CALGARY, Nov. 7, 2017 /CNW/ - Pason Systems Inc. (TSX:PSI) announced today its 2017 third quarter results.
Performance Data
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||
| 2017 |
2016 |
Change |
2017 |
2016 |
Change |
||
| (CDN 000s, except per share data) |
($) |
($) |
(%) |
($) |
($) |
(%) |
|
| Revenue |
64,576 |
38,633 |
67 |
179,417 |
111,619 |
61 |
|
| Income (loss) |
8,813 |
(7,117) |
— |
22,861 |
(29,296) |
— |
|
| Per share – basic |
0.10 |
(0.08) |
— |
0.27 |
(0.35) |
— |
|
| Per share – diluted |
0.10 |
(0.08) |
— |
0.27 |
(0.35) |
— |
|
| EBITDA (1) |
25,493 |
8,347 |
205 |
70,012 |
5,763 |
1,115 |
|
| As a % of revenue |
39.5 |
21.6 |
18 |
39.0 |
5.2 |
34 |
|
| Adjusted EBITDA (1) |
26,158 |
8,487 |
208 |
70,427 |
15,780 |
346 |
|
| As a % of revenue |
40.5 |
22.0 |
19 |
39.3 |
14.1 |
25 |
|
| Funds flow from operations |
19,896 |
9,130 |
118 |
59,765 |
11,491 |
420 |
|
| Per share – basic |
0.23 |
0.11 |
109 |
0.71 |
0.14 |
407 |
|
| Per share – diluted |
0.23 |
0.11 |
109 |
0.70 |
0.14 |
400 |
|
| Cash from operating activities |
15,128 |
4,653 |
225 |
69,160 |
18,977 |
264 |
|
| Free cash flow (1) |
11,002 |
4,404 |
150 |
59,141 |
6,084 |
872 |
|
| Capital expenditures |
5,371 |
1,377 |
290 |
11,604 |
12,886 |
(10) |
|
| Working capital |
190,518 |
191,785 |
(1) |
190,518 |
191,785 |
(1) |
|
| Total assets |
398,926 |
438,671 |
(9) |
398,926 |
438,671 |
(9) |
|
| Total long-term debt |
— |
— |
— |
— |
— |
— |
|
| Cash dividends declared |
0.17 |
0.17 |
— |
0.51 |
0.51 |
— |
|
| Shares outstanding end of period (#000's) |
84,916 |
84,367 |
1 |
84,916 |
84,367 |
1 |
|
| (1) |
Non-IFRS financial measures are defined in the Management's Discussion and Analysis section. |
Q3 2017 vs Q3 2016
The Company generated consolidated revenue of $64.6 million in the third quarter of 2017, an increase of 67% from the same period in 2016. A stable oil price environment and continued optimism has led to increased drilling activity in Canada and the US market. Revenue in the third quarter of 2017, when compared to 2016, was negatively impacted by a stronger Canadian dollar relative to the US dollar. Revenue from the International business unit was unchanged from the third quarter of 2016.
Consolidated adjusted EBITDA increased to $26.2 million in the third quarter, up from $8.5 million in the third quarter of 2016. Significant increases in operating profit in all of the Company's key markets led to the rebound in this key measure.
The Company recorded net income of $8.8 million ($0.10 per share) in the third quarter of 2017, compared to a net loss of $7.1 million ($0.08 per share) recorded in the same period in 2016. The increase in Canadian and US revenue, combined with cost reduction programs previously implemented and a significant decline in depreciation expense from prior year levels, led to the increase in income from 2016. These factors were partially offset by a strengthening Canadian dollar relative to the US dollar.
President's Message
We are pleased with Pason's third quarter results. Pason generated revenue of $64.6 million in the quarter, an increase of 16% from the second quarter and 67% from the prior year quarter. The main drivers of revenue growth were increased drilling activity in the North American land market and market share gains in the United States, both sequentially and year-over-year. Revenue growth in the quarter was negatively impacted by a stronger Canadian dollar relative to the US dollar. Revenue from the International business unit was flat, with improvements in Australia and the Andean region offset by a decrease in activity in Argentina.
Adjusted EBITDA was $26.2 million for the quarter, an increase of 35% from the second quarter and 208% from the prior year quarter. Adjusted EBITDA as a percentage of revenue was 41%, up from 35% in the second quarter. The drivers of this improvement were the significant increase in revenue with high incremental margins and cost reduction programs that were executed during the downturn.
Pason recorded net income of $8.8 million ($0.10 per share) compared to $6.9 million ($0.08 per share) in the second quarter and a loss of $7.1 million ($0.08 per share) in the prior year quarter. In addition to the factors outlined above, a significant decline in depreciation expense led to the increase in income. Free cash flow for the quarter was $11.0 million. At September 30, 2017, our working capital position stood at $191 million, including cash of $159 million. There is no debt on our balance sheet. We are maintaining our quarterly dividend at $0.17 share.
