Divestco Inc.
TSX : DVT

Divestco Inc.

November 10, 2009 20:42 ET

Divestco Reports 2009 Q3 Results

CALGARY, ALBERTA--(Marketwire - Nov. 10, 2009) - Divestco Inc. ("Divestco" or the "Company") (TSX:DVT) is pleased to announce its operating results for the three and nine months ended September 30, 2009.

During the third quarter of 2009, Divestco generated revenue of $13.4 million, a decrease of $4.9 million (27%) from $18.3 million for the same period in 2008. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $5.9 million, a $0.2 million (4%) decrease from $6.1 million for the same period in 2008. The Company generated funds from operations of $10 million (24 cents per share - basic and diluted) for the third quarter, an increase of $5.1 million (104%) as compared to $4.9 million (12 cents per share - basic and diluted) for the same period in 2008.

For the nine months ended September 30, 2009, Divestco generated revenue of $51.7 million, a decrease of $22.9 million (31%) from $74.6 million for the same period in 2008. EBITDA was $24.7 million, a $10.6 million (30%) decrease from $35.4 million for the same period in 2008. The Company generated funds from operations of $24.1 million (58 cents per share - basic and diluted) for the first nine months in 2009, a decrease of $8.3 million (26%) as compared to $32.5 million (78 cents per share - basic and diluted) for the same period in 2008.

Although Divestco remains cash flow positive and has significantly reduced operating expenses, the Company's results continue to be affected by the worldwide economic recession. Uncertainty in commodity prices and tighter credit has had the effect of reducing capital spending programs for most, if not all, of Divestco's clients. Fall and winter is typically the busiest time for the Company and we are encouraged as we head into this period.

Divestco's net loss for the third quarter of 2009 was $1.2 million (3 cents per share - basic and diluted) compared to a net loss of $2.4 million (6 cents per share - basic and diluted) for the same period in 2008.

For the nine months ended September 30, 2009, net income was $1.1 million (3 cents per share - basic and diluted) compared to net income of $1 million (2 cents per share - basic and diluted) for the same period in 2008.

Divestco generated $8.1 million in aggregate seismic library data (inventory) sales for the third quarter of 2009. This represents a decrease of $0.9 million (10%) compared to $9 million of aggregate library sales for the same period in 2008. There was no seismic participation revenue for Q3 2009 or Q3 2008. The balance of the data segment revenue was related to seismic brokerage.

For the nine months ending September 30, 2009, Divestco generated $23.6 million in aggregate seismic library data (inventory) sales. This represents a decrease of $6.4 million (21%) compared to $30 million of aggregate library sales for the same period in 2008. Seismic participation revenue for the period was $5.7 million compared to $12.8 million for the same period in 2008, a decrease of $7.1 million (55%). The balance of the data segment revenue was related to seismic brokerage.

Excluding the current portion of deferred revenue of $3.1 million (December 31, 2008 - $11.2 million), Divestco ended Q3 2009 with a $6.9 million working capital deficiency compared to a $9.7 million deficiency at the end of 2008 and $28.1 million deficiency at the end of 2007. Overall, the Company's total funded debt was reduced by $1.5 million (current and long-term portions) during the third quarter of 2009 and $13.1 million since the end of 2008.

The Company has a history of profitable operations and generating positive funds from operations. To remain profitable through the first nine months of 2009 is a testament to the quality of the Company's products and services and bodes well as it makes its way out of this recession. Even more notable is the fact that Divestco has significantly reduced its funded debt position through this period.

A quick recovery in the service industry is not a certainty; as such Divestco will continue to strengthen its balance sheet and eliminate its working capital deficit. The Company has significantly improved its working capital deficit and remains committed to a strategy of debt reduction, restricted capital spending and reducing expenses which includes labour (Divestco's largest expense). The previously announced staffing reductions in combination with company-wide salary roll-backs and unpaid leaves of absences that have been in effect since April 1, 2009 have had the desired effect.

Divestco expects that current austerity measures as well as existing and future business opportunities will continue to generate the cash flows required to repair its balance sheet. Divestco receives a significant portion of its revenue from the licensing of seismic data and this revenue stream will contribute to solving the Company's working capital shortfall. However, the demand and pricing of licensing revenue depends on the activity levels of oil and gas producers and these activity levels are determined, in part, by commodity prices, supply and demand for oil and natural gas, and access to credit and capital markets over which Divestco has no influence or control.

