HIGHLIGHTS FOR THE QUARTER
- The Company delivered positive operating income of
$63 in the third quarter of 2023 despite lower revenue compared to the prior year. - Adjusted EBTIDA of
$155 thousand in the third quarter of 2023 represents the twelfth consecutive quarter of positive adjusted EBITDA.
INDUSTRY OUTLOOK
Global demand for oil remains constant as the world's major economies continue to rely on petroleum products in everyday life. Macroeconomic factors including continued inflationary pressures, extended voluntary production cuts by
While natural gas prices trended down and flattened out through the first quarter of 2023, the Company’s primary customer remained busy through the first quarter of 2023. However, during the second quarter of 2023, this same customer significantly reduced their activity levels, in part due to lower gas prices, but primarily due to two of their primary offtake pipelines being taken offline for repairs and recertification, which resulted in reduced revenue for the quarter. The repairs and recertification were completed mid-way through the third quarter of 2023. The Company anticipates continued base level activity throughout the fourth quarters of 2023 while the customer works through a restructuring and sale process, the results of which are unknown. Market analysts are reporting that gas prices should remain flat in the fourth quarter of 2023 and into 2024 due to reduced gas-targeted drilling over the past year and increasing LNG exports.
Overall, the demand for energy services and the ability for the sector to improve over the next few years is seen as highly likely. The structural shortfall in global energy supply will be difficult for the industry to overcome for some time. The Company remains confident in the long-term viability of the oil and gas basins within its service region. These basins have significant future development opportunities that the Company is well positioned to address. However, in the near term, the Company will need to work through the challenges associated with the low activity levels of its largest customer as it works through its restructuring and sales process.
FINANCIAL AND OPERATING HIGHLIGHTS – NINE MONTHS ENDED
Select Financial Information for the three and nine months ended
(All figures in ‘000’s of US dollars except number of shares and per share data, unless otherwise stated)
Unaudited Condensed Consolidated Statements of Net Income and Comprehensive Income | ||||
Three months ended | Nine months ended | |||
2023 | 2022 | 2023 | 2022 | |
Revenue | $1,828 | $6,810 | ||
Cost of sales | (1,422) | (3,149) | (5,121) | (7,518) |
Provision reversal for slow moving inventory | 146 | - | 346 | - |
Gross profit | 552 | 563 | 2,035 | 1,952 |
General and administration | (482) | (419) | (1,643) | (1,216) |
Depreciation and amortization | (2) | (1) | (6) | (7) |
Share-based compensation | (5) | (10) | (23) | (35) |
Results from operating activities | 63 | 133 | 363 | 694 |
Finance (expense) income | 59 | 445 | (351) | 289 |
Net (loss) income | 122 | 578 | 12 | 983 |
Other comprehensive loss being foreign exchange gains and losses | (177) | (559) | (34) | (700) |
Total comprehensive (loss) income for the period | ($55) | ($22) | ||
Income per share | ||||
Net income – basic and dilutive | $0.00 | $0.01 | $0.00 | $0.03 |
Unaudited Condensed Consolidated Statements of Financial Position | ||
2023 | 2022 | |
ASSETS | (Unaudited) | (Audited) |
Current assets | ||
Cash | $157 | |
Prepaid expenses, deposits and advances | 141 | 134 |
Trade receivables | 2,057 | 1,114 |
Inventories | 742 | 680 |
3,097 | 2,484 | |
Non-current assets | ||
Property and equipment | 217 | 171 |
Right-of-use assets | 322 | 457 |
Total Assets | $3,636 | |
LIABILITIES | ||
Current liabilities | ||
Accounts payable and accrued liabilities | $2,032 | |
Current portion of lease obligations | 144 | 168 |
Interest payable | 214 | 132 |
Promissory notes | 672 | 457 |
3,062 | 2,323 | |
Non-current liabilities | ||
Lease obligations | 151 | 257 |
Promissory notes | 1,466 | 1,726 |
Debentures | 849 | 702 |
Government loan | 33 | 30 |
Total Liabilities | $5,561 | |
SHAREHOLDERS’ DEFICIT | ||
Share capital | $19,613 | |
Contributed surplus | 6,138 | 6,016 |
Warrants | - | 99 |
Accumulated other comprehensive loss | (1,463) | (1,429) |
Accumulated deficit | (26,213) | (26,225) |
Total Shareholders’ Deficit | ($1,925) | ( |
Total Liabilities and Shareholders’ Deficit | $3,636 |
The Company’s complete set of
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FORWARD LOOKING STATEMENTS
This press release contains forward-looking statements, including, without limitation, statements pertaining to anticipated future operational activity levels of Divergent and of a majority of its customers, and statements pertaining to interest payments on the Company’s debentures. All statements included herein, other than statements of historical fact, are forward-looking information and such information involves various risks and uncertainties, including: the risk that the anticipated slowdown in sales and service of submersible pumps by Divergent’s customers lasts longer than expected or impacts Divergent’s revenues more severely than expected, the risk that the COVID-19 pandemic and the low oil and gas price environment cause additional negative effects on Divergent’s business, the risk that the suspension of trading of the Company’s common shares by the TSXV cannot be lifted in a timely manner or at all, and the risk that the Company cannot remedy the outstanding interest payments under the terms of its debenture indenture in a timely manner or at all . There can be no assurance that such information will prove to be accurate, and actual results and future events could differ materially from those anticipated in such information. A description of assumptions used to develop such forward-looking information and a description of risk factors that may cause actual results to differ materially from forward-looking information can be found in the Company's disclosure documents on the SEDAR website at www.sedar.com. Forward-looking statements are based on estimates and opinions of management of the Company at the time the information is presented, including expectations provided to Divergent by its customers. The Company may, as considered necessary in the circumstances, update or revise such forward-looking statements, whether as a result of new information, future events or otherwise, but the Company undertakes no obligation to update or revise any forward-looking statements, except as required by applicable securities laws.
This press release contains financial outlook information ("FOFI") about prospective revenue reductions, which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs. FOFI contained in this press release was made as of the date hereof and was provided for the purpose of providing an update regarding an anticipated material reduction in near-term revenue. Divergent disclaims any intention or obligation to update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein.
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