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Pason Systems Inc.

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Pason Reports Fourth Quarter 2019 Results

Canada NewsWire

CALGARY, Feb. 26, 2020 /CNW/ - Pason Systems Inc. (TSX: PSI) announced today its 2019 fourth quarter results.

Performance Data


Three Months Ended December 31,

Year Ended December 31,


2019

2018

Change

2019

2018

Change

(CDN 000s, except per share data) (unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue

68,410

81,965

(17)

295,642

306,393

(4)

EBITDA (1,2)

25,555

38,418

(33)

124,763

138,335

(10)

Adjusted EBITDA (1.2)

26,615

39,415

(32)

129,644

146,004

(11)

As a % of revenue

38.9

48.1

(920) bps

43.9

47.7

(380) bps

Funds flow from operations

22,126

30,711

(28)

111,718

128,544

(13)

Per share – basic

0.26

0.36

(28)

1.31

1.51

(13)

Per share – diluted

0.26

0.36

(28)

1.30

1.50

(13)

Cash from operating activities

24,714

23,407

6

108,547

107,177

1

Capital expenditures

5,587

8,450

(34)

24,178

23,876

1

Free cash flow (1)

19,955

16,603

20

85,954

85,522

1

Cash dividends declared

0.19

0.18

6

0.74

0.70

6

Net income

10,096

20,720

(51)

53,803

62,944

(15)

Net income attributable to Pason

10,405

20,720

(50)

54,112

62,944

(14)

Per share – basic

0.12

0.24

(49)

0.63

0.74

(14)

Per share – diluted

0.12

0.24

(49)

0.63

0.73

(14)

Total interest bearing debt

Shares outstanding end of period (#000's)

84,538

85,783

(1)

84,538

85,783

(1)



(1)

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

(2)

Prior period amounts have been restated to conform with current year's presentation.


Current period amounts are in accordance with IFRS following the adoption of IFRS 16, Leases as discussed in Note 3 in the Consolidated Financial Statements. Prior periods have not been restated.

 

Q4 2019 vs Q4 2018

The Company generated consolidated revenue of $68.4 million in the fourth quarter of 2019, a decrease of 17% from the same period in 2018. The decrease is attributable to a drop in North American drilling activity, offset by a slight increase in activity in the International business unit, increased market share in the US business unit , and continued increases in product penetration in all major business units, leading to increases in Revenue per EDR day.

Adjusted EBITDA decreased to $26.6 million in the fourth quarter, a decrease of 32% from the same period in 2018. The decrease in adjusted EBITDA was driven by the decrease in consolidated gross profit and a lower proportion of R&D costs being capitalized.

Funds flow from operations was $22.1 million in the fourth quarter, a decrease of 28% from the same period in 2018. Cash from operating activities was $24.7 million in the fourth quarter of 2019, an increase of 6% from the same period in 2018. This financial metric was impacted by movements in working capital, mostly due to the release of trade and other receivables.

Free cash flow was $20.0 million in the fourth quarter of 2019, an increase of 20% from the same period in 2018. The increase was driven by the increase in cash from operating activities and a decline in capital expenditures.

The Company recorded net income attributable to Pason of $10.4 million ($0.12 per share) in the fourth quarter of 2019, compared to net income of $20.7 million ($0.24 per share) recorded in the same period in 2018. Net income was negatively impacted by the drop in drilling activity, and this combined with the Company's fixed cost structure, led to a drop in consolidated gross profit. These factors were offset by a drop in stock-based compensation expense in the fourth quarter of 2019 compared to the 2018 comparative figure.

President's Message

The price for a barrel of WTI crude oil remained between US$50 and US$60 for most of the fourth quarter of 2019 and many operators constrained E&P capital spending within cash flows. As a result, Pason's operating environment across North America deteriorated further in the period. Drilling industry activity decreased by 24% in the United States and by 23% in Canada compared to the same period in 2018.

These headwinds were partially offset by higher activity in Pason's international markets, market share gains in the United States, and continued growth in product penetration in all geographies. Revenue per EDR Day for the quarter was US$732 in the United States, a 4% increase from the fourth quarter of 2018, and C$1,292 in Canada, a 9% increase.

Pason generated revenue of $68.4 million in the period, a decrease of 17% compared to the same quarter of last year. Adjusted EBITDA was $26.6 million for the quarter, a decrease of 32%. Adjusted EBITDA as a percentage of revenue was 39% compared to 48% one year ago, highlighting our largely fixed cost structure. Pason recorded net income for the quarter of $10.4 million ($0.12 per share), down from $20.7 million ($0.24 per share) in the fourth quarter of 2018.

Capital expenditures for the quarter were $5.6 million and free cash flow was $20.0 million. At December 31, 2019, our working capital position stood at $184 million, including cash and short-term investments of $161 million. We are maintaining our quarterly dividend at $0.19 per share.

