Pulse Seismic Inc.
TSX : PSD
OTCQX : PLSDF

Pulse Seismic Inc.

July 27, 2016 19:12 ET

Pulse Seismic Inc. Reports Q2 2016 Results

CALGARY, ALBERTA--(Marketwired - July 27, 2016) - Pulse Seismic Inc. ("Pulse" or "the Company") (TSX:PSD)(OTCQX:PLSDF) reports its financial and operating results for the three and six months ended June 30, 2016. The unaudited condensed consolidated interim financial statements and management's discussion and analysis will be filed on SEDAR (www.sedar.com) and will be available on Pulse's website (www.pulseseismic.com).

"Despite generating very low data library sales in the first half of 2016, we covered our operating costs, bought back Company shares and funded a significant addition to our 2D seismic data library out of cash flow," stated Neal Coleman, Pulse's President and CEO. "Cash EBITDA generated to date continues to strengthen our balance sheet, with 39 percent of sales being converted to cash EBITDA in the first half. Being debt-free while also generating shareholder free cash flow even in this economic environment positions Pulse to continue pursuing growth opportunities."

HIGHLIGHTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016

Financial highlights for the three and six-month periods are:

  • Seismic data library sales for the second quarter of 2016 decreased to $2.8 million from $6.5 million for the comparable period in 2015. Seismic data library sales for the six months ended June 30, 2016 were $4.6 million compared to $7.8 million for the comparable period of 2015;

  • Total seismic revenue, consisting strictly of data library sales, was $4.6 million for the six months ended June 30, 2016 compared to $11.0 million, which included $3.2 million of participation survey revenue, for the six months ended June 30, 2015;

  • The net loss was $2.4 million ($0.04 loss per share basic and diluted) for the second quarter of 2016 compared to a net loss of $1.0 million ($0.02 per share basic and diluted) for the same period in 2015. The net loss for the six months ended June 30, 2016 was $5.9 million ($0.11 loss per share basic and diluted) compared to a net loss of $4.4 million ($0.08 per share basic and diluted) for the first six months of 2015;

  • Cash provided by operating activities was $1.2 million ($0.02 per share basic and diluted) for the three months ended June 30, 2016 and $438,000 ($0.01 per share basic and diluted) for the comparable period of 2015. Cash provided by operating activities for the first six months of 2016 was $4.7 million ($0.08 per share basic and diluted) compared to $6.4 million ($0.11 per share basic and diluted) for the same period in 2015;

  • Cash EBITDA(a) was $1.5 million ($0.03 per share basic and diluted) for the second quarter of 2016 compared to $5.0 million ($0.09 per share basic and diluted) for the second quarter of 2015. Cash EBITDA was $1.8 million ($0.03 per share basic and diluted) for the six months ended June 30, 2016 compared to $4.7 million ($0.08 per share basic and diluted) for the six months ended June 30, 2015;

  • Shareholder free cash flow(a) was $1.5 million ($0.03 per share basic and diluted) for the second quarter of 2016 compared to $4.9 million ($0.09 per share basic and diluted) for the comparable period in 2015. Shareholder free cash flow was $1.7 million ($0.03 per share basic and diluted) for the six months ended June 30, 2016 compared to $4.5 million ($0.08 per share basic and diluted) for the six months ended June 30, 2015;

  • In the six-month period ended June 30, 2016 Pulse purchased and cancelled, through its normal course issuer bid, a total of 100,900 common shares at a total cost of approximately $231,000 (average cost of $2.29 per common share including commissions); and

  • At June 30, 2016 Pulse was debt-free and had cash of $1.8 million. The Company's $30.0 million revolving credit facility is undrawn and fully available.

