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 November 4, 2015 - 5:00 PM EST
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Pason Reports Third Quarter 2015 Results

Pason Reports Third Quarter 2015 Results

Canada NewsWire

CALGARY, Nov. 4, 2015 /CNW/ - Pason Systems Inc. (TSX:PSI) announced today its 2015 third quarter results.

Performance Data


Three Months Ended September 30,


Nine Months Ended September 30,


2015


2014


Change


2015


2014


Change

(CDN 000s, except per share data)

($)


($)


(%)


($)


($)


(%)

Revenue

68,468


134,041


(49)


225,310


361,066


(38)

(Loss) income

(18,558)


26,466


-


(13,771)


64,893


-


Per share – basic

(0.22)


0.32


-


(0.16)


0.79


-


Per share – diluted

(0.22)


0.31


-


(0.16)


0.77


-

EBITDA (1)

(2,717)


76,090


-


48,894


192,558


(75)


As a % of revenue

(4.0)


56.8


-


21.7


53.3


(59)

Funds flow from operations

23,791


63,691


(63)


76,330


164,257


(54)


Per share – basic

0.28


0.77


(64)


0.91


1.99


(54)


Per share – diluted

0.28


0.75


(63)


0.91


1.96


(54)

Cash from operating activities

16,332


50,758


(68)


119,165


171,123


(30)

Free cash flow (1)

5,902


11,110


(47)


75,419


96,835


(22)


Per share – basic

0.07


0.13


(46)


0.90


1.17


(23)


Per share – diluted

0.07


0.13


(46)


0.90


1.15


(22)

Capital expenditures

10,769


39,648


(73)


44,284


74,288


(40)

Working capital

244,324


173,949


40


244,324


173,949


40

Total assets

541,276


571,422


(5)


541,276


571,422


(5)

Total long-term debt






Cash dividends declared

0.17


0.17



0.51


0.47


9

Shares outstanding end of period (#000's)

83,772


82,891


1


83,772


82,891


1

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

Q3 2015 vs Q3 2014
The Company generated consolidated revenue of $68.5 million in the third quarter of 2015, down 49% from $134.0 million in the same period of 2014. The continued slowdown in oil and gas drilling activity, combined with a reduction in product adoption on certain products and pricing pressure from customers, contributed to the decrease in revenue, which was partially offset by the strengthening of the US dollar relative to the Canadian dollar.

Consolidated EBITDA was a loss of $2.7 million in the third quarter, a decrease of $78.8 million from the third quarter of 2014. Included in the 2015 third quarter results are impairment charges related to excess quantities of equipment totaling $26.6 million.

The Company recorded a net loss of $18.6 million ($0.22 per share) in the third quarter, a decrease of $45.0 million from the net income of $26.5 million ($0.31 per share) recorded in same period in 2014.

President's Message
Pason's third-quarter revenue increased 19% sequentially, but decreased 49% compared to the same period last year driven by continuing declines in drilling activity and persistent pricing pressure. Drilling industry days were down 55% in the United States and 51% in Canada year over year. The challenges felt in North America have spread around the world and customers have started pushing for lower service prices internationally.

Third-quarter revenue in the United States was down 49% year over year. We were able to hold market share at 61%, but revenue per EDR day was down 4% (when measured in USD) driven by select price concessions and steep declines in AutoDriller adoption as many non-AC rigs were stacked. In Canada, third-quarter revenue was down 51% in line with industry activity. Revenue per EDR day was down 8% and market share was up to 96%. International revenue dropped by 41% driven by rapid declines in industry activity in Australia, several Latin American countries, and offshore.

With low rental asset usage, and no expectation of a near-term rebound on the horizon, we have taken impairment charges totalling $26.6 million related to excess quantities of equipment. This has resulted in an EBITDA loss for the quarter of $2.7 million and a net loss of $18.6 million or $0.22 per share.

Funds flow from operations was $23.8 million in the third quarter while free cash flow was $5.9 million. On September 30, 2015, our cash position stood at $198.1 million and working capital at $244.3 million. There is no debt on the balance sheet. We are maintaining our quarterly dividend at $0.17 per share.

