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Cabo Announces Annual and Fourth Quarter Results

Cabo Drilling Corp. (“Cabo” or the “Company”) (TSX-V: CBE) reports results for its fourth quarter and fiscal year ended June 30, 2010.

4th QUARTER & ANNUAL HIGHLIGHTS

(CDN $000s, except earnings per share)

3 months ending
June 30-10

3 months ending
June 30-09

FY 2010

FY
2009  

Revenue

8,158

6,197

28,986

41,162

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

74

(62)

1,546

3,981

Net Earnings (Loss) Before Taxes

(819)

(1,028)

(2,208)

408

Net Earnings (Loss) After Taxes

(107)

(1,192)

(1,496)

(847)

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

0.00

0.00

0.03

0.08

Earnings (Loss) per Share ($) Basic

0.00

(0.02)

(0.03)

(0.02)

Cash from Operations*

(60)

(339)

1,057

2,060

Gross Margin %

19.4%

28.4%

25.3%

26.7%

Working Capital

5,744

4,578

5,744

4,578

 * before changes in non-cash working capital items

The Company reports:

  • Revenue of $8.16 million for the 4th quarter of 2010 compared to 4th quarter revenue of $6.20 million in fiscal 2009 and revenue of $28.99 million in fiscal 2010 compared to $41.16 million in fiscal 2009.
  • Net 4th quarter 2010 earnings before interest, tax, amortization, stock-based compensation and other items of $74,056 and a net loss of $107,119 after interest, tax, amortization, stock-based compensation and other items resulting in EBITDA of $0.00 per share and a loss of $0.00 per share, respectively. This compares with the 4th quarter 2009 net loss before interest, tax, amortization, and stock-based compensation of $61,635 and net loss of $1.19 million after interest, tax, amortization, and stock-based compensation, resulting in a EBITDA of $0.00 per share and a loss of $0.02 per share respectively.
  • Net before tax loss for the fiscal year 2010 of $2.21 million compared to a net before tax earnings for fiscal 2009 of $407,905.
  • Net after tax loss for the fiscal year 2010 of $1.50 million compared to a net after tax loss for fiscal 2009 of $846,909.
  • Gross margin percentage for the 4th quarter fiscal 2010 was 19.4%, compared with a gross margin of 28.4% in the 4th quarter of fiscal 2009 and 25.3% in fiscal 2010 compared to 26.7% in fiscal 2009.
  • Cash from operations, before changes in non-cash working capital items, for the 4th quarter 2010 was ($60,015) and $1.06 million for fiscal 2010, compared to 4th quarter 2009 cash from operations of ($339,131) and $2.06 million for the fiscal year 2009.
  • A current asset balance of $19.20 million and working capital of $5.74 million.
  • Total assets of $33.99 million and total liabilities of $15.25 million.

“During the fourth quarter of fiscal 2010, we experienced an increase in demand for our drilling services. Revenue for the three months ending June 30, 2010 increased to $8.16 million, compared to $6.20 million in the comparable period in fiscal 2009 and compared to $6.51 million in the third quarter of fiscal 2010. Revenues from the Canadian divisions represented 74% of the revenues for the fourth quarter of fiscal 2010, as compared to 35% during the fourth quarter of fiscal 2009,” stated John Versfelt, President and CEO of Cabo.  “Revenue for the year ending June 30, 2010 decreased $12.17 million or 30% to $28.99 million, compared to $41.16 million in fiscal 2009, however $28.44 million of fiscal 2009’s gross revenue was earned in the first half of the year prior to December 31, 2008. The primary reasons for the decrease in fiscal 2010 revenue are, the reduced international activity, as our contracts in Spain and Albania were completed in the third quarter of fiscal 2009, lower drill utilization in Panama during fiscal 2010 compared to fiscal 2009, and continued low demand in Mexico. These factors resulted in a 57% decrease in international revenues. All Canadian divisions were negatively affected by the contracted drilling services market until the fourth quarter of fiscal 2010.”

