CALGARY, Feb. 26, 2019 /CNW/ - Pason Systems Inc. (TSX:PSI)
announced today its 2018 fourth quarter results.
Performance Data
|
Three Months Ended December 31,
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
2018
|
2017
|
Change
|
2018
|
2017
|
Change
|
(CDN 000s, except per share data)
|
($)
|
($)
|
(%)
|
($)
|
($)
|
(%)
|
Revenue
|
81,965
|
66,226
|
24
|
306,393
|
245,643
|
25
|
Net Income
|
20,720
|
5,014
|
313
|
62,944
|
25,190
|
150
|
Per share – basic
|
0.24
|
0.06
|
310
|
0.74
|
0.30
|
148
|
Per share – diluted
|
0.24
|
0.06
|
309
|
0.73
|
0.30
|
147
|
EBITDA (1)
|
38,803
|
26,651
|
46
|
139,270
|
96,663
|
44
|
As a % of revenue
|
47.3
|
40.2
|
710bps
|
45.5
|
39.4
|
610bps
|
Adjusted EBITDA (1)
|
39,303
|
27,797
|
41
|
145,987
|
98,224
|
49
|
As a % of revenue
|
48.0
|
42.0
|
600bps
|
47.6
|
40.0
|
760bps
|
Funds flow from operations
|
30,711
|
27,356
|
12
|
128,544
|
87,121
|
48
|
Per share – basic
|
0.36
|
0.32
|
12
|
1.51
|
1.03
|
46
|
Per share – diluted
|
0.36
|
0.32
|
12
|
1.50
|
1.02
|
46
|
Cash from operating activities
|
23,407
|
16,637
|
41
|
107,177
|
85,797
|
25
|
Free cash flow (1)
|
16,603
|
6,690
|
148
|
85,522
|
65,831
|
30
|
Capital expenditures
|
8,450
|
9,160
|
(8)
|
23,876
|
20,764
|
15
|
Working capital
|
256,153
|
193,692
|
32
|
256,153
|
193,692
|
32
|
Total assets
|
461,716
|
398,446
|
16
|
461,716
|
398,446
|
16
|
Total long-term debt
|
—
|
—
|
—
|
—
|
—
|
—
|
Cash dividends declared
|
0.18
|
0.17
|
6
|
0.70
|
0.68
|
3
|
Shares outstanding end of period (#000's)
|
85,783
|
85,158
|
1
|
85,783
|
85,158
|
1
|
(1)
|
Non-IFRS financial measures are defined in the Management's Discussion and
Analysis section.
|
Q4 2018 vs Q4 2017
The Company generated consolidated revenue of $82.0 million in the fourth quarter of 2018, an
increase of 24% from the same period in 2017. In the US business unit, industry activity increased by 16% while market share
remained at 61%. In Canada, industry activity decreased by 15% while market share increased. The
International business unit saw increases in activity in each of the Company's major markets. Fourth quarter revenue was
positively impacted by the strengthening of the US dollar to the Canadian dollar.
Consolidated adjusted EBITDA increased to $39.3 million in the fourth quarter, an increase of
41% from the same period in 2017. The increase in consolidated adjusted EBITDA is driven by the increase in activity in both the
US and International business units, combined with the Company's continued operating leverage. The Canadian business unit
contributed a modest increase due to a reduction in expenditures.
The Company recorded net income of $20.7 million ($0.24 per share)
in the fourth quarter of 2018, compared to net income of $5.0 million ($0.06 per share) recorded in the same period in 2017. Net income was positively impacted from the increased
level of activity, reduction in depreciation expense due to lower capital expenditures in prior years, a smaller foreign exchange
loss, and a lower effective income tax rate.
President's Message
Pason achieved strong results in the fourth quarter of 2018 and our teams continue to perform very well in all geographies. We
generated revenue of $82.0 million in the period, an increase of 24% compared to the same quarter
last year. The main drivers of revenue growth were increased industry activity in the United
States, higher activity levels in all Pason's international markets, and a significant increase in the penetration of new
Drilling Intelligence products.
Adjusted EBITDA was $39.3 million for the quarter, an increase of 41%. Adjusted EBITDA as a
percentage of revenue was 48% compared to 42% one year ago. The driver of this improvement was the significant increase in
revenue with high incremental margins. Pason recorded net income for the quarter of $20.7 million
($0.24 per share) compared to $5.0 million ($0.06 per share) in the prior year quarter.
Capital expenditures for the quarter were $8.5 million and free cash flow was $16.6 million. At December 31, 2018, our working capital position stood at
$256 million, including cash and short-term investments of $204
million. We are maintaining our quarterly dividend at $0.18 share.