Our customers across the United States and Canada have learned to operate in a "lower for longer" commodity price environment. Operators remain highly focused on the cost and efficiency of drilling operations. Big data analytics remains a high priority for many E&P companies. There is a strong belief that the oil and gas industry has a lot of catching up to do in this area compared to most other industries. In the context of "factory drilling" there is significant value to be unlocked by correlating drilling and completions practices with the lifetime production of a well or a field. In addition, many drilling contractors are looking to differentiate their service offering from their competitors' through technology.
In response to the evolving needs of our customers, we have increased our investment in R&D and IT with further growth planned going into 2018. In addition to continuously enhancing the functionality and performance of existing products, our development efforts are focused on being a key enabler of big data analytics strategies and of drilling optimization and automation efforts.
Many of our products directly improve the efficiency, effectiveness and safety of drilling operations and wellbore quality. Examples of this include our ePVT Adaptive Alarms, AC AutoDriller, abbl Directional Advisor® and the deployment of the advanced Exxon Drilling Advisory System®. We are building on our acquisition of Verdazo Analytics to provide customers with a holistic platform to analyze drilling, completions, production, financial and operational data. The deployment of an enhanced Pason Live web service to our cloud-based offering benefits office-based users of Pason data.
Our capital expenditures will be relatively modest going forward with a larger portion of development efforts focused on software and analytics. We intend to spend approximately $20 million in capital expenditures in 2017. Our highly capable and flexible IT and communications platform can host new Pason and third party software at the rig site and in the cloud.
The reduction in oil inventories in the third quarter highlights that the oil market is now in balance. As a result, we have recently seen upward movement in oil prices. Comments from several key OPEC countries, as well as from Russia, suggest that a reduction of the existing production cuts beyond the current agreement is a possibility. Further upward movement in oil prices and subsequent growth in global E&P investment are possible in the medium term. This would further stimulate drilling activity worldwide. Pason's market positions are very strong. We are the service provider of choice for many leading operators and drilling contractors with Pason equipment installed on over 65% of all active land drilling rigs in the Western Hemisphere (currently over 800). We are uniquely positioned to participate in the industry's growth.
(signed)
Marcel Kessler
President and Chief Executive Officer
November 7, 2017
Management's Discussion and Analysis
The following discussion and analysis has been prepared by management as of November 7, 2017, 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.
Revenue per EDR Day
Revenue per EDR day is defined as the daily revenue generated from all products that the Company has on rent on a drilling rig that has the Company's base EDR installed. This metric provides a key measure on the Company's ability to increase production adoption and evaluate product pricing.
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.
Adjusted EBITDA
Adjusted EBITDA is defined as EBITDA, adjusted for foreign exchange, impairment of property, plant, and equipment, restructuring costs, and other items which the Company does not consider to be in the normal course of continuing operations.
Management believes that EBITDA and Adjusted EBITDA are useful supplemental measures as they provide an indication of the results generated by the Company's principal business activities prior to the consideration of how these results are taxed in multiple jurisdictions, how the results are impacted by foreign exchange or how the results are impacted by the Company's accounting policies for equity-based compensation plans.
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 (including changes to non-cash working capital associated with capital expenditures), and deferred development costs. This metric provides a key measure on the Company's ability to generate cash from it's principal business activities after funding the capital expenditure program, and provides an indication of the amount of cash available to finance, among other items, the Company's dividend and other investment opportunities.
Overall Performance
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||
| 2017 |
2016 |
Change |
2017 |
2016 |
Change |
||
| (000s) |
($) |
($) |
(%) |
($) |
($) |
(%) |
|
| Revenue |
|||||||
| Electronic Drilling Recorder |
29,547 |
16,200 |
82 |
82,350 |
46,817 |
76 |
|
| Pit Volume Totalizer/ePVT |
9,394 |
5,011 |
87 |
25,693 |
14,832 |
73 |
|
| Communications |
6,565 |
3,799 |
73 |
18,414 |
10,388 |
77 |
|
| Software |
5,343 |
2,665 |
100 |
15,246 |
7,587 |
101 |
|
| AutoDriller |
3,838 |
2,259 |
70 |
10,688 |
6,542 |
63 |
|
| Gas Analyzer |
4,936 |
2,804 |
76 |
13,227 |
8,281 |
60 |
|
| Other |
4,953 |
5,895 |
(16) |
13,799 |
17,172 |
(20) |
|
| Total revenue |
64,576 |
38,633 |
67 |
179,417 |
111,619 |
61 |
|
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 September 30, |
Nine Months Ended September 30, |
|||||
| 2017 |
2016 |
Change |
2017 |
2016 |
Change |
|
| # |
# |
(%) |
# |
# |
(%) |
|
| EDR rental days |
16,900 |
10,500 |
61 |
49,900 |
29,900 |
67 |
| PVT rental days |
15,500 |
9,600 |
61 |
46,100 |
27,600 |
67 |
| United States |
||||||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||
| 2017 |
2016 |
Change |
2017 |
2016 |
Change |
|
| # |
# |
(%) |
# |
# |
(%) |
|
| EDR rental days |
49,500 |
23,800 |
108 |
128,500 |
67,400 |
91 |
| PVT rental days |
38,200 |
18,100 |
111 |
100,800 |
51,500 |
96 |
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.