“Cabo had a gross margin performance of 19.4% for the 4th quarter fiscal 2010 (28.4% 4th quarter fiscal 2009); a significant decrease from the same period in the previous year and a significant decrease from our 3rd quarter fiscal 2010 results of 25.0%. The decrease in gross margin is a direct result of increased activity preparing for the improved summer and fall drilling activities and increased costs incurred shutting down the Mexico operation,” Mr. Versfelt stated. “At 25.3% our 2010 fiscal year end gross margin performance is in line with our 2009 performance of 26.7%. The Company is experiencing increased wage pressure for field personnel as overall drilling services demand increases. This will put increased downward pressure on gross margins. However management expects gross margins to remain in the 25% range during fiscal 2011.”

“2010 was a challenging year, during which the Company experienced losses in four divisions. The Cabo Drilling Mexico division, which experienced losses over $600,000, was shut down and all equipment was returned to Canada.  Comprehensive management changes were also made in the Cabo Drilling Pacific division, where similar losses were recorded.  The Company’s geotechnical drilling division in Montreal experienced high losses during the general contracting downturn in all of 2009 to mid-2010.  We are now experiencing around 75% to 80% drill utilization in that sector; however, a decision with respect to continuation of the Montreal division will be made at the end of 2010,” commented Mr. Versfelt.  “On the bright side, Cabo’s expansion into Colombia, through our base in Panama, is profitable and our Cabo Drilling Albania branch, where Cabo has consolidated its Europe operations and recorded a loss in fiscal 2010, is now profitable and expanding with new surface and underground drilling contracts. Overall, Cabo Drilling Management expects average drill utilization in fiscal 2011 to exceed 50%, with gross margins at 25% plus.  General and administration expenses should remain in the $5.6 to $5.8 million range and, with average amortization levels decreased to 10%, Cabo Drilling is budgeting gross revenues of approximately $40 million and a return to after tax profits.”

“Management continues to focus on a cost and debt reduction strategy to improve Cabo’s balance sheet,” stated Mr. Versfelt.  “During fiscal 2010 we closed our Mexico operations and consolidated our operations in Spain into Albania, as a means of reducing overhead costs.  We are focused on increasing our drill utilization through re-allocation of our existing drill fleet to regions with increased exploration and mining activities.  This, along with continued demand for precious and base metals, should lead to improved performance in fiscal 2011.”

 “Overall, while the demand for drilling services is continuing to improve from its late start in May/June, 2010, we believe that the more mature junior, intermediate and senior mineral exploration and mining companies have prudently held back on spending a significant portion of the approximate $16.66 billion in financings raised, per Metals Economics Group (MEG)’s, MEG Industry Monitor, reports, in 2009,” said Mr. Versfelt.  “Consequently, there have only been nominal increases in contract per meter and hourly drilling services rates across the industry, barely enough to keep pace with field personnel wage and bonus increases.”

“It should be noted that 2010 financings for the mineral exploration and mining sectors, per MEG, are on track to surpass the 2009 financings by approximately 25%, and that these financings are spread over a greater number of companies in both the precious metals and base metals exploration and development sectors,” stated Mr. Versfelt.  “Therefore, we believe that the percentage of the financings from both 2009 and 2010 that will be budgeted for drilling in 2011 will be greater than in 2010. This should reduce the number of idle drills and begin to push drilling services prices closer to early 2007 prices.”

Fourth quarter ended June 30, 2010

Revenue for the three months ending June 30, 2010 increased to $8.16 million, compared to $6.20 million in the comparable period in fiscal 2009 and compared to $6.51 million in the third quarter of fiscal 2010. Revenues from the Canadian divisions represented 74% of the revenues for the fourth quarter of fiscal 2010, as compared to 35% during the fourth quarter of fiscal 2009.

Gross margin for the three month period ended June 30, 2010 was 19.4%, compared to 25% during the third quarter of fiscal 2010 and 28.4% during the fourth quarter of fiscal 2009. The decrease is a result of higher than normal costs incurred in preparation for the Summer and Fall 2010 drilling season in the Pacific Division and the closing of the Mexico operations.