For the full year 2018 compared to 2017 revenue increased 25% to $306.4 million, adjusted EBITDA
increased 49% to $146.0 million, and net income grew 150% to $62.9
million.
At the beginning of 2018, 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 29% in the fourth quarter compared to the prior year period and
accounted for 52% of our total revenue. The increase was driven by a 16% increase in total US land drilling activity and
partially offset by a 15% decline in Canadian drilling activity. Internationally, drilling activity increased in all major
markets with the largest increases in Argentina and Australia.
- Mud Management & Safety includes products such as the Pit Volume Totalizer, Smart Alarms, Gas
Analyzer, Hazardous Gas Alarm, and the Electronic Choke Actuator. In the fourth quarter, Mud Management & Safety revenue
increased 16% and generated 28% of total revenue.
- Communications includes satellite and terrestrial Internet bandwidth, Wireless Rigsite, VoIP and
Intercom services and accounted for 8% of total revenue. Revenue in this segment is showing no growth because of the transition
from satellite to terrestrial bandwidth with lower pricing, but better user experience, for our 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 AdvisorTM, the
ExxonMobil Drilling Advisory SystemTM and Pivot, a pipe oscillation system for improving slide drilling.
Drilling Intelligence is our highest growth segment as revenue increased 74% in the fourth quarter compared to the prior year
and accounted for 8% of our total revenue. There currently are 200 active drilling rig installations of new Drilling
Intelligence software.
- 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, grew 9% and accounted for 4% of total
revenue in the fourth quarter.
We have increased our investment in R&D in 2018 compared to the previous year with a focus on machine learning algorithms.
IT expenses also increased as we are transitioning towards a more cloud-based IT infrastructure.
Our capital expenditures will be relatively modest going forward with a larger portion of development efforts focused on
software and analytics. 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. We spent $24 million in capital expenditures
in 2018 and intend to spend up to $30 million in 2019.
From a macro perspective, the significant fall in oil prices in the fourth quarter was driven by US shale production
surprising to the upside and geopolitics negatively impacting the global demand/supply-balance sentiments. This has introduced
more uncertainty for the E&P spending outlook for 2019, with operators generally taking a more conservative approach at the
start of the year. This will once again push out in time a broad-based recovery in E&P spending. For North American land
E&P operators, this means that investments will likely be closer to the level that can be covered by free cash flow, making
the outlook for drilling activity more uncertain. Conversely, in the international markets, after four years of underinvestment,
the NOCs and independents are starting to see the need to invest in their resource base simply to maintain production at current
levels.
Based on what we can see today, we expect industry activity in North America to trend lower
in 2019, with declines of about 5% in the United States and steeper declines in Canada. Drilling activity in most international markets should continue to pick up. In this environment, we
have built flexibility into our plans for 2019, which gives us the means and confidence to address any activity scenario.
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.
Marcel Kessler
President and Chief Executive Officer
February 26, 2019
Management's Discussion and Analysis
The following discussion and analysis has been prepared by management as of February 26, 2019, 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 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 December 31,
|
Year Ended December 31,
|
|
2018
|
2017
|
Change
|
2018
|
2017
|
Change
|
(000s)
|
($)
|
($)
|
(%)
|
($)
|
($)
|
(%)
|
Revenue
|
|
|
|
|
|
|
Drilling Data
|
42,357
|
32,893
|
29
|
157,162
|
121,867
|
29
|
Mud Management and Safety
|
23,089
|
19,862
|
16
|
85,952
|
73,087
|
18
|
Communications
|
6,764
|
6,827
|
(1)
|
28,177
|
25,267
|
12
|
Drilling Intelligence
|
6,720
|
3,867
|
74
|
22,786
|
15,180
|
50
|
Analytics and Other
|
3,035
|
2,777
|
9
|
12,316
|
10,242
|
20
|
Total revenue
|
81,965
|
66,226
|
24
|
306,393
|
245,643
|
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 December 31,
|
Year Ended December 31,
|
|
2018
|
2017
|
Change
|
2018
|
2017
|
Change
|
|
#
|
#
|
(%)
|
#
|
#
|
(%)
|
Canada
|
14,500
|
15,900
|
(9)
|
60,000
|
65,800
|
(9)
|
United States
|
58,900
|
50,800
|
16
|
223,500
|
179,300
|
25
|
Total revenue increased 24% and 25% for the three and twelve months ending December 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 and International operating segment.
Industry activity in the US market increased 16% in the fourth quarter of 2018 compared to the corresponding period in 2017,
while fourth quarter Canadian industry activity decreased by 15% in the fourth quarter of 2018 compared to the corresponding
period in 2017.
