Divestco Inc.
TSX : DVT

Divestco Inc.

March 19, 2008 21:54 ET

Divestco Inc. Reports Record Revenue for Fiscal 2007

CALGARY, ALBERTA--(Marketwire - March 19, 2008) - Divestco Inc. ("Divestco" or the "Company") (TSX:DVT) is pleased to announce that it has generated record revenue for the year ended December 31, 2007. The Company generated a record $116.1 million in revenue, an increase of $9.6 million or 9% over the $106.5 million generated in 2006. Earnings before interest, taxes, depreciation and amortization ("EBITDA") were $61.7 million compared to $63.7 million in 2006, a 3% decrease year over year. Divestco generated $35.6 million in funds from operations ($0.85 per share - diluted), a 44% decrease from $63.3 million (1.88 cents per share - diluted) generated in 2006.

Net income for 2007 decreased by $2.1 million (11%) to $17.5 million from $19.6 million earned in 2006. The Company earned 45 cents per share - basic (42 cents per share - diluted) for fiscal 2007. This compares to 60 cents per share - basic (58 cents per share - diluted) for fiscal 2006.

Divestco is pleased with its results, considering the impact of low natural gas prices resulting in an overall industry slowdown which was exacerbated by the Alberta Government's Royalty Review in the fall of 2007. Our Alberta customers' capital budgets were reduced and, as such, this resulted in a corresponding reduction in demand for some of our services and seismic participation programs in Alberta. Divestco maintains a strong data and service presence in and outside of Alberta, and the Company has witnessed an increase in activity in British Columbia (BC) and Saskatchewan which partially offset the decreases in the Alberta related revenue. We have positioned many of Divestco's assets in areas where oil and gas investments must be made, thus providing a hedge to potential reduced activity levels.

Divestco is pleased to report that despite the less than expected participation and service revenue, the Company achieved record aggregate data library (inventory) sales totaling approximately $47.6 million for 2007. This represents an increase of $23.6 million (99%) compared to $23.9 million of aggregate library sales in 2006. The increase in data library sales validates the quality of the library Divestco has been building over the last few years. We expect this trend of increased demand to continue, especially in light of the proposed royalty changes in Alberta.

To view the graph accompanying this press release please click on the following link: http://media3.marketwire.com/docs/dvtt0319.pdf

Excluding deferred revenue of $4.4 million (December 2006 - $11.6 million), Divestco exited fiscal 2007 with $28.1 million working capital deficiency. This compares to $0.6 million in positive working capital at the end of 2006 fiscal year. The working capital deficiency is mainly attributed to: (1) reclassification of the convertible debentures assumed from BlueGrouse from long-term to current liabilities as they mature in November 2008, (2) four 3D surveys completed in the fourth quarter at a cost of approximately $20 million and, (3) corporate income taxes of $7.3 million. This working capital shortfall will be addressed in fiscal 2008.

Fourth Quarter 2007 Results

Divestco generated fourth quarter revenue of $35.5 million, a 16% increase compared to $30.5 million generated in 2006. Fourth quarter EBITDA was $21.8 million, a $4.9 million or 29% increase from $16.9 million recorded for same period in 2006. The Company generated $15.1 million in funds from operations (34 cents per share - diluted), a 11% decrease from $16.9 million (47 cents per share - diluted) generated in 2006. Net income for the quarter decreased by 41% to $5.1 million (12 cents per share - diluted) from $8.7 million (24 cents per share - diluted) earned in 2006.

Four 3D seismic programs that were delayed due to the unusually heavy snow pack in first quarter and wet weather in the second quarter were delivered in the fourth quarter of 2007. These surveys are located in our core seismic data areas of Debolt (Alberta) and Cutbank Ridge (BC) and augment our existing databases.

2007 Operational Highlights

- On April 20, 2007 the Company closed a new CAD $60 million bank facility with Wells Fargo Financial Corporation Canada (WFFCC), a part of US based Wells Fargo & Company (Wells Fargo).

