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Pason Systems Inc.

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Pason Reports Third Quarter 2018 Results
Pason Reports Third Quarter 2018 Results

Canada NewsWire

CALGARY, Nov. 7, 2018 /CNW/ - Pason Systems Inc. (TSX: PSI) announced today its 2018 third quarter results.

Performance Data


Three Months Ended September 30,

Nine Months Ended September 30,


2018


2017
(Restated)


Change

2018


2017
(Restated)


Change

(CDN 000s, except per share data)

($)


($)


(%)


($)


($)


(%)


Revenue

82,344


64,576


28


224,428


179,417


25


Net Income (1)

24,386


7,404


229


42,224


20,176


109



Per share – basic (1)

0.29


0.08


228


0.50


0.24


106



Per share – diluted (1)

0.28


0.08


227


0.49


0.24


105


EBITDA (2)

44,633


25,493


75


100,467


70,012


43



As a % of revenue

54.2


39.5


1,470

 bps

44.8


39.0


574

 bps

Adjusted EBITDA (2)

42,473


26,158


62


106,684


70,427


51



As a % of revenue

51.6


40.5


1,107

 bps

47.5


39.3


828

 bps

Funds flow from operations

36,039


19,896


81


97,833


59,765


64



Per share – basic

0.42


0.23


80


1.15


0.71


63



Per share – diluted

0.42


0.23


80


1.14


0.70


62


Cash from operating activities

31,809


15,128


110


83,770


69,160


21


Free cash flow (2)

26,880


11,002


144


68,919


59,141


17


Capital expenditures

4,858


5,371


(10)


15,426


11,604


33


Working capital

234,771


190,518


23


234,771


190,518


23


Total assets

429,684


398,926


8


429,684


398,926


8


Total long-term debt







Cash dividends declared

0.18


0.17


6


0.52


0.51


2


Shares outstanding end of period (#000's)

85,431


84,916


1


85,431


84,916


1


(1)

As disclosed in Note 2 to the consolidated financial statements, the Company identified an immaterial non-cash re-classification error with respect to a component of its deferred income tax expense associated with accounting for the deferred tax on its net investment in foreign operations related to an inter-company financing. The reclassification is between the deferred tax provision in the statement of operations and foreign currency translation reserve in equity. This adjustment has been corrected on a retrospective basis with all prior period comparative figures being restated.

(2)

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

 

Q3 2018 vs Q3 2017

The Company generated consolidated revenue of $82.3 million in the third quarter of 2018, an increase of 28% from the same period in 2017. In the US operations, industry activity increased by 12% while market share increased to 61% from 59%. In Canada, industry activity was comparable while market share decreased to 85% from 88%. The International business unit saw increases in activity in each of the Company's major markets. In the Argentinian business unit, the increase in activity was partially offset by the weakness in the Argentinian peso.

Consolidated adjusted EBITDA increased to $42.5 million in the third quarter, an increase of 62% from the same period in 2017. For the nine-month period, consolidated adjusted EBITDA was $106.7 million, an increase of 51% over the 2017 comparative period. Increases in revenue in all operating segments, combined with significant operating leverage, led to the improvement in this key measure.

The Company recorded net income of $24.4 million ($0.28 per share) in the third quarter of 2018, compared to net income of $7.4 million ($0.08 per share) recorded in the same period in 2017. Net income was positively impacted from the increased level of activity, increased market share in the US operations, and reduction in depreciation expense.

President's Message

Pason achieved strong results in the third quarter of 2018 and our teams continue to perform very well in all geographies. We generated revenue of $82.3 million in the period, an increase of 28% compared to the same quarter last year. The main drivers of revenue growth were increased drilling activity and market share gains in the United States, and higher activity levels in all of Pason's international markets.

Adjusted EBITDA was $42.5 million for the quarter, an increase of 62%. Adjusted EBITDA as a percentage of revenue was 52% compared to 41% one year ago. The drivers of this improvement were the significant increase in revenue with high incremental margins. Pason recorded net income for the quarter of $24.4 million ($0.28 per share) compared to $7.4 million ($0.08 per share) in the prior year quarter.