SELECTED FINANCIAL AND OPERATING INFORMATION
Three months ended June 30 Six months ended June 30, Year ended
2016 2015 2016 2015 December 31,
(thousands of dollars except per share data, number of shares and kilometres of seismic data) (unaudited) (unaudited) 2015
Revenue
Data library sales 2,779 6,461 4,550 7,777 21,214
Participation surveys - - - 3,220 3,220
Total revenue 2,779 6,461 4,550 10,997 24,434
Amortization of seismic data library 4,706 5,303 9,615 12,595 22,836
Impairment loss - - - - 937
Net loss (2,441 ) (1,040 ) (5,935 ) (4,387 ) (5,308 )
Per share basic and diluted (0.04 ) (0.02 ) (0.11 ) (0.08 ) (0.09 )
Cash provided by operating activities 1,183 438 4,689 6,361 17,094
Per share basic and diluted 0.02 0.01 0.08 0.11 0.30
Cash EBITDA (a) 1,504 4,986 1,770 4,746 15,121
Per share basic and diluted (a) 0.03 0.09 0.03 0.08 0.27
Shareholder free cash flow (a) 1,465 4,871 1,690 4,524 14,745
Per share basic and diluted (a) 0.03 0.09 0.03 0.08 0.26
Capital expenditures
Participation surveys - - - 3,968 3,959
Seismic data purchases, digitization and related costs 65 - 2,215 183 933
Property and equipment additions - 8 6 14 14
Total capital expenditures 65 8 2,221 4,165 4,906
Weighted average shares outstanding
Basic and diluted 56,175,306 56,874,385 56,109,173 56,932,213 56,628,524
Shares outstanding at period-end 56,161,432 56,796,689 55,592,689
Seismic library
2D in kilometres 447,000 339,991 339,991
3D in square kilometres 28,613 28,409 28,555
FINANCIAL POSITION AND RATIOS
June 30, June 30, December 31,
(thousands of dollars except ratios) 2016 2015 2015
Working capital 4,085 4,965 4,996
Working capital ratio 4.99:1 2.18:1 4.44:1
Total assets 47,256 67,879 54,618
Long-term debt - 5,426 -
TTM cash EBITDA (b) 12,145 24,131 15,121
Shareholders' equity 40,667 50,168 45,389
Long-term debt to TTM cash EBITDA ratio 0.00:1 0.22:1 0.00:1
Long-term debt to equity ratio 0.00:1 0.11:1 0.00:1
(a) The Company's continuous disclosure documents provide discussion and analysis of "cash EBITDA", "cash EBITDA per share", "shareholder free cash flow" and "shareholder free cash flow per share". These financial measures do not have standard definitions prescribed by IFRS and, therefore, may not be comparable to similar measures disclosed by other companies. The Company has included these non-GAAP financial measures because management, investors, analysts and others use them as measures of the Company's financial performance. The Company's definition of cash EBITDA is cash available for interest payments, cash taxes if applicable, repayment of debt, purchase of its shares, discretionary capital expenditures and the payment of dividends (if applicable), and is calculated as earnings (loss) from operations before interest, taxes, depreciation and amortization less participation survey revenue, plus any non-cash and non-recurring expenses. Cash EBITDA excludes participation survey revenue as these funds are directly used to fund specific participation surveys and this revenue is not available for discretionary capital expenditures. The Company believes cash EBITDA assists investors in comparing Pulse's results on a consistent basis without regard to participation survey revenue and non-cash items, such as depreciation and amortization, which can vary significantly depending on accounting methods or non-operating factors such as historical cost. Cash EBITDA per share is defined as cash EBITDA divided by the weighted average number of shares outstanding for the period. Shareholder free cash flow further refines the calculation of capital available to invest in growing the Company's 2D and 3D seismic data library, to repay debt, to purchase its common shares and to pay dividends (if applicable) by deducting non-discretionary expenditures from cash EBITDA. Non-discretionary expenditures are defined as debt financing costs (net of deferred financing expenses amortized in the current period) and current tax provisions. Shareholder free cash flow per share is defined as shareholder free cash flow divided by the weighted average number of shares outstanding for the period.
(b) TTM cash EBITDA is defined as the sum of the trailing 12 months' cash EBITDA and is used to provide a comparable annualized measure.

OUTLOOK

Oil and natural gas prices are still weaker than one year ago and mineral lease auctions or "land sales" in Alberta and B.C. have been extremely low. According to the Canadian Association of Oilwell Drilling Contractors (CAODC), drilling rig utilization in western Canada averaged only 6 percent, 5 percent and 9.5 percent in April, May and June, respectively, approximately half the rates in the same months of 2015, an already-weak year. In late April, the Petroleum Services Association of Canada sharply reduced its 2016 drilling forecast to only 3,325 wells across Canada, down from its first revised forecast of 4,900 wells and well below the more than 5,300 wells drilled in 2015.

These indicators of industry weakness are all suggestive of low traditional seismic data sales and, accordingly, Pulse's short-term outlook remains more cautious than one year ago. Following slightly stronger first-quarter data library sales, second-quarter sales were down considerably from 2015 and it is possible that traditional sales for the year will be lower than in 2015.

