The seismic business is a cash business.
Pulse’s business model is built largely around cash. The principal activity is to generate cash seismic data sales from the data library. Disciplined financial management and cost control enable higher sales and deliver higher cash margins.
Pulse’s two most relevant financial measures are cash EBITDA and shareholder free cash flow. Because net earnings includes a very high component of non-cash amortization of the seismic data library, the result is not indicative of Pulse’s ability to operate. Nor does it provide useful information about sales trends, cost performance or allocations of cash. In addition, the cash EBITDA and shareholder free cash flow financial metrics eliminate the impact of participation survey revenue; which is emphasized as necessary because this revenue is all directed to funding the cost of the surveys, and not available for discretionary use.
Cash EBITDA – earnings before interest, taxes, depreciation and amortization less participation survey revenue – is important to stakeholders in the seismic business. It provides insight into Pulse’s overall performance and the cash available for key priorities.
Shareholder free cash flow – the key performance indicator.
Shareholder free cash flow – cash EBITDA less interest and current income taxes – is an even more precise financial metric as it removes two non-discretionary cash items.
Shareholder free cash flow provides a clearer picture than net earnings of Pulse’s ability to generate value for its shareholders. Net earnings include a high component of non-cash amortization of Pulse’s seismic data library, which is largely unrelated to Pulse’s ability to operate and deploy capital. Pulse measures shareholder free cash flow both in absolute dollar terms and on a per-share basis.
Shareholder free cash flow is a clean measurement indicating the funds Pulse has available to invest in new participation surveys, dataset acquisitions or other capital projects, to repurchase common shares, to pay dividends and to repay debt.
Shareholder free cash flow is Pulse’s most important metric. Historically, Pulse has shown a strong correlation between seismic data library sales and shareholder free cash flow per share. With low fixed costs, declining interest costs, continued discipline in general and administrative costs, and a high cash margin, as Pulse’s data sales grow, so should the Company’s shareholder free cash flow.