Divestco Inc.
TSX : DVT

Divestco Inc.

August 09, 2006 19:18 ET

Divestco Reports 493% Increase in Net Income and 96% Increase in Revenue for Q2 2006

CALGARY, ALBERTA--(CCNMatthews - Aug. 9, 2006) - Divestco Inc. ("Divestco" or the "Company") (TSX:DVT)is pleased to announce its eleventh consecutive profitable quarter and operating results for the three and six months ended June 30, 2006. Divestco has earned $3.6 million (11 cents per share - diluted) in net income for the second quarter of 2006 compared to $0.6 million in 2005 (2 cents per share diluted), an increase of 493%. For the six months ended June 2006, the Company earned $7.1 million in net income (22 cents a share - diluted) compared to $2.2 million (9 cents a share - diluted) in 2005, a 225% increase.

Divestco generated revenue of $18.1 million for the second quarter of 2006, an increase of $8.9 million (96%) from $9.2 million for the same period in 2005. Earnings before interest, taxes and amortization ("EBITDA") were $7.9 million, a $4.1 million (107%) increase over the same period in 2005. The Company generated funds from operations of $8.1 million for the second quarter, an increase of $4.5 million (125%) as compared to $3.6 million for the same period in 2005.

Divestco generated revenue of $37.7 million for the first six months of 2006, an increase of $19.8 million (110%) from $17.9 million for the same period in 2005. Earnings before interest, taxes and amortization ("EBITDA") were $20.0 million, a $12.1 million (152%) increase over the same period in 2005. The Company generated funds from operations of $19.7 million for the first six months of 2006, an increase of $12.2 million (160%) as compared to $7.5 million for the same period in 2005.

Excluding deferred revenue of $25.7 million (2005 - $1.7 million), Divestco exited the quarter with a $12.4 million working capital deficiency compared to a $3.1 million deficiency at the end of same quarter in 2005, a decline of $9.3 million. The decline was due to the Company's $45.0 million of in-progress seismic participation surveys at the end of the second quarter, which corresponds to approximately $23.4 million in deferred revenue, $8.9 million in short-term seismic acquisition financing, and $18.8 million in accrued sub-contractor invoices. This was offset by $5.7 million in receivables owing for work completed and invoiced. Due to weather related issues in the field, the Company was delayed in delivering two large seismic surveys. Subsequent to the end of June, the surveys were completed and delivered to the clients. Two additional surveys are expected to be delivered before the end of the third quarter of 2006.



Financial Results
(Thousands, Except Per Share Amounts)
------------------------------------------------------------------------
Three Months Ended Six Months Ended
Jun30 Jun 30
------------------------------------------------------------------------
% %
2006 2005 Change 2006 2005 Change
------------------------------------------------------------------------
Revenues $18,056 $9,221 96% $37,661 $17,936 110%

EBITDA 7,914 3,814 107% 19,972 7,928 152%

Operating Income 2,673 1,019 162% 7,835 3,472 126%

Income Tax Expense 950 406 134% 2,800 1,251 124%

Net Income 3,550 599 493% 7,141 2,200 225%
Per Share - Basic 0.11 0.02 450% 0.23 0.09 156%
Per Share - Diluted 0.11 0.02 450% 0.22 0.09 144%

Funds from Operations 8,058 3,584 125% 19,652 7,544 160%
Per Share - Basic 0.26 0.15 73% 0.64 0.31 106%
Per Share - Diluted 0.24 0.14 71% 0.61 0.30 103%
------------------------------------------------------------------------

Shares Outstanding 33,812 24,528 38% 33,812 24,528 38%

Weighted Average Shares
Outstanding
Basic 31,407 24,503 28% 30,857 24,617 25%
Diluted 33,538 24,718 36% 32,435 24,743 31%
------------------------------------------------------------------------


Q2 Operational Highlights

On May 1, 2006, the Company closed the purchase of the Processing Division business of Calgary based Geo-X Systems Ltd. ("Geo-X") for consideration of C$12.7 million versus the previously announced C$11.5 million. The difference is primarily due to a purchase price adjustment of C$0.9 million (calculated in accordance with the acquisition agreement). The remaining difference is related to the financial accounting treatment of the shares issued as part of the total consideration. The Corporation funded the acquisition from the sale proceeds of certain short-term investments, internally generated cash flow and existing bank debt. It is expected that once operational synergies are achieved, the Processing Division will contribute approximately $15 million in revenue and in excess of $3 million in EBITDA on an annualized basis to the Company. The Processing Division operates as an independent division within Divestco's Services segment.

