Pason Reports Third Quarter 2012 Results
CALGARY, Nov. 6, 2012 /CNW/ - Pason Systems Inc. (TSX: PSI) announced today its 2012 third quarter results.
Performance Data
Three Months Ended Nine Months Ended September
September 30, 30,
2012 2011 Change 2012 2011 Change
(CDN 000s, ($)
except per
share data) ($) (%) ($) ($) (%)
Revenue 93,081 88,733 5 285,788 235,898 21
EBITDA ((1)) 47,665 53,162 (10) 143,467 123,741 16
As a % of (15) (4)
revenue 51.2 59.9 50.2 52.5
Per share - (10) 16
basic 0.58 0.65 1.75 1.51
Per share - (10) 16
diluted 0.58 0.64 1.74 1.50
Funds flow
from
operations (
(1)) 40,831 41,270 (1) 122,670 103,269 19
Per share - -- 19
basic 0.50 0.50 1.50 1.26
Per share - -- 19
diluted 0.50 0.50 1.49 1.25
Earnings 19,342 28,547 (32) 57,287 54,521 5
Per share - (31) 4
basic 0.24 0.35 0.70 0.67
Per share - (34) 5
diluted 0.23 0.35 0.69 0.66
Capital 16,983
expenditures 19,997 (15) 56,178 56,431 --
Working 169,186
capital 126,152 34 169,186 126,152 34
Total assets 480,637 435,783 10 480,637 435,783 10
Total --
long-term debt -- -- -- -- --
Shareholders' 402,551
equity 357,964 12 402,551 357,964 12
Market 1,345,700
capitalization 1,090,921 23 1,345,700 1,090,921 23
Common shares
outstanding
(#)
Basic 81,985 81,900 -- 81,948 81,836 --
Diluted 82,757 82,325 -- 82,500 82,487 --
Shares 82,005
outstanding
end of period
(#) 81,901 -- 82,005 81,901 --
(1) EBITDA is defined as earnings before interest expense, income
taxes, stock-based compensation, and depreciation and
amortization expense. 2011 figures have been restated to
exclude the add back of impairment losses in calculating
EBITDA.
Funds flow from operations is defined as earnings adjusted for
depreciation and amortization expense, impairment losses,
stock-based compensation expense, deferred income taxes and
other non-cash items impacting operations as presented in the
Condensed Consolidated Interim Statements of Cash Flows.
These definitions are not recognized measures under
International Financial Reporting Standards, and accordingly,
may not be comparable to measures used by other companies.
President's Message
In both the United States and Canadian markets, drilling days and the active
rig counts were lower in the third quarter of 2012 compared with the third
quarter of the previous year, with the decline in Canadian activity
significantly steeper than in the United States. International markets saw an
activity increase.
Increased revenue in the International markets and a solid performance by our
US business unit were largely offset by a revenue drop in Canada. Overall,
revenue increased 5% in the third quarter of 2012 compared to the third
quarter of 2011 and revenue was up 21% for the first nine months of the year.
Revenue was up 15% in the third quarter compared to the second quarter driven
primarily by the seasonality of Canadian drilling activity with the second
quarter typically seeing the lowest activity levels.
As in the first and second quarters of this year, all product categories
generated growth rates above drilling industry activity with the Software
segment showing the highest year-over-year growth rates with 67%. The Software
segment includes revenue generated through DataHub updates with LiveData
(Enhanced Live Rig View), specialized software (e.g., the Directional System)
and data delivery products (e.g., WITSML Service). 86% of US customers and 98%
of Canadian customers using the Pason DataHub are currently subscribing to
LiveData. This compares to 73% and 95%, respectively, for the previous year.
EBITDA dropped by 10% and funds flow from operations was down 1%. EBITDA, as a
percentage of revenue, was 51% in the third quarter compared to 60% in the
third quarter of the previous year, and 50% versus 53% for the first nine
months of the year. Net earnings decreased to $19.3 million or $0.23 per share
compared to $28.5 million or $0.35 per share in the third quarter of 2011.
Third quarter net earnings, when compared to 2011 figures, were negatively
impacted by a number of significant items:
A foreign exchange loss of $1.5 million compared to a foreign exchange gain of
$6.3 million in the previous year quarter as the Canadian dollar strengthened
against the US dollar
An increase in stock-based compensation increased by $5.1 million due to an
increase in the Company's stock price
An increase in depreciation expense of $2.8 million due to the accelerated
depreciation of the Company's TGAS and EDR systems
An impairment loss of $2.6 million on our US water treatment assets as we are
shutting down operations of our fixed site water treatment plant in Colorado
On September 30, our cash position stood at $139.8 million and our working
capital stood at $169.2 million. We are increasing our semi-annual dividend by
9% to $0.24 per share.
United States
The US segment includes our US rental business, 3PS — our Austin-based
equipment manufacturer — and Auxsol, the fixed-site water treatment plant in
Colorado.
Drilling activity in the United States continued its slow downward trend.
Industry days were down 3% in the third quarter 2012 compared to the third
quarter of 2011, while revenue for our largest business unit was up 14% to
$54.6 million. On average, 1,019 US land rigs were operating Pason equipment
during the third quarter of 2012 compared to 1,070 in 2011.
Revenue growth above industry day growth was achieved with higher product
penetration and a price increase at the beginning of 2012 resulting in a 15%
increase of average daily revenue generated on each rig from US$480 in 2011 to
US$554 in 2012. Software, Gas Analyzer, and Hazardous Gas Alarm System again
achieved above-average revenue growth. Our US market share for the second
quarter of 2012 was 55%, compared to 57% in the previous quarter and 57% in
the previous year period.
