Pason Reports Fourth Quarter and Year End 2014 Results

CALGARY, Feb. 26, 2015 /CNW/ - Pason Systems Inc. (PSI.TO) announced today its 2014 fourth quarter and year end results.

Performance Data


Three Months Ended December 31,

Years Ended December 31,













2014


2013


Change


2014


2013


Change

(CDN 000s, except per share data)

($)


($)


(%)


($)


($)


(%)

Revenue

138,206


107,418


29


499,272


403,088


24

Income

47,211


24,288


94


112,104


23,655


374


Per share – basic

0.57


0.30


90


1.36


0.29


371


Per share – diluted

0.57


0.29


97


1.34


0.29


362

EBITDA (1)

59,065


54,543


8


251,623


136,647


84


As a % of revenue

42.7


50.8


(16)


50.4


33.9


49

Funds flow from operations

59,947


46,403


29


224,204


134,930


66


Per share – basic

0.73


0.57


29


2.71


1.64


65


Per share – diluted

0.72


0.56


29


2.68


1.63


64

Cash from (used in) operating activities

42,460


(75,220)



213,583


62,047


244

Free cash flow (1)

(4,144)


(95,090)


96


92,691


(8,035)



Per share – basic

(0.05)


(1.16)


96


1.12


(0.10)



Per share – diluted

(0.05)


(1.15)


96


1.10


(0.10)


Capital expenditures

46,654


20,127


132


121,188


70,664


71

Working capital

206,571


127,933


61


206,571


127,933


61

Total assets

570,066


445,876


28


570,066


445,876


28

Total long-term debt






Cash dividends declared

0.17


0.14


21


0.64


0.53


21

Shares outstanding end of period (#)

83,363


82,158


1


83,363


82,158


1

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

Q4 2014 vs Q4 2013

The Company generated consolidated revenue of $138.2 million in the fourth quarter of 2014, up 29% from $107.4 million in the same period of 2013. Growth in US market share, increased rig activity in all of its major markets, continued robust growth in Communications, strong market acceptance of the new Pason Rig Display (PRD), and a strengthening of the US dollar relative to the Canadian dollar all contributed to revenue growth in the fourth quarter. 

Consolidated EBITDA was $59.1 million in the fourth quarter, an increase of $4.5 million from the fourth quarter of 2013, due to strong operational performance and the strengthening of the US dollar relative to the Canadian dollar, offset by an impairment loss on excess rental assets of $14.9 million. Funds flow from operations increased by 29%.

Net income increased by $22.9 million to $47.2 million ($0.57 per share) in the fourth quarter of 2014 from net income of $24.3 million ($0.29 per share) in the prior year period. Earnings were positively impacted by market share growth in the US, increased rig activity, the appreciation of the US dollar relative to the Canadian dollar, and a recovery of stock-based compensation expense of $20.6 million, offset by the impairment loss on excess rental assets.

In the fourth quarter of 2014, the Company changed its dividend policy whereby the dividend is now paid in the same quarter as the record date.  As a result, there were two dividend payments made in the fourth quarter of 2014.

President's Message

Pason demonstrated very strong operational and financial performance during the fourth quarter of 2014. Quarterly revenue of $138.2 million and net income of $47.2 million, or $0.57 per share, represent record results for Pason. Drilling activity in North American land was higher than a year ago, although active rig counts started to decline in the United States in December. An increase in US market share, continued success of the new Pason Rig Display, growth in the Communications segment, and strengthening of the US dollar relative to the Canadian dollar contributed to revenue and income growth in the fourth quarter. In addition, a recovery of stock-based compensation expense of $20.6 million positively impacted income. However, this was largely offset by an impairment loss of $14.9 million on what we believe is excess quantities of rental equipment driven by the outlook for the industry.

Full year results for 2014 were equally impressive. Revenue for the year was just shy of half a billion dollars. EBITDA was 50% of revenue, net income was $112.1 million, or $1.34 per share, and return on equity was 26%. For 2014, Pason declared dividends totaling $0.64 per share, an increase of 21% from the previous year. This represents an unbroken track record of annual dividend increases since 2003. On December 31, 2014, our cash position stood at $144.9 million. There is no debt on the balance sheet.

