Aeroquest International Limited
TSX : AQL

Aeroquest International Limited

August 11, 2011 16:30 ET

Aeroquest International Limited (TSX:AQL) Announces Unaudited Financial Results for the Three and Nine Months Ended June 30, 2011

- Revenue of $9.2 Million, Up $0.5 Million, or 6% from Q3 of 2010

- Contract Backlog Decreases to $14.4 Million from $15.6 Million in Q2 of 2011

- EBITDA of Negative $2.4 Million, Down $0.8 Million from Q2 of 2011, Impacted by Weather & Logistics

TORONTO, ONTARIO--(Marketwire - Aug. 11, 2011) - Aeroquest International Limited ("Aeroquest", or "the Company") (TSX:AQL) today reported financial results for its third quarter of fiscal 2011, the three and nine months ended June 30, 2011 ("Q3-F2011"). These results reflect a challenging quarter in Airborne Geophysics as a combination of market conditions, unscheduled and extended scheduled aircraft maintenance, weather, permitting and other logistical issues significantly impacted the Company's performance.

"We posted a difficult and disappointing quarter," said Bob Motz, Interim CEO and CFO of Aeroquest. "We faced further difficult weather conditions in our fixed-wing operations as well as delays due to aircraft and technical maintenance issues. We were also slowed down internationally due to delays in permitting. Helicopter services experienced weakness as a result of market conditions."

Consolidated revenue for Q3-F2011 was $9.2 million, an increase of $0.5 million or 6% over the third quarter last year ("Q3-F2010"). Revenue from Airborne Geophysics was $6.7 million, an increase of $0.9 million from Q3-F2010 of last year. Fixed-wing revenue improved to $4.2 million from $3.6 million in Q3-F2010, while helicopter services revenue improved to $2.5 million from $2.2 million in Q3-F2010.

Hampered by significant scheduled and unscheduled maintenance and permitting delays, fixed- wing production showed a decrease of 5% over the previous quarter. Helicopter margins at 9 % are significantly below Management's expectations as a result of lower sales having to absorb the fixed cost component of cost of sales.

Revenue from Aerial Geomatics was $2.3 million, consistent from Q3-F2010 while revenue from the Instruments and Sensors segment was $0.2 million, a decline of $0.4 million from Q3-F2010.

Year to date 2011 revenue is $31.3 million, an increase of $8.9 million, or 40% from the third quarter of 2010.

Overall gross profit margin in Q3-F011 was 19% compared with 21% in Q3-F2010 and 23% in the Q2 of fiscal 2011. EBITDA1 in the quarter was negative $2.4 million, an increase of the loss of $1.6 million over the negative $0.8 million reported in Q3-F2010 and an increase of loss of $0.9 million from the second quarter of fiscal 2011.

Profit margins in Airborne Geophysics were negatively impacted by fixed-wing services due to the reasons previously indicated. Q3-F2011 fixed-wing gross margins were 21% compared with 24% in Q3-F2010 but a significant improvement from the 11% margin reported in the second 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 decreased slightly to 9% Q3-F2011 from 10% in Q3-F2010 but significantly down from 38% reported in the second quarter of fiscal 2011.

Year to date gross margins were 21% in fixed-wing and 24% in helicopter services compared to 18% and 14% respectively in the first nine months of fiscal 2010.

Aerial Geomatics gross profit margins were 24% of revenue, a slight increase of 1% from the second quarter and are 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. As the business grows, the acquisition of Mapcon will allow the Company the means to realize savings through the greater use of third party offshore processing facilities.

Selling, general and administrative ("SG&A) expenses increased by $1.3 million or 48 percent from Q3-F2010, reflecting increased activity in operations, as well as severance cost obligations in Q3-F2011 for several senior executives.

Consolidated net loss in Q3-F2011 was $3.7 million or $0.10 per share compared to net loss of $1.8 million, or $0.05 per share in Q3-F2010. Year to date fiscal 2011 consolidated net loss is $6.9 million or $0.18 per share compared with a consolidated net loss of $6.3 million or $0.17 per share in the first nine months of fiscal 2010.

