Aeroquest International Limited
TSX : AQL

Aeroquest International Limited

May 13, 2011 21:18 ET

Aeroquest International Limited (TSX:AQL) Announces Financial Results for the Three and Six Months Ended March 31, 2011

- Revenue of $9.7 million up $3.9 million, or 68% from Q2 of 2010

- Contract backlog improves to $15.6 million from $11.2 million in Q1 of 2011

- EBITDA of negative $1.5 million a decrease of $0.2 million from Q2 of 2010

TORONTO, ONTARIO--(Marketwire - May 13, 2011) -

Attention business/financial editors and reporters:

Aeroquest International Limited (TSX:AQL) ("Aeroquest", or "the Company") today reported financial results for its second quarter of fiscal 2011, the three and six months ended March 31, 2011 ("Q2-F2011"). These results reflect a challenging quarter in Airborne Geophysics as a combination of weather, permitting and other logistical issues as well as unexpected maintenance activity all reduced productivity - especially in fixed wing services. Consolidated revenue for Q2-F2011 was $9.7 million, an increase of $3.9 million or 68% over the first quarter of last year ("Q2-F2010"). Revenue from Airborne Geophysics was $7.8 million, an increase of $4.1 million from Q2-F2010 of last year. Fixed wing revenue improved to $4.4 million from $1.2 million in Q2-F2010, while helicopter services revenue improved to $3.3 million from $2.5 million in Q2-F2010.

In Australia, the combination of rain and flooding in Eastern Australia and record heat in Western Australia resulted in much lower than normal production in those areas in the period. In Africa, several surveys were delayed due to delays in obtaining the necessary government permits to fly in the countries of several countries including Mauritania, with the result that these aircraft were unable to fly, some for up to a month in the quarter.

The poor performance of the fixed wing fleet was offset to some degree by continued improvement in helicopter services. Helicopter services continue to recover both in revenue and margin terms.

Revenue from Aerial Geomatics was $1.8 million, an increase of $0.1 million from Q2-F2010 while revenue from the Instruments and Sensors segment was $0.2 million, a decline of $0.2 million from Q2-F2010.

Year to date 2011, revenue is $22.1 million, an increase of $8.8 million, or 67% from the first six months of 2010.

Overall gross profit margin in Q2-F011 was 23% compared with 19% in Q2-F2010 and 30% in the Q1 of fiscal 2011. EBITDA 1 in the quarter was negative $1.5 million, a decrease of $0.2 million over the negative $1.3 million reported in Q2-F2010 and a decrease of $1.9 million from the first quarter of fiscal 2011.

Profit margins in Airborne Geophysics were negatively impacted by fixed wing services due to the reasons previously indicated. Q2-F2011 fixed wing gross margins were 11% compared with 5% in Q2-F2010 but a significant decline from the 30% margin reported in the first quarter of 2011. Management expects that fixed wing margins will improve in future quarters as weather improves and proactive steps are taken to manage logistical issues. Helicopter margins improved to 38% in Q2-F2011 from 16% in Q2-F2010 and a helicopter gross margin of 22% in the first quarter of fiscal 2011.

Year to date, gross margins were 22% in fixed wing and 31% in helicopter services compared to 14% and 16% respectively in the first six months of fiscal 2010.

Aerial Geomatics gross profit margins were 22% of revenue, an improvement from the 7% reflected in the first quarter but still below management's expectations. The Company is well underway in the integration of the Aeroquest Optimal unit with the Mapcon unit that was acquired on January 31, 2011. Mapcon has already provided additional revenue and will begin to realize savings through the greater use of third party offshore processing facilities as the business grows.

Consolidated net loss in Q2-F2011 was $2.3 million or $0.06 per share compared to net loss of $2.3 million, or $0.06 per share in Q2-F2010. Year to date fiscal 2011 consolidated net loss is $3.2 million or $0.09 per share compared with a consolidated net loss of $4.5 million or $0.12 per share in the first six months of fiscal 2010.

