Pason Reports Second Quarter 2016 Results

CALGARY, Aug. 10, 2016 /CNW/ - Pason Systems Inc. (TSX:PSI) announced today its 2016 second quarter results.

Performance Data


Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


Change


2016


2015


Change

(CDN 000s, except per share data)

($)


($)


(%)


($)


($)


(%)

Revenue

27,173


57,440


(53)


72,986


156,842


(53)

(Loss) income

(11,319)


(9,404)


(20)


(22,179)


4,787



Per share – basic

(0.13)


(0.11)


(18)


(0.26)


0.06



Per share – diluted

(0.13)


(0.11)


(18)


(0.26)


0.06


EBITDA (1)

(2,231)


7,485



(2,584)


51,611



As a % of revenue

(8.2)


13.0



(3.5)


32.9


Adjusted EBITDA (1)

(1,470)


9,911



7,293


51,590


(86)


As a % of revenue

(5.4)


17.3



10.0


32.9


(23)

Funds flow from operations

(974)


9,277



2,361


52,539


(96)


Per share – basic

(0.01)


0.11



0.03


0.63


(95)


Per share – diluted                    

(0.01)


0.11



0.03


0.63


(95)

Cash from operating activities

2,993


31,300


(90)


14,324


102,833


(86)

Free cash flow (1)

(1,489)


21,298



3,371


69,517


(95)


Per share – basic

(0.02)


0.25



0.04


0.83


(95)


Per share – diluted

(0.02)


0.25



0.04


0.83


(95)

Capital expenditures

4,929


10,002


(51)


11,509


33,515


(66)

Working capital

197,843


227,046


(13)


197,843


227,046


(13)

Total assets

456,894


549,310


(17)


456,894


549,310


(17)

Total long-term debt






Cash dividends declared

0.17


0.17



0.34


0.34


Shares outstanding end of period (#000's)

84,280


83,656


1


84,280


83,656


1

(1)

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

 

Q2 2016 vs Q2 2015

The Company generated consolidated revenue of $27.2 million in the second quarter of 2016, down 53% from $57.4 million in the same period of 2015. Continuing depressed commodity prices and overall economic uncertainty led customers to reduce capital spending, and this, combined with the seasonality of the Canadian market, led oil and gas producers to drill the lowest number of wells in decades in the current quarter. These negative factors were partially offset by a stronger US dollar relative to the Canadian dollar in 2016 compared to the same period in 2015.

Consolidated EBITDA was a negative $2.2 million in the second quarter, a decrease of $9.7 million from the second quarter of 2015. Adjusted EBITDA, which adjusts for foreign exchange and certain non-recurring charges, decreased to a negative $1.5 million, down from a positive $9.9 million in the second quarter of 2015. 

The Company recorded a net loss of $11.3 million ($0.13 per share) in the second quarter, a decrease of $1.9 million from the net loss of $9.4 million ($0.11 per share) recorded in the same period in 2015. Cost reduction programs previously implemented and a significant decline in depreciation expense over 2015 levels off-set the drop in revenue. In addition, the second quarter 2015 results included a restructuring charge of $2.6 million.

President's Message

The environment for oilfield services worldwide remained extremely challenging during the second quarter. US drilling activity, as measured in industry days, dropped 55% from the previous year period and 24% from the first quarter. These are the lowest US activity levels since reliable tracking has started. Canadian drilling activity experienced a 53% year-over-year reduction and was the weakest in 30 years. The majority of international markets were similarly affected.

Pason's second quarter results directly reflect the declines in drilling activity. Revenue for the quarter was $27.2 million, a 53% decline from the previous year. Adjusted EBITDA was a negative $1.5 million and the company incurred a loss for the quarter of $11.3 million or $0.13 per share. Significant cost reductions previously implemented, and lower depreciation expenses, partially offset the drop in revenue. There is no debt on our balance sheet.  We are maintaining our quarterly dividend at $0.17 share.

North American EDR market share was down from the previous year, primarily driven by changes in the mix of active customers and regions. Revenue per EDR day in the US and Canada was essentially unchanged year-over-year with pricing concessions being offset by higher adoption of certain products.