The short-term outlook remains very challenging and industry activity in all geographies may be reduced further in the fourth quarter and going into 2016. US horizontal rig counts are expected to see more drops and there may not be much of a seasonal winter drilling rebound in Canada. Pricing pressure continues with no signs of abatement as operators continue to seek further reductions in well costs.

At some point, a supply response from curtailed drilling is expected to correct the supply-demand imbalance leading to a gradual improvement in oil prices, but there could be a delay before drilling activity recovers and E&P capital spending will almost certainly be lower in 2016. In addition, natural gas prices may continue to weaken as El Nino promises a warmer than usual winter for large parts of North America. We believe that any meaningful recovery in activity levels for our business will not happen before 2017. However, the longer the recovery takes the sharper it will be, and we believe that North American land drilling will be the quickest to respond.

The implication for Pason is that we need to strike the optimal balance between cost control and investments in future growth. We expect material savings from the operating and capital cost savings initiatives implemented throughout 2015. Our total headcount is more than 20% below where we started the year, and discretionary spending (especially for equipment repairs) is down significantly. Capital expenditures for 2015 are expected to be reduced by approximately 50% in 2015 compared to 2014.

We will continue to invest in future growth, including investments in new product development, in service capabilities, in infrastructure and systems, and in our international footprint. We expect to allocate significant resources for R&D and IT in 2016. We plan to spend approximately $45 million in capital expenditures in 2016. We are focusing our development efforts on products and services that create significant and visible value, either by cost savings or by increasing revenues, for our customers.

We believe that Pason continues to be well-positioned to maximize returns in the industry's eventual upturn.

(signed)
Marcel Kessler
President and Chief Executive Officer
November 4, 2015

Management's Discussion and Analysis
The following discussion and analysis has been prepared by management as of November 4, 2015, and is a review of the financial condition and results of operations of Pason Systems Inc. (Pason or the Company) based on International Financial Reporting Standards (IFRS) and should be read in conjunction with the consolidated financial statements and accompanying notes.

Certain information regarding the Company contained herein may constitute forward-looking statements under applicable securities laws. Such statements are subject to known or unknown risks and uncertainties that may cause actual results to differ materially from those anticipated or implied in the forward-looking statements.

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

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

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

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

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

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

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

Overall Performance


Three Months Ended September 30,


Nine Months Ended September 30,


2015


2014


Change


2015


2014


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder

27,299


57,265


(52)


93,626


157,519


(41)


Pit Volume Totalizer/ePVT

10,340


18,865


(45)


32,086


52,641


(39)


Communications

7,252


11,366


(36)


22,364


29,578


(24)


Software

4,672


8,509


(45)


15,253


24,014


(36)


AutoDriller

4,943


11,673


(58)


16,457


32,288


(49)


Gas Analyzer

4,985


9,919


(50)


16,511


27,483


(40)


Other

8,977


16,444


(45)


29,013


37,543


(23)

Total revenue

68,468


134,041


(49)


225,310


361,066


(38)

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

Canada


Three Months Ended September 30,


Nine Months Ended September 30,


2015


2014


Change


2015


2014


Change


#


#


(%)


#


#


(%)

EDR rental days

17,000


32,000


(47)


51,600


91,100


(43)

PVT rental days

15,900


31,900


(50)


48,600


89,000


(45)















United States


Three Months Ended September 30,


Nine Months Ended September 30,


2015


2014


Change


2015


2014


Change


#


#


(%)


#


#


(%)

EDR rental days

46,000


103,400


(56)


159,200


290,200


(45)

PVT rental days

33,800


79,600


(58)


121,100


222,900


(46)