Cash flow from operating activities was negative $2.0 million, or $0.05 per share in Q2-F2011, as compared to negative $0.7 million, or $0.02 per share in Q2-F2010. Of the negative $2.0 million in the most recent quarter, $1.2 million reflects non-cash working capital changes. Capital expenditures totaled $1.0 million in Q2-F2011, an increase of $0.7 million from Q2- F2010. Of the capital expenditures, $0.4 million relates to a new airborne digital mapping camera acquired for our Aerial Geomatics group. The total cost of this camera was $1.1 million, of which $0.7 million was financed through vendor financing, with the net of $0.4 million reflected in the Cash Flow Statement. Management expects capital expenditures for the balance of the year to be higher than in fiscal 2010 to reflect ongoing or expected improvements to the market for its systems in all segments.

Contract Backlog

Contract backlog improved by $4.4 million to $15.6 million at March 31, 2011 from $11.2 million at December 31, 2010. Backlog is composed of $11.8 million in Airborne Geophysics survey backlog ($2.3 million in helicopter and $9.5 million in fixed wing), $3.6 million in Aerial Geomatics backlog, and $0.2 million in backlog in our instruments and sensors group.

About Aeroquest International

Aeroquest collects and interprets data that reveals what is at and beneath the earth's surface. Aeroquest applies 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 Optimal and Mapcon Mapping, and the custom design and construction of geophysical sensors and instruments through Aeroquest Sensortech.

With over 150 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.

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.

