Aeroquest International Limited
TSX : AQL

Aeroquest International Limited

December 20, 2011 18:38 ET

Aeroquest International Limited Announces Financial Results for the Three Months and Fiscal Year Ended September 30, 2011

- Revenue of $8.2 Million, Down From $8.7 Million in Q4-2010

- EBITDA of $0.3 Million, Up From Negative EBITDA of $0.5 Million in Q4-2010

- Contract Backlog at Year-End of $9.4 Million

- Net Loss of $10.6 Million in the Quarter, or $0.28 Per Share After Reflecting Write-Down of Goodwill and Intangibles.

MISSISSAUGA, ONTARIO--(Marketwire - Dec. 20, 2011) -

Attention business/financial editors and reporters:

Aeroquest International Limited (TSX:AQL) ("Aeroquest" or the "Company") today reported financial results for its fourth quarter ("Q4-F2011") and fiscal year ("FY 2011") ended September 30, 2011. The Q4-F2011 results reflect growth in revenue for the helicopter business but a drop in fixed wing services in the airborne geophysical survey segment, when compared to the fourth quarter of last year ("Q4-F2010").

"Results for Q4-F2011 continue the pace of change begun in the third quarter," said Bob Motz, President & CEO of Aeroquest. "We have focused our operations on organic growth and continue to streamline our overall cost structure wherever we can. While revenue is down from Q4-F2010, our cost control efforts over the last year have positively impacted our EBITDA."

Consolidated revenue for Q4-F2011 was $8.2 million, a decrease of $0.5 million or 6% from Q4-F2010. Revenue from Geophysics helicopter operations contributed $3.6 million in the quarter, an increase of $0.7 million or 24% from Q4-F2010. Revenue from Geophysics fixed wing operations was $3.9 million, a decrease of $1.5 million or 28% from Q4-F2010. Revenue from our Aerial Geomatics group was $0.6 million and revenue from our Instruments & Sensors group (formerly our contract R&D segment) was $0.0 in the Q4-F2011 after elimination of intercompany revenues.

Profit margins in the airborne geophysical survey businesses still lag behind historical levels at 22% but on par with 22% reported in Q4-F2010. Helicopter gross profit improved to 32% of revenue in Q4-F2011 compared with 25% in Q4-F2010. However, fixed wing gross profit in Q4-F2011 was 12% compared to 21% of revenue in Q4-F2010. Fixed-wing margins suffered due to scheduled and unscheduled maintenance, weather issues and permitting delays.

Overall Company gross profit in Q4-F2011 was $1.7 million, or 21% of revenue compared to $2.2 million or 25% of revenue in Q4-F2010.

Selling, general and administrative expenses decreased by $0.9 million or 37% from $2.3 million in Q4-F2010 to $1.4 million in Q4-2011. Much of this decline is due to a concerted effort on the part of management to reduce costs in Q4-F2011 - including reducing corporate expenses, writing off redundant capital assets and closing our Vancouver sales office and Toronto head office.

EBITDA(1) in Q4-F2011 was $0.3 million compared with negative EBITDA of $0.5 million in Q4-F2010. EBITDA continues to improve not only when compared to last year but also to the third quarter of FY2011 when EBITDA was negative $0.8 million.

During the quarter, management undertook an assessment of the carrying value of our goodwill and intangible assets related to the acquisition of our UTS Geophysics (now Aeroquest Airborne Australia) and Geophex subsidiaries in 2007. The result of that assessment was a non-cash impairment charge of $9.5 million that was recognized in Q4-2011.

Net loss in Q4-F2011 was $10.6 million, or $0.28 per share, compared to a net loss of $2.3 million or $0.06 per share in Q4-F2010.

Cash flow from operating activities was negative $1.2 million in Q4-F2011. Cash flow from operating activities before working capital generated $0.4 million and net changes in non-cash working capital consumed $1.6 million of cash in the quarter.

Capital expenditures totaled $0.3 million in Q4-F2011 compared with $0.4 million in Q4-F2010.

(1) EBITDA stands for earnings before interest, taxes, depreciation and amortization. It is a financial metric used to analyze operating results. The Company defines EBITDA as revenue less cost of sales, cash operating costs (general and administrative expenses as well as foreign currency gains/losses) and stock-based compensation expense. It is not a standard measure under Generally Accepted Accounting Principles and as such EBITDA as calculated may not be comparable to similarly titled amounts reported by other companies.

Subsequent event - Sale of Aeroquest Optimal Inc.

As the Company previously reported, its Aerial Geomatics subsidiary Aeroquest Optimal headquartered in Huntsville, Alabama, was sold on December 1, 2011 to a third party for proceeds of US$1.2 million. The Company intends to use the proceeds to support the ongoing R&D activities in its legacy businesses (particularly upgrading the technology of our helicopter based survey systems). As required by Canadian generally accepted accounting principles, the results of operations for Aeroquest Optimal Inc. have been removed from ongoing operations and segregated as discontinued operations. Accordingly, the operating results in the Q4-F2011 and FY 2011 statements, as well as the comparative statements, exclude the results of Aeroquest Optimal.

