Divestco Inc.
TSX : DVT

Divestco Inc.

August 13, 2008 08:00 ET

Divestco Reports 19th Consecutive Profitable Quarter

CALGARY, ALBERTA--(Marketwire - Aug. 13, 2008) - Divestco Inc. (TSX:DVT) ("Divestco" or the "Company") is pleased to announce its operating results for the three and six months ended June 30, 2008. During the second quarter, our slowest quarter, Divestco generated revenue of $26.2 million, a decrease of $1.3 million (5%) from $27.5 million for the same period in 2007. Earnings before interest, taxes and amortization (EBITDA) were $12.9 million, a $1.2 million (8%) decrease over the same period in 2007. The Company generated funds from operations of $13.5 million ($0.31 per share - diluted) for the second quarter, a decrease of $0.3 million (9%) as compared to $13.8 million ($0.33 per share - diluted) for the same period in 2007.

Divestco generated revenue of $56.2 million for the first six months of 2008, an increase of $1.9 million (4%) from $54.3 million for the same period in 2007. Earnings before interest, taxes and amortization ("EBITDA") were $29.2 million, a $2.4 million (9%) increase over the same period in 2007. From a Cash EBITDA perspective the Company generated $16.1 million, a $0.3 million (2%) increase over the same period in 2007. The Company generated funds from operations of $27.6 million for the first six months, an increase of $8.2 million (42%) as compared to $19.4 million for the same period in 2007.

Divestco earned $0.3 million in net income for the second quarter of 2008 compared to $4.2 million in 2007 (1 cent per share - basic and diluted). This compares to 11 cents per share - basic (10 cents per share - diluted) for the same period in 2007.

The Company earned $3.4 million in net income for the first six months of 2008 (8 cents per share - diluted) compared to $8.2 million (21 cents per share - diluted) in 2007, a 59% decrease over the same period last year.

Despite the prolonged slowdown in the service industry, Divestco is pleased with its results. Recent increases in natural gas prices have led our customers to expand their capital budgets, and we believe this will translate into an increase in demand for our services and data as 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 $9.2 million in sales for the second quarter of 2008. This represents a decrease of $4.6 million (33%) compared to $13.8 million of aggregate library sales for the same period in 2007. Seismic participation revenue for the second quarter of 2008 was $6.2 million compared to $2.9 million in 2007, an increase of $3.3 million (115%).

For the six months ended June 30, 2008, the Company generated data library sales totaling approximately $21.1 million. This represents an increase of $0.3 million (1%) compared to $20.8 million of aggregate library sales for the same period in 2007. Seismic participation revenue for the six months ended June 30, 2008 was $13.1 million compared to $11 million in 2007, an increase of $2.1 million (19%).

Excluding the current portion of deferred revenue of $5.3 million (December 31, 2007 - $4.4 million), Divestco exited the quarter with a $24.6 million working capital deficiency compared to a $28.1 million deficiency at the end of 2007. Divestco is focused on strengthening its balance sheet and expects to continue to rectify its working capital shortfall in the second half of fiscal 2008.

Q2 Operational Highlights

- Divestco increased its seismic dataset with the acquisition of two additional field surveys comprised of approximately 190 square kilometers of 3D seismic at a cost of approximately $10.8 million (excluding intercompany charges). This data is strategic in nature and compliments our existing seismic datasets in northeast B.C.

- Divestco acquired an additional 146 gross square kilometres of 3D legacy seismic data for approximately $1.6 million.

Mr. Stephen Popadynetz, CEO of Divestco commented: "I am pleased to report our 2008 second quarter results to our Shareholders, Board and Employees. With stabilized natural gas prices on the horizon and an ever increasing pipeline of opportunities, we are looking forward to improved economic conditions and stronger results for the second half of the fiscal year."