All business units generated strong results in 2014. Full year operating profit for the United States was $164.4 million, for Canada $75.5 million, and for International $18.3 million. In the fourth quarter, our EDR market share in the United States was 62% compared to 57% during the fourth quarter of 2013. Revenue per EDR day (the average daily rental revenue we are able to generate per rig) was US$672, up 10% from the previous year. In Canada, EDR market share for the quarter was 94%, unchanged from a year ago. Revenue per EDR day was $1,258, up 12% from the previous year. All international businesses, including Latin America, Australia and the Middle East and North Africa demonstrated solid growth in 2014.

Outlook

In light of the severe market downturn, the short-term outlook is of course less optimistic. The declines in E&P capital spending and drilling activity are significant. The contraction of land rig counts in North America continues to accelerate and is more dramatic than in 2009. Pricing pressure is mounting. The supply/demand imbalance that caused the decline in oil prices continues to persist. In fact, oil production is still increasing, led by US shale. Absent a shock to the supply side, it may take some time for this imbalance to work itself out. We anticipate that drilling activity, especially in North American land, will continue to fall and may remain at much lower levels for an extended period of time. The quick recovery we experienced after 2009 looks unlikely in this environment.

Pason is not immune to these forces. We will experience a contraction in revenue and margins going forward. Given that there will be significantly fewer active drilling rigs, we are reducing our 2015 capital expenditure budget to $65.0 million. Of this budget, $31.0 million is directed toward new hardware that can generate incremental revenue or save operating costs for our customers, $24.4 million for maintenance capital, and $9.6 million for capitalized R&D.

To lay the foundation for future growth, we will continue to make targeted investments in new product development, service capabilities, and technical infrastructure.

With our excellent product suite, best-in-class service model, technical capabilities and pristine balance sheet, Pason is well positioned to weather this storm and emerge even stronger.

(signed)

Marcel Kessler
President and Chief Executive Officer
February 26, 2015

Management's Discussion and Analysis

The following discussion and analysis has been prepared by management as of February 26, 2015, and is a review of the financial condition and results of operations of Pason Systems Inc. (Pason or the Company) based on International Financial Reporting Standards (IFRS) and should be read in conjunction with the consolidated financial statements and accompanying notes.

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

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

Additional IFRS Measures

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

Funds flow from operations

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

Cash from operating activities

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

Non-IFRS Financial Measures

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

EBITDA

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

Free cash flow

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

Overall Performance


Three Months Ended December 31,

Years Ended December 31,


2014


2013


Change


2014


2013


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder

61,444


46,551


32


218,963


175,120


25


Pit Volume Totalizer/ePVT

20,043


15,931


26


72,684


60,589


20


Communications

12,440


7,844


59


42,018


28,597


47


Software

9,062


7,294


24


33,076


27,651


20


AutoDriller

11,814


9,896


19


44,102


37,445


18


Gas Analyzer

10,387


8,585


21


37,870


31,501


20


Other

13,016


11,317


15


50,559


42,185


20

Total revenue

138,206


107,418


29


499,272


403,088


24

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

Canada


Three Months Ended December 31,


Years Ended December 31,


2014


2013


Change


2014


2013


Change






(%)






(%)

EDR rental days (#)

31,800


30,600


4


122,900


113,600


8

PVT rental days (#)

31,300


29,700


5


120,300


111,100


8













United States


Three Months Ended December 31,


Years Ended December 31,


2014


2013


Change


2014


2013


Change






(%)






(%)

EDR rental days (#)

104,500


88,500


18


394,700


351,300


12

PVT rental days (#)

81,300


66,700


22


304,200


263,700


15

Electronic Drilling Recorder

The Pason EDR remains the Company's primary product. The EDR provides a complete system of drilling data acquisition, data networking, and drilling management tools and reports at both the wellsite and customer offices. The EDR is the base product from which all other wellsite instrumentation products are linked. By linking these products, a number of otherwise redundant elements such as data processing, display, storage, and networking are eliminated. This ensures greater reliability and a more robust system of instrumentation for the customer. Revenue generated from the EDR increased 32% for the fourth quarter of 2014 compared to the same period in 2013 and 25% for the year. These increases are attributable to continued growth in demand for EDR peripheral devices, the roll-out of the Pason Rig Display (PRD) in Canadian and US markets, an increase in US market share in 2014 over the fourth quarter of 2013 (62% versus 57%), a strengthening US dollar relative to the Canadian dollar, and increased revenue in International markets. Industry activity in the US market increased 9% in the fourth quarter of 2014 (6% on a year-to-date basis), while fourth quarter and year to date Canadian rig activity increased 4% and  9% respectively compared to the same periods in 2013.  Canadian EDR days increased 4% in the fourth quarter of 2014 and 8% for the year compared to the same periods in 2013, while US EDR days increased by 18% for the fourth quarter of 2014 and 12% for the year.