US EDR days increased by 16% in the fourth quarter of 2018 compared to the corresponding period in 2017, while fourth quarter
Canadian EDR days, which includes non-oil and gas-related activity, decreased 9% from 2017 levels.
In the fourth quarter of 2018, the Pason EDR was installed on 61% of the land rigs in the US market, consistent with the same
time period in 2017.
In the fourth quarter of 2018, the Pason EDR was installed on 91% of the land rigs in the Canadian market compared to 85%
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 fourth 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 December 31,
|
Year Ended December 31,
|
|
2018
|
2017
|
Change
|
2018
|
2017
|
Change
|
(000s)
|
($)
|
($)
|
(%)
|
($)
|
($)
|
(%)
|
Revenue
|
|
|
|
|
|
|
Drilling Data
|
29,918
|
21,705
|
38
|
110,229
|
78,335
|
41
|
Mud Management and Safety
|
16,268
|
13,347
|
22
|
59,421
|
47,699
|
25
|
Communications
|
3,733
|
3,630
|
3
|
15,730
|
13,073
|
20
|
Drilling Intelligence
|
3,866
|
2,174
|
78
|
12,693
|
7,897
|
61
|
Analytics and Other
|
1,546
|
1,290
|
20
|
5,813
|
4,981
|
17
|
Total revenue
|
55,331
|
42,146
|
31
|
203,886
|
151,985
|
34
|
Rental services and local administration
|
19,364
|
16,519
|
17
|
72,021
|
64,161
|
12
|
Depreciation and amortization
|
4,121
|
3,981
|
4
|
16,249
|
17,303
|
(6)
|
Segment gross profit
|
31,846
|
21,646
|
47
|
115,616
|
70,521
|
64
|
|
Three Months Ended December 31,
|
Year Ended December 31,
|
|
2018
|
2017
|
2018
|
2017
|
|
$
|
$
|
$
|
$
|
Revenue per EDR day - USD
|
705
|
645
|
697
|
648
|
Revenue per EDR day - CAD
|
932
|
820
|
903
|
841
|
Revenue from the US operations increased by 31% in the fourth quarter of 2018 over the 2017 comparable period (27% when
measured in USD). On a year to date basis, revenue increased 34% compared to the prior period (34% when measured in USD).
Industry activity in the US market increased by 16% in the fourth quarter of 2018 over the 2017 comparable period. On a year
to date basis, industry activity increased by 19% compared to the prior period. US market share was 61% for the fourth quarter of
2018, consistent with the same period in 2017. On a year to date basis, US market share was 61% during 2018 compared to 58%
during 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 fourth quarter of 2018 over the 2017 comparable period. Revenue per EDR day increased
to US$705 in the fourth quarter of 2018, an increase of US$60 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.
On a year to date basis, revenue per EDR day was US$697, an increase of US$49 from 2017.
Rental services and local administration increased by 17% in the fourth quarter of 2018 over the 2017 comparative period (12%
when measured in USD). On a year to date basis, rental services and local administration increased 12% over the 2017 comparative
period (8% 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 4% in the fourth quarter of 2018 over the 2017 comparative period. On a year to date basis,
depreciation expense decreased 6% over the 2017 comparative period.
Segment gross profit increased by $10.2 million or 47% in the fourth quarter of 2018 over the
2017 comparative period. On a year to date basis, segment gross profit was $115.6 million. This
represents an increase of 64% over the 2017 comparative period.
Canadian Operations
|
Three Months Ended December 31,
|
Year Ended December 31,
|
|
2018
|
2017
|
Change
|
2018
|
2017
|
Change
|
(000s)
|
($)
|
($)
|
(%)
|
($)
|
($)
|
(%)
|
Revenue
|
|
|
|
|
|
|
Drilling Data
|
7,191
|
7,556
|
(5)
|
29,095
|
29,921
|
(3)
|
Mud Management and Safety
|
4,766
|
5,188
|
(8)
|
19,722
|
20,663
|
(5)
|
Communications
|
2,641
|
2,871
|
(8)
|
10,944
|
11,093
|
(1)
|
Drilling Intelligence
|
2,519
|
1,312
|
92
|
8,623
|
5,504
|
57
|
Analytics and Other
|
776
|
818
|
(5)
|
3,613
|
3,350
|
8
|
Total revenue
|
17,893
|
17,745
|
1
|
71,997
|
70,531
|
2
|
Rental services and local administration
|
6,864
|
7,109
|
(3)
|
26,374
|
24,935
|
6
|
Depreciation and amortization
|
2,519
|
6,618
|
(62)
|
15,027
|
24,250
|
(38)
|
Segment gross profit
|
8,510
|
4,018
|
112
|
30,596
|
21,346
|
43
|
|
Three Months Ended December 31,
|
Year Ended December 31,
|
|
2018
|
2017
|
2018
|
2017
|
|
$
|
$
|
$
|
$
|
Revenue per EDR day - CAD
|
1,183
|
1,072
|
1,145
|
1,024
|
Canadian drilling activity in the fourth quarter of 2018 decreased by 15% relative to the same period in 2017. On a year to
date basis, drilling activity decreased by 8% 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 1% in the fourth quarter of 2018 over the 2017 comparative period. On a year to date
basis, revenue increased by 2% compared to the prior period.