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:

----------------------------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
----------------------------------------------------------------------------
(Thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------

Net Income $ 281 $ 4,166 $ 3,395 $ 8,237
Income Tax Expense 32 2,088 1,740 4,142
Other Income (Loss) (1) (3) (29) 12 (48)
----------------------------------------------------------------------------
Operating Income $ 316 $ 6,283 $ 5,123 $ 12,427
Interest 1,249 1,139 2,533 1,428
Depreciation and Amortization 11,314 6,631 21,571 12,948
----------------------------------------------------------------------------
EBITDA $ 12,879 $ 14,053 $ 29,227 $ 26,803
Less: seismic participation
revenue $ (6,236) $ (2,898) $(13,088) $(10,997)
----------------------------------------------------------------------------
Cash EBITDA $ 6,643 $ 11,155 $ 16,139 $ 15,806
----------------------------------------------------------------------------


On a trailing twelve-month basis exiting the second quarter 2008, the company generated $39.9 million in Cash EBITDA, an $11.4 million (40%) increase from the $28.5 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:

----------------------------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
----------------------------------------------------------------------------
(Thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------

Cash Flows from Operating
Activities $ 18,110 $ 7,423 $ 25,402 $ 14,993
Changes in Non-Cash Working
Capital Balances (4,688) 6,454 1,729 4,628
Decrease in Non-Current Deferred
Revenue 83 39 440 95
Decrease in Long-Term Accounts
Receivable - (140) - (280)
----------------------------------------------------------------------------
Funds from Operations $ 13,505 $ 13,776 $ 27,571 $ 19,436
----------------------------------------------------------------------------


Financial Highlights

----------------------------------------------------------------------------
Financial Results (Thousands, Except Per Share Amounts)
----------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
----------------------------------------------------------------------------
% %
2008 2007 Change 2008 2007 Change
----------------------------------------------------------------------------

Revenues $ 26,175 $ 27,529 -5% $ 56,229 $ 54,322 4%
Operating Expenses 13,296 13,476 -1% 27,002 27,519 -2%
----------------------------------------------------------------------------
EBITDA 12,879 14,053 -8% 29,227 26,803 9%
Interest 1,249 1,139 10% 2,533 1,428 77%
Depreciation and
Amortization 11,314 6,631 71% 21,571 12,948 67%
----------------------------------------------------------------------------
Operating Income 316 6,283 -95% 5,123 12,427 -59%
Other Income (Loss) (3) (29) N/A 12 (48) N/A
Income Tax Expense 32 2,088 -98% 1,740 4,142 -58%
----------------------------------------------------------------------------
Net Income $ 281 $ 4,166 -93% $ 3,395 $ 8,237 -59%
Per Share - Basic 0.01 0.11 -91% 0.08 0.22 -64%
Per Share - Diluted 0.01 0.10 -90% 0.08 0.21 -62%
----------------------------------------------------------------------------
Funds from
Operations $ 13,505 $ 13,776 -2% $ 27,571 $ 19,436 42%
Per Share - Basic 0.32 0.35 -9% 0.66 0.52 27%
Per Share - Diluted 0.31 0.33 -6% 0.63 0.49 29%
----------------------------------------------------------------------------
Shares Outstanding 41,846 40,959 2% 41,846 40,959 2%
Weighted Average
Shares Outstanding
Basic 41,808 38,906 7% 41,700 37,082 12%
Diluted 43,979 41,646 6% 43,883 39,875 10%
----------------------------------------------------------------------------
Cash EBITDA $ 6,643 $ 11,155 -40% $ 16,139 $ 15,806 2%
----------------------------------------------------------------------------


Segment Review Summary

----------------------------------------------------------------------------
For the three months ended June 30, 2008 (Thousands)
----------------------------------------------------------------------------
Corporate &
Software Services Data Consulting Other Total
----------------------------------------------------------------------------
Revenue $ 1,916 $ 5,895 $ 15,424 $ 2,940 $ - $ 26,175
EBITDA 677 1,046 13,494 (229) (2,109) 12,879
Interest (Net of
Interest Revenue) - - (11) (7) 1,267 1,249
Depreciation and
Amortization 437 616 9,771 325 165 11,314
Operating Income
(Loss) 240 430 3,734 (547) (3,541) 316
----------------------------------------------------------------------------


