Divestco Inc.
TSX : DVT

Divestco Inc.

November 14, 2008 19:04 ET

Divestco Reports $18.3 Million of Revenue and 352% Growth in Funds From Operations for Q3 2008

CALGARY, ALBERTA--(Marketwire - Nov. 14, 2008) - Divestco Inc. (TSX:DVT) ("Divestco" or the "Company") announces its operating results for the three and nine months ended September 30, 2008. During the third quarter Divestco generated revenue of $18.3 million, a decrease of $7.9 million (30%) from $26.2 million for the same period in 2007. Earnings before interest, taxes and amortization (EBITDA) were $6.1 million, a $7.0 million (53%) decrease over the same period in 2007. The Company generated funds from operations of $4.9 million ($0.12 per share - basic and diluted) for the third quarter, an increase of $3.8 million (352%) as compared to $1.1 million ($0.02 per share - diluted) for the same period in 2007.

Divestco generated revenue of $74.6 million for the nine months of 2008, a decrease of $5.9 million (7%) from $80.5 million for the same period in 2007. EBITDA were $35.4 million, a $4.5 million (11%) decrease over the same period in 2007. From a Cash EBITDA perspective the Company generated $22.6 million, a $7.4 million (25%) decrease over the same period in 2007. The Company generated funds from operations of $32.5 million for the nine months, an increase of $12.0 million (58%) as compared to $20.5 million for the same period in 2007.

Divestco's net loss for the third quarter of 2008 was $2.4 million compared to net income of $4.2 million in 2007 (6 cent loss per share - basic and diluted). This compares to net income of 10 cents per share (basic and diluted) for the same period in 2007. Approximately $0.9 million (2 cent loss per share - basic and diluted) of the loss in the third quarter is associated with the accounting loss and income tax consequence associated with the divestiture of the Company's U.S. operating assets in September 2008.

The Company earned $1.0 million in net income for the nine months of 2008 (2 cents per share - diluted) compared to $12.4 million (31 cents per share - diluted) in 2007, a 92% decrease over the same period last year.

Despite nineteen consecutive quarters of profitability and growth, Divestco finally fell victim to the effects of the prolonged slowdown in the service industry, global market collapse and credit crisis this fall and recorded its second quarterly loss since becoming a public entity in September 2003. Divestco expected a strong third quarter, however due to the recent global market conditions our customers adjusted to the new global economic reality resulting in many of the significant transactions expected to close during this quarter to be cancelled, put on hold or pushed out to a future date. Despite our customer's reductions in capital spending or access to capital, Divestco has many of its assets strategically located in areas where oil and gas investments must be made. Increased activity levels and record land sale prices in northeast B.C. should translate into an increase in future revenues for Divestco. The Company's assets provide excellent exposure to some of the largest resource plays in Western Canada, including approximately 12,000 kilometers of 2D data and 8,000 square kilometers of 3D data over the prospective Montney depositional fairway, and approximately 3,800 kilometers of 2D data and 1,000 square kilometers of 3D data over the Horn River Basin.

In terms of aggregate data library (inventory) sales, Divestco generated $9 million in sales for the third quarter of 2008. This represents a decrease of $7.7 million (46%) compared to $16.6 million of aggregate library sales for the same period in 2007. Seismic participation revenue for the third quarter of 2008 was $NIL the same as it was in 2007 (typically the Company does not enter the field in the third quarter).

For the nine months ended September 30, 2008, the Company generated data library sales totaling approximately $30.0 million. This represents a decrease of $7.4 million (20%) compared to $37.4 million of aggregate library sales for the same period in 2007. Seismic participation revenue for the nine months ended September 30, 2008 was $12.8 million compared to $9.9 million in 2007, an increase of $2.9 million (29%).

Excluding the current portion of deferred revenue of $4.4 million (June 30, 2008 - $5.3 million), Divestco exited the quarter with a $17.9 million working capital deficiency compared to a $24.6 million deficiency at the end of June, 2008. Divestco remains focused on strengthening of its balance sheet.