Operating costs decreased 1% and depreciation and amortization increased by
35%. Higher depreciation charges continue to be driven by the accelerated
depreciation of our TGAS and EDR systems. As a result, our US business unit
was able to generate an operating profit of $27.0 million in the third
quarter, an increase of 21% over 2011. EBITDA, as a percentage of revenue of
the business unit, was 65% in the third quarter of 2012 compared to 60% in
2011.
Most analysts predict that oil and gas prices will remain subdued going into
2013. The natural gas glut generated by unconventional plays will likely lead
to a further reduction of gas rig counts and lower drilling activity in the
United States, challenging our ability to significantly grow revenue in the
short term.
Canada
Drilling activity in Canada was significantly lower in the third quarter of
2012 than in the previous year with industry days down 26%. Our Canadian
business unit was able to partially offset this significant reduction in
activity levels through better pricing, new product adoption, and more
products on each rig.
Revenue for the third quarter was down 14% to $29.0 million. On average, 299
Canadian land rigs were operating Pason equipment compared to 423 the year
before. Market share was 91% compared to 90% in the previous quarter and 96%
the previous year.
Revenue growth above industry day growth was achieved with a price increase in
October 2011 and better product penetration. The average daily revenue
generated on each rig with a Pason product installed grew to $1,040 in the
second quarter of 2012 from $853 in 2011. Electronic Drilling Recorder
peripherals, especially Workstations and SideKicks recorded in this category,
Software, and the Gas Analyzer, showed above average growth rates during the
period.
Operating costs decreased by 17% and depreciation and amortization increased
by 7%. As in the United States, higher depreciation charges continue to be
driven by the accelerated depreciation of our TGAS and EDR systems. As a
result, our Canadian business unit was able to generate an operating profit of
$14.6 million for the quarter, compared to $18.2 million for the same period
in 2011. EBITDA, as a percentage of revenue of the business unit, was 75% in
2012 compared to 74% in 2011.
As drilling activity picks up going into the winter drilling season, we are
working hard to increase our market share.
International
Our International business unit, which includes our businesses in Latin
America, Australia, and Pason Offshore, had an excellent third quarter.
Revenue increased 34% to $9.4 million. We realized gains in all major
international markets with notable gains in Argentina, Brazil, Australia, and
Mexico, as well as offshore rentals.
Operating costs were up 45% and depreciation and amortization were up 5%. As a
result, the International business unit was able to generate an operating
profit of $1.5 million, up 49% from the previous year. For the first nine
months of the year, the operating profit was up 87% to $4.5 million.
Going forward, we expect the International business unit to continue to
realize accelerated growth and improved profitability.
Outlook
We anticipate a further reduction in drilling industry activity in North
America. However, certain regions are expected to grow. For example, the
Permian and Bakken basins in the United States are expected to demonstrate
growth and we believe that Pason is well positioned to capture these growth
opportunities. We expect to be able to partially offset the overall reduction
with modest improvements in revenue per EDR day. We also expect continued
significant profitable growth from our International operations.
Our capital expenditure budget for the next 12 months is $82 million. $50
million is directed towards equipment that can generate incremental revenue or
save operating costs, $17 million for maintenance capital, and $15 million for
capitalized R&D.
Our cash-generating capacity, cash position at $139.8 million, and working
capital position at $169.2 million are strong enough to comfortably cover new
business development, planned equipment upgrades, and the dividend. The Pason
Board of Directors has made the decision to adopt a quarterly dividend policy
starting in 2013.
As the industry leader in field services, with outstanding technical support,
a competitive product suite, and a promising R&D project pipeline, Pason is
well positioned to weather a period of lower North American drilling activity
and to capitalize on growth opportunities in North America and internationally.
(signed) Marcel Kessler
President and Chief Executive Officer November 5, 2012
Management's Discussion and Analysis
The following discussion and analysis has been prepared by management as of
November 5, 2012 and is a review of the financial condition and results of
operations of Pason Systems Inc. (Pason or the Company) based on International
Financial Reporting Standards (IFRS) and should be read in conjunction with
the condensed consolidated interim financial statements and accompanying notes.
Certain information regarding the Company contained herein may constitute
forward-looking statements under applicable securities laws. Such statements
are subject to known or unknown risks and uncertainties that may cause actual
results to differ materially from those anticipated or implied in the
forward-looking statements.
All financial measures presented in this quarterly report are expressed in
Canadian dollars unless otherwise indicated.
Overview of the 2012 Third Quarter
Three Months Ended Nine Months Ended September
September 30, 30,
2012 2011 2010 2012 2011 2010
(000s, except ($)
per share
data) ($) ($) ($) ($) ($)
Revenue 93,081 88,733 68,653 285,788 235,898 176,068
EBITDA ((1)) 47,665 53,162 34,606 143,467 123,741 81,508
As a % of 50.4 46.3
revenue 51.2 59.9 50.2 52.5
Per share - 0.42 1.00
basic 0.58 0.65 1.75 1.51
Per share - 0.42 1.00
diluted 0.58 0.64 1.74 1.50
Funds flow
from
operations(
(1)) 40,831 41,270 26,856 122,670 103,269 66,074
Per share - 0.33 0.81
basic 0.50 0.50 1.50 1.26
Per share - 0.33 0.81
diluted 0.50 0.50 1.49 1.25
Earnings 19,342 28,547 11,902 57,287 54,521 25,949
Per share - 0.15 0.32
basic 0.24 0.35 0.70 0.67
Per share - 0.15 0.32
diluted 0.23 0.35 0.69 0.66
Total assets 480,637 435,783 371,566 480,637 435,783 371,566
Total --
long-term
debt -- -- -- -- --
(1) EBITDA is defined as earnings before interest expense, income
taxes, stock-based compensation, and depreciation and amortization
expense. Prior figures have been restated to exclude the add back
of impairment losses in calculating EBITDA.