On June 22, 2006, the Company closed an offering of 2,300,000 common shares. The common shares were sold on a bought deal basis at a price of $5.25 per share generating gross proceeds of $12.1 million. The net proceeds of the offering were used for the acquisition of seismic data and Cavalier Land Ltd. Certain insiders of Divestco and their spouses participated in the Offering and acquired an aggregate of 160,000 Divestco shares.

On June 22, 2006, the Company's common shares were approved for listing on the Toronto Stock Exchange ("TSX"), and effective the same day the common shares were de-listed from the TSX Venture Exchange and commenced trading on the TSX.

In the second quarter of 2006, Divestco completed shooting the 206 square kilometer Lockhorn North program at a cost of $8.7 million. As previously discussed, Divestco has just completed two 3D surveys in the Tremblay and Upper Cut Bank regions and is currently in the process of completing two additional surveys at an aggregate cost of $45 million. To the end of September 2006, Divestco expects to acquire and retain 100% ownership in approximately 1,800 square kilometers of newly shot 3D seismic data at an aggregate cost of $67 million.

Mr. Stephen Popadynetz, CEO of Divestco commented: "I am pleased to report our second quarter results to our shareholders, Board and employees. We again continue with our mandate to grow both organically and through acquisitions, while continuing to generate profitable software, data and services. Our shareholders have been rewarded with our eleventh consecutive profitable quarter and our most impressive second quarter and first six months results to date. I look forward to continued growth, innovation and profitability as we move through 2006 and into 2007."

Q3 Acquisition Update

On July 18, 2006, the Company closed the acquisition of Calgary based Cavalier Land Ltd. ("Cavalier") and its affiliate Agadir Resources Inc. ("Agadir") for consideration of C$7.5 million (C$4.4 million in cash at closing, C$1.9 million in common shares of Divestco at a deemed price per share of $5.09 and the balance of C$1.2 million will be paid over a two-year period). The Company funded the acquisition from the proceeds of a public offering completed in June 2006, and internally generated cash flow. It is expected that once operational synergies are achieved, Cavalier will contribute approximately $8 million in revenue, and in excess of $2 million in EBITDA, on an annualized basis to the Company. In the near term, Cavalier and Agadir will operate as wholly owned subsidiaries of Divestco and be reported within the Consulting segment.



Divestco Inc.
Consolidated Balance Sheets

------------------------------------------------------------------------
As at Jun 30, 2006 Dec 31, 2005
------------------------------------------------------------------------
(Thousands) (unaudited)
------------------------------------------------------------------------

Assets

Current Assets
Cash and cash equivalents $ 9,023 $ 1,382
Short-term investments - 5,512
Accounts receivable 18,383 27,053
Prepaid expenses, supplies and deposits 936 427
Investment tax credits recoverable 322 -
------------------------------------------------------------------------
28,664 34,374

Long-term accounts receivable 960 960
Investment in affiliated company 69 79
Data libraries 41,167 28,740
Participation surveys in progress 44,992 2,719
Property and equipment 5,856 3,495
Deferred development costs 2,395 1,863
Deferred finance costs 366 409
Intangible assets 11,489 4,128
Goodwill 5,225 3,431
------------------------------------------------------------------------
$ 141,183 $ 80,198
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current Liabilities
Bank indebtedness $ 8,870 $ -
Accounts payable and accrued liabilities 29,256 17,624
Current portion of deferred revenue 25,662 10,355
Current portion of long-term debt
obligations 2,943 2,880
------------------------------------------------------------------------
66,731 30,859

Deferred revenue 1,768 402
Long-term debt obligations 7,291 8,724
Future income taxes 5,323 2,989
------------------------------------------------------------------------
81,113 42,974
------------------------------------------------------------------------

Shareholders' Equity
Equity instruments 42,852 27,195
Contributed surplus 1,317 1,269
Retained earnings 15,901 8,760
------------------------------------------------------------------------
60,070 37,224
------------------------------------------------------------------------

$ 141,183 $ 80,198
------------------------------------------------------------------------


Divestco Inc.
Consolidated Statements of Income and Retained Earnings

------------------------------------------------------------------------
(Thousands, except per share For the three months For the six months
amounts - Unaudited) ended June 30 ended June 30
------------------------------------------------------------------------
2006 2005 2006 2005
------------------------------------------------------------------------
Revenue $ 18,056 $ 9,221 $ 37,661 $ 17,936
------------------------------------------------------------------------
Operating expenses
Salaries and benefits 6,067 4,148 10,763 7,450
General and administrative 3,718 1,040 6,307 2,231
Research and development 135 105 268 170
Stock compensation expense 222 114 351 157
------------------------------------------------------------------------
10,142 5,407 17,689 10,008
------------------------------------------------------------------------
Earnings before interest, taxes,
depreciation and amortization 7,914 3,814 19,972 7,928