Electronic Drilling Recorder (EDR)
The Pason EDR remains the Company's primary product. The EDR provides a complete system of drilling data acquisition, data networking, and drilling management tools and reports at both the wellsite and customer offices. The EDR is the base product from which all other wellsite instrumentation products are linked. By linking these products, a number of otherwise redundant elements such as data processing, display, storage, and networking are eliminated. This ensures greater reliability and a more robust system of instrumentation for the customer. Revenue generated from the EDR decreased 52% for the third quarter of 2015 compared to the same period in 2014. This decrease is attributable to the industry slowdown, lower product adoption of certain peripheral devices, and pricing pressures from customers which were offset by a strengthening US dollar relative to the Canadian dollar. Industry activity in the US market decreased 55% in the third quarter of 2015 compared to the corresponding period in 2014 (44% on a year-to-date basis), while third quarter Canadian rig activity decreased 51% compared to the same period in 2014 (49% on a year-to-date basis). Canadian EDR days decreased 47% in the third quarter of 2015  from 2014 levels (43% on a year-to-date basis), while US EDR days decreased by 56% for the third quarter of 2015 (45% on a year-to-date basis).

During the first nine months of the year, the Pason EDR was installed on 97% of all active land rigs in Canada and 58% of the land rigs in the US, compared to 93% and 60% respectively in the first nine months of 2014.

Pit Volume Totalizer (PVT) and Enhanced Pit Volume Totalizer (ePVT)
The PVT is Pason's proprietary solution for the detection and early warning of "kicks" that are caused by hydrocarbons entering the wellbore under high pressure and expanding as they migrate to the surface. PVT revenue for the first nine months of 2015 was impacted by the decline in rig count activity, offset partially with continued customer adoption of the new ePVT. During the first nine months of 2015, the PVT was installed on 95% of rigs with a Pason EDR in Canada and 75% in the US, compared to 98% and 77% respectively, in the same period of 2014.

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

Communications revenue decreased by 24% in the first nine months of 2015 compared to the same period in 2014 due to the industry slowdown, offset by an increase in customer adoption of new communication solutions rolled out in the Canadian and USA markets (RigSite wireless and VSP Intercom), and the strengthening of the US dollar relative to the Canadian dollar.

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

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

During the first three quarters of 2015, 98% of the Company's Canadian customers and 86% of customers in the US were using all or a portion of the functionality of the DataHub, compared to 98% and 91% respectively in the same period in 2014.

AutoDriller
Pason's AutoDriller is used to maintain constant weight on the drill bit while a well is being drilled. During the nine months ended September 30, 2015, the AutoDriller was installed on 62% of Canadian and 33% of US land rigs operating with a Pason EDR system, compared to 74% and 46%, respectively, in 2014.

Gas Analyzer
The Pason Gas Analyzer measures the total hydrocarbon gases (C1 through C4 and CO2) exiting the wellbore, and then calculates the lag time to show the formation depth where the gases were produced. The Gas Analyzer provides information about the composition of the gas, and further calculates geologic ratios from the gas composition to assist in indicating the type of gas, natural gas liquid, or oil in the formation. During the first nine months of 2015, the Gas Analyzer was installed on 58% of Canadian and 26% of US land rigs operating with a Pason EDR system, compared to 62% and 24% for the Canadian and US segments respectively in the prior year period.

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

Discussion of Operations

United States Operations


Three Months Ended September 30,


Nine Months Ended September 30,


2015


2014


Change


2015


2014


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder

16,918


36,161


(53)


60,362


100,222


(40)


Pit Volume Totalizer/ePVT

6,315


10,970


(42)


19,356


30,625


(37)


Communications

3,682


5,814


(37)


11,514


14,790


(22)


Software

3,062


5,584


(45)


10,321


15,856


(35)


AutoDriller

2,383


6,476


(63)


8,208


18,100


(55)


Gas Analyzer

2,383


4,225


(44)


8,342


11,973


(30)


Other

5,408


10,169


(47)


18,041


23,727


(24)

Total revenue

40,151


79,399


(49)


136,144


215,293


(37)

Operating costs

17,250


25,865


(33)


61,600


72,467


(15)

Depreciation and amortization

7,862


7,746


1


25,874


23,439


10

Segment operating profit

15,039


45,788


(67)


48,670


119,387


(59)


Three Months Ended September 30,


2015


2014


USD


CAD


USD


CAD


$


$


$


$

Revenue per EDR day

628


822


656


715

Revenue per industry day

382


500


405


441







Nine Months Ended September 30,


2015


2014


USD


CAD


USD


CAD


$


$


$


$

Revenue per EDR day

642


809


643


704

Revenue per industry day

375


472


388


425

US segment revenue decreased by 49% in the third quarter of 2015 over the 2014 comparable period (57% decrease when measured in USD). For the first nine months, revenue decreased by 37% (45% decrease when measured in USD).

