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Cabo Announces 3rd Quarter Results

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

3rd QUARTER HIGHLIGHTS  

(CDN $000s, except earnings per share)
 
3 months ending  Mar. 31/09 3 months ending   Mar. 31/08 9 months ending
Mar. 31/09
9 months ending
Mar. 31/08
 Revenue  6,522  16,037 34,964 44,011 

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

 102 1,860 4,043 6,066 
 Net Earnings (Loss) Before Taxes  (765)  1,095 1,435 4,066 
 Net Earnings (Loss) After Taxes (1,075) 731 345 2,622 

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

 0.00 0.04 0.08 0.13
 Earnings (Loss) per Share ($) (Basic and Diluted) (0.02) 0.02 0.01 0.05
 Cash from Operations*  (346) 1,422 2,399 4,334
 Gross Margin %  27.0% 22.9% 26.2% 24.6%
 Working Capital (deficiency) 7,243 7,437  7,243  7,437 

*before changes in non-cash working capital items

The Company reports:

  • Quarterly revenue for the 3rd quarter fiscal 2009 of $6.52 million compared to $16.04 million revenue in the 3rd quarter of fiscal 2008.
  • 3rd quarter fiscal 2009 earnings before interest, taxes, amortization, stock-based compensation and other items (EBITDA) of $101,828 compared to 3rd quarter fiscal 2008 earnings before interest, tax, amortization, stock based compensation and other items (EBITDA) of $1.87 million, resulting in 3rd quarter fiscal 2009 earnings before interest, taxes, amortization, stock-based compensation and other items of $0.00 per share and $0.04 per share in the 3rd quarter of fiscal 2008.
  • Net before tax loss for the 3rd quarter of fiscal 2009 of $765,330 compared to 3rd quarter fiscal 2008 before tax earnings of $1.10 million.
  • Net after tax loss for the 3rd quarter of fiscal 2009 of $1.08 million compared to net after tax earnings for the 3rd quarter of fiscal 2008 of $731,277, resulting in 3rd quarter fiscal 2009 net after tax loss of $0.02 per share compared to net after tax earnings for 3rd quarter fiscal 2008 of $0.02 per share.
  • Gross margin percentage for the 3rd quarter fiscal 2009 was 26.7% compared with a gross margin of 22.9% in 3rd quarter fiscal 2008.
  • Cash from operations, before changes in non-cash working capital items, was $(345,533) for the 3rd quarter fiscal 2009 compared to 3rd quarter fiscal 2008 cash from operations of $1.42 million.
  • A current asset balance of $17.63 million and working capital of $7.24 million.
  • Total assets of $32.91 million and total liabilities of $12.65 million.

“The Company recorded revenue for the 3rd quarter ending March 31, 2009 of $6.52 million, compared to $11.83 million in the second quarter of fiscal 2009, a 45% decrease, revenues decreased 59% compared to the $16.04 million recorded in the third quarter of fiscal 2008”, stated Mr. John Versfelt, President and CEO of Cabo Drillling Corp.  “The decrease can be attributed to lower revenues from our Canada, Mexico and Spain operations, which were partially offset by revenue growth from the Panama operations.”

“During the third quarter fiscal 2009, the Company experienced a significant decrease in rig utilization due to the uncertainty in the economy, as clients have delayed, cancelled or reduced exploration drilling programs. This reduction started in the second fiscal quarter ending December 31, 2008 and was severe in the third quarter of fiscal 2009,” noted Mr. Versfelt.  “Seasonal shutdowns occurred earlier than previous years and continue through Spring break-up, with programs remaining delayed until the summer drilling season. This is both a domestic and global condition. Consequently, we expect that revenues in the balance of 2009 will remain low. Although revenues in Canada will be lower, the Company continues to service several longer term, multi-drill projects for intermediate and major mining companies, domestic and international.”

“Gross margins showed an improvement with an increase to 27% in the 3rd quarter of fiscal 2009 compared to 22.9% in the 3rd quarter of fiscal 2008 and 26.1% in the 2nd quarter of fiscal 2009,” stated John A. Versfelt.  “In order to improve on our gross margins and profitability in an environment of decreasing demand and volatile commodity prices, we are 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 relations and customer relations.”

 “The Company recorded a net loss of $1.07 million during the 3rdquarter of fiscal 2009 or $0.02 loss per share compared to earnings of $731,277 or $0.02 per share in the 3rd quarter of fiscal 2008,” noted John A. Versfelt.  “EBITDA decreased to $101,828 during the third quarter of fiscal 2009, compared to $1.86 million in the previous corresponding period. The Company has experienced pricing pressures on new contracts with prices per meter decreasing by as much as 30%. This reduction is largely offset by the cost reductions implemented in the second quarter of fiscal 2009; however, we expect contract margins will not increase during the year 2009. Effective March 1, 2009, all employee wages and salaries have been reduced by 10%, and a freeze on all discretionary expenses and capital expenditures is continued from 2008 as management focuses on maintaining cash flow.”

