Pason Reports Second Quarter 2015 Results

CALGARY, Aug. 11, 2015 /CNW/ - Pason Systems Inc. (TSX:PSI) announced today its 2015 second quarter results.

Performance Data

		Three Months Ended June 30,						Six Months Ended June 30,
		2015		2014		Change		2015		2014	Change
(CDN 000s, except per share data)		($)		($)		(%)		($)		($)	(%)
Revenue		57,440		103,851		(45)		156,842		227,025	(31)
(Loss) income		(9,404)		17,606		-		4,787		38,427	(88)
	Per share – basic	(0.11)		0.21		-		0.06		0.47	(87)
	Per share – diluted	(0.11)		0.21		-		0.06		0.47	(87)
EBITDA ^(1)		7,485		45,999		(84)		51,611		116,468	(56)
	As a % of revenue	13.0		44.3		(71)		32.9		51.3	(36)
Funds flow from operations		9,277		44,255		(79)		52,539		100,566	(48)
	Per share – basic	0.11		0.54		(80)		0.63		1.22	(48)
	Per share – diluted	0.11		0.53		(79)		0.63		1.20	(48)
Cash from operating activities		31,300		55,980		(44)		102,833		120,365	(15)
Free cash flow ^(1)		21,298		37,763		(44)		69,517		85,725	(19)
	Per share – basic	0.25		0.46		(46)		0.83		1.04	(20)
	Per share – diluted	0.25		0.45		(44)		0.83		1.02	(19)
Capital expenditures		10,002		18,315		(45)		33,515		34,824	(4)
Working capital		227,046		162,896		39		227,046		162,896	39
Total assets		549,310		503,254		9		549,310		503,254	9
Total long-term debt		—		—		—		—		—	—
Cash dividends declared		0.17		0.15		13		0.34		0.30	13
Shares outstanding end of period (#000's)		83,656		82,678		1		83,656		82,678	1

(1) Non-IFRS financial measures are defined in the Management's Discussion and Analysis section.

Q2 2015 vs Q2 2014
The Company generated consolidated revenue of $57.4 million in the second quarter of 2015, down 45% from $103.9 million in the same period of 2014. The continued slowdown in oil and gas drilling activity, combined with a reduction in product adoption on certain products and pricing pressure from customers,contributed to the decrease in revenue, which was partially offset by the strengthening of the US dollar relative to the Canadian dollar.

Consolidated EBITDA was $7.5 million in the second quarter, a decrease of $38.5 million from the second quarter of 2014.

The Company recorded a net loss of $9.4 million ($0.11 per share) in the second quarter, a decrease of $27.0 million from the net income of $17.6 million ($0.21 per share) recorded in same period in 2014. Included in the 2015 second quarter results are restructuring costs totaling $2.6 million.

President's Message
The second quarter is usually the weakest for Pason due to the seasonality of Canadian drilling activity. More importantly, the full impact of the downturn caused by low oil prices has adversely impacted  Pason's financial results in the second quarter.

On June 25, 2014, the price for West Texas Intermediate (WTI) oil was US$106.50. Since reaching that  peak, the oil price has declined sharply with the Organization of Petroleum Exporting Countries (OPEC) and North American shale fighting for market share. Oil bottomed out at US$43.46 on March 26 this year before recovering to above US$55 by the beginning of June. As I write this message, it is again below US$45.

Operators looking to conserve cash in this lower oil price environment, particularly in the United States and in Canada, have cut capital expenditures, staffing levels, and existing operations. Land drilling activity in North America is down more than 50% compared to one year ago. As a result, we have experienced a severe contraction in revenue and margins.

Pason generated revenue of $57.4 million in the second quarter of 2015, down 45% from $103.9 million in the same period of 2014. The continued slowdown in oil and gas drilling activity, combined with a reduction in product adoption for certain products and pricing pressure from customers, contributed to the decrease in revenue. EBITDA was $7.5 million in the second quarter, a decrease of $38.5 million from the second quarter of 2014. Pason recorded a net loss of $9.4 million ($0.11 per share), a decrease of $27.0 million from the net income of $17.6 million in the same period last year.

Over the last several months, we responded to this challenging environment by taking the necessary steps to ensure Pason remains a strong and viable company by reducing our capital expenditures and lowering operating costs. Our capital expenditure plan for 2015 is $65 million compared to $121 million in 2014. We reduced our staffing levels (employees and contractors) by 20% which resulted in the Company recording a restructuring charge of $2.6 million in the second quarter of 2015 (for a run-rate savings of  approximately $15.0 million per annum) and cut back on discretionary spending. We are closely monitoring the industry outlook to determine if, and when, further operating  (including excess satellite bandwidth) and capital reductions may be required.

It is encouraging that we have been able to defend our market share in all core markets and that declines in revenue per EDR day have been relatively modest, attesting to the value of our product suite and our pricing power.

