Divestco Inc.
TSX : DVT

Divestco Inc.

November 07, 2006 18:55 ET

Divestco Reports Record Net Income and Revenue for Q3 2006 and Issues Revised Fiscal 2006 Guidance

CALGARY, ALBERTA--(CCNMatthews - Nov. 7, 2006) - Divestco Inc. (TSX:DVT) ("Divestco" or the "Company") is pleased to announce its 12th consecutive profitable quarter and operating results for the three and nine months ended September 30, 2006. Divestco has earned a record $3.8 million (11 cents per share - diluted) in net income for the third quarter of 2006 compared to $1.3 million in 2005 (5 cents per share - diluted), an increase of 188%. For the nine months ended September 2006, the Company earned a record $10.9 million in net income (33 cents per share - diluted) compared to $3.5 million (14 cents per share - diluted) in 2005, a 211% increase.

Divestco generated record revenue of $38.3 million for the third quarter of 2006, an increase of $30.4 million (382%) from $7.9 million for the same period in 2005. Earnings before interest, taxes and amortization ("EBITDA") were $26.4 million, a $23.5 million (811%) increase over the same period in 2005. The Company generated funds from operations of $26.3 million for the third quarter, an increase of $23.4 million (814%) as compared to $2.9 million for the same period in 2005.

Divestco generated revenue of $75.9 million for the first nine months of 2006, an increase of $50.0 million (193%) from $25.9 million for the same period in 2005. Earnings before interest, taxes and amortization ("EBITDA") were $46.4 million, a $35.5 million (328%) increase over the same period in 2005. The Company generated funds from operations of $45.9 million for the first nine months of 2006, an increase of $35.5 million (341%) as compared to $10.4 million for the same period in 2005.

Excluding deferred revenue of $3.1 million (September 2005 - $1.8 million), Divestco exited the quarter with an $18.2 million working capital deficiency. As at the end of the third quarter, Divestco was negotiating several large seismic inventory sales to various major oil & gas producers. Divestco confirms that subsequent to the end of the quarter, the Company has closed over $24 million dollars worth of gross inventory sales of which the Company will receive net proceeds of approximately $19.7 million, of which $17 million of the inventory sales will be recognized in the fourth quarter of 2006. In addition, during the month of October 1.1 million warrants were exercised for total proceeds to the Company of $2.8 million. Divestco expects to be in a positive working capital position by the end of 2006.

Mr. Stephen Popadynetz, CEO of Divestco commented: "I am pleased to report our third quarter results and revised guidance (see below) to our shareholders, Board and employees. We exited the third quarter with significant demand for our seismic inventory datasets, and we have successfully converted some of this demand into record inventory sales. Despite field seismic acquisition cost overruns and a general industry slowdown, Divestco has again achieved record results. In the first nine months of this year, we have closed $20 Million in corporate acquisitions, shot $70 Million of new seismic data and have experienced record organic growth in our services, software and data divisions. We have done this while only issuing $12.1 million of new equity and adding no additional long-term debt. Despite our short-term working capital deficiency, Divestco has quickly restored its balance sheet and is poised for new and continued growth. Our shareholders have been rewarded with our 12th consecutive profitable quarter and our most impressive quarter to date. Our revised fiscal 2006 guidance further reflects the continued strength of Divestco's operations and I look forward to continued profitability as we exit 2006 and enter into 2007."



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Financial Results (Thousands, Except Per Share Amounts)
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Three Months Ended Sep 30
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2006 2005 % Change
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Revenues $ 38,257 $ 7,944 382%

Operating Expenses 11,851 5,044 135%
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EBITDA 26,406 2,900 811%

Interest 340 11 2991%

Depreciation and Amortization 20,270 904 2142%
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Operating Income 5,796 1,985 192%

Other Income (loss) (48) 51 N/A

Income Tax Expense 1,965 724 171%
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Net Income $ 3,783 $ 1,312 188%
Per Share - Basic 0.11 0.05 120%
Per Share - Diluted 0.11 0.05 120%
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Funds from Operations $ 26,252 $ 2,872 814%
Per Share - Basic 0.77 0.11 600%
Per Share - Diluted 0.73 0.10 630%
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Shares Outstanding 34,221 29,793 15%

Weighted Average Shares Outstanding
Basic 33,972 26,938 26%
Diluted 35,778 27,847 28%
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Nine Months Ended Sep 30
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2006 2005 % Change
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Revenues $ 75,918 $ 25,880 193%

