Divestco Inc.
TSX : DVT

Divestco Inc.

August 13, 2007 07:00 ET

Divestco Reports 15th Consecutive Profitable Quarter and Significant Increase in Data Library Sales

CALGARY, ALBERTA--(Marketwire - Aug. 13, 2007) - Divestco Inc. (TSX:DVT) ("Divestco" or the "Company") is pleased to announce its operating results for the three and six months ended June 30, 2007. Divestco generated revenue of $27.5 million for the second quarter of 2007, an increase of $9.4 million (52%) from $18.1 million for the same period in 2006. Earnings before interest, taxes and amortization ("EBITDA") were $14.1 million, a $6.1 million (75%) increase over the same period in 2006. The Company generated funds from operations of $13.8 million for the second quarter, an increase of $5.6 million (68%) as compared to $8.2 million for the same period in 2006.

Divestco generated revenue of $54.3 million for the first six months of 2007, an increase of $16.6 million (44%) from $37.7 million for the same period in 2006. Earnings before interest, taxes and amortization ("EBITDA") were $26.8 million, a $6.6 million (32%) increase over the same period in 2006. The Company generated funds from operations of $19.4 million for the first six months, a decrease of $0.6 million (3%) as compared to $20.0 million for the same period in 2006.

Divestco earned $4.2 million (10 cents per share - diluted) in net income for the second quarter of 2007 compared to $3.6 million in 2006 (11 cents per share - diluted). For the six months ended June 30, 2007, the Company earned $8.2 million of net income (21 cents a share- diluted) compared to $7.1 million (22 cents a share-diluted) in 2006, a 15% increase over the same period last year.

As previously announced, unusually heavy snow pack in certain regions of Alberta and British Columbia resulted in a number of contracted seismic surveys expected to be completed in the first quarter being rescheduled for completion later in the year, weather permitting. This weather impact continued to affect the Company in Q2 with one of the wettest springs on record. Again, a number of contracted seismic surveys expected to be completed in the second quarter were rescheduled for completion later in the year, weather permitting.

The Company is pleased to report that offsetting the weather delayed participation revenue, the Company has achieved record year to date aggregate data library sales totaling approximately $22 million for the first six months of 2007. This compares to approximately $5.5 million during the same period in 2006.

Excluding the current portion of deferred revenue of $8.9 million (December 31, 2006 - $11.6 million), Divestco exited the second quarter with a minor $4.6 million working capital deficiency compared to a $14 million deficiency at the end of the first quarter, a $9.4 million dollar improvement. The working capital deficiency is mainly attributed to $6.4 million in current taxes payable primarily associated with the Company's limited partnership and the assumption of current liabilities as a result of the acquisitions made in the quarter. This minor working capital shortfall is expected to be temporary, given the results expected throughout the remainder of the year combined with the new banking arrangements closed in the second quarter that appropriately match asset classes.



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Financial Results (Thousands, Except Per Share Amounts)
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Quarter Ended Jun 30 Six Months Ended Jun 30
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% %
2007 2006 Change 2007 2006 Change
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Revenues $ 27,529 $ 18,056 52% $ 54,322 $ 37,661 44%

Operating Expenses 13,476 10,007 35% 27,519 17,421 58%
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EBITDA 14,053 8,049 75% 26,803 20,240 32%

Interest 1,139 303 276% 1,428 496 188%

Depreciation and
Amortization 6,631 5,073 31% 12,948 11,909 9%
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Operating Income 6,283 2,673 135% 12,427 7,835 59%

Other Income (loss) (29) 1,827 N/A (48) 2,106 N/A

Income Tax Expense 2,088 950 120% 4,142 2,800 48%
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Net Income $ 4,166 $ 3,550 17% $ 8,237 $ 7,141 15%
Per Share - Basic 0.11 0.11 0% 0.22 0.23 -4%
Per Share - Diluted 0.10 0.11 -9% 0.21 0.22 -5%
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Funds from Operations $ 13,776 $ 8,215 68% $ 19,436 $ 19,963 -3%
Per Share - Basic 0.35 0.26 35% 0.52 0.65 -20%
Per Share - Diluted 0.33 0.24 38% 0.49 0.62 -21%
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Shares Outstanding 40,959 33,812 21% 40,959 33,812 21%

Weighted Average
Shares Outstanding
Basic 38,906 31,407 24% 37,082 30,857 20%
Diluted 41,646 33,538 24% 39,875 32,435 23%
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Q2 Operational Highlights

- $6.1 million (57%) increase in Data revenue related to: the acquisition of BlueGrouse Seismic Solutions Ltd., delivery of two 3D seismic data surveys and a significant amount of data library sales.

- $1.6 million (37%) increase in Services revenue related mainly to the purchase of the Geomatics business unit from CCGVeritas in May 2007 and the Seismic Processing division from Geo-X in May 2006.

- $1.6 million (115%) increase in Consulting revenue primarily resulting from the Cavalier Land acquisition in the third quarter of 2006.

Q2 Corporate Finance and Acquisitions Summary

During the six-month period ended June 30, 2007, the Company completed the following acquisitions.