Funds flow from operations is defined as earnings adjusted for
depreciation and amortization expense, impairment losses,
stock-based compensation expense, deferred income taxes and other
non-cash items impacting operations as presented in the Condensed
Consolidated Interim Statements of Cash Flows.
These definitions are not recognized measures under International
Financial Reporting Standards, and accordingly, may not be
comparable to measures used by other companies.
Overall Performance
Three Months Ended Nine Months Ended September
September 30, 30,
2012 2011 Change 2012 2011 Change
(000s) ($) ($) (%) ($) ($) (%)
Revenue
Electronic
Drilling
Recorder 36,852 35,438 4 112,716 94,856 19
Pit Volume
Totalizer 14,623 15,289 (4) 45,120 41,703 8
Communications
((1)) 7,357 8,324 (12) 23,406 21,696 8
Software ((1)) 6,271 3,763 67 18,728 10,136 85
Automatic
Driller 9,935 10,481 (5) 30,989 27,875 11
Gas
Analyzer/Total
Gas System 7,117 5,980 19 20,406 14,893 37
Hazardous Gas
Alarm System 1,781 1,301 37 5,413 3,768 44
Mobilization 3,180 2,452 30 9,167 7,042 30
Other 5,965 5,705 5 19,843 13,929 42
Total revenue 93,081 88,733 5 285,788 235,898 21
(1) 2011 revenue associated with the Company's software applications
has been reclassified from Communications to Software.
Canada
Three Months Ended September Nine Months Ended September
30, 30,
2012 2011 Change 2012 2011 Change
(%) (%)
EDR rental 27,600 38,900 (29) 87,500 100,400 (13)
days (#)
PVT rental 27,200 37,600 (28) 86,200 97,500 (12)
days (#)
United States
Three Months Ended September Nine Months Ended September
30, 30,
2012 2011 Change 2012 2011 Change
(%) (%)
EDR rental 93,700 98,500 (5) 292,700 281,500 4
days (#)
PVT rental 66,800 68,300 (2) 205,700 194,100 6
days (#)
Electronic Drilling Recorder
The Pason Electronic Drilling Recorder (EDR) remains the Company's prime
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. The EDR generated a 4% increase in
revenue for the third quarter of 2012 compared to the same period in 2011 and
a 19% increase for the first nine months of 2012 versus the 2011 comparative.
The increase in the third quarter is due to previous price increases and an
increase in rig activity in the Company's International markets reduced by a
decrease in rig activity in both the United States (US) and Canadian markets.
The year to date increase is due in most part to an increase in US and
International drilling activity and the aforementioned price increases offset
by a reduction in Canadian rig count. The Company continues to realize
increased demand by customers for EDR peripheral devices in all of its markets.
During the first nine months of 2012, the Pason EDR was installed on 94% of
all active land rigs in Canada and 57% of the land rigs in the US.
Pit Volume Totalizer
The Pit Volume Totalizer (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 both the quarter and year to date were impacted by an
increase in product penetration in all of the Company's markets as well as
changes to rig activity and price increases previously described above under
EDR. During the first three quarters of 2012, the PVT was installed on 99% of
rigs with a Pason EDR in Canada and 70% in the US, compared to 98% and 69%,
respectively, in 2011.
Communications
Pason's communications rental revenue is derived from the Company's automatic
aiming satellite system. This system provides 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 amongst
oilfield service companies, drilling contractors, and operators). The Company
continues to complement its satellite equipment with High Speed Packet Access
(HSPA), a high-speed wireless ground system that requires lower capital cost,
less service, and lower cost per Internet kilobyte, benefiting company
margins. In Canada, HSPA has been installed on all rigs, and the majority of
the rigs running will benefit from the investment in HSPA given the growth in
cellular coverage. In the US, field coverage tests for HSPA are continuing.
Software
DataHub is the Company's data management system that collects, stores, and
displays drilling data, reports, and real-time information from drilling
operations. DataHub provides access to data through a number of innovative
applications or services including:
-- Enhanced Live Rig View, which provides advanced data viewing,
directional drilling, and 3D visualization of drilling data in
real-time via a web browser.
-- Mobile Viewer and Pason Mobile, which allows users to access
their data on mobile devices including iPhone, iPad, and
BlackBerry.
-- WITSML, which provides seamless data sharing with third party
applications enhancing the value of data hosted by Pason.
-- Additional specialized software.
During the first nine months of 2012, 98% of the Company's Canadian customers
were using all or a portion of the functionality of the DataHub and 86% of
customers in the US, compared to 95% and 73%, respectively, in 2011. The 2012
revenue generated from customers using the applications included with the
DataHub rose 85% over the first nine months of 2011.
