Q4 2023 Pason Systems Inc Earnings Call
unknown: www. ParsonSystems.com Good morning.
Good morning, My name is John and I will be conference operator today at this time I would like to welcome everyone to the <unk> systems, Inc. Fourth quarter 2023 earnings call.
Jon: My name is Jon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pason Systems Inc. 4th Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise.
All lines have been placed on mute to prevent any background noise.
Jon: 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 the star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. The contents of today's call are protected by copyright and may not be reproduced without the prior written consent of Pason Systems Inc. Please note that the advisor is located at the end of the press release issued by Pason Systems yesterday, which described forward-looking information. Certain information about the company that is discussed on today's call may constitute forward-looking information. Additional information about Pason Systems, including the risk factors relevant to the company, can be found in its annual information form. Celine Boston, CFO, you may begin your conference. Thank you, Jon.
After the Speakers' 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.
The pound key.
The contents of today's call are protected by copyright and may not be there produced without the prior deepen could set up based on systems, Inc.
Please note the advisory located at the end of the press release issued by Basin systems yesterday, which describe forward looking information.
Information about the company that is discussed on today's call may constitute forward looking information.
Additional information about based on systems, including the risk factors relevant to the company.
Can be found in its annual information form.
In Boston CFO, you May begin your conference.
Thank you John.
Celine Boston: Good morning, everyone, and thank you for attending PASON's 2023 fourth quarter conference call. I'm joined on today's call by Jon Faber, our President and CEO. I'll start today's call with an overview of our financial performance in the fourth quarter and for the 2023 year. Jon will then provide a brief perspective on the outlook for the industry and for Pason, and we will then. I'm pleased to report on Pason's strong fourth quarter and full year 2023 results, despite a more challenging industry. Our 2023 results highlight our strong competitive position, the growing demand for drilling data as our customers increasingly invest in automation and analytics technologies, and our ability to outperform underlying drilling activity while generating meaningful free cash flow. In 2023, Pason generated $369 million in consolidated revenue and $171.5 million in adjustments.
Good morning, everyone and thank you for attending piece on 2023 fourth quarter Conference call.
I'm joined on today's call by Jon Faber, our President and CEO I'll start today's call with an overview of our financial performance in the fourth quarter and for the 2023 year <unk>.
John will then provide a brief perspective on the outlook for the industry and for pace on and we will then take questions.
I'm pleased to report on pace on strong fourth quarter and full year 2023 results. Despite more challenging industry conditions. Our 2023 results highlight our strong competitive position the growing demands for drilling data as our customers increasingly invest in automation and analytics technologies and our ability to outperform underlying drilling.
<unk>, well generating meaningful free cash flow.
In 2023 pesos generated $369 million and consolidated revenue and $171 5 million in adjusted EBITDA.
Celine Boston: These results were 10% and 7% ahead of 2022 annual results, respectively, against North American industry activity that declined 5% year over year. These are the highest annual levels achieved by Pason since 2014, which was a record year for Pason, and as another reference point, these annual levels exceed what was generated for both revenue and Adjusted EBITDA in 2018, when North American land drilling activity was 42% higher. Net income attributable to Pason for the year was $97.5 million and was impacted by a $14.2 million foreign exchange loss recognized in the fourth quarter, primarily associated with the significant devaluation seen in the Argentinian peso and the associated impact on Pason's cash and working capital balances held.
These results were 10% and 7% ahead of 2020 to annual results, respectively against North American industry activity that declined 5% year over year.
These are the highest annual levels achieved by pace on since 2014, which was a record year for pace on and as another reference point to these annual levels exceed what was generated for both revenue and adjusted EBITDA in 2018, when North American land drilling activity with 42% higher.
Net income attributable to pay for them for the year was $97 5 million and was impacted by a $14 $2 million foreign exchange loss recognized in the fourth quarter, primarily associated with the significant devaluation as seen in the Argentinean peso and the associated impact on pace on cash and working capital balances held there.