Industry activity in the US market during the third quarter of 2015 decreased 55% from the prior year, while revenue from the rental of instrumentation decreased by 48% for the quarter over 2014 levels (57% decrease when measured in USD). For the first nine months, industry activity decreased 44% from 2014 levels, while instrumentation revenue decreased 36% (45% decrease when measured in USD).

EDR rental days decreased by 56% for the quarter ended September 30, 2015 over the same time period in 2014, while revenue per EDR day in the third quarter of 2015 decreased to US$628, a decrease of US$28 over the same period in 2014. For the first nine months, EDR rental days decreased 45%, while revenue per EDR day was relatively flat when measured in USD.

The decrease in industry activity, combined with pricing pressure from customers and lower product adoption on certain products, accounted for the drop in revenue for both the quarter and nine months ended September 30, 2015. This decrease was offset by the favourable movement in the USD/CAD exchange rate and continued customer usage of premium communication services. US market share was 61% during the three months ended September 30, 2015, down slightly from 62% in the same period of 2014.  

Operating costs decreased by 33% in the third quarter relative to the same period in the prior year. When measured in USD, operating costs decreased 38% (20% on a year-to-date basis) as the business unit continues to identify and implement changes to its fixed cost structure to meet the challenging business environment while maintaining customer service.

Depreciation expense for the first nine months of 2015 increased 10% over 2014 amounts. This increase is due to the exchange rate movement noted above combined with the 2014 roll out of capital equipment associated with the commercialization of the ePVT, including the continued roll out of the Rig Display, the upgrade program to the Company's fleet of workstations, and the introduction of the new Versatile Services Platform (VSP) server.

Segment profit, as a percentage of revenue, was 37% for the third quarter of 2015 compared to 58% for the corresponding period in 2014. Segment profit decreased to $48.7 million for the first nine months of 2015, a drop of 59% from the same period in 2014.

Canadian Operations


Three Months Ended September 30,


Nine Months Ended September 30,


2015


2014


Change


2015


2014


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder

6,614


15,167


(56)


20,759


41,557


(50)


Pit Volume Totalizer/ePVT

2,945


5,817


(49)


8,969


16,218


(45)


Communications

3,101


5,026


(38)


9,281


13,421


(31)


Software

1,490


2,646


(44)


4,516


7,525


(40)


AutoDriller

1,482


3,632


(59)


4,669


10,159


(54)


Gas Analyzer

2,084


4,414


(53)


6,073


11,902


(49)


Other

1,107


1,889


(41)


3,156


5,508


(43)

Total revenue

18,823


38,591


(51)


57,423


106,290


(46)

Operating costs

6,256


10,446


(40)


21,959


30,836


(29)

Depreciation and amortization

9,447


6,765


40


28,408


19,160


48

Segment operating profit

3,120


21,380


(85)


7,056


56,294


(87)


Three Months Ended September 30,


2015


2014


CAD


CAD


$


$

Revenue per EDR day

1,095


1,191

Revenue per industry day

1,055


1,119








Nine Months Ended September 30,


2015


2014


CAD


CAD


$


$

Revenue per EDR day

1,100


1,155

Revenue per industry day

1,069


1,079

Canadian segment revenue decreased by 51% for the quarter ended September 30, 2015 compared to the same period in 2014. This drop is the result of a 51% decrease in the number of drilling industry days in the third quarter compared to 2014 levels, pricing pressures from customers, and lower product adoption on some products. These factors were off-set by an increase in market share, to 96% in the third quarter of 2015 compared to 94% in 2014.

On a year-to-date basis, revenue decreased 46% while industry days declined 49%.

EDR rental days decreased 47% in the third quarter compared to 2014 (43% for the first nine months of 2015).

The factors above combined to result in a decrease in revenue per EDR day of $96 to $1,095 during the third quarter of 2015 compared to 2014. Revenue per EDR day for the first nine months of 2015 was $1,100, down $55 from the same period in 2014.