Gas Analyzer and Total Gas System
The Pason Gas Analyzer, which has replaced the Total Gas System (TGAS) in the
Company's major markets, measures the total hydrocarbon gases (C1 through
C4(1)) exiting the wellbore, and then calculates the lag time to show the
formation depth where the gases were produced. The new Gas Analyzer increases
the functionality that was found in the TGAS product to include the actual
composition of the gas, much like a gas chromatograph, 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. For the first nine months of
2012, the Gas Analyzer generated $15.2 million of revenue compared to $5.2
million for TGAS. The Company has completed this switch-out in both Canada and
the US and is realizing increased product penetration for the Gas Analyzer as
compared to TGAS in both markets. For the first nine months of 2012, both of
these systems combined were installed on 51% of Canadian and 19% of US land
rigs operating with a Pason EDR system. The combined market penetration of
both products in Canada is an increase of approximately 9% over 2011 levels
while the US has seen an increase of 2%.
Automatic Driller
Pason's Automatic Driller (AutoDriller) is used to maintain constant weight on
the drill bit while a well is being drilled. During the first nine months of
2012, Pason's AutoDriller was installed on 78% of Canadian and 50% of US land
rigs operating with a Pason EDR system, compared to 78% and 46%, respectively,
in 2011.
Hazardous Gas Alarm System
Pason's Hazardous Gas Alarm System (HGAS) monitors both lower explosive limit
gases (LEL) and H(2)S where both readings and an alarm system are integrated
with the EDR. The Hazardous Gas Alarm System was installed on 21% of Canadian
rigs in the first nine months of 2012, up from 18% for the same period in
2011, and 9% of US land rigs operating with a Pason EDR system, an increase
from 6% in 2011.
Discussion of Operations
United States Operations
Three Months Ended Nine Months Ended September
September 30, 30,
2012 2011 Change 2012 2011 Change
(000s) ($) ($) (%) ($) ($) (%)
Revenue
Electronic
Drilling
Recorder 22,800 21,655 5 70,440 60,355 17
Pit Volume
Totalizer 8,312 8,367 (1) 25,774 23,664 9
Communications
((1)) 3,402 3,703 (8) 10,883 9,775 11
Software ((1)) 4,309 2,010 114 12,666 5,495 131
Automatic
Driller 5,791 5,716 1 18,149 15,670 16
Gas
Analyzer/Total
Gas System 2,957 2,030 46 8,645 5,772 50
Hazardous Gas
Alarm System 810 398 104 2,369 1,055 125
Mobilization 2,334 1,809 29 6,934 5,015 38
Other 3,928 2,348 67 12,989 3,845 238
Total revenue 54,643 48,036 14 168,849 130,646 29
Operating costs 19,167 19,444 (1) 62,542 51,782 21
Depreciation and 8,469 24,668
amortization 6,260 35 16,997 45
Segment 27,007 81,639
operating profit 22,332 21 61,867 32
(1) 2011 revenue associated with the Company's software applications
has been reclassified from Communications to Software.
US segment revenue increased by 14% in the third quarter of 2012 over the 2011
comparable period (13% increase when measured in US dollars). Included in the
third quarter 2012 figures is $2.8 million (2011 - $1.4 million) of revenue
generated from the sale of sensors and other products by 3PS, Inc., the
US-based company acquired in 2011.
For the first nine months of 2012, US segment revenue increased by 29% (USD
27%), which includes $9.3 million of sales by 3PS.
The number of US drilling days was down approximately 3% in the third quarter
of 2012 versus the third quarter of 2011 due to a pull back of natural gas
drilling that was not totally off-set by an increase in oil drilling. However,
revenue from the rental of instrumentation equipment increased 12% (USD 10%)
for the third quarter of 2012 from 2011 levels, which compared very favourably
to the drop in activity. On a year to date basis rental instrumentation
revenue increased 23% (USD 20%) over 2011 levels, compared to an increase in
industry days of 7%.
Revenue was impacted by the following factors:
-- More products on each rig; new product adoption; and better
pricing. Revenue was increased by additional product
penetration on each rig, primarily with gains in EDR peripheral
devices, ADR rentals, customer acceptance of the Company's Live
Rig View and rig data software, and increased adoption of the
Gas Analyzer compared to the previous TGAS system. In addition,
prices on specific products increased at the beginning of 2012.
These factors combined resulted in an increase in revenue per
EDR day in the third quarter of 2012 over 2011 levels of $81
(USD $74). On a year to date basis revenue per EDR day
increased 19% or $85 (USD $74).
-- A decrease in EDR rental days of 5% for the three months ended
September 2012 over the same time period in 2011 and an
increase of 4% on a year to date basis over 2011 levels.
The factors explained above resulted in the US segment being able to realize
revenue per EDR day during the third quarter of 2012 of $551 (USD $554)
compared to $470 (USD $480) during the same time period in 2011. For the first
nine months of 2012 revenue per EDR day was $542 (USD $541) compared to $456
(USD $467) in 2011.
Revenue per industry day for the third quarter of the year was $305 (USD $307)
compared to $267 (USD $272) in 2011. Year to date figures were $306 (USD $306)
compared to 2011 amounts of $264 (USD $270).
The majority of the increase in "Other" revenue relates to sales realized by
3PS, Inc.
Segment profit, as a percentage of revenue, was 50% for the third quarter of
2012 and 48% year to date, compared to 46% and 47% for the respective periods
in 2011.
The US business unit was able to increase its operating margin year over year,
even with a significant increase in depreciation and amortization costs, by
leveraging its fixed cost structure while at the same time continuing to
control variable costs and implementing changes to operations to adapt to
changing market conditions. The 2012 segment profit percentage was impacted by
the following factors:
-- A decrease in field technician related costs in the third
quarter of 2012 compared to 2011 of approximately $1.0 million
as a result of a slowdown in industry drilling days. On a year
to date basis these costs increased by $2.4 million due in most
part to an increase in market activity over 2011.