Mr. Stephen Popadynetz, CEO of Divestco commented: "The third quarter has been an incredibly challenging time for the entire oil and gas service industry. With the effects of the recent market crisis, Divestco is no longer seeing the fall and winter as a return to normal activity levels and the recent plunge in commodity prices only confirms that Divestco will need to continue to take a conservative approach in running the business units in the coming months. In light of a prolonged slowdown in the service industry, global market collapse and credit crisis this fall, Divestco's Management and Board has proactively reacted by implementing a debt reduction strategy that includes:

- non-core asset dispositions

- essential capital spending

- focus on expense reductions

It may be difficult to predict the duration and overall affect of the current economic uncertainty, however we believe we will be well positioned when favorable market conditions return. I look forward to Divestco's future growth during the next positive market cycle and believe our strategies will produce positive returns for our shareholders."

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, liquidly, 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
Sept 30 Sept 30
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(Thousands) 2008 2007 2008 2007
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Net Income (Loss) $ (2,381) $ 4,188 $ 1,014 $ 12,425
Income Tax Expense (1,147) 1,835 593 5,978
Other Income (Loss) (1) (1,512) (183) (1,499) (233)
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Operating Income (Loss) $ (2,016) $ 6,206 $ 3,106 $ 18,636
Interest 1,252 1,181 3,785 2,609
Depreciation and Amortization 6,892 5,733 28,463 18,678
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EBITDA $ 6,128 $ 13,120 $ 35,354 $ 39,923
Less: seismic participation revenue $ - $ - $ (12,771) $ (9,890)
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Cash EBITDA $ 6,128 $ 13,120 $ 22,583 $ 30,033
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On a trailing twelve-month basis exiting the third quarter 2008, the company generated $32.1 million in Cash EBITDA, a $10.8 million (25%) decrease from the $42.9 million generated exiting the same quarter in 2007.

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
Sept 30 Sept 30
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(Thousands) 2008 2007 2008 2007
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Cash Flows from Operating Activities $ 2,991 $ (6,295) $ 28,392 $ 8,701
Changes in Non-Cash Working Capital
Balances 1,826 8,573 3,555 13,198
Increase (Decrease) in Non-Current
Deferred Revenue 77 (1,055) 517 (961)
Decrease in Long-Term Accounts
Receivable - (140) - (420)
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Funds from Operations $ 4,894 $ 1,083 $ 32,464 $ 20,518
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Financial Highlights

----------------------------------------------------------------------------
Financial Results (Thousands, Except Per Share Amounts)
----------------------------------------------------------------------------
Three Months Ended Sept 30 Nine Months Ended Sept 30
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% %
2008 2007 Change 2008 2007 Change
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Revenue $ 18,334 $ 26,220 -30% $ 74,564 $ 80,543 -7%

Operating Expenses 12,206 13,100 -7% 39,210 40,620 -3%
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EBITDA 6,128 13,120 -53% 35,354 39,923 -11%

Interest 1,252 1,181 6% 3,785 2,609 45%

Depreciation and
Amortization 6,892 5,733 20% 28,463 18,678 52%
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Operating Income
(Loss) (2,016) 6,206 -132% 3,106 18,636 -83%

Other Income (Loss) (1,512) (183) N/A (1,499) (233) N/A

Income Tax Expense (1,147) 1,835 -163% 593 5,978 -90%
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Net Income (Loss) $ (2,381) $ 4,188 -157% $ 1,014 $ 12,425 -92%
Per Share - Basic (0.06) 0.10 -160% 0.02 0.32 -94%
Per Share - Diluted (0.06) 0.10 -160% 0.02 0.31 -94%
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Funds from
Operations $ 4,894 $ 1,083 352% $ 32,464 $ 20,518 58%
Per Share - Basic 0.12 0.03 300% 0.78 0.54 44%
Per Share - Diluted 0.12 0.02 500% 0.78 0.50 56%
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Shares Outstanding 41,810 41,500 1% 41,810 41,500 1%

Weighted Average
Shares Outstanding
Basic 41,820 41,096 2% 41,740 38,335 9%
Diluted 41,820 43,624 -4% 41,740 40,983 2%
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Cash EBITDA $ 6,128 $ 13,120 -53% $ 22,583 $ 30,033 -25%
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Segment Review Summary

