markets. The bright spots however are gold and silver. Financings are being made available for gold and silver projects, resulting in more requests for bids for both surface and underground exploration and mining projects,” stated Mr. Versfelt. “Management believes that the gold mining areas of Canada, as well as Mexico, Latin America and West Africa will experience greater interest in drilling demand in the balance of 2009. However, we also expect lower demand for drilling from most of the base metal sectors in 2009. Copper and iron projects are showing some signs of renewed life, which is important for Cabo Drilling, since we have considerable experience with these types of projects.”

Second quarter ended December 31, 2008
Revenue for the quarter ending December 31, 2008 decreased 29% to $11.82 million, compared to $16.62 million in the first quarter of fiscal 2009 and 13% compared to the $13.63 million recorded in the second quarter of fiscal 2008. The decrease can be primarily attributed to lower revenues from our Canadian and Mexico operations, which was partially offset by growth from our other international divisions. Revenues from our international divisions represent 39% of second quarter fiscal 2009 revenues, as compared to 27% in the first quarter of fiscal 2009 and 17% in the second quarter of fiscal 2008. Management expects revenue from our international operations to increase as we shift equipment from divisions with lower utilization to new regions of increased demand.

Surface drilling revenues decreased 17% in the second quarter of fiscal 2009 by $1.69 million to $8.51 million as compared to $10.20 million in the first quarter of fiscal 2008 and underground drilling decreased marginally by 2% to $3.05 million during the second quarter of fiscal 2009 from $3.12 million in the second quarter of fiscal 2008. Geotechnical drilling decreased slightly 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 second quarter of fiscal 2009.

Direct costs for the quarter ended December 31, 2008 were $8.74 million compared to $10.22 million in the second quarter of fiscal 2008 and $12.29 million in the first quarter of fiscal 2009. Gross margins for the quarter ended December 31, 2008 were 26.1% compared to 25.0% during the second quarter of fiscal 2008 and 26.0% in the first quarter of the fiscal year 2009. Most divisions maintained the gross margin levels of the first quarter, fiscal 2009 into the second quarter of fiscal 2009. However, the Company experienced higher costs in the Pacific and Mexico divisions. The lower margins experienced by our Mexico division are a direct result of decreased drill utilization in Mexico during the second quarter of fiscal 2009, as compared to the second quarter of fiscal 2008.

The Company reported EBITDA (earnings before interest, tax, amortization, stock-based compensation and other items) of $1.44 million for the 2nd quarter of fiscal 2009 as compared to $1.85 million in the same quarter fiscal 2008.
 
General and administrative expenses increased by approximately 16.5% or $496,086 from $3.00 million in the first six months of fiscal 2008 to $3.49 million in the first six months of fiscal 2009. Increased costs can be attributed to additional administration personnel in our international operations, higher travel and higher insurance and office costs. Salaries and wage expense increased from $1.84 million in the first six months of fiscal 2008 to $2.12 million in the comparable period of fiscal 2009, primarily due to added administration personnel in our international divisions. Overall, the international divisions incurred $588,076 in administration costs during the first six months fiscal 2009, as compared to $366,218 for the comparable period last year. General and administration expenses will decrease over the balance of the year 2009 as the full effect of Management implemented cost controls is experienced.

Amortization of property, plant and equipment for the six months ending December 31, 2008 increased to $1.42 million compared to $1.06 million during the first six months of fiscal 2008. The increase is due to the acquisition of $5.37 million of capital assets during fiscal 2008 and the additional $3.66 million in capital assets recorded during the first six months of fiscal 2009.

Net earnings for the first six months of fiscal 2009 were $1.42 million compared to net earnings of $1.89 million earned in the comparable period of fiscal 2008. Although revenues were similar during the comparable periods, increased general and administration costs, interest and amortization resulted in the lower net income for the comparable periods.

The Company’s cash (cash and cash equivalents) position at December 31, 2008, is $1.80 million compared to $785,261 at June 30, 2008.  Short-term investments and marketable securities decreased $71,955, from $116,308 at June 30, 2008, to $44,353 at December 31, 2008. The decrease can be attributed to changes in market prices of marketable securities at December 31, 2008. We have adjusted the value of our holdings at December 31, 2008 as recorded in the comprehensive income statement. At December 31, 2008, the balance of $44,353 consists of shares in Canadian public corporations.

Accounts receivable decreased by $2.94 million or 25% to $9.02 million at December 31, 2008 from $11.96 million at June 30, 2008. The decrease resulted primarily from Management’s focus on accounts receivable and also reduced revenues during the second quarter of fiscal 2009.. The balance at December 31, 2008 represents 76% of revenues earned during the second quarter of fiscal 2009 compared to 85% at September 30, 2008, when comparing the accounts receivable levels quarter to quarter.

Property, plant and equipment increased to $15.70 million at December 31, 2008 from $14.17 million at June 30, 2008, an increase of $1.53 million during the six months ending December 31, 2008, primarily from the addition of four new drills. The Company invested $3.66 million in capital equipment during the six months ending December 31,2008.

Cash flow from operations (before changes in non-cash operating working capital items) for the first six months of fiscal 2009 was $2.74 million compared to $2.91 million during the first six months of fiscal 2008.

Working capital increased by $709,432 from $7.06 million at December 31, 2007 to $7.77 million at December 31, 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 and down, as we have witnessed in the past two years, causing dynamic shifts in the supply of drills and drilling personnel from undersupply 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, resulting in much uncertainty in the global mining and related services markets. Today, the drilling industry is experiencing over supply of drills, resulting in greater competition for fewer drilling projects, causing significant pricing reductions. Management has initiated comprehensive cost and spending controls, as well as risk management procedures throughout the Company which will allow the Company to reduce its drilling prices on a competitive basis. 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, and high customer relations and employee relations.

Historical corporate strategies of building the long term customer base revenues and attracting new clients, while achieving operating efficiencies will continue, but with the slowdown in growth, management has greater opportunity to be even more focused on basic business principles.

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 Seville, 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.

Cabo Drilling Corp. was recognized as a TSX Venture 50™ company in 2008. TSX Venture 50 is a trade-mark of TSX Inc. and is used under license.
 

 


Last Updated: 03/02/2009