“Cabo’s strategy to build internationally has proven to be beneficial, even though our general and administration costs have increased as a result of expansion,” said Mr. Versfelt.  “Our international divisions have contributed to 64% of fiscal 2009 third quarter revenues as compared to 28% in the third quarter of fiscal 2008. The Company has seen a decrease in our Canadian divisions revenues due to decreased demand primarily for the drilling of base meter projects, largely due to the economic downturn. We expect the Canadian divisions to remain low until late 2009. “

“Cabo is continuing to research new markets to improve our drill utilization internationally,” stated Mr. Versfelt.  “At March 31, 2009, we had four drills in Spain, one drill in Liberia, two drills in Albania, seven drills in Panama, four drills in Mexico and three in the United States.” 

“Overall, our expectation is that the Company’s fourth quarter fiscal 2009 will continue to show significant reductions compared to the fourth quarter fiscal 2008, primarily due to the poor financing markets for mining and mineral exploration companies as compared to the more significant precious metals companies,” said Mr. Versfelt.  “We are encouraged by the multi-million dollar financings that are taking place in Canada, as well as other international financial markets, for gold and silver projects.  This is resulting in more requests for bids for both surface and underground exploration and mining projects. We believe that the gold mining areas of Canada, as well as Latin America and Ontario 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.”
 
Third quarter ended March 31, 2009

Revenue for the quarter ending March 31, 2009 decreased 45% to $6.52 million, compared to $11.83 million in the second quarter of fiscal 2009 and 59% compared to the $16.04 million recorded in the third quarter of fiscal 2008. The decrease can be attributed to lower revenues from our Canadian,  Mexico and Spain operations, which were partially offset by revenue growth from the Panama operations. Revenues from our international divisions represent 64% of third quarter fiscal 2009 revenues, as compared to 39 % in the second quarter of fiscal 2009 and 28% in the third quarter of fiscal 2008. Management expects international operations to increase as we shift equipment from divisions with lower utilization to new regions of increased demand.

Surface drilling revenues decreased 62% in the third quarter of fiscal 2009 by $7.70 million to $4.65 million as compared to $12.34 million in the third quarter of fiscal 2008 and underground drilling decreased by 50% to $1.68 million during the third quarter of fiscal 2009 from $3.38 million in the third quarter of fiscal 2008. Geotechnical drilling decreased by 38% during the third quarter of fiscal 2009.

Direct costs for the quarter ended March 31, 2009 were $4.76 million compared to $12.37 million in the third quarter of fiscal 2008 and $8.74 million in the second quarter of fiscal 2009. Gross margins for the quarter ended March 31, 2009 were 27.0% compared to 22.8% during the third quarter of fiscal 2008 and 26.1% in the second quarter of the fiscal year 2009. The increased gross margin is a direct result of cost reduction measures implemented during the second quarter of fiscal 2009. Management expects gross margins to remain near the 25-27% range, even with the challenging market conditions due to the implemented cost reduction program, increased cost controls and tight cash management.

General and administrative expenses decreased by approximately 4.0% or $63,144 from $1.70 million in the second quarter fiscal 2009 to $1.63 million in the third quarter of fiscal 2009. Compared to $1.79 million recorded in the third quarter of fiscal 2008, there was a decrease of $155,819 or 9% in general and administrative expenses. Management believes that general and administration costs will decrease in future quarters, as the affect of reduced salaries, benefits and other cost reductions is experienced.  Included in the third quarter results are the following non-recurring charges or extraordinary expenses:  performance bonus of $114,000 payable on fiscal 2008 operating results; approximately $18,864 from higher than normal RRSP contributions; and $23,664 in vacation wages expense. Salaries and consulting fees expenses decreased from $962,377 in the second quarter of fiscal 2009 to $923,596 in the third quarter of fiscal 2009, as a result of the staff reductions implemented during the second quarter. During the quarter, the Company recorded additional insurance costs as a result of foreign workers compensation and higher legal fees. Overall, the international divisions incurred $740,164 in administration costs during the third quarter of fiscal year 2009 as compared to $534,374 for the comparable period last year. We anticipate general and administration costs to be reduced to approximately $1.25 million to $1.35 million by the second quarter of fiscal 2010. All employees have taken 10% salary reductions effective March 1, 2009 and senior management has limited all extraordinary expenses. We continue to investigate more cost efficiencies and cost rationalization.