In the fourth quarter, the Pason EDR was installed on 94% of all active land rigs in Canada and 62% of the land rigs in the US, compared to 94% and 57% respectively in the fourth quarter of 2013.  On a year-to-date basis, the Pason EDR was installed on 94% of all active land rigs in Canada and 61% of the land rigs in the US, compared to 95% and 57% respectively in the same period of 2013.

In addition, the Company continues to increase revenue in its International business unit.

Pit Volume Totalizer

The PVT is Pason's proprietary solution for the detection and early warning of "kicks" that are caused by hydrocarbons entering the wellbore under high pressure and expanding as they migrate to the surface. PVT revenue for 2014 was impacted by rig count activity combined with an increase in product penetration in both the US market and International markets.  For the year ended 2014, the PVT was installed on 98% of rigs with a Pason EDR in Canada and 75% in the US, which was consistent with 2013. During the latter part of 2014, the company's new Enhanced PVT (ePVT) reached commercial status and is in the process of being rolled out in the company's major markets.

Communications

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

Communications revenue increased by 59% in the fourth quarter and 47% for the year compared to 2013 in large part due to increased usage of the Company's premium product offerings in both the US and Canadian markets, and the strengthening of the US dollar relative to the Canadian dollar.

Software

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

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

In 2014, 98% of the Company's Canadian customers and 91% of customers in the US were using all or a portion of the functionality of the DataHub, compared to 97% and 90%, respectively, in 2013.

AutoDriller

Pason's AutoDriller is used to maintain constant weight on the drill bit while a well is being drilled. For the year ended December 31, 2014, the AutoDriller was installed on 75% of Canadian and 46% of US land rigs operating with a Pason EDR system, compared to 73% and 45%, respectively, in 2013.

Gas Analyzer

The Pason Gas Analyzer measures the total hydrocarbon gases (C1 through C4) exiting the wellbore, and then calculates the lag time to show the formation depth where the gases were produced. The Gas Analyzer provides information about the composition of the gas, and further calculates geologic ratios from the gas composition to assist in indicating the type of gas, natural gas liquid, or oil in the formation. For the year ended 2014, the Gas Analyzer was installed on 63% of Canadian and 24% of US land rigs operating with a Pason EDR system. The penetration in Canada is an increase of approximately 6% in market share over 2013 levels while the US experienced an increase of 1%.

Other

Other is comprised mainly of the rental of service rig recorders in Latin America, the Electronic Choke Actuator, Hazardous Gas Alarm,  Mobilization revenue, sales of sensors and other systems sold by 3PS,  and spare parts sold by Pason Offshore. The increase in Other is due mostly to increased sales of sensors by 3PS Inc. and mobilization revenue in the US business unit.

Discussion of Operations

United States Operations


Three Months Ended December 31,


Years Ended December 31,


2014


2013


Change


2014


2013


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder

39,429


27,883


41


139,651


108,021


29


Pit Volume Totalizer/ePVT

11,862


8,755


35


42,487


33,959


25


Communications

6,242


3,417


83


21,032


11,997


75


Software

5,903


4,548


30


21,759


17,586


24


AutoDriller

6,749


5,124


32


24,849


20,467


21


Gas Analyzer

4,605


3,461


33


16,578


13,285


25


Other

8,285


6,574


26


32,012


26,645


20

Total revenue

83,075


59,762


39


298,368


231,960


29

Operating costs

28,391


21,661


31


100,858


88,697


14

Depreciation and amortization

9,703


7,221


34


33,142


29,366


13

Segment operating profit

44,981


30,880


46


164,368


113,897


44


Three Months Ended December 31,


2014

2013


USD

CAD

USD

CAD


$

$

$

$

Revenue per EDR day

672

761

611

641

Revenue per industry day

417

472

350

367











Years Ended December 31,


2014

2013


USD

CAD

USD

CAD


$

$

$

$

Revenue per EDR day

651

719

605

623

Revenue per industry day

395

437

345

356

US segment revenue increased by 39% in the fourth quarter over the 2013 comparable period (30% increase when measured in USD).  For the year, US segment revenue increased by 29% over the 2013 comparable period (21% increase when measured in USD).