----------------------------------------------------------------------------
For the three months ended June 30, 2007 (Thousands)
----------------------------------------------------------------------------
Corporate &
Software Services Data Consulting Other Total
----------------------------------------------------------------------------
Revenue $ 1,952 $ 5,851 $ 16,696 $ 3,030 $ - $ 27,529
EBITDA 866 467 14,574 248 (2,102) 14,053
Interest (Net
of Interest
Revenue) 3 - 210 (12) 938 1,139
Depreciation and
Amortization 344 744 5,170 325 48 6,631
Operating Income
(Loss) 519 (277) 9,194 (65) (3,088) 6,283
----------------------------------------------------------------------------


----------------------------------------------------------------------------
For the six months ended June 30, 2008 (Thousands)
----------------------------------------------------------------------------
Corporate &
Software Services Data Consulting Other Total
----------------------------------------------------------------------------
Revenue $ 4,145 $ 11,520 $ 34,172 $ 6,392 $ - $ 56,229
EBITDA 1,485 1,773 30,069 (44) (4,056) 29,227
Interest (Net
of Interest
Revenue) - - (11) (14) 2,558 2,533
Depreciation
and Amortization 857 1,210 18,607 681 216 21,571
Operating Income
(Loss) 628 563 11,473 (711) (6,830) 5,123
----------------------------------------------------------------------------


----------------------------------------------------------------------------
For the six months ended June 30, 2007 (Thousands)
----------------------------------------------------------------------------
Corporate &
Software Services Data Consulting Other Total
----------------------------------------------------------------------------
Revenue $ 3,780 $ 11,998 $ 31,826 $ 6,718 $ - $ 54,322
EBITDA 1,459 1,650 27,827 756 (4,889) 26,803
Interest (Net
of Interest
Revenue) 3 - 255 (20) 1,190 1,428
Depreciation
and Amortization 728 1,136 10,355 640 89 12,948
Operating Income
(Loss) 728 514 17,217 136 (6,168) 12,427
----------------------------------------------------------------------------


Divestco Inc.
Consolidated Balance Sheets

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

Assets

Current Assets
Cash and cash equivalents $ 4,129 $ 2,466
Funds held in trust - 678
Accounts receivable 22,100 27,083
Prepaid expenses, supplies and deposits 1,905 1,794
----------------------------------------------------------------------------
28,449 32,021

Investment in affiliated company 71 72
Data libraries 166,770 161,354
Participation surveys in progress 1,381 1,047
Property and equipment 5,764 5,981
Deferred finance costs - -
Intangible assets 18,120 20,208
Goodwill 10,090 10,090
----------------------------------------------------------------------------

$ 236,086 $ 235,509
----------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Accounts payable and accrued liabilities $ 37,605 $ 39,391
Income taxes payable 1,591 7,286
Current portion of deferred revenue 5,339 4,351
Current portion of long-term debt obligations 6,010 5,889
Convertible debentures 7,865 7,533
----------------------------------------------------------------------------
58,410 64,450

Deferred revenue 90 530
Long-term debt obligations 39,629 38,400
Future income taxes 14,619 13,406
----------------------------------------------------------------------------
112,748 116,786
----------------------------------------------------------------------------

Shareholders' Equity
Equity instruments 69,624 68,690
Contributed surplus 3,946 3,661
Equity portion of convertible debentures 609 609
Retained earnings 49,158 45,763
----------------------------------------------------------------------------
123,337 118,723
----------------------------------------------------------------------------

$ 236,085 $ 235,509
----------------------------------------------------------------------------


Divestco Inc.
Consolidated Statements of Income, Comprehensive Income and Retained
Earnings

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

Revenue $ 26,175 $ 27,529 $ 56,229 $ 54,322
----------------------------------------------------------------------------

Operating expenses
Salaries and benefits 8,873 8,732 18,192 18,304
General and administrative 4,114 4,363 8,242 8,456
Stock compensation expense 309 381 568 759
----------------------------------------------------------------------------
13,296 13,476 27,002 27,519
----------------------------------------------------------------------------