Outlook - Q1-F2012

Notwithstanding the recent increase in exploration activity and the resulting increase in contract volumes and revenues therefrom, the Company still believes that there is significant uncertainty with respect to the economy, particularly regarding the economic impact of uncertainty related to the European Union. This uncertainty may well impact the rate at which exploration spending will continue to recover. Contract backlog at year-end totaled $9.4 million and is comprised of $6.9 million in airborne geophysical survey backlog ($1.6 million in helicopter and $5.3 million in fixed wing), $1.8 million in geomatics backlog (excluding Aeroquest Optimal) and $0.7 million in other backlog.

About Aeroquest International

Aeroquest seeks to apply the best available technology in its world-wide search for economic concentrations of mineral and petroleum resources and in the precision-mapping of the earth's surface and objects upon it. Aeroquest offers airborne geophysics surveys through Aeroquest Airborne, aerial geomatics surveys through Aeroquest Mapcon, and the custom design and construction of geophysical sensors and instruments through Geophex.

With over 130 employees and contractors, and a fleet of over two dozen helicopter and fixed wing survey systems worldwide, Aeroquest is surveying on every continent in the world where exploration activity is underway, and over its history has logged over 10 million line kilometers of fixed wing surveys and over 1 million line kilometers of helicopter surveys - enough to circle the globe over 300 times. More information about Aeroquest International can be found at www.aeroquest.ca.

For Investors

This news release may include statements about expected future events and/or financial results that are forward-looking in nature and subject to risks and uncertainties. The Company cautions that actual performance will be affected by a number of factors, many of which are beyond its control. Future events and results may vary substantially from what the Company currently foresees. Discussion of the various factors that may affect future results is contained in the Company's recent filings, available on SEDAR.