Net loss for the third quarter in fiscal 2009 was $1.07 million compared to net earnings of $731,277 in the third quarter of fiscal 2008 and compared to net earnings of $330,288 in the second quarter of fiscal 2009. Earnings decreased during the third quarter of fiscal 2009 compared to the second quarter of fiscal 2009 due to lower revenues, increased amortization and increased income taxes. 

The Company’s cash (cash and cash equivalents) position at March 31, 2009, is $1.39 million compared to $785,261 at June 30, 2008.  Short-term investments and marketable securities decreased $66,690, from $116,308 at June 30, 2008, to $49,618 at March 31, 2009. The decrease can be attributed to changes in market prices at December 31, 2008. We have adjusted the value of our holdings at March 31, 2009 as recorded in the comprehensive income statement. At March 31, 2009, the balance of $49,618 consists of shares in Canadian public corporations.

 Accounts receivable decreased by $6.30 million or 53% to $5.66 million at March 31, 2009 from $11.96 million at June 30, 2008. The decrease resulted primarily from the lower revenues during the third quarter of fiscal 2009 and management’s collections efforts in all divisions. The balance at March 31, 2009 represents 87% of revenues earned during the third quarter of fiscal 2009 compared to 76% at December 31, 2008 when comparing accounts receivable quarter to quarter.

As of March 31, 2009, the Company had drawn down $3.85 million on the $5.00 million operating line and $949,981 on the $1.50 million demand loan. The operating line has been used to finance the increased inventories, receivables and acquisition of capital assets. We anticipate the operating line to be substantially paid down over the remaining months of fiscal 2009, as senior management is focusing effort on its reduction.

Total long-term debt and capital leases increased $234,692 to $2.42 million at March 31, 2009 from $2.18 million at June 30, 2008. The increase results from the five new capital leases for drills being shipped to our international divisions for projects in place.

Nine months ended March 31, 2009

Revenue for the nine months ending March 31, 2009 decreased 21% to $34.96 million, compared to $44.01 million in the comparable period in fiscal 2008. Revenues from the international divisions increased by 67% to $13.34 million which was offset by a 40% decrease in our Canadian operations.   Revenues from our international divisions represent 38% of revenues for the first nine months of fiscal 2009 as compared to 18 % in the comparable period of fiscal 2008.

Underground drilling decreased by 11 % during the nine month period ending March 31, 2009 to $8.22 million as compared to $9.26 million during the comparable period in fiscal 2008. Revenues from the geotechnical division decreased due to the economic downturn in Central Canada, but management expects this to increase as the Canadian infrastructure programs are initiated.

Direct costs for the nine months ended March 31, 2009 were $25.80 million compared to $33.49 million in the comparable period in fiscal 2008. Gross margins for the nine month period ended March 31, 2009 were 26.2%, compared to 24.6% during the nine months ending March 31, 2008. Management is forecasting that margins will remain around 25% to 27% for the balance of the 2009 year.

General and administrative expenses increased by approximately 7.1% or $340,267 from $4.79 million in the first nine months of fiscal 2008 to $5.13 million in the first nine months of fiscal 2009. Increased costs can be attributed to additional administration personnel in our international operations, higher travel and higher insurance and more office costs. Salaries and wage expenses increased from $3.10 million in the first nine months of fiscal 2008 to $3.16 million in the comparable period of fiscal 2009 even though, additional administration personnel were hired for our international divisions in the first half of the year. However, our international personnel also were affected by the 10% reduction in salaries and wages put in place March 1, 2009. 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 and into fiscal 2010 as the full effect of managements cost control implemented will take effect.

Property, plant and equipment increased to $15.14 million at March 31, 2009 from $14.17 million at June 30, 2008, an increase of $969,637 during the nine months ending March 31, 2009, primarily from the addition of six new drills delivered in the first half of the Company’s fiscal 2009. The Company invested over $3 million in new property plant and equipment during the nine months ending March 31, 2009. This will favourably position the Company at the beginning of the next drilling cycle.

Amortization of property, plant and equipment for the nine months ending March 31, 2009 increased to $ 2.21 million compared to $1.69 million during the first nine months of fiscal 2008. The increase is due to the acquisition of $3.60 million of capital assets during fiscal 2008 and the additional $3.91 million in capital assets acquired during the first nine months of fiscal 2009.
 
Net earnings for the first nine months of fiscal 2009 were $345,238 compared to net earnings of $2.62 million earned in the comparable period of fiscal 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 under supply to over supply. 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. Management has initiated comprehensive 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.

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

During the past two years, the Company has very much improved its drilling fleet which will allow it to better service its customers at a reduced cost.

Frank Nolan resigned from the Board of Directors effective May 1, 2009.  The Company expresses its gratitude to Mr. Nolan for his years of service to the Company.

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: 06/01/2009