Q2 2023 Pason Systems Inc Earnings Call
Speaker 1: Good morning. My name is Ina and I will be your conference operator today. At this time, I would like to welcome everyone to the Payson Systems Inc. 2nd Quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise.
Speaker 1: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star, fall back to.
Speaker 1: The contents of today's call are protected by copyright and may not be reproduced without the prior written consent of Payson Systems Inc. Please note that the advisory is located at the end of the press release issued by Payson Systems yesterday which described forward-looking information. Certain information about the company, however
Speaker 1: that is discussed on today's call may constitute forward-looking information. Additional information about patient systems including the risk factors relevant to the company can be found in its annual information form. Thank you. Celine Boston, CFO , you may now begin your
Speaker 1: call may constitute forward-looking information. Additional information about patient systems, including the risk factors relevant to the company, can be found in its annual information form. Thank you. Celine Boston, CFO , you may now begin your conference.
Speaker 2: Good morning everyone and thank you for attending Payson's 2023 second quarter conference call. I'm joined on today's call by John Faber, our President and CEO . I'll start today's call with an overview of our financial performance in the second quarter. John will then provide a brief perspective on the outlook for the industry and for Payson, and we'll then take questions.
Speaker 2: I am pleased to report on Payson's second quarter 2023 results, which highlight the company's ability to deliver on strong financial performance despite a modest decline in activity level.
Speaker 2: PAFON generated consolidated revenue of $84.7 million in the second quarter of 2023, a 15% improvement over the second quarter of 2022.
Speaker 2: With this revenue, Payson generated $37.9 million in adjusted EBITDA, which represented 44.7% of revenue and an increase of 22% from the $31 million generated in the second quarter of 2022, which represented 42.1% of revenue in that period.
Speaker 2: All of the company's business segments contributed to this quarterly result.
Speaker 2: Compared to the second quarter of 2022, our North American segment grew both revenue and gross profit despite industry activity declining by 1% year over year.
Speaker 2: The business unit generated revenue per industry day of $910 in the second quarter of this year, representing the second time in Paysons history that this metric surpassed $900 and a 14% increase from the same quarter of 2022.
Speaker 2: This result continues to highlight the company's strong competitive position, the growing demand for our products and technologies, and a more favorable pricing environment.
Speaker 2: Resulting in North American revenue with $67.3 million in the second quarter, a 13% increase from the second quarter of 2022 while segment gross profits increased by 11%.
Speaker 2: Similarly, revenue generated per day in our international end markets also improved year over year.
Speaker 2: The business unit also benefited from stronger industry activity in its key end markets and favourable foreign exchange rates for US dollar linked contracts.
Speaker 2: Revenue generated by the International Business Unit was $15 million in the second quarter, a 22% improvement from the second quarter of 2022.
Speaker 2: Segment gross profit was $7.2 million in the second quarter of 2023, a 34% increase from the $5.4 million generated in the second quarter of 2022.
Speaker 2: Energy Toolbase continues to grow its presence in the solar and energy storage industry and generated $2.4 million in quarterly revenue, a 44% improvement from the same quarter in 2022. Energy Toolbase continues to grow its presence in the solar and energy storage industry and
Speaker 2: Sequentially, Canadian rake counts fell through spring break-up before beginning to recover at the end of the second quarter, and U.S. rake counts trended down approximately 100 under-akes, or roughly 12 percent in the second quarter.
Speaker 2: Given our leading competitive position in the North American end market, consolidated revenues largely followed suit and decreased sequentially from $98 million in the first quarter to $84.7 million in the second quarter.
Speaker 2: Following the reduction in revenue with the company's mostly fixed cost structure, adjusted EBITDA of $37.9 million in the second quarter decreased from the $52.4 million seen in the first quarter of 2023.
Speaker 2: Our second quarter results continue to highlight our mostly fixed cost base. Of note, our rental services costs, which represent the largest operating cost category within the business and represented in excess of 60% in the second quarter of 2022, have increased by less than 1% since the third quarter of 2022 despite inflationary impacts and a strong helped and473 millionrek.org website. Many things will change in this one in terms ofSync stones and other hospitals, such as
Speaker 2: fixed cost structure towards our expectation of upcoming activity levels and will work to manage inflationary effects on our business.
Speaker 2: These effects, along with changes in foreign exchange and the relative mix of rigs within our end markets, could have an impact on quarterly margins in the coming quarters.
Speaker 2: Net income attributable to pay-thon for the three months ended June 30, 2023 with $25.5 million or $0.32 per share, a 37% increase from the $18.5 million or $0.23 per share generated in the second quarter of 2022.
Speaker 2: Net income in the first quarter of 2023 benefited from higher levels of interest income earned on the company's invested cash and cash equivalents, along with slightly lower stock-based compensation expense, which reflects the mark-to-market on the company's cash settled stock-based compensation plans.
Speaker 2: Year-to-date, Payson generated $182.9 million in revenue, a 24% increase from $148 million in the corresponding 2022 period.
Speaker 2: This compares to an 8% increase in underlying North American land drilling activity year over year.
Speaker 2: Adjusted EBITDA for the six months ended June 30, 2023, was $90.3 million, or 49% of revenue, compared to $64.3 million, or 43% of revenue, for the first six months of 2022.
Speaker 2: Accordingly, net income attributable to PACEON in the first six months of 2023 was $61.3 million or $0.76 per share, up from $37.1 million or $0.45 per share.
Speaker 2: A comparison of year-to-date results highlights the improved industry conditions in the first quarter, higher levels of revenue generated per operating day in 2023, and strong operating leverage.