Total revenue increased 67% and 61% for the three and nine months ending September 2017, over the same period in 2016. This increase is attributable to an increase in drilling activity in the Company's Canadian, US, and certain International markets. The third quarter 2017 results were negatively impacted from a stronger Canadian dollar relative to the US dollar.
Industry activity in the US market increased 102% in the third quarter of 2017 compared to the corresponding period in 2016 (80% on a year-to-date basis), while third quarter Canadian rig activity increased 76% (87% on a year-to-date basis). Canadian EDR days, which includes some non-oil and gas-related activity, increased 61% in the third quarter of 2017 from 2016 levels (67% on a year-to-date basis), while US EDR days increased by 108% from the third quarter of 2016 (91% on a year-to-date basis).
For the first nine months of 2017, the Pason EDR was installed on 56% of the land rigs in the US compared to 53% during the same time period in 2016.
For the nine months ended September 30, 2017, the Pason EDR was installed on 89% of the land rigs in the Canadian market; for the same time period in 2016 the number of EDR days exceeded the number of reported industry days. For the purposes of market share, the Company uses the number of EDR days billed and oil and gas drilling days as reported by accepted industry sources.
Relative to the corresponding period in 2016, the Canadian market saw an increase in pricing pressure in 2017. This pricing pressure has stabilized during 2017.
The revenue generated from the Company's other wellsite instrumentation products tracked the percentage increase in drilling activity. The notable exceptions were:
- increased product adoption of EDR peripherals, including workstations and Pason Rig Display
- increased ePVT adoption rates in the US
- increased AutoDriller rentals in both Canada and the US due to the significant increase in drilling activity which led to more mechanical rigs being deployed in 2017 compared to 2016
- decreased revenue of service rig recorders in Latin America due to the drop in drilling activity which impacted other revenue
Included in the software category is revenue from the Company's data analytics subsidiary, Verdazo.
Other revenue is down due to the sale of the net operating assets of 3PS, Inc. (3PS) effective January 1, 2017.
For the third quarter of 2017, the Company saw an increase in activity in its Australian and Andean operating areas, compared to the corresponding period in 2016. In Argentina, the rig count was lower compared to 2016 levels.
Discussion of Operations
United States Operations
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||
| 2017 |
2016 |
Change |
2017 |
2016 |
Change |
||
| (000s) |
($) |
($) |
(%) |
($) |
($) |
(%) |
|
| Revenue |
|||||||
| Electronic Drilling Recorder |
20,458 |
10,041 |
104 |
55,982 |
28,111 |
99 |
|
| Pit Volume Totalizer/ePVT |
6,335 |
2,902 |
118 |
16,532 |
8,252 |
100 |
|
| Communications |
3,454 |
1,831 |
89 |
9,426 |
4,548 |
107 |
|
| Software |
3,268 |
1,829 |
79 |
9,067 |
4,924 |
84 |
|
| AutoDriller |
2,057 |
955 |
115 |
5,281 |
2,537 |
108 |
|
| Gas Analyzer |
2,525 |
1,428 |
77 |
6,568 |
4,103 |
60 |
|
| Other |
2,581 |
3,332 |
(23) |
6,983 |
9,860 |
(29) |
|
| Total revenue |
40,678 |
22,318 |
82 |
109,839 |
62,335 |
76 |
|
| Operating costs |
17,130 |
12,653 |
35 |
47,642 |
38,647 |
23 |
|
| Depreciation and amortization |
4,151 |
5,243 |
(21) |
13,322 |
17,479 |
(24) |
|
| Segment operating profit |
19,397 |
4,422 |
339 |
48,875 |
6,209 |
687 |
|
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||
| 2017 |
2016 |
2017 |
2016 |
|
| $ |
$ |
$ |
$ |
|
| Revenue per EDR day - USD |
647 |
652 |
648 |
632 |
| Revenue per EDR day - CAD |
809 |
851 |
847 |
836 |
US land-based drilling continued its sequential increase quarter over quarter. Although the majority of the absolute rig count gains were seen in the Permian, the Haynesville and the Bakken regions participated in the increase.
US segment revenue increased by 82% in the third quarter of 2017 over the 2016 comparable period. For the first nine months, revenue increased 76% compared to the prior year. Included in the prior year results was revenue (included in other revenue) from 3PS, the net operating assets of which were sold effective January 1, 2017. Removing 3PS revenue from the comparative figures, revenue increased by 98% in the third quarter of 2017 compared to 2016 (106% increase when measured in USD). The value of the Canadian dollar relative to the US dollar had a negative impact on revenue when measured in Canadian dollars in the third quarter of 2017. For the first nine months of 2017, and removing 3PS, revenue increased by 93% (96% when measured in USD).