For the full year 2019 compared to 2018 revenue decreased 4% to $296 million, adjusted EBITDA decreased 11% to $130 million, net income decreased 14% to $54 million, and free cash flow grew 1% to $86 million.

We believe capital discipline by our customers will remain a prevailing theme in the North American land market. In the United States, we expect industry activity for the year to be similar to that experienced during the second half of 2019, which would imply a modest increase from current levels. Canadian drilling activity has started 2020 ahead of expectations.

Considering the uncertainty regarding potential demand impacts from the Covid-19 pandemic, some analysts have cut their oil price forecasts significantly. In this environment, we are maintaining flexibility for our go-forward plans, which gives us the means and confidence to address any activity scenario. Our capital expenditures will be relatively modest going forward with a large portion of development efforts focused on software. We intend to spend up to $25 million in capital expenditures in 2020, which includes the capitalized portion of R&D.

Our new product offerings continue to gain momentum with customers.  DataLink, Pason's Data Delivery solution for automated delivery of large, complex data sets from the field to corporate databases and applications is currently being utilized on over 300 active drilling rigs.

ExxonMobil DAS / AutoDriller, Pason's drilling automation software package has been deployed on over 270 drilling rigs for construction of over 1,700 wells since launch. Drilling performance is improving considerably when the optimization system is used in terms of higher rate of penetration (faster drilling) and minimized damaging vibrations, leading to longer life of the drill bit.

Our market positions remain 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. We expect to be able to deliver growth through higher product adoption going forward.

In September 2019, we announced the acquisition of a majority interest of Energy Toolbase ("ETB"), a US-based software-as-a-service company. ETB provides an industry-leading software package to model the economics and build proposals for solar and energy storage (battery) projects. The ETB product is utilized by distributed energy project developers, primarily in the United States. There are currently 1,100 active ETB software licenses with 1,800 users and the numbers continue to grow. Over the past two years, Pason Power has been building a foundation in the solar and energy storage market through its iEMS control system and Energy DataHub products. With the combined capabilities of Pason Power and ETB we are positioning ourselves for meaningful long-term growth in the solar and energy storage market.

We remain focused on maintaining our distinctive technology position and unique capability set. Pason's highly capable and flexible IT and communications platforms can host additional new Pason and third-party software in the field and in the cloud. Our service capabilities are unrivalled, as is our expertise for user interface design and ruggedization for field users. These strengths, along with our exceptional workforce and strong balance sheet, are the foundation for our ability to continue to deliver significant value to our customers and achieve long-term success.

(signed)

Marcel Kessler
President and Chief Executive Officer
February 26, 2020

Management's Discussion and Analysis

The following discussion and analysis has been prepared by management as of February 26, 2020, 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.

Impact of IFRS 16

The Company adopted IFRS 16, Leases, effective January 1, 2019, using the modified retrospective approach. This new standard supersedes IAS 17, Leases, and introduces a single lessee accounting model by eliminating a lessee's classification of leases as either operating leases or finance leases. Comparative figures have not been restated. Further disclosure is provided in Note 3 to the Consolidated Financial Statements.

The impact of adopting this new standard on IFRS Measures and Non-IFRS Measures is described below. The figures presented below are the 2019 actual numbers that are classified differently than the 2018 comparative figures. Effectively, the operating expense line items recognized under the previous standard will be bifurcated between depreciation expense and interest expense.

Impact on IFRS Measures


Three Months Ended

December 31, 2019

Year Ended December

31, 2019

(000s) (unaudited)

($)

($)

Reduction in rental services and local administration expenses

263

1,090

Reduction in research and development expenses

98

332

Reduction in corporate services costs

341

1,257

(Increase) in depreciation of right of use assets

(647)

(2,580)

(Increase) in net interest expense on lease liabilities

(112)

(457)

Reduction in Income tax provision

16

97

(Decrease) in net income

(41)

(261)

Increase in depreciation of right of use assets

647

2,580

(Reduction) in Income tax provision

(16)

(97)

Total increase in funds flow from operations and cash from operating activities

590

2,222

 

Impact on Non-IFRS Measures


Three Months Ended

December 31, 2019

Year Ended December

31, 2019

(000s)

($)

($)

Reduction in rental services and local administration - Canada operating
segment

40

160

Reduction in rental services and local administration - United States operating
segment

198

794

Reduction in rental services and local administration - International operating
segment

25

136

Reduction in research and development expenses

98

332

Reduction in corporate services costs

341

1,257

Total increase in EBITDA and Adjusted EBITDA

702

2,679

 

Impact of Hyperinflation

In 2018, the Company concluded that its Argentinian subsidiary is operating in a hyperinflationary economy. This conclusion impacts the application of two accounting standards, IAS 21, The Effects of Changes in Foreign Exchange, and IAS 29, Financial Reporting in Hyperinflationary Economies.

The impact of applying IAS 21 to the operating results of Argentina subsidiary for the fourth quarter of 2019 was to increase revenue and reduce segment gross profit by $792 and $41 respectively. For the twelve months ending December 31, 2019, the impact was to reduce both revenue by $955 and segment gross profit by $991.

