Divestco Inc.
TSX VENTURE : DVT

Divestco Inc.

August 29, 2011 09:30 ET

Divestco Reports Q2 2011 Results

CALGARY, ALBERTA--(Marketwire - Aug. 29, 2011) - Divestco Inc. ("Divestco" or the "Company") (TSX VENTURE:DVT) announces its operating results for the three and six months ended June 30, 2011.

Accounting Policy Changes

On January 1, 2011, Divestco adopted International Financial Reporting Standards ("IFRS") for purposes of financial reporting, using a transition date of January 1, 2010. Accordingly, the Company's interim condensed consolidated financial statements for the three and six months ended June 30, 2011 and the comparative information for the three months and six ended June 30, 2010, have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board ("IASB"). Previously, the Company prepared its interim and annual consolidated financial statements in accordance with Canadian generally accepted accounting principles ("previous GAAP"). The adoption of IFRS has not had an impact on the Company's operations and strategic decisions.

Results for the Three Months Ended June 30, 2011

Divestco realized net income for the second quarter of 2011 of $235,000 ($nil per share – basic and diluted) compared to net loss of $4.6 million ($0.11 cents per share – basic and diluted) for the same period in 2010. The increase of $4.8 million (105%) was due to a decrease in finance costs of $356,000 (68%), namely interest on long-term debt, and a decrease in depreciation and amortization by $6.3 million (81%) mainly due to the sale of the Company's seismic data assets in Q3 2010. Offsetting this was an increase in operating expenses by $451,000 (5%) mainly due to double rent and severance costs.

During Q2 2011 and Q2 2010, Divestco generated revenue of $10.6 million. EBITDA was $1.9 million in Q2 2011, a $0.5 million (19%) decrease from $2.4 million for the same period in 2010. The Company generated funds from operations of $2.1 million ($0.03 per share – basic and diluted) for the second quarter of 2011, compared to $2.4 million ($0.06 per share – basic and diluted) for the same period in 2010.

Results for the Six Months Ended June 30, 2011

Divestco realized a net loss for the first six months of 2011 of $4.1 million ($0.07 per share – basic and diluted) compared to net loss of $8.8 million ($0.21 cents per share – basic and diluted) for the same period in 2010. The net loss in for the six months ended June 30, 2011 was primarily due to a decrease in revenue from the sale of the Company's seismic assets in Q3 2010 as well as double rent commitments and expenses related to the Company's office space. This was offset by a decrease in depreciation and amortization by $12.1 million (71%) mainly due to the sale of the Company's seismic data assets in Q3 2010.

During the first six months of 2011, Divestco generated revenue of $19.5 million, a decrease of $3.2 million (14%) from $22.7 million for the same period in 2010. EBITDA was $1.1 million, a $4.9 million (82%) decrease from $6 million for the same period in 2010. The Company generated funds from operations of $1.2 million ($0.02 per share – basic and diluted) for the six months ended June 30, 2011, compared to $4.4 million ($0.10 per share – basic and diluted) for the same period in 2010.

Late in 2010, Divestco commenced rebuilding its seismic data library by initiating a 71 square kilometer 3D seismic survey which was completed in early 2011. The Company also obtained the trading rights to an existing 3D survey covering an adjacent area of 66 square kilometers in Q1 2011 through a data exchange. In Q2 2011, the Company commenced a 3D survey in central Alberta which is expected to cover an area of approximately 200 square kilometers.

Mr. Stephen Popadynetz, CEO, President and CFO: "We are continuing to restructure our Company and as we do so, we have had to incur several non-recurring expenses. In the second quarter of 2011 alone, Divestco incurred one-time expenses related to double rent and severance of $1.3 million. Despite these charges, Divestco had a profitable quarter and continues to improve its cash flow. Our results should improve as more of these non-recurring expenses are completed and behind us. We feel we are well on track to sustained profitability and positive earnings and we look forward to delivering better results as the year progresses for our shareholders."

Non-GAAP Measures

The Company's interim condensed consolidated financial statements have been prepared in accordance with IFRS. Certain measures in this document do not have any standardized meaning as prescribed by IFRS and are considered 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 assist 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 IFRS 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 statement 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.

EBITDA is calculated as follows:

Three Months Ended June 30 Six Months Ended June 30
(Thousands) 2011 2010 2011 2010
Net Income (Loss) $ 235 $ (4,561 ) $ (4,097 ) $ (8,772 )
Income Tax Expense (Reduction) 16 (1,400 ) 65 (3,309 )
Other Loss (Income) 2 (14 ) 2 (94 )
Operating Income (Loss) $ 253 $ (5,975 ) $ (4,030 ) $ (12,175 )
Finance costs 167 523 204 1,092
Depreciation and Amortization 1,525 7,858 4,914 17,094
EBITDA 1,945 2,406 1,088 6,011

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 statement of cash flows.