Industry activity in the US market during the third quarter of 2017 increased 102% from the prior year, and 80% for the first nine months. US market share was 58% for the third quarter of 2017 compared to 56% during the same period of 2016, primarily driven by market share growth in key US regions combined with changes in the mix of active customers.
EDR rental days increased by 108% for the quarter ended September 30, 2017, over the same time period in 2016, while revenue per EDR day in the third quarter of 2017 decreased to US$647, a decrease of US$5 over the same period in 2016.
Revenue per EDR day for the first nine months of 2017 was US$648, up US$16 from the same period in 2016.
Operating costs increased by 35% in the 2017 third quarter relative to the same period in the prior year. When measured in USD, and removing 3PS costs, operating costs increased by 65%, with the increase attributable to the hiring of additional field staff and higher repair costs to support the increase in activity.
Depreciation expense for the third quarter of 2017 decreased 21% over 2016 amounts due to the reduction in the capital program since 2014.
Segment profit increased by $15.0 million in the third quarter of 2017 compared to the corresponding period in 2016.
Canadian Operations
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||
| 2017 |
2016 |
Change |
2017 |
2016 |
Change |
||
| (000s) |
($) |
($) |
(%) |
($) |
($) |
(%) |
|
| Revenue |
|||||||
| Electronic Drilling Recorder |
6,689 |
4,030 |
66 |
18,894 |
11,717 |
61 |
|
| Pit Volume Totalizer/ePVT |
2,486 |
1,734 |
43 |
7,465 |
5,093 |
47 |
|
| Communications |
2,872 |
1,676 |
71 |
8,213 |
4,864 |
69 |
|
| Software |
1,945 |
778 |
150 |
5,879 |
2,474 |
138 |
|
| AutoDriller |
1,378 |
796 |
73 |
4,036 |
2,201 |
83 |
|
| Gas Analyzer |
2,099 |
1,111 |
89 |
5,760 |
3,261 |
77 |
|
| Other |
851 |
630 |
35 |
2,539 |
1,970 |
29 |
|
| Total revenue |
18,320 |
10,755 |
70 |
52,786 |
31,580 |
67 |
|
| Operating costs |
6,473 |
3,817 |
70 |
17,826 |
13,136 |
36 |
|
| Depreciation and amortization |
6,053 |
6,203 |
(2) |
17,632 |
20,116 |
(12) |
|
| Segment operating profit (loss) |
5,794 |
735 |
688 |
17,328 |
(1,672) |
— |
|
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||
| 2017 |
2016 |
2017 |
2016 |
|
| $ |
$ |
$ |
$ |
|
| Revenue per EDR day- CAD |
1,041 |
1,011 |
1,010 |
1,039 |
The third quarter Canadian rig activity showed significant year-over-year improvement, although activity was range bound for much of the quarter.
Canadian segment revenue increased by 70% for the quarter ended September 30, 2017 compared to the same period in 2016. This increase is the result of a 76% increase in the number of drilling industry days in the third quarter compared to 2016 levels. Included in the software category for 2017 is revenue earned by Verdazo.
EDR rental days increased 61% in the third quarter of 2017 compared to 2016 (67% for the first nine months of 2017).
Revenue per EDR day increased by $30 to $1,041 during the third quarter of 2017 compared to 2016. Revenue per EDR day for the nine months ended September 30, 2017 was $1,010, down $29 from the same period in 2016, driven in most part by customer mix, and the ongoing effects of pricing concessions made in prior periods.
Operating costs increased by 70% in the third quarter of 2017 relative to the same period in 2016 (36% on a year-to-date basis), with repair costs and direct field costs increasing due to higher activity, combined with the inclusion of Verdazo operating costs.
Depreciation and amortization expense decreased by approximately 2% for the three months ended September 30, 2017. The 2017 amounts include the amortization of investment tax credits received in the third quarter of 2017, offset by the amortization of intangibles that were recognized on the acquisition of Verdazo.
The third quarter 2017 operating profit of $5.8 million is an improvement of $5.1 million from the prior year. Segment operating profit for the first nine months of 2017 is $17.3 million compared to a loss of $1.7 million in the prior year.
International Operations
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||
| 2017 |
2016 |
Change |
2017 |
2016 |
Change |
||
| (000s) |
($) |
($) |
(%) |
($) |
($) |
(%) |
|
| Revenue |
|||||||
| Electronic Drilling Recorder |
2,400 |
2,129 |
13 |
7,474 |
6,989 |
7 |
|
| Pit Volume Totalizer/ePVT |
573 |
375 |
53 |
1,696 |
1,487 |
14 |
|
| Communications |
239 |
292 |
(18) |
775 |
976 |
(21) |
|
| Software |
130 |
58 |
124 |
300 |
189 |
59 |
|
| AutoDriller |
403 |
508 |
(21) |
1,371 |
1,804 |
(24) |
|
| Gas Analyzer |
312 |
265 |
18 |
899 |
917 |
(2) |
|
| Other |
1,521 |
1,933 |
(21) |
4,277 |
5,342 |
(20) |
|
| Total revenue |
5,578 |
5,560 |
— |
16,792 |
17,704 |
(5) |
|
| Operating costs |
4,317 |
4,362 |
(1) |
13,282 |
14,081 |
(6) |
|
| Depreciation and amortization |
980 |
3,483 |
(72) |
3,026 |
7,274 |
(58) |
|
| Segment operating profit (loss) |
281 |
(2,285) |
— |
484 |
(3,651) |
— |
|
The international rig count was up in several of the Company's international markets, most notably Australia and portions of the Andean region in South America. These increases were offset by a decrease in activity in Argentina. As a result, revenue in the International operations segment was flat in the third quarter of 2017 compared to the same period in 2016. For the nine months of 2017, revenue decreased by 5% from prior year levels as a result of lower activity in the Company's Argentina market.
