Discovery Air Inc. announces results for the quarter ended Oct. 31, 2013

Discovery Air Inc. (the “Corporation”) announced its financial and operating results for the three and nine months ended Oct. 31, 2013.  The third quarter interim condensed consolidated financial statements and management discussion and analysis (“MD&A”) will be available on SEDAR at www.sedar.com and on the Corporation’s website at www.discoveryair.com. 

  

• Revenues for the quarter ended Oct. 31, 2013 (“Current Quarter”) were consistent with the comparative period at $65.0 million. Despite ongoing challenges in the mining sector in northern Canada and lower forest fire activity, the Aviation segment recorded higher revenue due to solid performance from Great Slave Helicopters Ltd. (“GSH”), which reported its strongest third quarter in its history.  Revenues for the nine month period ended Oct. 31, 2013 (“Year-to-date”) were $180.9 million decreasing by 6 per cent from the comparative period on lower resource and forest fire management activity.
• Current Quarter EBITDA was $15.4 million compared to EBITDA of $16.0 million reported in the comparative period, with the decrease due primarily to increased business development and acquisition related costs associated with projects at Discovery Air Defence Services Inc. (“Defence Services”) (see “Recent Developments” below). Excluding these costs, EBITDA was $16.9 million in the Current Quarter.  Year-to-date EBITDA was $34.2 million compared to $48.1 million reported in the comparative period due to weaker results in the first half of the year and $3.1 million in additional business development and acquisition costs.  Year-to-date capital asset expenditures decreased to $14.4 million compared to $32.2 million in the comparative period thereby offsetting reduced cash inflows from the lower EBITDA.
• The Corporation recorded a quarterly profit of $3.1 million ($0.21 basic earnings per share and $0.19 diluted earnings per share) compared to $1.2 million ($0.08 earnings per share – basic and diluted) in the third quarter of the comparative year. Current Quarter profit included a tax-effected impairment loss of $0.6 million. Excluding all non-cash gains, Adjusted profit was $3.6 million compared to an Adjusted profit of $4.1 million in the comparative quarter.
• Year-to-date profit was $3.5 million ($0.24 earnings per share – basic and diluted) compared to a profit of $11.5 million ($0.79 basic earnings per share and $0.63 diluted earnings per share) in the comparative period. The Corporation’s year-to-date profit includes a tax-effected impairment loss of $0.6 million, a tax-effected gain of $0.4 million from the sale of Hudson Bay Helicopters Ltd., and a non-taxable gain of $1.2 million related to the second quarter revaluation of the second installment of the contingent consideration for the purchase of Helicopters Chile. The comparative year-to-date profit reflects a tax-effected gain of $1.9 million on extinguishment of debt, a $0.2 million non-taxable gain related to a change in the fair value of the Corporation’s embedded derivative that existed up to March 26, 2012, a $0.3 million non-taxable gain on the acquisition of the business of Northern Air Support Ltd., and a tax-effected impairment loss of $2.7 million. Excluding the impact of these transactions, the year-to-date Adjusted profit was $2.4 million ($0.16 earnings per share – basic and diluted) compared to $11.9 million ($0.82 basic earnings per share and $0.64 diluted earnings per share) in the comparative period. Year-to-date Adjusted profit was primarily affected by lower first quarter results.
• The decrease in the Corporation’s trailing twelve month EBITDA (primarily from lower than expected first quarter results) continues to exert pressure on the total debt leverage ratio covenant related to the secured convertible debentures. To avoid any possibility of non-compliance with this covenant, the Corporation requested and received a waiver for the fourth quarter ending Jan. 31, 2014 (please refer to the MD&A for further information). 

Defence Services has undertaken several initiatives in the areas of business development and aircraft sourcing to position it to capture airborne training opportunities in select international markets.  On Dec. 5, 2013, the Corporation announced the pending acquisition of Advanced Training Systems International, Inc. (“ATSI”) by Defence Services. ATSI, which is located in Mesa, Ariz., owns a fleet of ten (10) Douglas A-4 Skyhawk aircraft and offers airborne training services similar to Defence Services, including, tactical “Red Air” services, fighter lead-in training, airborne electronic warfare training, air support training to ground forces and other air combat tactics.  Although ATSI currently has minimal operations and revenues, it has previously provided airborne training services to the U.S. Navy, U.S. Air Force and the Canadian Forces, and has also provided advanced operational test and evaluation services such as air-to-air refueling trials. Their fleet of efficient, high-subsonic A-4 aircraft will be an excellent complement to Defense Services’ existing fleet. The total consideration to be paid for the acquisition of ATSI is approximately US$6.6 million (subject to certain adjustments), the majority of which will be applied toward the purchase of certain outstanding indebtedness of ATSI.  The acquisition is expected to close within 30 days of the announcement. 

Commenting on the financial results, Jacob Shavit, the Corporation’s president and chief executive officer stated, “I am pleased with our third quarter results.  In the midst of weak mining sector activity in northern Canada and depressed forest fire activity, we delivered solid financial results.  The record performance for GSH in the quarter reflects our confidence in the growth opportunities for this business. 

Defence Services’ pending acquisition of ATSI and its efforts to source additional aircraft should position Defence Services’ well to capture opportunities for airborne training services in select international markets. We believe the potential market for global airborne training services is large, exceeding $800 million annually.   Pursuing growth in this market also provides an opportunity for Discovery Air to lessen its dependence on its more seasonal businesses.  We are very focused on securing additional financing for our growth initiatives while liquidating aircraft and related assets which do not achieve adequate returns”.