Mr. Stephen Popadynetz, CEO of Divestco commented: "Although we are pleased with the positive improvements to the Company's balance sheet, 2009 continues to be a challenging time globally and for us and the oil and gas service industry. Although some indicators are pointing to a modest recovery in late 2009 and early 2010, it is difficult to predict the duration and overall effect of the current economic uncertainty. While we are now positioned when favorable market conditions return, we need to remain disciplined in our expenditures."

Non-GAAP Measures

Divestco uses EBITDA and operating income as key measures to evaluate the performance of segments, divisions and the Company, with the closest GAAP measure being net income. EBITDA and operating income are measures commonly reported and widely used by investors as indicators of the Company's operating performance and ability to incur and service debt, and as a valuation metric. The Company believes EBITDA and operating income assists investors in comparing the Company's performance on a consistent basis without regard to financing decisions, and depreciation and amortization, which are non-cash in nature and can vary significantly depending upon accounting methods or non-operating factors such as historical cost.

EBITDA and operating income are not calculations based on Canadian GAAP and should not be considered alternatives to net income in measuring the Company's performance; nor should they be used as exclusive measures of cash flow, because they do not consider the impact of working capital growth, capital expenditures, debt principal reductions and other sources and uses of cash, which are disclosed in the Consolidated Statements of Cash Flows. Investors should carefully consider the specific items included in Divestco's computation of EBITDA and operating income. While EBITDA and operating income have been disclosed herein to permit a more complete comparative analysis of the Company's operating performance and debt servicing ability relative to other companies, investors should be cautioned that EBITDA and operating income as reported by Divestco may not be comparable in all instances to EBITDA and operating income as reported by other companies.

Cash EBITDA is not a calculation based on Canadian GAAP and this measure may not be comparable to similar measures presented by other issuers. Accordingly, this measure has been represented in this press release to provide readers with additional information regarding the Company's financial position, results, liquidity and its ability to generate future cash flows excluding revenue generated from seismic participation (multi-client) surveys. Cash EBITDA is defined as EBITDA less seismic participation (multi-client) revenue.



EBITDA and Cash EBITDA are calculated as follows:

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Three Months Ended Nine Months Ended
September 30 September 30
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(Thousands) 2009 2008 2009 2008
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Net Income $ (1,245) $(2,381) $ 1,094 $ 1,014
Income Tax Expense (Reduction) (1,526) (1,147) (1,874) 593
Other Income (Loss) (31) (1,512) 4,392 (1,499)
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Operating Income (Loss) $ (2,740) $(2,016) $(5,172) $ 3,106
Interest 676 1,252 2,468 3,785
Depreciation and Amortization 7,967 6,892 27,442 28,463
EBITDA 5,903 6,128 24,738 35,354
Less: seismic participation revenue - - (5,733) (12,771)
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Cash EBITDA $ 5,903 $ 6,128 $19,005 $ 22,583
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On a trailing twelve-month basis exiting Q3 2009, the company generated $34.8 million in cash EBITDA, a $2.7 million (8%) increase from the $32.1 million generated on a trailing twelve-month basis exiting Q3 2008.

Divestco reports funds from operations because it is a key measure used by management to evaluate its performance and to assess the ability of the Company to finance operating activities and capital expenditures. Funds from operations excludes certain working capital changes and other sources and uses of cash, which are disclosed in the Consolidated Statements of Cash Flows.

Funds from operations is not a calculation based on Canadian GAAP and should not be considered an alternative to the Consolidated Statements of Cash Flows. Funds from operations is a measure that can be used to gauge Divestco's capacity to generate discretionary cash flow. Investors should be cautioned that funds from operations as reported by Divestco may not be comparable in all instances to funds from operations as reported by other companies. While the closest GAAP measure is cash flows from operating activities, funds from operations is considered relevant because it provides an indication of how much cash generated by operations is available before proceeds from divested assets and changes in certain working capital items.



