Pason Reports Second Quarter 2020 Results

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Pason Reports Second Quarter 2020 Results

Canada NewsWire

CALGARY, AB, Aug. 6, 2020 /CNW/ - Pason Systems Inc. (TSX: PSI) announced today its 2020 second quarter results.

Performance Data


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

Change

2020

2019

Change

(CDN 000s, except per share data)







(unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue

26,848

72,894

(63)

100,810

155,037

(35)

EBITDA (1,2)

4,271

25,606

(83)

37,740

66,041

(43)

Adjusted EBITDA (1.2)

(848)

30,741

32,457

71,540

(55)

As a % of revenue

(3.2)

42.2

32.2

46.1

(1,390) bps

Funds flow from operations

134

23,794

(99)

26,856

59,693

(55)

Per share – basic

0.00

0.28

(100)

0.32

0.70

(54)

Per share – diluted

0.00

0.28

(100)

0.32

0.69

(54)

Cash from operating activities

29,953

37,938

(21)

55,546

46,380

20

Capital expenditures

799

4,216

(81)

3,887

14,533

(73)

Free cash flow (1)

29,888

32,547

(8)

52,823

32,932

60

Cash dividends declared

0.19

0.18

6

0.38

0.36

6

Net (loss) income

(4,799)

9,245

11,753

28,289

(58)

Net (loss) income attributable to Pason

(4,487)

9,245

12,432

28,289

(56)

Per share – basic

(0.05)

0.11

0.15

0.33

(55)

Per share – diluted

(0.05)

0.11

0.15

0.33

(55)

Total interest bearing debt

Shares outstanding end of period (#000's)

84,096

85,393

(2)

84,096

85,393

(2)


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

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

Q2 2020 vs Q2 2019
The COVID-19 pandemic has had a significant negative impact on demand for fossil fuels, and this, combined with an over-supply of oil, resulted in an unprecedented drop in drilling rig activity during the second quarter of 2020. This lower level of drilling activity, combined with a drop in Revenue per EDR day, due in most part to a change in the mix of customers, and selected price concessions, resulted in consolidated revenue of $26.8 million in the second quarter of 2020, a decrease of $46.1 million from the corresponding period in 2019.

Adjusted EBITDA decreased to a loss of $0.8 million in the second quarter, a decrease of $31.6 million from the corresponding period in 2019. The decrease in adjusted EBITDA was driven entirely by a $31.8 million reduction in gross profit.

Cash from operating activities was $30.0 million in the second quarter of 2020, a decrease of 21% from the corresponding period in 2019. Cash from operating activities was negatively impacted by the reduction in gross profit and the payment of reorganization costs, offset by the release of $29.6 million of working capital.

Free cash flow was $29.9 million in the second quarter of 2020, compared to $32.5 million from the corresponding period in 2019. This decrease is due to the decrease in cash from operating activities combined with an 81% decrease in capital expenditures.

The Company recorded a net loss attributable to Pason of $4.5 million ($0.05 per share) in the second quarter of 2020 compared to net income attributable to Pason of $9.2 million ($0.11 per share) recorded in the corresponding period in 2019. In the second quarter of 2020, the Company recorded several unusual or one-time items impacting net income, including government wage assistance, reorganization costs, and a derecognition of an onerous lease.

President's Message
As the global economy was slowing down towards the end of the first quarter 2020 due to the unprecedented impact of COVID-19, a disagreement between Russia and Saudi Arabia over proposed production cuts led to an increase in crude oil supply at the worst possible time. The simultaneous drop in demand and increase in supply led to a dramatic decline in oil prices. As a result, we saw large cuts to E&P capital expenditures, with disproportionally higher cuts for drilling and completions. Oil drilling came to a screeching halt and the number of land rigs active across North America dropped by three quarters in just three months. Activity drops across Latin America mirrored those in North America, while activity in Australia and the Middle East was somewhat more resilient.

Pason's second quarter results reflect this extraordinarily challenging environment. Revenue for the quarter was $26.8 million, a decrease of 63% from the second quarter of 2019, the Company posted an Adjusted EBITDA loss of $848 thousand, and free cash flow decreased 8% to $30.0 million. Pason recorded a net loss for the period of $4.5 million or $0.05 per share.

In response to market conditions and the uncertainty regarding the trajectory of our industry, Pason reduced capital expenditures by 81% in the second quarter compared to the previous year, and we expect to spend up to $10 million in 2020 compared to $24 million in 2019. In addition, we executed significant operating expense reductions during the period. Operating expenses are down 43% in our U.S. operations, 42% in Canada, 39% internationally and corporate service expenses decreased by 27%.