Industry activity in the US market during the fourth quarter of 2014 increased by 9% from the prior year and 6% for the year while revenue from the rental of instrumentation equipment increased by 40% and 30% for the three and twelve month periods respectively over 2013 levels.  EDR rental days increased by 18% and 12%, respectively, for the three and twelve months ended December 31, 2014 over the same time periods in 2013, while revenue per EDR day in the fourth quarter of 2014 increased to US$672, an increase of US$61 over the same period in 2013.  For the year, revenue per EDR day increased to US$651, an increase of US$46 as compared to 2013.

Market share gains, increased usage of premium communication services, and a favourable movement in the exchange rate all contributed to revenue growth in the US segment. US market share was 61% during the year ended December 31, 2014, up from 57% in the same period of 2013.  

Operating costs increased by 31% in the fourth quarter relative to the same period in the prior year primarily due to a weakening of the Canadian dollar combined with an increase in field support-related costs, as new equipment continues to be deployed in the field.

Segment profit, as a percentage of revenue, was 54% for the fourth quarter of 2014 compared to 52% for the corresponding period in 2013, an increase of $14.1 million. For the year, segment profit as a percentage of revenue was 55% compared to 49% for the corresponding period in 2013, an increase of $50.5 million.  The US business unit was able to increase its operating margin primarily by leveraging its fixed cost structure and controlling variable costs.

Canadian Operations


Three Months Ended December 31,


Years Ended December 31,


2014


2013


Change


2014


2013


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder

15,918


13,621


17


57,475


48,943


17


Pit Volume Totalizer/ePVT

5,891


5,343


10


22,109


19,706


12


Communications

5,631


4,034


40


19,052


15,077


26


Software

2,824


2,620


8


10,349


9,631


7


AutoDriller

3,642


3,475


5


13,801


12,522


10


Gas Analyzer

4,394


3,913


12


16,296


13,618


20


Other

1,981


1,847


7


7,489


7,125


5

Total revenue

40,281


34,853


16


146,571


126,622


16

Operating costs

12,211


10,228


19


43,047


37,116


16

Depreciation and amortization

8,873


7,757


14


28,033


26,088


7

Segment operating profit

19,197


16,868


14


75,491


63,418


19


Three Months Ended December 31,


2014

2013


CAD

CAD


$

$

Revenue per EDR day

1,258

1,121

Revenue per Industry day

1,186

1,055








Years Ended December 31,


2014

2013


CAD

CAD


$

$

Revenue per EDR day

1,183

1,103

Revenue per Industry day

1,111

1,043

Canadian segment revenue grew by 16% for the three months ended December 31, 2014, and 16% for the year as compared to the same periods in 2013. This positive growth is a result of an 4% increase in the number of drilling industry days in the fourth quarter compared to 2013 levels, continued strong adoption of the PRD in conjunction with the rollout of the ePVT, higher Communications revenue, and greater penetration of the Gas Analyzer.  EDR rental days increased 4% in the fourth quarter and 8% for the year compared to 2013 levels.  

The Canadian business unit was able to increase its revenue for the year due to a shorter spring break up period in the second quarter, along with increased product adoption, notably EDR peripherals, the Gas Analyzer, and Communications revenue.

The factors above combined to result in an increase in revenue per EDR day of $137 to $1,258 during the fourth quarter of 2014 compared to 2013.  For the year, revenue per EDR day increased $80 to $1,183.

Operating costs increased by 19% in the fourth quarter of 2014 relative to the same period in 2013, primarily due to an increase in field support-related costs similar to the United States.  Segment operating profit for the fourth quarter of 2014 of $19.2 million is an increase of $2.3 million over the same period in 2013.  On a year-to-date basis, operating costs increased by 16%, which was attributable to the increase in satellite bandwidth costs to improve the customer experience at the rig and field support-related costs. Year-to-date segment operating profit of $75.5 million is an increase of 19% over the prior year.