- 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"). Divestco utilized a portion of the proceeds to replace its previous senior and term debt providers and will utilize the remaining proceeds to fund future growth initiatives.

- On May 3, 2007, the Company acquired all of the issued and outstanding shares of BlueGrouse Seismic Solutions Ltd. (BlueGrouse). BlueGrouse provides seismic data to the oil and natural gas industry. BlueGrouse has four main components to its business model: Data Library, Multi-Client Services, Data Brokerage and Data Management. BlueGrouse shareholders received 0.3125 Divestco shares for each BlueGrouse share held.

- On May 23, 2007 the Company completed a purchase from Red Star Oil & Gas Inc. and acquired the remaining ownership interest the Cutbank Ridge 3D data (Halfmoon and Windsor Creek surveys totaling approximately 1060 sq. kms.), which the Company already controlled, for $9.6 million.

- On May 24, 2007, the Company acquired the Geomatics Business unit of Veritas Energy Services Partnership (a division of CGGVeritas operating in Canada) (Veritas) for a total consideration of $3.2 million. Veritas delivers survey audit and geospatial data management services to the seismic industry.

- On June 11, 2007 the Company acquired 100% ownership interest in Cutbank Ridge 3D data (West Cutbank survey totaling approximately 190 sq. kms.) for a total consideration of $3.6 million from two oil and gas producers.

- On June 19, 2007, the Company acquired all of the issued and outstanding shares of JMG Seismic Processing Ltd. and KRJ Seismic Processing Ltd., partners of Spectrum Seismic Processing Limited Partnership (Spectrum) for a total consideration of $1.9 million. Spectrum provides a full range of onshore seismic data processing services in Western Canada.

- On June 19, 2007, the Company acquired all of the issued and outstanding shares of i Land Data Ltd. (i Land) for a total consideration of $0.8 million. i Land provides data management related software to the oil and gas industry.

Mr. Stephen Popadynetz, CEO of Divestco commented: "From a corporate transaction perspective this has been one of the busiest quarters in Divestco's history. I am pleased to report our second quarter results of 2007 to our shareholders, Board and employees. Our business model continues to produce positive results and our shareholders have been rewarded with our fifteenth consecutive profitable quarter. I look forward to continued growth, integration, innovation and profitability as we move to the second half of 2007."



Segment Review Summary

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For the three months ended June 30, 2007 (Thousands)
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Corporate
Software Services Data Consulting & Other Total
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Revenue $ 1,952 $ 5,851 $16,696 $ 3,030 $ - $27,529
EBITDA 865 467 14,575 248 (2,102) 14,053
Interest 3 - 210 (12) 938 1,139
Depreciation and
amortization 343 744 5,171 325 48 6,631
Operating Income 519 (277) 9,194 (65) (3,088) 6,283
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For the three months ended June 30, 2006 (Thousands)
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Corporate
Software Services Data Consulting & Other Total
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Revenue $ 1,752 $ 4,279 $10,603 $ 1,408 $ 14 $18,056
EBITDA 880 580 8,662 (187) (1,886) 8,049
Interest 1 - 98 - 204 303
Depreciation and
amortization 290 378 4,356 15 34 5,073
Operating Income 589 202 4,208 (202) (2,124) 2,673
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For the six months ended June 30, 2007 (Thousands)
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Corporate
Software Services Data Consulting & Other Total
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Revenue $ 3,780 $11,998 $31,826 $ 6,718 $ - $54,322
EBITDA 1,459 1,650 27,828 756 (4,890) 26,803
Interest 3 - 256 (20) 1,189 1,428
Depreciation and
amortization 728 1,136 10,355 640 89 12,948
Operating Income 728 514 17,217 136 (6,168) 12,427
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For the six months ended June 30, 2006 (Thousands)
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Corporate
Software Services Data Consulting & Other Total
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Revenue $ 3,428 $ 6,851 $24,378 $ 2,911 $ 93 $37,661
EBITDA 1,608 1,377 20,780 (321) (3,204) 20,240
Interest - - 110 - 386 496
Depreciation and
amortization 557 519 10,740 25 68 11,909
Operating Income 1,051 858 9,930 (346) (3,658) 7,835
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Divestco Inc.
Consolidated Balance Sheets

As at Jun 30, 2007 Dec 31, 2006
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(Thousands - Unaudited)
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Assets

Current Assets
Cash and cash equivalents $ 1,602 $ 1,437
Accounts receivable 29,570 21,875
Prepaid expenses, supplies and deposits 807 923
Investment tax credits recoverable - 651
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31,979 24,886

Long-term accounts receivable 280 560
Investment in affiliated company 67 68
Data libraries 135,141 71,201
Participation surveys in progress 521 2,721
Property and equipment 6,609 6,069
Deferred development costs 3,778 2,877
Deferred finance costs - 323
Intangible assets 20,893 15,719
Goodwill 10,495 8,518
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$ 209,763 $ 132,942
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Liabilities and Shareholders' Equity