Pason's balance sheet remains in pristine condition. As a result of the significant reduction in capital expenditures, and the release of working capital as the business shrank during the period, cash and short-term investments increased from the first quarter and stood at $176 million on June 30, 2020. There is no interest-bearing debt on our balance sheet.

Pason's capital allocation strategy aims to balance the Company's commitment to shareholder returns while preserving its financial strength. Considering the uncertainties related to COVID-19 and the significant negative impact that a weakened demand environment has on the outlook for industry activity, we will reduce the quarterly dividend payable on September 30, 2020 to $0.05 per share, as communicated at the end of the first quarter.

We expect that oilfield activity will remain very low in the second half of 2020 before a slow recovery starts in 2021. We are fully prepared for that. With our leaner organization and clean balance sheet, Pason is well positioned to weather this storm. We will continue to allocate capital to safeguard the long-term prospects of Pason's core drilling-related business and of Energy Toolbase, our foothold in the solar and energy storage market.

Our EDR market share in the United States is now firmly over 65%, a great base to build from when the industry recovers. On the product side, customers continue to be impressed with Pason DAS, our drilling automation package. Drilling performance improves considerably when the optimization system is used in terms of higher rate of penetration (faster drilling) and minimized damaging vibrations, leading to longer life of the drill bit.

Our PVT Smart Alarms are gaining traction with key customers and the new DataHub Dashboard has been introduced with great feedback from users.

Energy Toolbase has made good progress with positive momentum on software subscriptions and new battery control systems sold. With the industry-leading software package to model the economics and build proposals for solar and energy storage (battery) projects, combined with the iEMS control system and Energy DataHub products, Energy Toolbase is well positioned for meaningful long-term growth in this promising market.

We continue to invest significant resources in R&D, IT, and technical support to respond to customer requests, improve existing products and develop new products. We believe that this environment provides an opportunity for Pason to become even stronger by leapfrogging competition in terms of technology and service.

On July 22, 2020 we announced that I will retire as President and CEO effective October 1, 2020 and I will succeed Jim Hill as chair of the board of directors. Jon Faber has been appointed to succeed me. Jon joined Pason as Chief Financial Officer in 2014. Over the past six years, in addition to the finance function, Jon has successfully led supply chain, IT and important elements of software development. I am confident that with our passionate employees under Jon's tenacious leadership, our unique platform, capabilities, and financial strength, Pason will achieve long-term success.

Pason's Board of Directors, management and employees would like to thank Jim Hill for his invaluable contributions and leadership in building Pason over the past 33 years. Jim acquired Pason in 1987 and the Company went public in 1996. Under his leadership, Pason developed revolutionary new products, including the PVT and EDR, which remain core to the Company's offering to this day.

I am humbled and grateful for the nine years I was able to serve Pason as President and Chief Executive Officer, and I look forward to continuing to support our great company as Chair of the Board.

(signed)

Marcel Kessler
President and Chief Executive Officer
August 6, 2020

Management's Discussion and Analysis
The following discussion and analysis has been prepared by management as of August 6, 2020, and is a review of the financial condition and results of operations of Pason Systems Inc. (Pason or the Company) based on International Financial Reporting Standards (IFRS) and should be read in conjunction with the Consolidated Financial Statements and accompanying notes.

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

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

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

The impact of applying IAS 21 to the operating results of Argentina subsidiary for the second quarter of 2020 was to decrease revenue by $389 and reduce segment gross profit by $391. The impact of applying IAS 29 to the non-monetary assets and liabilities, and shareholders' equity of the Argentina subsidiary was to record a non-cash net monetary adjustment of $396 for the second quarter of 2020. The impact of applying these two standards on the comparative period in 2019 was not material.

Impact on IFRS Measures


Three Months Ended
June 30, 2020

Six Months Ended
June 30, 2020

(000s) (unaudited)

($)

($)

(Decrease) in revenue

(389)

(296)

Decrease in rental services and local administration expenses

265

210

(Increase) in depreciation expense

(267)

(411)

(Decrease) in segment gross profit

(391)

(497)

Net monetary gain presented in other expenses

396

815

Decrease in other expenses

11

Decrease in income tax provision

13

1

Increase in net income

29

319

Impact on Non-IFRS Measures


Three Months Ended
June 30, 2020

Six Months Ended
June 30, 2020

(000s) (unaudited)

($)

($)

(Decrease) in revenue

(389)

(296)

Decrease in rental services and local administration expenses

265

210

Net monetary gain presented in other expenses

396

815

Decrease in other expenses

11

Increase in EBITDA

283

729

(Elimination) of net monetary gain presented in other expenses

(396)

(815)

(Elimination) of other expenses

(11)

(Decrease) in Adjusted EBITDA

(124)

(86)

Additional IFRS Measures

In its Consolidated Financial Statements, the Company uses certain additional IFRS measures. Management believes these measures provide useful supplemental information to readers.