Speaker 2: Our balance sheet remains strong and incredibly well positioned to make strategic investments while returning meaningful cash flow to shareholders.
Speaker 2: Pace on generated 29.7 million and cash flow from operations in the second quarter, a 15% increase from the second quarter of 2022. Thank you.
Speaker 2: In the second quarter, Payson spent $11.7 million in net capital expenditures in support of our core business, representing the ongoing refresh of our technology platform and the maintenance of our fleet, and also representing an element of catch-up from lower levels of capital expenditures in 2020 and 2021.
Speaker 2: Also in the second quarter, we approved and funded $5 million of the $15 million that was remaining under the company's preferred share financing agreement with Intelligent Wellhead System.
Speaker 2: We remain committed to shareholder returns and in the second quarter returned $16.6 million to shareholders through dividends and share repurchases. We ended the quarter with no interest-bearing debt and $175 million in total cash. I will now turn the call over to John for his comments on our outlook. Thank you, Celine. Our second quarter financial results again demonstrated our ability to generate results that outpace underlying drilling industry activity. The year-over-year increases in consolidated revenue and adjusted EBITDA 15% and 22% respectively.
Speaker 2: were significantly ahead of the 1% decrease in industry activity. Our North American revenue per industry day came in at $910 during the quarter, a 14% increase during the same period of 2022.
Speaker 2: Our International Business Unit posted a 22% increase from the prior year period, benefitting from increased industry activity and strong increases in revenue for EDR Day. Energy tool-based revenue increased by 44% year-over-year due to the installation of additional energy storage control systems and growth in revenue from our economic modelling software tool. We remain focused on maintaining appropriate control over our operating and capital costs, while ensuring that we strengthen our capabilities in areas that directly impact our service and technology advantages and provide capacity for additional revenue growth.
Speaker 2: Our outlook for a return of steady growth in North American industry activity in the second half of 2023 is unchanged.
Speaker 2: After declining steadily through the first half of the year, we expect North American land rig counts to plateau near current levels before beginning to steadily increase through the end of 2023 and into 2024.
Speaker 2: Ultimately, the economic forces of supply and demand established the prevailing direction of industry activity.
Speaker 2: Global oil demand continues to exceed pre-pandemic levels, while all sources of supply, including storage, production, the inventory of drilled but uncompleted wells, and drilling activity remain below pre-pandemic levels.
Speaker 2: Any efforts to increase supply will require additional drilling activity, and as such, our outlook for continued growth in land drilling remains positive.
Speaker 2: PACEON sits at the center of the drilling data ecosystem on the majority of rigs in the Western Hemisphere.
Speaker 2: As customers use more automation and analytics technologies, data requirements are increasing.
Speaker 2: We are ensuring that we have the capabilities to manage additional sources of data, higher volumes, throughputs and speeds of data, and additional data transmission and storage protocols.
Speaker 2: We continue to expect capital spending of approximately $45 million in 2023 as we renew and extend the capabilities of important parts of our hosting platform. We also continue to make investments in our operational assets, which were curtailed in recent years by challenging supply chain conditions.
Speaker 2: We continue to evaluate our capital program with a focus on supporting increasing revenue, generating free cash flow, and creating value for shareholders over time, rather than simply in response to prevailing near-term industry conditions.
Speaker 2: We continue to make investments in growth-related opportunities outside of our core drilling related business.
Speaker 2: The growth trajectory of intelligent wellhead systems is encouraging.
Speaker 2: We will support the required investments in working capital and capital expenditures to ensure that IWS is positioned to fully capitalize on these opportunities.
Speaker 2: During the second quarter, we funded $5 million as part of our previously announced preferred share financing arrangement with IWS.
Speaker 2: with a further $5 million deployed early in the third quarter.
Speaker 2: Energy tool base is also showing positive momentum.
Speaker 2: Demand for energy storage is growing as government policies incentivize the deployment of additional energy storage assets. We are adapting our approach to the sales of our intelligent energy management control systems to leverage Energy Toolbase's strong brand position to further build our pipeline of control systems opportunities.
Speaker 2: We are also expanding the functionality of our economic modelling software tool to support higher price realization and to handle the unique requirements of additional markets.
Speaker 2: We remain committed to returning capital to shareholders through our regularly quarterly dividend and through share repurchases.
Speaker 2: We returned $36.4 million to shareholders in the first half of 2023, compared to $52.7 million in free cash flow generated over the period. And we are maintaining our quarterly dividend at 12 cents per share.
Speaker 2: Our balance sheet remains strong with cash and short-term investments of $175 million and no debt.
The strength of our business allows us to make the required investments to secure our position as the leading provider of drilling data and technologies.
to pursue additional sources of revenue outside of the oil and gas drilling market, and to return meaningful capital to shareholders.
Our demonstrated ability to generate revenue growth that outpaces the growth in underlying drilling industry activity and our high operating leverage will allow us to deliver strong financial results as rate counts begin to increase.
And the momentum within both energy tool base and intelligent wellhead systems gives us confidence in even greater growth in the future.
We remain focused on ensuring that Payson is an innovative, profitable and responsible company.
And we would now be happy to take any questions.
Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, fault-rated one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. And should you wish to cancel your request, please press the star, fault-rated two.
Once again, that is star and one to ask a question.
Mr. Faber, there are no questions at this time. Please proceed.
Terrific, thank you operator and thanks for taking the time to join us this morning. If you do have questions following the call you can certainly reach out to Selina or myself at any point. We would be happy to answer questions that you might have. We appreciate your continued support and interest and we look forward to speaking to you with the release of our third quarter results. Have a great day.
Thank you ladies and gentlemen that does conclude our conference for today. Thank you all for participating. You may all