Capital expenditures for the quarter were $4.9 million and free cash flow was $26.9 million. At September 30, 2018, our working capital position stood at $235 million, including cash and short-term investments of $184 million. There is no debt on our balance sheet. We are maintaining our quarterly dividend at $0.18 share.

At the beginning of this year, we began reporting our revenue along five product categories to better reflect the changing nature of Pason's business as follows:

  • Drilling Data contains all products and services associated with acquiring, displaying, storing, and delivering drilling data. Revenue in this segment increased 32% in the third quarter compared to the prior year period and accounted for 51% of our total revenue. The increase was driven by a 12% increase in total US land drilling activity and US market share gains from 59% to 61%. Drilling industry days and segment revenue in Canada were flat. Internationally, drilling activity increased in all major markets.

  • Mud Management & Safety includes products such as the Pit Volume Totalizer (PVT), Gas Analyzer, Hazardous Gas Alarm, and the Electronic Choke Actuator. In the third quarter, Mud Management & Safety generated 27% of total revenue.

  • Communications includes satellite and terrestrial Internet bandwidth, Wireless Rigsite, VoIP and Intercom services and accounted for 9% of total revenue. Revenue in this segment is showing lower growth because of the transition from satellite to terrestrial bandwidth with lower pricing and better user experience for customers.

  • Drilling Intelligence bundles Pason's product offerings targeted at enabling our customers' drilling optimization and automation efforts. It contains products such as autodrillers, abbl Directional Advisor®, the ExxonMobil Drilling Advisory System® and Pivot, a pipe oscillation system for improving slide drilling. Drilling Intelligence is our highest growth segment as revenue increased 73% in the third quarter compared to the prior year and accounted for 9% of our total revenue. Our level of confidence in the successful commercialization of new drilling intelligence products continues to grow. There currently are over 150 drilling rig installations of new Drilling Intelligence software in North America.
  • Analytics & Other includes our Verdazo Discovery Analytics product suite, various reports, and other revenue streams. This segment is not as directly correlated to drilling activity and accounted for 4% of revenue.

We have increased our investment in R&D and IT in the first nine months of 2018 compared to the previous year period with a focus on machine learning algorithms, particularly in Drilling Intelligence and Mud Management & Safety. 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 up to $25 million in capital expenditures in 2018 and up to $30 million in 2019. Our highly capable and flexible IT and communications platform can host additional new Pason and third-party software at the rigsite and in the Cloud.

From a macro perspective, the oil market continued to tighten in the third quarter. Despite continued strong production from the US and increasing output from OPEC countries, we had seen a further draw in global inventories and an increase in oil prices. The tightening supply and demand balance was driven by accelerating decline rates in the international production base and by the reduction in exports from Venezuela and Iran.

In the United States there are concerns for industry activity in the coming few quarters given take-away constraints across several basins, especially in the Permian in Texas and New Mexico. However, we have not yet seen any signs of a slowdown and we expect activity levels to plateau, rather than decline significantly. It is expected that the Permian takeaway constraints will be addressed in the next 12-18 months.

In Canada, we expect activity in the upcoming winter drilling season to be somewhat lower than last year. We continue to be concerned about the medium-term outlook for Canadian oil and gas as the ongoing crude oil and natural gas takeaway capacity issues, and price differentials, continue to create an environment of extreme caution for Canadian E&P companies.

In aggregate, we expect drilling activity in Pason's core markets to be largely flat in 2019 compared to 2018. Our market positions remain strong, and we expect to be able to deliver growth through higher product adoption going forward. 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 continue to be very well-positioned to participate in the industry's recovery and growth.

