Divestco Inc.
TSX : DVT

Divestco Inc.

March 08, 2007 08:33 ET

Divestco Inc. Reports Record Revenue, Funds From Operations and Net Income for Fiscal 2006

CALGARY, ALBERTA--(CCNMatthews - March 8, 2007) - Divestco Inc. ("Divestco" or the "Company") (TSX:DVT) is pleased to announce that it has generated record results for the year ended December 31, 2006. The Company generated a record $106.5 million in revenues, an increase of $67.7 million or 175% from $38.8 million generated in 2005. Earnings before interest, taxes, depreciation and amortization ("EBITDA") was a record $63.7 million compared to $16.5 million in 2005, a 286% increase year over year. Divestco generated a record $63.3 million in funds from operations ($1.88 per share - diluted), a 298% increase from $15.9 million (59 cents per share - diluted) generated in 2005.

Net income for 2006 increased by 279% to a record $19.6 million from $5.2 million earned in 2005. The Company earned a record 60 cents per share basic (58 cents per share - diluted) for fiscal 2006. This compares to 20 cents per share basic (19 cents per share - diluted) for fiscal 2005.

Excluding deferred revenue of $11.6 million (December 2005 - $10.4 million), Divestco exited fiscal 2006 with $0.6 million in positive working capital. During the fourth quarter 2006 working capital increased by $18.8 million compared to the end of the third quarter of 2006. Divestco expects to further improve its working capital position in 2007.

To view the 5 year growth chart please click on the link provided below:

http://www.ccnmatthews.com/docs/divestco%20graph.JPG

2006 Guidance Discussion

On November 7, 2006, Divestco provided revised guidance for fiscal 2006 which forecasted revenue of $105-110 million, EBITDA of $65-70 million, and net income of $22-25 million. Divestco met its annual revenue projection and was slightly below target on its EBITDA and net income projection due to delivery delays of $3.4 million in forecasted library data sales. As per the Company's accounting policies, revenue is not recognized until date the client receives the data. This data was received by the clients and the revenue was recognized in the beginning of January 2007.

Fourth Quarter 2006 Results

Divestco generated fourth quarter revenue of $30.5 million, a 137% increase compared to $12.9 million generated in 2005. Fourth quarter EBITDA was $16.9 million an $11.6 million or 216% increase from $5.3 million recorded for same period in 2005. The Company generated $16.9 million in funds from operations (47 cents per share - diluted), a 227% increase from $5.2 million (17 cents per share - diluted) generated in 2005. Net income for the quarter increased by 422% to a record $8.7 million (24 cents per share - diluted) from $1.7 million (5 cents per share - diluted) earned in 2005.

2006 Operational Highlights

- Completed two corporate acquisitions for total consideration of approximately $20 million;

-- Geo-X Systems Ltd. ($12.7 million - May 2006)

-- Cavalier Land Ltd. ( $7.1 million - July 2006)

- Successfully raised $12.3 million in gross proceeds from an equity financing;

- Significantly increased the seismic dataset with the acquisition of an additional 6,000 gross kilometers of 2D and over 2,000 gross kilometers of 3D seismic at a cost of approximately $75 million.

Mr. Stephen Popadynetz, CEO of Divestco commented: "I am pleased to report our record 2006 results and our thirteenth consecutive profitable quarter to our shareholders, Board and employees. We continued with our mandate to grow both organically and through acquisitions, while continuing to generate profitable software, data and services. Divestco has been successful on all fronts. Exiting our third full year as a public entity, our shareholders have been rewarded with our most impressive fiscal year-end results to date. I look forward to continued growth, innovation and profitability as we enter 2007."

Subsequent Event

On March 1, 2007, Divestco and BlueGrouse Seismic Solutions Ltd. (TSX-V:BGH) ("BlueGrouse") announced that they have entered into an agreement contemplating the acquisition by Divestco of BlueGrouse pursuant to a plan of arrangement (the "Arrangement"). Under the Arrangement, each 3.2 shares of BlueGrouse will entitle the holder to receive one common share of Divestco. Based on trading prices for the shares, this ratio represents a 40% premium for BlueGrouse shareholders on a 20-day weighted trading average and a 51% premium based on the closing price as of February 28, 2007.

It is expected that once the accounting standards of BlueGrouse are conformed to those of Divestco's, and before expected synergies are achieved, the acquisition will be accretive to Divestco shareholders on an annualized basis. In regards to the acquisition of BlueGrouse, Divestco will fund repayment of assumed debt, other liabilities and costs associated with the acquisition from operating cash flow and bank debt.



Quarter Ended December 31 Year Ended December 31
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% %
2006 2005 Change 2006 2005 Change
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Revenues $ 30,546 $ 12,874 137% $ 106,463 $ 38,754 175%

Operating Expenses 13,693 7,540 82% 42,800 22,277 92%
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EBITDA 16,853 5,334 216% 63,663 16,477 286%

Interest 399 201 99% 1,235 324 281%

Depreciation and
Amortization 3,706 2,307 61% 36,051 7,870 358%
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Operating Income 12,748 2,826 351% 26,377 8,283 218%

Other Income 43 3 1333% 2,105 32 6478%

Income Tax Expense 4,101 1,163 253% 8,867 3,137 183%
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Net Income $ 8,690 $ 1,666 422% $ 19,615 $ 5,178 279%
Per Share - Basic 0.25 0.06 317% 0.60 0.20 200%
Per Share - Diluted 0.24 0.05 380% 0.58 0.19 205%
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Funds from
Operations $ 16,866 $ 5,151 227% $ 63,263 $ 15,879 298%
Per Share - Basic 0.48 0.17 182% 1.94 0.60 223%
Per Share - Diluted 0.47 0.17 176% 1.88 0.59 219%
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Shares Outstanding 35,399 29,874 18% 35,399 29,874 18%