Operating costs decreased by 1% in the third quarter relative to the same period in the prior year as previous year cost reductions were offset by higher field costs in certain regions.
Depreciation expense decreased by approximately 72% for the three months ended September 30, 2017. In the third quarter of 2016 a $1.4 million charge was recorded to recognize obsolete inventory. This charge was included in depreciation expense.
The segment operating profit was $0.3 million for the third quarter of 2017, an improvement from the $2.3 million loss recorded in the corresponding period in 2016. The year-to-date profit was $0.5 million compared to a loss of $3.7 million in the prior year.
Corporate Expenses
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||
| 2017 |
2016 |
Change |
2017 |
2016 |
Change |
||
| (000s) |
($) |
($) |
(%) |
($) |
($) |
(%) |
|
| Other expenses |
|||||||
| Research and development |
6,945 |
5,358 |
30 |
19,083 |
17,615 |
8 |
|
| Corporate services |
3,553 |
3,956 |
(10) |
11,157 |
12,360 |
(10) |
|
| Stock-based compensation |
3,145 |
1,457 |
116 |
8,869 |
4,657 |
90 |
|
| Other |
|||||||
| Restructuring costs |
— |
— |
— |
— |
10,861 |
— |
|
| Foreign exchange loss (gain) |
113 |
96 |
18 |
(353) |
(2,227) |
84 |
|
| Other |
552 |
44 |
1,155 |
768 |
1,383 |
(44) |
|
| Total corporate expenses |
14,308 |
10,911 |
31 |
39,524 |
44,649 |
(11) |
|
In the first quarter of 2016, the Company initiated additional cost reduction initiatives to address the prolonged downturn in oil and gas drilling activity. As a result, the Company recorded a restructuring charge of $10.9 million in the first quarter of 2016.
Q3 2017 vs Q2 2017
Consolidated revenue was $64.6 million in the third quarter of 2017 compared to $55.8 million in the second quarter of 2017, an increase of $8.8 million, or 16%. The second quarter is usually the Company's weakest due to the spring break-up in Canada. US activity levels increased from second quarter 2017 levels, which were partially offset by the strengthening of the Canadian dollar versus the US dollar. The Canadian segment earned revenue of $18.3 million in the third quarter of 2017 compared to $10.5 million in the second quarter of 2017, an increase of $7.8 million. Revenue in the US market increased by $1.5 million, from $39.2 million in the second quarter of 2017 to $40.7 million in the third quarter of 2017, as both industry activity and the Company's market share increased. The International segment realized a revenue decrease of $0.5 million.
The Company recorded a net profit in the third quarter of 2017 of $8.8 million ($0.10 per share) compared to a profit of $6.9 million ($0.08 per share) in the second quarter of 2017. Included in the third quarter results is an increase in the Company's research and development expenses over the second quarter of $0.7 million and a foreign exchange loss reported of $0.1 million versus a foreign exchange gain of $0.7 million recorded in the second quarter of 2017.
Sequentially, EBITDA increased from $21.1 million in the second quarter of 2017 to $25.5 million in the third quarter of 2017. Adjusted EBITDA, which adjusts for foreign exchange and certain non-recurring charges, increased from $19.4 million in the second quarter of 2017 to $26.2 million in the third quarter of 2017. Funds flow from operations increased from $18.8 million in the second quarter of 2017 to $19.9 million in the third quarter of 2017.
Third Quarter Conference Call
Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its third quarter 2017 results at 9:00 am (Calgary time) on Wednesday, November 8, 2017. The conference call dial-in number is 1-888-231-8191 or 1-647-427-7450. You can access the seven-day replay by dialing 1-855-859-2056 or 1-416-849-0833, using password 82234992.
Pason Systems Inc. is a leading global provider of specialized data management systems for drilling rigs. Our solutions, which include data acquisition, wellsite reporting, remote communications, web-based information management, and analytics, enable collaboration between the rig and the office. Pason's common shares trade on the Toronto Stock Exchange under the symbol PSI.
Additional information, including the Company's Annual Report and Annual Information Form for the year ended December 31, 2016, is available on SEDAR at www.sedar.com or on the Company's website at www.pason.com.