Based on what we know today, it looks unlikely that industry activity, and Pason's results, will rebound as quickly as they did in the last downturn six years ago. Analysts are calling for an oil price of approximately US$60 for 2016 to 2018. As operators look to conserve cash, new capital expenditures will likely be delayed or canceled. This will particularly affect offshore and heavy oil projects. North American shale, with its enormous resources, scalability, and flexible development, will be more resilient but also very volatile. Shale developments will also expand internationally in regions like Vaca Muerte, in Argentina.

At current oil prices, new North American shale developments are operating at, or below, break-even, despite the fact that costs have fallen around US$20/barrel over the last year as drilling and completions efficiency has increased (and operators have received significant pricing concessions from service companies). We therefore expect that the emphasis on efficiency and pricing will persist going forward.

Implications for Pason are twofold: 1) more than ever, we are focusing efforts to develop and market products and services that create significant and visible value, either by saving costs, or by increasing revenue for our customers; and 2) we are strengthening our market presence in OPEC countries, with a focus on the Middle East.

It is clear that we need to continue to invest in future growth, including investments in new product development, in service capabilities, in infrastructure and systems, and in our international footprint as outlined below:

• New Product Development: Our product development objectives are structured around four themes:

1. Innovating EDR and key peripherals for advanced drilling rigs
2. Providing reliable, fast, and price competitive communication and IT services to rigsite users
3. Pursuing opportunities in advanced well control and mud management
4. Developing real-time, collaborative drilling optimization and wellbore quality applications.

• Service Capabilities: We continue to enhance our service capabilities, which includes our Field Technicians and Technical Support.
• Infrastructure and Systems: We continue to focus on improving the stability and reliability, security, and disaster recovery capability of core infrastructure and systems.
• International Footprint: We are increasing our international footprint, including our Saudi joint venture, and we recently opened a small business development office in Dubai.

On June 30, 2015, our cash position stood at $195.3 million and working capital at $227.0 million. There is no debt on the balance sheet. We are maintaining our quarterly dividend at $0.17 per share.

(signed)
Marcel Kessler
President and Chief Executive Officer
August 11, 2015

Management's Discussion and Analysis
The following discussion and analysis has been prepared by management as of August 11, 2015, and is a review of the financial condition and results of operations of Pason Systems Inc. (Pason or the Company) based on International Financial Reporting Standards (IFRS) and should be read in conjunction with the consolidated financial statements and accompanying notes.

Certain information regarding the Company 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.

All financial measures presented in this report are expressed in Canadian dollars unless otherwise indicated.

Additional IFRS Measures
In its interim condensed consolidated financial statements, the Corporation uses certain additional IFRS measures. Management believes these measures provide useful supplemental information to readers.

Funds flow from operations
Management believes that funds flow from operations, as reported in the Consolidated Statements of Cash Flows, is a useful additional measure as it represents the cash generated during the period, regardless of the timing of collection of receivables and payment of payables. Funds flow from operations represents the cash flow from continuing operations, excluding non-cash items. Funds flow from operations is defined as net income adjusted for depreciation and amortization expense, non-cash stock-based compensation expense, deferred taxes, and other non-cash items impacting operations.

Cash from operating activities
Cash from operating activities is defined as funds flow from operations adjusted for changes in working capital items.

Non-IFRS Financial Measures
These definitions are not recognized measures under IFRS, and accordingly, may not be comparable to measures used by other companies. These Non-IFRS measures provide readers with additional information regarding the Company's ability to generate funds to finance its operations, fund its research and development and capital expenditure program, and pay dividends.

EBITDA
EBITDA is defined as net income before interest expense, income taxes, stock-based compensation expense,   depreciation and amortization expense, and gains on disposal of investments.

Free cash flow
Free cash flow is defined as cash from operating activities plus proceeds on disposal of property, plant and equipment, less capital expenditures, and deferred development costs.

Overall Performance

		Three Months Ended June 30,						Six Months Ended June 30,
		2015		2014		Change		2015		2014		Change
(000s)		($)		($)		(%)		($)		($)		(%)
Revenue
	Electronic Drilling Recorder	24,926		46,739		(47)		66,327		100,254		(34)
	Pit Volume Totalizer/ePVT	7,579		15,135		(50)		21,746		33,776		(36)
	Communications	5,149		8,057		(36)		15,112		18,212		(17)
	Software	3,902		6,795		(43)		10,581		15,505		(32)
	AutoDriller	3,908		9,136		(57)		11,514		20,615		(44)
	Gas Analyzer	3,845		7,514		(49)		11,526		17,564		(34)
	Other	8,131		10,475		(22)		20,036		21,099		(5)
Total revenue		57,440		103,851		(45)		156,842		227,025		(31)

Electronic Drilling Recorder (EDR) and Pit Volume Totalizer (PVT) rental day performance for Canada and the United States is reported below:

Canada
	Three Months Ended June 30,						Six Months Ended June 30,
	2015		2014		Change		2015		2014		Change
	#		#		(%)		#		#		(%)
EDR rental days	8,400		16,400		(49)		34,600		59,100		(41)
PVT rental days	7,900		15,800		(50)		32,700		57,100		(43)
United States
	Three Months Ended June 30,						Six Months Ended June 30,
	2015		2014		Change		2015		2014		Change
	#		#		(%)		#		#		(%)
EDR rental days	47,200		97,700		(52)		113,200		186,800		(39)
PVT rental days	35,400		75,000		(53)		87,300		143,300		(39)

Electronic Drilling Recorder (EDR)
The Pason EDR remains the Company's primary product. The EDR provides a complete system of drilling data acquisition, data networking, and drilling management tools and reports at both the wellsite and customer offices. The EDR is the base product from which all other wellsite instrumentation products are linked. By linking these products, a number of otherwise redundant elements such as data processing, display, storage, and networking are eliminated. This ensures greater reliability and a more robust system of instrumentation for the customer. Revenue generated from the EDR decreased 47% for the second quarter of 2015 compared to the same period in 2014. This decrease is attributable to the industry slowdown, lower product adoption of certain peripheral devices, and pricing pressures from customers which were offset by a strengthening US dollar relative to the Canadian dollar and the continued acceptance of the Company's Rig Display.  Industry activity in the US market decreased 51% in the second quarter of 2015 compared to the corresponding period in 2014 (37% on a year-to-date basis), while second quarter Canadian rig activity decreased 52% compared to the same period in 2014 (47% on a year-to-date basis). Canadian EDR days decreased 49% in the second quarter of 2015  from 2014 levels (41% on a year-to-date basis), while US EDR days decreased by 52% for the second quarter of 2015 (39% on a year-to-date basis).

During the first half of the year, the Pason EDR was installed on 97% of all active land rigs in Canada and 57% of the land rigs in the US, compared to 94% and 60% respectively in the first half of 2014.

Pit Volume Totalizer (PVT) and Electronic Pit Volume Totalizer (ePVT)
The PVT is Pason's proprietary solution for the detection and early warning of "kicks" that are caused by hydrocarbons entering the wellbore under high pressure and expanding as they migrate to the surface. PVT revenue for the first six months of 2015 was impacted by the decline in rig count activity, offset partially with continued customer adoption of the new ePVT. During the first six months of 2015, the PVT was installed on 94% of rigs with a Pason EDR in Canada and 77% in the US, compared to 97% and 76% respectively, in the same period of 2014.

Communications
Pason's Communications revenue is derived from the provision of communications services including the provision of bandwidth through the Company's automatically-aiming satellite system and terrestrial networks. This system provides reliable high-speed wellsite communications for email and web application management tools. Pason displays all data in standard forms on its DataHub web application, although if customers require greater analysis or desire to have the information transferred to another supplier's database, data is available for export from the Pason DataHub using WITSML (a specification for transferring data among oilfield service companies, drilling contractors, and operators). The Company complements its satellite equipment with High Speed Packet Access (HSPA), a high-speed wireless ground system which provides automatic fail-over between satellite and terrestrial networks to achieve greater reliability in its service offering.

Communications revenue decreased by 17% in the first six months of 2015 compared to the same period in 2014 due to the industry slowdown, offset by both the increased usage of the Company's premium product offerings in the Canadian and US markets, and the strengthening of the US dollar relative to the Canadian dollar.

Software

The Pason DataHub is the Company's data management system that collects, stores, and displays drilling data, reports, and real-time information from drilling operations. The DataHub provides access to data through a number of innovative applications or services, including:

• Live Rig View (LRV), which provides advanced data viewing, directional drilling, and 3D visualization of drilling data in real time via a web browser.
• LRV Mobile, which allows users to access their data on mobile devices, including iPhone, iPad, BlackBerry, and Android.
• WITSML, which provides seamless data sharing with third-party applications, enhancing the value of data hosted by Pason.
• Additional specialized software, including directional offerings.

During the first half of 2015, 96% of the Company's Canadian customers and 88% of customers in the US were using all or a portion of the functionality of the DataHub, compared to 97% and 91% respectively in the first half of 2014.

AutoDriller
Pason's AutoDriller is used to maintain constant weight on the drill bit while a well is being drilled. During the six months ended June 30, 2015, the AutoDriller was installed on 64% of Canadian and 35% of US land rigs operating with a Pason EDR system, compared to 74% and 46%, respectively, in 2014.

Gas Analyzer
The Pason Gas Analyzer measures the total hydrocarbon gases (C1 through C4 and CO2) exiting the wellbore, and then calculates the lag time to show the formation depth where the gases were produced. The Gas Analyzer provides information about the composition of the gas, and further calculates geologic ratios from the gas composition to assist in indicating the type of gas, natural gas liquid, or oil in the formation. During the first six months of 2015, the Gas Analyzer was installed on 57% of Canadian and 28% of US land rigs operating with a Pason EDR system, compared to 60% and 24% for the Canadian and US segments respectively in the prior year period.