(signed)

Marcel Kessler
President and Chief Executive Officer
November 7, 2018

Management's Discussion and Analysis

The following discussion and analysis has been prepared by management as of November 7, 2018, 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 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 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,



2018


2017


Change


2018


2017


Change


(000s)

($)


($)


(%)


($)


($)


(%)


Revenue














Drilling Data

42,090


31,889


32


114,805


88,974


29



Mud Management and Safety

22,299


19,288


16


62,863


53,225


18



Communications

7,504


6,567


14


21,413


18,440


16



Drilling Intelligence

7,111


4,099


73


16,066


11,313


42



Analytics and Other

3,340


2,733


22


9,281


7,465


24


Total revenue

82,344


64,576


28


224,428


179,417


25


 

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.

EDR rental day performance for Canada and the United States is reported below:

Pason Electronic Drilling Recorder (EDR) Rental Days


Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


Change


2018


2017


Change



#


#


(%)


#


#


(%)


Canada

16,100


16,900


(5)


45,500


49,900


(9)


United States

57,500


49,500


16


164,700


128,500


28


 

Total revenue increased 28% and 25% for the three and nine months ending September 2018, over the same period in 2017. This increase is attributable to an increase in revenue per EDR day in all three operating segments combined with an increase in the activity in the US operating segment.

Industry activity in the US market increased 12% in the third quarter of 2018 compared to the corresponding period in 2017, while third quarter Canadian industry activity was consistent in the third quarter of 2018 compared to the corresponding period in 2017. US EDR days increased by 16% in the third quarter of 2018 compared to the corresponding period in 2017, while third quarter Canadian EDR days, which includes non-oil and gas-related activity, decreased 5% from 2017 levels.

In the third quarter of 2018, the Pason EDR was installed on 61% of the land rigs in the US market compared to 59% during the same time period of 2017.

In the third quarter of 2018, the Pason EDR was installed on 85% of the land rigs in the Canadian market compared to 88% during the same period of 2017. 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.

Revenue generated from the Company's other wellsite instrumentation products was largely driven by the increase in drilling activity in the US market combined with increases in the adoption of certain EDR peripherals, most notably the alarms and sensors, and an increase in revenue from the Company's drilling intelligence products.

For the third quarter of 2018, the Company saw an increase in activity in all major regions of the International operating segment with the largest increases in Australia and Argentina.

Discussion of Operations

United States Operations


Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


Change


2018


2017


Change


(000s)

($)


($)


(%)


($)


($)


(%)


Revenue














Drilling Data

29,640


20,888


42


80,311


56,630


42



Mud Management and Safety

15,274


12,763


20


43,153


34,352


26



Communications

4,099


3,458


19


11,997


9,443


27



Drilling Intelligence

3,774


2,266


67


8,827


5,723


54



Analytics and Other

1,382


1,303


6


4,267


3,691


16


Total revenue

54,169


40,678


33


148,555


109,839


35


Rental services and local administration

18,317


17,130


7


52,657


47,642


11


Depreciation and amortization

4,200


4,151


1


12,128


13,322


(9)


Segment gross profit

31,652


19,397


63


83,770


48,875


71


 


Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017


$


$


$


$

Revenue per EDR day - USD

716


647


694


648

Revenue per EDR day - CAD

936


809


893


847

 

Revenue from the US operations increased by 33% in the third quarter of 2018 over the 2017 comparable period (28% when measured in USD). For the first nine months of 2018, revenue increased 35% compared to the prior period (37% when measured in USD).

Industry activity in the US market increased by 12% in the third quarter of 2018 over the 2017 comparable period. For the first nine months of 2018, industry activity increased by 19% compared to the prior period. US market share was 61% for the third quarter of 2018 compared to 59% during the same period of 2017. For the first nine months of 2018, US market share was 61% compared to 57% during the same period of 2017. The increase in market share is driven by market share growth in key US regions combined with changes in the mix of active customers.

EDR rental days increased by 16% in the third quarter of 2018 over the 2017 comparable period. Revenue per EDR day increased to US$716 in the third quarter of 2018, an increase of US$69 over the same period in 2017. The increase in revenue per EDR day was driven by higher adoption of certain peripheral products and selective price increases on certain products.

Revenue per EDR day for the first nine months of 2018 was US$694, an increase of US$46 from the same period of 2017.