Funds from operations is calculated as follows:
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Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
(Thousands) 2009 2008 2009 2008
----------------------------------------------------------------------------

Cash Flows from Operating Activities $ 3,540 $2,991 $19,281 $28,392
Changes in Non-Cash Working Capital
Balances 6,733 1,826 4,875 3,555
Decrease in Non-Current Deferred
Revenue - 77 263 517
Decrease in Long-Term Accounts
Receivable (289) - (289) -
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Funds from Operations $ 9,984 $4,894 $24,130 $32,464
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Financial Highlights

----------------------------------------------------------------------------
Financial Results (Thousands, Except Per Share Amounts)
----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
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% %
2009 2008 Change 2009 2008 Change
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Revenue $ 13,411 $18,334 -27% $51,707 $74,564 -31%

Operating Expenses 7,508 12,206 -38% 26,969 39,210 -31%
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EBITDA 5,903 6,128 -4% 24,738 35,354 -30%

Interest 676 1,252 -46% 2,468 3,785 -35%

Depreciation and
Amortization 7,967 6,892 16% 27,442 28,463 -4%
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Operating Income (Loss) (2,740) (2,016) N/A (5,172) 3,106 N/A

Other Income (Loss) (31) (1,512) N/A 4,392 (1,499) N/A

Income Tax Expense N/A N/A
(Reduction) (1,526) (1,147) (1,874) 593
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Net Income (Loss) $ (1,245) $(2,381) N/A $ 1,094 $ 1,014 8%
Per Share - Basic (0.03) (0.06) N/A 0.03 0.02 50%
Per Share - Diluted (0.03) (0.06) N/A 0.03 0.02 50%
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Funds from Operations $ 9,984 $ 4,894 104% $24,130 $32,464 -26%
Per Share - Basic 0.24 0.12 100% 0.58 0.78 -26%
Per Share - Diluted 0.24 0.12 100% 0.58 0.78 -26%
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Shares Outstanding 41,958 41,810 0% 41,958 41,810 0%

Weighted Average Shares
Outstanding
Basic 41,958 41,820 0% 41,958 41,740 1%
Diluted 41,958 41,820 0% 41,958 41,740 1%
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Cash EBITDA $ 5,903 $ 6,128 -4% $19,005 $22,583 -16%
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Segment Review Summary

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For the three months ended September 30, 2009 (Thousands)
----------------------------------------------------------------------------
Corporate
Software Services Data Consulting & Other Total
----------------------------------------------------------------------------
Revenue $ 1,785 $ 1,773 $8,574 $ 1,279 $ - $13,411
EBITDA 1,049 (480) 7,062 (75) (1,653) 5,903
Interest (Net of
Interest Revenue) 6 - 1 - 669 676
Depreciation and
Amortization 486 563 6,671 72 175 7,967
Operating
Income (Loss) 557 (1,043) 390 (147) (2,497) (2,740)
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----------------------------------------------------------------------------
For the three months ended September 30, 2008 (Thousands)
----------------------------------------------------------------------------
Corporate
Software Services Data Consulting & Other Total
----------------------------------------------------------------------------
Revenue $ 1,937 $ 4,059 $9,360 $ 2,978 $ - $18,334
EBITDA 729 395 7,227 69 (2,292) 6,128
Interest (Net of
Interest Revenue) - - - (4) 1,256 1,252
Depreciation and
Amortization 432 603 5,375 343 139 6,892
Operating
Income (Loss) 297 (208) 1,852 (270) (3,687) (2,016)
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----------------------------------------------------------------------------
For the nine months ended September 30, 2009 (Thousands)
----------------------------------------------------------------------------
Corporate
Software Services Data Consulting & Other Total
----------------------------------------------------------------------------
Revenue $ 5,378 $ 10,807 $30,240 $ 5,282 $ - $51,707
EBITDA 2,754 1,668 25,917 65 (5,666) 24,738
Interest (Net of
Interest Revenue) 17 - 21 (1) 2,431 2,468
Depreciation and
Amortization 1,388 1,816 22,755 358 1,125 27,442
Operating
Income (Loss) 1,349 (148) 3,141 (292) (9,222) (5,172)
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----------------------------------------------------------------------------
For the nine months ended September 30, 2008 (Thousands)
----------------------------------------------------------------------------
Corporate
Software Services Data Consulting & Other Total
----------------------------------------------------------------------------
Revenue $ 6,082 $ 14,074 $45,037 $ 9,371 $ - $74,564
EBITDA 2,214 1,654 37,811 24 (6,349) 35,354
Interest (Net of
Interest Revenue) - - (11) (18) 3,814 3,785
Depreciation and
Amortization 1,289 1,796 23,999 1,023 356 28,463
Operating
Income (Loss) 925 (142) 13,823 (981) (10,519) 3,106
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Divestco Inc.
Consolidated Balance Sheets

----------------------------------------------------------------------------
As at Sep 30, 2009 Dec 31, 2008
----------------------------------------------------------------------------
(Thousands - Unaudited)
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Assets