- Completed five corporate acquisitions for total consideration of approximately $37.2 million including the assumption of debt;

- BlueGrouse Seismic Solutions Ltd. ($30.2 million - May 2007)

- Geomatics Business unit of Veritas Energy Services Partnership ($3.2 million - May 2007)

- JMG Seismic Processing Ltd. and KRJ Seismic Processing Ltd., partners of Spectrum Seismic Processing Partnership ($1.9 million - June 2007)

- i Land Data Ltd. ($0.8 million - June 2007)

- Canadian Landmasters Resource Services Ltd. and Canadian Landmasters Resource Services (Med. Hat) Ltd. ($1.1 million - November 2007)

- In addition to the BlueGrouse transaction which added 32,000 kilometers of 2D and 3,500 square kilometers of 3D seismic data, the Company significantly increased its seismic dataset with the acquisition of an additional 290 net kilometers of 2D and over 3,490 net kilometers of 3D seismic at a cost of approximately $75.2 million. This data is strategic in nature and compliments our existing seismic datasets in three core areas; Gunnell (BC), Cutbank Ridge (BC) and Debolt (Alberta). With these data acquisitions complete, Divestco continues to control the largest independent 3D seismic library in BC.

Mr. Stephen Popadynetz, CEO of Divestco, commented: "Despite the economic uncertainty around us, I am proud of what Divestco achieved in 2007. This is Divestco's 17th consecutive quarter of profitability and verification of the solid foundation that has been built to maintain this positive track record. Notwithstanding the fact that Divestco has continued to deliver substantial positive returns and growth, the stock price has not been immune to the overall downgraded market perception of the oil and gas service industry. To create greater flexibility when favorable market conditions return, Divestco is pursuing a more focused and less expansive strategy. Divestco is forecasting overall growth and continued profitability in 2008, however consistent with our industry peers we are cautiously optimistic. Despite a recent indication of strengthening natural gas prices, we are concentrating on our core business lines and strategic assets. By doing this, Divestco expects to be well positioned for future growth during the next positive market cycle and produce positive returns for our shareholders."



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Financial Results (Thousands, Except Per Share Amounts)
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Three Months Ended Twelve Months Ended
December 31 December 31
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% %
2007 2006 Change 2007 2006 Change
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Revenues $ 35,528 $ 30,546 16% $116,070 $106,463 9%

Operating Expenses 13,773 13,694 1% 54,393 42,800 27%
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EBITDA 21,755 16,852 29% 61,677 63,663 -3%

Interest 1,075 399 169% 3,684 1,235 198%

Depreciation and
Amortization 15,743 3,706 325% 34,424 36,051 -5%
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Operating Income 4,937 12,747 -61% 23,569 26,377 -11%

Other Income (Loss) (30) 45 N/A (260) 2,105 N/A

Income Tax Expense (209) 4,101 -105% 5,768 8,867 -35%
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Net Income $ 5,116 $ 8,691 -41% $ 17,541 $ 19,615 -11%
Per Share - Basic 0.12 0.25 -52% 0.45 0.60 -25%
Per Share - Diluted 0.12 0.24 -50% 0.42 0.58 -28%
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Funds from Operations $ 15,092 $ 16,864 -11% $ 35,611 $ 63,263 -44%
Per Share - Basic 0.36 0.48 -25% 0.91 1.94 -53%
Per Share - Diluted 0.34 0.47 -28% 0.85 1.88 -55%
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Shares Outstanding 41,579 35,399 17% 41,579 35,399 17%

Weighted Average Shares
Outstanding
Basic 41,471 34,912 19% 39,200 32,665 20%
Diluted 43,779 36,003 22% 41,763 33,704 24%
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Segment Summary