The impact of applying IAS 29 to the non-monetary assets and liabilities, and shareholders' equity of the Argentina subsidiary was to record a non-cash net monetary adjustment of $212 for the three months ended December 31, 2019. This non-cash net monetary adjustment for the 12 months ended December 31, 2019 was $2,588.

Impact on IFRS Measures


Three Months Ended

December 31, 2019

Year Ended December

31, 2019

(000s)

($)

($)

Increase (decrease) in revenue

792

(955)

(Increase) decrease in rental services and local administration expenses

(493)

562

(Increase) in depreciation expense

(340)

(598)

(Decrease) in segment gross profit

(41)

(991)

Income inclusion presented in other expenses

212

2,588

(Increase) decrease in income tax expenses

(40)

40

Increase in net income

131

1,637

 

Impact on Non-IFRS Measures


Three Months Ended

December 31, 2019

Year Ended December

31, 2019

(000s)

($)

($)

Increase (decrease) in revenue

792

(955)

(Increase) decrease in rental services and local administration expenses

(493)

562

Income inclusion presented in other expenses

212

2,588

Increase in EBITDA

511

2,195

(Elimination) of income inclusion presented in other expenses

(212)

(2,588)

Increase (decrease) in Adjusted EBITDA

299

(393)

 

Additional IFRS Measures

In its Consolidated Financial Statements, the Company 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 income and 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, net monetary adjustments, 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 its 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 December 31,

Year Ended December 31,


2019

2018

Change

2019

2018

Change

(000s) (unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue







Drilling Data

35,915

42,357

(15)

156,208

157,162

(1)

Mud Management and Safety

19,768

23,089

(14)

85,827

85,952

Communications

4,438

6,764

(34)

19,760

28,177

(30)

Drilling Intelligence

4,619

6,720

(31)

20,321

22,786

(11)

Analytics and Other

3,670

3,035

21

13,526

12,316

10

Total revenue

68,410

81,965

(17)

295,642

306,393

(4)

 

The Pason Electronic Drilling Recorder (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 at 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 decreased by 17% in the fourth quarter of 2019 compared to the corresponding period in 2018.

Communication revenue decreased 34% in the fourth quarter of 2019 compared to the corresponding period in 2018. In the Company's major operating segments, wellsite communications have been transitioning from satellite to terrestrial bandwidth. The transition has resulted in a lower rental service cost to Pason with cost savings shared with its customers.

Drilling intelligence revenue decreased 31% in the fourth quarter of 2019 compared to the corresponding period in 2018 as a result of the decrease in drilling activity in the North American markets as well as the mix of rig types and customers which were active in the period.

Analytics and other revenue increased 21% in the fourth quarter of 2019 compared to the corresponding period in 2018 predominately as a result of the revenue generated from the ETB LLC acquisition.

Industry activity in the US market decreased by 24% in the fourth quarter of 2019 compared to the corresponding period in 2018, while fourth quarter Canadian industry activity decreased by 23%. The Canadian and US business units both experienced a decline in drilling activity as producers  reduced  capital spending. For the fourth quarter of 2019, the Company saw an increase in revenue in the International business unit with gains in all of its significant markets.

US EDR days decreased by 24% in the fourth quarter of 2019 compared to the corresponding period in 2018, while Canadian EDR days, which includes non-oil and gas-related activity, decreased 29% from 2018 levels.

In the fourth quarter of 2019, the Pason EDR was installed on 62% of the land rigs in the US market, an increase of 60bps over the same time period in 2018.

In the fourth quarter of 2019, the Pason EDR was installed on 85% of the land rigs in the Canadian market, a decrease of 600bps over the same period in 2018. 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.

Discussion of Operations

United States Operations


Three Months Ended December 31,

Year Ended December 31,


2019

2018

Change

2019

2018

Change

(000s) (unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue







Drilling Data

24,084

29,918

(19)

109,482

110,229

(1)

Mud Management and Safety

14,016

16,268

(14)

64,189

59,421

8

Communications

2,297

3,733

(38)

11,339

15,730

(28)

Drilling Intelligence

2,105

3,866

(46)

11,158

12,693

(12)

Analytics and Other

1,716

1,546

11

5,946

5,813

2

Total revenue

44,218

55,331

(20)

202,114

203,886

(1)

Rental services and local administration

18,730

19,364

(3)

77,453

72,021

8

Depreciation and amortization

5,004

4,121

21

19,375

16,249

19

Segment gross profit

20,484

31,846

(36)

105,286

115,616

(9)


Current period amounts are in accordance with IFRS following the adoption of IFRS 16, Leases as discussed in Note 3 in the Consolidated Financial Statements. Prior periods have not been restated.