Interest expense 303 48 496 111

Depreciation and amortization 4,938 2,747 11,641 4,345
------------------------------------------------------------------------

Operating income 2,673 1,019 7,835 3,472
------------------------------------------------------------------------
Other income (loss)
Foreign exchange loss (23) (8) (16) (12)
Gain on sale of investment
securities 1,852 - 2,132 -
Equity investment loss (2) (6) (10) (9)
------------------------------------------------------------------------
1,827 (14) 2,106 (21)
------------------------------------------------------------------------

Income before income taxes 4,500 1,005 9,941 3,451
------------------------------------------------------------------------
Income taxes
Current (reduction) (228) - 177 -
Future 1,178 406 2,623 1,251
------------------------------------------------------------------------
950 406 2,800 1,251
------------------------------------------------------------------------
Net income for the period 3,550 599 7,141 2,200

Retained earnings, beginning of
period 12,351 5,519 8,760 3,918
Purchase price of common shares
repurchased in excess of book
value - (336) - (336)
------------------------------------------------------------------------

Retained earnings, end of period $ 15,901 $ 5,782 $ 15,901 $ 5,782
------------------------------------------------------------------------
Earnings per share
Basic $ 0.11 $ 0.02 $ 0.23 $ 0.09
Diluted $ 0.11 $ 0.02 $ 0.22 $ 0.09
Weighted average number of
shares
Basic 31,407 24,503 30,857 24,617
Diluted 33,538 24,718 32,435 24,743
------------------------------------------------------------------------


Divestco Inc.
Consolidated Statements of Cash Flows

------------------------------------------------------------------------
For the three months For the six months
(Thousands - Unaudited) ended June 30 ended June 30
-----------------------------------------------------------------------
2006 2005 2006 2005
-----------------------------------------------------------------------
Cash flows from operating
activities
Net income for the period $ 3,550 $ 599 $ 7,141 $ 2,200
Items not affecting cash:
Equity investment loss 2 6 10 9
Depreciation and amortization 4,938 2,747 11,641 4,345
Future income taxes 1,178 406 2,623 1,251
Investment tax credits
utilized - (292) - (425)
Gain on sale of investment
securities (1,852) - (2,132) -
Unrealized foreign exchange
loss 20 4 18 7
Stock compensation expense 222 114 351 157
-----------------------------------------------------------------------
Funds from operations 8,058 3,584 19,652 7,544

Changes in non-cash working
capital balances 8,356 1,559 24,205 534
Increase (decrease) in
non-current deferred revenue 1,435 434 1,366 744
Decrease in long-term accounts
receivable - 63 - 250
-----------------------------------------------------------------------
17,849 5,640 45,223 9,072
-----------------------------------------------------------------------
Cash flows from financing
activities
Bank indebtedness 8,004 156 8,870 319
Issue of common shares, net of
related expenses 11,426 74 13,866 129
Repayment of long-term debt
obligations (710) (339) (1,370) (775)
Deferred financing costs 22 - 43 -
Proceeds received from
long-term debt obligations - 446 - 783
Repurchase of common shares - (194) - (822)
------------------------------------------------------------------------
18,742 143 21,409 (366)
------------------------------------------------------------------------
Cash flows from investing
activities
Purchase of data libraries (9,069) (5,591) (22,869) (7,758)
(Increase) decrease in
participation surveys in
progress (19,482) 3,103 (42,273) (38)
Purchase of property and
equipment (221) (130) (527) (657)
Purchase of intangibles (176) - (176) -
Acquisition - Geo-X Processing (11,487) - (11,487) -
Acquisition - Petro Data Source
Inc. - (343) - (343)
Purchase of investment
securities - - (109) -
Proceeds on sale of investment
securities 6,644 - 7,753 -
Deferred development costs (296) (254) (532) (594)
Changes in non-cash working
capital balances 4,146 (2,563) 11,254 689
------------------------------------------------------------------------
(29,941) (5,778) (58,966) (8,701)
------------------------------------------------------------------------

Foreign exchange loss on cash
held in a foreign currency (20) (5) (25) (5)
------------------------------------------------------------------------
Increase in cash and cash
equivalents 6,630 - 7,641 -

Cash and cash equivalents,
beginning of period 2,393 - 1,382 -
-----------------------------------------------------------------------
Cash and cash equivalents, end
of period $ 9,023 $ - $ 9,023 $ -
-----------------------------------------------------------------------


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.

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.

Operating income is calculated by deducting interest and amortization from EBITDA. Funds from operations is calculated by adding or deducting non-cash items from net income (loss). Funds from operations per share (basic and diluted) is calculated by dividing funds from operations by the weighted average number of shares outstanding (basic and diluted) for the relevant period.

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