Funds flow from operations

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

Cash from operating activities

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

Non-IFRS Financial Measures

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

Revenue per EDR day

Revenue per EDR day is defined as the daily revenue generated from all products that the Company has on rent on a drilling rig that has the Company's base EDR installed. This metric provides a key measure on the Company's ability to increase production adoption and evaluate product pricing.

EBITDA

EBITDA  is defined as net income before interest income and expense, income taxes, stock-based compensation expense, and depreciation and amortization expense.

Adjusted EBITDA

Adjusted EBITDA is defined as EBITDA, adjusted for foreign exchange, impairment of property, plant, and equipment, restructuring costs, net monetary adjustments, and other items which the Company does not consider to be in the normal course of continuing operations.

Management believes that EBITDA and Adjusted EBITDA are useful supplemental measures as they provide an indication of the results generated by the Company's principal business activities prior to the consideration of how these results are taxed in multiple jurisdictions, how the results are impacted by foreign exchange or how the results are impacted by the Company's accounting policies for equity-based compensation plans.

Free cash flow

Free cash flow is defined as cash from operating activities plus proceeds on disposal of property, plant, and equipment, less capital expenditures (including changes to non-cash working capital associated with capital expenditures), and deferred development costs. This metric provides a key measure on the Company's ability to generate cash from its principal business activities after funding the capital expenditure program, and provides an indication of the amount of cash available to finance, among other items, the Company's dividend and other investment opportunities.

Overall Performance


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

Change

2020

2019

Change

(000s) (unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue







Drilling Data

14,093

39,269

(64)

52,764

82,522

(36)

Mud Management and Safety

8,220

21,142

(61)

29,617

44,816

(34)

Communications

937

4,582

(80)

6,015

10,539

(43)

Drilling Intelligence

1,210

4,588

(74)

6,605

10,561

(37)

Analytics and Other

2,388

3,313

(28)

5,809

6,599

(12)

Total revenue

26,848

72,894

(63)

100,810

155,037

(35)

The Pason Electronic Drilling Recorder (EDR) remains the Company's primary product. The EDR provides a complete system of drilling data acquisition, data networking, and drilling management tools and reports at both the wellsite and at customer offices. The EDR is the base product from which all other wellsite instrumentation products are linked. By linking these products, a number of otherwise redundant elements such as data processing, display, storage, and networking are eliminated. This ensures greater reliability and a more robust system of instrumentation for the customer.

The COVID-19 pandemic has had a significant negative impact on the demand for fossil fuels and this combined with an over-supply of oil has led to a decline in oil prices. As a result, the Company's customers have reduced their capital expenditure programs which has led to a precipitous fall in the active rig count in all major markets the Company operates in, which has had a significant impact on the Company's revenue.

The US business unit experienced a decline in industry activity of 63% in the second quarter of 2020 compared to the corresponding period in 2019. For the second quarter of 2020, industry activity in the Canadian market decreased by 73% compared to the corresponding period in 2019. The International business unit experienced similar decreases in activity.

Total revenue decreased by 63% in the second quarter of 2020 compared to the corresponding period in 2019. The decrease is attributable to the decrease in industry activity as well as a decrease in revenue per EDR day in all three operating segments.

The decrease in analytics and other revenue of 28% in the second quarter of 2020 compared to the corresponding period in 2019 is less than the other categories predominantly as a result of the revenue generated from the acquisition of Energy Toolbase Software Inc.

US EDR days decreased by 61% in the second quarter of 2020 compared to the corresponding period in 2019, while Canadian EDR days, which includes non-oil and gas-related activity, decreased by 72% in the second quarter of 2020 compared to the corresponding period in 2019.

In the second quarter of 2020, the Pason EDR was installed on 65% of the land rigs in the US market, an increase of 300bps over the same period in 2019.

In the second quarter of 2020, the Pason EDR was installed on 94% of the land rigs in the Canadian market, an increase of 700bps over the same period in 2019. In calculating market share, the Company uses the number of EDR days billed and oil and gas drilling days as reported by accepted industry sources. The market share in the second quarter was impacted by higher than normal non-conventional rigs (e.g. crossing rigs) operating relative to conventional oil and gas rigs.