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For the three months ended September 30, 2008 (Thousands)
----------------------------------------------------------------------------
Corporate &
Software Services Data Consulting Other Total
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Revenue $ 1,937 $ 4,779 $8,640 $ 2,978 $ - $18,334
EBITDA 729 660 6,962 69 (2,292) 6,128
Interest (Net of
Interest Revenue) - - - (4) 1,256 1,252
Depreciation and
Amortization 432 614 5,364 343 139 6,892
Operating Income
(Loss) 297 46 1,598 (270) (3,687) (2,016)
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----------------------------------------------------------------------------
For the three months ended September 30, 2007 (Thousands)
----------------------------------------------------------------------------
Corporate &
Software Services Data Consulting Other Total
----------------------------------------------------------------------------
Revenue $ 2,023 $ 5,558 $15,501 $ 3,138 $ - $26,220
EBITDA 893 760 13,203 305 (2,041) 13,120
Interest (Net of
Interest Revenue) - - 218 (18) 981 1,181
Depreciation and
Amortization 337 654 4,392 311 39 5,733
Operating Income
(Loss) 556 106 8,593 12 (3,061) 6,206
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----------------------------------------------------------------------------
For the nine months ended September 30, 2008 (Thousands)
----------------------------------------------------------------------------
Corporate &
Software Services Data Consulting Other Total
----------------------------------------------------------------------------
Revenue $ 6,082 $ 16,299 $42,812 $ 9,371 $ - $74,564
EBITDA 2,214 2,433 37,032 24 (6,349) 35,354
Interest (Net of
Interest Revenue) - - (11) (18) 3,814 3,785
Depreciation and
Amortization 1,289 1,824 23,971 1,023 356 28,463
Operating Income
(Loss) (1) 925 609 13,072 (981) (10,519) 3,106
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For the nine months ended September 30, 2007 (Thousands)
----------------------------------------------------------------------------
Corporate &
Software Services Data Consulting Other Total
----------------------------------------------------------------------------
Revenue $ 5,803 $ 17,557 $47,327 $ 9,856 $ - $80,543
EBITDA (1) 2,350 2,409 41,031 1,062 (6,929) 39,923
Interest (Net of
Interest Revenue) 3 - 473 (39) 2,172 2,609
Depreciation and
Amortization 1,064 1,790 14,749 952 123 18,678
Operating Income
(Loss) 1,283 619 25,809 149 (9,224) 18,636
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Divestco Inc.
Consolidated Balance Sheets

----------------------------------------------------------------------------
As at Sep 30, 2008 Dec 31, 2007
----------------------------------------------------------------------------
(Thousands - Unaudited)
----------------------------------------------------------------------------

Assets

Current Assets
Cash and cash equivalents $ 2,594 $ 2,466
Funds held in trust - 678
Accounts receivable 21,101 27,083
Prepaid expenses, supplies and deposits 1,864 1,794
Investment tax credits recoverable 843 -
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26,402 32,021

Investment in affiliated company 85 72
Data libraries 157,826 161,354
Participation surveys in progress 996 1,047
Property and equipment 5,169 5,981
Deferred development costs 5,877 4,736
Intangible assets 16,795 20,208
Goodwill 10,090 10,090
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$ 223,240 $ 235,509
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Liabilities and Shareholders' Equity

Current Liabilities
Accounts payable and accrued liabilities $ 26,860 $ 39,391
Income taxes payable 976 7,286
Current portion of deferred revenue 4,376 4,351
Current portion of long-term debt obligations 8,408 5,889
Convertible debentures 8,031 7,533
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48,651 64,450

Deferred revenue 13 530
Long-term debt obligations 40,476 38,400
Future income taxes 12,747 13,406
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101,887 116,786
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Shareholders' Equity
Equity instruments 69,853 68,690
Contributed surplus 4,114 3,661
Equity portion of convertible debentures 609 609
Retained earnings 46,777 45,763
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121,353 118,723
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$ 223,240 $ 235,509
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Divestco Inc.
Consolidated Statements of Income, Comprehensive Income and Retained
Earnings

----------------------------------------------------------------------------
For the three months For the nine months
ended Sept 30 ended Sept 30
----------------------------------------------------------------------------
(Thousands, except per share amounts
- Unaudited) 2008 2007 2008 2007
----------------------------------------------------------------------------

Revenue $ 18,334 $ 26,220 $ 74,564 $ 80,543
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Operating expenses
Salaries and benefits 7,860 8,113 26,055 26,417
General and administrative 4,072 4,582 12,314 13,039
Stock compensation expense 274 405 841 1,164
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12,206 13,100 39,210 40,620
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Interest expense 1,252 1,181 3,785 2,609