Condensed Consolidated Interim Balance Sheets
| As at |
September 30, 2017 |
December 31, 2016 |
|
| (CDN 000s) (unaudited) |
($) |
($) |
|
| Assets |
|||
| Current |
|||
| Cash and cash equivalents |
159,437 |
146,479 |
|
| Trade and other receivables |
52,398 |
50,721 |
|
| Prepaid expenses |
4,834 |
3,826 |
|
| Income taxes recoverable |
6,086 |
15,066 |
|
| Assets held for sale |
— |
8,413 |
|
| Total current assets |
222,755 |
224,505 |
|
| Non-current |
|||
| Property, plant and equipment |
128,033 |
150,504 |
|
| Intangible assets and goodwill |
36,487 |
43,698 |
|
| Deferred tax assets |
11,651 |
16,544 |
|
| Total non-current assets |
176,171 |
210,746 |
|
| Total assets |
398,926 |
435,251 |
|
| Liabilities and equity |
|||
| Current |
|||
| Trade payables and accruals |
26,170 |
24,347 |
|
| Stock-based compensation liability |
6,067 |
1,516 |
|
| Liabilities held for sale |
— |
223 |
|
| Total current liabilities |
32,237 |
26,086 |
|
| Non-current |
|||
| Stock-based compensation liability |
4,355 |
2,941 |
|
| Onerous lease obligation |
2,527 |
2,917 |
|
| Deferred tax liabilities |
9,493 |
16,656 |
|
| Total non-current liabilities |
16,375 |
22,514 |
|
| Equity |
|||
| Share capital |
146,020 |
139,730 |
|
| Share-based benefits reserve |
24,127 |
23,026 |
|
| Foreign currency translation reserve |
46,092 |
69,443 |
|
| Retained earnings |
134,075 |
154,452 |
|
| Total equity |
350,314 |
386,651 |
|
| Total liabilities and equity |
398,926 |
435,251 |
|
Condensed Consolidated Interim Statements of Operations
| Three Months Ended |
Nine Months Ended |
||||
| 2017 |
2016 |
2017 |
2016 |
||
| (CDN 000s, except per share data) (unaudited) |
($) |
($) |
($) |
($) |
|
| Revenue |
64,576 |
38,633 |
179,417 |
111,619 |
|
| Operating expenses |
|||||
| Rental services |
25,245 |
18,087 |
70,827 |
58,844 |
|
| Local administration |
2,675 |
2,745 |
7,923 |
7,020 |
|
| Depreciation and amortization |
11,184 |
14,929 |
33,980 |
44,869 |
|
| 39,104 |
35,761 |
112,730 |
110,733 |
||
| Operating profit |
25,472 |
2,872 |
66,687 |
886 |
|
| Other expenses |
|||||
| Research and development |
6,945 |
5,358 |
19,083 |
17,615 |
|
| Corporate services |
3,553 |
3,956 |
11,157 |
12,360 |
|
| Stock-based compensation expense |
3,145 |
1,457 |
8,869 |
4,657 |
|
| Other expense |
665 |
140 |
415 |
10,017 |
|
| 14,308 |
10,911 |
39,524 |
44,649 |
||
| Income (loss) before income taxes |
11,164 |
(8,039) |
27,163 |
(43,763) |
|
| Income tax provision (recovery) |
2,351 |
(922) |
4,302 |
(14,467) |
|
| Net income (loss) |
8,813 |
(7,117) |
22,861 |
(29,296) |
|
| Income (loss) per share |
|||||
| Basic |
0.10 |
(0.08) |
0.27 |
(0.35) |
|
| Diluted |
0.10 |
(0.08) |
0.27 |
(0.35) |
|
Condensed Consolidated Interim Statements of Other Comprehensive Income
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||
| 2017 |
2016 |
2017 |
2016 |
||
| (CDN 000s) (unaudited) |
($) |
($) |
($) |
($) |
|
| Net income (loss) |
8,813 |
(7,117) |
22,861 |
(29,296) |
|
| Items that may be reclassified subsequently to net income: |
|||||
| Foreign currency translation adjustment |
(12,613) |
3,281 |
(23,941) |
(21,584) |
|
| Reclassification of foreign currency translation gain on |
— |
— |
590 |
— |
|
| Other comprehensive (loss) gain |
(12,613) |
3,281 |
(23,351) |
(21,584) |
|
| Total comprehensive (loss) income |
(3,800) |
(3,836) |
(490) |
(50,880) |
|
Condensed Consolidated Interim Statements of Changes in Equity
| Share Capital |
Share-Based |
Foreign |
Retained |
Total Equity |
||
| (CDN 000s) (unaudited) |
($) |
($) |
($) |
($) |
($) |
|
| Balance at January 1, 2016 |
128,067 |
23,367 |
85,603 |
252,411 |
489,448 |
|
| Net loss |
— |
— |
— |
(29,296) |
(29,296) |
|
| Dividends |
— |
— |
— |
(42,963) |
(42,963) |
|
| Other comprehensive loss |
— |
— |
(21,584) |
— |
(21,584) |
|
| Exercise of stock options |