-- A continuous strengthening of its sales presence led to an
increase in sales and marketing costs of $0.3 million for the
third quarter of 2012 over 2011 amounts. For the first nine
months these costs rose $1.3 million from 2011 levels.
-- An increase in depreciation and amortization charges relating
to the accelerated depreciation on the Company's TGAS and EDR
systems. The TGAS system was replaced with the Gas Analyzer,
while a portion of the Company's base EDR system will become
obsolete as a result of the EDR evolution project. This
contributed to an increase in depreciation costs over 2011
levels of approximately $1.2 million for the third quarter and
$5.3 million for the first nine months. This increase was
partially off-set by a reduction in repair costs associated
with the new Gas Analyzer as compared to the TGAS system.
-- Year to date 2012 figures include a full nine months of the
results of 3PS Inc., which generates a lower margin than the US
rental business.
Canadian Operations
Three Months Ended Nine Months Ended September
September 30, 30,
2012 2011 Change 2012 2011 Change
(000s) ($) ($) (%) ($) ($) (%)
Revenue
Electronic
Drilling
Recorder 10,247 11,403 (10) 31,362 27,666 13
Pit Volume
Totalizer 4,782 5,940 (19) 14,992 15,204 (1)
Communications
((1)) 3,836 4,544 (16) 12,099 11,643 4
Software ((1)) 1,839 1,675 10 5,724 4,418 30
Automatic
Driller 3,260 4,239 (23) 10,132 10,497 (3)
Gas
Analyzer/Total
Gas System 3,169 3,352 (5) 8,946 7,847 14
Hazardous Gas
Alarm System 545 706 (23) 1,834 1,921 (5)
Mobilization 154 211 (27) 460 583 (21)
Other 1,193 1,603 (26) 3,828 3,902 (2)
Total revenue 29,025 33,673 (14) 89,377 83,681 7
Operating costs 7,200 8,705 (17) 23,111 26,939 (14)
Depreciation and
amortization(
(2)) 7,245 6,747 7 20,718 19,037 9
Segment 14,580 45,548
operating profit 18,221 (20) 37,705 21
2011 revenue associated with the Company's software (1) applications has been reclassified from Communications to
Software.
2011 impairment loss of $1.8 million relating to water assets (2) has been reclassified from depreciation and amortization to
Other Expenses and is not included in the Canadian business
unit's operating results.
Canadian segment revenue decreased 14% for the three months ended September
2012 compared to the third quarter of 2011. This decrease is a result of a 26%
decrease in the number of Canadian drilling industry days from 2011 levels. On
a year to date basis, revenue increased 7% compared to a decline in the number
of Canadian drilling days of 11%.
EDR rental days declined 29% in the third quarter of 2012 over the third
quarter of 2011. On a year to date basis, EDR rental days declined by
approximately 13% over 2011 levels.
The Canadian business unit was able to lessen the impact of the significant
reduction in activity levels in Canada, due to the wet weather at the start of
the third quarter and weakness in oil and natural gas prices, through new
product adoption, more products on each rig and better pricing. The business
unit increased pricing on most of its key products in the fourth quarter of
2011 and this combined with increased market penetration of the Gas Analyzer,
customer acceptance of the Company's Live Rig View and rig data software, and
more products on each rig, primarily with gains in EDR peripheral devices,
lessened the impact of the significant drop in the number of wells being
drilled.
The factors above combined to result in:
-- An increase in revenue per EDR day during the third quarter of
2012 compared to 2011 of 22% ($187) to $1,040. For the first
nine months of 2012, revenue per EDR day increased by $188 to
$1,009.
-- Third quarter revenue per industry day of $948 in 2012 compared
to $815 in 2011. On a year to date basis, revenue per industry
day increased 20% to $943.
The segment profit for the third quarter of 2012 of $14.6 million is a
decrease of $3.6 million over the 2011 amount. Factors impacting the third
quarter results include:
-- The weak drilling activity in the WCSB, together with a slight
decrease in the Company's market share, resulted in 11,300 less
EDR days during the third quarter of 2012 compared to 2011,
resulting in much lower revenue than originally anticipated.
-- An increase in depreciation and amortization charges relating
to the accelerated depreciation on the Company's TGAS and EDR
systems.
-- A decrease in most repair cost categories, including a
significant reduction in costs associated with the new Gas
Analyzer as compared to the TGAS system.
The segment profit, as a percent of revenue, was 51% for the first nine months
of 2012, compared to 45% for the 2011 time period. Factors impacting the year
to date results include:
-- An increase in depreciation and amortization charges relating
to the accelerated depreciation on the Company's TGAS and EDR
systems of approximately $2.6 million.
-- An increase in field costs of $2.0 million, which is mostly
attributable to the expansion of the work force. This was
deemed necessary given the shifting footprint of the WCSB,
anticipation of additional product opportunities and an
adjustment to the shift schedule.
-- A decrease in repair costs of $2.2 million, mostly attributable
to the roll out of the new Gas Analyzer, resulting in a drop in
TGAS repairs, and a decline in costs due to lower drilling
activity.
-- In 2011, the Canadian business unit incurred $1.8 million in
legal costs associated with the Automatic Driller lawsuit.
-- $2.0 million of net expenses relating to the water treatment
business were recorded in the first nine months of 2011. This
business unit was disposed of in the third quarter of 2011.
