Pulse Seismic Inc.is pleased to report its financial and operating results for the year ended December 31, 2020.
“Pulse’s 2020 financial results, and particularly the strong fourth quarter results, highlight the Company’s low fixed cost structure and its ability to generate positive cash flows under unprecedented negative conditions,” stated Neal Coleman, Pulse’s President and CEO.
“Having total data library sales of only $11.0 million and still generating a 68 percent cash EBITDA margin, or $7.5 million in cash EBITDA, as well as $5.4 million of shareholder free cash flow, put us in a position to significantly reduce total debt to only $20.2 million as of today.”
In December 2020 the Company amended, simplified and restated its senior credit facility, which has reduced financing expenses while maintaining sufficient liquidity to execute the Company’s plans for 2021, assuming business conditions remain volatile. Following debt repayments totalling $3.8 million in 2020, in January 2021 Pulse repaid an additional $7.8 million. Accordingly, continued Coleman, “Pulse’s total debt has been reduced by 36 percent, or $11.6 million, since year-end 2019.”
“The current year has begun on a positive note,” added Coleman, “with data library sales totalling $4.3 million as of this date, of which $4.2 million was transaction-based.”
“Looking forward into 2021, we continue to benefit from the doubling of our seismic database and opportunity sets through the significant acquisition in 2019, and we remain positioned to benefit through relicensing fees from a potentially greater number of industry transactions this year,” concluded Coleman. “I would like to express my sincere appreciation to Pulse’s staff for their unwavering dedication and strength as a team in supporting the Company through these extraordinary times.”
Highlightd for the Year Ended Decemebr 31, 2020
• Total revenue was $11.3 million compared to $24.2 million for the year ended December 31, 2019;
• Net loss was $6.8 million ($0.13 per share basic and diluted) compared to a net loss of $3.4 million ($0.06 per share basic and diluted) for 2019;
• Cash EBITDA(a) was $7.5 million ($0.14 per share basic and diluted) compared to $17.6 million ($0.33 per share basic and diluted) for the year ended December 31, 2019;
• Shareholder free cash flow(a) was $5.4 million ($0.10 per share basic and diluted) compared to $13.6 million ($0.25 per share basic and diluted) for the year ended December 31, 2019; and
• At year-end 2020, long-term debt was $27.7 million (net of deferred financing cost) and the Company had $7.0 million available on its revolving credit facility.
Highlightd for the Three Months Ended December 31, 2020
• Total revenue was $5.2 million compared to $5.4 million for the three months ended December 31, 2019;
• Net earnings were $287,000 ($0.01 per share basic and diluted) compared to a net loss of $759,000 ($0.01 per share basic and diluted) in the fourth quarter of 2019;
• Cash EBITDA was $4.2 million ($0.08 per share basic and diluted) compared to $3.9 million ($0.07 per share basic and diluted) in the fourth quarter of 2019; and
• Shareholder free cash flow was $3.0 million ($0.06 per share basic and diluted) for the fourth quarter of 2020 and 2019.
Outlook
In weathering the COVID-19 storm of 2020, Pulse proved its survivability under the worst conditions. Having further reduced its costs throughout the year, continued to generate cash EBITDA and shareholder free cash flow, simplified its credit facility and, as of February 17, 2021, reduced total debt to only $20.2 million, Pulse came out of this exceptionally weak and uncertain year in a stronger overall position than when it entered. Despite ongoing industry weakness, the Company therefore feels solidly positioned for a range of potential industry conditions and business results in 2021. Following its modest uptick in sales during the fourth quarter of 2020, Pulse’s sales in the first six weeks of this year have already totalled $4.3 million.
Given the continuation of the COVID-19 pandemic, uncertainty is higher than at the beginning of last year, and the Company has no visibility as to traditional or transaction-based sales.An extensive discussion of industry and economic conditions and traditional indicators of seismic licensing activity is, accordingly, moot.
A few points can be made:
• In mid-January, the Canadian Association of Petroleum Producers (CAPP) forecast that oil and natural gas industry capital spending outside the oil sands would increase by 16 percent year-over-year to $20 billion in 2021 from $17.2 billion in 2020 (CAPP’s original 2020 forecast was for $25 billion in spending);
• Forecasts for oil and natural gas drilling remain very low, up only slightly from the extremely poor results in 2020;
• Mineral lease auctions or “land sales” in Alberta and B.C. remain at or near record-lows, with B.C. having cancelled all postings in March of last year, with a restart expected next month;
• Natural gas and crude oil prices are at relatively favourable levels, although outlooks remain mixed;
• Merger-and-acquisition activity and aggregate transaction value in Canada’s oil and natural gas industry are expected to continue the upward trend begun last year, increasing the potential for transaction-based sales of Pulse’s seismic library data which, however, always remain unpredictable as to timing and size;
• Key industry infrastructure projects, including the Trans Mountain Pipeline expansion for international crude oil exports, and Canada’s first liquefied natural gas (LNG) export facility, are continuing to move ahead;
• The Government of Alberta’s acceleration of its reduction to the provincial corporate income tax rate to 8 percent took effect at mid-year 2020, which will benefit full-year income tax rates for taxpaying Alberta-based corporations in 2021; and
• U.S. LNG exports have continued to grow and are forecast to average 8-10 billion cubic feet per day in 2021, with an additional approximately 5 billion cubic feet per day in pipeline exports to Mexico, which will be positive for domestic American natural gas pricing and, in turn, for Canadian natural gas exports into the U.S. market.
Pulse’s strengths and advantages include:
• Ownership of the largest licensable seismic dataset in Western Canada, providing exceptional exposure to any rebound in industry activity;
• A low cost structure;
• A strong cash EBITDA margin (68 percent of data library sales in 2020) as well as continuing positive cash EBITDA and shareholder free cash flow, even were 2021 sales to be unchanged from 2020;
• Low indebtedness on favourable terms, with bank and subordinated debt totalling only $20.2 million as of this date, and no principal payments required before January 2023;
• Unused borrowing capacity of $14.8 million as of this date;
• Long-term relationships with supportive senior and subordinated creditors;
• An experienced, proven and efficient team of senior management and employees; and
• An experienced and supportive Board of Directors.
As stated, Pulse’s outlook for 2021 remains cautious. Above all the Company is intent on maintaining its strength and flexibility in order to be able to weather, adapt to or profit from virtually any conditions, ranging from further extended weakness to a strong recovery. Over the coming quarters Pulse intends to continue paying down bank debt, to manage its costs conservatively and to remain stringent in assessing potential new opportunities.
Many of the remaining Canadian oil and natural gas producers are in better financial condition than the overall industry was over the previous several years, although a significant number of producers remain focused on repairing their balance sheets. Accordingly, it remains uncertain whether, when and how much these companies will begin reinvesting their cash flow plus new capital to resume growing, and when investment conditions might become attractive enough to draw new entrants to the Western Canada Sedimentary Basin. This dynamic will determine activity levels, demand for seismic data and Pulse’s sales. The broad coverage of its seismic database makes Pulse’s revenue, cash margin and shareholder free cash flow highly levered to any uptick in industry field activity and demand for seismic data.
In summary, Pulse is equally well-positioned to weather additional quarters of weaker industry activity, to benefit from an industry rebound, to use an episodic increase in seismic data licensing sales to the benefit of its shareholders, or to act on further opportunities to increase the size of its seismic data library. With its reduced indebtedness, new banking facility, positive start to 2021 sales and the widespread expectation of higher merger-and-acquisition activity, the Company is in an excellent position to benefit from any industry recovery.