Rental services and local administration increased by 7% in the third quarter of 2018 over the 2017 comparative period (6% when measured in USD). For the first nine months of 2018, rental services and local administration increased 11% over the 2017 comparative period (15% when measured in USD). The increase in operating costs is attributable higher field staff levels and higher direct costs to support additional activity.

Depreciation expense increased by 1% in the third quarter of 2018 over the 2017 comparative period. For the first nine months of 2018, depreciation expense decreased 9% over the 2017 comparative period.

Segment gross profit increased by $12.3 million or 63% in the third quarter of 2018 over the 2017 comparative period. For the first nine months of 2018, segment gross profit was $83.8 million. This represents an increase of 71% over the 2017 comparative period.

Canadian Operations


Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


Change


2018


2017


Change


(000s)

($)


($)


(%)


($)


($)


(%)


Revenue














Drilling Data

7,804


7,763


1


21,904


22,365


(2)



Mud Management and Safety

5,333


5,366


(1)


14,956


15,475


(3)



Communications

3,028


2,869


6


8,303


8,222


1



Drilling Intelligence

2,869


1,414


103


6,104


4,192


46



Analytics and Other

981


908


8


2,837


2,532


12


Total revenue

20,015


18,320


9


54,104


52,786


2


Rental services and local administration

6,046


6,473


(7)


19,510


17,826


9


Depreciation and amortization

3,900


6,053


(36)


12,508


17,632


(29)


Segment gross profit

10,069


5,794


74


22,086


17,328


27


 


Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017


$


$


$


$

Revenue per EDR day - CAD

1,191


1,041


1,133


1,010

 

Canadian drilling activity in the third quarter of 2018 was flat relative to the same period in 2017. The level of activity during the quarter was affected by weather-related issues during September. For the first nine months of 2018, drilling activity decreased by 6% compared to the same period in 2017. Rig activity reflected the challenging industry outlook and takeaway capacity issues in the WCSB.

Canadian segment revenue increased by 9% in the third quarter of 2018 over the 2017 comparative period. For the first nine months of 2018, revenue increased by 2% compared to the prior period.

Canadian market share was 85% for the third quarter of 2018 compared to 88% during the same period of 2017. For the first nine months of 2018, Canadian market share was 86% compared to 89% during the same period of 2017.

EDR rental days decreased 5% in the third quarter of 2018 compared to 2017. On a year-to-date basis EDR rental days decreased 9% over 2017 levels. Revenue per EDR day increased by $150 to $1,191 during the third quarter of 2018 compared to 2017. For the first nine months of 2018, revenue per EDR day increased by $123 to $1,133. The increase is driven by higher adoption of certain EDR peripherals and the successful introduction of drilling intelligence products.

Rental services and local administration decreased by 7% in the third quarter of 2018 relative to the same period in 2017. For the first nine months of 2018, rental services and local administration increased 9% compared to the same period in 2017. The increase is due to repair costs and other direct field costs incurred primarily in the first two quarters of 2018.

Depreciation and amortization expense decreased by 36% in the third quarter of 2018 over the 2017 comparative period. The decrease is a result of lower capital programs since 2014 and a drop in amortization expense of previously deferred research and development costs as fewer project costs are being capitalized for accounting purposes.

Segment gross profit for the third quarter of 2018 increased 74% to $10.1 million in the third quarter of 2018 compared to $5.8 million in segment gross profit in the 2017 comparative period.

International Operations


Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


Change


2018


2017


Change


(000s)

($)


($)


(%)


($)


($)


(%)


Revenue














Drilling Data

4,646


3,238


43


12,590


9,979


26



Mud Management and Safety

1,692


1,159


46


4,754


3,398


40



Communications

377


240


57


1,113


775


44



Drilling Intelligence

468


419


12


1,135


1,398


(19)



Analytics and Other

977


522


87


2,177


1,242


75


Total revenue

8,160


5,578


46


21,769


16,792


30


Rental services and local administration

4,434


4,317


3


13,882


13,282


5


Depreciation and amortization

804


980


(18)


2,663


3,026


(12)


Segment gross profit

2,922


281


940


5,224


484


979


 

Drilling activity increased in the Company's major international markets, although the majority of the absolute gains were seen in Australia, Argentina, and the Andean region. The increase in activity in Argentina was offset by a weaker Argentinian peso compared to the prior year.

