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Cabo Announces Annual 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, 2009.

 4th QUARTER & ANNUAL HIGHLIGHTS

(CDN $000s, except earnings per share)
 

3 months ending  June 30/09

3 months ending   June 30/08

FY 2009

FY 2008

Revenue

 6,197

14,634

41,162

58,645 

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

(62)

701

3,981

6,757

Net Earnings (Loss) Before Taxes

 (1,028)

(115)

408

3,951 

Net Earnings (Loss) After Taxes

(1,192)

581

(847)

3,203

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

 0.00

0.02

0.08

0.15

Earnings (Loss) per Share ($) Basic

(0.02)

0.01

(0.02)

0.07

Cash from Operations*

 (339)

814

2,060

5,149

Gross Margin %

 29.6%

20.0%

26.7%

23.4%

Working Capital

4,588

7,239

4,588

7,239

 * before changes in non-cash working capital items

The Company reports:

  • Revenue of $6.20 million for the 4th quarter of 2009 compared to 4th quarter revenue of $14.63 million in fiscal 2008.
  • Net 4th quarter 2009 loss before interest, tax, amortization, stock-based compensation and other items of $61,635 and a net loss of $1.19 million after interest, tax, amortization, stock-based compensation and other items resulting in a loss of $0.00 per share and a loss of $0.02 per share, respectively. This compares with the 4th quarter 2008 earnings before interest, tax, amortization, and stock-based compensation of $701,078 and net earnings of $581,487 after interest, tax, amortization, and stock-based compensation resulting in earnings of $0.02 per share and $0.01 per share respectively.
  • Net before tax earnings for fiscal 2009 of $407,905 compared to a net before tax earnings for fiscal 2008 of $3.95 million.
  • Net after tax loss for the fiscal year 2009 of $846,909 compared to net after tax earnings for fiscal 2008 of $3.20 million.
  • Gross margin percentage for the 4th quarter fiscal 2009 was 29.6%, compared with a gross margin of 20.0% in the 4th quarter of fiscal 2008 and 26.7% in fiscal 2009 compared to 23.4% in fiscal 2008.
  • Cash from operations, before changes in non-cash working capital items, was a decrease of $339,131 for the 4th quarter 2009 and $2.06 million for fiscal 2009, compared to 4th quarter 2008 cash from operations of $814,615 and $5.15 million for the fiscal year 2008.
  • A current asset balance of $16.63 million and working capital of $4.6 million.
  • Total assets of $33.19 million and total liabilities of $14.10 million.

 “Consistent with our third quarter fiscal 2009, Cabo experienced a continued decrease in rig utilization during the fourth quarter of fiscal 2009,”  stated John A. Versfelt, Cabo Drilling’s President and CEO.  “Due to the uncertainty in the economy, clients delayed their exploration drilling programs.  There was significant contraction in the Canadian and United States market, with a 58% reduction in revenues in the fourth quarter of fiscal 2009. Fortunately, this was offset somewhat by a 56% revenue growth in our international divisions.”

“We recorded our lowest quarterly revenue, in the fourth quarter of fiscal 2009,” commented Mr. Versfelt.  “We believe this is the bottom of the curve, as we have seen improvements in more signed contracts into the first and second quarters of fiscal 2010. In addition we have received larger numbers of bid requests from mining and exploration companies who have increased their exploration budgets, as a result of new financings.”

 “Cabo had a gross margin performance of 29.6% for the 4th quarter fiscal 2009 (20.0% 4th quarter fiscal 2008); our highest gross margin performance to date, and 26.7% for the fiscal year 2009 (23.4% for 2008);” Mr. Versfelt stated. “We have recorded improved gross margins since the beginning of 2009 and expect this trend to continue, due to operational efficiencies and an upgraded and modernized drill fleet.  Going into 2010 we will remained focus on cost saving measures, continuing reduced support costs, improved performance for each drill and greater utilization of the drills, which will lead to improved profitability.”

“During fiscal 2009, the Company recorded an allowance of $700,000 to reduce inventory to net realizable value,” commented Mr. Versfelt.   This together with recorded stock based compensation expense of $120,118 in fiscal 2009 negatively affected net income by $820,118.  Without recording these accounting adjustments Cabo would have had a net loss after taxes of only $26,791.  It is important to note that Cabo can increase the value of inventory to net realized value in the future and recapture the $700,000 allowance.”

“As markets improved Cabo received more bid requests, and gold is leading the way in Canada, as well as Mexico and Central America. Copper and iron ore projects are also requesting bids for drilling services,” stated Mr. Versfelt. “Cabo was able to take advantage of opportunities to acquire six newer drills at significantly reduced prices on special terms, which has enabled the Company to improve its fleet during tough times at a greatly reduced price, at the same time, allowing it to put these drills into production with improved margins.  Consequently, Cabo Drilling is experiencing and projecting growth in drill utilization for the balance of fiscal 2010.”