Cash flow from operating activities was $1.0 million, or $0.03 per share in Q3-F2011, as compared to $2.6 million, or $0.07 per share in Q3-F2010. The $1 million increase in cash in Q3-F2011 was the result of an improvement in non-cash working capital of $2.9 million. Capital expenditures totaled $0.6 million in Q3-F2011, an increase of $0.2 million from Q3-F2010.

Contract Backlog

Contract backlog decreased by $1.2 million from $15.6 million at March 31, 2011 to $14.4 million at June 30, 2011. Backlog is composed of $11.7 million in Airborne Geophysics survey backlog ($2.9 million in helicopter and $8.8 million in fixed-wing), $2.7 million in Aerial Geomatics backlog. There is no backlog in our instruments and sensors group. However, subsequent to the quarter, in July the Instruments and Sensors Group received two contracts with a total value of $1.4 million.

Short Term Prospectus

During the quarter, the Company reported that it elected not to proceed with its previously announced best efforts offering of units (each comprised of a common share and a half-warrant) and withdrew the short form prospectus filed with regulatory authorities in Canada.

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 the custom design and construction of geophysical sensors and instruments through Aeroquest Sensortech (Geophex).

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
Jun. 30, 2011 Sep. 30, 2010
Assets
Current
Cash and cash equivalents $ 2,032,288 $ 4,757,216
Accounts receivable 3,837,894 4,527,942
Income tax recoverable 795,970 231,136
Unbilled contracts in progress 1,976,593 1,529,146
Inventory 133,455 699,935
Prepaid expenses and deposits 1,242,155 1,465,629
Total current assets 10,018,355 13,211,004
Long term
Long term investments 49,275 171,828
Capital assets 10,572,267 9,766,989
Intangible assets 10,967,343 13,277,339
Goodwill 12,097,214 11,821,304
Future income taxes 2,478,594 2,314,545
Total long term assets 36,164,693 37,352,005
Total Assets $ 46,183,048 $ 50,563,009
Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities $ 5,993,101 $ 4,697,656
Deferred revenue 2,374,048 2,240,687
Capital lease obligations 23,974 200,964
Current portion of long term debt 149,072 -
Total current liabilities 8,480,195 7,139,307
Long term
Capital lease obligations - 9,264
Long term debt 644,871 -
Future income taxes 3,672,317 4,603,674
Total Liabilities 12,797,383 11,752,245
Shareholders' equity
Share capital 48,940,127 48,527,057
Contributed surplus 2,387,219 2,355,274
Accumulated other comprehensive income 3,437,526 2,404,764
Retained earnings (21,379,207 ) (14,476,331 )
Total shareholders' equity 33,385,665 38,810,764
Total Liabilities and Shareholders' Equity $ 46,183,048 $ 50,563,009
AEROQUEST INTERNATIONAL LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
Jun. 30, 2011 Jun. 30, 2010 Jun. 30, 2011 Jun. 30, 2010
Sales $ 9,161,703 $ 8,646,003 $ 31,263,790 $ 22,350,983
Cost of sales 7,432,165 6,802,843 23,593,127 18,126,360
Gross profit 1,729,538 1,843,160 7,670,663 4,224,623
Expenses and other items
General and administrative 3,940,751 2,660,086 10,469,647 7,278,557
Foreign exchange (gain)/loss 12,395 (121,319) 311,312 59,804
Stock based compensation expense 158,354 84,919 370,578 254,648
Amortization of intangible assets 861,345 828,028 2,550,735 2,560,083
Depreciation of capital assets 1,042,672 871,101 2,444,724 2,626,438
Total operating expenses 6,015,517 4,322,815 16,146,996 12,779,530
Operating profit (4,285,979) (2,479,655) (8,476,333) (8,554,907)
Other costs (income) (129,955) (50,530) (265,259) (284,816)
Interest Expense - - - -