 


Three Months Ended December 31,

Year Ended December 31,


2019

2018

Change

2019

2018

Change

(000s) (unaudited)

(#)

(#)

(%)

(#)

(#)

(%)

Electronic Drilling Recorder (EDR) Rental Days

44,800

58,900

(24)

204,900

223,500

(8)








Three Months Ended December 31,

Year Ended December 31,


2019

2018

Change

2019

2018

Change

(unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue per EDR day - USD

732

705

4

735

697

5

Revenue per EDR day - CAD

966

932

4

975

903

8

 

Revenue from the US operations decreased by 20% in the fourth quarter of 2019 over the 2018 comparable period (21% when measured in USD).

Industry activity in the US market decreased by 24% in the fourth quarter of 2019 over the 2018 comparable period. For the year, industry activity in the US market decreased by 10%. Active rig count declined in most major plays.

US market share was 62% for the fourth quarter of 2019 compared to 61% during the same period in 2018.

EDR rental days decreased by 24% in the fourth quarter of 2019 over the 2018 comparable period. Revenue per EDR day increased to US$732 in the fourth quarter of 2019, an increase of US$27 over the same period in 2018. The increase in revenue per EDR day is due to increased adoption of certain products and select price increases initiated in 2019.

Rental services and local administration decreased by 3% in the fourth quarter of 2019 over the 2018 comparative period. Included in the US business segment are the results of both Pason Power and ETB LLC. When measured in USD, and excluding Pason Power and ETB LLC, expenses declined by 11%. The decrease in operating costs is attributable to the Company managing field and office staff levels to support the current level of activity.

Depreciation expense increased by 21% in the fourth quarter of 2019 over the 2018 comparative period. The majority of this increase is due to the amortization of intangibles associated with the Company's acquisition of ETB LLC.

Canadian Operations


Three Months Ended December 31,

Year Ended December 31,


2019

2018

Change

2019

2018

Change

(000s) (unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue







Drilling Data

5,793

7,191

(19)

23,108

29,095

(21)

Mud Management and Safety

3,594

4,766

(25)

14,071

19,722

(29)

Communications

1,703

2,641

(36)

6,807

10,944

(38)

Drilling Intelligence

2,147

2,519

(15)

7,828

8,623

(9)

Analytics and Other

983

776

27

3,980

3,613

10

Total revenue

14,220

17,893

(21)

55,794

71,997

(23)

Rental services and local administration

5,343

6,864

(22)

21,226

26,374

(20)

Depreciation and amortization

4,407

2,519

75

17,071

15,027

14

Segment gross profit

4,470

8,510

(47)

17,497

30,596

(43)


Current period amounts are in accordance with IFRS following the adoption of IFRS 16, Leases as discussed in Note 3 in the Consolidated Financial Statements. Prior periods have not been restated.

 


Three Months Ended December 31,

Year Ended December 31,


2019

2018

Change

2019

2018

Change

(000s) (unaudited)

(#)

(#)

(%)

(#)

(#)

(%)

Electronic Drilling Recorder (EDR) Rental Days

10,300

14,500

(29)

42,000

60,000

(30)








Three Months Ended December 31,

Year Ended December 31,


2019

2018

Change

2019

2018

Change

(unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue per EDR day - CAD

1,292

1,183

9

1,244

1,145

9

 

Canadian drilling activity in the fourth quarter of 2019 decreased by 23% relative to the same period in 2018, while EDR rental days decreased 29% in the fourth quarter of 2019 compared to 2018. For the year, Canadian drilling activity decreased 30% and EDR rental days declined a similar amount.

Revenue in the Canadian business unit decreased by 21% in the fourth quarter of 2019 over the 2018 comparative period. Canadian market share was 85% for the fourth quarter of 2019 compared to 91% in the comparative period in 2018.

Revenue per EDR day increased by $109 to $1,292 during the fourth quarter of 2019 compared to the same period in 2018. The increase is driven by increased usage of data drilling and drilling intelligence products.

Rental services and local administration decreased by 22% in the fourth quarter of 2019 relative to the same period in 2018, primarily due to the bandwidth cost savings the Company has achieved in its communications category and the implementation of cost saving measures.

Analytics and other increased 27% during the fourth quarter of 2019 compared to the same period in 2018 as a result of an increase in Verdazo revenue.

Depreciation and amortization expense increased by 75% in the fourth quarter of 2019 over the 2018 comparative period. The increase is due to the adoption of IFRS 16, Leases and the Company initiating the amortization of previously deferred research and development projects.

Segment gross profit for the fourth quarter of 2019 decreased 47% to $4.5 million compared to $8.5 million in segment gross profit in the 2018 comparative period.