Celine Boston: From a quarterly perspective, Pason generated consolidated revenue of $93.3 million in the fourth quarter of 2023, compared to $94.4 million in the fourth quarter of 2020. With this revenue, Pason generated $38.9 million in adjusted EBITDA, or 41.7% of revenue. I'll now provide an overview of the fourth quarter. Compared to the fourth quarter of 2022, our North American business unit saw a 19% decrease in industry drilling activity.
From a quarterly perspective caisson generated consolidated revenue of $93 3 million in the fourth quarter of 2023 compared to $94 4 million in the fourth quarter of 2022.
With this revenue paced on generated $38 9 million in adjusted EBITDA or 41, 7% of revenue.
I'll now provide an overview of the fourth quarter by business unit.
Compared to the fourth quarter of 2020 to our North American business unit saw a 19% decrease in industry drilling activity. However, the business unit generated revenue per industry day of $998 in the fourth quarter of this year, a new quarterly record and a 12% increase from the same quarter of 2022.
Celine Boston: However, the business unit generated revenue per industry day of $998 in the fourth quarter of this year, a new quarterly record and a 12% increase from the same quarter of 2016. 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 than seen in the fourth quarter of the prior year. Resulting North American revenue was $70.5 million in the fourth quarter, only a 9% decrease from the fourth quarter of 2022 despite the 19% reduction in industry activity.
This result continues to highlight the company's strong competitive position and the growing demand for our products and technologies and a more favorable pricing environment than seen in the fourth quarter of the prior year.
Resulting north American revenue was $70 5 million in the fourth quarter only a 9% decrease from the fourth quarter of 2022, despite the 19% reduction in industry activity.
Celine Boston: Gross profit for the business unit was $39.9 million in the fourth quarter of 2023, down from the $51 million generated in 2022, and reflects higher levels of depreciation and amortization with the increased investments the company has been making in capital expenditures in recent quarters, as well as some inflationary effects on elements of our cost base and slightly higher repair costs, which the company caught up on in the fourth quarter of 2023. Similarly, revenue generated per day in our international end markets also improved year-over-year. Reported revenue for our international business unit was $17.9 million in the fourth quarter of 2023, up 25% from the level generated in the comparative. Pason's international business unit benefited from a stronger U.S. dollar in the current quarter, with many contracts linked to changes in the U.S. dollar versus local currency. Many expenses are similarly linked to the U.S. dollar and were also impacted by the strength seen in the currency in the fourth quarter.
<unk> profit for the business unit was $39 9 million in the fourth quarter of 2023 down from the 50 $151 million generated in 2022 and reflects higher levels of depreciation and amortization with the increased investments. The company has been making in capital expenditures in recent quarters as well as some inflationary.
The effects on elements of our cost base and slightly higher repair costs, which the company caught up on in the fourth quarter of 2023.
Similarly revenue generated per day in our international end markets also improved year over year for.
Reported revenue for our international business unit was $17 9 million in the fourth quarter of 2023 up 25% from the level generated in the comparative 2022 period.
<unk> International business unit benefited from a stronger U S. Dollar in the current quarter with many contracts linked to changes in the U S dollar versus local currencies.
Many expenses are similarly linked to the U S. Dollar and were also impacted by the strength seen in the currency in the fourth quarter.
Celine Boston: Reporting segment gross profit of $7.7 million in the fourth quarter of 2023, up from 5.9 million generated in the fourth quarter. Energy Toolbase continues to grow its presence in the solar and energy storage industry and posted a quarterly revenue result of $4.8 million, which represents a 107% increase from Q4 of 2020. This segment had increased control system sales in the quarter, which will fluctuate with the timing of deliveries on Thursday. On a sequential basis, U.S. rig counts stayed steady during the fourth quarter, while Canadian drilling activity saw an expected seasonal decline.
