Pulse is a leading participant in a specialized sub-sector of the oil and natural gas industry's service sector. Pulse's business activity levels are driven by different factors than the commodity price-driven cyclicality that largely determines the fortunes of the drilling sector. Pulse's value should be assessed by somewhat different metrics than those that measure the drilling sector.
Cash EBITDA
Cash EBITDA is the driver of Pulse's growth, the source of its yield, and the measure in creating its ultimate value. Cash EBITDA is EBITDA remaining after deducting participation survey revenue, and adding back any non-cash and non-recurring general and administrative expenses. (EBITDA is seismic revenue less operating, general and administrative expenses.) Cash EBITDA is what's available to invest in growing our 2D and 3D seismic data library, to repay debt, to pay dividends to shareholders and to repurchase common shares of the Company. This is why cash EBITDA is Pulse's crucial financial metric.
An important use of cash EBITDA is to drive Pulse's growth. Each year we reinvest significant amounts in growing our 2D and 3D seismic data library, as well as in repaying long-term debt (most of which has been incurred to fund the expansion of the data library). The Corporation 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.
Participation surveys distort Pulse's financial picture because they include an immediate influx of cash from the survey participants which is classified as revenue. However, this cash is encumbered - or spoken for - because it must be used to conduct the 3D seismic survey. It is non-recurring revenue rather than cash Pulse generated through its core business of selling licensed seismic data. For these reasons, Pulse believes that the best measure of its business performance and its real value in the capital market is cash EBITDA.
Pulse has a strong record of cash EBITDA generation - even during downturns in commodity prices. Pulse's cash EBITDA is determined largely by overall seismic data library sales and its internal cost structure. Data added to the library imposes virtually no incremental operating or personnel costs. This means that as Pulse grows its data library, it increases both its revenue-generating capacity and its operating efficiencies. For example, library data sales per Pulse employee have grown in each of the past four years. Cash operating margins are strong. This supports growth in cash EBITDA.
The Enduring Value of Seismic Data
Pulse is a specialized, pure-play seismic library data provider. The conceptual basis of our business model is that seismic data has enduring value. It's an essential tool for oil and natural gas exploration that can be re-used with success by exploration and production companies for years and decades. Because it remains useful, it can be re-licensed over and over by providers like Pulse.
Seismic data doesn't expire. Pulse's library data has no particular shelf life or "best before" date. Result: our library can grow and grow. The larger it gets, the greater our revenue-generating capacity. Pulse's seismic data acquisitions since 1999 have generated an average annual return on investment of 32 percent. Pulse has been able to increase its licensing prices repeatedly.
The quality of raw seismic data shot decades ago is often as high as raw data shot today. The historical raw data can be reprocessed and reinterpreted using today's state-of-the-art seismic processing and visualization software. This is particularly true of 2D data, much of which was shot by historical major explorers in the 1960s through 80s. 3D came into general use in the late 80s and 90s. It too is demonstrating its ability to be reused and re-licensed.
Library data offers customers advantages over new seismic shoots. Re-shooting in historical areas can be very time-consuming, prohibitively expensive and, in some cases, impractical from a landowner or environmental standpoint. Library data is available right now at a fraction of the cost. Customers can pre-inspect the data to assure themselves of its quality.