Operating costs decreased by 40% in the third quarter of 2015 relative to the same period in 2014 (29% on a year-to-date basis), primarily due to a drop in activity combined with cost control initiatives implemented by all of the business units.  

Depreciation expense increased for both the three month and nine month periods ended September 30, 2015 due to the Company's 2014 capital expenditure program explained above in the United States operations update, combined with the amortization of previously capitalized research and development costs.

Third quarter operating profit of $3.1 million is a decrease of $18.3 million over the prior year. Segment operating profit for the first nine months of 2015 is down 87% from last year's comparatives.

International Operations


Three Months Ended September 30,


Nine Months Ended September 30,


2015


2014


Change


2015


2014


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder

3,767


5,937


(37)


12,505


15,740


(21)


Pit Volume Totalizer/ePVT

1,080


2,078


(48)


3,761


5,798


(35)


Communications

469


526


(11)


1,569


1,367


15


Software

120


279


(57)


416


633


(34)


AutoDriller

1,078


1,565


(31)


3,580


4,029


(11)


Gas Analyzer

518


1,280


(60)


2,096


3,608


(42)


Other

2,462


4,386


(44)


7,816


8,308


(6)

Total revenue

9,494


16,051


(41)


31,743


39,483


(20)

Operating costs

7,156


7,020


2


22,723


20,365


12

Depreciation and amortization

1,950


1,900


3


7,297


5,458


34

Segment operating profit

388


7,131


(95)


1,723


13,660


(87)

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

Revenue in the International operations segment decreased 41% in the third quarter of 2015 compared to the same period in 2014. For the first nine months of 2015, revenue decreased $7.7 million, or 20%.

Operating profit decreased by $6.7 million for the third quarter of 2015 over 2014 amounts. Year-to-date profit declined 87%, or $11.9 million

A number of factors influenced these results:

  • During the third quarter of 2014 , the company received a $1.5 million payment relating to a contractual foreign exchange and inflationary related adjustment clause with one of its major customers.  
  • Operating costs increased for the third quarter of 2015 over 2014 levels due to an increase in importation costs in Argentina relating to the deployment of new technology previously rolled out to the Company's North American markets ($0.6 million of the increase) combined with increased staffing costs in Argentina to support the drilling activity ($0.3 million of the increase). All other International business units saw a decline in their controllable costs. 
  • Depreciation costs increased due to 2014 capital expenditures and a write-off of obsolete spare parts. 

Corporate Expenses


Three Months Ended September 30,


Nine Months Ended September 30,


2015


2014


Change


2015


2014


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Other expenses












Research and development

7,288


8,599


(15)


25,431


24,774


3

Corporate services

5,134


6,038


(15)


15,040


16,229


(7)

Stock-based compensation

808


15,267


(95)


4,596


40,071


(89)

Other








Restructuring costs




2,572




Foreign exchange loss (gain)

904


(682)



(1,555)


2,227



Impairment loss

26,555




26,555




Gain on sale of investment




(2,290)




Other

642


665


(3)


2,091


1,610


30

Total corporate expenses

41,331


29,887


38


72,440


84,911


(15)

In 2014, the company reviewed the level of rental equipment deployed in each respective business unit versus the anticipated decline in usage rates of such equipment due to the reduction in drilling activity as a result of the drop in oil and gas prices. In the third quarter of 2015, management concluded that drilling activity is likely to be at depressed levels for a longer period of time than originally anticipated and this resulted in the company updating its assumptions on equipment usage. This current review  identified additional excess equipment based upon management's best estimate of drilling activity in 2016. The net book value of this excess equipment, totaling $26.6 million, of which $7.7 million relates to the Canadian operating segment and $18.9 relates to the US operating segment, was recorded as a non-cash impairment loss in the third quarter of 2015.