Discussion of Operations

United States Operations


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

Change

2020

2019

Change

(000s) (unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue







Drilling Data

11,672

29,242

(60)

36,382

58,418

(38)

Mud Management and Safety

6,344

17,038

(63)

20,427

34,255

(40)

Communications

714

3,101

(77)

2,988

6,330

(53)

Drilling Intelligence

913

3,128

(71)

3,030

6,280

(52)

Analytics and Other

1,477

1,122

32

3,280

2,813

17

Total revenue

21,120

53,631

(61)

66,107

108,096

(39)

Rental services and local administration

11,610

20,250

(43)

29,662

39,340

(25)

Depreciation and amortization

4,344

5,062

(14)

8,923

9,836

(9)

Segment gross profit

5,166

28,319

(82)

27,522

58,920

(53)


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

Change

2020

2019

Change

(unaudited)

(#)

(#)

(%)

(#)

(#)

(%)

Electronic Drilling Recorder (EDR) Rental Days

20,900

53,600

(61)

64,600

109,300

(41)


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

Change

2020

2019

Change

(unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue per EDR day - USD

695

745

(7)

732

736

(1)

Revenue per EDR day - CAD

963

996

(3)

999

981

2


Industry activity in the US market decreased by 63% in the second quarter of 2020 over the 2019 comparable period. The US rig count dropped throughout the second quarter of 2020, falling from approximately 790 rigs at the start of the second quarter to approximately 260 rigs at quarter-end. The drop in US rig count contributed to a 61% decrease in revenue for the second quarter of 2020 over the 2019 comparable period (64% when measured in USD).

Analytics and other revenue increased 32% in the second quarter of 2020 over the 2019 comparable period predominantly due to the revenue generated from the Energy Toolbase Software Inc. acquisition in the third quarter of 2019.

US market share was 65% for the second quarter of 2020 compared to 62% during the same period in 2019.

EDR rental days decreased by 61% in the second quarter of 2020 over the 2019 comparable period. Revenue per EDR day decreased by 7% to US$695 in the second quarter of 2020, a decrease of US$50 over the same period in 2019. The decrease in revenue per EDR day is predominately due to change in mix of active customers, and to a lesser extent price concessions provided to customers.

Rental services and local administration decreased by 43% in the second quarter of 2020 over the 2019 comparative period. The decrease in operating costs is attributable to the Company managing field and office staff levels to support the current level of activity. Included in the US business segment are the results of Energy Toolbase Software Inc.

Canadian Operations


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

Change

2020

2019

Change

(000s) (unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue







Drilling Data

982

3,642

(73)

9,439

11,734

(20)

Mud Management and Safety

589

2,296

(74)

5,670

6,979

(19)

Communications

176

1,060

(83)

2,531

3,352

(24)

Drilling Intelligence

223

1,179

(81)

3,200

3,669

(13)

Analytics and Other

720

1,038

(31)

1,576

1,994

(21)

Total revenue

2,690

9,215

(71)

22,416

27,728

(19)

Rental services and local administration

2,828

4,873

(42)

8,647

10,582

(18)

Depreciation and amortization

3,268

3,824

(15)

8,064

8,379

(4)

Segment gross (loss) profit

(3,406)

518

5,705

8,767

(35)





Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

Change

2020

2019

Change

(unaudited)

(#)

(#)

(%)

(#)

(#)

(%)

Electronic Drilling Recorder (EDR) Rental Days

1,800

6,400

(72)

17,300

21,900

(21)


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

Change

2020

2019

Change

(unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue per EDR day - CAD

1,060

1,290

(18)

1,210

1,185

2

Second quarter drilling activity in the WCSB was the lowest in almost four decades, and unlike in previous years, the industry did not see an uptick after spring breakup. Canadian drilling activity in the second quarter of 2020 decreased by 73% relative to the same period in 2019, while EDR rental days decreased by 72%.

The Canadian business unit's revenue decreased by 71% in the second quarter of 2020 over the 2019 comparative period.

Canadian market share was 94% for the second quarter of 2020 compared to a market share of 87% in the comparative period in 2019. Revenue per EDR day decreased by $230 to $1,060 during the second quarter of 2020 over the 2019 comparative period. As previously mentioned, the market share in the second quarter, as well as revenue per EDR day, was impacted by higher than normal non-conventional rigs operating relative to conventional oil and gas rigs. In addition, revenue per EDR day was affected by select price concessions provided to customers and a reduction in adoption on certain products.

Depreciation and amortization decreased by 15% in the second quarter of 2020 over the 2019 comparative period. Included in this category is the amortization of previously deferred research and development costs. The drop in these costs is attributable to research and development projects that are now fully amortized.

Segment gross profit was a loss for the second quarter of 2020 of $3.4 million compared to a gross profit of $0.5 million in the 2019 comparative period.