Canadian market share was 91% for the fourth quarter of 2018 compared to 85% during the same period of 2017. On a
year to date basis, Canadian market share was 88%, consistent with the same period in 2017.
EDR rental days decreased 9% in the fourth 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 $111 to $1,183
during the fourth quarter of 2018 compared to 2017. On a year to date basis, revenue per EDR day increased by $121 to $1,145. The increase is driven by the successful introduction of drilling
intelligence products as well as a higher adoption of certain EDR peripherals.
Rental services and local administration decreased by 3% in the fourth quarter of 2018 relative to the same period in 2017. On
a year to date basis, rental services and local administration increased 6% compared to the same period in 2017.
Depreciation and amortization expense decreased by 62% in the fourth quarter of 2018 over the 2017 comparative period. The
decrease is due to the amortization of investment tax credits received during the quarter. On a year to date basis, depreciation
and amortization decreased by 38% compared to 2017. The decrease is a result of lower capital programs from 2014 to 2017 as well
as as a greater proportion of research and development project costs being expensed for accounting purposes.
Segment gross profit for the fourth quarter of 2018 increased 112% to $8.5 million compared to
$4.0 million in segment gross profit in the 2017 comparative period.
International Operations
|
Three Months Ended December 31,
|
Year Ended December 31,
|
|
2018
|
2017
|
Change
|
2018
|
2017
|
Change
|
(000s)
|
($)
|
($)
|
(%)
|
($)
|
($)
|
(%)
|
Revenue
|
|
|
|
|
|
|
Drilling Data
|
5,248
|
3,632
|
44
|
17,838
|
13,611
|
31
|
Mud Management and Safety
|
2,055
|
1,327
|
55
|
6,809
|
4,725
|
44
|
Communications
|
390
|
326
|
20
|
1,503
|
1,101
|
37
|
Drilling Intelligence
|
335
|
381
|
(12)
|
1,470
|
1,779
|
(17)
|
Analytics and Other
|
713
|
669
|
7
|
2,890
|
1,911
|
51
|
Total revenue
|
8,741
|
6,335
|
38
|
30,510
|
23,127
|
32
|
Rental services and local administration
|
5,227
|
4,681
|
12
|
19,109
|
17,963
|
6
|
Depreciation and amortization
|
916
|
1,102
|
(17)
|
3,579
|
4,128
|
(13)
|
Segment gross profit
|
2,598
|
552
|
371
|
7,822
|
1,036
|
655
|
Drilling activity increased in all of the Company's major international markets, although the majority of the absolute gains
were seen in Australia, Argentina, and the Andean region.
Revenue in the International segment increased by 38% in the fourth quarter of 2018 compared to the same period in 2017. On a
year to date basis, revenue increased by 32% compared to the prior period.
Rental services and local administration expenses increased by 12% in the fourth quarter of 2018 compared to the same period
in 2017. On a year to date basis, rental services and local administration expense increased by 6% compared to the prior
period.
Depreciation expense decreased by 17% in the fourth quarter of 2018 compared to the same period in 2017.
Segment gross profit was $2.6 million for the fourth quarter of 2018, an improvement from the
$0.6 million profit recorded in the corresponding period in 2017. On a year to date basis, segment
gross profit was $7.8 million compared to $1.0 million in 2017.
Corporate Expenses
|
Three Months Ended December 31,
|
Year Ended December 31,
|
|
2018
|
2017
|
Change
|
2018
|
2017
|
Change
|
(000s)
|
($)
|
($)
|
(%)
|
($)
|
($)
|
(%)
|
Other expenses
|
|
|
|
|
|
|
Research and development
|
7,310
|
6,136
|
19
|
26,997
|
25,219
|
7
|
Corporate services
|
3,897
|
3,984
|
(2)
|
15,905
|
15,141
|
5
|
Stock-based compensation
|
3,335
|
2,893
|
15
|
12,313
|
11,762
|
5
|
Other
|
|
|
|
|
|
|
Foreign exchange loss
|
1,007
|
1,459
|
(31)
|
7,682
|
1,106
|
595
|
Other
|
(507)
|
(313)
|
62
|
(965)
|
455
|
—
|
Total corporate expenses
|
15,042
|
14,159
|
6
|
61,932
|
53,683
|
15
|
Research and development expenses increased in the fourth quarter of 2018 over the 2017 comparative period due to additions to
the R&D personnel and the Company's continued transition towards more Cloud-based IT infrastructure, focusing on maximizing
uptime service to customers and enhancing disaster recovery and business continuity capabilities.