International Operations


Three Months Ended December 31,

Year Ended December 31,


2019

2018

Change

2019

2018

Change

(000s) (unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue







Drilling Data

6,038

5,248

15

23,618

17,838

32

Mud Management and Safety

2,158

2,055

5

7,567

6,809

11

Communications

438

390

12

1,614

1,503

7

Drilling Intelligence

367

335

10

1,335

1,470

(9)

Analytics and Other

971

713

36

3,600

2,890

25

Total revenue

9,972

8,741

14

37,734

30,510

24

Rental services and local administration

5,942

5,227

14

21,313

19,109

12

Depreciation and amortization

1,302

916

42

4,384

3,579

22

Segment gross profit

2,728

2,598

5

12,037

7,822

54


Current period amounts are in accordance with IFRS following the adoption of IFRS 16, Leases as discussed in Note 3 in the Consolidated Financial Statements. Prior periods have not been restated.

 

In 2018, management concluded that its Argentinian subsidiary is operating in a hyperinflationary economy.  The impact of applying hyperinflation accounting to this subsidiary is provided above in the section called "Impact of Hyperinflation" . The impact for 2018 was not material.

Revenue in the International business unit increased by 14% in the fourth quarter of 2019 compared to the same period in 2018.  Revenue increased in all of the Company's major international markets, with the majority of the absolute gains realized in Australia.

Rental services and local administration expenses increased by 14% in the fourth quarter of 2019 compared to the same period in 2018. Depreciation expense increased by 42% in the fourth quarter of 2019 compared to the same period in 2018.

Segment gross profit was $2.7 million for the fourth quarter of 2019, an increased of 5% compared to the same period in 2018. Hyperinflation accounting on the Argentinian subsidiary had a nominal effect on segment gross profit.

Corporate Expenses


Three Months Ended December 31,

Year Ended December 31,


2019

2018

Change

2019

2018

Change

(000s) (unaudited)

($)

($)

(%)

($)

($)

(%)

Other expenses







Research and development

7,470

7,310

2

30,439

26,997

13

Corporate services

4,240

3,897

9

15,653

15,905

(2)

Stock-based compensation

1,481

3,335

(56)

10,840

12,313

(12)

Other







Foreign exchange loss

930

1,007

(8)

2,199

7,682

(71)

Net interest expense - lease liability

174

578

Interest income - short term investments

(755)

(385)

96

(1,481)

(935)

58

Derecognition of lease receivable

4,289

Net monetary gain

(511)

(2,887)

Equity income

70

(112)

(86)

(17)

406

Other

641

(10)

1,280

(13)

Total corporate expenses

13,740

15,042

(9)

60,824

61,932

(2)


Current period amounts are in accordance with IFRS following the adoption of IFRS 16, Leases as discussed in Note 3 in the Consolidated Financial Statements. Prior periods have not been restated.

 

Stock-based compensation decreased 56% in the fourth quarter of 2019 over the 2018 comparative period due to the drop in the Company's stock price in the fourth quarter of 2019.

The majority of the foreign exchange loss recorded in the year ending December 31, 2019 and the previous year relate to unrealized foreign exchange losses on inter-company advances made to the Company's Argentinian subsidiary as a result of the devaluation of the Argentina peso relative to the Canadian dollar.

Net interest expense - lease liabilities is a result of the adoption of the new lease accounting standard.

In July 2019, the Company was notified that the tenant that was leasing the Company's previous office space in Colorado, USA filed for Chapter 7 bankruptcy. As a result, the Company derecognized the lease receivable that it had previously recorded and reported a non-cash charge of $4.3 million in the second quarter of 2019. Management is researching various options to reduce the Company's future obligations.

In 2018, the Company commenced applying IAS 29, Financial Reporting in Hyperinflationary Economies for its Argentina subsidiary. Accordingly, the application of hyperinflation accounting has been applied to the non-monetary assets and liabilities, and shareholders' equity of the Argentina subsidiary. In the fourth quarter of 2019, a non-cash net monetary gain of $0.5 million was recorded. The impact of applying this accounting standard on 2018 amounts was not material.

Q4 2019 vs Q3 2019

Consolidated revenue was $68.4 million in the fourth quarter of 2019 compared to $72.2 million in the third quarter of 2019, a decrease of $3.8 million.

Revenue in the US business unit was $44.2 million in the fourth quarter of 2019 compared to $49.8 million in the third quarter of 2019. Sequentially, both EDR rental days and industry activity decreased 11%.

Revenue in the Canadian business unit was $14.2 million in the fourth quarter of 2019 compared to $13.8 million in the third quarter of 2019.

The International business unit reported revenue of $10.0 million in the fourth quarter of 2019 compared to $8.5 million in the third quarter of 2019.

Adjusted EBITDA, which adjusts EBITDA for foreign exchange and certain non-recurring charges, was $26.6 million in the fourth quarter of 2019 compared to $31.6 million in the third quarter of 2019. The drop in this financial metric was mostly attributable to the drop in segment gross profit in the US business unit of $5.4 million.

Funds flow from operations was $22.1 million in the fourth quarter of 2019 compared to $29.9 million in the third quarter of 2019.

The Company recorded net income attributable to Pason in the fourth quarter of 2019 of $10.4 million ($0.12 per share) compared to net income of $15.4 million ($0.18 per share) in the third quarter of 2019.

