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Pulse Seismic Inc. Reports Q3 2017 Results and Announces Special Dividend

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CALGARY, Alberta, Nov. 01, 2017 (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 nine months ended September 30, 2017. 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.

In the third quarter of 2017 the Company generated its second-highest quarterly seismic data library sales ever. This resulted primarily from a $29.5 million transaction-based sale announced on August 3, 2017, the highest-valued single licensing agreement in the Company's history. The third quarter's results included improvements in all key performance indicators over the third quarter of last year, and significantly improved the Company's already strong financial position.

"We are very pleased with the third quarter transaction that led to Pulse's excellent quarterly results, which include $23.6 million of shareholder free cash flow," stated Neal Coleman, Pulse's President and CEO. "As of September 30, 2017 the Company had $38.7 million in cash, an undrawn $30 million credit facility with a $40 million accordion feature. We are very well positioned to grow the Company when accretive opportunities present themselves."

In addition, Pulse is pleased to announce that its Board of Directors has decided to declare a special dividend of $0.20 per share, which will amount to $10.9 million. This decision reflects Pulse's very strong cash position combined with its low current capital spending. "Pulse is a pure-play seismic data library company with very low cash operating costs," continued Coleman. "The size of the special dividend leaves Pulse with a substantial cash balance, enabling us to continue seeking growth opportunities and repurchasing shares under our normal course issuer bid."

HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017
             

  • Total revenue, comprised exclusively of data library sales, for the three months ended September 30, 2017 was $32.4 million compared to $5.6 million for the three months ended September 30, 2016. Total revenue for the nine months ended September 30, 2017, also comprised exclusively of data library sales, was $38.1 million compared to $10.2 million for the nine months ended September 30, 2016. On August 3, 2017 the Company signed a record $29.5 million seismic data licensing agreement;

  • The net earnings were $18.7 million ($0.34 per share basic and diluted) for the third quarter of 2017 compared to a net loss of $302,000 ($0.01 loss per share basic and diluted) for the comparable period of 2016. The net earnings for the nine months ended September 30, 2017 were $13.8 million ($0.25 per share basic and diluted) compared to a net loss of $6.2 million ($0.11 loss per share basic and diluted) for the comparable period of 2016;

  • Cash EBITDA(a) was $30.4 million ($0.55 per share basic and diluted) for the third quarter of 2017 and $4.4 million ($0.08 per share basic and diluted) for the third quarter of 2016. Cash EBITDA was $33.3 million ($0.60 per share basic and diluted) for the nine months ended September 30, 2017 compared to $6.1 million ($0.11 per share basic and diluted) for the nine months ended September 30, 2016;

  • Shareholder free cash flow(a) was $23.6 million ($0.43 per share basic and diluted) for the third quarter of 2017 compared to $4.3 million ($0.08 per share basic and diluted) for the comparable period in 2016. Shareholder free cash flow was $26.4 million ($0.48 per share basic and diluted) for the nine months ended September 30, 2017 compared to $6.0 million ($0.11 per share basic and diluted) for comparable period of 2016;

  • In the three-month period ended September 30, 2017 Pulse purchased and cancelled 744,543 shares through its normal course issuer bid. In the nine-month period ended September 30, 2017 Pulse purchased and cancelled a total of 1,328,043 common shares at a total cost of approximately $3.5 million (average cost of $2.65 per common share including commissions);

  • At September 30, 2017 Pulse was debt-free and had cash of $38.7 million. The $30.0 million revolving credit facility is undrawn and fully available to the Company; and

  • Subsequent to the end of the quarter, on November 1, 2017, Pulse's Board of Directors approved and declared a special dividend, enabling shareholders to benefit directly and immediately from the record sale in August. The special dividend will be for $0.20 per share, totalling $10.9 million based on Pulse's 54,593,017 common shares outstanding as of November 1, 2017 and will be paid on December 8, 2017 to shareholders of record on November 16, 2017. This special dividend is designated as an eligible dividend for Canadian income tax purposes. For non-resident shareholders, Pulse's dividends are subject to Canadian withholding tax.
     
SELECTED FINANCIAL AND OPERATING INFORMATION    
           
  Three months ended September 30, Nine months ended September 30, Year ended
(thousands of dollars except per share data, 2017 2016 2017 2016 December 31,
numbers of shares and kilometres of seismic data) (unaudited) (unaudited) 2016
Revenue          
Data library sales 32,428 5,613 38,076 10,163 14,339
Amortization of seismic data library 4,639 4,701 13,912 14,316 18,973
Net earnings (loss) 18,704 (302) 13,776 (6,237) (7,490)
Per share basic and diluted 0.34 (0.01) 0.25 (0.11) (0.13)
Cash provided by operating activities 32,544 2,265 36,675 6,954 9,471
Per share basic and diluted 0.59 0.04 0.66 0.12 0.17
Cash EBITDA (a) 30,407 4,353 33,279 6,123 9,119
Per share basic and diluted (a) 0.55 0.08 0.60 0.11 0.16
Shareholder free cash flow (a) 23,569 4,336 26,428 6,026 9,029
Per share basic and diluted (a) 0.43 0.08 0.48 0.11 0.16
Capital expenditures          
Seismic data purchases, digitization and related costs - 165 125 2,380 2,444
Property and equipment 4 - 41 6 6
Total capital expenditures 4 165 166 2,386 2,450
Weighted average shares outstanding          
Basic and diluted 55,069,815 56,161,432 55,381,245 56,126,720 56,105,593
Shares outstanding at period-end     54,593,017 56,161,432 55,921,060
Seismic library          
2D in kilometres     447,000 447,000 447,000
3D in square kilometres     28,647 28,642 28,647
           