In 2017, the Company's Argentina subsidiary initiated repayment of advances made to it by the
Canadian operating company. As a result, beginning in the third quarter of 2017, any foreign exchange gains and losses from these
advances are recorded in profit or loss for the period. Previously, these advances were considered to be part of the net
investment and gains or losses arising from these advances were recorded in the Consolidated Statements of Other Comprehensive
Income.
Q4 2018 vs Q3 2018
Consolidated revenue was $82.0 million in the fourth quarter of 2018 compared to $82.3 million in the third quarter of 2018, a decrease of $0.3 million. Drilling
activity in the US and international markets continued to increase, offset by a 17% drop in activity in the Canadian market.
Revenue in the US segment was $55.3 million in the fourth quarter of 2018 compared to
$54.2 million in the third quarter of 2018. The Canadian segment earned revenue of $17.9 million in the fourth quarter of 2018 compared to $20.0 million in the
third quarter of 2018, a decrease of $2.1 million or 11%. The International segment earned revenue
of $8.7 million in the fourth quarter of 2018 compared to $8.2
million in the third quarter of 2018, an increase of $0.5 million or 6%.
Adjusted EBITDA, which adjusts EBITDA for foreign exchange and certain non-recurring charges, was $39.3
million in the fourth quarter of 2018 compared to $42.5 million in the third quarter of
2018. Funds flow from operations was $30.7 million in the fourth quarter of 2018 compared to
$36.0 million in the third quarter of 2018, due to the drop in operating gross profit and current
income tax expense being a higher amount relative to total income tax expense.
The Company recorded net income in the fourth quarter of 2018 of $20.7 million ($0.24 per share) compared to net income of $24.4 million ($0.28 per share) in the third quarter of 2018. The Company recorded an unrealized foreign exchange loss in the
fourth quarter of 2018 compared to an unrealized foreign exchange gain in the third quarter of 2018.
Consolidated Balance Sheets
As at
|
December 31, 2018
|
December 31, 2017
|
(CDN 000s)
|
($)
|
($)
|
Assets
|
|
|
Current
|
|
|
Cash and cash equivalents
|
203,838
|
154,129
|
Trade and other receivables
|
80,020
|
55,069
|
Income tax recoverable other
|
15,304
|
17,881
|
Prepaid expenses
|
3,934
|
4,028
|
Income taxes recoverable
|
6,203
|
3,946
|
Total current assets
|
309,299
|
235,053
|
Non-current
|
|
|
Property, plant and equipment
|
120,417
|
127,685
|
Intangible assets and goodwill
|
32,000
|
34,318
|
Deferred tax assets
|
—
|
1,390
|
Total non-current assets
|
152,417
|
163,393
|
Total assets
|
461,716
|
398,446
|
|
|
|
Liabilities and equity
|
|
|
Current
|
|
|
Trade payables and accruals
|
34,541
|
20,391
|
Income taxes payable other
|
15,304
|
17,881
|
Stock-based compensation liability
|
3,301
|
3,089
|
Total current liabilities
|
53,146
|
41,361
|
Non-current
|
|
|
Stock-based compensation liability
|
3,200
|
2,758
|
Deferred tax liabilities
|
17,060
|
4,515
|
Onerous lease obligation
|
2,233
|
2,326
|
Total non-current liabilities
|
22,493
|
9,599
|
Equity
|
|
|
Share capital
|
164,723
|
150,887
|
Share-based benefits reserve
|
27,287
|
24,425
|
Foreign currency translation reserve
|
63,574
|
40,358
|
Retained earnings
|
130,493
|
131,816
|
Total equity
|
386,077
|
347,486
|
Total liabilities and equity
|
461,716
|
398,446
|
Consolidated Statements of Operations
|
Three Months Ended December 31,
|
Years Ended December 31,
|
|
2018
|
2017
|
2018
|
2017
|
(CDN 000s)