It is likely that the second quarter was the low point for North American drilling activity both seasonally and cyclically. However, oil prices continue to be volatile and the outlook remains uncertain. We don't expect significant increases in oil company capital spending plans for the rest of the year. We also don't expect any improvements in pricing for some time. In the US, activity uplift is likely to happen earliest in the Permian region.

For the remainder of 2016, we aim to strike the optimal balance between cost control and investments in future growth. Our objective is to generate positive free cash flow (excluding restructuring costs) before the dividend for the year, while holding on to our position as the service provider of choice for key operator and drilling contractor customers.

We are continuing to invest in future growth, including investing in new product development, service capabilities, infrastructure and systems, and in our international footprint. We plan to continue to allocate resources for R&D and IT and we intend to spend up to $25 million in capital expenditures in 2016. We are focusing our development efforts on products and services that create significant and visible value, either by saving costs or by increasing revenues, for our customers.

We are building on our strong market position and reputation, and seek opportunities where we can take advantage of our significant strengths. We believe that Pason continues to be well-positioned to maximize returns in the industry's eventual upturn.

(signed)
Marcel Kessler
President and Chief Executive Officer
August 10, 2016

Management's Discussion and Analysis

The following discussion and analysis has been prepared by management as of August 10, 2016, and is a review of the financial condition and results of operations of Pason Systems Inc. (Pason or the Company) based on International Financial Reporting Standards (IFRS) and should be read in conjunction with the consolidated financial statements and accompanying notes.

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

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

Additional IFRS Measures

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

Funds flow from operations

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

Cash from operating activities

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

Non-IFRS Financial Measures

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

Revenue per EDR Day

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

EBITDA

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

Adjusted EBITDA

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

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 June 30,


Six Months Ended June 30,


2016


2015


Change


2016


2015


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder (1)

11,462


25,616


(55)


30,617


68,292


(55)


Pit Volume Totalizer/ePVT

3,465


7,579


(54)


9,821


21,746


(55)


Communications (1)

2,258


4,459


(49)


6,589


13,147


(50)


Software

1,791


3,902


(54)


4,922


10,581


(53)


AutoDriller

1,517


3,908


(61)


4,283


11,514


(63)


Gas Analyzer

1,853


3,845


(52)


5,477


11,526


(52)


Other

4,827


8,131


(41)


11,277


20,036


(44)

Total revenue

27,173


57,440


(53)


72,986


156,842


(53)

(1)

A portion of the Company's Communications revenue was reclassified to EDR revenue to better reflect the nature of such revenue. 2015 comparative figures have been reclassified to conform with 2016 presentation. (Q2 2015 - $690, and YTD 2015- $1,965).

 

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 June 30,


Six Months Ended June 30,


2016


2015


Change


2016


2015


Change


#


#


(%)


#


#


(%)

EDR rental days

4,400


8,400


(48)


19,400


34,600


(44)

PVT rental days

4,000


7,900


(49)


18,000


32,700


(45)















United States


Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


Change


2016


2015


Change


#


#


(%)


#


#


(%)

EDR rental days

18,400


47,200


(61)


43,600


113,200


(61)

PVT rental days

14,400


35,400


(59)


33,400


87,300


(62)

 

Electronic Drilling Recorder (EDR)

The Pason EDR remains the Company's primary product. The EDR provides a complete system of drilling data acquisition, data networking, and drilling management tools and reports at both the wellsite and customer offices. The EDR is the base product from which all other wellsite instrumentation products are linked. By linking these products, a number of otherwise redundant elements such as data processing, display, storage, and networking are eliminated. This ensures greater reliability and a more robust system of instrumentation for the customer. Revenue generated from the EDR decreased 55% for both the second quarter and first six months of  2016 compared to the corresponding period in 2015. This decrease is attributable to the industry slowdown, lower product adoption of certain EDR peripheral devices, and pricing pressures from customers, which were offset by a stronger US dollar relative to the Canadian dollar compared to the prior year.  Industry activity in the US market decreased 55% in the second quarter of 2016 compared to the corresponding period in 2015 (59% on a year-to-date basis), while second quarter Canadian rig activity decreased 53% compared to the same period in 2015 (49% on a year-to-date basis). Canadian EDR days, which includes non oil and gas-related activity,  decreased 48% in the second quarter of 2016 from 2015 levels (44% on a year-to-date basis), while US EDR days decreased by 61% from the second quarter of 2015 (61% on a year-to-date basis).