Current Liabilities
Bank indebtedness $ - $ 6,451
Accounts payable and accrued liabilities 23,656 14,147
Income taxes payable 6,385 345
Current portion of deferred revenue 7,854 11,603
Current portion of long-term debt obligations 6,579 3,295
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44,474 35,841
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Deferred revenue 165 260
Long-term debt obligations 37,956 6,636
Convertible debentures 7,533 -
Future income taxes 12,624 12,968
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102,752 55,705
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Shareholders' Equity
Equity instruments 66,785 46,854
Contributed surplus 3,005 2,008
Equity portion of convertible debentures 609 -
Retained earnings 36,612 28,375
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107,011 77,237
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$ 209,763 $ 132,942
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Divestco Inc.
Consolidated Statements of Income, Comprehensive Income and Retained
Earnings

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(Thousands, except per For the three months For the six months
share amounts - Unaudited) ended June 30 ended June 30
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2007 2006 2007 2006
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Revenue $ 27,529 $ 18,056 $ 54,322 $ 37,661
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Operating expenses
Salaries and benefits 8,732 6,067 18,304 10,763
General and administrative 4,363 3,718 8,456 6,307
Stock compensation expense 381 222 759 351
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13,476 10,007 27,519 17,421
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Interest expense 1,139 303 1,428 496

Depreciation and amortization 6,631 5,073 12,948 11,909

Other income (loss) (29) 1,827 (48) 2,106
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Income before income taxes 6,254 4,500 12,379 9,941
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Income taxes
Current 284 (228) 7,479 177
Future (recovery) 1,804 1,178 (3,337) 2,623
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2,088 950 4,142 2,800
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Net income and comprehensive income
for the period 4,166 3,550 8,237 7,141

Retained earnings, beginning of
period 32,446 12,351 28,375 8,760
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Retained earnings, end of period $ 36,612 $ 15,901 $ 36,612 $ 15,901
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Earnings per share
Basic $ 0.11 $ 0.11 $ 0.22 $ 0.23
Diluted $ 0.10 $ 0.11 $ 0.21 $ 0.22

Weighted average number of shares
Basic 38,906 31,407 37,082 30,857
Diluted 41,646 33,538 39,875 32,435
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Divestco Inc.
Consolidated Statements of Cash Flows

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For the three months For the six months
ended June 30 ended June 30
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(Thousands - Unaudited) 2007 2006 2007 2006
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Cash flows from operating
activities
Net income for the period $ 4,166 $ 3,550 $ 8,237 $ 7,141
Items not affecting cash:
Equity investment loss 4 2 7 10
Depreciation and amortization of
data libraries, property and
equipment and intangibles 6,480 4,938 12,573 11,641
Amortization of deferred
development costs 151 135 375 268
Accretion of deferred finance
costs 375 22 397 43
Future income taxes (recovery) 1,804 1,178 (3,337) 2,623
Gain on sale of investment
securities - (1,852) - (2,132)
Unrealized foreign exchange loss 80 20 90 18
Non-cash retention bonus 335 - 335 -
Stock compensation expense 381 222 759 351
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13,776 8,215 19,436 19,963

Changes in non-cash working
capital balances (6,454) 8,356 (4,628) 24,205
Decrease in non-current deferred
revenue (39) 1,435 (95) 1,366
Decrease in long-term accounts
receivable 140 - 280 -
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7,423 18,006 14,993 45,534
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Cash flows from financing
activities
Bank indebtedness (9,395) 8,004 (6,451) 8,870
Advances to affiliated company - - (8) -
Issue of common shares, net of
related expenses 595 11,426 1,213 13,866
Repayment of long-term debt
obligations (10,809) (710) (11,494) (1,370)
Deferred financing costs (1,340) - (1,340) -
Proceeds received from long-term
debt obligations 42,235 - 42,235 -
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21,286 18,720 24,155 21,366
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Cash flows from investing
activities
Purchase of data libraries (23,177) (9,069) (33,334) (22,869)
Decrease (increase) in
participation surveys in
progress 7,080 (19,482) 2,248 (42,273)
Purchase of property and
equipment (647) (221) (1,003) (527)
Purchase of intangibles - (176) - (176)
Acquisitions (3,852) (11,487) (3,852) (11,487)
Purchase of investment
securities - - - (109)
Proceeds on sale of investment
securities - 6,644 - 7,753
Deferred development costs (652) (431) (1,276) (800)
Changes in non-cash working
capital balances (6,813) 4,146 (1,677) 11,254
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(28,061) (30,076) (38,894) (59,234)
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Foreign exchange loss on cash
held in a foreign currency (78) (20) (89) (25)
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Increase in cash and cash
equivalents 570 6,630 165 7,641

Cash and cash equivalents,
beginning of period 1,032 2,393 1,437 1,382
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Cash and cash equivalents, end
of period $ 1,602 $ 9,023 $ 1,602 $ 9,023
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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.

"Working Capital"; 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.

Non-GAAP measures are calculated as follows:

Working capital: current assets less current liabilities

EBITDA: earnings before interest, income taxes, depreciation and amortization

Operating income: EBITDA less interest, depreciation and amortization

Funds from operations: cash flow from operating activities as prescribed by Canadian GAAP, but excluding the impact of items not affecting cash

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