Consolidated Balance Sheets

As at

December 31, 2019

December 31, 2018

(CDN 000s)

($)

($)

Assets



Current



Cash and cash equivalents

161,016

203,838

Trade and other receivables

59,716

80,020

Income taxes recoverable - other

15,304

15,304

Prepaid expenses

3,621

3,934

Income taxes recoverable

2,382

6,203

Total current assets

242,039

309,299

Non-current



Property, plant and equipment

118,522

120,417

Investments

26,265

1,245

Intangible assets and goodwill

51,015

30,755

Total non-current assets

195,802

152,417

Total assets

437,841

461,716




Liabilities and equity



Current



Trade payables and accruals

34,420

34,229

Income taxes payable

3,133

Income taxes payable - other

15,304

Stock-based compensation liability

2,442

3,301

Lease liability

3,275

312

Investment - put option

15,000

Total current liabilities

58,270

53,146

Non-current



Deferred tax liabilities

8,566

17,060

Lease liability

11,532

2,233

Stock-based compensation liability

3,479

3,200

Obligation under put option

9,540

Total non-current liabilities

33,117

22,493

Equity



Share capital

166,701

164,723

Share-based benefits reserve

30,863

27,287

Foreign currency translation reserve

57,830

63,574

Equity reserve

(8,375)

Retained earnings

99,806

130,493

Total equity attributable to equity holders of the Company

346,825

386,077

Non-controlling interest

(371)

Total equity

346,454

386,077

Total liabilities and equity

437,841

461,716


 

Consolidated Statements of Operations


Three Months Ended December 31,

Year Ended December 31,


2019

2018

2019

2018

(CDN 000s) (unaudited)

($)

($)

($)

($)

Revenue

68,410

81,965

295,642

306,393

Operating expenses





Rental services

25,659

27,502

105,496

104,398

Local administration

4,356

3,953

14,496

13,106

Depreciation and amortization

10,713

7,556

40,830

34,855


40,728

39,011

160,822

152,359






Gross profit

27,682

42,954

134,820

154,034

Other expenses





Research and development

7,470

7,310

30,439

26,997

Corporate services

4,240

3,897

15,653

15,905

Stock-based compensation expense

1,481

3,335

10,840

12,313

Other expense

549

500

3,892

6,717


13,740

15,042

60,824

61,932






Income before income taxes

13,942

27,912

73,996

92,102

Income tax provision

3,846

7,192

20,193

29,158

Net income

10,096

20,720

53,803

62,944






Net income attributable to:





Shareholders of Pason

10,405

20,720

54,112

62,944

Non-controlling interest

(309)

(309)

Net income

10,096

20,720

53,803

62,944






Income per share





Basic

0.12

0.24

0.63

0.74

Diluted

0.12

0.24

0.63

0.73


 

Consolidated Statements of Other Comprehensive Income


Three Months Ended December 31,

Year Ended December 31,


2019

2018

2019

2018

(CDN 000s) (unaudited)

($)

($)

($)

($)

Net income

10,096

20,720

53,803

62,944

Items that may be reclassified subsequently to net income:





Tax recovery (expense) on net investment in





foreign operations related to an inter-company





financing

(1,976)

10,481

(3,110)

Foreign currency translation adjustment

(3,951)

17,485

(16,225)

26,326

Other comprehensive (loss) gain

(3,951)

15,509

(5,744)

23,216

Total comprehensive income

6,145

36,229

48,059

86,160






Total comprehensive income (loss) attributed to:





Shareholders of Pason

6,454

36,229

48,368

86,160

Non-controlling interest

(309)

(309)


6,145

36,229

48,059

86,160


 

Consolidated Statements of Cash Flows


Three Months Ended December 31,

Year Ended December 31,


2019

2018

2019

2018

(CDN 000s) (unaudited)

($)

($)

($)

($)

Cash from (used in) operating activities





Net income

10,096

20,720

53,803

62,944

Adjustment for non-cash items:





Depreciation and amortization

10,713

7,556

40,830

34,855

Stock-based compensation

1,481

3,335

10,840

12,313

Deferred income taxes

(1,335)

(2,196)

2,185

9,796

Derecognition of lease receivable

4,289

Unrealized foreign exchange loss (gain) and other

917

1,296

1,023

8,636

Hyperinflationary adjustment

254

(1,252)

Funds flow from operations

22,126

30,711

111,718

128,544

Movements in non-cash working capital items:





Decrease (increase) in trade and other receivables

5,068

(5,835)

14,089

(24,523)

Decrease in prepaid expenses

209

352

164

253

Increase in income taxes

4,475

2,460

9,174

14,054

(Decrease) increase in trade payables, accruals and stock-based compensation liability

(4,646)

2,357

(8,540)

4,368

Effects of exchange rate changes

(435)

295

(697)