International Operations


Three Months Ended December 31,

Years Ended December 31,


2014


2013


Change


2014


2013


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder

6,097


5,047


21


21,837


18,156


20


Pit Volume Totalizer/ePVT

2,290


1,833


25


8,088


6,924


17


Communications

567


393


44


1,934


1,523


27


Software

335


127


164


968


434


123


AutoDriller

1,423


1,297


10


5,452


4,456


22


Gas Analyzer

1,388


1,211


15


4,996


4,598


9


Other

2,750


2,895


(5)


11,058


8,415


31

Total revenue

14,850


12,803


16


54,333


44,506


22

Operating costs

7,634


6,715


14


27,999


27,702


1

Depreciation and amortization

2,568


1,534


67


8,026


6,717


19

Segment operating profit

4,648


4,554


2


18,308


10,087


82

Revenue in the International operations segment increased 16% in the fourth quarter of 2014 and 22% for the year ended compared to the same periods in 2013, with increased revenue from each of the Company's rental products.

Operating profit increased by $0.1 million for the fourth quarter of 2014 over 2013, an increase of 2%. For the year ended, operating profit increased by $8.2 million, an increase of 82% from the same period in 2013.

A number of factors influenced these results:

  • Latin America revenue increased 19% in the fourth quarter and 18% year-to-date compared to prior periods as the Company saw increased activity in the majority of its major markets.
  • The Company continues to increase its customer base in areas the Company has identified as "frontier markets" including the Middle East and North Africa (MENA) regions. These new markets, combined with increases in rig activity in the Gulf of Mexico, resulted in an increase in fourth quarter revenue of 17% over the same period in 2013 and 49% on a year-to-date basis.
  • Australia revenue increased 8% in the fourth quarter and 19% for the year as a result of increased penetration of the company's rental products.

Corporate Expenses


Three Months Ended December 31,


Years Ended December 31,


2014

2013

Change


2014

2013

Change

(000s)

($)

($)

(%)


($)

($)

(%)

Other expenses








Research and development

10,653

6,820

56


35,427

27,252

30

Corporate services

6,014

4,319

39


22,243

17,373

28

Stock-based compensation

(20,600)

6,144


19,471

32,511

(40)

Other









Litigation provision


61,614

(100)


Foreign exchange (gain) loss

(1,498)

2,797


729

2,175

(66)


Earn-out provision


3,071

(100)


Impairment loss

14,884


14,884


Other

852

335

154


2,462

1,441

71

Total corporate expenses

10,305

20,415

(50)


95,216

145,437

(35)

During the fourth quarter of 2014, the Company reviewed the level of rental equipment deployed in each respective business unit versus the anticipated decline in utilization rates of such equipment due to the reduction in drilling activity as a result of the drop in oil and gas prices. This review resulted in the Company identifying what it believes is excess equipment based upon management's best estimate of future drilling activity. The net book value of this excess equipment, totaling $14.9 million, was recorded as an impairment loss in the fourth quarter of 2014.

The significant drop in the share price during Q4 of 2014 resulted in a recovery of stock-based compensation expense of $20.6 million.

Q4 2014 versus Q3 2014

Consolidated revenue was $138.2 million in the fourth quarter of 2014 compared to $134.0 million in the third quarter of 2014, an increase of $4.2 million or 3%. The Canadian segment earned revenue of $40.3 million in the fourth quarter as compared to $38.6 million in the third quarter of 2014, an increase of $1.7 million. The US market experienced revenue growth of $3.7 million and the International segment had a revenue decrease of $1.2 million.

Sequentially, EBITDA decreased 22% from $76.1 million in the third quarter of 2014 to $59.1 million in the fourth quarter of 2014 due in most part to the impairment loss on excess rental assets of $14.9 million, while funds flow from operations decreased to $59.9 million in the fourth quarter from $63.7 million in the third quarter of 2014.

Net income increased by 78% to $47.2 million ($0.57 per share) in the fourth quarter of 2014 from $26.5 million ($0.31 per share) in the prior quarter due to the large stock-based compensation recovery and a lower effective tax rate for the fourth quarter of 2014, offset by the impairment loss on rental assets that was recognized in the fourth quarter.