International Operations


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

Change

2020

2019

Change

(000s) (unaudited)

($)

($)

(%)

($)

($)

(%)

Revenue







Drilling Data

1,439

6,385

(77)

6,943

12,370

(44)

Mud Management and Safety

1,287

1,808

(29)

3,520

3,582

(2)

Communications

47

421

(89)

496

857

(42)

Drilling Intelligence

74

281

(74)

375

612

(39)

Analytics and Other

191

1,153

(83)

953

1,792

(47)

Total revenue

3,038

10,048

(70)

12,287

19,213

(36)

Rental services and local administration

3,371

5,540

(39)

8,654

10,846

(20)

Depreciation and amortization

1,000

1,092

(8)

2,039

1,985

3

Segment gross (loss) profit

(1,333)

3,416

1,594

6,382

(75)

Revenue in the International business unit decreased by 70% in the second quarter of 2020 compared to the same period in 2019. Activity levels in most all of the Company's major international markets experienced the significant reduction in activity that was witnessed in North America, except for Australia, which realized only a modest decline in activity compared to second quarter 2019 levels.

Segment gross profit was a loss of $1.3 million for the second quarter of 2020, an decrease of $4.7 million compared to the same period in 2019.

Corporate Expenses


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

Change

2020

2019

Change

(000s) (unaudited)

($)

($)

(%)

($)

($)

(%)

Research and development

6,737

7,661

(12)

14,799

15,405

(4)

Corporate services

2,827

3,895

(27)

6,512

7,548

(14)

Stock-based compensation

1,868

3,089

(40)

1,746

6,913

(75)

Other (income) expenses




Derecognition of onerous lease

(5,757)

(5,757)

Government wage assistance

(4,363)

(4,363)

Reorganization costs

5,554

5,554

Derecognition of lease receivable

4,289

4,289

Foreign exchange loss

79

553

(86)

32

654

(95)

Net interest expense - lease liability

68

108

(37)

246

245

Interest income - short term investments

(406)

(283)

43

(982)

(468)

110

Net monetary gain

(396)

(815)

Equity loss (income)

323

(66)

79

(224)

Other

(236)

293

66

556

(88)

Total corporate expenses

6,298

19,539

(68)

17,117

34,918

(51)

During the second quarter of 2020, the Company entered into an agreement to terminate the lease at its previous US head office in Golden, Colorado. As a result, a recovery of $5.8 million was recorded as other income, which is comprised of the derecognition of a previous recorded onerous lease liability, offset by a termination payment.

During the second quarter of 2020, as a result of the decline in revenue of the Canadian business unit, the Company was eligible for the Canada Emergency Wage Subsidy (CEWS) program. As a result, a CEWS benefit of $4.4 million was recorded as government wage assistance.

During the second quarter of 2020, the Company initiated staff reduction initiatives to address the anticipated prolonged downturn in oil and gas drilling activity in all of its markets. Accordingly, the Company recorded reorganization expense of $5.6 million, which is comprised of termination and other staff related costs. This reorganization led to a decline in corporate service expenses compared to the second quarter of 2019.

During the second quarter of 2019, the Company was notified that the tenant that was leasing the Company's previous office space in Colorado, USA filed for Chapter 7 bankruptcy. As a result, the Company derecognized the lease receivable and reported $4.3 million in other expenses.

Net monetary gain is as a result of applying hyperinflation accounting to the Company's Argentinian subsidiary.

Q2 2020 vs Q1 2020

The COVID-19 pandemic has had a significant negative impact on the demand for fossil fuels and this combined with an over-supply of oil has led to a decline in oil prices. As a result, the Company's customers have reduced their capital expenditure programs which has led to a precipitous fall in the active rig count in all major markets the Company operates in, which has had a significant impact on the Company's revenue.

Consolidated revenue was $26.8 million in the second quarter of 2020 compared to $74.0 million in the first quarter of 2020, a decrease of $47.2 million.

Revenue in the US business unit was $21.1 million in the second quarter of 2020 compared to $45.0 million in the first quarter of 2020. The decrease is attributable to a 52% decrease in industry activity as well as a 7% decrease (when measured in USD) in revenue per EDR day.

Revenue in the Canadian business unit was $2.7 million in the second quarter of 2020 compared to $19.7 million in the first quarter of 2020. The decrease is attributable to a 89% decrease in industry activity as well as a 14% decrease to revenue per EDR day.

The International business unit reported revenue of $3.0 million in the second quarter of 2020 compared to $9.2 million in the first quarter of 2020. The drop in revenue is attributable to a general decrease in industry activity in most markets.

Adjusted EBITDA, which adjusts EBITDA for foreign exchange and certain non-recurring charges, was a loss of $0.8 million in the second quarter of 2020 compared to $33.3 million in the first quarter of 2020.

Cash from operating activities was $30.0 million in the second quarter of 2020, compared to $27.6 million in the first quarter of 2020. Cash from operating activities was positively impacted by the release of $30.0 of working capital, reduced by a reduction in gross profit, and the payment of reorganization costs.

The Company recorded a net loss attributable to Pason in the second quarter of 2020 of $4.5 million ($0.05 per share) compared to net income attributable to Pason of $16.9 million ($0.20 per share) in the first quarter of 2020. The decrease is attributable to the drop in operating results and reorganization costs, partially offset by government wage assistance and the derecognition of an onerous lease liability.

