Pulse Data Inc. reports Q1 2005 results, significant seismic data acquisition and declaration of quarterly dividend

2005-05-05

TSX - Toronto Stock Exchange · Canada

TSX Symbol - PSD Cusip No. 7458Q 10 9

CALGARY, May 4 /CNW/ - Mr. Ken MacDonald, President and Chief Executive Officer of Pulse Data Inc. ("Pulse" or "the Company") reports the financial and operating results of Pulse for the three months ended March 31, 2005. Mr. MacDonald is also pleased to announce that Pulse has executed a letter agreement to purchase a significant seismic database. This database will add high-quality seismic data that is complementary to Pulse's existing data library, and increase Pulse's 3D data library by 40%. The purchase will be financed with a combination of cash and term debt from Pulse's existing debt provider, and is expected to close on June 8, 2005. The letter agreement is subject to a number of conditions, including a due diligence review and execution of a formal Purchase and Sale Agreement. Mr. MacDonald also announces that Pulse has declared its eighth consecutive quarterly dividend of $0.0125 per common share. The dividend will be paid on June 20, 2005 to shareholders of record at the close of business on June 6, 2005. The Company's Dividend Reinvestment Plan for eligible shareholders will be available for this dividend.

OVERVIEW

Data library sales increased by 44% to $5.8 million for the three months ended March 31, 2005 compared to $4.0 million for the first quarter of 2004. Free cash flow for the first quarter of 2005 was $0.3 million, compared to negative free cash flow of $2.8 million reported in the first quarter of 2004. This significant increase in free cash flow in Q1 2005 compared to Q1 2004 is attributed to higher data library sales in Q1 2005 and higher cash requirements for the participation surveys in Q1 2004. Pulse had a working capital position of $1.7 million at March 31, 2005 compared to a slight deficiency at March 31, 2004. In addition, Pulse repaid $4.0 million of long-term debt over the twelve-month period ended March 31,2005. Total revenue, net earnings and funds from operations for the first quarter of 2005 were lower than the comparable period in 2004 as a result of the unusually large volume of participation survey data delivered in the first quarter of 2004. Net earnings for the three months ended March 31, 2004 were $0.7 million ($0.02 per share diluted), compared to $3.0 million ($0.07 per share diluted) for the same period in 2004. Funds from operations for the first quarter of 2005 was $6.4 million ($0.14 per share diluted), compared to $14.1 million ($0.34 per share diluted) generated for the same period in 2004. These per share figures are based on the weighted average diluted shares outstanding of 46,560,735 for Q1 2005, compared to 41,168,557 for Q1 2004.

Financial Highlights ($000s except per share data) 3 months ended Year ended March 31, December 31, 2005 2004 2004 (unaudited) (audited) Revenue: Data library sales $ 5,793 $ 4,033 $ 25,611 Participation surveys $ 4,963 $ 12,375 $ 19,979 Other $ 1,778 $ 257 $ 5,678 Total revenue $ 12,534 $ 16,665 $ 51,268 Amortization of data libraries $ 6,134 $ 9,228 $ 22,862 Net earnings $ 724 $ 2,951 $ 7,719 Net earnings per share: basic $ 0.02 $ 0.07 $ 0.18 diluted $ 0.02 $ 0.07 $ 0.18 Funds from operations (1) $ 6,350 $ 14,078 $ 36,776 Funds from operations per share (1): basic $ 0.14 $ 0.35 $ 0.84 diluted $ 0.14 $ 0.34 $ 0.84 Free cash flow (1) $ 253 $ (2,814) $ 11,988 Working capital (deficiency) $ 1,672 $ (66) $ 3,845 Total assets $ 108,476 $ 94,303 $ 108,426 Capital expenditures: Seismic library additions $ 6,097 $ 16,892 $ 26,083 Changes to work in progress $ (2) $ (8,372) $ (8,436) Property & equipment additions $ 431 $ 29 $ 574 Total capital expenditures $ 6,526 $ 8,549 $ 18,221 Total long-term debt $ 15,425 $ 19,401 $ 16,865 Shareholders' equity $ 77,816 $ 65,785 $ 77,507 Weighted average shares outstanding: basic 45,774,816 40,537,635 43,646,866 diluted 46,560,735 41,168,557 43,990,061 Shares outstanding at period end 45,774,816 40,715,767 45,774,816

(1) These non-GAAP financial measures are defined in the Financial Summary below.

