Discovery Air announces improved results for 2010
April 26, 2011, Yellowknife, N.W.T. - Discovery Air Inc., today released improved results for its year ended January 31, 2011.
April 26, 2011 By Carey Fredericks
Revenues were $152.4 million for the year ended January 31, 2011 ("Fiscal 2011") compared to $123.2 million last year. Revenues for the quarter ended January 31, 2011 ("Q4/11") were $23.7 million compared to $17.7 million for the same period last year.
EBITDA for Fiscal 2011 was $37.6 million compared to $28.8 million last year. EBITDA loss was $2.1 million for Q4/11 compared to an EBITDA loss of $2.3 million for the same period last year.
Net earnings for Fiscal 2011 were $5.5 million or $0.04 per share ($0.04 diluted) compared to a loss of $0.3 million or ($0.00) per share ($0.00 diluted) last year.
Loss for Q4/11 was $6.4 million or ($0.05) per share ($0.05 diluted) compared to a loss of $4.8 million or ($0.04) per share ($0.04 diluted) for the same period last year.
President and CEO's Comments
I am very pleased to report that Discovery Air's Fiscal 2011 results continued the improving trend that commenced in fiscal 2010. Fiscal 2011 revenues increased 24% to just over $152 million, a record level for the Corporation. Revenue growth was accompanied by further improvement in our EBITDA performance, both in dollar terms and as a percentage of revenues, reflecting our focus on delivering high-value services to our customers while maximizing asset utilization and aggressively managing costs. We generated net income of $5.5 million or $.04 per share, significantly above fiscal 2010's break-even results, and our cash flow continued to be strong.
We also generated solid results in business development. In March 2010, we announced a 5-year renewal of Hicks & Lawrence's fire management contracts with the Ontario government. Top Aces' interim contracts to supply airborne training services to the Canadian Forces were extended to August 2013 (assuming exercise of all options), and Top Aces will continue to operate under those interim arrangements. Great Slave Helicopters announced several new contract awards, including the launch of its operations in Peru, and continued to build its Northern aboriginal partnership network. Air Tindi and Discovery Mining Services both enjoyed a significant rebound in customer demand and turned in very strong results while growing their aboriginal partnership networks to support future growth. In September, we announced the start-up of operations at Discovery Air Technical Services, which provides a range of aircraft maintenance, repair, overhaul, modification, engineering and certification services from its Quebec City location. And after year-end, we announced the reorganization of certain business development efforts under a new subsidiary, Discovery Air Innovations. While our operating business units will remain accountable for growing their existing businesses, Innovations will be responsible for pursuing major opportunities involving new customer contracts, new fleets and new technologies, both domestically and internationally. It will also serve as the focal point for our merger and acquisition initiatives.
Improved operating and financial results have been accompanied by a strong recovery in capital market conditions in the two years since we completed our last major financing. As a result, we believe that we have an opportunity to recapitalize Discovery Air in a way that better supports its operations and planned growth, and we have undertaken several initiatives to accomplish this. On April 18th, we announced the repayment of approximately $13.2 million in subordinated debt on favourable terms, which will help to reduce consolidated interest expense and total debt outstanding, increase shareholder equity with modest dilution and reduce the leverage in our capital structure. On April 21st, we announced an agreement to issue $30 million in new subordinated unsecured convertible debentures. Proceeds of this issue will be used to prepay our December 2006 debentures, which were scheduled to mature December 31, 2011. Subject to meeting all required conditions, we are targeting a mid-May close of this transaction. We are also reviewing options to refinance some or all of our other long-term debt at lower rates and with significantly fewer restrictions on managing our assets to best advantage. At the same time, we are working hard to leverage the improvements in our operating and financial performance to build equity market support for Discovery Air. This includes meeting with brokers and institutional investors to explain our business and help stimulate interest in Discovery Air stock. We will be resuming analyst conference calls with our full-year earnings release in late April. We are also considering a variety of other initiatives to help build support for the Corporation's stock and to overhaul and simplify our capital structure generally.
The Corporation's Fiscal 2011 consolidated revenue reflects a significant recovery from fiscal 2010, when the Corporation was severely hampered by the dramatic decline in resource-based activity in the North and unseasonably wet weather conditions in the forest fire markets in which the Corporation operates. The Corporation recorded year-over-year increases in all the major industry sectors it serves, with the largest increase occurring in the Corporation's mining exploration and oil and gas sectors. The increase in revenue from the Government Services segment was largely attributable to increased demand for airborne training and special mission services and forest fire related services in Ontario.
The Corporation's EBITDA of $37.4 million reflects a 38% year-over-year increase. Adjusted EBITDA, which excludes charges related to corporate head office relocation in March 2010, was $37.6 million reflecting a 30% year-over-year increase. The Corporation was able to increase its overall adjusted EBITDA margin to 25% despite incurring higher operating and business development costs to support the Corporation's effort to expand its revenue base. The margin increase was driven by growth rates in the Corporation's higher-margin services.
In Fiscal 2011, the Corporation increased earnings to $5.5 million, or $0.04 per share, compared to a loss of $0.3 million, or$0.00 per share, in the prior year. The Corporation's financing and amortization charges were slightly lower compared to the prior year; however, this was partly offset by a higher income tax provision in Fiscal 2011.
The Corporation generated an after-tax operating cash flow of $26.5 million in Fiscal 2011 compared to $17.7 million in Fiscal 2010. The year-over-year increase was largely due to a $5.8 million increase in earnings and a $3.1 million reduction in future income tax recoveries.
The Corporation's organic growth in Fiscal 2011 was largely achieved by entering new markets. The Corporation established two notable emerging opportunities during the year: through Great Slave, by providing services in Peru for oil and gas customers; and through Technical Services' creation of a maintenance repair and overhaul ("MRO") service platform.
The Corporation extended Top Aces' airborne combat training Standing Offer Agreements for a further 16-month period, with an option for an additional 12 months thereafter. Top Aces also submitted a proposal for a Public Works Government ServicesCanada ("PWGSC") Request for Proposal ("RFP") for a 10 year contracted airborne training services contract with an option for two 5 year extensions in October 2010. This solicitation was cancelled in early fiscal 2012, with PWGSC indicating its intention to retender a new RFP for a long term contracted airborne training services program.
The Corporation refinanced $49.2 million of revolving debt in the third quarter of Fiscal 2011 under a provision set out under the original revolving debt agreement. The debt was converted from an evergreen facility to a 10-year term debt. The interest rate is set at the 90 day bankers' acceptance rate plus 7.65%, with the premium subject to an annual review, at which time the Corporation may exercise an option to borrow via a fixed rate arrangement. All collateral arrangements and lending conditions remained substantially the same. In the second quarter of Fiscal 2011, the Corporation also renewed its $15 million operating line of credit which increases to $25 million during the Corporation's peak season.