Pulse Seismic Inc.
TSX : PSD
OTCQX : PLSDF

Pulse Seismic Inc.

November 02, 2016 20:06 ET

Pulse Seismic Inc. Reports Q3 2016 Results

CALGARY, ALBERTA--(Marketwired - Nov. 2, 2016) - Pulse Seismic Inc. ("Pulse" or "the Company") (TSX:PSD)(OTCQX:PLSDF) reports its financial and operating results for the three and nine months ended September 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).

HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016

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

  • Seismic data library sales for the third quarter of 2016 increased to $5.6 million from $4.7 million for the comparable period in 2015. Seismic data library sales for the nine months ended September 30, 2016 were $10.2 million compared to $12.5 million for the comparable period of 2015;
  • Total seismic revenue, consisting strictly of data library sales, was $10.2 million for the nine months ended September 30, 2016 compared to $15.7 million, which included $3.2 million of participation survey revenue, for the nine months ended September 30, 2015;
  • The net loss was $302,000 ($0.01 per share basic and diluted) for the third quarter of 2016 compared to a net loss of $1.6 million ($0.03 per share basic and diluted) for the same period in 2015. The net loss for the nine months ended September 30, 2016 was $6.2 million ($0.11 per share basic and diluted) compared to a net loss of $6.0 million ($0.10 per share basic and diluted) for the nine months of 2015;
  • Cash EBITDA(a) was $4.4 million ($0.08 per share basic and diluted) for the third quarter of 2016 compared to $3.3 million ($0.06 per share basic and diluted) for the third quarter of 2015. Cash EBITDA was $6.1 million ($0.11 per share basic and diluted) for the nine months ended September 30, 2016 compared to $8.1 million ($0.14 per share basic and diluted) for the nine months ended September 30, 2015;
  • Shareholder free cash flow(a) was $4.3 million ($0.08 per share basic and diluted) for the third quarter of 2016 compared to $3.2 million ($0.06 per share basic and diluted) for the comparable period in 2015. Shareholder free cash flow was $6.0 million ($0.11 per share basic and diluted) for the nine months ended September 30, 2016 compared to $7.8 million ($0.14 per share basic and diluted) for the nine months ended September 30, 2015;
  • The Company did not buy any shares during the third quarter of 2016. In the nine-month period ended September 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 September 30, 2016 Pulse was debt-free and had a cash balance of $3.9 million. The Company's $30.0 million revolving credit facility is undrawn and fully available.

SELECTED FINANCIAL AND OPERATING INFORMATION

Three months ended September 30, Nine months ended September 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 5,613 4,678 10,163 12,455 21,214
Participation surveys - - - 3,220 3,220
Total revenue 5,613 4,678 10,163 15,675 24,434
Amortization of seismic data library 4,701 5,262 14,316 17,857 22,836
Impairment loss - - - - 937
Net loss (302 ) (1,579 ) (6,237 ) (5,966 ) (5,308 )
Per share basic and diluted (0.01 ) (0.03 ) (0.11 ) (0.10 ) (0.09 )
Cash provided by operating activities 2,265 7,832 6,954 14,193 17,094
Per share basic and diluted 0.04 0.14 0.12 0.25 0.30
Cash EBITDA (a) 4,353 3,332 6,123 8,078 15,121
Per share basic and diluted (a) 0.08 0.06 0.11 0.14 0.27
Shareholder free cash flow (a) 4,336 3,249 6,026 7,773 14,745
Per share basic and diluted (a) 0.08 0.06 0.11 0.14 0.26
Capital expenditures
Participation surveys (cost reduction) - (9 ) - 3,959 3,959
Seismic data purchases, digitization and related costs 165 - 2,380 183 933
Property and equipment - - 6 14 14
Total capital expenditures 165 (9 ) 2,386 4,156 4,906
Weighted average shares outstanding
Basic and diluted 56,161,432 56,618,252 56,126,720 56,826,409 56,628,524
Shares outstanding at period-end 56,161,432 56,352,989 55,592,689
Seismic library
2D in kilometres 447,000 339,991 339,991
3D in square kilometres 28,642 28,409 28,555
FINANCIAL POSITION AND RATIOS

(thousands of dollars except ratios)
September 30,
2016
September 30,
2015
December 31,
2015
Working capital 8,008 1,988 4,996
Working capital ratio 9.56:1 2.76:1 4.44:1
Total assets 46,782 56,496 54,618
Long-term debt - 1,456 -
Trailing twelve-month (TTM) cash EBITDA (b) 13,166 14,739 15,121
Shareholders' equity 40,406 46,396 45,389
Long-term debt to TTM cash EBITDA ratio 0.00:1 0.10:1 0.00:1
Long-term debt to equity ratio 0.00:1 0.03:1 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 non-GAAP 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

The Company is observing a number of positive signs that, although individually modest, collectively point towards a strengthened oil and natural gas industry outlook. Pulse's improved seismic data library sales in the third quarter made up some of the ground lost in the weak second quarter. Pulse continues to have poor visibility regarding both traditional and transaction-based data library sales for the remainder of the year and, accordingly, overall data library sales for 2016 could be lower year-over-year.