Pulse does see improved prospects for merger and acquisition activity in 2016, however, as continued low commodity prices suppress E&P company cash flows and banks further curtail borrowing capacity in the face of declining financial ratios and net asset values. This should encourage the narrowing of bid-ask spreads on producing oil and gas assets and corporate entities, helping to close deals. Many asset packages and companies continue to be marketed.

While greater M&A activity would create favourable conditions for additional transaction-based seismic data sales, their unpredictability means that Pulse will continue to lack visibility as to its 2016 revenues. Corporate transactions are a necessary but not sufficient condition to generate seismic data relicensing fees; transaction-based sales also depend on the nature of the underlying corporate transaction and on the buyer's plans for the assets in question.

Pulse's critical strengths continue to be its very low costs and strong balance sheet, including zero long-term debt, zero current short-term borrowing and cash at June 30 of over $1.8 million. The Company's ability to generate cash EBITDA and shareholder free cash flow in the first and second quarters, with sales of only $1.8 million and $2.8 million, respectively, underscores the Company's low cash cost structure.

With its annual cash costs having been reduced to approximately $6.0 million, Pulse can continue to generate cash EBITDA and shareholder free cash flow at low revenue levels while buying back additional shares and maintaining the financial flexibility to grow its seismic data library. Pulse's revised $30.0 million credit facility is undrawn as of this date and includes an accordion feature for expansion to $70.0 million.

Pulse's long-term goal continues to be growing into Western Canada's largest licensable seismic data library. The Company's history demonstrates that its revenues could accelerate at any time, and could increase significantly with virtually no increase in operating costs, making Pulse a high-margin business under even modestly positive industry conditions.

CONFERENCE CALL

The Company's next conference call will be held after the release of its year-end 2016 results, in March 2017. Should investors or analysts wish to contact the Company, please feel free to contact Neal Coleman or Pamela Wicks at the e-mail address or telephone number provided below.

CORPORATE PROFILE

Pulse is a market leader in the acquisition, marketing and licensing of 2D and 3D seismic data to the western Canadian energy sector. Pulse owns the second-largest licensable seismic data library in Canada, currently consisting of approximately 28,600 square kilometres of 3D seismic and 447,000 kilometres of 2D seismic. The library extensively covers the Western Canada Sedimentary Basin where most of Canada's oil and natural gas exploration and development occur.

This news release contains information that constitutes "forward-looking information" or "forward-looking statements" (collectively, "forward-looking information") within the meaning of applicable securities legislation which includes, among other things, statements regarding:

  • Pulse's short term outlook remains more cautious than one year ago;
  • It is possible that traditional sales for the year will be lower than in 2015;
  • Pulse sees improved prospects for merger and acquisition activity in 2016;
  • Pulse will continue to lack visibility as to its 2016 revenues;
  • Pulse's capital allocation strategy;
  • Oil and natural gas prices;
  • Oil and natural gas drilling activity and land sales activity;
  • Oil and natural gas company capital budgets;
  • Future demand for seismic data;
  • Future seismic data sales;
  • Future demand for participation surveys;
  • Pulse's business and growth strategy; and
  • Other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results and performance.

Undue reliance should not be placed on forward-looking information. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to vary and in some instances to differ materially from those anticipated in the forward-looking information. Pulse does not publish specific financial goals or otherwise provide guidance, due to the inherently poor visibility of seismic revenue.

The material risk factors include, without limitation:

  • Oil and natural gas prices;
  • Seismic industry cycles and seasonality;
  • The demand for seismic data and participation surveys;
  • The pricing of data library licensing sales;
  • Relicensing (change-of-control) fees, partner copy sales and asset disposition-related sales;
  • The level of pre-funding of participation surveys, and the Company's ability to make subsequent data library sales from such participation surveys;
  • The Company's ability to complete participation surveys on time and within budget;
  • Environmental, health and safety risks;
  • The effect of seasonality and weather conditions on participation surveys;
  • Federal and provincial government laws and regulations, including those pertaining to taxation, royalty rates, environmental protection and safety;
  • Competition;
  • Dependence on qualified seismic field contractors;
  • Dependence on key management, operations and marketing personnel;
  • The loss of seismic data;
  • Cybersecurity threats;
  • Protection of intellectual property rights; and
  • The introduction of new products.

The foregoing list is not exhaustive. Additional information on these risks and other factors which could affect the Company's operations and financial results is included under "Risk Factors" for the most recently completed financial year and interim periods. Forward-looking information is based on the assumptions, expectations, estimates and opinions of the Company's management at the time the information is presented.

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