Operational Highlights

Seismic library: 2D in net kilometres 239,288 239,013 239,288 3D in net square kilometres 6,763 6,080 6,522

OPERATIONS SUMMARY

During the first quarter of 2005, Pulse Seismic commenced and completed two 3D participation surveys in northern Alberta resulting in the addition of 241 square kilometres of 100%-owned 3D seismic data to the data library. Pulse Seismic also undertook and completed two project management contracts during the first quarter of 2005. Project management agreements involve Pulse Seismic conducting exclusive seismic programs for clients who wish to retain proprietary ownership of the acquired data. During the first three months of 2005, Terrapoint undertook LiDAR projects in the United States and in Canada. Weather delays in the northwest United States combined with limited LiDAR survey demand in Western Canada kept the LiDAR segment under budget in the first quarter; however, the current, significant, confirmed backlog position of Terrapoint is expected to return this segment to near-budgeted levels by the end of the second quarter of 2005. Pulse's software development subsidiary, Trango Technologies Inc. ("Trango") remained on budget as increasing demand for Trango's products and services, particularly from the United States oil and gas companies, continues to show encouraging trends.

CORPORATE SUMMARY

On January 17, 2005 Mr. James Ferguson was appointed President of Terrapoint Canada Inc. Mr. Ferguson was a founding member of Terrapoint and has held the position of Vice President, Operations since 2000. Mr. Ferguson holds a B.Sc. degree in survey science and statistics from the University of Toronto and is a registered professional Ontario Land Surveyor. Under Pulse's Dividend Reinvestment and Optional Share Purchase Plan, eligible shareholders may automatically reinvest their dividends in common shares of Pulse at 95% of the current market price. Eligible participants may also purchase additional common shares of Pulse at the current market price, with a minimum of $2,000 per purchase, and a maximum of $50,000 per calendar year. In order to participate in the Plan, eligible shareholders must complete and return the required Forms to the Plan Agent, Computershare Trust Company of Canada, by two business days before the dividend record date.

FINANCIAL SUMMARY

The Company's continuous disclosure documents provide discussion and analysis of "free cash flow", "funds from operations" and "funds from operations per share". These financial measures do not have standard definitions prescribed by generally accepted accounting principles in Canada and therefore they may not be comparable to similar measures disclosed by other companies. The Company has included these non-GAAP financial measures because they are used by management, investors, analysts and others as measures of the Company's financial performance. The Company's definition of free cash flow is cash available for debt servicing, discretionary capital expenditures and the payment of dividends, and is calculated as funds from operations less participation survey additions to the data library and any monetary data exchanges. The Company's definition of funds from operations is cash flow from operations as prescribed by Canadian generally accepted accounting principles, but excluding the impact of changes in non-cash working capital. Funds from operations per share is defined as funds from operations divided by the weighted average number of shares outstanding for the period.

Revenue

For the three-month period ended March 31, 2005, Pulse recorded revenue of $12.5 million compared to $16.7 million in the same period in 2004 as detailed in the following table. Although the revenue level for the three months ended March 31, 2005 reflects a 25% decrease from the comparable three-month period in 2004, it includes a 44% increase in data library sales quarter-over-quarter. The primary reason for the decrease in revenues was that Pulse recorded $5.0 million of participation survey revenue in the first quarter of 2005, compared to $12.4 million of participation survey revenue recorded in the first quarter of 2004. The 2004 period had a higher than normal delivery of participation survey data. Additionally, the revenue from Trango for the first quarter increased 153% to $399,000 in 2005 from $158,000 in 2004. This major improvement relates to Trango's signing of several large contracts with oil and gas companies in the United States. The revenue classified as corporate and other in the table below relates to miscellaneous revenue, foreign exchange gains and/or losses, and eliminated intercompany sales. There was a decrease in corporate and other revenue quarter-over-quarter, of 202%. For the first quarter of 2005, the Company recorded revenue of $1.4 million for the LiDAR business segment, whereas the first quarter of 2004 was nil, as Pulse did not acquire Terrapoint until May 2004.

Revenue Sources For the three months ended March 31 2005 2004 Revenue % of Total Revenue % of Total ($000s) Revenue ($000s) Revenue Seismic revenue Data library sales $ 5,793 46 $ 4,033 24 Participation surveys 4,963 40 12,375 74 LiDAR revenue 1,480 12 - - Trango revenue 399 3 158 1 Corporate and other (101) (1) 99 1 Total $ 12,534 100 $ 16,665 100

The data library acquired in the ReQuest Income Trust ("ReQuest") acquisition included significant pre-paid data delivery obligations ("library cards"). An outstanding obligation to deliver approximately $40.0 million of seismic data from the ReQuest library, as of the acquisition date of January 31, 2002, was reduced by 85% by the end of 2004 to approximately $6.0 million, and was further reduced to a balance of $5.3 million at March 31, 2005. Approximately half of the balance remaining as at December 31, 2004 is expected to be drawn down during 2005. Going forward, Pulse expects the outstanding library card balance to have minimal impact on revenue generated by data library sales.