We reported segment gross profit was $7 7 million in the fourth quarter of 2023 up from $5 9 million generated in the fourth quarter of 2022.
Energy tool base continues to grow its presence in the solar and energy storage industry and posted a quarterly revenue result of $4 $8 million, which represents a 107% increase from Q4 of 2020 to the.
The segment had increased control system sales in the quarter, which will fluctuate with the timing of deliveries on future projects.
On a sequential basis U S rig count stayed steady during the fourth quarter, while Canadian drilling activity saw expected seasonal declines, resulting north American industry activity was down 5% sequentially, while revenue per industry day increased by 2%. This improvement in revenue per day, coupled with strong results internationally.
Celine Boston: Resulting North American industry activity was down 5% sequentially, while revenue per industry day increased by This improvement in revenue per day, coupled with strong results internationally and from the energy tool base, resulted in consolidated revenue remaining stable. Our fourth-quarter results continue to highlight our mostly fixed cost base, which has been impacted by inflationary effects in 2023 and is currently in place to support higher levels of activity than seen in the fourth quarter. Adjusted EBITDA margin in the fourth quarter was also impacted by a higher amount of lower-margin solar and energy storage and the inclusion of equity-accounted losses related to supporting IWS's rapid pace of growth. Excluding these equity accounting losses in the fourth quarter, adjusted EBITDA margins would have been 40.
And from energy tool base resulted in consolidated revenue remaining stable from Q3 to Q4.
Our fourth quarter results continue to highlight our mostly fixed cost base, which has been impacted by inflationary effects in 2023 and is currently in place to support higher levels of activity than seen in the fourth quarter of 2023.
Adjusted EBITDA margin in the fourth quarter was also impacted by a higher amount of lower margin solar and energy storage sales and the inclusion of equity accounted losses related to supporting <unk> rapid pace of growth.
Excluding these equity accounting losses in the fourth quarter, adjusted EBITDA margins would've been 44%.
Celine Boston: We will continue to manage our fixed cost structure towards our expectation of upcoming activity levels, and with the acquisition of intelligent wellhead systems on January 1st, 2024, we will make the necessary investments in our cost base to deliver on further revenue growth and create opportunities for long-term free cash flow. Net income attributable to Pason for the three months ended December 31st, 2023, was $8.5 million, or $0.11 per share, a decrease from the $36.3 million, or $0.44 per share generated in the fourth quarter of 2022. The decline year over year reflects lower industry activity levels, higher levels of depreciation and amortization expense on increased capital expenditures in recent quarters, along with the foreign exchange loss recognized on cash and working capital held in Argentina, with a significant devaluation in the Argentinian peso seen at the end of the quarter.
We will continue to manage our fixed cost structure towards our expectation of upcoming activity levels and with the acquisition of intelligent wellhead systems on January one 2024, we will make the necessary investments in our cost base to deliver on further revenue growth and create opportunities for long term free cash flow generation.
Net income attributable to pesos for the three months ended December 31, 2023 was $8 $5 million or <unk> 11 per share a decrease from the $36 3 million or 44 per share generated in the fourth quarter of 2022, the decline year over year reflects the lower industry activity levels higher levels of depreciation and amortization.
<unk> expense on increased capital expenditures in recent quarters, along with the foreign exchange loss recognized on cash and working capital held in Argentina with the significant devaluation of the Argentinian peso seen at the end of 2023.
Celine Boston: Our balance sheet remains strong and incredibly well-positioned to make strategic investments while returning meaningful cash flow to shareholders. Throughout 2023, we continue to make the necessary investments to deliver on opportunities to increase revenue generated per day and invested $38 million in net capital expenditures, a result that was lower than the $45 million CapEx guidance provided for 2023, with $5 million in asset deliveries that were delayed until early 2020. Resulting free cash flow in 2023 was $97 million, a 38% increase from the $70.5 million generated in 2020.