“Drill and inventory rationalization in the seven areas of the world, where Cabo now works, is taking place on an ongoing basis,” stated Mr. Versfelt.  “Furthermore, management continues to focus on reducing debt, cutting costs, reducing capital and inventory expenditures and increasing cash. We are fortunate to have a strong senior management team, which has experienced severe downturns in the past and has many years of experience of managing through tough economic cycles into the next expanding cycle to propel us out of this economic downturn and assist in positioning the Company not only for today but tomorrow.”

Fourth quarter ended June 30, 2009

Revenue for the three months ending June 30, 2009 decreased to $6.20 million, compared to $14.63 million in the comparable period in fiscal 2008 and compared to $6.52 million in the third quarter of fiscal 2009. Revenues from the international divisions represented 65% of the revenues for fourth quarter of fiscal 2009, as compared to 27% during the fourth quarter of fiscal 2008.

Direct costs for the three month period ended June 30, 2009 were $4.37 million compared to $11.71 million in the comparable period in fiscal 2008 and $4.76 million in the third quarter of fiscal 2009.

Gross margins for the three month period ended June 30, 2009 were 29.6%, compared to 27.0% during the third quarter of fiscal 2009 and 20% during the fourth quarter of fiscal 2008. Management is forecasting that margins will stabilize to 28% to 30% for fiscal 2010.

General and administration expenses decreased 34% to $1.65 million in the fourth quarter of fiscal 2009 compared to $2.50 million in the fourth quarter of fiscal 2008 and remained in line with third quarter fiscal 2009 general and administration expenses of $1.63 million. This year over year decrease can be attributed to reductions in travel, marketing, and a small reduction in salaries and wages. 

Amortization of property, plant and equipment for the three months ending June 30, 2009 increased to $787,010 compared to $709,391 during the fourth quarter of fiscal 2008 and decreased compared to $791,043 in the third quarter of fiscal 2009.

The Company incurred a $58,569 interest expense during the fourth quarter of fiscal 2009 as compared to $106,255 during the fourth quarter of fiscal 2008 and $76,115 during the third quarter of fiscal 2009. Decreased interest charges during the period are primarily the result of lower interest rates charged on the operating and demand loans. Management expects the interest expense to decrease in fiscal 2010 as the Company focuses on debt repayment.

Net loss for the fourth quarter of fiscal 2009 was $1.19 million compared to net earnings of $581,487 in the fourth quarter of fiscal 2008 and fiscal 2008 and a net loss of $765,330 in the third quarter of fiscal 2009. Earnings primarily decreased during the quarter due to the $700,000 allowance for inventory and the $120,118 stock based compensation.

Year ended June 30, 2009

Revenue for the year ending June 30, 2009 decreased $17.48 million or 30% to $41.16 million, compared to $58.64 million in fiscal 2008. The primary reason for the decrease is due to the contraction of the drilling market, as a result of the economic downturn. The revenues from the Canadian and United States divisions decreased by 50%, while the other divisions increased by 56%.  Panama provided most of the growth during this period as drill utilization increased 100% to an average of six drills per month. Revenues from Spain, Mexico and Liberia decreased from the previous years as several projects were shut down. During the first year of operation, Albania recorded $912,944 in revenues before the economic downturn. All the Canadian divisions were negatively affected by the contracted market during fiscal 2009. The expansion into the international market helped Cabo Drilling to weather the downturn in the global markets. Management expects international operations to stabilize between 30-40% throughout fiscal 2010 as the market in Canada also improves.

Surface drilling revenues decreased 36% from $44.09 million to $28.00 million during fiscal 2009, compared to a modest decrease of 6% in underground activity from $13.29 million in fiscal 2008 to $12.41 million in fiscal 2009. Geotechnical drilling decreased by 41% during fiscal 2009, due to decreased construction and infrastructure programs in the first half of 2009.

Direct costs for the year ended June 30, 2009 were $30.16 million compared to $44.90 million in the fiscal year ending June 30, 2008. The decrease is a direct result of the decreased activity in fiscal 2009. Gross margins for the year ended June 30, 2009 were 26.7% compared to 23.4% during the fiscal year ending June 30, 2008. The increased gross margin is a direct result of cost reduction measures implemented during fiscal 2009. Management expects gross margins to increase to between 28-30% range during fiscal 2010 due to improved cost controls, and upgrades and modernization of the drill fleet.