Canadian market share during the first half of the year was relatively unchanged from 2015 levels. The Pason EDR was installed on 54% of active land rigs in the US, compared to 57% in the first half of 2015. For purposes of market share, the Company uses oil and gas drilling days as reported by accepted industry sources.

The Company's International business unit is experiencing the same market conditions as the North American market except for the Middle East, where the Company is realizing an increase in its share of net income from its Saudi Arabia joint venture as a result of a continuing increases in rig count and market penetration.


Pit Volume Totalizer (PVT) and Enhanced Pit Volume Totalizer (ePVT)

The ePVT is Pason's proprietary solution for the detection and early warning of "kicks" that are caused by hydrocarbons entering the wellbore under high pressure and expanding as they migrate to the surface. PVT revenue for the first six months of 2016 was impacted by the decline in rig count activity, offset partially with continued customer adoption of the new ePVT. During the first six months of 2016, the ePVT was installed on 93% of rigs with a Pason EDR in Canada and 77% in the US, compared to 94% and 75% respectively, in the same period of 2015.

Communications

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

Communications revenue decreased by 50% in the first six months of 2016 compared to the same period in 2015 due to the industry slowdown, offset by an increase in customer adoption of new communication solutions rolled out in the Canadian and US markets.

Software

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

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

 

During the first half of 2016, 97% of the Company's Canadian customers and 87% of customers in the US were using all or a portion of the functionality of the DataHub, compared to 95% and 88% respectively in the first half 2015.

AutoDriller

Pason's AutoDriller is used to maintain constant weight on the drill bit while a well is being drilled. During the six months ended June 30, 2016, the AutoDriller adoption rates continue to decline and the Company anticipates this to continue due in most part to the drop in the number of mechanical rigs being deployed.

Gas Analyzer

The Pason Gas Analyzer measures the total hydrocarbon gases (C1 through C4 and CO2) exiting the wellbore, and then calculates the lag time to show the formation depth where the gases were produced. The Gas Analyzer provides information about the composition of the gas, and further calculates geologic ratios from the gas composition to assist in indicating the type of gas, natural gas liquid, or oil in the formation. During the first six months of 2016, the Gas Analyzer was installed on 57% of Canadian and 31% of US land rigs operating with a Pason EDR system, compared to 57% and 28% for the Canadian and US segments respectively in the prior year period.

Other

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

Discussion of Operations

United States Operations


Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


Change


2016


2015


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder (1)

7,383


18,237


(60)


18,070


45,015


(60)


Pit Volume Totalizer/ePVT

2,174


5,005


(57)


5,350


13,041


(59)


Communications (1)

1,172


2,609


(55)


2,717


6,261


(57)


Software

1,338


3,053


(56)


3,095


7,259


(57)


AutoDriller

617


2,103


(71)


1,582


5,825


(73)


Gas Analyzer

1,077


2,355


(54)


2,675


5,959


(55)


Other

2,630


5,116


(49)


6,528


12,633


(48)

Total revenue

16,391


38,478


(57)


40,017


95,993


(58)

Operating costs

10,749


19,375


(45)


25,994


44,350


(41)

Depreciation and amortization

5,463


8,254


(34)


12,236


18,012


(32)

Segment operating profit

179


10,849


(98)


1,787


33,631


(95)

(1)

A portion of the Company's Communications revenue was reclassified to EDR revenue to better reflect the nature of such revenue. 2015 comparative figures have been reclassified to conform with 2016 presentation. (Q2 2015 - $625 and YTD 2015 - $1,571).

 


Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


2016


2015


$


$


$


$

Revenue per EDR day - USD

624


620


621


650

Revenue per EDR day - CAD

804


761


827


803

 

US segment revenue decreased by 57% in the second quarter of 2016 over the 2015 comparable period (61% decrease when measured in USD). For the first six months, revenue decreased by 58% (63% decrease when measured in USD).