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For the three months ended December 31, 2007 (Thousands)
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Corporate
&
Software Services Data Consulting Other Total
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Revenue $ 2,691 $ 7,174 $ 22,364 $ 3,299 $ - $ 35,528
EBITDA 1,323 2,298 20,476 41 (2,383) 21,755
Interest (Net of
Interest Revenue) - - 131 (9) 953 1,075
Depreciation and
Amortization 403 677 14,215 399 49 15,743
Operating Income
(Loss) 920 1,621 6,130 (349) (3,385) 4,937
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For the three months ended December 31, 2006 (Thousands)
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Corporate
&
Software Services Data Consulting Other Total
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Revenue $ 1,873 $ 5,142 $ 20,114 $ 3,417 $ - $ 30,546
EBITDA 832 1,025 17,090 (39) (2,056) 16,852
Interest (Net of
Interest Revenue) - - 130 (8) 277 399
Depreciation and
Amortization 325 498 2,562 282 39 3,706
Operating Income
(Loss) 507 527 14,398 (313) (2,372) 12,747
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For the year ended December 31, 2007 (Thousands)
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Corporate
&
Software Services Data Consulting Other Total
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Revenue $ 8,494 $ 24,731 $ 69,690 $ 13,155 $ - $116,070
EBITDA 3,673 4,706 61,508 1,102 (9,312) 61,677
Interest (Net of
Interest Revenue) 3 - 605 (47) 3,123 3,684
Depreciation and
Amortization 1,467 2,466 28,963 1,350 178 34,424
Operating Income
(Loss) 2,203 2,240 31,940 (201) (12,613) 23,569

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For the year ended December 31, 2006 (Thousands)
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Corporate
&
Software Services Data Consulting Other Total
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Revenue $ 7,054 $ 17,083 $ 73,384 $ 8,847 $ 95 $106,463
EBITDA 3,088 3,277 65,033 (576) (7,159) 63,663
Interest (Net of
Interest Revenue) - - 317 (22) 940 1,235
Depreciation and
Amortization 1,180 1,529 32,610 586 146 36,051
Operating Income
(Loss) 1,908 1,748 32,106 (1,140) (8,245) 26,377
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Divestco Inc.
Consolidated Balance Sheets

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As at December 31 2007 2006
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(Thousands)
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Assets

Current Assets
Cash and cash equivalents $ 2,466 $ 1,437
Funds held in trust 678 -
Short-term investments - -
Accounts receivable 27,083 21,875
Prepaid expenses, supplies and deposits 1,794 923
Investment tax credits recoverable - 651
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32,021 24,886

Long-term accounts receivable - 560
Investment in affiliated company 72 68
Data libraries 161,354 71,201
Participation surveys in progress 1,047 2,721
Property and equipment 5,981 6,069
Deferred development costs 4,736 2,877
Deferred finance costs - 323
Intangible assets 20,208 15,719
Goodwill 10,090 8,518
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$ 235,509 $ 132,942
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Liabilities and Shareholders' Equity

Current Liabilities
Bank indebtedness $ - $ 6,451
Accounts payable and accrued liabilities 39,391 14,147
Income taxes payable 7,286 345
Current portion of deferred revenue 4,351 11,603
Current portion of long-term debt obligations 5,889 3,295
Convertible debentures 7,533 -
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64,450 35,841

Deferred revenue 530 260
Long-term debt obligations 38,400 6,636
Future income taxes 13,406 12,968
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116,786 55,705
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Shareholders' Equity
Equity instruments 68,690 46,854
Contributed surplus 3,661 2,008
Equity portion of convertible debentures 609 -
Retained earnings 45,763 28,375
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118,723 77,237
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$ 235,509 $ 132,942
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Divestco Inc.
Consolidated Statements of Income, Comprehensive Income and
Retained Earnings

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For the year ended December 31 2007 2006
--------------------------------------------------------------------------
(Thousands, except per share amounts)
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Revenue $ 116,070 $ 106,463
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Operating expenses
Salaries and benefits 35,008 26,810
General and administrative 17,854 14,914
Stock compensation expense 1,531 1,076
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54,393 42,800
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Interest expense 3,684 1,235