Other
Other is comprised mostly of the rental of service rig recorders in Latin America, the Electronic Choke Actuator, Hazardous Gas Alarm products, Mobilization revenue, sales of sensors and other systems sold by 3PS,  and spare parts sold by Pason Offshore.

Discussion of Operations

United States Operations

		Three Months Ended June 30,						Six Months Ended June 30,
		2015		2014		Change		2015		2014		Change
(000s)		($)		($)		(%)		($)		($)		(%)
Revenue
	Electronic Drilling Recorder	17,612		33,608		(48)		43,444		64,061		(32)
	Pit Volume Totalizer/ePVT	5,005		10,262		(51)		13,041		19,655		(34)
	Communications	3,234		5,194		(38)		7,832		8,976		(13)
	Software	3,053		5,223		(42)		7,259		10,272		(29)
	AutoDriller	2,103		6,126		(66)		5,825		11,624		(50)
	Gas Analyzer	2,355		4,118		(43)		5,959		7,748		(23)
	Other	5,116		7,231		(29)		12,633		13,558		(7)
Total revenue		38,478		71,762		(46)		95,993		135,894		(29)
Operating costs		19,375		23,455		(17)		44,350		46,602		(5)
Depreciation and amortization		8,254		8,133		1		18,012		15,693		15
Segment operating profit		10,849		40,174		(73)		33,631		73,599		(54)

	Three Months Ended June 30,
	2015					2014
	USD			CAD		USD		CAD
	$			$		$		$
Revenue per EDR day	620			761		643		704
Revenue per industry day	373			458		390		427
	Six Months Ended June 30,
	2015				2014
	USD			CAD		USD		CAD
	$			$		$		$
Revenue per EDR day	650			803		636		698
Revenue per industry day	372			460		379		416

US segment revenue decreased by 46% in the second quarter of 2015 over the 2014 comparable period (53% decrease when measured in USD). For the first six months, revenue decreased by 29% (38% decrease when measured in USD).

Industry activity in the US market during the second quarter of 2015 decreased 51% from the prior year, while revenue from the rental of instrumentation decreased by 48% for the quarter over 2014 levels (53% decrease when measured in USD). For the first six months, industry activity decreased 37% from 2014 levels, while instrumentation revenue decreased 30% (38% decrease when measured in USD).

EDR rental days decreased by 52% for the quarter ended June 30, 2015 over the same time period in 2014, while revenue per EDR day in the second quarter of 2015 decreased to US$620, a decrease of US$23 over the same period in 2014. For the first six months, EDR rental days decreased 39%, while revenue per EDR day increased by US$14 to US$650.

The decrease in industry activity, combined with pricing pressure from customers and lower product adoption on certain products accounted for the drop in revenue for both the quarter and six months ended June 30, 2015. This decrease was offset by the favourable movement in the USD/CAD exchange rate and continued customer usage of premium communication services. US market share was 60% during the three months ended June 30, 2015, down slightly from 61% in the same period of 2014.  

Operating costs decreased by 17% in the second quarter relative to the same period in the prior year. When measured in USD, operating costs decreased 27% (USD 15% on a year-to-date basis) as the business unit continues to identify and implement changes to its fixed cost structure to meet the challenging business environment while maintaining customer service.

Depreciation expense for the first six months of 2015 increased 15% over 2014 amounts. This increase is due to the roll out of the capital equipment associated with the commercialization of the ePVT, including the continued roll out of the Rig Display, the upgrade program to the Company's fleet of workstations, and the introduction of the new Versatile Services Platform (VSP) server, all of which occurred during the latter half of 2014.

Segment profit, as a percentage of revenue, was 28% for the second quarter of 2015 compared to 56% for the corresponding period in 2014, or a decrease of $29.3 million. Segment profit decreased to $33.6 million for the first six months of 2015, a drop of 54% from the same period in 2014.

Canadian Operations

		Three Months Ended June 30,						Six Months Ended June 30,
		2015		2014		Change		2015		2014		Change
(000s)		($)		($)		(%)		($)		($)		(%)
Revenue
	Electronic Drilling Recorder	3,471		7,952		(56)		14,145		26,390		(46)
	Pit Volume Totalizer/ePVT	1,471		2,954		(50)		6,024		10,401		(42)
	Communications	1,387		2,401		(42)		6,180		8,395		(26)
	Software	718		1,377		(48)		3,026		4,879		(38)
	AutoDriller	690		1,711		(60)		3,187		6,527		(51)
	Gas Analyzer	891		2,243		(60)		3,989		7,488		(47)
	Other	613		1,200		(49)		2,049		3,619		(43)
Total revenue		9,241		19,838		(53)		38,600		67,699		(43)
Operating costs		6,798		9,467		(28)		15,703		20,390		(23)
Depreciation and amortization		9,332		5,916		58		18,961		12,395		53
Segment operating (loss) profit		(6,889)		4,455		-		3,936		34,914		(89)

	Three Months Ended June 30,
	2015		2014
	CAD		CAD
	$		$
Revenue per EDR day	1,082		1,195
Revenue per industry day	1,032		1,070
	Six Months Ended June 30,
	2015		2014
	CAD		CAD
	$		$
Revenue per EDR day	1,103		1,136
Revenue per industry day	1,135		1,064

Canadian segment revenue decreased by 53% for the quarter ended June 30, 2015 compared to the same period in 2014. This drop is the result of a 52% decrease in the number of drilling industry days in the second quarter compared to 2014 levels, pricing pressures from customers, and lower product adoption on some products. On a year-to-date basis, revenue decreased 43% while industry days declined 47%.