Fourth Quarter & Year End Conference Call

Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its fourth quarter and full-year results at 9:00 am (Calgary time) on Friday, February 27, 2015. The conference call dial-in number is 1-888-231-8191 or 1-647-427-7450. You can access the seven-day replay by dialing 1-855-859-2056 or 1-416-849-0833, using password 45067619.

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.

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

Shareholders are also invited to attend the Company's Annual and Special Meeting on Wednesday, May 6, 2015, at 3:30 pm at the offices of Pason Systems Inc., 6120 Third Street SE, Calgary, Alberta.

Consolidated Balance Sheets

As at


December 31, 2014


December 31, 2013


(CDN 000s)


($)


($)








Assets






Current







Cash and cash equivalents


144,858


78,018



Cash held in trust



11,502



Trade and other receivables


122,494


87,469



Prepaid expenses


5,811


3,121



Income taxes recoverable


491


15,752



Total current assets


273,654


195,862


Non-current







Property, plant and equipment


234,344


183,601



Intangible assets and goodwill


62,068


65,261



Deferred tax assets



1,152



Total non-current assets


296,412


250,014


Total assets


570,066


445,876


Liabilities and equity






Current







Trade payables and accruals


47,414


30,485



Income taxes payable


3,544




Stock-based compensation liability


16,125


25,942



Dividend payable



11,502



Total current liabilities


67,083


67,929


Non-current







Stock-based compensation liability


3,018


3,905



Deferred tax liabilities


16,442


7,573



Total non-current liabilities


19,460


11,478


Equity







Share capital


113,827


80,725



Share-based benefits reserve


12,927


12,927



Foreign currency translation reserve


32,807


7,958



Retained earnings


323,962


264,859



Total equity


483,523


366,469


Total liabilities and equity


570,066


445,876



Consolidated Statements of Operations



Three Months Ended December
31,


Years Ended
December 31,





















2014


2013


2014


2013

(CDN 000s, except per share data)


($)


($)


($)


($)










Revenue


138,206


107,418


499,272


403,088

Operating expenses










Rental services


43,610


33,368


153,151


134,874


Local administration


4,626


5,236


18,753


18,641


Depreciation and amortization


21,144


16,512


69,201


62,171



69,380


55,116


241,105


215,686










Operating profit


68,826


52,302


258,167


187,402










Other expenses










Research and development


10,653


6,820


35,427


27,252


Corporate services


6,014


4,319


22,243


17,373


Stock-based compensation


(20,600)


6,144


19,471


32,511


Other expenses


14,238


3,132


18,075


68,301



10,305


20,415


95,216


145,437










Income before income taxes


58,521


31,887


162,951


41,965


Income taxes


11,310


7,599


50,847


18,310

Net income


47,211


24,288


112,104


23,655

Income per share










Basic


0.57


0.30


1.36


0.29


Diluted


0.57


0.29


1.34


0.29

Consolidated Statements of Other Comprehensive Income


Three Months Ended December
31,


Years Ended
December 31,
















2014


2013


2014


2013

(CDN 000s)

($)


($)


($)


($)

Net income

47,211


24,288


112,104


23,655

Items that may be reclassified subsequently to net income:









Foreign currency translation adjustment

8,855


9,421


24,849


16,306

Total comprehensive income

56,066


33,709


136,953


39,961


Consolidated Statements of Changes in Equity



Share Capital


Share-Based
Benefits
Reserve


Foreign
Currency
Translation
Reserve


Retained
Earnings


Total Equity

(CDN 000s)


($)


($)


($)


($)


($)

Balance at January 1, 2013


79,393


12,927


(8,348)


284,724


368,696


Net loss





(633)


(633)


Dividends





(32,018)


(32,018)


Other comprehensive income




6,885



6,885


Exercise of stock options


1,020





1,020

Balance at September 30, 2013


80,413


12,927


(1,463)


252,073


343,950


Net income


---


---


---


24,288


24,288


Dividends





(11,502)


(11,502)


Other comprehensive income




9,421



9,421


Exercise of stock options


312





312

Balance at December 31, 2013


80,725


12,927


7,958


264,859


366,469


Net income





64,893


64,893


Dividends





(38,845)