Industry activity in the US market during the second quarter of 2016 decreased 55% from the prior year,   and 59% for the first six months.

EDR rental days decreased by 61% for the quarter ended June 30, 2016, over the same time period in 2015, while revenue per EDR day in the second quarter of 2016 increased to US$624, a slight increase of US$4 over the same period in 2015. This increase is due to a slight uptick on adoption of the ePVT and the Pason Rig Display along with continued customer acceptance of  enhanced communication solutions, offset by selective pricing discounts on certain products.

For the first six months, EDR rental days decreased 61%, while revenue per EDR day decreased by US$29 to US$621.

The decrease in industry activity, combined with a drop in market share accounted for the drop in revenue for both the quarter and six months ended June 30, 2016. This decrease was offset by a favourable USD/CAD exchange rate compared to the prior year. US market share was 52% during the three months ended June 30, 2016, down from 60% in the same period of 2015, primarily driven by changes in the mix of active customers and regions.

Operating costs decreased by 45% in the second quarter relative to the same period in the prior year. When measured in USD, operating costs decreased 49% as the business unit continues to identify and implement changes to its fixed cost structure to meet the challenging business environment while maintaining customer service. The Company announced in the first quarter of 2016 that it would be closing its US business unit office in Golden, Colorado and consolidate all activities to its Houston, Texas office. This consolidation is anticipated to be completed in the third quarter of 2016 and will allow the US business unit to maximize business efficiencies.

Depreciation expense for the first six months of 2016 decreased 32% over 2015 amounts, largely due to the asset impairment charges recorded in prior years and a significantly lower capital program.

Segment profit decreased by $10.7 million in the second quarter of 2016 compared to the corresponding period in 2015.

Canadian Operations


Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


Change


2016


2015


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder (1)

1,853


3,531


(48)


7,687


14,525


(47)


Pit Volume Totalizer/ePVT

827


1,471


(44)


3,359


6,024


(44)


Communications (1)

759


1,327


(43)


3,188


5,800


(45)


Software

401


718


(44)


1,696


3,026


(44)


AutoDriller

301


690


(56)


1,405


3,187


(56)


Gas Analyzer

502


891


(44)


2,150


3,989


(46)


Other

357


613


(42)


1,340


2,049


(35)

Total revenue

5,000


9,241


(46)


20,825


38,600


(46)

Operating costs (2)

3,995


7,396


(46)


9,319


16,908


(45)

Depreciation and amortization

6,331


9,332


(32)


13,913


18,961


(27)

Segment operating (loss) profit

(5,326)


(7,487)


(29)


(2,407)


2,731


(1)

 A portion of the Company's Communications revenue was reclassified to EDR revenue to better reflect the nature of such revenue. The 2015 comparative figures have been reclassified to conform with the 2016 presentation. (Q2 2015 - $60 and YTD 2015 - $380).

(2)

Certain expenses previously recorded in Other Expenses are now included as a business unit cost, to better reflect the nature of such costs. The 2015 comparative figures have been reclassified to conform with the 2016 presentation (Q2 2015 - $598 and YTD -$1,205).

 


Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


2016


2015


$


$


$


$

Revenue per EDR day- CAD

1,103


1,082


1,053


1,103









 

Canadian segment revenue decreased by 46% for the quarter ended June 30, 2016 compared to the same period in 2015. This drop is the result of a 53% decrease in the number of drilling industry days in the second quarter compared to 2015 levels. Market share in the second quarter and on a year-to-date basis remained consistent compared to 2015 levels.

EDR rental days decreased 48% in the second quarter of 2016 compared to 2015 (44% for the first six months of 2016).

Revenue per EDR day increased by $21 to $1,103 during the second quarter of 2016 compared to 2015, resulting from higher adoption of both the Pason Rig Display and enhanced communication solutions compared to the prior year, offset by selective price discounts on certain products. Revenue per EDR day for the first half of 2016 was $1,053, down $50 from the same period in 2015.

Operating costs decreased by 46% in the second quarter of 2016 relative to the same period in 2015 (45% on a year-to-date basis), primarily due to a drop in activity combined with cost control initiatives implemented by all of the business units.  