|
($)
|
($)
|
($)
|
($)
|
Revenue
|
81,965
|
66,226
|
306,393
|
245,643
|
Operating expenses
|
|
|
|
|
Rental services
|
27,502
|
25,085
|
104,398
|
95,912
|
Local administration
|
3,953
|
3,224
|
13,106
|
11,147
|
Depreciation and amortization
|
7,556
|
11,701
|
34,855
|
45,681
|
|
39,011
|
40,010
|
152,359
|
152,740
|
|
|
|
|
|
Gross profit
|
42,954
|
26,216
|
154,034
|
92,903
|
Other expenses
|
|
|
|
|
Research and development
|
7,310
|
6,136
|
26,997
|
25,219
|
Corporate services
|
3,897
|
3,984
|
15,905
|
15,141
|
Stock-based compensation expense
|
3,335
|
2,893
|
12,313
|
11,762
|
Other expense
|
500
|
1,146
|
6,717
|
1,561
|
|
15,042
|
14,159
|
61,932
|
53,683
|
|
|
|
|
|
Income before income taxes
|
27,912
|
12,057
|
92,102
|
39,220
|
Income tax provision
|
7,192
|
7,043
|
29,158
|
14,030
|
Net income
|
20,720
|
5,014
|
62,944
|
25,190
|
Income per share
|
|
|
|
|
Basic
|
0.24
|
0.06
|
0.74
|
0.30
|
Diluted
|
0.24
|
0.06
|
0.73
|
0.30
|
Consolidated Statements of Other Comprehensive Income
|
Three Months Ended December 31,
|
Years Ended December 31,
|
Years Ended December 31,
|
2018
|
2017
|
2018
|
2017
|
(CDN 000s)
|
($)
|
($)
|
($)
|
($)
|
Net income
|
20,720
|
5,014
|
62,944
|
25,190
|
Items that may be reclassified subsequently to
net income:
|
|
|
|
|
Tax (recovery) expense on net investment in
foreign operations related to an inter-
company financing
|
(1,976)
|
186
|
(3,110)
|
2,500
|
Foreign currency translation adjustment
|
17,485
|
1,266
|
26,326
|
(21,714)
|
Other comprehensive gain (loss)
|
15,509
|
1,452
|
23,216
|
(19,214)
|
Total comprehensive income
|
36,229
|
6,466
|
86,160
|
5,976
|
Consolidated Statements of Cash Flows
|
Three Months Ended December 31,
|
Years Ended December 31,
|
|
2018
|
2017
|
2018
|
2017
|
(CDN 000s)
|
($)
|
($)
|
($)
|
($)
|
Cash from (used in) operating activities
|
|
|
|
|
Net income
|
20,720
|
5,014
|
62,944
|
25,190
|
Adjustment for non-cash items:
|
|
|
|
|
Depreciation and amortization
|
7,556
|
11,701
|
34,855
|
45,681
|
Stock-based compensation
|
3,335
|
2,893
|
12,313
|
11,762
|
Deferred income taxes
|
(2,196)
|
5,447
|
9,796
|
4,762
|
Unrealized foreign exchange loss (gain) and
other
|
1,296
|
2,301
|
8,636
|
(274)
|
Funds flow from operations
|
30,711
|
27,356
|
128,544
|
87,121
|
Movements in non-cash working capital items:
|
|
|
|
|
Increase in trade and other receivables
|
(5,835)
|
(3,011)
|
(24,523)
|
(8,149)
|
Decrease (increase) in prepaid expenses
|
352
|
934
|
253
|
(226)
|
Decrease in income taxes
|
2,460
|
2,141
|
14,054
|
15,518
|
Increase (decrease) in trade payables,
accruals and stock-based compensation
liability
|
2,357
|
(9,462)
|
4,368
|
(3,719)
|
Effects of exchange rate changes
|
295
|
(1,323)
|
530
|
(361)
|
Cash generated from operating activities
|
30,340
|
16,635
|
123,226
|
90,184
|
Income tax paid
|
(6,933)
|
2
|
(16,049)
|
(4,387)
|
Net cash from operating activities
|
23,407
|
16,637
|
107,177
|
85,797
|
Cash flows from (used in) financing
activities
|
|
|
|
|
Proceeds from issuance of common shares
|
6,347
|
2,386
|
11,012
|
7,160
|
Payment of dividends
|
(15,436)
|
(14,459)
|
(59,785)
|
(57,697)
|
Repurchase and cancellation of shares under
Normal Course Issuer Bid
|
(921)
|
—
|
(921)
|
—
|
Net cash used in financing activities
|
(10,010)
|
(12,073)
|
(49,694)
|
(50,537)
|
Cash flows (used in) from investing activities
|
|
|
|
|
Additions to property, plant and equipment
|
(7,267)
|
(7,962)
|
(19,411)
|
(18,368)
|
Development costs
|
(1,183)
|
(1,198)
|
(4,465)
|
(2,396)
|
Proceeds on disposal of investment and
property, plant and equipment