Loss before income taxes and discontinued operations (4,156,024) (2,429,125) (8,211,074) (8,270,091)
Loss from discontinued operations - - - (240,518)
Loss before income taxes (4,156,024) (2,429,125) (8,211,074) (8,510,609)
Income taxes
Current (181,115) (511,772) (255,795) (1,552,826)
Future (307,099) (123,050) (1,052,403) (629,410)
Total Income taxes (488,214) (634,822) (1,308,198) (2,182,236)
Net income for the period $ (3,667,810) $ (1,794,303) $ (6,902,876) $ (6,328,373)
Earnings per share
Basic $ (0.10) $ (0.05) $ (0.18) $ (0.17)
Diluted $ (0.10) $ (0.05) $ (0.18) $ (0.17)
Note: Prior period revenue and expenses have been restated to reflect the disclosure of part of the operations as discontinued.
Net income does not change. See note 16 to the financial statements.
AEROQUEST INTERNATIONAL LIMITED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three months ended Nine months ended
Jun. 30, 2011 Jun. 30, 2010 Jun. 30, 2011 Jun. 30, 2010
Retained earnings (deficit), beginning of period $ (17,711,397) $ (10,423,217) $ (14,476,331) $ (5,889,147)
Net loss (3,667,810) (1,794,303) (6,902,876) (6,328,373)
Retained earnings, end of period $ (21,379,207) $ (12,217,520) $ (21,379,207) $ (12,217,520)
AEROQUEST INTERNATIONAL LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended Nine months ended
Jun. 30, 2011 Jun. 30, 2010 Jun. 30, 2011 Jun. 30, 2010
Net loss for the period $ (3,667,810) $ (1,794,303) $ (6,902,876) $ (6,328,373)
Revaluation of long term investments to fair market value (70,000) 48,071 (73,578) (2,172)
Unrealized gain/(loss) on translation of self-sustaining foreign operations 991,608 (657,904) 1,106,340 (1,399,594)
Total Other Comprehensive Income (loss) 921,608 (609,833) 1,032,762 (1,401,766)
Total comprehensive income (loss), for the period $ (2,746,202) $ (2,404,136) $ (5,870,114) $ (7,730,139)
AEROQUEST INTERNATIONAL LIMITED CONSOLIDATED STATEMENTS OF CASH FLOW
Three months ended Nine months ended
Jun. 30, 2011 Jun. 30, 2010 Jun. 30, 2011 Jun. 30, 2010
Cash provided by (used in) Operating activities
Net income for the period $ (3,667,810) $ (1,794,303) $ (6,902,876) $ (6,328,373)
Operating items not requiring cash
Depreciation of capital assets 1,042,672 871,101 2,444,724 2,626,438
Amortization of intangible assets 861,345 828,028 2,550,735 2,560,083
Future income taxes (307,099) (123,050) (1,052,403) (629,410)
Stock based compensation 158,354 84,919 370,578 254,648
Loss/(gain) on disposal of capital assets - (17,678) 5,955 (376,405)
Operating cash flow before changes in non-cash working capital (1,912,538) (150,983) (2,583,287) (1,893,019)
Changes in non-cash working capital 2,917,828 2,702,915 3,281,865 2,276,962
Total cash flow from operating activities 1,005,290 2,551,932 698,578 383,943
Investing activities
Capital asset purchases (581,778) (368,056) (1,919,603) (838,740)
Proceeds from sale of equipment - 17,679 - 510,290
Long term investments acquired - - - (90,000)
Cash cost of acquisition - - (1,384,210) -
Total cash flow from
investing activities (581,778) (350,377) (3,303,813) (418,450)
Financing activities
Capital lease payments (31,332) (122,320) (194,553) (474,431)
Proceeds from issuance of common shares on exercise of employee stock options 8,100 - 74,860 25,450
Total cash flow from financing activities (23,232) (122,320) (119,693) (448,981)
Net change in cash/cash
equivalents for the period 400,280 2,079,235 (2,724,928) (483,488)
Cash and cash equivalents, beginning of period 1,632,008 3,583,061 4,757,216 6,145,784
Cash and cash equivalents, end of period $ 2,032,288 $ 5,662,296 $ 2,032,288 $ 5,662,296

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