Funds from operations is not a calculation based on IFRS and should not be considered an alternative to the consolidated statement 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:

Six Months Ended June 30
(Thousands) 2011 2010
Cash Flows from Operating Activities $ 2,852 $ 8,839
Changes in Non-Cash Working Capital Balances Related to Operating Activities (1,744 ) (5,019 )
Changes in Long-term Prepaid Expense - (158 )
Interest Paid 141 988
Income Taxes Refunded (51 ) (290 )
Funds from Operations $ 1,198 $ 4,360
Financial Highlights
(Thousands, except per share amounts) Three Months Ended June 30 Six Months Ended June 30
2011 2010 $ Change % Change 2011 2010 $ Change % Change
Revenue $ 10,637 $ 10,647 $ (10 ) 0 % $ 19,452 $ 22,725 $ (3,273 ) -14 %
Operating Expenses 8,692 8,241 451 5 % 18,364 16,714 1,650 10 %
EBITDA 1,945 2,406 (461 ) -19 % 1,088 6,011 (4,923 ) -82 %
Finance Costs 167 523 (356 ) -68 % 204 1,092 (888 ) -81 %
Depreciation and Amortization 1,525 7,858 (6,333 ) -81 % 4,914 17,094 (12,180 ) -71 %
Operating Income (Loss) 253 (5,975 ) 6,228 -104 % (4,030 ) (12,175 ) 8,145 -67 %
Other Loss (Income) 2 (14 ) 16 -114 % 2 (94 ) 96 -102 %
Income Tax Expense (Reduction) 16 (1,400 ) 1,416 -101 % 65 (3,309 ) 3,374 -102 %
Net Income (Loss) $ 235 $ (4,561 ) $ 4,796 -105 % $ (4,097 ) $ (8,772 ) $ 4,675 -53 %
Per Share - Basic and Diluted - (0.11 ) 0.11 -100 % (0.07 ) (0.21 ) 0.14 -67 %
Funds from Operations $ 2,067 $ 2,422 $ (355 ) -15 % $ 1,198 $ 4,360 $ (3,162 ) -73 %
Per Share - Basic and Diluted 0.03 0.06 (0.03 ) -50 % 0.02 0.10 (0.08 ) -80 %
Shares Outstanding 59,585 41,958 17,627 42 % 59,585 41,958 17,627 42 %
Weighted Average Shares Outstanding
Basic 59,471 41,958 17,513 42 % 59,408 41,958 17,450 42 %
Diluted 59,471 41,958 17,513 42 % 59,408 41,958 17,450 42 %
Segment Review Summary
For the three months ended June 30, 2011 (Thousands)
Software
and
Data
Services Seismic Data Corporate
&
Other
Total
Revenue $ 2,361 $ 4,480 $ 3,796 $ - $ 10,637
EBITDA 662 910 3,177 (2,804 ) 1,945
Finance costs - (1 ) (1 ) 169 167
Depreciation and Amortization 906 272 34 313 1,525
Operating Income (Loss) (244 ) 639 3,144 (3,286 ) 253
For the three months ended June 30, 2010 (Thousands)
Software Services Data Corporate
& Other
Total
Revenue $ 2,304 $ 4,336 $ 4,007 $ - $ 10,647
EBITDA 903 493 3,278 (2,268 ) 2,406
Finance costs - - - 523 523
Depreciation and Amortization 694 374 6,614 176 7,858
Impairment of goodwill and intangibles - - - - -
Operating Income (Loss) 209 119 (3,336 ) (2,967 ) (5,975 )
For the six months ended June 30, 2011 (Thousands)
Software Services Data Corporate
&
Other
Total
Revenue $ 4,539 $ 9,606 $ 5,307 $ - $ 19,452
EBITDA 1,433 2,312 3,744 (6,401 ) 1,088
Finance costs - (1 ) (3 ) 208 204
Depreciation and Amortization 2,037 563 972 1,342 4,914
Operating Income (Loss) (604 ) 1,750 2,775 (7,951 ) (4,030 )
For the six months ended June 30, 2010 (Thousands)
Software Services Data Corporate
& Other
Total
Revenue $ 4,724 $ 9,829 $ 8,172 $ - $ 22,725
EBITDA 1,829 1,864 6,314 (3,996 ) 6,011
Finance costs - - - 1,092 1,092
Depreciation and Amortization 1,428 903 14,291 472 17,094
Operating Income (Loss) 401 961 (7,977 ) (5,560 ) (12,175 )
Divestco Inc.
Condensed Consolidated Statement of Financial Position
June 30 , December 31 ,
As at 2011 2010
(Thousands - Unaudited)
Assets
Current Assets
Cash $ 903 $ 3,696
Funds held in trust 16 15
Accounts receivable 12,137 11,759
Prepaid expenses, supplies and deposits 224 237
Income taxes receivable 264 287
13,544 15,994
Investment in affiliated company 128 100
Participation surveys in progress 2,819 1,253
Property and equipment 5,783 3,026
Intangible assets 14,966 14,611
$ 37,240 $ 34,984
Liabilities and Shareholders' Equity
Current Liabilities
Bank indebtedness $ 1,500 $ 2,050
Accounts payable and accrued liabilities 7,724 8,248
Deferred revenue 2,934 2,710
Current loss on sublease loss provision 1,193 1,729
Current portion of long-term debt obligations 1,044 368
Current portion of tenant inducement 141 -
14,536 15,105
Deferred rent obligations 992 -
Long-term debt obligations 4,297 188
Sublease loss provision 1,402 1,621
Tenant Inducements 1,810 -
Other long-term liabilities 100 -
23,137 16,914
Shareholders' Equity
Equity instruments 75,383 75,253
Contributed surplus 5,590 5,590
Deficit (66,870 ) (62,773 )
14,103 18,070
$ 37,240 $ 34,984
Divestco Inc.
Condensed Consolidated Statement of Income (Loss) and Comprehensive Income (Loss)