|
1,355
|
24
|
1,543
|
85
|
Purchase of short-term investment
|
—
|
—
|
(65,840)
|
—
|
Maturity of short-term investment
|
65,650
|
—
|
65,650
|
—
|
Acquisition
|
—
|
(1,000)
|
—
|
(5,750)
|
Proceeds on sale of net operating assets
|
—
|
1,036
|
—
|
8,159
|
Changes in non-cash working capital
|
291
|
(811)
|
678
|
713
|
Net cash provided (used in) investing
activities
|
58,846
|
(9,911)
|
(21,845)
|
(17,557)
|
Effect of exchange rate on cash and cash
equivalents
|
11,833
|
39
|
14,071
|
(10,053)
|
Net increase (decrease) in cash and cash
equivalents
|
84,076
|
(5,308)
|
49,709
|
7,650
|
Cash and cash equivalents, beginning of
period
|
119,762
|
159,437
|
154,129
|
146,479
|
Cash and cash equivalents, end of period
|
203,838
|
154,129
|
203,838
|
154,129
|
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, 2018
|
Canada
|
United States
|
International
|
Total
|
(CDN 000s)
|
($)
|
($)
|
($)
|
($)
|
Revenue
|
|
|
|
|
Drilling Data
|
7,191
|
29,918
|
5,248
|
42,357
|
Mud Management and Safety
|
4,766
|
16,268
|
2,055
|
23,089
|
Communications
|
2,641
|
3,733
|
390
|
6,764
|
Drilling Intelligence
|
2,519
|
3,866
|
335
|
6,720
|
Analytics and Other
|
776
|
1,546
|
713
|
3,035
|
Total Revenue
|
17,893
|
55,331
|
8,741
|
81,965
|
Rental services and local administration
|
6,864
|
19,364
|
5,227
|
31,455
|
Depreciation and amortization
|
2,519
|
4,121
|
916
|
7,556
|
Segment gross profit
|
8,510
|
31,846
|
2,598
|
42,954
|
Research and development
|
|
|
|
7,310
|
Corporate services
|
|
|
|
3,897
|
Stock-based compensation
|
|
|
|
3,335
|
Other expense
|
|
|
|
500
|
Income tax expense
|
|
|
|
7,192
|
Net income
|
|
|
|
20,720
|
Capital expenditures
|
3,374
|
3,752
|
1,324
|
8,450
|
As at December 31, 2018
|
|
|
|
|
Property plant and equipment
|
37,511
|
68,122
|
14,784
|
120,417
|
Goodwill
|
1,259
|
7,784
|
2,600
|
11,643
|
Intangible assets
|
20,316
|
41
|
—
|
20,357
|
Segment assets
|
117,510
|
297,173
|
47,033
|
461,716
|
Segment liabilities
|
53,034
|
16,367
|
6,238
|
75,639
|
Three Months Ended December 31, 2017
|
Canada
|
United States
|
International
|
Total
|
(CDN 000s)
|
($)
|
($)
|
($)
|
($)
|
Revenue
|
|
|
|
|
Drilling Data
|
7,556
|
21,705
|
3,632
|
32,893
|
Mud Management and Safety
|
5,188
|
13,347
|
1,327
|
19,862
|
Communications
|
2,871
|
3,630
|
326
|
6,827
|
Drilling Intelligence
|
1,312
|
2,174
|
381
|
3,867
|
Analytics and Other
|
818
|
1,290
|
669
|
2,777
|
Total Revenue
|
17,745
|
42,146
|
6,335
|
66,226
|
Rental services and local administration
|
7,109
|
16,519
|
4,681
|
28,309
|
Depreciation and amortization
|
6,618
|
3,981
|
1,102
|
11,701
|
Segment gross profit
|
4,018
|
21,646
|
552
|
26,216
|
Research and development
|
|
|
|
6,136
|
Corporate services
|
|
|
|
3,984
|
Stock-based compensation
|
|
|
|
2,893
|
Other expense
|
|
|
|
1,146
|
Income tax expense
|
|
|
|
7,043
|
Net lncome
|
|
|
|
5,014
|
Capital expenditures
|
5,726
|
2,888
|
546
|
9,160
|
As at December 31, 2017
|
|
|
|
|
Property plant and equipment
|
44,650
|
66,360
|
16,675
|
127,685
|
Goodwill
|
1,259
|
7,159
|
2,600
|
11,018
|
Intangible assets
|
23,129
|
171
|
—
|
23,300
|
Segment assets
|
94,331
|
261,635
|
42,480
|
398,446
|
Segment liabilities
|
37,739
|
7,854
|
5,367
|
50,960
|
Year Ended December 31, 2018
|
Canada
|
United States
|
International
|
Total
|
(CDN 000s)
|
($)
|
($)
|
($)
|
($)
|
Revenue
|
|
|
|
|
Drilling Data
|
29,095
|
110,229
|
17,838
|
157,162
|
Mud Management and Safety
|
19,722
|
59,421
|
6,809
|
85,952
|
Communications
|
10,944
|
15,730
|
1,503
|
28,177
|
Drilling Intelligence
|
8,623
|
12,693