Revenue in the International segment increased by 46% in the third quarter of 2018 compared to the same period in 2017. For the first nine months of 2018, revenue increased by 30% compared to the prior period.

Rental services and local administration expenses increased by 3% in the third quarter of 2018 compared to the same period in 2017. For the first nine months of 2018, rental services and local administration expense increased by 5% compared to the prior period.

Depreciation expense decreased by 18% in the third quarter of 2018 compared to the same period in 2017.

Segment gross profit was $2.9 million for the third quarter of 2018, an improvement from the $0.3 million profit recorded in the corresponding period in 2017. For the first nine months of 2018, segment gross profit was $5.2 million compared to $0.5 million in 2017.

Corporate Expenses


Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017


Change


2018


2017


Change


(000s)

($)


($)


(%)


($)


($)


(%)


Other expenses













Research and development

6,711


6,945


(3)


19,687


19,083


3


Corporate services

4,363


3,553


23


12,008


11,157


8


Stock-based compensation

2,589


3,145


(18)


8,978


8,869


1


Other














Foreign exchange (gain) loss

(1,516)


113



6,675


(353)




Other

(644)


552



(458)


768



Total corporate expenses

11,503


14,308


(20)


46,890


39,524


19


 

Corporate service expenses increased in the third quarter of 2018 over the 2017 comparative period due to one time costs combined with certain expenses being recognized in different periods in 2018 as compared to 2017.

Q3 2018 vs Q2 2018

Consolidated revenue was $82.3 million in the third quarter of 2018 compared to $68.3 million in the second quarter of 2018, an increase of $14.0 million or 21%. The second quarter of the year is typically the weakest for the Company due to the seasonality of Canadian drilling activity. US and international activity levels continued to increase and this partially offset the anticipated drop in Canadian activity.

Revenue in the US segment was $54.2 million in the third quarter of 2018 compared to $50.3 million in the second quarter of 2018, an increase of $3.9 million or 8% as industry activity, market share and revenue per EDR day all increased. The Canadian segment earned revenue of $20.0 million in the third quarter of 2018 compared to $10.7 million in the second quarter of 2018, an increase of $9.4 million or 88%. The International segment earned revenue of $8.2 million in the third quarter of 2018 compared to $7.3 million in the second quarter of 2018, an increase of $0.8 million or 11%.

Adjusted EBITDA, which adjusts EBITDA for foreign exchange and certain non-recurring charges, was $42.5 million in the third quarter of 2018 compared to $29.5 million in the second quarter of 2018. Funds flow from operations was $36.0 million in the third quarter of 2018 compared to $27.8 million in the second quarter of 2018.

The Company recorded net income in the third quarter of 2018 of $24.4 million ($0.28 per share) compared to a profit of $5.5 million ($0.06 per share) in the second quarter of 2018. The Company recorded an unrealized foreign exchange gain in the third quarter of 2018 compared to a significant unrealized foreign exchange loss in the second quarter of 2018.

Third Quarter Conference Call

Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its third quarter 2018 results at 9:00 am (Calgary time) on Thursday, November 8, 2018. 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 3476978.