EDR rental days decreased 49% in the second quarter compared to 2014 (41% for the first six months of 2015).

The factors above combined to result in a decrease in revenue per EDR day of $113 to $1,082 during the second quarter of 2015 compared to 2014. Revenue per EDR day for the first half of 2015 was $1,103, down $33 from the same period in 2014.

Operating costs decreased by 28% in the second quarter of 2015 relative to the same period in 2014 (23% on a year-to-date basis), primarily due to a drop in activity combined with cost control initiatives implemented by all of the business units.  

Depreciation expense increased by approximately 50% for both the three month and six month periods ended June 30, 2015 due to the Company's 2014 capital expenditure program explained above in the United States operations update, combined with the amortization of previously deferred research and development costs.

Second quarter operating loss of $6.9 million is a decrease of $11.3 million over the prior year. Segment operating profit for the first six months of 2015 is down 89% from last year's comparatives.

International Operations

		Three Months Ended June 30,						Six Months Ended June 30,
		2015		2014		Change		2015		2014		Change
(000s)		($)		($)		(%)		($)		($)		(%)
Revenue
	Electronic Drilling Recorder	3,843		5,179		(26)		8,738		9,803		(11)
	Pit Volume Totalizer/ePVT	1,103		1,919		(43)		2,681		3,720		(28)
	Communications	528		462		14		1,100		841		31
	Software	131		195		(33)		296		354		(16)
	AutoDriller	1,115		1,299		(14)		2,502		2,464		2
	Gas Analyzer	599		1,153		(48)		1,578		2,328		(32)
	Other	2,402		2,044		18		5,354		3,922		37
Total revenue		9,721		12,251		(21)		22,249		23,432		(5)
Operating costs		7,035		6,854		3		15,567		13,345		17
Depreciation and amortization		3,012		1,855		62		5,347		3,558		50
Segment operating (loss)profit		(326)		3,542		(109)		1,335		6,529		(80)

The market forces impacting the Company's US and Canadian segments also exist in the majority of the Company's International markets, with Argentina being the exception.

Revenue in the International operations segment decreased 21% in the second quarter of 2015 compared to the same period in 2014. For the first half of 2015, revenue decreased $1.2 million, or 5%.

Operating profit decreased by $3.9 million for the second quarter of 2015 over 2014 amounts. Year-to-date profit declined 80%, or $5.2 million. 

A number of factors influenced these results:

• Argentina revenue increased $0.8 million or 21% for the second quarter of 2015 compared to 2014. For the first six months of 2015 revenue increased 41% or $2.9 million.
• Operating costs increased for the first six months due to the increased drilling activity in Argentina combined with an increase in equipment importation costs for Argentina. All International business units saw a decline in their controllable costs. 
• Depreciation costs increased due to 2014 capital expenditures and a write-off of obsolete spare parts. 

Corporate Expenses

		Three Months Ended June 30,						Six Months Ended June 30,
		2015		2014		Change		2015		2014		Change
(000s)		($)		($)		(%)		($)		($)		(%)
Other expenses
Research and development		8,813		8,517		3		18,143		16,175		12
Corporate services		4,720		5,715		(17)		9,906		10,191		(3)
Stock-based compensation		5,563		7,136		(22)		3,788		24,804		(85)
Other
	Restructuring costs	2,572		—		—		2,572		—		—
	Foreign exchange (gain) loss	(12)		3,359		—		(2,459)		2,909		—
	Gain on sale of investment	—		—		—		(2,290)		—		—
	Other	654		485		35		1,449		945		53
Total corporate expenses		22,310		25,212		(12)		31,109		55,024		(43)

In response to the current business environment, the Company reduced its staffing levels during the second quarter of 2015 and recorded a restructuring charge of $2.6 million.

In the first quarter of 2015, the Company disposed of its investment in a small privately held company and realized a gain of $2.3 million.

Q2 2015 vs Q1 2015
Consolidated revenue was $57.4 million in the second quarter of 2015 compared to $99.4 million in the first quarter of 2015, a decrease of $42.0 million or 42%. The second quarter is usually the Company's weakest due to the spring break-up in Canada, but the second quarter of 2015 was impacted further by a continuing deterioration in drilling activity in most major markets. The Canadian segment earned revenue of $9.2 million in the second quarter as compared to $29.4 million in the first quarter of 2015, a decrease of $20.2 million. Revenue in the US market decreased by $19.0 million while the International segment experienced a revenue decrease of $2.8 million.