FINANCIAL POSITION AND RATIO        
      September 30, September 30, December 31,
(thousands of dollars except ratio)     2017 2016 2016
Working capital     33,315 8,008 10,674
Working capital ratio     4.7:1 9.6:1 8.9:1
Cash and cash equivalents     38,686 3,949 5,847
Total assets     61,309 46,782 44,957
Long-term debt     - - -
Trailing twelve-month (TTM) cash EBITDA (b)     36,275 13,166 9,119
Shareholders' equity     49,106 40,406 38,646
           

(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

Following its record transaction-based sale in the third quarter, Pulse is situated with the strongest balance sheet in its history, including an unprecedented cash position. This creates additional options for Pulse and its shareholders. The Company continues to seek opportunities to grow towards its objective of having the largest licensable seismic dataset in Western Canada.

Notwithstanding the sharp increase in third-quarter revenue – which will contribute to 2017 being one of the Company's strongest years since it doubled its 3D database through a major acquisition in 2010 – Pulse maintains its cautious outlook regarding oil and natural gas industry conditions and its traditional seismic data sales. At $3.4 million, third-quarter traditional sales, though slightly improved over the first and second quarters and in line with Pulse's previous cautious outlooks, remained weak. As before, the Company is not anticipating an imminent rebound in its traditional sales business.

Industry indicators remain scattered and somewhat contradictory, though on balance slightly more positive than in the Company's second-quarter outlook. Crude oil prices have strengthened to just over US$50 per bbl WTI as of mid-October, while AECO natural gas prices have weakened to a recent monthly index price of barely $1.50 per mcf.

Industry field activity has, however, rebounded markedly. Reportedly, material amounts of capital have been reallocated from the oil sands sector to liquids-rich natural gas and unconventional or "tight" light oil prospects. Several of the largest of these plays are located in Pulse's northwest Alberta focus area. Mineral lease auctions or "land sales" have extended their previously noted growth trend, with Alberta and B.C. collecting a combined $582 million in bids through September 2017 compared to $152 million in all of 2016.

On October 31, 2017, the Petroleum Services Association of Canada issued the third increase to its 2017 drilling forecast, this time from 7,200 wells to 7,550 wells. According to the Canadian Association of Oilwell Drilling Contractors, the number of active drilling rigs and the fleet utilization rate in the four months through September were up significantly from the rock-bottom levels of the same months in 2016, with typically 180-200 rigs active and up to 30 percent fleet utilization. While positive, this is still much lower than historical averages.

In the U.S., natural gas storage in early October was below year-ago levels and for several months has been tracking the five-year weekly average. LNG exports have grown to approximately 2.5 bcf per day. This is positive for natural gas prices. On the other hand, the active U.S. drilling rig fleet has been in the range of 900-950 since mid-July, suggesting that U.S. oil and gas production will remain robust.

Historically, commodity prices, land sales and drilling rates, while not directly correlated to Pulse's data library sales, were leading indicators of activity. As before, the Company believes a recovery in its traditional data library sales depends on sustained material increases to the oil and gas industry's capital investment and field activity. Accordingly, Pulse's optimism continues to be tempered by the possibility of ongoing short-term weakness in traditional sales. As was demonstrated in the third quarter, transaction-based sales of any size could occur at any time.

At September 30, 2017, Pulse had cash reserves of $38.7 million. On November 1, 2017, Pulse's Board of Director's approved and declared a special dividend, enabling shareholders to benefit directly and immediately from the record sale in August. The cash reserves will be reduced by approximately $10.9 million as a result of this dividend to be paid in December. Additionally, Pulse has calculated a current tax expense for the nine months ended September 30, 2017 of approximately $6.9 million, which will be payable by the end of February 2018.

Pulse is strongly positioned to grow. In addition to the cash balance, the Company has unutilized credit facilities with borrowing capacity of up to $70 million, an experienced management team and Board of Directors, annual cash costs of approximately $6.0 million, a valuable, competitive and technically high-quality asset – its seismic data library – and a track record of successfully integrating large acquisitions.

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.

For further information, please contact:
Neal Coleman, President and CEO
Or
Pamela Wicks, VP Finance and CFO
Tel.: 403-237-5559
Toll-free: 1-877-460-5559
E-mail: info@pulseseismic.com.
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 maintains its cautious outlook regarding oil and natural gas industry conditions and its traditional seismic data sales business;
  • The Company is not anticipating an imminent rebound in its traditional seismic data sales business;
  • 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;
  • Cybersecurity;
  • 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;
  • Competition;
  • Dependence on qualified seismic field contractors;
  • Dependence on key management, operations and marketing personnel;
  • The loss of seismic data;
  • 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" of the Company's MD&A 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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