Divestco Inc.
TSX : DVT

Divestco Inc.

May 05, 2008 19:33 ET

Divestco Reports 18th Consecutive Profitable Quarter

CALGARY, ALBERTA--(Marketwire - May 5, 2008) - Divestco Inc. (TSX:DVT) (Divestco or the Company) is pleased to announce its operating results for the three months ended March 31, 2008. Divestco generated revenue of $30.1 million for the first quarter of 2008, an increase of $3.3 million (12%) from $26.8 million for the same period in 2007. Earnings before interest, taxes and amortization (EBITDA) were $16.3 million, a $3.5 million (28%) increase over the same period in 2007. The Company generated funds from operations of $14.1 million ($0.32 per share - diluted) for the first quarter, an increase of $8.4 million (148%) as compared to $5.7 million ($0.15 per share - diluted) for the same period in 2007.

Divestco earned $3.1 million in net income for the first quarter of 2008 compared to $4.1 million in 2007. The Company earned 8 cents per share - basic (7 cents per share - diluted) for the first quarter of 2008. This compares to 11 cents per share - basic and diluted for the same period in 2007.

Divestco is pleased with its results, considering the continuing impact of the overall industry slowdown which was exacerbated by the Alberta Government's Royalty Review in the fall of 2007. Alberta customers' capital budgets were reduced and, as such, this resulted in a corresponding reduction in demand for some of the Company's services and seismic participation programs in Alberta. Divestco maintains a strong data and service presence in and outside of Alberta, and has witnessed an increase in activity in British Columbia (BC) and Saskatchewan which partially offset the decreases in the Alberta related revenue. Divestco has positioned many of its 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 aggregate data library (inventory) sales totaling approximately $11.9 million for the first quarter of 2008. This represents an increase of $4.9 million (69%) compared to $7 million of aggregate library sales for the same period in 2007. Seismic participation revenue was $6.9 million compared to $8.1 million in 2007, a decrease of $1.2 million (15%).

Excluding the current portion of deferred revenue of $9.6 million (December 31, 2007 - $4.4 million), Divestco exited the quarter with a $26 million working capital deficiency compared to a $28.1 million deficiency at the end of 2007. Divestco is focused on strengthening the balance sheet and expects the seasonal working capital shortfall will be remedied in the latter half of fiscal 2008.

Q1 Operational Highlights

- Divestco increased its seismic dataset with the acquisition of three additional field surveys comprised of approximately 395 square kilometers of 3D seismic at a cost of approximately $9.7 million. This data is strategic in nature and compliments our existing seismic datasets in two core areas: Cutbank Ridge (BC) and Debolt (Alberta). With these data acquisitions complete, Divestco continues to control the largest independent 3D seismic library in BC.

- Divestco acquired an additional 4,330 gross kilometres of 2D and 250 gross square kilometres of 3D legacy seismic data for approximately $1.5 million.

- The Software segment increased its quarterly revenue by $401,000 (22%), due to growth in traditional product lines and a large software consulting project that commenced in the second quarter of 2007.

Mr. Stephen Popadynetz, CEO of Divestco commented: "I am pleased to report our 2008 first quarter results to our shareholders, Board and employees. Our business model continues to produce positive results and our shareholders have been rewarded with our eighteenth consecutive profitable quarter. With stabilized natural gas prices on the horizon and an ever increasing pipeline of opportunities, we are looking forward to improved economic conditions and results for the remainder of the year. We look forward to continued growth, innovation and profitability as we move through 2008."



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Financial Results (Thousands, Except Per Share Amounts)
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Three Months Ended March 31
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2008 2007 % Change
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Revenues $ 30,054 $ 26,793 12%

Operating Expenses 13,706 14,041 -2%
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EBITDA 16,348 12,752 28%

Interest 1,284 289 344%

Depreciation and Amortization 10,257 6,318 62%
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Operating Income 4,807 6,145 -22%

Other Income (Loss) 15 (20) N/A

Income Tax Expense 1,708 2,054 -17%
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Net Income $ 3,114 $ 4,071 -24%
Per Share - Basic 0.08 0.11 -27%
Per Share - Diluted 0.07 0.11 -36%
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Funds from Operations $ 14,065 $ 5,662 148%
Per Share - Basic 0.34 0.16 113%
Per Share - Diluted 0.32 0.15 113%
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Shares Outstanding 41,766 35,747 17%