Depreciation and amortization 6,892 5,733 28,463 18,678

Other income (loss) (1,512) (183) (1,499) (233)
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Income (loss) before income taxes (3,528) 6,023 1,607 18,403
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Income taxes
Current (recovery) 725 878 1,252 8,358
Future (reduction) (1,872) 957 (659) (2,380)
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(1,147) 1,835 593 5,978
----------------------------------------------------------------------------

Net income (loss) and comprehensive
income (loss) for the period (2,381) 4,188 1,014 12,425

Retained earnings, beginning of
period 49,158 36,612 45,763 28,375
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Retained earnings, end of period $ 46,777 $ 40,800 $ 46,777 $ 40,800
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Earnings per share
Basic $ (0.06) $ 0.10 $ 0.02 $ 0.32
Diluted $ (0.06) $ 0.10 $ 0.02 $ 0.31

Weighted average number of shares
Basic 41,820 41,096 41,740 38,335
Diluted 41,820 43,624 41,740 40,983
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Divestco Inc.
Consolidated Statements of Cash Flows

----------------------------------------------------------------------------
For the three months For the nine months
ended Sept 30 ended Sept 30
----------------------------------------------------------------------------
(Thousands-Unaudited) 2008 2007 2008 2007
----------------------------------------------------------------------------

Cash flows from operating activities
Net income (loss) for the period $ (2,381)$ 4,188 $ 1,014 $ 12,425
Items not affecting cash:
Equity investment loss (14) (12) (13) (4)
Depreciation and amortization of
data libraries, property and
equipment and intangible assets 6,662 5,569 27,737 18,139
Amortization of deferred development
costs 230 164 726 539
Amortization of deferred finance
costs 88 106 277 503
Accretion of liability portion of
convertible debentures 166 - 498 -
Future income taxes (reduction) (1,872) 957 (659) (2,380)
Data exchanges (Note 5) - (10,646) - (10,646)
Loss on sale of property and
equipment 1,558 167 1,558 167
Unrealized foreign exchange loss - (90) - -
Non-cash retention bonus 183 275 485 611
Stock compensation expense 274 405 841 1,164
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4,894 1,083 32,464 20,518

Changes in non-cash working capital
balances (1,826) (8,573) (3,555) (13,198)
Increase (decrease) in non-current
deferred revenue (77) 1,055 (517) 961
Decrease in long-term accounts
receivable - 140 - 420
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2,991 (6,295) 28,392 8,701
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Cash flows from (used in) financing
activities
Bank indebtedness - - - (6,451)
Advances to affiliated company - - - (8)
Issue of common shares, net of
related expenses - 1,335 349 2,548
Repayment of long-term debt
obligations (1,899) (2,258) (5,039) (13,753)
Repayment of shareholder loans - - - -
Deferred financing costs - - - (1,340)
Proceeds received from long-term
debt obligations 5,061 1,362 8,943 43,597
Repurchase of common shares (59) - (59) -
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3,103 439 4,194 24,593
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Cash flows from (used in) investing
activities
Purchase of data libraries (363) (2,475) (23,847) (35,811)
Decrease (increase) in participation
surveys in progress 385 (889) 51 1,358
Purchase of property and equipment (73) (180) (362) (1,182)
Acquisitions - (16) - (3,869)
Proceeds on sale of property and
equipment 3,084 177 3,089 177
Deferred development costs (666) (651) (1,867) (1,929)
Changes in non-cash working capital
balances (9,985) 12,455 (9,514) 10,777
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(7,618) 8,421 (32,450) (30,479)
----------------------------------------------------------------------------

Foreign exchange (gain) loss on cash
held in a foreign currency (11) 90 (8) 5
----------------------------------------------------------------------------

Increase (decrease) in cash and cash
equivalents (1,535) 2,655 128 2,820

Cash and cash equivalents, beginning
of period 4,129 1,602 2,466 1,437
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Cash and cash equivalents, end of
period $ 2,594 $ 4,257 $ 2,594 $ 4,257
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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".

This press release contains forward-looking statements about current expectations that involve a number of business risks and uncertainties. These statements generally include forward-looking words such as, "may," "will," "expect," or similar variations. Such statements are subject to known or unknown risks and uncertainties that may cause actual results to differ materially from those anticipated or implied in the forward-looking statements. While management believes the expectations reflected in the forward-looking statements are reasonable, such statements involve risks and uncertainties that could affect the Company's operations and financial results.

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