Depreciation and amortization 34,424 36,051

Other income (loss) (260) 2,105
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Income before income taxes 23,309 28,482
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Income taxes
Current 8,723 312
Future (reduction) (2,955) 8,555
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5,768 8,867
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Net income and comprehensive income for the year 17,541 19,615

Retained earnings, beginning of year 28,375 8,760
Purchase price of common shares repurchased
in excess of book value (153) -
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Retained earnings, end of year $ 45,763 $ 28,375
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Earnings per share
Basic $ 0.45 $ 0.60
Diluted $ 0.42 $ 0.58
Weighted average number of shares
Basic 39,200 32,665
Diluted 41,763 33,704

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Divestco Inc.
Consolidated Statements of Cash Flows

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For the year ended December 31 2007 2006
--------------------------------------------------------------------------
(Thousands)
--------------------------------------------------------------------------
Cash flows from operating activities
Net income for the period $ 17,541 $ 19,615
Items not affecting cash:
Equity investment loss 2 11
Depreciation and amortization of data
libraries, property and equipment and
intangible assets 33,686 35,448
Amortization of deferred development costs 738 603
Amortization of deferred finance costs 604 86
Future income taxes (reduction) (2,955) 8,555
Data exchanges (16,328) -
Gain on sale of investment securities - (2,132)
Loss on sale of property and equipment 172 -
Unrealized foreign exchange loss - 1
Non-cash retention bonus 620 -
Stock compensation expense 1,531 1,076
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35,611 63,263

Changes in non-cash working capital balances (13,870) 2,884
Increase (decrease) in non-current
deferred revenue 270 (142)
Decrease in long-term accounts receivable 560 400
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22,571 66,405
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Cash flows from financing activities
Bank indebtedness (6,451) 6,451
Advances to affiliated company (6) -
Issue of common shares, net of related expenses 2,606 16,085
Repayment of long-term debt obligations (15,448) (2,923)
Deferred financing costs (1,340) -
Proceeds received from long-term debt obligations 45,209 -
Repurchase of common shares (609) -
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23,961 19,613
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Cash flows from investing activities
Purchase of data libraries (61,360) (74,428)
Decrease (increase) in participation
surveys in progress 1,722 (2)
Purchase of property and equipment (1,374) (1,405)
Purchase of intangibles - (176)
Acquisitions (3,948) (15,001)
Purchase of investment securities - (109)
Proceeds on sale of investment securities - 7,753
Proceeds on sale of property and equipment 172 -
Deferred development costs (2,597) (1,616)
Changes in non-cash working capital balances 21,881 (978)
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(45,504) (85,962)
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Foreign exchange gain (loss) on cash
held in a foreign currency 1 (1)
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Increase in cash and cash equivalents 1,029 55

Cash and cash equivalents, beginning of year 1,437 1,382
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Cash and cash equivalents, end of year $ 2,466 $ 1,437
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Divestco is a growth-oriented company that provides a comprehensive and integrated portfolio of data, software, services and consulting to the oil and gas industry. Through continued commitment to align and bundle products and services to generate value for our customers, Divestco is creating an unparalleled set of integrated solutions and unique benefits for the marketplace. Divestco is headquartered in Calgary, Alberta, Canada and trades on the Toronto Stock Exchange under the symbol "DVT".

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.

Divestco uses EBITDA as a key measure to evaluate the performance of segments, divisions and the Company, with the closest GAAP measure being net income. EBITDA is a measure commonly reported and widely used by investors as an indicator of a company's operating performance and ability to incur and service debt, and as a valuation metric. The Company believes EBITDA assists investors in comparing a 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 is not a calculation based on Canadian GAAP and should not be considered an alternative to Operating income or Net income in measuring the Company's performance, nor should it be used as an exclusive measure of cash flow, because it does 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. While EBITDA has 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 as reported by Divestco may not be comparable in all instances to EBITDA as reported by other companies.

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.

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
    Website: www.divestco.com