6,407 |
(1,954) |
— |
— |
4,453 |
|
| Expense related to vesting of options |
— |
2,226 |
— |
— |
2,226 |
|
| Balance at September 30, 2016 |
134,474 |
23,639 |
64,019 |
180,152 |
402,284 |
|
| Net loss |
— |
— |
— |
(11,325) |
(11,325) |
|
| Dividends |
— |
— |
— |
(14,375) |
(14,375) |
|
| Other comprehensive income |
— |
— |
5,424 |
— |
5,424 |
|
| Exercise of stock options |
4,006 |
(1,383) |
— |
— |
2,623 |
|
| Expense related to vesting of options |
— |
770 |
— |
— |
770 |
|
| Shares issued pursuant to business acquisition |
1,250 |
— |
— |
— |
1,250 |
|
| Balance at December 31, 2016 |
139,730 |
23,026 |
69,443 |
154,452 |
386,651 |
|
| Net income |
— |
— |
— |
22,861 |
22,861 |
|
| Dividends |
— |
— |
— |
(43,238) |
(43,238) |
|
| Other comprehensive loss |
— |
— |
(23,351) |
— |
(23,351) |
|
| Exercise of stock options |
6,290 |
(1,516) |
— |
— |
4,774 |
|
| Expense related to vesting of options |
— |
2,617 |
— |
— |
2,617 |
|
| Balance at September 30, 2017 |
146,020 |
24,127 |
46,092 |
134,075 |
350,314 |
|
Condensed Consolidated Interim Statements of Cash Flows
| Three Months Ended |
Nine Months Ended |
||||
| 2017 |
2016 |
2017 |
2016 |
||
| (CDN 000s) (unaudited) |
($) |
($) |
($) |
($) |
|
| Cash from (used in) operating activities |
|||||
| Net income (loss) |
8,813 |
(7,117) |
22,861 |
(29,296) |
|
| Adjustment for non-cash items: |
|||||
| Depreciation and amortization |
11,184 |
14,929 |
33,980 |
44,869 |
|
| Stock-based compensation |
3,145 |
1,457 |
8,869 |
4,657 |
|
| Non-cash restructuring costs |
— |
— |
— |
4,833 |
|
| Deferred income taxes |
(1,429) |
35 |
(3,370) |
(10,941) |
|
| Unrealized foreign exchange (gain) loss and other |
(1,817) |
(174) |
(2,575) |
(2,631) |
|
| Funds flow from (used in) operations |
19,896 |
9,130 |
59,765 |
11,491 |
|
| Movements in non-cash working capital items: |
|||||
| (Increase) decrease in trade and other receivables |
(6,954) |
(12,470) |
(5,138) |
5,620 |
|
| Increase in prepaid expenses |
(1,418) |
(1,713) |
(1,160) |
(709) |
|
| Decrease in income taxes recoverable |
3,811 |
13,927 |
13,377 |
10,344 |
|
| Increase (decrease) in trade payables, accruals |
2,609 |
(2,575) |
5,743 |
(2,114) |
|
| Effects of exchange rate changes |
(23) |
(1,148) |
962 |
1,158 |
|
| Cash generated from operating activities |
17,921 |
5,151 |
73,549 |
25,790 |
|
| Income tax paid |
(2,793) |
(498) |
(4,389) |
(6,813) |
|
| Net cash from operating activities |
15,128 |
4,653 |
69,160 |
18,977 |
|
| Cash flows from (used in) financing activities |
|||||
| Proceeds from issuance of common shares |
1,694 |
1,331 |
4,774 |
4,453 |
|
| Payment of dividends |
(14,425) |
(14,342) |
(43,238) |
(42,963) |
|
| Net cash used in financing activities |
(12,731) |
(13,011) |
(38,464) |
(38,510) |
|
| Cash flows (used in) from investing activities |
|||||
| Additions to property, plant and equipment |
(5,126) |
(718) |
(10,406) |
(9,513) |
|
| Development costs |
(245) |
(659) |
(1,198) |
(3,373) |
|
| Proceeds on disposal of investment and property, |
47 |
136 |
61 |
692 |
|
| Acquisition |
— |
— |
(4,750) |
— |
|
| Proceeds on sale of net operating assets |
— |
— |
7,123 |
— |
|
| Changes in non-cash working capital |
1,198 |
992 |
1,524 |
(699) |
|
| Net cash used in investing activities |
(4,126) |
(249) |
(7,646) |
(12,893) |
|
| Effect of exchange rate on cash and cash equivalents |
(5,354) |
1,223 |
(10,092) |
(8,822) |
|
| Net (decrease) increase in cash and cash equivalents |
(7,083) |
(7,384) |
12,958 |
(41,248) |
|
| Cash and cash equivalents, beginning of period |
166,520 |
161,982 |
146,479 |
195,846 |
|
| Cash and cash equivalents, end of period |
159,437 |
154,598 |
159,437 |
154,598 |
|
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 September 30, 2017 |
Canada |
United States |
International |
Total |
| ($) |
($) |
($) |
($) |