Our balance sheet remains strong and incredibly well positioned to make strategic investments, while returning meaningful cash flow to shareholders. Throughout 2023, we continue to make the necessary investments to deliver on opportunities to increase revenue generated per day and invested $38 million and net capital expenditures a result that was lower.
The $45 million Capex guidance provided for 2023 with $5 million in asset deliveries that were delayed until early January.
Of this year.
<unk> free cash flow in 2023 was $97 million or 38% increase from the $75 million generated in 2022.
Jon Faber: With this free cash flow, we returned $66.5 million to shareholders through our quarterly dividend and share repurchase program. We also funded the remaining $15 million in preferred share subscriptions for our investment in Intelligent Wellhead Systems, ending the year with a cash balance of $172 million and no interest. In December, we exercised our call option to purchase the remaining outstanding shares in Intelligent Wellhead Systems, not previously held by Pason, effective January 1, 2024, for a total consideration of $88.3 million and the assumption of approximately $7 million of net. This transaction was funded with cash on hand subsequent to December 31st with no dilution to our shareholders. In summary, we are very proud of our 2023 results and are well positioned entering 2024 with our established position within drilling, our growing position in solar and energy storage, and significant opportunities for growth within completion through our recent IWS. I will now turn the call over to Jon for his comments. Thank you, Celine.
With this free cash flow, we returned $66 5 million to shareholders through our quarterly dividend and share repurchase program. We also funded the remaining $15 million in preferred share subscriptions for our investment in intelligent wellhead systems, ending the year with a cash balance of $172 million and no interest bearing debt.
In December we exercised our call option to purchase the remaining outstanding shares in intelligent wellhead systems not previously held by pace on effective January one 2024 for total consideration of $88 3 million and the assumption of approximately $7 million of net debt. This.
This transaction was funded with cash on hand subsequent to December 31st with no dilution to our shareholders.
In summary, we are very proud of our 2023 results and are well positioned entering 2024 with our established physician within drilling our growing position in solar and energy storage and significant opportunities for growth within completions through our recent <unk> acquisition I will now turn the call over to John for his comments on our outlook.
Thank you Celine.
Jon Faber: Our financial results throughout 2023 again demonstrated our ability to generate financial and operational results that outpace underlying drilling industry activity. Our 2023 consolidated revenue was 10% higher than the prior year, despite North American land drilling activity being down 5% over the same period. And in the fourth quarter, our revenue was 1% lower from the prior year period while industry activity was down 19%.
Our financial results throughout 2023, again demonstrated our ability to generate financial and operational results that outpace underlying drilling industry activity.
Our 2023 consolidated revenue was 10% higher than the prior year, Despite north American land drilling activity being down 5% over the same period.
And in the fourth quarter, our revenue was 1% lower from the prior year period, while industry activity was down 19%.
Jon Faber: Our strong competitive position is evidenced by increases in North American revenue per industry day throughout the year, reaching $998 in the fourth quarter, up 12% year over year driven by higher levels of product adoption and improved price realization. Revenue per industry day, which is a metric that tracks our growth over and above underlying industry activity, has grown at a compound annual growth rate of 11% from the fourth quarter of 2020 in the midst of the COVID-19 pandemic. Our international business unit posted the highest annual revenue in the company's history in 2023, at $63.8 million.
Our strong competitive position as evidenced by increases in North American revenue per industry data throughout the year, reaching $998 in the fourth quarter up 12% year over year, driven by higher levels of product adoption and improved price realization.
Revenue per industry day, which is a metric that tracks our growth over and above underlying industry activity has grown at a compound annual growth rate of 11% from the fourth quarter of 2020 in the midst of the COVID-19 pandemic.
Our international business unit posted its highest annual revenue in the company's history in 2023 at $63 8 million.