Industry merger and acquisition activity, the primary source of Pulse's transaction-based sales, has been lower than expected to date this year. Although many producing asset packages and companies continue to be marketed, bid-ask spreads remain high and some management teams appear to be attempting to "hold on" until better times.

Mineral lease auctions across western Canada have remained extremely low, as has oil and natural gas drilling activity. The Canadian Association of Oilwell Drilling Contractors' revised 2016 drilling forecast, issued in late September, calls for only 3,562 wells to be drilled in 2016, down by 25 percent from the organization's original forecast of 4,728 wells and down from 5,300 wells drilled in 2015. Drilling rig utilization was only 17 percent in the third quarter compared to 24 percent utilization of a larger drilling fleet in the same months of 2015.

These figures mainly confirm, however, that 2016 will be a weak year for the industry and suggest low field activity for the short term. Certain other forward-looking indicators appear to be improving. In mid-October crude oil prices did briefly climb above US$50 per barrel WTI amidst indicators that the growth in crude oil inventories has halted and may begin to decline.

Natural gas prices have improved markedly. The Alberta benchmark AECO price closed at $3.25 per mcf on October 20. This was up from $2.61 per mcf one year earlier and is significantly higher than the year-to-date average price of $1.95 per mcf. Natural gas storage volumes in the United States, though high, are now tracking the upper end of the five-year weekly range. The Energy Information Administration (EIA) recently predicted robust growth in U.S. residential natural gas consumption over the winter. Meanwhile, with barely 100 rigs drilling for natural gas in the U.S., production from unconventional shale reservoirs is continuing its decline.

Pipeline exports to Mexico continue to grow, while Cheniere Energy's Sabine Pass project, North America's first large-scale LNG export operation, now has two liquefaction trains licensed for commercial operations. The EIA forecasts that U.S. LNG exports will average 1.3 billion cubic feet per day in 2017, marking the country's first material export volumes spanning an entire year. In Canada, federal approval (with numerous conditions) of the Pacific Northwest LNG export facility is a positive step towards a final investment decision for this landmark project.

Together, these factors suggest potential for a supply-demand rebalancing to take hold in North America. For western Canada's upstream oil and gas sector, low to negative cash flows, typically heavy debt loads, low share prices and investor caution are likely to delay by a number of months or quarters a noticeable supply response in the form of greater field capital expenditures, land acquisitions and drilling.

The price-related trends for both major hydrocarbon commodities are, however, generally positive for the first time in at least two years. Higher industry capital spending historically has been associated with higher data library sales. For this reason, Pulse remains very cautious about the short term, but is becoming more optimistic regarding the medium term.

Due to its low cost structure, Pulse is a high-margin business under even modestly positive levels of data library sales, and creates significant leverage for cash EBITDA and shareholder free cash flow under a significant rebound in data library sales.

In the meantime, Pulse will remain financially prudent. With zero long-term debt and cash of $3.9 million at September 30, the Company's balance sheet is even stronger than at the end of the first or second quarters. The Company's ability to generate cash EBITDA and shareholder free cash flow in all three quarters underscores the benefits of the Company's cash-focused business model. Pulse's long-term goal continues to be growing into Western Canada's largest licensable seismic data library.

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 continues to have poor visibility regarding both traditional and transaction-based data library sales for the reminder of the year;
  • Overall data library sales for 2016 could be lower year-over-year;
  • Pulse remains very cautious about the short term but is becoming more optimistic regarding the medium term;
  • 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.

Contact Information

  • Pulse Seismic Inc.
    Neal Coleman
    President and CEO
    403-237-5559 or Toll Free: 1-877-460-5559

    Pulse Seismic Inc.
    Pamela Wicks
    VP Finance and CFO
    403-237-5559 or Toll Free: 1-877-460-5559
    info@pulseseismic.com
    www.pulseseismic.com