(38,845)


Other comprehensive income




15,994



15,994


Exercise of stock options


21,984





21,984

Balance at September 30, 2014


102,709


12,927


23,952


290,907


430,495


Net income





47,211


47,211


Dividends





(14,156)


(14,156)


Other comprehensive income




8,855



8,855


Exercise of stock options


11,118





11,118

Balance at December 31, 2014


113,827


12,927


32,807


323,962


483,523

Consolidated Statements of Cash Flows


Three Months Ended
December 31,


Years Ended
December 31,
















2014


2013


2014


2013

(CDN 000s)

($)


($)


($)


($)

Cash from operating activities









Net income

47,211


24,288


112,104


23,655

Adjustment for non-cash items:









Depreciation and amortization

21,144


16,512


69,201


62,171


Impairment loss

14,884



14,884



Stock-based compensation

(20,600)


6,144


19,471


32,511


Deferred income taxes

2,204


(2,358)


9,958


12,899


Unrealized foreign exchange (gain) loss

(4,896)


1,817


(1,414)


3,694

Funds flow from operations

59,947


46,403


224,204


134,930

Movements in non-cash working capital items:









(Increase) decrease in trade and other receivables

(2,228)


2,712


(30,580)


(999)


(Increase) decrease in prepaid expenses

(1,238)


463


(2,542)


(125)


Increase (decrease) in income taxes

6,953


6,242


30,732


(8,020)


Decrease in litigation provision


(115,192)



(52,033)


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

(19,354)


(17,961)


(1,248)


(3,484)


Effects of exchange rate changes

4,300


2,898


5,134


3,079

Cash generated from (used in) operating activities

48,380


(74,435)


225,700


73,348


Income tax paid

(5,920)


(785)


(12,117)


(11,301)

Net cash from (used in) operating activities

42,460


(75,220)


213,583


62,047

Cash flows from (used in) financing activities









Proceeds from issuance of common shares

6,781


312


16,741


1,332


Settlement of stock options


(3,643)


(2,589)


(10,153)


Payment of dividends

(28,245)


(10,677)


(64,502)


(51,709)

Net cash used in financing activities

(21,464)


(14,008)


(50,350)


(60,530)

Cash flows (used in) from investing activities









Additions to property, plant and equipment

(44,665)


(17,265)


(113,679)


(56,171)


Capitalized development costs

(1,989)


(2,862)


(7,509)


(14,493)


Proceeds on disposal of property, plant and equipment

50


257


296


582


Changes in non-cash working capital

(180)


(482)


6,152


(989)

Net cash used in investing activities

(46,784)


(20,352)


(114,740)


(71,071)

Effect of exchange rate on cash and cash equivalents

5,559


951


6,845


1,130

Net (decrease) increase in cash and cash equivalents

(20,229)


(108,629)


55,338


(68,424)

Cash and cash equivalents, beginning of period

165,087


198,149


89,520


157,944

Cash and cash equivalents, end of period

144,858


89,520


144,858


89,520









Cash and cash equivalents consists of:








Cash and cash equivalents

144,858


78,018


144,858


78,018

Cash held in trust


11,502



11,502

Cash and cash equivalents, end of year

144,858


89,520


144,858


89,520


Operating Segments

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

Three Months Ended December 31, 2014

Canada


United States


International


Total

(CDN 000s)

($)


($)


($)


($)

Revenue

40,281


83,075


14,850


138,206

Operating costs

12,211


28,391


7,634


48,236

Depreciation and amortization

8,873


9,703


2,568


21,144

Segment operating profit

19,197


44,981


4,648


68,826

Research and development







10,653

Corporate services







6,014

Stock-based compensation







(20,600)

Other expenses







14,238

Income taxes







11,310

Net income







47,211

Capital expenditures

19,970


19,998


6,686


46,654

Goodwill


21,471


2,600


24,071

Intangible assets

31,910


4,319


1,768


37,997

Segment assets

173,932


321,842


74,292


570,066

Segment liabilities

47,220


26,786


12,537


86,543









Three Months Ended December 31, 2013








(CDN 000s)