Data Library

Pulse invested $6.1 million to acquire new data in the first three months of 2005, compared to $8.5 million in the first quarter of 2004. An additional $8.4 million that was recorded at December 31, 2003 as work in progress, relating to the participation survey programs completed in the first quarter of 2004 was converted to data library additions in 2004 with the delivery of the data in February and March 2004. The total capital expenditures for the participation programs in 2005 related to two 3D participation surveys that were conducted in northern Alberta. The Company acquired a total of 242 square kilometres of 3D data, all of which is 100% owned by Pulse. The Company expects that capital expenditures directed to participation surveys in 2005 will be comparable to the 2004 level.

Liquidity, Capital Resources and Capital Requirements

The working capital position of Pulse, including the current portion of long-term debt of $5.9 million, at March 31, 2005 was $1.7 million, compared to $3.8 million at December 31, 2004, and a deficiency of $66,000 at March 31, 2004. The working capital position declined by 55% compared to the December 31, 2004 position and improved by 248% compared to the March 31, 2004 position. Contributing to the reduction in working capital since December 31, 2004 was the accrual of $1.6 million in current income taxes payable and further funding of Terrapoint's operations. All working capital covenants with Pulse's lenders have been met throughout each of these periods. With the continuation of the very strong trend in existing data sales levels, and Terrapoint entering its busy season with significant confirmed backlog, Pulse management expects that its funds from operations will be sufficient to finance operations, debt servicing, dividends and budgeted capital expenditures for the remainder of 2005. The seismic data library is continually growing through acquisition of new data, principally 3D data. The ongoing growth in our seismic data library continues to position Pulse to be able to provide valuable seismic data to industry participants into the future. Historical data sales analysis shows that most seismic data retains its value for many years, and with the technological advancements in reprocessing that have been made in recent years, the Company's clients are able to enhance the quality of older data in the library. With the acquisition of Terrapoint, Pulse has now added airborne and ground-based LiDAR services to its product offerings, and has begun accessing customers in new industries and markets. Management is optimistic about the future success of Terrapoint and expects it to enhance Pulse's financial results in 2005.

PULSE DATA INC. Interim Consolidated Balance Sheets

(In Thousands of Dollars) March 31, December 31, 2005 2004 (unaudited) (audited) Assets

Current assets: Cash and cash equivalents $ 5,008 $ 3,827 Accounts receivable 11,824 12,832 Prepaid expenses 217 234 Work in progress 1,027 693 18,076 17,586

Data libraries 74,972 75,008

Participation surveys in progress - 2

Property and equipment 14,875 15,052

Investments 432 667

Deferred charges 121 121

$ 108,476 $ 108,426

Liabilities and Shareholders' Equity

Current liabilities: Accounts payable and accrued liabilities $ 6,264 $ 4,466 Deferred revenue 2,680 3,613 Current portion of long-term debt 5,867 5,662 Income taxes payable 1,593 - 16,404 13,741

Long-term debt 9,558 11,203

Future income taxes 4,698 5,975

Shareholders' equity: Share capital 50,531 50,531 Contributed surplus 607 449 Retained earnings 26,678 26,527 77,816 77,507

$ 108,476 $ 108,426

PULSE DATA INC. Interim Consolidated Statement of Earnings and Retained Earnings

Three months ended March 31, 2005 and 2004 (In Thousands of Dollars, Except Per Share Data) (Unaudited)

2005 2004

Revenue $ 12,534 $ 16,665

Operating expenses: Amortization of data libraries 6,134 9,228 Operating 2,503 730 Depreciation and amortization 598 77 9,235 10,035

Gross margin 3,299 6,630

General and administrative expenses 1,647 837 Research and development expenses 239 -

Interest: Long-term debt 227 292 Other (39) (26) 188 266

Earnings before income taxes 1,225 5,527

Income taxes: Current 1,778 784 Future (1,277) 1,792 501 2,576

Net earnings $ 724 $ 2,951

Retained earnings, beginning of period 26,257 21,027 Dividends declared (573) (509)