Depreciation expense decreased by approximately 32% and 27% for the three and six months periods ended June 30, 2016, due to prior year's impairment charges and lower capital expenditures.

The second quarter operating loss of $5.3 million is an improvement of $2.2 million from the prior year. Segment operating loss for the first six months of 2016 is $2.4 million, compared to a profit of $2.7 million in the prior year.

International Operations


Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


Change


2016


2015


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Revenue













Electronic Drilling Recorder (1)

2,226


3,848


(42)


4,860


8,752


(44)


Pit Volume Totalizer/ePVT

464


1,103


(58)


1,112


2,681


(59)


Communications (1)

327


523


(37)


684


1,086


(37)


Software

52


131


(60)


131


296


(56)


AutoDriller

599


1,115


(46)


1,296


2,502


(48)


Gas Analyzer

274


599


(54)


652


1,578


(59)


Other

1,840


2,402


(23)


3,409


5,354


(36)

Total revenue

5,782


9,721


(41)


12,144


22,249


(45)

Operating costs (2)

4,188


7,225


(42)


9,719


15,945


(39)

Depreciation and amortization

1,784


3,012


(41)


3,791


5,347


(29)

Segment operating (loss) profit

(190)


(516)


(63)


(1,366)


957


(1)

A portion of the Company's Communications revenue was reclassified to EDR revenue to better reflect the nature of such revenue.The  2015 comparative figures have been reclassified to conform with the 2016 presentation. (Q2 2015- $5 and YTD 2015 - $14).

(2)

Certain  expenses previously recorded in Other Expenses are now included as a business unit cost, to better reflect the nature of such expenses. The 2015 comparative figures have been reclassified to conform with the 2016 presentation (Q2 2015 - $190 and YTD 2015 - $378).

 

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

Revenue in the International operations segment decreased 41% in the second quarter of 2016 compared to the same period in 2015. Impacting the comparison of second quarter results of 2016 to the prior year was the devaluation of the Argentinian peso, which occurred in the fourth quarter of 2015. For the first half of 2016 revenue decreased $10.1 million, or 45%.

The segment operating loss decreased by 63% in the second quarter of 2016 compared to the same period in 2015. The year-to-date loss was $1.4 million compared to a profit of $1.0 million in the prior year. 

Corporate Expenses


Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


Change


2016


2015


Change

(000s)

($)


($)


(%)


($)


($)


(%)

Other expenses












Research and development

5,629


8,813


(36)


12,257


18,143


(32)

Corporate services

4,082


4,720


(14)


8,404


9,906


(15)

Stock-based compensation

2,238


5,563


(60)


3,200


3,788


(16)

Other








Restructuring costs


2,572


(100)


10,861


2,572


322


Foreign exchange loss (gain)

396


(12)



(2,323)


(2,459)


(6)


Gain on sale of investment





(2,290)



Other (1)

365


(134)



1,339


(134)


Total corporate expenses

12,710


21,522


(41)


33,738


29,526


14

(1)

Certain  expenses previously recorded in Other Expenses are now included as a business unit cost, to better reflect the nature of such expenses. The 2015 comparative figures have been reclassified to conform with the 2016 presentation (Q2 2015 - $788 and YTD 2015 $1,583).

 

In the first quarter of 2016, the Company initiated additional cost reduction initiatives to address the prolonged downturn in oil and gas drilling activity. These actions included further staff reductions and office space consolidation.  As a result, the Company recorded a restructuring charge of $10,861 in the first quarter, which is comprised of $6,028 for employee termination and other staff related costs, an onerous lease obligation charge of $3,682, which is calculated at the present value of the expected net cost of continuing with the lease after adjusting for sublease rentals, and the write-off of leasehold improvements and other related costs totaling $1,151. A similar initiative was completed in the second quarter of 2015 and a restructuring charge of $2,572 was recorded.

Q2 2016 vs Q1 2016

Consolidated revenue was $27.2 million in the second quarter of 2016 compared to $45.8 million in the first  quarter of 2016, a decrease of  $18.6 million or 41%. The second quarter is usually the Company's weakest due to the spring break-up in Canada. Drilling activity in the second quarter of 2016 was the lowest in decades, with low commodity prices leading to a continued pullback in capital spending by oil and gas companies. The Canadian segment earned revenue of $5.0 million in the second quarter as compared to $15.8 million in the first quarter of 2016, a decrease of $10.8 million. Revenue in the US market decreased by $7.2 million, from $23.6 million in the first quarter of 2015 to $16.4 million in the  second quarter of 2016, as rig count continued to decline. The International segment experienced a revenue decrease of $0.6 million.