530

Cash generated from operating activities

26,797

30,340

125,908

123,226

Income tax paid

(2,083)

(6,933)

(17,361)

(16,049)

Net cash from operating activities

24,714

23,407

108,547

107,177

Cash flows from (used in) financing activities





Proceeds from issuance of common shares

6,347

3,366

11,012

Payment of dividends

(16,045)

(15,436)

(63,100)

(59,785)

Repurchase and cancellation of shares under Normal Course Issuer Bid

(10,977)

(921)

(24,040)

(921)

Repayment of lease liability

(449)

(2,342)

Net cash used in financing activities

(27,471)

(10,010)

(86,116)

(49,694)

Cash flows (used in) from investing activities





Acquisition (net of cash)

170

(23,660)

Investment

(10,000)

(10,000)

Additions to property, plant and equipment

(4,971)

(7,267)

(22,453)

(19,411)

Development costs

(616)

(1,183)

(1,725)

(4,465)

Proceeds on disposal of investment and property, plant and equipment

516

1,355

1,322

1,543

Purchase of short-term investments

(65,840)

Maturity of short-term investment

65,650

65,650

Changes in non-cash working capital

312

291

263

678

Net cash (provided by) used in investing activities

(14,589)

58,846

(56,253)

(21,845)

Effect of exchange rate on cash and cash equivalents

(2,503)

11,833

(9,000)

14,071

Net (decrease) increase in cash and cash equivalents

(19,849)

84,076

(42,822)

49,709

Cash and cash equivalents, beginning of period

180,865

119,762

203,838

154,129

Cash and cash equivalents, end of period

161,016

203,838

161,016

203,838


 

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 following table represents a disaggregation of revenue from contracts with customers along with the reportable segment for each category:

Three Months Ended December 31, 2019

Canada

United States

International

Total

(CDN 000s) (unaudited)

($)

($)

($)

($)

Revenue





Drilling Data

5,793

24,084

6,038

35,915

Mud Management and Safety

3,594

14,016

2,158

19,768

Communications

1,703

2,297

438

4,438

Drilling Intelligence

2,147

2,105

367

4,619

Analytics and Other

983

1,716

971

3,670

Total Revenue

14,220

44,218

9,972

68,410

Rental services and local administration

5,343

18,730

5,942

30,015

Depreciation and amortization

4,407

5,004

1,302

10,713

Segment gross profit

4,470

20,484

2,728

27,682

Research and development




7,470

Corporate services




4,240

Stock-based compensation




1,481

Other income




549

Income tax expense




3,846

Net income




10,096

Net income attributable to Pason




10,405

Capital expenditures

1,471

3,643

473

5,587

As at December 31, 2019





Property plant and equipment

40,082

64,127

14,313

118,522

Intangible assets

15,497

2,233

17,730

Goodwill

1,259

29,426

2,600

33,285

Segment assets

105,769

279,228

52,844

437,841

Segment liabilities

49,787

36,113

5,487

91,387
















Three Months Ended December 31, 2018

Canada

United States

International

Total

(CDN 000s)

($)

($)

($)

($)

Revenue





Drilling Data

7,191

29,918

5,248

42,357

Mud Management and Safety

4,766

16,268

2,055

23,089

Communications

2,641

3,733

390

6,764

Drilling Intelligence

2,519

3,866

335

6,720

Analytics and Other

776

1,546

713

3,035

Total Revenue

17,893

55,331

8,741

81,965

Rental services and local administration

6,864

19,364

5,227

31,455

Depreciation and amortization

2,519

4,121

916

7,556

Segment gross profit

8,510

31,846

2,598

42,954

Research and development




7,310

Corporate services




3,897

Stock-based compensation




3,335

Other income




500

Income tax expense




7,192

Net income




20,720

Net income attributable to Pason




20,720

Capital expenditures

3,374

3,752

1,324

8,450

As at December 31, 2018





Property plant and equipment

37,511

68,122

14,784

120,417

Intangible assets

19,071

41

19,112

Goodwill

1,259

7,784

2,600

11,643

Segment assets

117,510

297,173

47,033

461,716

Segment liabilities

53,034

16,367

6,238

75,639
















Year Ended December 31, 2019

Canada

United States

International

Total

(CDN 000s)

($)

($)

($)

($)

Revenue





Drilling Data

23,108

109,482

23,618

156,208

Mud Management and Safety

14,071

64,189

7,567

85,827

Communications

6,807

11,339

1,614

19,760

Drilling Intelligence

7,828

11,158

1,335

20,321

Analytics and Other

3,980

5,946

3,600

13,526

Total Revenue

55,794

202,114

37,734

295,642

Rental services and local administration

21,226

77,453

21,313

119,992

Depreciation and amortization

17,071

19,375

4,384

40,830

Segment gross profit

17,497

105,286

12,037

134,820

Research and development




30,439

Corporate services




15,653

Stock-based compensation




10,840

Other expense




3,892

Income tax expense




20,193

Net income




53,803

Net income attributable to Pason




54,112

Capital expenditures

4,009

16,940

3,229

24,178

As at December 31, 2019





Property plant and equipment

40,082

64,127

14,313

118,522

Intangible assets

15,497

2,233

17,730

Goodwill

1,259

29,426

2,600

33,285

Segment assets

105,769

279,228

52,844

437,841

Segment liabilities

49,787

36,113

5,487

91,387
















Year Ended December 31, 2018

Canada

United States

International

Total

(CDN 000s)

