Divestco Inc.
TSX VENTURE : DVT

Divestco Inc.

May 11, 2006 19:26 ET

Divestco Reports 125% Increase in Revenue and 124% Increase in Net Income for Q1 2006

CALGARY, ALBERTA--(CCNMatthews - May 11, 2006) - Divestco Inc. (TSX VENTURE:DVT) ("Divestco" or the "Company") is pleased to announce that it has generated record revenues, EBITDA, operating income and net income for the quarter ended March 31, 2006. Divestco generated revenue of $19.6 million for the first quarter of 2006, an increase of $10.9 million (125%) from $8.7 million for the same period in 2005. Earnings before interest, taxes and amortization ("EBITDA") were $12.1 million, a $8.0 million (193%) increase over the same period in 2005. The Company generated funds from operations of $11.6 million for the first quarter, an increase of $7.6 million (193%) as compared to $4.0 million for the same period in 2005.

Divestco is also pleased to announce it has earned a record 11 cents per share (diluted) for the first quarter of 2006. This compares to 6 cents per share (diluted) for the same period in 2005 an 83% increase quarter over quarter. Excluding deferred revenue, Divestco exited the quarter with $8.9 million in working capital compared to a $2.5 million deficiency at the end of same quarter in 2005, an improvement of $11.4 million.



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Summary Financial Results (Thousands, except per share amounts)
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For the quarter ended March 31
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2006 2005 % Change
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Revenue $ 19,605 $ 8,715 125%

EBITDA 12,059 4,114 193%

Net income 3,591 1,601 124%
Per share - basic 0.12 0.06 100%
Per share - diluted 0.11 0.06 83%

Funds from operations 11,596 3,961 193%
Per share - basic 0.38 0.16 138%
Per share - diluted 0.36 0.16 125%
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Shares outstanding 30,982 24,576

Weighted average shares outstanding
Basic 30,301 24,732
Diluted 31,867 24,840
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Business Purchase and Seismic Acquisition Operational Update

As previously announced on May 1, 2006, the Company closed the purchase of the Processing Division business of Calgary based Geo-X Systems Ltd. ("Geo-X") for consideration of C$11.5 million (C$10.5 million in cash at closing and C$1 million in common shares of Divestco to Geo-X at a deemed price per share of $4.69). The Corporation funded the acquisition from the sale proceeds of certain marketable securities, internally generated cash flow and existing bank debt. It is expected that once operational synergies are achieved, the Processing Division will contribute to the Corporation approximately $15 million in revenue and in excess of $3 million in EBITDA on an annualized basis. Divestco will operate the Processing Division, with its 101 employees, as an independent division within its Services segment.

In the first quarter of 2006, Divestco completed the shooting of 450 square kilometers of seismic in the Red Willow East and Lockhorn South areas at cost of $14 million. Divestco is currently in the process of shooting 3D surveys in the Tremblay, Upper Cut Bank, TeePee Creek and Debolt East areas at a cost of $51 million. The Company has also secured sales of this data totalling in excess of $33 million with additional contracts pending. To the end of July 2006, Divestco expects to have acquired a total of 1,800 square kilometres of 3D seismic data in these regions at an aggregate cost of $65 million and will retain 100% ownership of the newly acquired data.

Mr. Stephen Popadynetz, CEO of Divestco commented: "I am pleased to report our record quarter results to our shareholders, Board and employees. We continue with our mandate to grow both organically and through acquisitions, while continuing to generate profitable software, data and services. Our shareholders have been rewarded with our eleventh consecutive profitable quarter and our most impressive fiscal quarter results to date. I look forward to continued growth, innovation and profitability as we move through 2006."

Annual Meeting of Shareholders

Divestco's Annual Meeting of Shareholders is scheduled for 2:30 p.m. (Calgary time) on Thursday, June 1, 2006 at the Telus Convention Centre - North Building (Room 103), 120 - 9th Avenue S.E., Calgary, Alberta.



Divestco Inc.
Consolidated Balance Sheets

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As at Mar 31, 2006 Dec 31, 2005
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(Thousands) (unaudited)
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Assets

Current Assets
Cash and cash equivalents $ 2,393 $ 1,382
Short-term investments 4,792 5,512
Accounts receivable 26,910 27,053
Prepaid expenses, supplies and deposits 622 427
Investment tax credits recoverable 138 -
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34,855 34,374

Long-term accounts receivable 960 960
Investment in affiliated company 71 79
Data libraries 61,809 31,459
Property and equipment 3,551 3,495
Deferred development costs 2,100 1,863
Deferred finance costs 387 409
Intangible assets 3,922 4,128
Goodwill 3,431 3,431
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$ 111,086 $ 80,198
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Liabilities and Shareholders' Equity

Current Liabilities
Bank indebtedness $ 866 $ -
Accounts payable and accrued liabilities 22,196 17,624
Current portion of deferred revenue 28,930 10,355
Current portion of long-term debt obligations 2,907 2,880
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54,899 30,859

Deferred revenue 333 402
Long-term debt obligations 8,036 8,724
Future income taxes 4,434 2,989
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67,702 42,974
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Shareholders' Equity
Equity instruments 29,770 27,195
Contributed surplus 1,263 1,269
Retained earnings 12,351 8,760
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43,384 37,224
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$ 111,086 $ 80,198
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Divestco Inc.
Consolidated Statements of Income and Retained Earnings