Operating Expenses 29,541 15,050 96%
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EBITDA 46,377 10,830 328%

Interest 836 124 574%

Depreciation and Amortization 31,911 5,249 508%
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Operating Income 13,630 5,457 150%

Other Income (loss) 2,060 29 7003%

Income Tax Expense 4,766 1,974 141%
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Net Income $ 10,924 $ 3,512 211%
Per Share - Basic 0.34 0.14 143%
Per Share - Diluted 0.33 0.14 136%
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Funds from Operations $ 45,901 $ 10,414 341%
Per Share - Basic 1.44 0.41 251%
Per Share - Diluted 1.38 0.40 245%
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Shares Outstanding 34,221 29,793 15%

Weighted Average Shares Outstanding
Basic 31,907 25,399 26%
Diluted 33,368 25,754 30%
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Q3 Operational Highlights

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.

In the third quarter of 2006, Divestco completed the shooting of 1,100 square kilometers of 3D seismic at total cost of $46.5 million. The four completed programs were Tremblay, Upper Cut Bank, Teepee Creek and Debolt East. By the end of December 2006, Divestco expects to acquire and retain 100% ownership in approximately 240 square kilometers of newly shot 3D seismic data at an aggregate cost of $3.1 million.

Revised 2006 Guidance

Including the announced library sales and participation contracts signed subsequent to quarter-end, the expected contribution from the recent acquisition of Cavalier and the continued strong performance from each of its divisions, Divestco is projecting revised revenue for fiscal 2006 of $105-110 million, EBITDA of $65-70 million, and net income of $22-25 million. This compares to the previously fiscal 2006 guidance released on June 19, 2006, where Divestco projected revenues of $95-100 million, EBITDA of $45-50 million, and net income of $14-17 million.

Seismic Outlook for 2007

The Company continues to negotiate sales on its seismic library inventory while continuing to plan and finalize contracts around its new seismic participation programs for 2007. At this point, it is expected that the company will shoot between $40-60 million in participation programs in 2007.



Divestco Inc.
Consolidated Balance Sheets

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As at Sep 30, 2006 Dec 31, 2005
(Thousands) (unaudited)
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Assets

Current Assets
Cash and cash equivalents $ 902 $ 1,382
Short-term investments - 5,512
Accounts receivable 18,857 27,053
Prepaid expenses, supplies and deposits 872 427
Investment tax credits recoverable 486 -
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21,117 34,374

Long-term accounts receivable 660 960
Investment in affiliated company 76 79
Data libraries 68,508 28,740
Participation surveys in progress 387 2,719
Property and equipment 6,390 3,495
Deferred development costs 2,638 1,863
Deferred finance costs 344 409
Intangible assets 16,397 4,128
Goodwill 8,518 3,431
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$ 125,035 $ 80,198
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Liabilities and Shareholders' Equity

Current Liabilities
Bank indebtedness $ 12,591 $ -
Accounts payable and accrued liabilities 23,272 17,624
Current portion of deferred revenue 3,086 10,355
Current portion of long-term debt
obligations 3,457 2,880
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42,406 30,859

Deferred revenue 1,043 402
Long-term debt obligations 7,209 8,724
Future income taxes 8,979 2,989
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59,637 42,974
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Shareholders' Equity
Equity instruments 44,082 27,195
Contributed surplus 1,632 1,269
Retained earnings 19,684 8,760
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65,398 37,224
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$ 125,035 $ 80,198
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Divestco Inc.
Consolidated Statements of Income and Retained Earnings

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(Thousands, except per share For the three months For the nine months
amounts - Unaudited) ended September 30 ended September 30
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2006 2005 2006 2005
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Revenue $ 38,257 $ 7,944 $ 75,918 $ 25,880
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Operating expenses
Salaries and benefits 7,831 3,452 18,594 10,902
General and administrative 3,519 1,349 9,827 3,578
Research and development 166 144 434 314
Stock compensation expense 335 99 686 256
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11,851 5,044 29,541 15,050
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Interest expense 340 11 836 124
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Depreciation and amortization 20,270 904 31,911 5,249
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Other income (loss)
Foreign exchange loss (55) 9 (69) (4)
Gain on sale of investment
securities - - 2,132 -
Gain on sale of property and
equipment - 30 - 30
Equity investment loss 7 12 (3) 3
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(48) 51 2,060 29
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Income before income taxes 5,748 2,036 15,690 5,486
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Income taxes
Current 99 - 277 -
Future 1,866 724 4,489 1,974
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1,965 724 4,766 1,974
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Net income for the period 3,783 1,312 10,924 3,512