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

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

Q3 2015 vs Q2 2015
Consolidated revenue was $68.5 million in the third quarter of 2015 compared to $57.4 million in the second  quarter of 2015, an increase of  $11.1 million or 19%. The third quarter of the year is usually stronger compared to the second quarter due to the seasonality of Canadian drilling activity. This increase in Canadian activity was offset by a further decline in US activity.  The Canadian segment earned revenue of $18.8 million in the third quarter as compared to $9.2 million in the second quarter of 2015.  Revenue in the US market increased 4%; as a further decline in activity in the third quarter of 2015 was offset by a further weakening of the Canadian dollar compared to the US dollar. The International segment experienced a revenue decrease of $0.2 million.

The Company recorded a net loss in the third quarter of 2015 of $18.9 million ($0.22 per share) compared to a loss of $9.4 million ($0.11 per share) in the second quarter of 2015. The increase in operating profit of $14.9 million over the second quarter of 2015 was more than offset by the third quarter impairment charge of $26.6 million.

Sequentially, EBITDA decreased from $7.5 million in the second quarter of 2015 to a negative $2.7 million in the third quarter of 2015, impacted by the impairment charge. Funds flow from operations increased to $23.8 million in the third quarter from $9.3 million in the second quarter of 2015.

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

Third Quarter Conference Call
Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its third quarter 2015 results at 9:00 am (Calgary time) on Thursday, November 5, 2015. The conference call dial-in number is 1-888-231-8191 or 1-647-427-7450. You can access the seven-day replay by dialing 1-855-859-2056 or 1-416-849-0833, using password 27238683.

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

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

Condensed Consolidated Interim Balance Sheets

As at


September 30, 2015


December 31, 2014

(CDN 000s) (unaudited)


($)


($)

Assets





Current






Cash and cash equivalents


198,115


144,858


Trade and other receivables


55,636


122,494


Prepaid expenses


5,787


5,811


Income taxes recoverable


11,917


491


Total current assets


271,455


273,654

Non-current





Property, plant and equipment


210,077


234,344


Intangible assets and goodwill


59,744


62,068


Total non-current assets


269,821


296,412

Total assets


541,276


570,066

Liabilities and equity




Current





Trade payables and accruals


21,671


47,414


Income taxes payable



3,544


Stock-based compensation liability


5,460


16,125


Total current liabilities


27,131


67,083

Non-current





Stock-based compensation liability


3,800


3,018


Deferred tax liabilities


14,061


16,442


Total non-current liabilities


17,861


19,460

Equity





Share capital


122,057


113,827


Share-based benefits reserve


24,630


12,927


Foreign currency translation reserve


82,056


32,807


Retained earnings


267,541


323,962


Total equity


496,284


483,523

Total liabilities and equity


541,276


570,066

Condensed Consolidated Interim Statements of Operations



Three Months Ended

 September 30,


Nine Months Ended

 September 30,



2015


2014


2015


2014

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


($)


($)


($)


($)










Revenue


68,468


134,041


225,310


361,066

Operating expenses







Rental services


26,892


38,788


93,335


109,541


Local administration


3,770


4,543


12,947


14,127


Depreciation and amortization


19,259


16,411


61,579


48,057



49,921


59,742


167,861


171,725







Operating profit


18,547


74,299


57,449


189,341

Other expenses







Research and development


7,288


8,599


25,431


24,774


Corporate services


5,134


6,038


15,040


16,229


Stock-based compensation expense


808


15,267


4,596


40,071


Impairment and other expense (income)


28,101


(17)


27,373


3,837



41,331


29,887


72,440


84,911







(Loss) income before income taxes


(22,784)


44,412


(14,991)


104,430


Income tax (recovery) expense


(4,226)


17,946


(1,220)


39,537

Net (loss) income


(18,558)


26,466


(13,771)


64,893

(Loss) income per share







Basic


(0.22)


0.32


(0.16)


0.79


Diluted


(0.22)


0.31


(0.16)


0.77

Condensed Consolidated Interim Statements of Other Comprehensive Income



Three Months Ended

 September 30,


Nine Months Ended

 September 30,



2015


2014


2015


2014

(CDN 000s) (unaudited)


($)


($)


($)


($)

Net (loss) income


(18,558)


26,466


(13,771)


64,893

Items that may be reclassified subsequently to net income:






