Discovery Air Inc. (TSX: DA.A, DA.DB.A) Announces Results for the Quarter Ended July 31, 2012

YELLOWKNIFE, Sept. 10, 2012 /CNW/ – Second Quarter Highlights

On June 20, 2012, Brian Semkowski was appointed interim President and Chief Executive Officer of Discovery Air Inc. (“Discovery Air” or the “Corporation”) upon David Jennings stepping down from that role. Concurrent with this change, Mr. Semkowski resigned from the Corporation’s board of directors (the “Board”), and Mr. Jennings joined the Board.
Revenues increased by 5% to $74.2 million, compared to $70.7 million in the same quarter last year.
EBITDA* decreased by 22% to $23.3 million, compared to $29.7 million in the same quarter last year. On a trailing 12 month basis, EBITDA decreased by 13% to approximately $41.8 million compared to $48.0 million in the trailing 12 months at July 31, 2011.
Net profit attributable to the shareholders of Discovery Air for the current quarter was $8.9 million or $0.61 per share ($0.38 diluted) compared to $18.0 million or $1.24 per share ($0.96 diluted) for the same period last year.
The current quarter profit includes a gain of $0.3 million related to the acquisition of the assets of Northern Air Support Ltd. (“NAS”), while the comparative period reflects an after tax gain on extinguishment of debt for $4.2 million. Excluding these items, the adjusted earnings* in the current quarter was $8.6 million, compared to $13.7 million in the same quarter last year.
Subsequent to the quarter, the Corporation successfully replaced the existing demand operating line of credit with a committed operating line of credit at a lower cost of capital (see details below).
“Those who have followed Discovery Air’s progress over the last few years will appreciate that we have been aggressively pursuing new markets, both domestically and internationally, and diversifying our service offerings to meet a broader array of customer needs in the specialty aviation segment,” said Brian Semkowski. “Our earnings declined despite strong revenue growth due largely to significant investments we made in a short period of time to position Discovery Air to capture long-term profitable growth opportunities. So far this year, we have acquired two helicopter operations (adding 10 aircraft to our fleet), brought three commercial jets online for a new charter operation, and acquired seven aircraft that are in high demand by our customers. The acquisition, certification and operating costs associated with these recent additions in a relatively short span of time caused our expenses to grow at a faster rate than our revenues. Our earnings were also negatively impacted by increased expenses in our technical services operation and lower demand for contracted airborne training services in the quarter. We are committed to generating strong returns from our investments and expect our earnings to improve as our technical services business matures and we increase the utilization of our newly acquired aircraft.”

Mr. Semkowski further stated: “The role of interim CEO has afforded me the opportunity to work closely with Discovery Air’s management team. We are fortunate to have such a talented and dedicated team. I look forward to working with the team on generating more consistent, predictable earnings into the future.”

Additional Financial Highlights

The Corporation’s consolidated revenues were $74.2 million for the quarter ended July 31, 2012 (“Q2/13”) compared to $70.7 million for the quarter ended July 31, 2011 (“Q2/12”). The increase in revenues was largely attributable to increased demand for services provided by the Aviation segment, which generated revenues of $68.0 million in Q2/13 compared to $63.3 million in Q2/12, representing a 7% increase. The increase in the Aviation segment revenue and flight hours were due to the increase in revenues from the segment’s resource-based customers, incremental revenue contributed by Helicopers.cl SpA (formerly, Servicios Aereos Helicopters.cl Ltda) and NAS, and the provision of increased forest fire and medevac services. The Corporate Support and Other segment accounted for $6.2 million of total consolidated revenues in Q2/13 compared to $7.4 million in Q2/12, with the decrease attributable to lower exploration camp and logistics activity as well as lower revenues from the MRO activities.
While Q2/13 revenues reflect a 5% increase over the comparative period, a number of factors negatively impacted the Corporation’s ability to fully achieve planned revenues during the quarter, including lower than expected revenues from the airborne training services; an unexpected decline in mining exploration revenues in northern Canada, which the Corporation attributes to a drop in northern Canadian mining exploration activity during Q2/13; introduction-to-service delays for new aircraft types acquired in YTD/13, which included delays in obtaining necessary regulatory approvals to operate these new aircraft and longer than anticipated lead times to generate customer orders for the new service offerings; and lower than expected revenues from MRO services
For the six months ending July 31, 2012 (“YTD/13”), EBITDA was $32.2 million compared to EBITDA of $34.7 million in the six months ending July 31, 2011 (“YTD/12”).
Net earnings for YTD/13 were $10.3 million or $0.71 per share ($0.50 diluted) compared to $15.4 million or $1.10 per share ($0.96 diluted) for YTD/12.
Adjusted earnings for YTD/13 were $7.9 million or $0.54 per share ($0.42 diluted) compared to $11.1 million or $0.75 per share ($0.52 diluted) for YTD/12.
On May 4, 2012, the Corporation, through a subsidiary of Great Slave Helicopters Ltd., completed the purchase of the assets of NAS for $9.4 million. NAS is a helicopter charter company serving the western Canadian mining, forestry and oil and gas seismic sectors with bases in Kelowna, British Columbia and Rocky Mountain House, Alberta. The fair value of the assets acquired was $9.7 million, resulting in a $0.3 million gain. The Corporation expects to finalize the purchase price allocation before the end of Fiscal 2013.
On May 2, 2012, the Corporation entered into a $15.0 million term loan agreement to fund the purchase of additional aircraft. On May 4, 2012, $13.8 million was drawn to purchase NAS’ assets and two additional aircraft. The loan matures on February 15, 2016 and is repayable through an annual curtailment each December equal to 1/10th of the original amounts drawn and monthly payments of interest. The loan bears an interest rate equal to the greater of: (i) 4.50%, and (ii) the lender’s floating base rate plus 1.50% per annum.
On August 1, 2012 the Corporation replaced its demand operating line of credit with a committed operating line of credit (the “New Operating Line”) that matures on April 9, 2015 and which, in respect of most advances, bears interest at the lender’s prime rate plus 2%. The New Operating Line has a maximum borrowing limit of $15.0 million, increasing to $25.0 million during the Corporation’s peak operating period of March 1 through October 31, which is restricted by a lending margin applied to eligible accounts receivable and inventory, subject to an allowance for specific reserves. The New Operating Line, which may be used by the Corporation for working capital and general corporate purposes, is secured by a first charge on the receivables and inventory of the Corporation and certain of its subsidiaries, general security agreements and other customary security agreements.