Pulse Seismic Inc. Reports Q2 2018 Results
CALGARY, Alberta, July 19, 2018 (GLOBE NEWSWIRE) — Pulse Seismic Inc. (TSX:PSD) (OTCQX:PLSDF) (“Pulse” or “the Company”) is pleased to report its financial and operating results for the three and six months ended June 30, 2018. The unaudited condensed consolidated interim financial statements, accompanying notes and MD&A are being filed on SEDAR (www.sedar.com) and will be available on Pulse’s website at www.pulseseismic.com.
HIGHLIGHTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018
- Total revenue, comprised exclusively of data library sales, for the three months ended June 30, 2018 was $1.9 million, a decrease of 34 percent from $2.9 million for the three months ended June 30, 2017. Total revenue for the first six months of 2018, also comprised exclusively of data library sales, decreased by 24 percent to $4.3 million from $5.6 million for the six months ended June 30, 2017;
- The net loss of $1.0 million ($0.02 per share basic and diluted) for the three months ended June 30, 2018 was 58 percent lower than the net loss of $2.4 million ($0.04 per share basic and diluted) for the three months ended June 30, 2017. The net loss of $1.7 million ($0.03 per share basic and diluted) for the six months ended June 30, 2018 was 65 percent lower than the net loss of $4.9 million ($0.09 per share basic and diluted) for the first six months of 2017. These improvements were a result of the decrease in data library amortization expense in 2018;
- Cash EBITDA(a) was $482,000 ($0.01 per share basic and diluted) for the three months ended June 30, 2018, compared to $1.5 million ($0.03 per share basic and diluted) for the three months ended June 30, 2017. Cash EBITDA was $1.4 million ($0.03 per share basic and diluted) for the six months ended June 30, 2018 compared to $2.9 million ($0.05 per share basic and diluted) for the six months ended June 30, 2017;
- Shareholder free cash flow(a) was $630,000 ($0.01 per share basic and diluted) for the second quarter of 2018 compared to $1.6 million ($0.03 per share basic and diluted) for the comparable period in 2017. Shareholder free cash flow was $1.5 million ($0.03 per share basic and diluted) for the six months ended June 30, 2018 compared to $2.9 million ($0.05 per share basic and diluted) for the six months ended June 30, 2017;
- In the six-month period ended June 30, 2018 Pulse purchased and cancelled a total of 169,900 common shares at a total cost of approximately $534,000 (average cost of $3.15 per common share including commissions), all of which were purchased in the first quarter of the year; and
- At June 30, 2018 Pulse was debt-free and had cash of $18.0 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|
|(thousands of dollars except per share data,||2018||2017||2018||2017||December 31,|
|numbers of shares and kilometres of seismic data)||(unaudited)||(unaudited)||2017|
|Revenue – Data library sales||1,941||2,929||4,269||5,648||43,525|
|Amortization of seismic data library||1,836||4,638||3,714||9,273||15,870|
|Net earnings (loss)||(1,016||)||(2,426||)||(1,712||)||(4,928||)||15,087|
|Per share basic and diluted||(0.02||)||(0.04||)||(0.03||)||(0.09||)||0.27|
|Cash provided by (used in) operating activities||213||833||(8,379||)||4,131||38,755|
|Per share basic and diluted||0.00||0.02||(0.16||)||0.07||0.70|
|Cash EBITDA (a)||482||1,542||1,416||2,872||37,070|
|Per share basic and diluted (a)||0.01||0.03||0.03||0.05||0.67|
|Shareholder free cash flow (a)||630||1,605||1,510||2,859||29,729|
|Per share basic and diluted (a)||0.01||0.03||0.03||0.05||0.54|
|Seismic data purchases, digitization and related costs||-||60||62||125||1,575|
|Property and equipment||2||10||4||37||48|
|Total capital expenditures||2||70||66||162||1,623|
|Weighted average shares outstanding|
|Basic and diluted||53,850,917||55,337,560||53,868,998||55,539,541||55,135,035|
|Shares outstanding at period-end||53,850,917||55,337,560||54,020,817|
|2D in kilometres||450,000||447,000||447,000|
|3D in square kilometres||28,956||28,647||28,956|
|FINANCIAL POSITION AND RATIO|
|June 30,||June 30,||December 31,|
|(thousands of dollars except ratio)||2018||2017||2017|
|Working capital ratio||15.3:1||11.2:1||3.1:1|
|Cash and cash equivalents||18,040||8,263||27,422|
(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, repayment of debt, purchase of its shares, discretionary capital expenditures and the payment of dividends, 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 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.
These non-GAAP financial measures are defined, calculated and reconciled to the nearest GAAP financial measures in the Management’s Discussion and Analysis.
With second-quarter and first-half 2018 sales considerably lower than in the comparable periods of 2017, Pulse continues to look ahead cautiously to the rest of the year. Visibility as to Pulse’s traditional sales remains poor and transaction-based sales are innately unpredictable.