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, 2017, 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, 2018


December 31, 2017

(CDN 000s) (unaudited)


($)


($)

Assets





Current






Cash and cash equivalents


119,762


154,129


Short-term investments


64,725



Trade and other receivables


70,684


55,069


Income tax recoverable other


15,304


17,881


Prepaid expenses


4,096


4,028


Income taxes recoverable


5,413


3,946


Total current assets


279,984


235,053

Non-current






Property, plant and equipment


117,323


127,685


Intangible assets and goodwill


32,377


34,318


Deferred tax assets



1,390


Total non-current assets


149,700


163,393

Total assets


429,684


398,446

Liabilities and equity





Current






Trade payables and accruals


23,511


20,391


Income taxes payable other


15,304


17,881


Stock-based compensation liability


6,398


3,089


Total current liabilities


45,213


41,361

Non-current






Stock-based compensation liability


4,849


2,758


Deferred tax liabilities


16,165


4,515


Onerous lease obligation


2,189


2,326


Total non-current liabilities


23,203


9,599

Equity






Share capital


156,440


150,887


Share-based benefits reserve


27,072


24,425


Foreign currency translation reserve


48,065


40,358


Retained earnings


129,691


131,816


Total equity


361,268


347,486

Total liabilities and equity


429,684


398,446

 

Condensed Consolidated Interim Statements of Operations



Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017
(Restated)


2018


2017
(Restated)

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


($)


($)


($)


($)










Revenue


82,344


64,576


224,428


179,417

Operating expenses










Rental services


25,648


25,245


76,896


70,827


Local administration


3,149


2,675


9,153


7,923


Depreciation and amortization


8,904


11,184


27,299


33,980



37,701


39,104


113,348


112,730










Gross profit


44,643


25,472


111,080


66,687

Other expenses










Research and development


6,711


6,945


19,687


19,083


Corporate services


4,363


3,553


12,008


11,157


Stock-based compensation expense


2,589


3,145


8,978


8,869


Other (income) expense


(2,160)


665


6,217


415



11,503


14,308


46,890


39,524










Income before income taxes


33,140


11,164


64,190


27,163


Income tax provision


8,754


3,760


21,966


6,987

Net income


24,386


7,404


42,224


20,176

Income per share










Basic


0.29


0.08


0.50


0.24


Diluted


0.28


0.08


0.49


0.24

 

Condensed Consolidated Interim Statements of Other Comprehensive Income



Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017
(Restated)


2018


2017
(Restated)

(CDN 000s) (unaudited)


($)


($)


($)


($)

Net income


24,386


7,404


42,224


20,176

Items that may be reclassified subsequently to net income:










Tax expense (recovery) on net investment in foreign operations related to an inter-company financing


632


1,409


(1,134)


2,685


Foreign currency translation adjustment


(9,813)


(12,613)


8,841


(23,351)

Other comprehensive gain (loss)


(9,181)


(11,204)


7,707


(20,666)

Total comprehensive income (loss)


15,205


(3,800)


49,931


(490)

 

Condensed Consolidated Interim Statements of Changes in Equity



Share Capital


Share-Based
Benefits
Reserve


Foreign
Currency
Translation
Reserve


Retained
Earnings


Total Equity

(CDN 000s) (unaudited)


($)


($)


($)


($)


($)

Balance at January 1, 2017 -
Previously reported


139,730


23,026


69,443


154,452


386,651


Correction of error




(9,871)


9,871


Balance at January 1, 2017 -
Currently reported


139,730


23,026


59,572


164,323


386,651


Net income - as restated





20,176


20,176


Dividends





(43,238)


(43,238)


Other comprehensive loss - as restated




(20,666)



(20,666)


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


38,906


141,261


350,314


Net income - as restated





5,014


5,014


Dividends





(14,459)


(14,459)


Other comprehensive loss




1,452



1,452


Exercise of stock options


3,117


(731)




2,386


Expense related to vesting of options



1,029




1,029


Verdazo Acquisition


1,750





1,750

Balance at December 31, 2017


150,887


24,425


40,358


131,816


347,486


Net income





42,224


42,224


Dividends





(44,349)


(44,349)


Other comprehensive income




7,707



7,707


Exercise of stock options


5,553


(888)




4,665


Expense related to vesting of options



3,535




3,535

Balance at September 30, 2018


156,440


27,072


48,065


129,691


361,268

 

Condensed Consolidated Interim Statements of Cash Flows



Three Months Ended September 30,


Nine Months Ended September 30,



2018


2017
(Restated)


2018


2017
(Restated)