Revenue

34,853


59,762


12,803


107,418

Operating costs

10,228


21,661


6,715


38,604

Depreciation and amortization

7,757


7,221


1,534


16,512

Segment operating profit

16,868


30,880


4,554


52,302

Research and development







6,820

Corporate services







4,319

Stock-based compensation







6,144

Other expenses







3,132

Income taxes







7,599

Net income







24,288

Capital expenditures

10,151


7,852


2,124


20,127

Goodwill


19,685


2,600


22,285

Intangible assets

32,343


7,773


2,860


42,976

Segment assets

173,947


210,764


61,165


445,876

Segment liabilities

46,495


23,621


9,291


79,407

Year Ended December 31, 2014

Canada


United States


International


Total

(CDN 000s)

($)


($)


($)


($)

Revenue

146,571


298,368


54,333


499,272

Operating costs

43,047


100,858


27,999


171,904

Depreciation and amortization

28,033


33,142


8,026


69,201

Segment operating profit

75,491


164,368


18,308


258,167

Research and development







35,427

Corporate services







22,243

Stock-based compensation







19,471

Other expenses







18,075

Income taxes







50,847

Net income







112,104

Capital expenditures

55,284


53,917


11,987


121,188

Goodwill


21,471


2,600


24,071

Intangible assets

31,910


4,319


1,768


37,997

Segment assets

173,932


321,842


74,292


570,066

Segment liabilities

47,220


26,786


12,537


86,543









Year Ended December 31, 2013








(CDN 000s)








Revenue

126,622


231,960


44,506


403,088

Operating costs

37,116


88,697


27,702


153,515

Depreciation and amortization

26,088


29,366


6,717


62,171

Segment operating profit

63,418


113,897


10,087


187,402

Research and development







27,252

Corporate services







17,373

Stock-based compensation







32,511

Other expenses







68,301

Income taxes







18,310

Net income







23,655

Capital expenditures

37,709


26,101


6,854


70,664

Goodwill


19,685


2,600


22,285

Intangible assets

32,343


7,773


2,860


42,976

Segment assets

173,947


210,764


61,165


445,876

Segment liabilities

46,495


23,621


9,291


79,407


Other Expenses


Three Months Ended December
31,


Years Ended
December 31,


2014


2013


2014


2013

(CDN 000s)

($)


($)


($)


($)

Litigation provision




61,614

Foreign exchange (gain)/loss

(1,498)


2,797


729


2,175

Earn-out provision




3,071

Impairment loss

14,884



14,884


Other

852


335


2,462


1,441

Other expenses

14,238


3,132


18,075


68,301

During the fourth quarter of 2014, the Company reviewed the level of rental equipment deployed versus the anticipated decline in utilization rates of such equipment due to the reduction in drilling activity as a result of the drop in oil and gas prices. This review resulted in the Company identifying what it believes is excess equipment based upon management's best estimate of future drilling activity. The net book value of this excess equipment, totaling $14,884 (2013: nil), of which $2,305 related to the Canadian segment and $12,579 to the US operating segment, was recorded as a non-cash impairment loss and is included in other expenses in the Consolidated Statements of Operations.

Since 2003, the Company had been defending its position in three patent infringement lawsuits relating to its automatic driller product. The three separate lawsuits all alleged that the Company's automatic driller infringed a certain patent which expired on April 19, 2013. Pason had been defending its position on the grounds that the asserted claims in the patent were invalid and that in any event the Pason automatic driller does not infringe any of the claims of the patent.

In August  2013, the Company and the plaintiff in the litigation negotiated a final resolution and settlement totaling USD $112,000. As a result of this settlement and license agreement, the Company recorded an additional provision in its consolidated financial statements in 2013. The payment required to resolve all claims against the Company regarding this matter was made in the fourth quarter of 2013.

Part of the purchase of Petron was an earn-out clause that was conditional on the successful commercialization of a revenue stream generated from a product designed by Petron. Management concluded that an amount was owing and the Company and previous shareholders of Petron agreed to $3,071, which was recorded in 2013.

Events After the Reporting Period

In February 2015, the Company became aware of a number of patent infringement lawsuits that were recently filed by a small, privately-held instrumentation company based in Texas, USA. The Company is named as the defendant in one of these actions. These complaints all allege patent infringement.

The company has appointed litigation counsel and is considering its options to defend the claim. At this time no financial statement impact, if any, can be determined.

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.

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

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