Jon Faber: Energy Tool Base also saw strong revenue growth in 2023, generating $15.7 million in revenue, up 118% from 2022 levels, on the strength of increased subscription revenues and additional control system installation. And, of course, we recently completed the largest acquisition in Pason's history with the acquisition of the remainder of Intelligent Wellhead. We see opportunities for meaningful growth in all areas of our business as we enter 2024, and I'll speak to each of those in turn. With respect to our drilling-related business, the U.S. land rig count, as reported by Baker Hughes, has remained within a tight band around 600 rigs since the start of the fourth quarter of 2023, and we expect activity to remain at this level through the first half of 2024 before beginning to slowly increase in the latter part of the year.
Energy tool base also saw strong revenue growth in 2023 generating $15 $7 million in revenue up 118% from 2022 levels on the strength of increased subscription revenues and additional control system installations.
And of course, we recently completed the largest acquisition in <unk> history with the acquisition of the remainder of intelligent wellhead systems.
We see opportunities for meaningful growth in all areas of our business as we enter 2024 and I'll speak to each of those in turn.
With respect to our drilling related business. The U S land rig counts as reported by Baker Hughes has remained within a tight band around 600 rigs since the start of the fourth quarter of 2023, and we expect activity to remain at this level through the first half of 2024 before beginning to slowly increase in the later part of the year.
Jon Faber: Even within a relatively flat industry environment, we expect to be able to maintain our established pattern of outpacing the industry with our drilling-related revenues. Customers continue to adopt more data-driven technologies, which is driving increased demand for high-quality data, which Pason is well-suited to deliver. We have also experienced a very positive early market response as we have begun rolling out an innovative new drilling mud analyzer to provide continuous real-time readings of critical drilling mud parameters. Turning to completions, IWS represents a meaningful opportunity for material revenue growth outside of oil and gas drilling. IWS generated revenue of approximately $45 million in 2023, representing a compound annual growth rate in excess of 85% since Pason's initial investment in 2019.
Even within a relatively flat industry environment, we expect to be able to maintain our established pattern of outpacing the industry with our drilling related revenue.
Customers continue to adopt more data driven technologies, which is driving increased demand for high quality data, which based on is well suited to deliver.
We are also experiencing a very positive early market response, so as we have begun rolling out an innovative new drilling blood analyzer to provide continuous real time ratings of critical drilling mud parameters.
Turning to completions <unk> represents a meaningful opportunity for material revenue growth outside of oil and gas drilling.
WNS generated revenue of approximately $45 million into 2023, representing a compound annual growth rate in excess of 85% since <unk> initial investment in 2019.
Jon Faber: We've been impressed with the profile of IWS's revenue growth as it has demonstrated impressive capabilities in the acquisition of new customers, retention of existing customers, and expansion of its product and service offerings. We anticipate that IWS could add an additional $20 to $25 million to its revenue in 2024, scaling up through the year, driven primarily by its automation offerings and, of course, subject to industry conditions. We see a tremendous opportunity in the area of data aggregation in the completion space.
We've been impressed with the profile of AWS is revenue growth as I have demonstrated impressive capabilities and the acquisition of new customers retention of existing customers and expansion of its product and service offerings.
We anticipate that AWS could add an additional $20 million to $25 million to its revenue in 2020 for scaling up through the year, driven primarily by its automation offerings and of course subject to industry conditions.
We see a tremendous opportunity in the area of data aggregation in the completion space peso on history of data aggregation in the drilling industry over many decades together with <unk> growing presence in the completions industry provides us with unique advantages to work with customers to solve the challenges and provide compelling solutions in this area.
Jon Faber: Pason's history of data aggregation in the drilling industry over many decades, together with IWS's growing presence in the completions industry, provides us with unique advantages to work with customers to solve challenges and provide compelling solutions in this area. And we're beginning work in this area in 2024. As with our drilling-related business, our efforts to provide both automation and data aggregation technologies for the completion space are supported by a best-in-class field service and support organization. As IWS continues to grow rapidly, we are making the necessary operational working capital and capital expenditure investments. Over time, as IWS achieves greater scale, we anticipate that margins and returns on capital could approach similar levels to those of our drilling-related business. Turning to solar and energy storage, we see favorable tailwinds for energy tool base arising as the deployment of energy storage assets increases.