Retained earnings, beginning of
period 15,901 5,782 8,760 3,918
Purchase price of common shares
repurchased in excess of book
value - - - (336)
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Retained earnings, end of period $ 19,684 $ 7,094 $ 19,684 $ 7,094
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Earnings per share
Basic $ 0.11 $ 0.05 $ 0.34 $ 0.14
Diluted $ 0.11 $ 0.05 $ 0.33 $ 0.14

Weighted average number of shares
Basic 33,972 26,938 31,907 25,399
Diluted 35,778 27,847 33,368 25,754
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Divestco Inc.
Consolidated Statements of Cash Flows

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For the three months For the nine months
(Thousands - Unaudited) ended September 30 ended September 30
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2006 2005 2006 2005
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Cash flows from operating
activities
Net income for the period $ 3,784 $ 1,312 $ 10,924 $ 3,512
Items not affecting cash:
Equity investment loss (gain) (7) (12) 3 (3)
Depreciation and amortization 20,270 904 31,911 5,249
Future income taxes 1,866 724 4,489 1,974
Investment tax credits
utilized - (120) - (546)
Gain on sale of investment
securities - - (2,132) -
Gain on sale of property and
equipment - (30) - (30)
Unrealized foreign exchange
loss 4 (5) 20 2
Stock compensation expense 335 99 686 256
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Funds from operations 26,252 2,872 45,901 10,414

Changes in non-cash working
capital balances (23,833) (2,184) 372 (1,649)
Increase (decrease) in
non-current deferred revenue (725) (956) 641 (212)
Decrease in long-term accounts
receivable 300 (962) 300 (713)
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1,994 (1,230) 47,214 7,840
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Cash flows from financing
activities
Bank indebtedness 3,721 (2,703) 12,591 (2,383)
Issue of common shares, net of
related expenses (461) 9,373 13,404 9,502
Repayment of long-term debt
obligations (818) (267) (2,188) (1,042)
Deferred financing costs 22 (138) 65 (138)
Proceeds received from
long-term debt obligations - 5,000 - 5,783
Repurchase of common shares - - - (822)
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2,464 11,265 23,872 10,900
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Cash flows from investing
activities
Purchase of data libraries (46,463) (660) (69,332) (8,418)
(Increase) decrease in
participation surveys in
progress 44,604 (94) 2,331 (132)
Purchase of property and
equipment (737) (298) (1,264) (955)
Purchase of intangibles - - (176) -
Acquisition of Cavalier (3,514) - (3,514) -
Acquisition of Geo-X Processing - - (11,487) -
Acquisition of Canamera Equities - (1,655) - (1,655)
Acquisition of Canamera
Corporation - (2,494) - (2,494)
Acquisition of Petro Data
Source Inc. - - - (343)
Purchase of investment
securities - - (109) -
Proceeds on sale of investment
securities - - 7,753 -
Proceeds on sale of property and
equipment - 30 - 30
Deferred development costs (243) (221) (775) (815)
Changes in non-cash working
capital balances (6,221) (754) 5,033 (65)
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(12,574) (6,146) (71,540) (14,847)
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Foreign exchange loss on cash
held in a foreign currency (5) (12) (26) (16)
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Increase in cash and cash
equivalents (8,121) 3,877 (480) 3,877

Cash and cash equivalents,
beginning of period 9,023 - 1,382 -
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Cash and cash equivalents, end
of period $ 902 $ 3,877 $ 902 $ 3,877
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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.

The terms working capital, 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. Accordingly, these measures have been described and presented in this MD&A 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.

These non-GAAP measures are calculated as follows: working capital is current assets less current liabilities; EBITDA is used to describe earnings before any deduction for net interest, taxes, depreciation and amortization, and other non-cash charges such as foreign exchange gain (loss), equity investment income (loss), and gain (loss) on sale of property and equipment as well as short-term investments; operating income is EBITDA less interest, and depreciation and amortization; funds from operations is calculated by adding or deducting items not affecting cash from net income (loss); funds from operations per share - basic and diluted is funds from operations divided by the weighted average number of shares outstanding (basic and diluted) for the relevant period.

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, even prior to the consideration of how those activities are financed or how the results are taxed. Management also uses 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.

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