General and administration costs decreased from $1.65 million in the fourth quarter of fiscal 2009 to $1.59 million recorded during the fourth quarter of fiscal 2010. The primary reasons for the decrease are reductions in travel, investor relations and marketing costs during the fourth quarter 2010. 

Amortization of property, plant and equipment for the three months ending June 30, 2009 increased to $835,077 compared to $787,010 during the fourth quarter of fiscal 2010 and decreased compared to $845,145 in the third quarter of fiscal 2010.

The Company incurred a $57,944 net interest expense during the fourth quarter of fiscal 2010 as compared to $58,569 during the fourth quarter of fiscal 2009 and $86,407 during the third quarter of fiscal 2010. Decreased interest charges during the period are primarily the result of an interest income accrual of $65,000 offset by higher interest expense as a result of increased rates on our operating line and demand loan.

Net loss for the fourth quarter of fiscal 2010 was $107,119 compared to a net loss of $1.19 million in the fourth quarter of fiscal 2009.

Year ended June 30, 2010

Revenue for the year ending June 30, 2010 decreased $12.17 million or 30% to $28.99 million, compared to $41.16 million in fiscal 2009. The primary reason for the decrease is due to the reduced international activity, as our contracts in Spain and Albania were completed in the third quarter of fiscal 2009, reduced drill utilization in Panama during fiscal 2010 compared to fiscal 2009 and low demand in Mexico. This resulted in a 57% decrease in international revenues. All the Canadian divisions were also negatively affected by the contracted drilling services market until the fourth quarter of fiscal 2010 when revenues improved to $8.16 million. Cabo consolidated its Europe operations in Albania to service all of our clients in Western and Central Europe.  Management expects international operations from its bases in Panama and Albania to improve gross revenues by approximately 38%, in fiscal 2011, which will be similar in percentage terms to the overall gross revenue projected increase.

Surface drilling revenues decreased 27% from $28.00 million to $20.43 million during fiscal 2010, compared to a decrease of 52% in underground activity from $12.41 million in fiscal 2009 to $5.96 million in fiscal 2010. This decrease was a result of the completion of a drilling contract in Spain in fiscal 2009 ($2.54 M) and no activity in fiscal 2010 and decreased drill utilization in the Pacific and Ontario divisions during fiscal 2010. Geotechnical drilling increased by 246% during fiscal 2010, due to a significant contact in the Atlantic division.

Direct costs for the year ended June 30, 2010 were $21.66 million compared to $30.16 million in the fiscal year ending June 30, 2009. The decrease is a direct result of the decreased activity in fiscal 2010. Gross margins for the year ended June 30, 2010 were 25.3% compared to 26.7% during the fiscal year ending June 30, 2009. The decreased gross margin is a direct result of increased activity in preparation for the improved 2010 Summer and Fall drilling activities and the costs of closing down the Mexico operations. The Company incurred costs in preparation for projects awarded that began in June through to August, 2010. The Company is experiencing increased wage pressure for field personnel as the overall drilling services demand increases. This will put increased downward pressure on the gross margin, but management expects gross margins to remain in the 25% range during fiscal 2011.

General and administrative expenses decreased by approximately 14% or $939,470 from $6.77 million in fiscal 2009 to $5.83 million in fiscal 2010. The decrease is a result of the restructuring management implemented in fiscal 2009. There were cost reductions in all Canadian divisions, but Cabo did see an increase in Panama where Cabo set up a larger operations facility to service our growth into Central and South America. Included in general and administration costs are several non-recurring charges such as $100,000 bad debt recovery and approximately $66,000 in legal and professional fees incurred in arranging additional financings. The Company experienced reductions in almost all areas as a result of the 2009 restructuring, with administration wages decreasing by 16% to $3.30 million as compared to $3.91 million in fiscal 2009.  Insurance costs decreased during fiscal 2010 by $34,401. Foreign workers compensation decreases offset the increased asset base insurance premiums during fiscal 2010 as compared to fiscal 2009. The Company also realized reductions in travel, marketing, promotion and general office supply expenses during the year.