Weighted Average Shares Outstanding
Basic 41,461 35,451 17%
Diluted 43,691 36,568 19%
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Segment Review Summary
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For the three months ended March 31, 2008 (Thousands)
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Soft- Serv- Consul- Corporate &
ware ices Data ting Other Total
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Revenue $ 2,229 $ 5,624 $ 18,748 $ 3,453 $ - $ 30,054
EBITDA 809 727 16,575 186 (1,949) 16,348
Interest (Net
of Interest
Revenue) - - - (6) 1,290 1,284
Depreciation
and
Amortization 421 594 8,836 356 50 10,257
Operating
Income (Loss) 388 133 7,739 (164) (3,289) 4,807
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For the three months ended March 31, 2007 (Thousands)
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Soft- Serv- Consul- Corporate &
ware ices Data ting Other Total
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Revenue $ 1,828 $ 6,147 $ 15,130 $ 3,688 $ - $ 26,793
EBITDA 594 1,183 13,253 509 (2,787) 12,752
Interest (Net
of Interest
Revenue) - - 48 (8) 249 289
Depreciation
and
Amortization 386 392 5,183 315 42 6,318
Operating
Income (Loss) 208 791 8,022 202 (3,078) 6,145
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Divestco Inc.
Consolidated Balance Sheets
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As at Mar 31, 2008 Dec 31, 2007
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(Thousands) (Unaudited)
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Assets

Current Assets
Cash and cash equivalents $ 2,689 $ 2,466
Funds held in trust 489 678
Accounts receivable 34,825 27,083
Prepaid expenses, supplies and deposits 1,921 1,794
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39,924 32,021

Investment in affiliated company 74 72
Data libraries 163,778 161,354
Participation surveys in progress 7,394 1,047
Property and equipment 5,966 5,981
Deferred development costs 4,912 4,736
Intangible assets 19,164 20,208
Goodwill 10,090 10,090
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$ 251,302 $ 235,509
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Liabilities and Shareholders' Equity

Current Liabilities
Accounts payable and accrued liabilities $ 45,555 $ 39,391
Income taxes payable 6,781 7,286
Current portion of deferred revenue 9,633 4,351
Current portion of long-term debt obligations 5,898 5,889
Convertible debentures 7,699 7,533
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75,566 64,450

Deferred revenue 173 530
Long-term debt obligations 39,654 38,400
Future income taxes 13,564 13,406
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128,957 116,786
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Shareholders' Equity
Equity instruments 69,021 68,690
Contributed surplus 3,838 3,661
Equity portion of convertible debentures 609 609
Retained earnings 48,877 45,763
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122,345 118,723
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$ 251,302 $ 235,509
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Divestco Inc.
Consolidated Statements of Income, Comprehensive Income and Retained
Earnings
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For the three months
ended March 31
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(Thousands, except per share amounts - Unaudited) 2008 2007
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Revenue $ 30,054 $ 26,793
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Operating expenses
Salaries and benefits 9,320 9,572
General and administrative 4,128 4,092
Stock compensation expense 258 377
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13,706 14,041
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Interest expense 1,284 289

Depreciation and amortization 10,257 6,318

Other income (loss) 15 (20)
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Income before income taxes 4,822 6,125
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Income taxes
Current 1,550 7,195
Future (reduction) 158 (5,141)
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1,708 2,054
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Net income and comprehensive income for the period 3,114 4,071

Retained earnings, beginning of period 45,763 28,375
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Retained earnings, end of period $ 48,877 $ 32,446
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Earnings per share
Basic $ 0.08 $ 0.11
Diluted $ 0.07 $ 0.11

Weighted average number of shares
Basic 41,461 35,451
Diluted 43,691 36,568
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Divestco Inc.
Consolidated Statements of Cash Flows
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For the three months
ended March 31
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(Thousands-Unaudited) 2008 2007
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Cash flows from operating activities
Net income for the year $ 3,114 $ 4,071
Items not affecting cash:
Equity investment loss (gain) (2) 4
Depreciation and amortization of data libraries,
property and equipment and
intangible assets 10,012 6,094
Amortization of deferred development costs 245 224
Amortization of deferred finance costs 97 22
Accretion of liability portion of convertible
debentures 166 -
Future income taxes (reduction) 158 (5,141)
Unrealized foreign exchange loss - 11
Non-cash retention bonus 17 -
Stock compensation expense 258 377
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14,065 5,662

Changes in non-cash working capital balances (6,415) 1,820
Increase (decrease) in non-current deferred
revenue (357) (58)
Decrease in long-term accounts receivable - 140
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7,293 7,564
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Cash flows from financing activities
Bank indebtedness - 2,943
Advances to affiliated company - (7)
Issue of common shares, net of related expenses 233 618
Repayment of long-term debt obligations (1,198) (683)
Proceeds received from long-term debt obligations 2,071 -
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1,106 2,871
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Cash flows from investing activities
Purchase of data libraries (10,966) (10,154)
Increase in participation surveys in progress (6,347) (4,832)
Purchase of property and equipment (123) (356)
Proceeds on sale of property and equipment 5 -
Deferred development costs (421) (623)
Changes in non-cash working capital balances 9,676 5,136
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(8,176) (10,829)
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Foreign exchange loss on cash held in a foreign
currency - (11)
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Increase in cash and cash equivalents 223 (405)

Cash and cash equivalents, beginning of period 2,466 1,437
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Cash and cash equivalents, end of period $ 2,689 $ 1,032
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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