International Operations
Three Months Ended Nine Months Ended September
September 30, 30,
2012 2011 Change 2012 2011 Change
(000s) ($) ($) (%) ($) ($) (%)
Revenue
Electronic
Drilling
Recorder 3,805 2,380 60 10,914 6,835 60
Pit Volume
Totalizer 1,529 982 56 4,354 2,835 54
Communications(
(1)) 119 77 55 424 278 53
Software ((1)) 123 78 58 338 223 52
Automatic
Driller 884 526 68 2,708 1,708 59
Gas
Analyzer/Total
Gas System 991 598 66 2,815 1,274 121
Hazardous Gas
Alarm System 426 197 116 1,210 792 53
Mobilization 692 432 60 1,773 1,444 23
Other 844 1,754 (52) 3,026 6,182 (51)
Total revenue 9,413 7,024 34 27,562 21,571 28
Operating costs 5,771 3,986 45 16,708 12,967 29
Depreciation and 6,350
amortization 2,138 2,028 5 6,193 3
Segment operating 4,504
profit 1,504 1,010 49 2,411 87
(1) 2011 revenue associated with the Company's software applications
has been reclassified from Communications to Software.
Revenue in International operations improved 34% in the third quarter of 2012
from the same period in 2011. On a year to date basis, revenue has increased
approximately $6.0 million or 28% over 2011 amounts. The Company realized
gains in all of its major markets, with notable gains in both revenue and
segment profit in Argentina, Brazil, Australia, and Mexico.
Operating profit increased by $0.5 million for the third quarter of 2012 and
by $2.1 million on a year to date basis over 2011 results.
A number of factors influenced these results:
-- Increased market share combined with price increases in
Argentina contributed to significant gains in both revenue and
operating profit. Year over year operating profit has increased
$0.6 million.
-- Triple-digit revenue growth in Brazil as a result of a doubling
of the number of rigs deploying the Company's equipment,
resulting in an increase in the year to date revenue of $2.2
million and an increase in operating profit of $0.9 million
over 2011 levels.
-- An increase in drilling activity in both Mexico and Australia
has led to these two segments realizing increases in operating
profit from 2011 levels of $1.5 million and $1.7 million,
respectively.
-- The Company's International segment includes our Offshore
business unit which generated a 210% increase in its rental
revenue for the first nine months of 2012 over the same period
in 2011. These gains are as a result of the deployment of Pason
hardware onto offshore drilling rigs in the Gulf of Mexico and
internationally.
Q3 2012 versus Q3 2011
The active rig count in both the US and Canadian markets declined from the
third quarter of 2011, with Canadian drop in activity much more severe than
the US decline. The International market saw an increase in drilling days. The
strong US results, combined with increased revenue and profitability in the
International markets were not sufficient enough to offset the drop in
operating results in Canada. Revenue increased 5%, while EBITDA dropped by 10%
and funds flow from operations was down 1%.
Net earnings decreased to $19.3 million or $0.23 per share compared to $28.5
million or $0.35 per share in the third quarter of 2011. The third quarter
consolidated results, when compared to 2011 figures, were impacted by the
following significant items:
-- A change in the amount of foreign exchange recorded of $7.8
million in 2012 compared to 2011 amounts. The strengthening
Canadian dollar against the US dollar resulted in a loss of
$1.5 million in the third quarter of 2012. The equivalent
amount in the third quarter of 2011 was a gain of $6.3 million.
The majority of these amounts are unrealized and relate to the
translation of certain inter-company balances into CDN dollars.
-- Increase in depreciation expense of $2.8 million in 2012
compared to 2011 amounts, attributable mostly to increased
capital expenditures and the accelerated depreciation on the
Company's TGAS and EDR systems.
-- Increase in research and developments costs in the third
quarter of 2012 of $1.0 million as the Company completes the
hiring of additional staff to support the EDR evolution project
and other product developments.
-- Stock-based compensation increased by $5.1 million compared to
the third quarter of 2011 due to an increase in the Company's
stock price, which impacts the pricing under the Black-Scholes
pricing model. The Company's stock price went up approximately
10% during the third quarter of 2012 compared to a decline in
the corresponding period in 2011.
-- During the third quarter of 2012 the Company recorded a
non-cash impairment loss of $2.6 million on its US water
treatment asset. In the third quarter of 2011 a non-cash
impairment loss of $1.8 million was recorded against the
Canadian water treatment assets.
Q3 2012 versus Q2 2012
The Company's second quarter is usually its weakest due in most part to the
seasonality of the Canadian industry. The Canadian business unit realized a
profit of $14.6 million for the three months ended September, 2012 compared to
a $1.1 million profit in the second quarter. The US business unit realized a
slight increase in profit of $0.1 million over the second quarter of 2012 even
though drilling activity declined.
The following items also impacted the comparison to the 2012 second quarter
results:
-- In the second quarter of 2012, the Company recorded an
additional charge of $5.4 million relating to the US Automatic
Driller lawsuit.
-- During the third quarter of 2012, the Company recorded a
non-cash impairment loss of $2.6 million on its US water
treatment assets
-- An increase in stock-based compensation expense of $1.2 million
due to an increase in the Company's stock price during the
third quarter of 2012.
Third Quarter Conference Call
Pason will be conducting a conference call for interested analysts, brokers,
investors, and media representatives to review its third quarter results at
9:00 a.m. (Calgary time) on Wednesday, November 7, 2012. The conference call
dial-in number is 1-888-231-8191 or 1-647-427-7450. You can access the
seven-day replay by dialing 1-855-859-2056 or 416-849-0833 (password 35767272).