|
1,470
|
22,786
|
Analytics and Other
|
3,613
|
5,813
|
2,890
|
12,316
|
Total Revenue
|
71,997
|
203,886
|
30,510
|
306,393
|
Rental services and local administration
|
26,374
|
72,021
|
19,109
|
117,504
|
Depreciation and amortization
|
15,027
|
16,249
|
3,579
|
34,855
|
Segment gross profit
|
30,596
|
115,616
|
7,822
|
154,034
|
Research and development
|
|
|
|
26,997
|
Corporate services
|
|
|
|
15,905
|
Stock-based compensation
|
|
|
|
12,313
|
Other expense
|
|
|
|
6,717
|
Income tax expense
|
|
|
|
29,158
|
Net Income
|
|
|
|
62,944
|
Capital expenditures
|
7,710
|
12,849
|
3,317
|
23,876
|
As at December 31, 2018
|
|
|
|
|
Property plant and equipment
|
37,511
|
68,122
|
14,784
|
120,417
|
Goodwill
|
1,259
|
7,784
|
2,600
|
11,643
|
Intangible assets
|
20,316
|
41
|
—
|
20,357
|
Segment assets
|
117,510
|
297,173
|
47,033
|
461,716
|
Segment liabilities
|
53,034
|
16,367
|
6,238
|
75,639
|
|
|
|
Year Ended December 31, 2017
|
|
|
(CDN 000s)
|
($)
|
($)
|
($)
|
($)
|
Revenue
|
|
|
Drilling Data
|
29,921
|
78,335
|
13,611
|
121,867
|
Mud Management and Safety
|
20,663
|
47,699
|
4,725
|
73,087
|
Communications
|
11,093
|
13,073
|
1,101
|
25,267
|
Drilling Intelligence
|
5,504
|
7,897
|
1,779
|
15,180
|
Analytics and Other
|
3,350
|
4,981
|
1,911
|
10,242
|
Total Revenue
|
70,531
|
151,985
|
23,127
|
245,643
|
Rental services and local administration
|
24,935
|
64,161
|
17,963
|
107,059
|
Depreciation and amortization
|
24,250
|
17,303
|
4,128
|
45,681
|
Segment gross profit
|
21,346
|
70,521
|
1,036
|
92,903
|
Research and development
|
|
|
|
25,219
|
Corporate services
|
|
|
|
15,141
|
Stock-based compensation
|
|
|
|
11,762
|
Other expense
|
|
|
|
1,561
|
Income tax expense
|
|
|
|
14,030
|
Net income
|
|
|
|
25,190
|
Capital expenditures
|
5,481
|
14,316
|
967
|
20,764
|
As at December 31, 2017
|
|
|
|
|
Property plant and equipment
|
44,650
|
66,360
|
16,675
|
127,685
|
Goodwill
|
1,259
|
7,159
|
2,600
|
11,018
|
Intangible assets
|
23,129
|
171
|
—
|
23,300
|
Segment assets
|
94,331
|
261,635
|
42,480
|
398,446
|
Segment liabilities
|
37,739
|
7,854
|
5,367
|
50,960
|
Other Expense
|
Three Months Ended December 31,
|
Year Ended December 31,
|
|
2018
|
2017
|
2018
|
2017
|
(CDN 000s)
|
($)
|
($)
|
($)
|
($)
|
Foreign exchange loss
|
1,007
|
1,459
|
7,682
|
1,106
|
Other
|
(507)
|
(313)
|
(965)
|
455
|
Other expense
|
500
|
1,146
|
6,717
|
1,561
|
In 2017, the Company's Argentina subsidiary initiated repayment of advances made to it by the
Canadian operating company. As a result, any foreign exchange gains and losses from these advances are recorded in profit or loss
for the period. Previously, these advances were considered to be part of the net investment and gains or losses arising from
these advances were recoded in the Consolidated Statements of Other Comprehensive Income.
Events After the Reporting Period
On February 26, 2019, the Company announced a quarterly dividend of $0.18 per share on the
Company's common shares. The dividend will be paid on March 29, 2019 to shareholders of record at
the close of business on March 15, 2019.
Fourth Quarter & Year End Conference Call
Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its
fourth quarter and year-end results at 9:00 am (Calgary time) on
Wednesday, February 27, 2019. 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 1343209.
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, 2018, 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 on Thursday, May 2, 2019,
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/February2019/26/c7708.html