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For the three months ended March 31 2006 2005
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(Thousands, except per share amounts) (unaudited) (unaudited)
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Revenue $ 19,605 $ 8,715
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Operating expenses
Salaries and benefits 4,695 3,302
General and administrative 2,589 1,191
Research and development 133 65
Stock compensation expense 129 43
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7,546 4,601
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Earnings before interest, taxes, depreciation
and amortization 12,059 4,114

Interest expense 193 62

Depreciation and amortization 6,703 1,599
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Operating income 5,163 2,453
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Other income (loss)
Foreign exchange gain 7 (5)
Gain on sale of investment securities 279 -
Equity investment loss (8) (3)
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278 (8)
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Income before income taxes 5,441 2,445
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Income taxes
Current 405 -
Future 1,445 844
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1,850 844
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Net income for the period 3,591 1,601

Retained earnings, beginning of period 8,760 3,918
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Retained earnings, end of period $ 12,351 $ 5,519
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Earnings per share
Basic $ 0.12 $ 0.06
Diluted $ 0.11 $ 0.06

Weighted average number of shares
Basic 30,301 24,732
Diluted 31,867 24,840

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Divestco Inc.
Consolidated Statements of Cash Flows

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For the three months ended March 31 2006 2005
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(Thousands) (unaudited) (unaudited)
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Cash flows from operating activities
Net income for the period $ 3,591 $ 1,601
Items not affecting cash:
Equity investment loss 8 3
Depreciation and amortization 6,703 1,599
Future income taxes 1,445 844
Investment tax credits utilized - (134)
Gain on sale of investment securities (279) -
Unrealized foreign exchange loss (gain) (1) 5
Stock compensation expense 129 43
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Funds from operations 11,596 3,961

Changes in non-cash working capital balances 15,850 (1,025)
Increase (decrease) in non-current deferred
revenue (69) 310
Decrease in long-term accounts receivable - 187
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27,377 3,433
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Cash flows from financing activities
Bank indebtedness 866 163
Issue of common shares, net of related expenses 2,440 55
Repayment of long-term debt obligations (661) (437)
Deferred financing costs 22 -
Proceeds received from long-term debt obligations - 337
Repurchase of common shares - (628)
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2,667 (510)
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Cash flows from investing activities
Purchase of data libraries (36,591) (5,308)
Purchase of property and equipment (306) (527)
Purchase of investment securities (109) -
Proceeds on sale of investment securities 1,108 -
Deferred development costs (236) (340)
Changes in non-cash working capital balances 7,108 3,252
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(29,026) (2,923)
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Foreign exchange loss on cash held in a foreign
currency (7) -
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Increase in cash and cash equivalents 1,011 -

Cash and cash equivalents, beginning of period 1,382 -
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Cash and cash equivalents, end of period $ 2,393 $ -
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Divestco is an innovative software, data, services, brokerage and consulting company providing integrated solutions for the oil and gas industry. By implementing a strategy of integration between our software, services, and datasets, and potentially all three together, we are creating a unique set of offerings. Divestco is headquartered in Calgary, Alberta, Canada and trades on the TSX Venture Exchange under the symbol "DVT".

Divestco Inc. was recognized as a TSX Venture 50™ company in 2005. TSX Venture 50 is a trademark of TSX Inc. and is used under licence. The TSX Venture 50™ are the top 10 companies in each of five major industry sectors - mining, oil & gas technology, life science and diversified industries - based on a ranking formula with equal weighting given to one-year revenue (last reported 12 months), return on investment, market cap growth and trading volume. All data was as of August 31, 2005. The 2005 TSX Venture 50™ is not an invitation to purchase securities listed on Toronto Stock Exchange and/or TSX Venture Exchange. TSX Group Inc. and its affiliates do not endorse or recommend any securities referenced in this ranking. Neither TSX Group Inc. nor its affiliated companies represent, warrant or guarantee the accuracy or the completeness of the information. You should not rely on this information contained herein for any trading, business or financial purposes. TSX Group Inc. and its affiliates assume no liability for any errors or inaccuracies herein or any use or reliance upon this information.

Statements in this document that may be considered forward-looking are based on management's current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated.

Earnings before interest, taxes, depreciation and amortization ("EBITDA"); "operating income"; "funds from operations", and "funds from operations per share (basic and diluted)" are not measures that have any standardized meaning prescribed by Canadian GAAP and are considered non-GAAP measures. Therefore, these measures may not be comparable to similar measures presented by other issuers. These measures have been described and presented in this press release in order to provide shareholders and potential investors with additional information regarding the Company's results, liquidity, and its ability to generate funds to finance its operations.

Management believes that in addition to net income, EBITDA and operating income are useful supplemental measures for providing an indication of the results generated by the Company's principle business activities prior to the consideration of how those activities are financed or how the results are taxed. Management also utilizes funds from operations and funds from operations per share - basic and diluted as key measures to assess the ability of the Company to finance operating activities and capital expenditures.

Operating income is calculated by deducting interest and amortization from EBITDA. Funds from operations is calculated by adding or deducting non-cash items from net income (loss). Funds from operations per share (basic and diluted) is calculated by dividing funds from operations by the weighted average number of shares outstanding (basic and diluted) for the relevant period.


The TSX Venture Exchange has not reviewed nor accepts responsibility for the adequacy or accuracy of this news release.

Contact Information

  • Divestco Inc.
    Mr. Stephen Popadynetz
    Chief Executive Officer
    (403) 218-6466
    or
    Divestco Inc.
    Mr. Roderick Chisholm
    Chief Financial Officer
    (403) 218-6450
    Website: www.divestco.com