The Company recorded a net loss in the second quarter of 2016 of $11.3 million ($0.13 per share) compared to a loss of $10.9 million ($0.13 per share) in the first quarter of 2016.  Included in the first quarter results was a restructuring charge of $10.9 million, relating to staff reductions and office consolidation.

Sequentially, EBITDA decreased from a negative $0.4 million in the first quarter of 2016 to a negative $2.2 million in the second quarter of 2016. Adjusted EBITDA, which adjusts for foreign exchange and certain non-recurring charges, declined from $8.8 million in the first quarter of 2016 to a negative $1.5 million in the second quarter. Funds flow from operations decreased from $3.3 million in the first quarter of 2016 to a negative $1.0 million in the second quarter of 2016.

Second Quarter Conference Call

Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its second quarter 2016 results at 9:00 am (Calgary time) on Thursday, August 11, 2016. 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 24045041.

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

Additional information, including the Company's Annual Report and Annual Information Form for the year ended December 31, 2015, is available on SEDAR at www.sedar.com or on the Company's website at www.pason.com.

Condensed Consolidated Interim Balance Sheets

As at


June 30, 2016


December 31, 2015

(CDN 000s) (unaudited)


($)


($)

Assets




Current





Cash and cash equivalents


161,982


195,846


Trade and other receivables


25,279


48,613


Prepaid expenses


2,611


3,719


Income taxes recoverable


27,216


17,468


Total current assets


217,088


265,646

Non-current





Property, plant and equipment


173,971


201,436


Intangible assets and goodwill


54,069


57,643


Deferred tax assets


11,766


4,900


Total non-current assets


239,806


263,979

Total assets


456,894


529,625

Liabilities and equity




Current





Trade payables and accruals


16,092


18,454


Stock-based compensation liability


3,153


2,220


Total current liabilities


19,245


20,674

Non-current





Stock-based compensation liability


3,673


3,059


Onerous lease obligation


2,856



Deferred tax liabilities


12,798


16,444


Total non-current liabilities


19,327


19,503

Equity





Share capital


132,613


128,067


Share-based benefits reserve


23,360


23,367


Foreign currency translation reserve


60,738


85,603


Retained earnings


201,611


252,411


Total equity


418,322


489,448

Total liabilities and equity


456,894


529,625

 

Condensed Consolidated Interim Statements of Operations



Three Months Ended June 30,


Six Months Ended June 30,



2016


2015


2016


2015

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


($)


($)


($)


($)







Revenue


27,173


57,440


72,986


156,842

Operating expenses







Rental services


16,986


29,735


40,757


68,026


Local administration


1,946


4,261


4,275


9,177


Depreciation and amortization


13,578


20,598


29,940


42,320



32,510


54,594


74,972


119,523







Operating (loss) profit


(5,337)


2,846


(1,986)


37,319

Other expenses







Research and development


5,629


8,813


12,257


18,143


Corporate services


4,082


4,720


8,404


9,906


Stock-based compensation expense


2,238


5,563


3,200


3,788


Restructuring and other expense (income)


761


2,426


9,877


(2,311)



12,710


21,522


33,738


29,526







(Loss) income before income taxes


(18,047)


(18,676)


(35,724)


7,793


Income tax (recovery) expense


(6,728)


(9,272)


(13,545)


3,006

Net (loss) income


(11,319)


(9,404)


(22,179)


4,787

(Loss) income per share







Basic


(0.13)


(0.11)


(0.26)


0.06


Diluted


(0.13)


(0.11)


(0.26)


0.06

 

Condensed Consolidated Interim Statements of Other Comprehensive Income



Three Months Ended June 30,


Six Months Ended June 30,



2016


2015


2016


2015

(CDN 000s) (unaudited)


($)


($)


($)


($)

Net (loss) income


(11,319)