AEROQUEST INTERNATIONAL LIMITED
CONSOLIDATED BALANCE SHEET
Mar. 31, 2011Sep. 30, 2010
Assets
Current
Cash and cash equivalents$1,632,008$4,757,216
Accounts receivable5,124,7264,527,942
Income tax recoverable588,137231,136
Unbilled contracts in progress2,309,6101,529,146
Inventory138,831699,935
Prepaid expenses and deposits1,432,4421,465,629
Total current assets$11,225,754$13,211,004
Long term
Long term investments$145,307$171,828
Capital assets10,888,3429,766,989
Intangible assets11,577,11113,277,339
Goodwill11,826,88711,821,304
Future income taxes2,361,2312,314,545
Total long term assets$36,798,878$37,352,005
Total Assets$48,024,632$50,563,009
Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities$4,668,507$4,697,656
Deferred revenue2,735,5762,240,687
Capital lease obligations55,192200,964
Current portion of long term debt142,6500
Total current liabilities$7,601,925$7,139,307
Long term
Capital lease obligations09,264
Long term debt602,1000
Future income taxes3,854,7714,603,674
Total Liabilities$12,058,796$11,752,245
Shareholders' equity
Share capital$48,928,222$48,527,057
Contributed surplus2,233,0932,355,274
Accumulated other comprehensive income2,515,9182,404,764
Retained earnings(17,711,397)(14,476,331)
Total shareholders' equity35,965,83638,810,764
Total Liabilities and Shareholders' Equity$48,024,632$50,563,009
AEROQUEST INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months endedSix months ended
Mar. 31,
2011
Mar. 31,
2010
Mar. 31,
2011
Mar. 31,
2010
Sales$9,749,915$5,770,246$22,102,087$13,268,112
Cost of sales7,528,2114,665,97916,160,96210,877,232
Gross profit$2,221,704$1,104,267$5,941,125$2,390,880
Expenses and other items
General and administrative$3,448,775$2,190,850$6,528,896$4,587,661
Foreign exchange (gain)/loss83,501100,036298,917181,123
Stock based compensation expense184,49184,920212,224169,729
Amortization of intangible assets838,985857,4871,689,3901,732,055
Depreciation of capital assets712,029875,1891,402,0521,755,337
Total operating expenses$5,267,781$4,108,482$10,131,479$8,425,905
Operating profit$(3,046,077)$(3,004,215)$(4,190,354)$(6,035,025)
Other costs (income)(135,304)(146,021)(135,304)(264,347)
Interest Expense-14,838-30,061
Loss before income taxes and discontinued operations$(2,910,773)$(2,873,032)$(4,055,050)$(5,800,739)
Loss from discontinued operations$-$(118,036)-$(280,745)
Loss before income taxes$(2,910,773)$(2,991,068)$(4,055,050)$(6,081,484)
Income taxes
Current$(386,238)$(602,763)(74,680)$(1,041,054)
Future(265,644)(120,635)(745,304)(506,360)
Total Income taxes$(651,882)$(723,398)$(819,984)$(1,547,414)
Net income for the period$(2,258,891)$(2,267,670)$(3,235,066)$(4,534,070)
Earnings per share
Basic-$0.06-$0.06-$0.09-$0.12
Diluted-$0.06-$0.06-$0.09-$0.12
AEROQUEST INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three months endedSix months ended
Mar. 31, 2011Mar. 31, 2010Mar. 31, 2011Mar. 31, 2010
Retained earnings (deficit), beginning of period$(15,452,506)$(8,155,547)$(14,476,331)$(5,889,147)
Net loss(2,258,891)(2,267,670)(3,235,066)(4,534,070)
Retained earnings, end of period$(17,711,397)$(10,423,217)$(17,711,397)$(10,423,217)
AEROQUEST INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months endedSix months ended
Mar. 31,
2011
Mar. 31,
2010
Mar. 31,
2011
Mar. 31,
2010
Net loss for the period$(2,258,891)$(2,267,670)$(3,235,066)$(4,534,070)
Revaluation of long term investments to fair market value(6,118)1,929(3,578)(50,248)
Unrealized gain/(loss) on translation of self-sustaining foreign operations(338,469)(626,732)114,732(741,687)
Total Other Comprehensive Income (loss)$(344,587)$(624,803)$111,154$(791,935)
Total comprehensive income (loss), for the period$(2,603,478)$(2,892,473)$(3,123,912)$(5,326,005)
AEROQUEST INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOW
Three months endedSix months ended
Mar. 31,
2011
Mar. 31,
2010
Mar. 31,
2011
Mar. 31,
2010
Cash provided by (used in) Operating activities
Net income for the period$(2,258,891)$(2,267,670)$(3,235,066)$(4,534,070)
Operating items not requiring cash
Depreciation of capital assets712,029875,1891,402,0521,755,337
Amortization of intangible assets838,985857,4871,689,3901,732,055
Future income taxes(265,644)(120,635)(745,304)(506,360)
Stock based compensation184,49184,920212,224169,729
Loss/(gain) on disposal of capital assets-(358,727)5,955(358,727)
Operating cash flow before changes in non-cash working capital$(789,030)$(929,436)$(670,749)$(1,742,036)
Changes in non cash working capital(1,193,276)175,515364,037(425,953)
Total cash flow from operating activities$(1,982,306)$(753,921)$(306,712)$(2,167,989)
Investing activities
Capital asset purchases$(950,804)$(307,261)$(1,337,825)$(470,684)
Proceeds from sale of equipment-162,211-492,611
Long term investments acquired---(90,000)
Cash cost of acquisition(1,384,210)-(1,384,210)-
Total cash flow from investing activities$(2,335,014)$(145,050)$(2,722,035)$(68,073)
Financing activities
Capital lease payments(110,746)$(210,255)$(163,221)$(352,111)
Proceeds from issuance of common shares on exercise of employee stock options65,50021,000$66,76025,450
Total cash flow from financing activities$(45,246)$(189,255)$(96,461)$(326,661)
Net change in cash / cash equivalents for the period$(4,362,566)$(1,088,226)$(3,125,208)$(2,562,723)
Cash and cash equivalents, beginning of period5,994,5744,671,2874,757,2166,145,784
Cash and cash equivalents,
end of period
$ 1,632,008 $ 3,583,061 $ 1,632,008 $ 3,583,061

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