Pason Systems Inc. is a leading provider of instrumentation systems to
land-based and offshore drilling rigs worldwide. The company's rental
solutions, which include data acquisition, wellsite reporting, remote
communications, and web-based information management, maximize rig uptime,
improve work efficiency, and minimize operating costs. Pason's common shares
trade on the Toronto Stock Exchange under the symbol PSI.
Additional information, including the Company's Annual Report for the year
ended December 31, 2011, is available on SEDAR at www.sedar.com or on the
Company's website at www.pason.com.
Condensed Consolidated Interim Financial Statements
Condensed Consolidated Interim Balance Sheets
As at September 30, 2012 December 31,2011
(CDN 000s) (unaudited) ($) ($)
Assets
Current
Cash and cash equivalents 139,812 104,993
Trade and other receivables 92,980 102,321
Prepaid expenses 4,714 1,970
Total current assets 237,506 209,284
Non-current
Property, plant and 179,387 183,007
equipment
Intangible assets 59,745 58,071
Deferred tax assets 3,999 5,539
Total non-current assets 243,131 246,617
Total assets 480,637 455,901
Liabilities and equity
Current
Trade payables and accruals 34,390 40,668
Litigation provision 19,315 14,543
Income taxes payable 4,825 5,318
Stock-based compensation 9,790 5,770
liability
Dividend payable -- 16,380
Total current liabilities 68,320 82,679
Non-current
Stock-based compensation 6,047 1,030
liability
Deferred tax liabilities 3,719 4,923
Total non-current 9,766 5,953
liabilities
Equity
Share capital 78,835 77,613
Employee benefits reserve 12,927 12,927
Foreign currency (11,029) (5,835)
translation reserve
Retained earnings 321,818 282,564
Total equity 402,551 367,269
Total liabilities and equity 480,637 455,901
Condensed Consolidated Interim Statements of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
(CDN 000s, except per share
data) (unaudited) ($) ($) ($) ($)
Revenue
Equipment rentals and other 93,081 88,733 285,788 235,898
Operating expenses
Rental services 27,466 26,622 86,886 76,512
Local administration 4,672 5,513 15,475 15,176
Depreciation and 15,035 42,227
amortization 17,852 51,736
49,990 47,170 154,097 133,915
Operating profit 43,091 41,563 131,691 101,983
Other expenses
Research and development 5,381 4,347 15,434 11,995
Corporate services 3,435 3,286 11,397 9,159
Stock-based compensation (1,347) 3,870
(recovery) 3,791 12,854
Other expenses (income) 4,462 (4,197) 13,129 (685)
17,069 2,089 52,814 24,339
Income before income taxes 26,022 39,474 78,877 77,644
Income taxes 6,680 10,927 21,590 23,123
Net income 19,342 28,547 57,287 54,521
Earnings per share
Basic 0.24 0.35 0.70 0.67
Diluted 0.23 0.35 0.69 0.66
Condensed Consolidated Interim Statements of Comprehensive Income
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
(CDN 000s) (unaudited) ($) ($) ($) ($)
Net income 19,342 28,547 57,287 54,521
Other comprehensive loss
Foreign currency (9,986) 7,245 (5,194) 6,262
translation adjustment
Total comprehensive income 9,356 35,792 52,093 60,783
Condensed Consolidated Interim Statements of Changes in Equity
Foreign
Employee Currency
Share Benefits Translation Retained Total
Capital Reserve Reserve Earnings Equity
(CDN 000s)
(unaudited) ($) ($) ($) ($) ($)
Balance at
January 1, 2011 75,040 13,228 (6,048) 227,464 309,684
Net Income -- -- -- 54,521 54,521
Dividends -- -- -- (14,741) (14,741)
Other -- -- 6,262 -- 6,262
comprehensive
loss
Exercise of 2,232 -- -- -- 2,232
stock options
Options 307 (307) -- -- --
exercised
that were
previously
expensed
Stock-based -- 6 -- -- 6
compensation
Balance at
September 30,
2011 77,579 12,927 214 267,244 357,964
Net Income -- -- -- 31,702 31,702
Dividends -- -- -- (16,382) (16,382)
Other -- -- (6,049) -- (6,049)
comprehensive
loss
Exercise of 33 -- -- -- 33
stock options
Options 1 (1) -- -- --
exercised
that were
previously
expensed
Stock-based -- 1 -- -- 1
compensation
Balance at
December
31,2011 77,613 12,927 (5,835) 282,564 367,269
Net Income -- -- -- 57,287 57,287
Dividends -- -- -- (18,033) (18,033)
Other -- -- (5,194) -- (5,194)
comprehensive
loss
Exercise of 1,222 -- -- -- 1,222
stock options
Balance at
September 30,
2012 78,835 12,927 (11,029) 321,818 402,551
Condensed Consolidated Interim Statements of Cash Flows
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
(CDN 000s) (unaudited) ($) ($) ($) ($)
Cash flows from operating
activities
Net income 19,342 28,547 57,287 54,521
Adjustment for non-cash items:
Depreciation and 15,035 42,227
amortization 17,852 51,736
Impairment loss 2,636 1,800 2,636 1,800
Stock-based compensation 1,451 (1,937) 6,826 936
Deferred income taxes (1,475) 3,840 2,204 7,989
Unrealized foreign exchange (6,015) (4,204)
loss (gain) 1,025 1,981
40,831 41,270 122,670 103,269
Movements in non-cash working
capital
(Increase) decrease in trade (20,351) (13,520)
and other receivables (749) 8,985
Increase in prepaid expenses (1,883) (1,834) (2,847) (2,927)
Increase in income taxes 5,241 10,371
payable 5,510 14,559