Condensed Consolidated Interim Balance Sheets




As at

June 30, 2020

December 31, 2019

(CDN 000s) (unaudited)

($)

($)

Assets



Current



Cash and cash equivalents

176,486

161,016

Trade and other receivables

24,854

59,716

Income taxes recoverable - other

15,304

15,304

Prepaid expenses

1,805

3,621

Income taxes recoverable

3,017

2,382

Total current assets

221,466

242,039

Non-current


Property, plant and equipment

111,041

118,522

Investments

26,186

26,265

Intangible assets and goodwill

48,694

51,015

Total non-current assets

185,921

195,802

Total assets

407,387

437,841




Liabilities and equity



Current



Trade payables and accruals

18,800

34,420

Income taxes payable

5,722

3,133

Stock-based compensation liability

2,513

2,442

Lease liability

2,380

3,275

Investment - put option

10,000

15,000

Total current liabilities

39,415

58,270

Non-current


Deferred tax liabilities

8,513

8,566

Lease liability

5,024

11,532

Stock-based compensation liability

4,131

3,479

Obligation under put option

10,010

9,540

Total non-current liabilities

27,678

33,117

Equity


Share capital

166,561

166,701

Share-based benefits reserve

31,869

30,863

Foreign currency translation reserve

70,067

57,830

Equity reserve

(8,375)

(8,375)

Retained earnings

81,231

99,806

Total equity attributable to equity holders of the Company

341,353

346,825

Non-controlling interest

(1,059)

(371)

Total equity

340,294

346,454

Total liabilities and equity

407,387

437,841

Condensed Consolidated Interim Statements of Operations


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

2020

2019

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

($)

($)

($)

($)

Revenue

26,848

72,894

100,810

155,037

Operating expenses





Rental services

15,554

27,264

40,335

54,058

Local administration

2,255

3,399

6,628

6,710

Depreciation and amortization

8,612

9,978

19,026

20,200


26,421

40,641

65,989

80,968





Gross profit

427

32,253

34,821

74,069

Other expenses





Research and development

6,737

7,661

14,799

15,405

Corporate services

2,827

3,895

6,512

7,548

Stock-based compensation expense

1,868

3,089

1,746

6,913

Other (income) expenses

(5,134)

4,894

(5,940)

5,052


6,298

19,539

17,117

34,918




(Loss) income before income taxes

(5,871)

12,714

17,704

39,151

Income tax provision

(1,072)

3,469

5,951

10,862

Net (loss) income

(4,799)

9,245

11,753

28,289






Net (loss) income attributable to:





Shareholders of Pason

(4,487)

9,245

12,432

28,289

Non-controlling interest

(312)

(679)

Net (loss) income

(4,799)

9,245

11,753

28,289






(Loss) Income per share





Basic

(0.05)

0.11

0.15

0.33

Diluted

(0.05)

0.11

0.15

0.33

Condensed Consolidated Interim Statements of Other Comprehensive Income


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

2020

2019

(CDN 000s) (unaudited)

($)

($)

($)

($)

Net (loss) income

(4,799)

9,245

11,753

28,289

Items that may be reclassified subsequently to net
income:





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

9,690

10,481

Foreign currency translation adjustment

(11,660)

(5,567)

12,228

(13,093)

Other comprehensive (loss) gain

(11,660)

4,123

12,228

(2,612)

Total comprehensive (loss) income

(16,459)

13,368

23,981

25,677






Total comprehensive (loss) income attributed
to:





Shareholders of Pason

(16,178)

13,368

24,669

25,677

Non-controlling interest

(281)

(688)

Total comprehensive (loss) income

(16,459)

13,368

23,981

25,677

Condensed Consolidated Interim Statements of Cash Flows


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

2020

2019

(CDN 000s) (unaudited)

($)

($)

($)

($)

Cash from (used in) operating activities





Net (loss) income

(4,799)

9,245

11,753

28,289

Adjustment for non-cash items:





Depreciation and amortization

8,612

9,978

19,026

20,200

Stock-based compensation

1,868

3,089

1,746

6,913

Deferred income taxes

(285)

(1,356)

(278)

1,419

Derecognition of onerous lease

(5,757)

(5,757)

Derecognition of lease receivable

4,289

4,289

Hyperinflation adjustment

(287)

(731)

Unrealized foreign exchange loss and other

782

(1,451)

1,097

(1,417)

Funds flow from operations

134

23,794

26,856

59,693

Movements in non-cash working capital items:




Decrease in trade and other receivables

36,301

13,353

35,941

4,099

Decrease in prepaid expenses

770

742

1,869

1,021

(Decrease) in income taxes

(2,208)