|
| Revenue |
18,320 |
40,678 |
5,578 |
64,576 |
| Rental services and local administration |
6,473 |
17,130 |
4,317 |
27,920 |
| Depreciation and amortization |
6,053 |
4,151 |
980 |
11,184 |
| Segment operating profit |
5,794 |
19,397 |
281 |
25,472 |
| Research and development |
6,945 |
|||
| Corporate services |
3,553 |
|||
| Stock-based compensation |
3,145 |
|||
| Other expense |
665 |
|||
| Income taxes |
2,351 |
|||
| Net Income |
8,813 |
|||
| Capital expenditures |
(363) |
5,213 |
521 |
5,371 |
| Goodwill |
1,259 |
7,183 |
2,600 |
11,042 |
| Intangible assets |
25,304 |
141 |
— |
25,445 |
| Segment assets |
109,863 |
243,696 |
45,367 |
398,926 |
| Segment liabilities |
25,954 |
10,253 |
12,405 |
48,612 |
| Three Months Ended September 30, 2016 |
||||
| Revenue |
10,755 |
22,318 |
5,560 |
38,633 |
| Rental services and local administration |
3,817 |
12,653 |
4,362 |
20,832 |
| Depreciation and amortization |
6,203 |
5,243 |
3,483 |
14,929 |
| Segment operating profit (loss) |
735 |
4,422 |
(2,285) |
2,872 |
| Research and development |
5,358 |
|||
| Corporate services |
3,956 |
|||
| Stock-based compensation |
1,457 |
|||
| Other expense |
140 |
|||
| Income taxes |
(922) |
|||
| Net loss |
(7,117) |
|||
| Capital expenditures |
247 |
1,148 |
(18) |
1,377 |
| Goodwill |
— |
24,634 |
2,600 |
27,234 |
| Intangible assets |
25,141 |
158 |
200 |
25,499 |
| Segment assets |
128,006 |
259,184 |
51,481 |
438,671 |
| Segment liabilities |
25,165 |
5,845 |
5,377 |
36,387 |
| Nine Months Ended September 30, 2017 |
Canada |
United States |
International |
Total |
| ($) |
($) |
($) |
($) |
|
| Revenue |
52,786 |
109,839 |
16,792 |
179,417 |
| Rental services and local administration |
17,826 |
47,642 |
13,282 |
78,750 |
| Depreciation and amortization |
17,632 |
13,322 |
3,026 |
33,980 |
| Segment operating profit |
17,328 |
48,875 |
484 |
66,687 |
| Research and development |
19,083 |
|||
| Corporate services |
11,157 |
|||
| Stock-based compensation |
8,869 |
|||
| Other expenses |
415 |
|||
| Income tax expense |
4,302 |
|||
| Net income |
22,861 |
|||
| Capital expenditures |
(245) |
11,428 |
421 |
11,604 |
| Goodwill |
1,259 |
7,183 |
2,600 |
11,042 |
| Intangible assets |
25,304 |
141 |
— |
25,445 |
| Segment assets |
109,863 |
243,696 |
45,367 |
398,926 |
| Segment liabilities |
25,954 |
10,253 |
12,405 |
48,612 |
| Nine Months Ended September 30, 2016 |
||||
| Revenue |
31,580 |
62,335 |
17,704 |
111,619 |
| Rental services and local administration |
13,136 |
38,647 |
14,081 |
65,864 |
| Depreciation and amortization |
20,116 |
17,479 |
7,274 |
44,869 |
| Segment operating (loss) profit |
(1,672) |
6,209 |
(3,651) |
886 |
| Research and development |
17,615 |
|||
| Corporate services |
12,360 |
|||
| Stock-based compensation |
4,657 |
|||
| Other expense |
10,017 |
|||
| Income tax recovery |
(14,467) |
|||
| Net loss |
(29,296) |
|||
| Capital expenditures |
2,930 |
9,806 |
150 |
12,886 |
| Goodwill |
— |
24,634 |
2,600 |
27,234 |
| Intangible assets |
25,141 |
158 |
200 |
25,499 |
| Segment assets |
128,006 |
259,184 |
51,481 |
438,671 |
| Segment liabilities |
25,165 |
5,845 |
5,377 |
36,387 |
Other Expenses (Income)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||
| 2017 |
2016 |
2017 |
2016 |
|
| ($) |
($) |
($) |
($) |
|
| Foreign exchange loss (gain) |
113 |
96 |
(353) |
(2,227) |
| Restructuring costs |
— |
— |
— |
10,861 |
| Other |
552 |
44 |
768 |
1,383 |
| Other expenses |
665 |
140 |
415 |
10,017 |
In the first quarter of 2016, the Company initiated additional cost reduction initiatives to address the prolonged downturn in oil and gas drilling activity. As a result, the Company recorded a restructuring charge of $10.9 million in the first quarter of 2016.
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]
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