Interest expense 1,249 1,139 2,533 1,428

Depreciation and amortization 11,314 6,631 21,571 12,948

Other income (loss) (3) (29) 12 (48)
----------------------------------------------------------------------------

Income before income taxes 313 6,254 5,135 12,379
----------------------------------------------------------------------------

Income taxes
Current (recovery) (1,023) 284 527 7,479
Future (reduction) 1,055 1,804 1,213 (3,337)
----------------------------------------------------------------------------
32 2,088 1,740 4,142
----------------------------------------------------------------------------

Net income and comprehensive income
for the period 281 4,166 3,395 8,237

Retained earnings, beginning of
period 48,877 32,446 45,763 28,375
----------------------------------------------------------------------------

Retained earnings, end of period $ 49,159 $ 36,612 $ 49,158 $ 36,612
----------------------------------------------------------------------------

Earnings per share
Basic $ 0.01 $ 0.11 $ 0.08 $ 0.22
Diluted $ 0.01 $ 0.10 $ 0.08 $ 0.21

Weighted average number of shares
Basic 41,808 38,906 41,700 37,082
Diluted 43,979 41,646 43,883 39,875
----------------------------------------------------------------------------


Divestco Inc.
Consolidated Statements of Cash Flows

----------------------------------------------------------------------------
For the three months For the six months
ended June 30 ended June 30
----------------------------------------------------------------------------
(Thousands-Unaudited) 2008 2007 2008 2007
----------------------------------------------------------------------------

Cash flows from operating
activities
Net income for the period $ 281 $ 4,166 $ 3,395 $ 8,237
Items not affecting cash:
Equity investment loss 3 4 1 7
Depreciation and amortization of
data libraries, property and
equipment and intangible assets 11,063 6,480 21,075 12,573
Amortization of deferred
development costs 251 151 496 375
Amortization of deferred finance
costs 92 375 189 397
Accretion of liability portion of
convertible debentures 166 - 332 -
Future income taxes (reduction) 1,055 1,804 1,213 (3,337)
Unrealized foreign exchange loss - 80 - 90
Non-cash retention bonus 285 335 302 335
Stock compensation expense 309 381 568 759
----------------------------------------------------------------------------
13,505 13,776 27,571 19,436

Changes in non-cash working capital
balances 4,688 (6,454) (1,729) (4,628)
Decrease in non-current deferred
revenue (83) (39) (440) (95)
Decrease in long-term accounts
receivable - 140 - 280
----------------------------------------------------------------------------
18,110 7,423 25,402 14,993
----------------------------------------------------------------------------

Cash flows from (used in) financing
activities
Bank indebtedness - (9,395) - (6,451)
Advances to affiliated company - - - (8)
Issue of common shares, net of
related expenses 116 595 349 1,213
Repayment of long-term debt
obligations (1,940) (10,809) (3,138) (11,494)
Deferred financing costs - (1,340) - (1,340)
Proceeds received from long-term
debt obligations 1,810 42,235 3,881 42,235
----------------------------------------------------------------------------
(14) 21,286 1,092 24,155
----------------------------------------------------------------------------

Cash flows from (used in) investing
activities
Purchase of data libraries (12,521) (23,177) (23,487) (33,334)
Increase in participation surveys
in progress 6,013 7,080 (334) 2,248
Purchase of property and equipment (163) (647) (286) (1,003)
Acquisitions (Note 3) - (3,852) - (3,852)
Proceeds on sale of property and
equipment - - 5 -
Deferred development costs (780) (652) (1,200) (1,276)
Changes in non-cash working capital
balances (9,205) (6,813) 471 (1,677)
----------------------------------------------------------------------------
(16,656) (28,061) (24,831) (38,894)
----------------------------------------------------------------------------

Foreign exchange loss on cash held
in a foreign currency - (78) - (89)
----------------------------------------------------------------------------

Increase in cash and cash
equivalents 1,440 570 1,663 165

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

Cash and cash equivalents, end of
period $ 4,129 $ 1,602 $ 4,129 $ 1,602
----------------------------------------------------------------------------


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.

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