AEROQUEST INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEET
Sep. 30, 2011 Sep. 30, 2010
Assets
Current
Cash and cash equivalents $ 669,506 $ 4,757,216
Accounts receivable 3,866,484 4,527,942
Income tax recoverable 401,724 231,136
Unbilled contracts in progress 1,815,177 1,529,146
Inventories 185,627 699,935
Prepaid expenses and deposits 649,179 1,465,629
Assets held for sale 3,027,456 -
Total current assets $ 10,615,153 $ 13,211,004
Long term
Long term investments $ - $ 171,828
Capital assets 8,407,878 9,766,989
Intangible assets 7,367,571 13,277,339
Goodwill 5,263,181 11,821,304
Future income taxes 1,500,662 2,314,545
Total long term assets $ 22,539,292 $ 37,352,005
Total Assets $ 33,154,445 $ 50,563,009
Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities $ 4,996,223 $ 4,697,656
Deferred revenue 2,067,192 2,240,687
Capital lease obligations 9,430 200,964
Liabilities held for sale 1,555,477 0
Total current liabilities $ 8,628,322 $ 7,139,307
Long term
Capital lease obligations - 9,264
Future income taxes 2,254,246 4,603,674
Total Liabilities $ 10,882,568 $ 11,752,245
Shareholders' equity
Share capital $ 48,940,127 $ 48,527,057
Contributed surplus 2,392,192 2,355,274
Accumulated other comprehensive income 2,922,879 2,404,764
Deficit (31,983,321 ) (14,476,331 )
Total shareholders' equity 22,271,877 38,810,764
Total Liabilities and Shareholders' Equity $ 33,154,445 $ 50,563,009
AEROQUEST INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Year Ended
Sep. 30, 2011 Sep. 30, 2010 Sep. 30, 2011 Sep. 30, 2010
Sales $ 8,181,054 $ 8,733,872 $ 34,826,562 $ 25,073,107
Cost of sales 6,443,903 6,558,814 26,249,366 19,714,918
Gross profit $ 1,737,151 $ 2,175,058 $ 8,577,196 $ 5,358,189
Expenses and other items
General and administrative $ 1,477,254 $ 2,338,721 $ 10,868,674 $ 8,949,660
Foreign exchange (gain)/loss (289,609 ) 350,702 21,703 420,149
Stock based compensation expense 4,973 9,480 375,551 264,128
Loss/(gain) on disposal of capital assets 214,069 - 214,069 (304,803 )
Amortization of intangible assets 865,574 857,363 3,416,309 3,417,446
Depreciation of capital assets 759,321 1,008,423 2,994,737 3,248,265
Impairment of goodwill and intangible assets 9,475,908 - 9,475,908 -
Total operating expenses $ 12,507,490 $ 4,564,689 $ 27,366,951 $ 15,994,845
Operating profit $ (10,770,339 ) $ (2,389,631 ) $ (18,789,755 ) $ (10,636,656 )
Other costs (income) 25,697 (21,097 ) (242,101 ) (285,169 )
Interest income (7,509 ) (2,804 ) (7,509 ) (22,467 )
Loss before income taxes and discontinued operations $ (10,788,527 ) $ (2,365,730 ) $ (18,540,145 ) $ (10,329,020 )
Loss from discontinued operations $ 73,277 $ (301,753 ) (386,179 ) $ (849,072 )
Loss before income taxes $ (10,715,250 ) $ (2,667,483 ) $ (18,926,324 ) $ (11,178,092 )
Income taxes
Current (recovery) $ 345,911 $ 1,204,042 90,116 $ (348,784 )
Future (recovery) (457,048 ) (1,612,714 ) (1,509,451 ) (2,242,124 )
Total Income taxes $ (111,137 ) $ (408,672 ) $ (1,419,335 ) $ (2,590,908 )
Net income for the period $ (10,604,114 ) $ (2,258,811 ) $ (17,506,990 ) $ (8,587,184 )
Earnings per share
Basic $ -0.28 $ -0.06 $ -0.47 $ -0.23
Diluted $ -0.28 $ -0.06 $ -0.47 $ -0.23
AEROQUEST INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three months ended Year Ended
Sep. 30, 2011 Sep. 30, 2010 Sep. 30, 2011 Sep. 30, 2010
Deficit, beginning of period $ (21,379,207 ) $ (10,423,217 ) $ (14,476,331 ) $ (5,889,147 )
Net loss for the period (10,604,114 ) (2,258,811 ) (17,506,990 ) (8,587,184 )
Retained earnings, end of period $ (31,983,321 ) $ (12,682,028 ) $ (31,983,321 ) $ (14,476,331 )
AEROQUEST INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended Year Ended
Sep. 30, 2011 Sep. 30, 2010 Sep. 30, 2011 Sep. 30, 2010
Net loss for the period $ (10,604,114 ) $ (2,258,811 ) $ (17,506,990 ) $ (8,587,184 )
Revaluation of long term investments to fair market value 38,259 (27,111 ) (35,319 ) (29,283 )
Unrealized gain/(loss) on translation of self-sustaining foreign operations (552,906 ) 2,343,213 553,434 943,619
Total Other Comprehensive Income (loss) $ (514,647 ) $ 2,316,102 $ 518,115 $ 914,336
Total comprehensive income (loss), for the period $ (11,118,761 ) $ 57,291 $ (16,988,875 ) $ (7,672,848 )
AEROQUEST INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOW
Three months ended Year Ended
Sep. 30, 2011 Sep. 30, 2010 Sep. 30, 2011 Sep. 30, 2010
Cash provided by (used in)
Operating activities
Net loss for the period $ (10,604,114 ) $ (2,258,811 ) $ (17,506,990 ) $ (8,587,184 )
Operating items not requiring cash
Depreciation of capital assets 865,574 1,161,929 3,416,309 3,722,012
Amortization of intangible assets 855,351 791,008 3,300,075 3,417,446
Impairment of goodwill and intangible assets 9,475,908 - 9,475,908 -
Write down of net assets held for sale 50,164 - 50,164 -
Future income taxes (457,048 ) (1,612,714 ) (1,509,451 ) (2,242,124 )
Stock based compensation 4,973 9,479 375,551 264,128
Loss/(gain) on disposal of capital assets 208,114 71,602 214,069 (304,803 )
Operating cash flow before changes in non-cash working capital $ 398,923 $ (1,837,507 ) $ (2,184,365 ) $ (3,730,525 )
Changes in non-cash working capital (1,551,895 ) 1,294,954 1,729,971 3,571,916
Total cash flow from operating activities $ (1,152,972 ) $ (542,553 ) $ (454,394 ) $ (158,609 )
Investing activities
Capital asset purchases $ (300,884 ) $ (399,600 ) $ (2,220,487 ) $ (1,238,340 )
Proceeds from disposal of capital assets - 73,359 - 583,649
Long-term investments sold (acquired) 91,074 - 91,074 (90,000 )
Cash cost of acquisition - - (1,384,210 ) -
Total cash flow from investing activities $ (209,810 ) $ (326,241 ) $ (3,513,623 ) $ (744,691 )
Financing activities
Capital lease obligation payments - $ (36,284 ) $ (194,553 ) $ (510,716 )
Proceeds from issuance of common shares on exercise of employee stock options - - $ 74,860 25,450
Total cash flow from financing activities $ - $ (36,284 ) $ (119,693 ) $ (485,266 )
Net change in cash and cash equivalents
for the period $ (1,362,782 ) $ (905,078 ) $ (4,087,710 ) $ (1,388,566 )
Cash and cash equivalents, beginning of period 2,032,288 5,662,296 4,757,216 6,145,784
Cash and cash equivalents, end of period $ 669,506 $ 4,757,218 $ 669,506 $ 4,757,218

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