For the
three months
ended
June 30

For the
three six
ended
June 30

(Thousands, Except Per Share Amounts - Unaudited) 2011 2010 2011 2010
Revenue $ 10,637 $ 10,647 $ 19,452 $ 22,725
Operating expenses
Salaries and benefits 5,107 4,843 10,266 9,948
General and administrative 3,585 3,324 8,098 6,646
Stock compensation expense - 74 - 120
8,692 8,241 18,364 16,714
Finance costs 167 523 204 1,092
Depreciation and amortization 1,525 7,858 4,914 17,094
Other loss (income) 2 (14 ) 2 (94 )
Income (loss) before income taxes 251 (5,961 ) (4,032 ) (12,081 )
Income taxes
Current (recovery) 16 (48 ) 65 (79 )
Deferred (reduction) - (1,352 ) - (3,230 )
16 (1,400 ) 65 (3,309 )
Net income (loss) and comprehensive income (loss) for the period 235 (4,561 ) $ (4,097 ) $ (8,772 )
Net income (loss) per share
Basic and Diluted $ - $ (0.11 ) $ (0.07 ) $ (0.21 )
Weighted average number of shares
Basic and Diluted 59,471 41,958 59,408 41,958
Divestco Inc.
Condensed Consolidated Statement of Changes in Equity



(Thousands - Unaudited)

Number of
Shares
Issued


Share
Capital

Number of
Warrants
Issued



Warrants


Equity
Instruments


Contributed
Surplus
Equity
portion of
convertible
debentures

Retained
Earnings
(Deficit
)


Total Equity
Balance at January 1, 2010 41,958 $ 70,518 - $ - $ 70,518 $ 5,562 $ 56 $ 31,411 $ 107,547
Net loss and comprehensive loss for the period (8,772 ) (8,772 )
Transactions with owners, recorded in equity
contributions by and distributions to owners:
Share-based payment transactions 120 120
Balance at June 30, 2010 41,958 $ 70,518 - $ - $ 70,518 $ 5,682 $ 56 $ 22,639 $ 98,895
Balance at January 1, 2011 58,938 $ 73,445 15,825 $ 1,808 $ 75,253 $ 5,590 $ - $ (62,773 ) $ 18,070
Net loss and comprehensive loss for the period (4,097 ) (4,097 )
Transactions with owners, recorded in equity
contributions by and distributions to owners:
Issue on private placement 455 48 455 52 100 100
Share-based payment transactions 192 31 31 31
Share issue costs - (1 ) (1 ) (1 )
Balance at June 30, 2011 59,585 $ 73,523 16,280 $ 1,860 $ 75,383 $ 5,590 $ - $ (66,870 ) $ 14,103
Divestco Inc.
Condensed Consolidated Statement of Cash Flows
For the six months ended June 30 2011 2010
(Thousands - Unaudited)
Cash flows from operating activities
Net loss for the period $ (4,097 ) $ (8,772 )
Items not affecting cash:
Equity investment gain 1 -
Depreciation and amortization 4,914 17,094
Sublease loss (303 ) -
Amortization of tenant inducements (38 ) -
Deferred rent obligations 425 -
Income taxes 65 (3,309 )
Data exchanges - (1,775 )
Gain on sale of property and equipment - (90 )
Unrealized foreign exchange loss (4 ) -
Non-cash employment benefits 31 -
Share based payments - 120
Finance costs 204 1,092
1,198 4,360
Changes in non-cash working capital balances 1,744 5,019
Changes in long-term prepaid expense - 158
Interest paid (141 ) (988 )
Income taxes refunded 51 290
2,852 8,839
Cash flows from (used in) financing activities
Bank indebtedness (550 ) -
Issue of common shares, net of related expenses 99 -
Repayment of long-term debt obligations (221 ) (3,129 )
Deferred financing costs (155 ) -
Proceeds received from long-term debt obligations (net of committed revolver
repayments) 5,000 (1,020 )
4,173 (4,149 )
Cash flows used in investing activities
Additions to intangible assets (2,482 ) (2,647 )
Decrease (increase) in participation surveys in progress (1,566 ) 1,981
Purchase of property and equipment (5,422 ) (442 )
Additions to tenant inducements 3,306 -
Payment made on sublease loss provision (488 ) -
Investments in affiliates (29 ) -
Proceeds on sale of property and equipment - 93
Deferred development costs (1,295 ) (1,425 )
Changes in non-cash working capital balances (1,842 ) (1,940 )
(9,818 ) (4,380 )
Increase (decrease) in cash (2,793 ) 310
Cash, beginning of period 3,696 768
Cash, end of period $ 903 $ 1,078