($)

($)

($)

($)

Revenue





Drilling Data

29,095

110,229

17,838

157,162

Mud Management and Safety

19,722

59,421

6,809

85,952

Communications

10,944

15,730

1,503

28,177

Drilling Intelligence

8,623

12,693

1,470

22,786

Analytics and Other

3,613

5,813

2,890

12,316

Total Revenue

71,997

203,886

30,510

306,393

Rental services and local administration

26,374

72,021

19,109

117,504

Depreciation and amortization

15,027

16,249

3,579

34,855

Segment gross profit

30,596

115,616

7,822

154,034

Research and development




26,997

Corporate services




15,905

Stock-based compensation




12,313

Other expense




6,717

Income tax expense




29,158

Net income




62,944

Net income attributable to Pason




62,944

Capital expenditures

7,710

12,849

3,317

23,876

As at December 31, 2018





Property plant and equipment

37,511

68,122

14,784

120,417

Intangible assets

19,071

41

19,112

Goodwill

1,259

7,784

2,600

11,643

Segment assets

117,510

297,173

47,033

461,716

Segment liabilities

53,034

16,367

6,238

75,639

 

Other Expenses


Three Months Ended December 31,

Year Ended December 31,


2019

2018

2019

2018

(CDN 000s) (unaudited)

($)

($)

($)

($)

Foreign exchange loss

930

1,007

2,199

7,682

Net interest expense - lease liabilities

174

578

Interest income - short term investments

(755)

(385)

(1,481)

(935)

Derecognition of lease receivable

4,289

Net monetary gain

(511)

(2,887)

Equity income

70

(112)

(86)

(17)

Other

641

(10)

1,280

(13)

Other expense

549

500

3,892

6,717

 

The majority of the foreign exchange loss recorded in the year ending December 31, 2019, and the previous year relate to unrealized foreign exchange losses on inter-company advances made to the Company's Argentinian subsidiary as a result of the devaluation of the Argentina peso relative to the Canadian dollar.

Net interest expense - lease liabilities is a result of the adoption of the new lease accounting standard.

In July 2019, the Company was notified that the tenant that was leasing the Company's previous office space in Colorado, USA filed for Chapter 7 bankruptcy. As a result, the Company derecognized the lease receivable that it had previously recorded and reported a non-cash charge in the second quarter of 2019.

In 2018, the Company commenced applying IAS 29, Financial Reporting in Hyperinflationary Economies for its Argentina subsidiary. Accordingly, the application of hyperinflation accounting has been applied to the non-monetary assets and liabilities, and shareholders' equity of the Argentina subsidiary. In 2019, a non-cash net monetary gain of $2,887 was recorded. The impact of applying this accounting standard on 2018 amounts was not material.

Investment

Intelligent Wellhead Systems Inc.

In the fourth quarter of 2019, the Company entered into an agreement to invest CDN$25.0 million to acquire a minority interest in Intelligent Wellhead Systems Inc. ("IWS"). IWS is a privately-owned oil and gas technology and service company that provides proprietary and unique surface control systems for various markets globally. The investment consists of an initial cash payment of $10.0 million, which mas made in the fourth quarter of 2019, and three put options, exercisable at the discretion of IWS, of $5.0 million each.

Events After the Reporting Period

On February 26, 2020, the Company announced a quarterly dividend of $0.19 per share on the Company's common shares. The dividend will be paid on March 30, 2020 to shareholders of record at the close of business on March 16, 2020.

In February 2020, the Company received the first put option notice from IWS and will be making a cash payment of $5.0 million in March, 2020. As at December 31, 2019, the liability is included in the Consolidated Balance Sheets under "Investment - put option".


Fourth Quarter Conference Call

Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its fourth quarter 2019 results at 9:00 am (Calgary time) on Thursday, February 27, 2020. 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 5494458.

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, 2019, is available on SEDAR at www.sedar.com or on the Company's website at www.pason.com.

Shareholders are also invited to attend the Company's Annual General Meeting on Thursday, April 30, 2020, at 3:30 pm at the offices of Pason Systems Inc., 6120 Third Street SE, Calgary, Alberta.

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.

View original content: http://www.newswire.ca/en/releases/archive/February2020/26/c5965.html

about Pason Systems Inc., visit the company's website at www.pason.com or contact: Marcel Kessler, President and CEO, 403-301-3400; Jon Faber, Chief Financial Officer, 403-301-3400Copyright CNW Group 2020

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