Current Assets
Cash and cash equivalents $ 1,351 $ 1,811
Funds held in trust 17 31
Accounts receivable 17,058 27,858
Prepaid expenses, supplies and deposits 1,744 2,361
Income taxes receivable 4,425 59
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24,595 32,120

Long-term prepaid expense 911 -
Investment in affiliated company 94 80
Data libraries 143,725 154,897
Participation surveys in progress 208 4,708
Property and equipment 3,377 4,942
Deferred development costs 6,310 6,201
Intangible assets 4,964 6,787
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$ 184,184 $ 209,735
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Liabilities and Shareholders' Equity

Current Liabilities
Accounts payable and accrued liabilities $ 18,675 $ 27,235
Current portion of deferred revenue 3,133 11,206
Current portion of long-term debt obligations 12,802 14,622
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34,610 53,063

Deferred revenue - 263
Long-term debt obligations 22,449 33,463
Future income taxes 13,567 10,973
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70,626 97,762
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Shareholders' Equity
Equity instruments 70,518 70,518
Contributed surplus 5,446 4,955
Retained earnings 37,594 36,500
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113,558 111,973
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$ 184,184 $ 209,735
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Divestco Inc.
Consolidated Statements of Income (Loss), Comprehensive Income (Loss) and
Retained Earnings

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
2009 2008 2009 2008
----------------------------------------------------------------------------
(Thousands, except per share amounts
- Unaudited)
----------------------------------------------------------------------------

Revenue $ 13,411 $ 18,334 $ 51,707 $ 74,564
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Operating expenses
Salaries and benefits 4,453 7,860 16,801 26,055
General and administrative 2,956 4,072 9,677 12,314
Stock compensation expense 99 274 491 841
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7,508 12,206 26,969 39,210
----------------------------------------------------------------------------

Interest expense 676 1,252 2,468 3,785

Depreciation and amortization 7,967 6,892 27,442 28,463

Other income (loss) (31) (1,512) 4,392 (1,499)
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Income before income taxes (2,771) (3,528) (780) 1,607
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Income taxes
Current (recovery) (4,630) 725 (4,468) 1,252
Future (reduction) 3,104 (1,872) 2,594 (659)
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(1,526) (1,147) (1,874) 593
----------------------------------------------------------------------------

Net income (loss) and comprehensive
income (loss) for the period (1,245) (2,381) 1,094 1,014

Retained earnings, beginning of
period 38,839 49,158 36,500 45,763
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Retained earnings, end of period $ 37,594 $ 46,777 $ 37,594 $ 46,777
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Earnings per share
Basic $ (0.03) $ (0.06) $ 0.03 $ 0.02
Diluted $ (0.03) $ (0.06) $ 0.03 $ 0.02

Weighted average number of shares
Basic 41,958 41,820 41,958 41,740
Diluted 41,958 41,820 41,958 41,740

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Divestco Inc.
Consolidated Statements of Cash Flows

----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
2009 2008 2009 2008
----------------------------------------------------------------------------
(Thousands-Unaudited)
----------------------------------------------------------------------------

Cash flows from operating activities
Net income (loss) for the period $ (1,245) $ (2,381) $ 1,094 $ 1,014
Items not affecting cash:
Equity investment gain (15) (14) (14) (13)
Depreciation and amortization of
data libraries, property and
equipment and intangible assets 7,440 6,662 26,070 27,737
Amortization of deferred
development costs 527 230 1,372 726
Amortization of deferred finance
costs 74 88 279 277
Accretion of liability portion of
convertible debentures - 166 - 498
Future income taxes (reduction) 3,104 (1,872) 2,594 (659)
Data exchanges - - (3,321) -
Loss (gain) on sale of property and
equipment - 1,558 (4,435) 1,558
Non-cash retention bonus - 183 - 485
Stock compensation expense 99 274 491 841
----------------------------------------------------------------------------
9,984 4,894 24,130 32,464
Changes in non-cash working capital
balances (6,733) (1,826) (4,875) (3,555)
Decrease in non-current deferred
revenue - (77) (263) (517)
Decrease in long-term prepaid expense 289 - 289 -
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3,540 2,991 19,281 28,392
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Cash flows from (used in) financing
activities
Issue of common shares, net of related
expenses - - - 349
Repayment of long-term debt
obligations (137) (1,899) (8,756) (5,039)
Deferred financing costs - - (75) -
Proceeds received from long-term debt
obligations (net of committed
revolver repayments) (1,383) 5,061 (4,365) 8,943
Repurchase of common shares - (59) - (59)
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(1,520) 3,103 (13,196) 4,194
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Cash flows from (used in) investing
activities
Purchase of data libraries (55) (363) (7,188) (23,847)
Decrease (increase) in participation
surveys in progress (1) 385 4,500 51
Purchase of property and equipment (49) (73) (1,421) (362)
Proceeds on sale of property and
equipment - 3,084 3,340 3,089
Deferred development costs (470) (666) (1,481) (1,867)
Changes in non-cash working capital
balances (1,196) (9,985) (4,296) (9,514)
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(1,771) (7,618) (6,546) (32,450)
----------------------------------------------------------------------------