Divestco is an exploration services company that provides a comprehensive and integrated portfolio of data, software, and services to the oil and gas industry. Through continued commitment to align and bundle products and services to generate value for customers, Divestco is creating an unparalleled set of integrated solutions and unique benefits for the marketplace. Divestco's breadth of data, software and services offers customers the ability to access and analyze the information required to make business decisions and to optimize their success in the upstream oil and gas industry. Divestco is headquartered in Calgary, Alberta, Canada and trades on the TSX Venture Exchange under the symbol "DVT".

This press release contains forward-looking information related to the Company's capital expenditures, projected growth, view and outlook towards future oil and gas prices and market conditions, and demand for its products and services. Statements that contain words such as "could', "should", "can", "anticipate", "expect", "believe", "will", "may" and similar expressions and statements relating to matters that are not historical facts constitute "forward-looking information" within the meaning applicable by Canadian securities legislation. Although management of the Company believes that the expectations reflected in such forward-looking information are reasonable, there can be no assurance that such expectations will prove to have been correct because, should one or more of the risks materialize, or should the assumptions underlying forward-looking statements or forward-looking information prove incorrect, actual results may vary materially from those described in this press release as intended, planned, anticipated, believed, estimated or expected. Except where required by law, the Company does not assume any obligation to update these forward-looking statements or forward-looking information if conditions or opinions should change. Readers should not place undue reliance on forward-looking statements or forward- looking information. All of the forward-looking statements and forward-looking information of the Company contained in this press release are expressly qualified, in their entirety, by this cautionary statement.

In particular, this press release contains forward-looking statements pertaining to the following: the Company's ability to reduce debt, improve liquidity, correct its working capital deficiency and maintain profitability in the current economy; availability of external and internal funding for future operations; relative future competitive position of the Company; nature and timing of growth; future sales of the Company's seismic data library; oil and natural gas production levels; planned capital expenditure programs; supply and demand for oil and natural gas; future demand for products/services; commodity prices; fluctuations in interest rates; impact of Canadian federal and provincial governmental regulation on the Company; expected levels of operating costs, general administrative costs, costs of services and other costs and expenses; future ability to execute dispositions of assets or businesses; expectations regarding the Company's ability to raise capital and to add to seismic data through new seismic shoots and acquisition of existing seismic data; treatment under tax laws.

These forward-looking statements are based upon assumptions including: that future prices for crude oil and natural gas, future interest rates and future availability of debt and equity financing will be at levels and costs that allow the Company to manage, operate and finance its business and develop its software products and various oil and gas datasets including its seismic data library, and meet its future obligations; that the regulatory framework in respect of royalties, taxes and environmental matters applicable to the Company and its customers will not become so onerous on both the Company and its customers as to preclude the Company and its customers from viably managing, operating and financing its business and the development of its software and data; and that the Company will continue to be able to identify, attract and employ qualified staff and obtain the outside expertise as well as specialized and other equipment it requires to manage, operate and finance its business and develop its properties.

These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the Company's control, including: general economic, market and business condition; volatility in market prices for crude oil and natural gas; ability of Divestco's clients to explore for, develop and produce oil and gas; availability of financing and capital; fluctuations in interest rates; demand for the Company's product and services; weather and climate conditions; competitive actions by other companies; availability of skilled labour; failure to obtain regulatory approvals in a timely manner; adverse conditions in the debt and equity markets; and government actions including changes in environment and other regulations.

The TSXV has not reviewed nor accepts responsibility for the adequacy or accuracy of this news release.

Contact Information

  • Divestco Inc.
    Mr. Stephen Popadynetz
    CEO, President and CFO
    587-952-8152

    Divestco Inc.
    Mr. Danny Chiarastella
    Vice President, Finance
    587-952-8027
    www.divestco.com