General and administrative expenses decreased by approximately 7.0% or $511,432 from $7.28 million in fiscal 2008 to $6.77 million in fiscal 2009. Included in general and administration costs are several non-recurring charges such as $114,000 performance bonus paid on the fiscal results of 2008, and approximately $60,000 in costs establishing the Albania division. Insurance costs increased during fiscal 2009 by $178,497 due to increased capital asset base, foreign workers compensation, and higher premiums during the first six months of the 2009 year. As part of the restructuring, there were reductions in travel, marketing, and a small reduction in salaries and wages during fiscal 2009. Travel costs decreased by 40% during the year to $277,056 as compared to $461,049; marketing and promotion decreased by 24% from $268,455 to $204,620 in fiscal 2009. Salaries and wages decreased by less than 2% during the year, but management believes this cost will decrease further for the full year as a result of the 10% salary reduction put in place on March 1, 2009.

We anticipate general and administration costs to be reduced to between $5.2 million and $5.6 million for fiscal 2010, as a result of the various cost reduction strategies put in place in fiscal 2009. Management continues to look for cost savings through various plans on centralizing administration in fiscal 2010.

Amortization of property, plant and equipment for the year ending June 30, 2009 increased by $597,078 to $3.0 million during fiscal 2009 as compared to $2.40 million in fiscal 2008. The increase is due to the acquisition of $4.70 million of capital assets during fiscal 2009 and the recording of a full year of depreciation from the $5.47 million of acquisitions in fiscal 2008.

The Company incurred a $455,959 interest expense during the year ending June 30, 2009, compared to $385,851 incurred during the year end June 30, 2008. The increase is a result of additional leases for drills acquired during the first quarter of fiscal 2009 and increased utilization of our operating line.

EBITDA (earnings before interest, tax, amortization, stock-based compensation and other items) for fiscal 2009 decreased $2.78 million to $3.98 million ($0.08 per share basic dilution) as compared to $6.76 million ($0.15 per share basic dilution) in fiscal 2008. Net loss for fiscal 2009 was $846,909 compared to net earnings of $3.20 million in fiscal 2008. Earnings decreased during fiscal 2009 due to lower revenues, increased amortization and increased income taxes.

The Company’s cash (cash and cash equivalents) position at June 30, 2009, is $455,006 compared to $785,261 at June 30, 2008.

Short term investments and marketable securities decreased $75,580, from $116,308 at June 30, 2008, to $40,728 at June 30, 2009. The decrease can be attributed to changes in market share prices at June 30, 2009. We have adjusted the value of our holdings at June 30, 2009, as recorded in the comprehensive income statement. At June 30, 2009, the balance of $40,728 consists of shares in Canadian public corporations.

Accounts receivable decreased by $5.79 million or 48% to $6.17 million at June 30, 2009 from $11.96 million at June 30, 2008. The decrease resulted primarily from the lower revenues during fiscal 2009 and management’s collections efforts in all divisions.

Inventory levels decreased by $879,599 to $8.73 million at June 30, 2009 from $9.61 million at June 30, 2008. The Company continues to focus on rationalization of inventory between divisions and overall reduction into fiscal 2010. During fiscal 2009 the Company recorded an allowance of $700,000 to reduce inventory to net realizable value due to reduction in prices as a result of the more competitive market during the economic slowdown. The Company is allowed to increase the value of inventory to net realizable value in the future.

Property plant & equipment increased to $15.33 million at June 30, 2009 from $14.21 million at June 30, 2008, an increase of $1.12 million during fiscal 2009, primarily from the addition of six new drills delivered in the first half of the Company’s fiscal 2009. The Company invested over $4 million in new property plant and equipment during fiscal 2009. This will favourably position the Company at the beginning of the next drilling cycle with a modernized and upgraded drill fleet.

Consolidated total assets decreased by $5.51 million to $33.19 million at June 30, 2009 from $38.70 million at June 30, 2008. The change consists of a $5.71 million decrease of accounts receivable which is offset somewhat by the $1.05 million increase in our capital asset base.

Consolidated total liabilities decreased by $4.50 million to $14.10 million at June 30, 2009, from $18.60 million at June 30, 2008, primarily as a result of the decrease in trade payables. Accounts payable decreased by 50% to $3.86 million at June 30, 2009, as compared to $7.67 million at June 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 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.

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; Cabo Drilling (Ghana) Limited of Accra, Ghana; 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 Sheri Barton, Corporate Communications at 403-217-5830 or Mr. John A. Versfelt, Chairman, President & CEO of the Company at 604-984-8894.  For general investor relation inquiries you may also contact Renmark Financial Communications Inc.:
 - Barbara Komorowski: bkomorowski@renmarkfinancial.com or
 - Dan Symons: dsymons@renmarkfinancial.com
    at Tel: 514-939-3989 or 416-644-2020.

*    *    *    *

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: 10/29/2009