Retained earnings, end of period $ 26,678 $ 23,469

Earnings per share: Basic and diluted $ 0.02 $ 0.07

PULSE DATA INC. Interim Consolidated Statement of Cash Flows

Three months ended March 31, 2005 and 2004 (In Thousands of Dollars) (Unaudited)

2005 2004

Cash provided by (used in):

Operations: Net earnings $ 724 $ 2,951 Items not involving cash: Amortization of data libraries 6,134 9,228 Depreciation and amortization 598 77 Unrealized loss on foreign exchange 13 - Future income taxes (1,277) 1,792 Stock-based compensation 158 22 Other - 8 Funds from operations 6,350 14,078 Net change in non-cash working capital items related to operations 4,701 (2,659) Decrease in non-current deferred revenue - (41) 11,051 11,378

Financing: Repayment of long-term debt (1,440) (1,040) Issue of share capital - 195 (1,440) (845)

Investing: Additions to data libraries through participation surveys (6,097) (16,892) Increase in participation surveys in progress 2 8,372 Dividends paid - (509) Increase (decrease) in investments 235 (213) Additions to property and equipment (431) (29) Net change in non-cash working capital items related to investing (2,139) (7,836) (8,430) (17,107)

Increase (decrease) in cash 1,181 (6,574)

Cash and cash equivalents, beginning of period 3,827 9,018

Cash and cash equivalents, end of period $ 5,008 $ 2,444

During the period, the Corporation paid interest of $232,000 (2004 - $208,000) and received interest of $26,000 (2004 - $25,000). During the period, the Corporation paid income taxes of $51,000 (2004 - $1,782,000).

OUTLOOK

The continuing robust global demand for petroleum products and strong commodity price levels have enhanced the attractiveness of oil and gas exploration by Canadian energy companies leading to a strong demand for seismic data. Pulse continues to pursue the acquisition of other quality seismic data sets, as we expect the addition of the seismic data referred to earlier in the press release will have a significant impact on Pulse's data sales going forward. Trango was substantially on budget for the first quarter and is well-positioned to execute its 2005 strategic plan. Despite Terrapoint's slow start to the year both management and employees have been involved in an ongoing process to improve all aspects of the business. We have seen some very positive operational results so far in the second quarter and with the implementation of these improvements and a significant, solid backlog position, we expect this new segment to meet its financial targets for 2005. Overall, Pulse expects another strong year in fiscal 2005.

CORPORATE PROFILE

Pulse is a Calgary-based international company specializing in data ownership through acquisition, marketing and information management, with current focus on the energy sector. Through its three operating segments, Pulse Seismic, Terrapoint and Trango, the Company has evolved into an industry leader in providing better information faster. Pulse Seismic is at the forefront with regard to acquiring, marketing and licensing seismic data in Western Canada. Pulse Seismic's library currently consists of approximately 240,000 net kilometres of 2D data and more than 6,700 net square kilometres of 3D data. Revenue is generated through licensing of the data library and through the licensing of participation surveys. With offices in Calgary, Ottawa and Houston, Terrapoint is the largest and most experienced LiDAR (Light Detection And Ranging) data provider in the world. LiDAR data is used to produce survey-quality 3D digital elevation models. The use of digital elevation data significantly reduces the cost of project planning and design in a broad array of industries including urban, transportation and industrial and resource planning and development. Since its inception in 1998, Terrapoint has worked in many countries around the world providing cost-effective solutions to its clients' needs. Trango has developed an exceptional reputation for providing GIS data management products and services to the North American oil and gas industry. Trango provides the technology that allows clients to better exploit their seismic, well, geologic and related data. Pulse operates prudently using a disciplined approach that capitalizes on its strong financial base, which in turn has provided a solid foundation for growth. By incorporating synergistic products and services into the company mix, Pulse has positioned itself for continued expansion and diversification in market areas that require better information faster. Pulse trades on the Toronto Stock Exchange under the symbol PSD.

Certain information contained herein may constitute forward-looking statements under applicable securities laws. Such statements are subject to known or unknown risks and uncertainties that may cause actual results to differ materially from those anticipated or implied in the forward-looking statements. Investors are encouraged to review the "Risk Factors" section of the Management's Discussion and Analysis in the Company's Annual Report for 2004 and 2005 Interim Reports for a discussion of risks that could affect the Company's operations and financial results. Forward-looking statements are based upon management's assumptions, expectations and estimates at the time that such statements are made. Pulse does not update forward-looking statements should circumstances change or management's assumptions, expectations or expectations change.