Sequentially, EBITDA decreased from $44.1 million in the first quarter of 2015 to $7.5 million in the second quarter of 2015, while funds flow from operations decreased to $9.3 million in the second quarter from $43.3 million in the first quarter of 2015.

The Company recorded a net loss in the second quarter of 2015 of $9.4 million ($0.11 per share) compared to net income of $14.2 million ($0.17 per share) in the first quarter of 2015. A continuing decline in activity  during the second quarter, an increase in stock-based compensation expense due to the increase in the Company's share price, and the restructuring costs contributed to the reported loss.

In May 2015, shareholders approved a modification to the Option Plan to eliminate the ability for the option holder to settle options for cash. As a result of this change, stock-based compensation expense relating to the Option Plan will be less volatile going forward as the fair value of the option is calculated at the time of grant and is not subsequently re-valued at the end of each reporting period.

Second Quarter Conference Call
Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its second quarter 2015 results at 9:00 am (Calgary time) on Wednesday, August 12, 2015. The conference call dial-in number is 1-888-231-8191 or 1-647-427-7450. You can access the seven-day replay by dialing 1-855-859-2056 or 1-416-849-0833, using password 48514919.

Pason Systems Inc. is a leading global provider of specialized data management systems for drilling rigs. Our solutions, which include data acquisition, wellsite reporting, remote communications, and web-based information management, enable collaboration between the rig and the office. Pason's common shares trade on the Toronto Stock Exchange under the symbol PSI.

Additional information, including the Company's Annual Report and Annual Information Form for the year ended December 31, 2014, is available on SEDAR at www.sedar.com or on the Company's website at www.pason.com.

Condensed Consolidated Interim Balance Sheets

As at			June 30, 2015		December 31, 2014
(CDN 000s) (unaudited)			($)		($)
Assets
Current
	Cash and cash equivalents		195,254		144,858
	Trade and other receivables		49,734		122,494
	Prepaid expenses		3,234		5,811
	Income taxes recoverable		5,312		491
	Total current assets		253,534		273,654
Non-current
	Property, plant and equipment		235,330		234,344
	Intangible assets and goodwill		60,446		62,068
	Total non-current assets		295,776		296,412
Total assets			549,310		570,066
Liabilities and equity
Current
	Trade payables and accruals		19,931		47,414
	Income taxes payable		1,497		3,544
	Stock-based compensation liability		5,060		16,125
	Total current liabilities		26,488		67,083
Non-current
	Stock-based compensation liability		3,962		3,018
	Deferred tax liabilities		17,049		16,442
	Total non-current liabilities		21,011		19,460
Equity
	Share capital		119,667		113,827
	Share-based benefits reserve		24,870		12,927
	Foreign currency translation reserve		56,937		32,807
	Retained earnings		300,337		323,962
	Total equity		501,811		483,523
Total liabilities and equity			549,310		570,066

Condensed Consolidated Interim Statements of Operations

			Three Months Ended June 30,				Six Months Ended June 30,
			2015		2014		2015		2014
(CDN 000s, except per share data) (unaudited)			($)		($)		($)		($)
Revenue			57,440		103,851		156,842		227,025
Operating expenses
	Rental services		28,947		35,181		66,443		70,753
	Local administration		4,261		4,595		9,177		9,584
	Depreciation and amortization		20,598		15,904		42,320		31,646
			53,806		55,680		117,940		111,983
Operating profit			3,634		48,171		38,902		115,042
Other expenses
	Research and development		8,813		8,517		18,143		16,175
	Corporate services		4,720		5,715		9,906		10,191
	Stock-based compensation expense		5,563		7,136		3,788		24,804
	Other expense (income)		3,214		3,844		(728)		3,854
			22,310		25,212		31,109		55,024
(Loss) income before income taxes			(18,676)		22,959		7,793		60,018
	Income tax (recovery) expense		(9,272)		5,353		3,006		21,591
Net (loss) income			(9,404)		17,606		4,787		38,427
(Loss) income per share
	Basic		(0.11)		0.21		0.06		0.47
	Diluted		(0.11)		0.21		0.06		0.47

Condensed Consolidated Interim Statements of Other Comprehensive (Loss) Income

			Three Months Ended June 30,				Six Months Ended June 30,
			2015		2014		2015		2014
(CDN 000s) (unaudited)			($)		($)		($)		($)
Net (loss) income			(9,404)		17,606		4,787		38,427
Items that may be reclassified subsequently to net income:
	Foreign currency translation adjustment		(6,829)		(6,896)		24,130		1,774
Total comprehensive (loss) income			(16,233)		10,710		28,917		40,201