And we are beginning work in this area in 2024.
As with our drilling related business, our efforts to provide both automation and data aggregation technologies for the completion space are supported by our best in class field service and support organization.
As I Ws continues to grow rapidly, we are making the necessary operational working capital and capital expenditure investments.
Overtime as I Ws achieves greater scale, we anticipate that margins and returns on capital could approach similar levels to those of our drilling related business.
Turning to solar and energy storage, we see favorable tailwind for energy tool base arising as the deployment of energy storage assets increase.
Jon Faber: In particular, we are seeing strong growth in our pipeline of opportunities for our control system. The timing of deliveries and the associated revenue associated with control systems can vary significantly between quarters, but we anticipate meaningful growth in control system sales in 2024. At the same time, we are increasing the functionality of our leading economic modeling and proposal generation software tool to address the unique requirements of additional end markets. Our priorities with respect to capital allocation remain focused on pursuing attractive growth opportunities while returning meaningful capital to shareholders. With the acquisition of IWS, we now expect capital expenditures of between $75 and $80 million in 2024. As a reminder, we had anticipated capital expenditures of approximately $45 million in 2023, and we funded $25 million in IWS under a preferred share financing arrangement between December 2022 and December 2023. Our anticipated 2024 capital expenditure program includes approximately $5 million in anticipated 2023 capital expenditures, which were impacted by the timing of delivery.
In particular, we are seeing strong growth in our pipeline of opportunities for our control systems, the timing of deliveries and the associated revenue with control systems can vary significantly between quarters, but we anticipate meaningful growth and control system sales in 2024.
At the same time, we are increasing the functionality of our leading economic modeling and proposal generation software tools to address the unique requirements of additional end markets.
Our priorities with respect to capital allocation remain focused on pursuing attractive growth opportunities, while returning meaningful capital to shareholders.
With the acquisition of AWS, we now expect capital spending of between $75 million to $80 million in 2024.
As a reminder, we had anticipated capital expenditures of approximately $45 million in 2023, and we funded $25 million in IW S. Under a preferred financing preferred share financing arrangements between December 2022 in December 2023.
Our anticipated 2024 capital expenditure program includes approximately $5 million in anticipated 2023 capital expenditures, which were impacted by the timing of deliveries.
Jon Faber: In 2023, we returned $66.5 million to shareholders with $38.5 million in dividends and $27.9 million in share repurchases. We will continue to pursue disciplined returns over time through our regular quarterly dividend, which we are increasing to $0.13 per share. We maintain flexibility in our approach to shareholder returns by evaluating share repurchases in the context of attractive organic growth investments to generate additional free cash flow. We evaluate our capital program with a focus on increasing revenue, generating free cash flow, and creating value for shareholders over time, rather than simply in response to prevailing near-term industry conditions. Our balance sheet remains strong with no debt and cash at December 31st, 2023 of $172 million, of which $88 million was deployed to complete the IWS acquisition effective January 1st. We also assumed approximately $7 million in net debt at the closing of the IWS transaction.
In 2023, we returned $66 $5 million to shareholders with $38 5 million in dividends and $27 $9 million in share repurchases.
We will continue to pursue disciplined returns over time through our regular quarterly dividend, which we are increasing to 13 <unk> per share.
We maintain flexibility in our approach to shareholder returns by evaluating share repurchases in the context of attractive organic growth.
<unk> gross investments to generate additional free cash flow.
We evaluate our capital program with a focus on increasing revenue generating free cash flow and creating value for shareholders over time, rather than simply in response to prevailing near term industry conditions.
Our balance sheet remains strong with no debt and cash at December 31, 2023 of $172 million of which $88 million was deployed to complete the <unk> acquisition effective January one.