As in Pulse’s first-quarter 2018 Outlook, traditional industry indicators remain contradictory. Among these are:
- Crude oil prices have continued to strengthen since the last Outlook, with benchmark West Texas Intermediate remaining close to or above US$70 per barrel throughout the first half of July, maintaining this benchmark’s highest prices since the steep decline of world crude oil prices in late 2014;
- Weakening the benefits of this trend, the West Texas Intermediate to western Canada Select oil price differential has remained even higher so far in 2018 than in 2017, averaging $28.34 per barrel from January 1 through July 18, according to the Petroleum Services Association of Canada, and is forecast to remain relatively high, which reduces revenue for producers in western Canada;
- Alberta natural gas prices remain extremely weak, having fallen since the last Outlook, with the AECO daily benchmark fluctuating between $1.09 and $1.64 per GJ in the first third of July, with a monthly index price of only $1.45 per GJ as of July 11;
- In the United States:
- Use of natural gas has increased sharply, with overall consumption averaging 11 percent higher in the first half of 2018 than in the first half of 2017, according to the Energy Information Administration;
- Supply, however, also continues to grow strongly, having increased by 10 percent year-over-year in the same period;
- On the other hand, exports in the form of LNG send-out and pipeline shipments to Mexico have grown by 23 percent in the same period. LNG exports are averaging approximately 3 bcf per week, with additional liquefaction trains and new export facilities nearing completion;
- Natural gas storage in the U.S. has remained well below the five-year weekly average since the start of the injection season in late April. In early July, natural gas storage levels were 19 percent below the five-year weekly average;
- The U.S. active drilling rig count was approximately 1,050 rigs in early July, according to Baker Hughes, suggesting the past year’s continual increase in rig activity has reached a plateau;
- On balance, these factors are conducive to higher prices and increasing gas imports from Canada;
- Mineral lease auctions or “land sales” in Western Canada in the first half of 2018 are on par with the comparable period of 2017, totalling approximately $273 million compared to $277 million by the end of June last year. This is much stronger than in 2016 and 2015, when the first half-year’s land sales were $50 million and $205 million, respectively;
- Capital spending in Western Canada’s conventional oil and gas sector (excluding the oil sands), as forecast in the first quarter of the year by the Alberta Energy Regulator, is moderately positive, with an expectation that spending will be similar to 2017 and will gradually increase from $19.4 billion this year to $20.9 billion in 2027;
- The industry continues to expect significant merger-and-acquisition activity, which has the potential to trigger transaction-based seismic data library sales, but activity to date in 2018 has been low;
- The Canadian Association of Oilwell Drilling Contractors’ drilling forecast for 2018 remains unchanged at 6,138 wells, up slightly from 2017. To date in 2018, rig utilization and total drilling days are roughly comparable to 2017; and
- The Petroleum Services Association of Canada is forecasting 7,400 wells across Canada this year, up from 7,100 last year but down from its initial forecast for 2018.
Western Canada’s oil and gas producing sector continues to struggle to achieve a solid recovery from its extremely difficult, three-and-a-half-year-long downturn. The industry has not benefited from the virtually across-the board strengths driving U.S. industry activity. Pulse anticipates the Canadian sector’s slower recovery will continue.
Further barriers to accelerated field activity are ongoing takeaway pipeline constraints, weak intra-Alberta gas demand, strong productivity from newly drilled wells in the Montney, Duvernay, Deep Basin and other unconventional plays, fluctuating gas exports to the U.S., and Canada’s failure to move forward with large LNG export projects. These are significant handicaps for a gas-focused supply basin.
Government policies at all levels in Canada remain, on balance, less supportive of oil and gas industry capital investment than in the past (or in the U.S. at present). The ongoing nationwide controversy over the politically-driven holdup of the National Energy Board-approved expansion of the Trans-Mountain Pipeline from Alberta to tidewater in Burnaby, B.C., is an example.
Fortunately, Pulse’s business has been grown, enlarged and fine-tuned to be resilient against industry volatility, negative market forces and unpredictable government policies. The Company’s strong balance sheet, with effectively zero cash financing costs, its low cash operating costs and the absence of other spending commitments make Pulse cash-flow positive at annual revenue of approximately $6 million. Despite poor sales in the first and second quarters, Pulse’s first-half sales are approaching that level. Pulse’s lowest annual sales in the depths of the energy industry’s downturn were $14.3 million. Even with weaker first- and second-quarter sales, Pulse generated positive cash EBITDA and shareholder free cash flow in each quarter.
For the rest of 2018, Pulse remains cautious about the level of traditional sales. Large or small transaction-based sales can occur at any time, creating potential upside to Pulse’s quarterly and annual revenues. The strength or weakness of transaction-based sales will determine whether 2018 financial results exceed or underperform historical averages.
Pulse is a market leader in the acquisition, marketing and licensing of 2D and 3D seismic data to western Canada’ energy sector. Pulse owns the second-largest licensable seismic data library in Canada, currently consisting of approximately 28,956 square kilometres of 3D seismic and 450,000 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.
For further information, please contact:
Neal Coleman, President and CEO
Pamela Wicks, Vice President Finance and CFO
Please visit our website at www.pulseseismic.com.
This document contains information that constitutes “forward-looking information” or “forward-looking statements” (collectively, “forward-looking information”) within the meaning of applicable securities legislation.
The Outlook section contains forward-looking information which includes, among other things, statements regarding:
- Pulse continues to look ahead cautiously to the rest of the year;
- Pulse anticipates the Canadian sector’s slower recovery will continue;
- For the rest of 2018, Pulse remains cautious about the level of traditional sales;
- Pulse’s capital allocation strategy;
- Pulse’s dividend policy;
- 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;
- The demand for seismic data and participation surveys;
- The pricing of data library license sales;
- Relicensing (change-of-control) fees and partner copy 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;
- Federal and provincial government laws and regulations, including those pertaining to taxation, royalty rates, environmental protection and safety;
- Dependence on qualified seismic field contractors;
- Dependence on key management, operations and marketing personnel;
- The loss of seismic data;
- Protection of intellectual property rights;
- The introduction of new products; and
- Climate change.
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” of the Company’s MD&A for the year ended December 31, 2017. Forward-looking information is based on the assumptions, expectations, estimates and opinions of the Company’s management at the time the information is presented.