We anticipate general and administration costs to range between $5.6 million and $5.8 million for fiscal 2011. The closure of the Mexican operations will provide some savings, but these savings may be offset by increased costs in the Panama operations, due to the expansion into Colombia, and increased wage pressures in Canada. Management continues to look for cost savings through various plans on centralizing administration in fiscal 2011.

Amortization of property, plant and equipment for the year ending June 30, 2010 increased by $365,020 to $3.36 million during fiscal 2010 as compared to $3.0 million in fiscal 2009. The increase is due to the acquisition of $776,555 of capital assets during fiscal 2010 and the recording of a full year of depreciation from the $4.70 million of acquisitions in fiscal 2009.  Management expects amortization expense to decrease in fiscal 2011 as a result of changes to its amortization policy.

The Company incurred a $384,068 interest expense during the year ending June 30, 2010, compared to $455,959 incurred during the year end June 30, 2009. The fiscal 2010 interest expense includes $65,000 of interest income earned on a convertible debenture. Without including this interest income, the interest expense increases to $449,068 in fiscal 2010 as compared to $455,959 in fiscal 2009. 

EBITDA (earnings before interest, tax, amortization, stock-based compensation and other items) for fiscal 2010 decreased $2.43 million to $1.55 million ($0.03 per share basic dilution) as compared to $3.98 million ($0.08 per share basic dilution) in fiscal 2009.

Net loss for fiscal 2010 was $1.50 million compared to a net loss of $846,909 in fiscal 2009. Losses increased during fiscal 2010 due to lower revenues and increased amortization, but were partially offset by the future tax recovery.

The Company’s cash (cash and cash equivalents) position at June 30, 2010, is $43,502 compared to $455,006 at June 30, 2009. The Company has $399,335 in cash available in the operating line.

Short term investments and marketable securities decreased $3,168, from $40,728 at June 30, 2009, to $37,560 at June 30, 2010. The decrease can be attributed to changes in market share prices at June 30, 2010. We have adjusted the value of our holdings at June 30, 2010, as recorded in the comprehensive income statement. At June 30, 2010, the balance of $37,560 consists of shares in Canadian public corporations.

Accounts receivable increased by $721,512 or 12% to $6.89 million at June 30, 2010 from $6.17 million at June 30, 2009. The increase is primarily due to increased activity during the fourth quarter of fiscal 2010. 

Inventory levels increased by $2.43 to $11.16 million at June 30, 2010 from $8.73 million at June 30, 2009. The increase is a direct result of servicing new contacts, increased demand for drilling services in all Canadian divisions and expansion into Colombia.

Property plant & equipment decreased to $12.74 million at June 30, 2010 from $15.33 million at June 30, 2009, a decrease of $2.59 million during fiscal 2010, largely due to amortization with $798,367 increase in capital expenditures. The Company plans on increasing the utilization of its fleet and limiting any further capital expansion in fiscal 2011. The Company invested over $4.54 million in new property plant and equipment during fiscal 2009 and 2010. This will favourably position the Company in the present drilling cycle with a modernized and upgraded drill fleet.

Consolidated total assets increased by $804,842 to $33.99 million at June 30, 2010 from $33.19 million at June 30, 2009. The change consists of a $411,504 decrease in cash, a $721,512 increase in accounts receivable, and a $2.43 million increase in inventories, offset by a $2.59 million decrease in our capital asset base.

Consolidated total liabilities increased by $1.15 million to $15.25 million at June 30, 2010, from $14.10 million at June 30, 2009, primarily as a result of the increase in trade payables. Accounts payable increased by 61% to $6.16 million at June 30, 2010, as compared to $3.86 million at June 30, 2009.

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. Senior management is 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 (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
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 Arash Shahi: ashahi@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: 11/02/2010