Condensed Consolidated Interim Statements of Changes in Equity

			Share Capital		Share-Based Benefits Reserve		Foreign Currency Translation Reserve		Retained Earnings		Total Equity
(CDN 000s) (unaudited)			($)		($)		($)		($)		($)
Balance at January 1, 2014			80,725		12,927		7,958		264,859		366,469
	Net lncome		—		—		—		38,427		38,427
	Dividends		—		—		—		(24,755)		(24,755)
	Other comprehensive income		—		—		1,774		—		1,774
	Exercise of stock options		15,100		—		—		—		15,100
Balance at June 30, 2014			95,825		12,927		9,732		278,531		397,015
	Net income		—		—		—		73,677		73,677
	Dividends		—		—		—		(28,246)		(28,246)
	Other comprehensive income		—		—		23,075		—		23,075
	Exercise of stock options		18,002		—		—		—		18,002
Balance at December 31, 2014			113,827		12,927		32,807		323,962		483,523
	Net income		—		—		—		4,787		4,787
	Dividends		—		—		—		(28,412)		(28,412)
	Other comprehensive income		—		—		24,130		—		24,130
	Exercise of stock options		5,840		(306)		—		—		5,534
	Expense related to vesting of options		—		576		—		—		576
	Reclassification of equity settled options		—		11,673		—		—		11,673
Balance at June 30, 2015			119,667		24,870		56,937		300,337		501,811

Condensed Consolidated Interim Statements of Cash Flows

				Three Months Ended June 30,				Six Months Ended June 30,
				2015		2014		2015		2014
(CDN 000s) (unaudited)				($)		($)		($)		($)
Cash from (used in) operating activities
		Net (loss) income		(9,404)		17,606		4,787		38,427
Adjustment for non-cash items:
		Depreciation and amortization		20,598		15,904		42,320		31,646
		Gain on sale of investment		—		—		(2,290)		—
		Stock-based compensation		5,563		7,136		3,788		24,804
		Deferred income taxes		(7,591)		(48)		431		2,609
		Unrealized foreign exchange loss		111		3,657		3,503		3,080
Funds flow from operations				9,277		44,255		52,539		100,566
Movements in non-cash working capital items:
		Decrease in trade and other receivables		33,594		12,483		78,184		2,889
		Decrease/(increase) in prepaid expenses		1,455		(675)		2,716		249
		(Decrease)/increase in income taxes		(3,868)		2,340		620		13,114
		(Decrease)/increase in trade payables, accruals and stock-based compensation liability		(8,360)		1,740		(21,407)		7,033
		Effects of exchange rate changes		831		(2,778)		(2,358)		(1,000)
Cash generated from operating activities				32,929		57,365		110,294		122,851
		Income tax paid		(1,629)		(1,385)		(7,461)		(2,486)
Net cash from operating activities				31,300		55,980		102,833		120,365
Cash flows from (used in) financing activities
		Proceeds from issuance of common shares		1,348		3,473		4,041		7,035
		Purchase of stock options		—		—		—		(2,589)
		Payment of dividends		(14,219)		(12,356)		(28,412)		(23,857)
Net cash used in financing activities				(12,871)		(8,883)		(24,371)		(19,411)
Cash flows (used in) from investing activities
		Additions to property, plant and equipment and investment in joint venture		(7,595)		(17,209)		(29,030)		(31,662)
		Deferred development costs		(2,407)		(1,106)		(4,485)		(3,162)
		Proceeds on disposal of investment and property, plant and equipment		—		98		3,288		184
		Changes in non-cash working capital		(2,126)		363		(7,253)		1,360
Net cash used in investing activities				(12,128)		(17,854)		(37,480)		(33,280)
Effect of exchange rate on cash and cash equivalents				(2,833)		(1,423)		9,414		(215)
Net increase in cash and cash equivalents				3,468		27,820		50,396		67,459
Cash and cash equivalents, beginning of period				191,786		129,159		144,858		89,520
Cash and cash equivalents, end of period				195,254		156,979		195,254		156,979

Operating Segments

The Company operates in three geographic segments: Canada, the United States, and International (Latin America, Offshore, the Eastern Hemisphere, and the Middle East). The amounts related to each segment are as follows:

Three Months Ended June 30, 2015	Canada		United States		International		Total
	($)		($)		($)		($)
Revenue	9,241		38,478		9,721		57,440
Operating costs	6,798		19,375		7,035		33,208
Depreciation and amortization	9,332		8,254		3,012		20,598
Segment operating (loss) profit	(6,889)		10,849		(326)		3,634
Research and development							8,813
Corporate services							4,720
Stock-based compensation							5,563
Other expenses							3,214
Income taxes							(9,272)
Net loss							(9,404)
Capital expenditures	4,981		3,347		1,674		10,002
Goodwill	—		23,087		2,600		25,687
Intangible assets	31,394		1,600		1,765		34,759
Segment assets	139,763		333,969		75,578		549,310
Segment liabilities	10,284		16,859		20,356		47,499
Three Months Ended June 30, 2014
Revenue	19,838		71,762		12,251		103,851
Operating costs	9,467		23,455		6,854		39,776
Depreciation and amortization	5,916		8,133		1,855		15,904
Segment operating profit	4,455		40,174		3,542		48,171
Research and development							8,517
Corporate services							5,715
Stock-based compensation							7,136
Other expenses							3,844
Income taxes							5,353
Net Income							17,606
Capital expenditures	6,160		9,684		2,471		18,315
Goodwill	—		19,759		2,600		22,359
Intangible assets	32,395		6,504		2,533		41,432
Segment assets	152,415		288,690		62,149		503,254
Segment liabilities	62,702		32,784		10,753		106,239
Six Months Ended June 30, 2015	Canada		United States		International		Total
	($)		($)		($)		($)
Revenue	38,600		95,993		22,249		156,842
Operating costs	15,703		44,350		15,567		75,620
Depreciation and amortization	18,961		18,012		5,347		42,320
Segment operating profit	3,936		33,631		1,335		38,902
Research and development							18,143
Corporate services							9,906
Stock-based compensation							3,788
Other income							(728)
Income taxes							3,006
Net Income							4,787
Capital expenditures	10,905		15,169		7,441		33,515
Goodwill	—		23,087		2,600		25,687
Intangible assets	31,394		1,600		1,765		34,759
Segment assets	139,763		333,969		75,578		549,310
Segment liabilities	10,284		16,859		20,356		47,499
Six Months Ended June 30, 2014
Revenue	67,699		135,894		23,432		227,025
Operating costs	20,390		46,602		13,345		80,337
Depreciation and amortization	12,395		15,693		3,558		31,646
Segment operating profit	34,914		73,599		6,529		115,042
Research and development							16,175
Corporate services							10,191
Stock-based compensation							24,804
Other expenses							3,854
Income taxes							21,591
Net lncome							38,427
Capital expenditures	10,073		20,702		4,049		34,824
Goodwill	—		19,759		2,600		22,359
Intangible assets	32,395		6,504		2,533		41,432
Segment assets	152,415		288,690		62,149		503,254
Segment liabilities	62,702		32,784		10,753		106,239

Other Expenses (Income)

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	($)		($)		($)		($)
Foreign exchange (gain) loss	(12)		3,359		(2,459)		2,909
Gain on sale of investment	—		—		(2,290)		—
Restructuring costs	2,572		—		2,572		—
Other	654		485		1,449		945
Other expenses (income)	3,214		3,844		(728)		3,854

In response to the current business environment, the Company reduced its staffing levels during the second quarter of 2015 and recorded a restructuring charge of $2,572.

During the first quarter of 2015, the Company disposed of its investment in a small, privately held company and realized a gain of $2,290.

Incentive Plan Liabilities

In May 2015, shareholders' approved a modification of the Option Plan to eliminate the ability for the option holder to settle options for cash. As a result of this change;

• The grant date fair value, which is still calculated using the Black-Scholes option pricing model, is no longer revalued at the end of each reporting period, and   
• The stock-based compensation liability of $11,700 ($10,900 recorded as a current liability and $800 recorded as a non-current liability) relating to the stock options was reclassified to contributed surplus.

Pason Systems Inc.

Pason Systems Inc. is a leading global provider of specialized data management systems for drilling rigs. Our solutions, which include data acquisition, wellsite reporting, remote communications, and web-based information management, enable collaboration between the rig and the office. Pason's common shares trade on the Toronto Stock Exchange under the symbol PSI.TO.

Certain information regarding the Company contained herein may constitute forward-looking information under applicable securities law. The words "anticipate", "expect", "believe", "may", "should", "will", "estimate", "project", "outlook", "forecast" or other similar words are used to identify such forward-looking information and statements. Forward-looking statements in this document may include statements, express or implied regarding the anticipated business prospects and financial performance of Pason; expectations or projections about future strategies and goals for growth and expansion; expected and future cash flows and revenues; and expected impact of future commitments. These forward-looking statements are based upon various underlying factors and assumptions, including the state of the economy and the oil and gas exploration and production business, in particular; the Company's business prospects and opportunities; and estimates of the financial and operational performance of Pason.

Forward-looking information and 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 information and statements. Risk factors that could cause actual results or events to differ materially from current expectations include, among others, the ability of Pason to successfully implement its strategic initiatives and whether such strategic initiatives will yield the expected benefits, the operating performance of Pason's assets and businesses, the price of energy commodities, competitive factors in the energy industry, changes in laws and regulations affecting Pason's businesses, technological developments, and general economic conditions.

Readers are cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such forward looking statements, although considered reasonable by management as of the date hereof, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

Additional information on risks and uncertainties and other factors that could affect Pason's operations or financial results are included in Pason's reports on file with the Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or through Pason's website (www.pason.com). Furthermore, any forward looking statements contained in this news release are made as of the date of this news release, and Pason does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by securities law.

SOURCE Pason Systems Inc.

about Pason Systems Inc., visit the company's website at www.pason.com or contact: Marcel Kessler, President and CEO, 403-301-3400, [email protected]; Jon Faber, Chief Financial Officer, 403-301-3400, [email protected]