(Decrease) increase in trade 5,324 5,665
payables, accruals and
provisions (351) 2,975
Increase in stock-based 564 2,792
compensation liability 2,471 5,876
Effects of exchange rate 78 878
changes (977) (1,030)
4,021 (10,978) 28,518 3,259
Cash generated from operating
activities 44,852 30,292 151,188 106,528
Income tax paid (2,998) -- (16,225) (16,650)
Net cash from operating
activities 41,854 30,292 134,963 89,878
Cash flows used in financing
activities
Proceeds from issuance of 90 2,232
common shares 393 1,222
Purchase of stock options (3,151) (185) (5,240) (3,266)
Payment of dividends (18,033) (14,741) (34,413) (28,631)
Net cash used in financing
activities (20,791) (14,836) (38,431) (29,665)
Cash flows used in investing
activities
Additions to property, plant (18,122) (50,735)
and equipment (14,500) (48,467)
Deferred development costs (2,483) (1,875) (7,711) (5,696)
Acquisitions, net of cash (23,569) (23,569)
acquired -- --
Additions to investments -- -- (1,230) --
Changes in non-cash working (615) (2,768)
capital (470) (2,611)
Net cash used in investing
activities (17,453) (44,181) (60,019) (82,768)
Effect of exchange rate on
cash and cash equivalents (2,409) 3,684 (1,694) 2,047
Net increase (decrease) in
cash and cash equivalents 1,201 (25,041) 34,819 (20,508)
Cash and cash equivalents,
beginning of period 138,611 114,933 104,993 110,400
Cash and cash equivalents, end
of period 139,812 89,892 139,812 89,892
The Company operates in three geographic segments: Canada, the United States,
and Internationally (Latin America, Offshore, and the Eastern Hemisphere). The
amounts related to each segment are as follows:
Three Months Ended Canada United States International Total
September 30, 2012
($) ($) ($) ($)
Revenue 29,025 54,643 9,413 93,081
Operating costs 7,200 19,167 5,771 32,138
Depreciation and 7,245 8,469 2,138 17,852
amortization
Segment operating 14,580 27,007 1,504 43,091
profit
Research and 5,381
development
Corporate services 3,435
Stock-based 3,791
compensation
Other expenses 4,462
Income taxes 6,680
Net income 19,342
Capital 7,148 6,770 3,065 16,983
expenditures
Goodwill -- 18,206 2,600 20,806
Intangible assets 24,255 11,162 3,522 38,939
Segment assets 117,432 300,501 62,704 480,637
Segment liabilities 52,248 17,068 8,770 78,086
Three Months Ended
September 30, 2011
Revenue 33,673 48,036 7,024 88,733
Operating costs 8,705 19,444 3,986 32,135
Depreciation and 6,747 6,260 2,028 15,035
amortization
Segment operating 18,221 22,332 1,010 41,563
profit
Research and 4,347
development
Corporate services 3,286
Stock-based (1,347)
compensation
Other income (4,197)
Income taxes 10,927
Net income 28,547
Capital 9,018 8,103 2,876 19,997
expenditures
Goodwill -- 19,232 2,600 21,832
Intangible assets 19,845 14,848 5,582 40,275
Segment assets 119,244 194,411 60,021 373,676
Segment liabilities 41,680 25,189 10,950 77,819
Nine Months Ended Canada United States International Total
September 30, 2012
($) ($) ($) ($)
Revenue 89,377 168,849 27,562 285,788
Operating costs 23,111 62,542 16,708 102,361
Depreciation and 20,718 24,668 6,350 51,736
amortization
Segment operating 45,548 81,639 4,504 131,691
profit
Research and 15,434
development
Corporate services 11,397
Stock-based 12,854
compensation
Other expenses 13,129
Income taxes 21,590
Net income 57,287
Capital 20,275 30,681 5,222 56,178
expenditures
Goodwill -- 18,206 2,600 20,806
Intangible assets 24,255 11,162 3,522 38,939
Segment assets 117,432 300,501 62,704 480,637
Segment liabilities 52,248 17,068 8,770 78,086
Nine Months Ended
September 30, 2011
Revenue 83,681 130,646 21,571 235,898
Operating costs 26,939 51,782 12,967 91,688
Depreciation and 19,037 16,997 6,193 42,227
amortization
Segment operating 37,705 61,867 2,411 101,983
profit
Research and 11,995
development
Corporate services 9,159
Stock-based 3,870
compensation
Other income (685)
Income taxes 23,123
Net income 54,521
Capital 19,218 27,995 9,218 56,431
expenditures
Goodwill -- 19,232 2,600 21,832
Intangible assets 19,845 14,848 5,582 40,275
Segment assets 119,244 194,411 60,021 373,676
Segment liabilities 41,680 25,189 10,950 77,819
Pason Systems Inc.
Pason Systems Inc. is a leading provider of instrumentation systems to
land-based and offshore drilling rigs worldwide. The company's rental
solutions, which include data acquisition, wellsite reporting, remote
communications, and web-based information management, maximize rig uptime,
improve work efficiency, and minimize operating costs. Pason's common shares
trade on the Toronto Stock Exchange under the symbol PSI.
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.
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
David Elliott Chief Financial Officer 403-301-3441 david.elliott@pason.com
SOURCE: Pason Systems Inc.
To view this news release in HTML formatting, please use the following URL:
http://www.newswire.ca/en/releases/archive/November2012/06/c5214.html
CO: Pason Systems Inc.
ST: Alberta
NI: OIL ERN
-0- Nov/06/2012 05:27 GMT
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