Foreign exchange gain on cash held
in a foreign currency 1 (11) 1 (8)
----------------------------------------------------------------------------

Increase (decrease) in cash and cash
equivalents 250 (1,535) (460) 128

Cash and cash equivalents,
beginning of period 1,101 4,129 1,811 2,466
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Cash and cash equivalents, end of
period $ 1,351 $ 2,594 $ 1,351 $ 2,594
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Divestco is an exploration services company that provides a comprehensive and integrated portfolio of software, services, data and consulting to the oil and gas industry. Through continued commitment to align and bundle products and services to generate value for customers, Divestco is creating an unparalleled set of integrated solutions and unique benefits for the marketplace. Divestco's breadth of software, services, data and consulting solutions offers customers the ability to access and analyze the information required to make business decisions and to optimize their success in the upstream oil and gas industry. Divestco is headquartered in Calgary, Alberta, Canada and trades on the Toronto Stock Exchange under the symbol "DVT".

This press release contains forward-looking information related to the Company's capital expenditures, projected growth, view and outlook towards future oil and gas prices and market conditions, and demand for its products and services. Statements that contain words such as "could', "should", "can", "anticipate", "expect", "believe", "will", "may" and similar expressions and statements relating to matters that are not historical facts constitute "forward-looking information" within the meaning applicable by Canadian securities legislation. Although management of the Company believes that the expectations reflected in such forward-looking information are reasonable, there can be no assurance that such expectations will prove to have been correct because, should one or more of the risks materialize, or should the assumptions underlying forward-looking statements or forward-looking information prove incorrect, actual results may vary materially from those described in this press release as intended, planned, anticipated, believed, estimated or expected. Except where required by law, the Company does not assume any obligation to update these forward-looking statements or forward-looking information if conditions or opinions should change. Readers should not place undue reliance on forward-looking statements or forward-looking information. All of the forward-looking statements and forward-looking information of the Company contained in this press release are expressly qualified, in their entirety, by this cautionary statement.

In particular, this press release contains forward-looking statements pertaining to the following: the Company's ability to reduce debt, improve liquidity, correct its working capital deficiency and maintain profitability in the current economy; availability of external and internal funding for future operations; relative future competitive position of the Company; nature and timing of growth; future sales of the Company's seismic data library; oil and natural gas production levels; planned capital expenditure programs; supply and demand for oil and natural gas; future demand for products/services; commodity prices; fluctuations in interest rates; impact of Canadian federal and provincial governmental regulation on the Company; expected levels of operating costs, general administrative costs, costs of services and other costs and expenses; future ability to execute dispositions of assets or businesses; expectations regarding the Company's ability to raise capital and to add to seismic data through new seismic shoots and acquisition of existing seismic data; treatment under tax laws.

These forward-looking statements are based upon assumptions including: that future prices for crude oil and natural gas, future interest rates and future availability of debt and equity financing will be at levels and costs that allow the Company to manage, operate and finance its business and develop its software products and various oil and gas datasets including its seismic data library, and meet its future obligations; that the regulatory framework in respect of royalties, taxes and environmental matters applicable to the Company and its customers will not become so onerous on both the Company and its customers as to preclude the Company and its customers from viably managing, operating and financing its business and the development of its software and data; and that the Company will continue to be able to identify, attract and employ qualified staff and obtain the outside expertise as well as specialized and other equipment it requires to manage, operate and finance its business and develop its properties.

These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the Company's control, including: general economic, market and business condition; volatility in market prices for crude oil and natural gas; ability of Divestco's clients to explore for, develop and produce oil and gas; availability of financing and capital; fluctuations in interest rates; demand for the Company's product and services; weather and climate conditions; competitive actions by other companies; availability of skilled labour; failure to obtain regulatory approvals in a timely manner; adverse conditions in the debt and equity markets; and government actions including changes in environment and other regulations.

The TSX 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
    www.divestco.com