(2,302)

4,423

1,223

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

(3,679)

834

(11,142)

(6,164)

Effects of exchange rate changes

(640)

1,661

(143)

1,588

Cash generated from operating activities

30,678

38,082

57,804

61,460

Income tax paid

(725)

(144)

(2,258)

(15,080)

Net cash from operating activities

29,953

37,938

55,546

46,380

Cash flows from (used in) financing activities




Proceeds from issuance of common shares

1,114

3,127

Payment of dividends

(16,038)

(15,417)

(32,064)

(30,856)

Repurchase and cancellation of shares under
NCIB

(263)

(9,097)

(4,083)

(11,119)

Repayment of lease liability

(658)

(382)

(1,243)

(1,053)

Net cash used in financing activities

(16,959)

(23,782)

(37,390)

(39,901)

Cash flows (used in) from investing activities




Payment on investment - put option

(5,000)

Additions to property, plant and equipment

(1,378)

(4,335)

(4,044)

(14,084)

Development costs

579

119

157

(449)

Proceeds on disposal of investment and property,
plant and equipment

393

508

807

618

Changes in non-cash working capital

341

(1,683)

357

467

Net cash used in investing activities

(65)

(5,391)

(7,723)

(13,448)

Effect of exchange rate on cash and cash
equivalents

(6,773)

(3,563)

5,037

(7,736)

Net increase (decrease) in cash and cash
equivalents

6,156

5,202

15,470

(14,705)

Cash and cash equivalents, beginning of period

170,330

183,931

161,016

203,838

Cash and cash equivalents, end of period

176,486

189,133

176,486

189,133

Operating Segments

The Company operates in three geographic segments: Canada, the United States, and International (Latin America, Offshore, the Eastern Hemisphere, and the Middle East). The following table represents a disaggregation of revenue from contracts with customers along with the reportable segment for each category:






Three Months Ended June 30, 2020

Canada

United States

International

Total

(CDN 000s) (unaudited)

($)

($)

($)

($)

Revenue





Drilling Data

982

11,672

1,439

14,093

Mud Management and Safety

589

6,344

1,287

8,220

Communications

176

714

47

937

Drilling Intelligence

223

913

74

1,210

Analytics and Other

720

1,477

191

2,388

Total Revenue

2,690

21,120

3,038

26,848

Rental services and local administration

2,828

11,610

3,371

17,809

Depreciation and amortization

3,268

4,344

1,000

8,612

Segment gross (loss) profit

(3,406)

5,166

(1,333)

427

Research and development




6,737

Corporate services




2,827

Stock-based compensation




1,868

Other (income)




(5,134)

Income tax provision




(1,072)

Net (loss)




(4,799)

Net (loss) attributable to Pason




(4,487)

Capital expenditures

452

347

799

As at June 30, 2020




Property plant and equipment

37,684

59,673

13,684

111,041

Intangible assets

12,011

1,928

13,939

Goodwill

1,259

30,896

2,600

34,755

Segment assets

99,927

255,897

51,563

407,387

Segment liabilities

36,374

26,240

4,479

67,093






Three Months Ended June 30, 2019

Canada

United States

International

Total

(CDN 000s) (unaudited)

($)

($)

($)

($)

Revenue





Drilling Data

3,642

29,242

6,385

39,269

Mud Management and Safety

2,296

17,038

1,808

21,142

Communications

1,060

3,101

421

4,582

Drilling Intelligence

1,179

3,128

281

4,588

Analytics and Other

1,038

1,122

1,153

3,313

Total Revenue

9,215

53,631

10,048

72,894

Rental services and local administration

4,873

20,250

5,540

30,663

Depreciation and amortization

3,824

5,062

1,092

9,978

Segment gross profit

518

28,319

3,416

32,253

Research and development




7,661

Corporate services




3,895

Stock-based compensation




3,089

Other expenses




4,894

Income tax provision




3,469

Net income




9,245

Net income attributable to Pason




9,245

Capital expenditures

592

2,390

1,234

4,216

As at June 30, 2019





Property plant and equipment

41,013

67,824

15,039

123,876

Intangible assets

17,089

17,089

Goodwill

1,259

7,468

2,600

11,327

Segment assets

106,984

276,687

53,575

437,246

Segment liabilities

28,337

25,623

6,220

60,180






Six Months Ended June 30, 2020

Canada

United States

International

Total

(CDN 000's) (unaudited)

($)

($)

($)

($)