And we also assumed approximately $7 million and net debt at the closing of the <unk> transaction.
The strength of our business allows us to make the required investments to secure our position as a leading provider of drilling data and technologies to pursue additional sources of revenue outside of the oil and gas drilling industry and to return meaningful capital to shareholders.
unknown: The strength of our business allows us to make the required investments to secure our position as the leading provider of drilling data and technology, to pursue additional sources of revenue outside of the oil and gas drilling industry, and to return meaningful capital to shareholders. We would now be happy to take any questions. Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to cancel your request, please press star 2. Please ensure you lift the handset if you are using a speakerphone before pressing any keys.
We would now be happy to take any questions.
Thank you, ladies and gentlemen, we will now conduct the question and answer session.
Have a question. Please press star followed by the number one on your Touchtone phone.
You will hear at the rebound acknowledging your request.
If you would like to cancel your request please press star two.
Please ensure you lift the handset if you're using a speaker phone before pressing any keys.
Your first question comes from the line of Aaron Macneil from DB Cowen. Your line is now open.
Hey, good morning, Thanks for taking my question.
Aaron MacNeil: Your first question comes from the line of Aaron MacNeil from TD Cowen. Your line is now open. Hey, morning.
John.
I appreciate that it's early days, but.
What are your sort of initial directors for the IW S team I know you mentioned a handful of priorities.
Jon Faber: Thanks for taking my question. Jon, I can appreciate that it's early days, but what are your sort of initial directives for the IWS team? I know you mentioned a handful of priorities, but is the primary focus on rapidly rolling out the digital valve control offering, or are you eager to sort of layer on that data aggregation opportunity you mentioned? And maybe, as a follow-on, are you sort of redeploying anyone from Pason to IWS or hiring externally in order to sort of facilitate the expansion of the business? Yeah, good questions, Aaron. And I probably wouldn't say it's just directives to IWS; it's directives to both Pason and IWS, because, to your point, there is a lot of opportunity to cross pollinate in certain areas.
Our primary focus on rapidly rolling out the digital valves control offering are eager to sort of layer.
Layer on data aggregation opportunity you mentioned and maybe as a follow on are you.
Sort of redeploying anyone can pace on the IW S or hiring externally in order to sort of.
Facilitate the expansion of the business yes.
Yes. Good question <unk> and then it probably wouldn't say, it's just directive side of U S. Its directors to bulk caisson and AWS because to your point there is a lot of opportunity to cross pollinate in certain areas. So I would say across the broader organization. The first priority of course is to remain focused on the drilling related business. That's the majority of the business today and we have to make sure we keep our eye on.
Jon Faber: So I'd say across the broader organization that the first priority, of course, is to remain focused on the drilling-related business. That's the majority of the business today, and we have to make sure we keep our eye on that ball.
That ball.
The second priority is to continue the acceleration of growth primarily based on the digital valve control offering and other automation technologies and then the third priority is starting to work on this data aggregation piece, which will take people from both <unk> and <unk> I think there is unique knowledge related to completions NV.
Jon Faber: The second priority is to continue the acceleration of growth, primarily based on the digital valve control offering and other automation technologies. And then the third priority is starting to work on this data aggregation piece, which will involve people from both Pason and IWS. I think there's unique knowledge related to completions and what customers are trying to achieve that IWS would have. And there are unique capabilities and expertise that Pason has around how to manage complex data sets in a challenging operating environment.
<unk>.
Customers are trying to achieve that I ws would have and their unique capabilities and expertise that based on how is around how to manage complex datasets.
<unk> operating environment, So where we're seeing that that cross pollination of people today is more at some of that technology development as it relates to data aggregation and areas of the business that I would say are much more on the front lines, we are attracting with customers, whether that's operational or commercial.