(9,404)


(22,179)


4,787

Items that may be reclassified subsequently to net income:










Foreign currency translation adjustment


262


(6,829)


(24,865)


24,130

Total comprehensive (loss) income


(11,057)


(16,233)


(47,044)


28,917

 

Condensed Consolidated Interim Statements of Changes in Equity



Share Capital


Share-Based
Benefits
Reserve


Foreign
Currency
Translation
Reserve


Retained
Earnings


Total Equity

(CDN 000s) (unaudited)


($)


($)


($)


($)


($)

Balance at January 1, 2015


113,827


12,927


32,807


323,962


483,523


Net income





4,787


4,787


Dividends





(28,412)


(28,412)


Other comprehensive income




24,130



24,130


Exercise of stock options


5,840


(306)




5,534


Expense related to vesting of options



576




576


Reclassification of equity settled options



11,673




11,673

Balance at June 30, 2015


119,667


24,870


56,937


300,337


501,811


Net loss





(19,399)


(19,399)


Dividends





(28,527)


(28,527)


Other comprehensive income




28,666



28,666


Exercise of stock options


8,400


(2,865)




5,535


Expense related to vesting of options



1,362




1,362

Balance at December 31, 2015


128,067


23,367


85,603


252,411


489,448


Net loss





(22,179)


(22,179)


Dividends





(28,621)


(28,621)


Other comprehensive loss




(24,865)



(24,865)


Exercise of stock options


4,546


(1,424)




3,122


Expense related to vesting of options



1,417




1,417

Balance at June 30, 2016


132,613


23,360


60,738


201,611


418,322

 

Condensed Consolidated Interim Statements of Cash Flows



Three Months Ended June 30,


Six Months Ended June 30,



2016


2015


2016


2015

(CDN 000s) (unaudited)


($)


($)


($)


($)

Cash from (used in) operating activities










Net (loss) income


(11,319)


(9,404)


(22,179)


4,787

Adjustment for non-cash items:







Depreciation and amortization


13,578


20,598


29,940


42,320


Gain on sale of investment





(2,290)


Stock-based compensation


2,238


5,563


3,200


3,788


Non-cash restructuring costs




4,833



Deferred income taxes


(5,688)


(7,591)


(10,976)


431


Unrealized foreign exchange loss (gain) and other


217


111


(2,457)


3,503

Funds flow from operations


(974)


9,277


2,361


52,539

Movements in non-cash working capital items:







Decrease in trade and other receivables


6,826


33,594


18,090


78,184


Decrease in prepaid expenses


868


1,455


1,004


2,716


(Increase)/decrease in income taxes recoverable


(840)


(3,868)


(3,583)


620


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


(5,641)


(8,360)


461


(21,407)


Effects of exchange rate changes


3,212


831


2,306


(2,358)

Cash generated from operating activities


3,451


32,929


20,639


110,294


Income tax paid


(458)


(1,629)


(6,315)


(7,461)

Net cash from operating activities


2,993


31,300


14,324


102,833

Cash flows from (used in) financing activities







Proceeds from issuance of common shares


2,512


1,348


3,122


4,041


Payment of dividends


(14,327)


(14,219)


(28,621)


(28,412)

Net cash used in financing activities


(11,815)


(12,871)


(25,499)


(24,371)

Cash flows (used in) from investing activities







Additions to property, plant and equipment


(3,912)


(7,595)


(8,795)


(29,030)


Development costs


(1,017)


(2,407)


(2,714)


(4,485)


Proceeds on disposal of investment and property, plant and equipment


447



556


3,288


Changes in non-cash working capital


(972)


(2,126)


(1,691)


(7,253)

Net cash used in investing activities


(5,454)


(12,128)


(12,644)


(37,480)

Effect of exchange rate on cash and cash equivalents


165


(2,833)


(10,045)


9,414

Net (decrease) increase in cash and cash equivalents


(14,111)


3,468


(33,864)


50,396

Cash and cash equivalents, beginning of period


176,093


191,786


195,846


144,858

Cash and cash equivalents, end of period


161,982


195,254


161,982


195,254

 

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 June 30, 2016

Canada


United States


International


Total


($)


($)


($)