(CDN 000s) (unaudited)


($)


($)


($)


($)

Cash from (used in) operating activities










Net income


24,386


7,404


42,224


20,176

Adjustment for non-cash items:










Depreciation and amortization


8,904


11,184


27,299


33,980


Stock-based compensation


2,589


3,145


8,978


8,869


Deferred income taxes


1,328


(20)


11,992


(685)


Unrealized foreign exchange (gain) loss and other


(1,168)


(1,817)


7,340


(2,575)

Funds flow from operations


36,039


19,896


97,833


59,765

Movements in non-cash working capital items:










Decrease in trade and other receivables


(11,941)


(6,954)


(18,688)


(5,138)


Decrease in prepaid expenses


(1,374)


(1,418)


(99)


(1,160)


Decrease in income taxes


10,324


3,811


11,594


13,377


Increase in trade payables, accruals and stock-based compensation liability


2,989


2,609


2,011


5,743


Effects of exchange rate changes


(75)


(23)


235


962

Cash generated from operating activities


35,962


17,921


92,886


73,549


Income tax paid


(4,153)


(2,793)


(9,116)


(4,389)

Net cash from operating activities


31,809


15,128


83,770


69,160

Cash flows from (used in) financing activities










Proceeds from issuance of common shares


993


1,694


4,665


4,774


Payment of dividends


(15,378)


(14,425)


(44,349)


(43,238)

Net cash used in financing activities


(14,385)


(12,731)


(39,684)


(38,464)

Cash flows (used in) from investing activities










Additions to property, plant and equipment


(3,819)


(5,126)


(12,144)


(10,406)


Development costs


(1,039)


(245)


(3,282)


(1,198)


Proceeds on disposal of investment and property, plant and equipment


92


47


188


61


Purchase of short-term investments




(65,840)



Acquisition





(4,750)


Proceeds on sale of net operating assets





7,123


Changes in non-cash working capital


(163)


1,198


387


1,524

Net cash used in investing activities


(4,929)


(4,126)


(80,691)


(7,646)

Effect of exchange rate on cash and cash equivalents


(4,075)


(5,354)


2,238


(10,092)

Net increase (decrease) in cash and cash equivalents


8,420


(7,083)


(34,367)


12,958

Cash and cash equivalents, beginning of period


111,342


166,520


154,129


146,479

Cash and cash equivalents, end of period


119,762


159,437


119,762


159,437

 

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 September 30, 2018

Canada


United States


International


Total


($)


($)


($)


($)

Revenue









Drilling Data

7,804


29,640


4,646


42,090


Mud Management and Safety

5,333


15,274


1,692


22,299


Communications

3,028


4,099


377


7,504


Drilling Intelligence

2,869


3,774


468


7,111


Analytics and Other

981


1,382


977


3,340

Total Revenue

20,015


54,169


8,160


82,344

Rental services and local administration

6,046


18,317


4,434


28,797

Depreciation and amortization

3,900


4,200


804


8,904

Segment gross profit

10,069


31,652


2,922


44,643

Research and development







6,711

Corporate services







4,363

Stock-based compensation







2,589

Other (income)







(2,160)

Income tax







8,754

Net income







24,386

Capital expenditures

1,285


2,298


1,275


4,858

As at September 30, 2018








Property plant and equipment

38,216


65,503


13,604


117,323

Goodwill

1,259


7,387


2,600


11,246

Intangible assets

21,090


41



21,131

Segment assets

112,550


271,754


45,380


429,684

Segment liabilities

48,696


15,145


4,575


68,416

 

Three Months Ended September, 2017
(Restated)

Canada


United States


International


Total


($)


($)


($)


($)

Revenue









Drilling Data

7,763


20,888


3,238


31,889


Mud Management and Safety

5,366


12,763


1,159


19,288


Communications

2,869


3,458


240


6,567


Drilling Intelligence

1,414


2,266


419


4,099


Analytics and Other

908


1,303


522


2,733

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 gross 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 tax







3,760

Net income







7,404

Capital expenditures

(363)