Weighted Average
Shares Outstanding
Basic 34,912 29,848 17% 32,665 26,521 23%
Diluted 36,003 30,829 17% 33,704 27,046 25%
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Divestco Inc.
Consolidated Balance Sheets

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

Current Assets
Cash and cash equivalents $ 1,437 $ 1,382
Short-term investments - 5,512
Accounts receivable 21,875 27,053
Prepaid expenses, supplies and deposits 923 427
Investment tax credits recoverable 651 -
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24,886 34,374

Long-term accounts receivable 560 960
Investment in affiliated company 68 79
Data libraries 71,201 28,740
Participation surveys in progress 2,721 2,719
Property and equipment 6,069 3,495
Deferred development costs 2,877 1,863
Deferred finance costs 323 409
Intangible assets 15,719 4,128
Goodwill 8,518 3,431
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$ 132,942 $ 80,198
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Liabilities and Shareholders' Equity

Current Liabilities
Bank indebtedness $ 6,451 $ -
Accounts payable and accrued liabilities 14,492 17,624
Current portion of deferred revenue 11,603 10,355
Current portion of long-term debt obligations 3,295 2,880
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35,841 30,859

Deferred revenue 260 402
Long-term debt obligations 6,636 8,724
Future income taxes 12,968 2,989
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55,705 42,974
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Shareholders' Equity
Equity instruments 46,854 27,195
Contributed surplus 2,008 1,269
Retained earnings 28,375 8,760
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77,237 37,224
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$ 132,942 $ 80,198
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Divestco Inc.
Consolidated Statements of Income and Retained Earnings

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For the year ended December 31 (Thousands,
except per share amounts) 2006 2005
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Revenue $ 106,463 $ 38,754
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Operating expenses
Salaries and benefits 26,810 16,172
General and administrative 14,914 5,740
Stock compensation expense 1,076 365
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42,800 22,277
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Interest expense 1,235 324
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Depreciation and amortization 36,051 7,870
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Other income 2,105 32
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Income before income taxes 28,482 8,315
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Income taxes
Current 312 1,304
Future 8,555 1,833
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8,867 3,137
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Net income for the year 19,615 5,178

Retained earnings, beginning of year 8,760 3,918
Purchase price of common shares repurchased
in excess of book value - (336)
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Retained earnings, end of year $ 28,375 $ 8,760
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Earnings per share
Basic $ 0.60 $ 0.20
Diluted $ 0.58 $ 0.19

Weighted average number of shares
Basic 32,665 26,521
Diluted 33,704 27,046

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Divestco Inc.
Consolidated Statements of Cash Flows

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For the year ended December 31 (Thousands) 2006 2005
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Cash flows from operating activities
Net income for the year $ 19,615 $ 5,178
Items not affecting cash:
Equity investment loss 11 6
Depreciation and amortization of databases,
property and equipment and intangibles 35,448 7,510
Amortization of deferred development costs 603 360
Amortization of deferred finance costs 86 22
Future income taxes 8,555 1,833
Investment tax credits utilized - 631
Gain on sale of investment securities (2,132) -
Gain on sale of property and equipment - (26)
Unrealized foreign exchange loss 1 -
Stock compensation expense 1,076 365
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Funds from operations 63,263 15,879

Changes in non-cash working capital balances 2,884 (4,218)
Decrease in non-current deferred revenue (142) (334)
Increase (decrease) in long-term accounts
receivable 400 (648)
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66,405 10,679
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Cash flows from financing activities
Bank indebtedness 6,451 (2,687)
Issue of common shares, net of related expenses 16,085 9,584
Repayment of long-term debt obligations (2,923) (1,540)
Repayment of shareholder loans - (213)
Deferred financing costs - (142)
Proceeds received from long-term debt obligations - 10,783
Repurchase of common shares - (822)
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19,613 14,963
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Cash flows from investing activities
Purchase of data libraries (74,428) (12,588)
Increase in participation surveys in progress (2) (2,719)
Purchase of property and equipment (1,405) (1,132)
Purchase of intangibles (176) -
Acquisitions (15,001) (6,641)
Purchase of investment securities (109) (5,512)
Proceeds on sale of investment securities 7,753 -
Proceeds on sale of property and equipment - 44
Deferred development costs (1,616) (1,072)
Changes in non-cash working capital balances (978) 5,376
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(85,962) (24,244)
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Foreign exchange loss on cash held in a foreign
currency (1) (16)
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Increase in cash and cash equivalents 55 1,382

Cash and cash equivalents, beginning of year 1,382 -
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Cash and cash equivalents, end of year $ 1,437 $ 1,382
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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 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.

The terms working capital, 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. Accordingly, these measures have been described and presented in this MD&A 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.

These non-GAAP measures are calculated as follows: working capital is current assets less current liabilities; EBITDA is used to describe earnings before any deduction for net interest, taxes, depreciation and amortization, and other non-cash charges such as foreign exchange gain (loss), equity investment income (loss), and gain (loss) on sale of property and equipment as well as short-term investments; operating income is EBITDA less interest, and depreciation and amortization; funds from operations is calculated by adding or deducting items not affecting cash from net income (loss); funds from operations per share - basic and diluted is funds from operations divided by the weighted average number of shares outstanding (basic and diluted) for the relevant period.

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, even prior to the consideration of how those activities are financed or how the results are taxed. Management also uses 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.

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