($)

Revenue

5,000


16,391


5,782


27,173

Rental services and local administration

3,995


10,749


4,188


18,932

Depreciation and amortization

6,331


5,463


1,784


13,578

Segment operating (loss) profit

(5,326)


179


(190)


(5,337)

Research and development




5,629

Corporate services




4,082

Stock-based compensation




2,238

Other expenses




761

Income taxes




(6,728)

Net Loss




(11,319)

Capital expenditures

966


3,884


79


4,929

Goodwill


24,218


2,600


26,818

Intangible assets

26,666


171


414


27,251

Segment assets

130,076


271,808


55,010


456,894

Segment liabilities

24,800


8,363


5,409


38,572






Three Months Ended June 30, 2015










Revenue

9,241


38,478


9,721


57,440

Rental services and local administration

7,396


19,375


7,225


33,996

Depreciation and amortization

9,332


8,254


3,012


20,598

Segment operating (loss) profit

(7,487)


10,849


(516)


2,846

Research and development




8,813

Corporate services




4,720

Stock-based compensation




5,563

Other expenses




2,426

Income taxes




(9,272)

Net Loss




(9,404)

Capital expenditures

4,981


3,347


1,674


10,002

Goodwill


23,087


2,600


25,687

Intangible assets

31,394


1,600


1,765


34,759

Segment assets

139,763


333,969


75,578


549,310

Segment liabilities

10,284


16,859


20,356


47,499

























Six Months Ended June 30, 2016

Canada


United States


International


Total


($)


($)


($)


($)

Revenue

20,825


40,017


12,144


72,986

Rental services and local administration

9,319


25,994


9,719


45,032

Depreciation and amortization

13,913


12,236


3,791


29,940

Segment operating (loss) profit

(2,407)


1,787


(1,366)


(1,986)

Research and development




12,257

Corporate services




8,404

Stock-based compensation




3,200

Other expenses




9,877

Income taxes




(13,545)

Net loss




(22,179)

Capital expenditures

2,683


8,658


168


11,509

Goodwill


24,218


2,600


26,818

Intangible assets

26,666


171


414


27,251

Segment assets

130,076


271,808


55,010


456,894

Segment liabilities

24,800


8,363


5,409


38,572






Six Months Ended June 30, 2015










Revenue

38,600


95,993


22,249


156,842

Rental services and local administration

16,908


44,350


15,945


77,203

Depreciation and amortization

18,961


18,012


5,347


42,320

Segment operating profit

2,731


33,631


957


37,319

Research and development




18,143

Corporate services




9,906

Stock-based compensation




3,788

Other income




(2,311)

Income taxes




3,006

Net lncome




4,787

Capital expenditures

10,905


15,169


7,441


33,515

Goodwill


23,087


2,600


25,687

Intangible assets

31,394


1,600


1,765


34,759

Segment assets

139,763


333,969


75,578


549,310

Segment liabilities

10,284


16,859


20,356


47,499

 

 

Other Expenses (Income)


Three Months Ended June 30,


Six Months Ended June 30,


2016


2015


2016


2015


($)


($)


($)


($)

Foreign exchange loss (gain)

396


(12)


(2,323)


(2,459)

Gain on sale of investment




(2,290)

Restructuring costs


2,572


10,861


2,572

Other

365


(134)


1,339


(134)

Other expenses (income)

761


2,426


9,877


(2,311)

 

In the first quarter of 2016, the Company initiated additional cost reduction initiatives to address the prolonged downturn in oil and gas drilling activity. These actions included further staff reductions and office space consolidation.  As a result, the Company recorded a restructuring charge of $10,861 in the first quarter, which is comprised of $6,028  for employee termination and other staff-related costs, an onerous lease obligation charge of  $3,682, which is calculated at the present value of the expected net cost of continuing with the lease after adjusting for sublease rentals, and the write-off of leasehold improvements and other related costs totaling $1,151. The current portion of the onerous lease provision is included in trade payables and accruals while the non-current portion is separately disclosed on the Condensed Consolidated Interim Balance Sheet.  A similar initiative was completed in the second quarter of 2015 and a restructuring charge of $2,572 was recorded.

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: For more 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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