5,213


521


5,371

As at September 30, 2017








Property plant and equipment

43,187


67,393


17,453


128,033

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, 2018

Canada


United States


International


Total


($)


($)


($)


($)

Revenue









Drilling Data

21,904


80,311


12,590


114,805


Mud Management and Safety

14,956


43,153


4,754


62,863


Communications

8,303


11,997


1,113


21,413


Drilling Intelligence

6,104


8,827


1,135


16,066


Analytics and Other

2,837


4,267


2,177


9,281

Total Revenue

54,104


148,555


21,769


224,428

Rental services and local administration

19,510


52,657


13,882


86,049

Depreciation and amortization

12,508


12,128


2,663


27,299

Segment gross profit

22,086


83,770


5,224


111,080

Research and development







19,687

Corporate services







12,008

Stock-based compensation







8,978

Other expenses







6,217

Income tax







21,966

Net income







42,224

Capital expenditures

4,336


9,097


1,993


15,426

As at September 30, 2018








Property plant and equipment

38,216


65,503


13,604


117,323

Goodwill

1,259


7,387


2,600


11,246

Intangible assets

21,090


41



21,131

Segment assets

112,550


271,754


45,380


429,684

Segment liabilities

48,696


15,145


4,575


68,416

 

Nine Months Ended September 30, 2017
(Restated)

Canada


United States


International


Total


($)


($)


($)


($)

Revenue









Drilling Data

22,365


56,630


9,979


88,974


Mud Management and Safety

15,475


34,352


3,398


53,225


Communications

8,222


9,443


775


18,440


Drilling Intelligence

4,192


5,723


1,398


11,313


Analytics and Other

2,532


3,691


1,242


7,465

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 gross profit

17,328


48,875


484


66,687

Research and development







19,083

Corporate services







11,157

Stock-based compensation







8,869

Other income







415

Income tax







6,987

Net income







20,176

Capital expenditures

(245)


11,428


421


11,604

As at September 30, 2017








Property plant and equipment

43,187


67,393


17,453


128,033

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


 

Correction of Error

During the fourth quarter of 2017, the Company adjusted for a re-classification of an immaterial non-cash error in the recognition of a component of its deferred income tax expense. The error was a result of the Company recognizing in the statement of operations the deferred income tax effect of the future taxable foreign exchange gain adjustment associated with its net investment in foreign operations related to an inter-company financing, when the amount should have been adjusted through the foreign currency translation reserve within equity. Accordingly, this adjustment has been corrected on a retrospective basis with all prior period comparative figures being restated.

The cumulative impact of this error as of January 1, 2017 was to increase retained earnings and reduce Foreign Currency Translation Reserve by $9,871.

For the third quarter of 2017, the income tax provision increased by $1,409. For the nine month period ended September 30, 2017, the income tax provision increased by $2,685.

Other (Income) Expenses


Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017


($)


($)


($)


($)

Foreign exchange (gain) loss

(1,516)


113


6,675


(353)

Other

(644)


552


(458)


768

Other (income) expenses

(2,160)


665


6,217


415

 

The Company recorded a significant unrealized loss for the nine months ended September 30, 2018 as a result of the significant devaluation of the Argentinian peso relative to the Canadian dollar.

Short-term investments

During the second quarter of 2018, the Company invested in a USD $50,000 term deposit bearing an interest rate of 2.30% maturing in November, 2018. This is reflected on the Condensed Consolidated Interim Balance Sheet as Short-term investments.

Events After the Reporting Period

On November 7, 2018, the Company announced a quarterly dividend of $0.18 per share on the Company's common shares. The dividend will be paid on December 31, 2018 to shareholders of record at the close of business on December 14, 2018.

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/November2018/07/c4674.html

For more information about Pason Systems Inc., visit the company's website at www.pason.com or contact: Marcel Kessler, President and CEO, 403-301-3400, marcel.kessler@pason.com; Jon Faber, Chief Financial Officer, 403-301-3400, jon.faber@pason.comCopyright CNW Group 2018

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