Revenue





Drilling Data

9,439

36,382

6,943

52,764

Mud Management and Safety

5,670

20,427

3,520

29,617

Communications

2,531

2,988

496

6,015

Drilling Intelligence

3,200

3,030

375

6,605

Analytics and Other

1,576

3,280

953

5,809

Total Revenue

22,416

66,107

12,287

100,810

Rental services and local administration

8,647

29,662

8,654

46,963

Depreciation and amortization

8,064

8,923

2,039

19,026

Segment gross profit

5,705

27,522

1,594

34,821

Research and development




14,799

Corporate services




6,512

Stock-based compensation




1,746

Other (income)




(5,940)

Income tax provision




5,951

Net income




11,753

Net income attributable to Pason




12,432

Capital expenditures

2,506

1,031

350

3,887

As at June 30, 2020





Property plant and equipment

37,684

59,673

13,684

111,041

Intangible assets

12,011

1,928

13,939

Goodwill

1,259

30,896

2,600

34,755

Segment assets

99,927

255,897

51,563

407,387

Segment liabilities

36,374

26,240

4,479

67,093






Six Months Ended June 30, 2019

Canada

United States

International

Total

(CDN 000's) (unaudited)

($)

($)

($)

($)

Revenue





Drilling Data

11,734

58,418

12,370

82,522

Mud Management and Safety

6,979

34,255

3,582

44,816

Communications

3,352

6,330

857

10,539

Drilling Intelligence

3,669

6,280

612

10,561

Analytics and Other

1,994

2,813

1,792

6,599

Total Revenue

27,728

108,096

19,213

155,037

Rental services and local administration

10,582

39,340

10,846

60,768

Depreciation and amortization

8,379

9,836

1,985

20,200

Segment gross profit

8,767

58,920

6,382

74,069

Research and development




15,405

Corporate services




7,548

Stock-based compensation




6,913

Other expenses




5,052

Income tax provision




10,862

Net income




28,289

Net income attributable to Pason




28,289

Capital expenditures

1,496

11,172

1,865

14,533

As at June 30, 2019





Property plant and equipment

41,013

67,824

15,039

123,876

Intangible assets

17,089

17,089

Goodwill

1,259

7,468

2,600

11,327

Segment assets

106,984

276,687

53,575

437,246

Segment liabilities

28,337

25,623

6,220

60,180


Other (Income) Expenses


Three Months Ended June 30,

Six Months Ended June 30,


2020

2019

2020

2019

(CDN 000s) (unaudited)

($)

($)

($)

($)

Derecognition of onerous lease

(5,757)

(5,757)

Government wage assistance

(4,363)

(4,363)

Reorganization costs

5,554

5,554

Derecognition of lease receivable

4,289

4,289

Foreign exchange (gain) loss

79

553

32

654

Net interest expense - lease liabilities

68

108

246

245

Interest income - short term investments

(406)

(283)

(982)

(468)

Net monetary gain

(396)

(815)

Equity loss (income)

323

(66)

79

(224)

Other

(236)

293

66

556

Other (income) expenses

(5,134)

4,894

(5,940)

5,052

During the second quarter of 2020, the Company entered into an agreement to terminate the lease at its previous US head office in Golden, Colorado. As a result, a recovery of $5,757 was recorded, which is comprised of the derecognition of the previous recorded onerous lease liability, offset by a termination payment.

During the second quarter of 2020, as a result of the decline in revenue of the Canadian business unit, the Company was eligible for the Canada Emergency Wage Subsidy (CEWS) program. As a result, a CEWS benefit of $4,363 was recorded as government wage assistance.

During the second quarter of 2020, the Company initiated staff reduction initiatives to address the anticipated prolonged downturn in oil and gas drilling activity in all of its markets. Accordingly, the Company recorded reorganization expense of $5,554, which is comprised of termination and other staff related costs.

During the second quarter of 2019, the Company was notified that the tenant that was leasing the Company's previous office space in Colorado, USA filed for Chapter 7 bankruptcy. As a result, the Company derecognized the lease receivable and reported $4,289 in other expenses.

Net monetary gain is as a result of applying hyperinflation accounting to the Company's Argentinian subsidiary.

Events After the Reporting Period

On August 6, 2020, the Company announced a quarterly dividend of $0.05 per share on the Company's common shares. The dividend will be paid on September 30, 2020 to shareholders of record at the close of business on September 16, 2020.

Second Quarter Conference Call

Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its second quarter 2020 results at 9:00 am (Calgary time) on Friday, August 7, 2020. The conference call dial-in number is 1-888-231-8191 or 1-647-427-7450. You can access the seven-day replay by dialing 1-855-859-2056 or 1-416-849-0833, using password 1264338.

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

Additional information, including the Company's Annual Report and Annual Information Form for the year ended December 31, 2019, is available on SEDAR at www.sedar.com or on the Company's website at www.pason.com.

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.

Cision View original content: http://www.newswire.ca/en/releases/archive/August2020/06/c4133.html

Copyright CNW Group 2020

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