Foreign currency translation adjustment


25,119


14,220


49,249


15,994

Total comprehensive income


6,561


40,686


35,478


80,887

Condensed Consolidated Interim Statements of Changes in Equity



Share Capital


Share-Based

 Benefits

 Reserve


Foreign

 Currency

 Translation

 Reserve


Retained

 Earnings


Total Equity

(CDN 000s) (unaudited)


($)


($)


($)


($)


($)

Balance at January 1, 2014


80,725


12,927


7,958


264,859


366,469


Net income





64,893


64,893


Dividends





(38,845)


(38,845)


Other comprehensive income




15,994



15,994


Exercise of stock options


21,984





21,984

Balance at September 30, 2014


102,709


12,927


23,952


290,907


430,495


Net income





47,211


47,211


Dividends





(14,156)


(14,156)


Other comprehensive income




8,855



8,855


Exercise of stock options


11,118





11,118

Balance at December 31, 2014


113,827


12,927


32,807


323,962


483,523


Net loss





(13,771)


(13,771)


Dividends





(42,650)


(42,650)


Other comprehensive income




49,249



49,249


Exercise of stock options


8,230


(546)




7,684


Expense related to vesting of options



576




576


Reclassification of equity settled options



11,673




11,673

Balance at September 30, 2015


122,057


24,630


82,056


267,541


496,284

Condensed Consolidated Interim Statements of Cash Flows



Three Months Ended

 September 30,


Nine Months Ended

 September 30,


2015


2014


2015


2014

(CDN 000s) (unaudited)


($)


($)


($)


($)

Cash from (used in) operating activities










Net (loss) income


(18,558)


26,466


(13,771)


64,893

Adjustment for non-cash items:







Depreciation and amortization


19,259


16,411


61,579


48,057


Impairment loss


26,555



26,555



Gain on sale of investment




(2,290)



Stock-based compensation


808


15,267


4,596


40,071


Deferred income taxes


(3,488)


5,145


(3,057)


7,754


Unrealized foreign exchange (gain) loss


(785)


402


2,718


3,482

Funds flow from operations


23,791


63,691


76,330


164,257

Movements in non-cash working capital items:







(Increase)/decrease in trade and other receivables


(2,665)


(31,241)


75,519


(28,352)


(Increase)/decrease in prepaid expenses


(2,432)


(1,553)


284


(1,304)


Increase in income taxes


188


10,665


808


23,779


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


(452)


11,073


(21,859)


18,106


Effects of exchange rate changes


6,222


1,834


3,864


834

Cash generated from operating activities


24,652


54,469


134,946


177,320


Income tax paid


(8,320)


(3,711)


(15,781)


(6,197)

Net cash from operating activities


16,332


50,758


119,165


171,123

Cash flows from (used in) financing activities







Proceeds from issuance of common shares


1,568


2,925


5,609


9,960


Purchase of stock options





(2,589)


Payment of dividends


(14,238)


(12,400)


(42,650)


(36,257)

Net cash used in financing activities


(12,670)


(9,475)


(37,041)


(28,886)

Cash flows (used in) from investing activities







Additions to property, plant and equipment and investment in joint venture


(8,672)


(37,352)


(37,702)


(69,014)


Development costs


(2,097)


(2,358)


(6,582)


(5,520)


Proceeds on disposal of investment and property, plant and equipment


339


62


3,627


246


Changes in non-cash working capital


1,489


4,972


(5,764)


6,332

Net cash used in investing activities


(8,941)


(34,676)


(46,421)


(67,956)

Effect of exchange rate on cash and cash equivalents


8,140


1,501


17,554


1,286

Net increase in cash and cash equivalents


2,861


8,108


53,257


75,567

Cash and cash equivalents, beginning of period


195,254


156,979


144,858


89,520

Cash and cash equivalents, end of period


198,115


165,087


198,115


165,087

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

Three Months Ended September 30, 2015

Canada


United States


International


Total


($)


($)


($)


($)

Revenue

18,823


40,151


9,494


68,468

Operating costs

6,256


17,250


7,156


30,662

Depreciation and amortization

9,447


7,862


1,950


19,259

Segment operating profit

3,120


15,039


388


18,547

Research and development




7,288

Corporate services




5,134

Stock-based compensation




808

Impairment and other expenses




28,101

Income taxes




(4,226)

Net Loss




(18,558)

Capital expenditures

8,562


813


1,394


10,769

Goodwill


24,790


2,600


27,390

Intangible assets

30,175


698


1,481


32,354

Segment assets

203,411


291,788


46,077


541,276

Segment liabilities

25,624


13,435


5,933


44,992






Three Months Ended September 30, 2014










Revenue

38,591


79,399


16,051


134,041

Operating costs

10,446


25,865


7,020


43,331

Depreciation and amortization

6,765


7,746


1,900


16,411

Segment operating profit

21,380


45,788


7,131


74,299

Research and development




8,599

Corporate services




6,038

Stock-based compensation




15,267

Other income




(17)

Income taxes




17,946

Net Income




26,466

Capital expenditures

25,279


13,146


1,223


39,648

Goodwill


20,744


2,600


23,344

Intangible assets

32,579


6,091


2,218


40,888

Segment assets

191,771


309,172


70,479


571,422

Segment liabilities

84,541


44,777


11,609


140,927

























Nine Months Ended September 30, 2015

Canada


United States


International


Total


($)


($)


($)


($)

Revenue

57,423


136,144


31,743


225,310

Operating costs

21,959


61,600


22,723


106,282

Depreciation and amortization

28,408


25,874


7,297


61,579

Segment operating profit

7,056


48,670


1,723


57,449

Research and development




25,431

Corporate services




15,040

Stock-based compensation




4,596

Impairment and other expenses




27,373

Income taxes




(1,220)

Net Loss




(13,771)

Capital expenditures

19,467


15,982


8,835


44,284

Goodwill


24,790


2,600


27,390

Intangible assets

30,175


698


1,481


32,354

Segment assets

203,411


291,788


46,077


541,276

Segment liabilities

25,624


13,435


5,933


44,992






Nine Months Ended September 30, 2014










Revenue

106,290


215,293


39,483


361,066

Operating costs

30,836


72,467


20,365


123,668

Depreciation and amortization

19,160


23,439


5,458


48,057

Segment operating profit

56,294


119,387


13,660


189,341

Research and development




24,774

Corporate services




16,229

Stock-based compensation




40,071

Other expenses




3,837

Income taxes




39,537

Net lncome




64,893

Capital expenditures

35,168


33,848


5,272


74,288

Goodwill


20,744


2,600


23,344

Intangible assets

32,579


6,091


2,218


40,888

Segment assets

191,771


309,172


70,479


571,422

Segment liabilities

84,541


44,777


11,609


140,927

Impairment and Other Expenses (Income)


Three Months Ended September 30,


Nine Months Ended September 30,


2015


2014


2015


2014


($)


($)


($)


($)

Foreign exchange loss (gain)

904


(682)


(1,555)


2,227

Impairment loss

26,555



26,555


Gain on sale of investment



(2,290)


Restructuring costs



2,572


Other

642


665


2,091


1,610

Other expenses (income)

28,101


(17)


27,373


3,837

In 2014, the Company reviewed the level of rental equipment deployed in each respective business unit versus the anticipated decline in usage rates of such equipment due to the reduction in drilling activity as a result of the drop in oil and gas prices. In the third quarter of 2015 management concluded that drilling activity is  likely to be at depressed levels for a longer period of time than originally anticipated and this resulted in the company updating its assumptions on equipment usage. This current review  identified additional excess equipment based upon management's best estimate of  drilling activity in 2016. The net book value of this excess equipment, totaling $26,555, of which $7,683 relates to the Canadian operating segment and $18,872 relates to the US operating segment, was recorded as a non-cash impairment loss in the third quarter of 2015.

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

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

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

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

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

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

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

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

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

SOURCE Pason Systems Inc.

about Pason Systems Inc., visit the company's website at www.pason.com or contact: Marcel Kessler, President and CEO, 403-301-3400, marcel.kessler@pason.com; Jon Faber, Chief Financial Officer, 403-301-3400, jon.faber@pason.comCopyright CNW Group 2015


Source: Canada Newswire (November 4, 2015 - 5:00 PM EST)

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