Jon Faber: So where we're seeing that cross pollination of people today is more in some of that technological development as it relates to data aggregation. And for the areas of the business that I would say are much more on the front lines of interacting with customers, whether that's operational or commercial, it's much more, you know, the folks who've been focused on drilling, making sure they keep their eye on the ball, and the folks who've been focused on IWS, making sure they continue the momentum that they've had over the last couple. It makes total sense. You mentioned in your prepared remarks that you continue to expect growth in the revenue per industry day figure. You know, I actually saw the rollout of the new drilling mud analyzer.
Much more.
The focus who've been focused on drilling making sure they keep their eye on the ball and the folks who've been focused on AWS, making sure. They continue the momentum that they've had over the last couple of years.
It makes total sense you mentioned in your prepared remarks that you continue to expect growth in the revenue per industry day figure.
Perhaps you saw the rollout of the new <unk>.
Drilling mud analyzer, so I guess I'm, just wondering how impactful could that new offering.
As a metric in 'twenty, four and what other products or services are in the pipeline that would help you sort of augment continue continued growth in that figure.
Yes again good question I think for 2020 for the blood analyzer is going to significantly move the needle on the revenue side, because it's early days of adoption.
Aaron MacNeil: So I guess I'm just wondering, you know, how impactful could that new offering be to the metric in 24 and what other products or services are in the pipeline that would help you sort of augment continued growth in that figure? Yeah, again, good question. I think for 2024, the mud analyzer isn't going to significantly move the needle on the revenue side because it's in the early days of adoption. But I think over the medium term, there's a very significant opportunity with the mud analyzer. We're very excited about that particular product, but it's not necessarily going to have its maximum impact in 2024. It'll probably have more of a capital impact in 2024 as you build for 2025 and beyond, to be quite honest.
Over the medium term there is a very significant opportunity with the <unk> analyzer, we're very excited about that particular product, but it's not necessarily going to have its maximum impact in 2024. It will have more probably the capital impact in 2024 as you build for 2025 and beyond.
To be quite honest.
As it relates to 2024 growth in revenue per industry days. There is a few things that will impact that one is of course to run rate effects of what we've seen happening in product adoption and pricing through 2023 carrying through 2024.
And then we've mentioned a number of times the increased use of data drives a lot of product adoption in areas of data delivery.
Which we're quite excited about and we do have a few other things on the new product side, which again are probably at the same magnitude or scale of a blood analyzer, but there are some things that would be additional product opportunities as well.
Aaron MacNeil: As it relates to 2024 Growth and Revenue for Industry Day, there are a few things that will impact that. One is, of course, the run rate effects of what we've seen happening in product adoption and pricing through 2023 and continuing through 2024. And then, as we've mentioned a number of times, the increased use of data drives a lot of product adoption in areas of data delivery, which we're quite excited about. And we do have a few other things on the new product side, which, again, are probably at the same magnitude or scale of a mud analyzer, but there are some things that would be additional product opportunities as well. Okay, that makes sense. Thanks. I'll turn it back.
Okay. Thanks.
I will turn it back.
Thanks.
Your next question comes from the line of Coles net Adra from Stifel. Your line is now open.
Hi.
Good morning, all just a.
Back on the <unk> front, if you're willing to say is there any material customer overlap with the existing drilling business in longer term could you kind of think you could.
At present, the combined offering to customers.
Yes of course, I am willing to say cohorts, what's fascinating is that in some areas. There is customer overlap, but in some areas where they have pockets of strength I would say those are areas, where we might have had more challenges historically on the pace of onsite and in areas, where they haven't been able to get quite as much early traction we have a very strong relationship on the pace.
Aaron MacNeil: Thanks. Your next question comes from the line of Cole Pereira from Stiefel. Your line is now open. Hi, good morning all.
Cole J. Pereira: Just back on the IWS front, if you're willing to say, you know, is there any material customer overlap with the existing drilling business? And, longer term, could you kind of think you could present a combined offering to customers? Yeah, of course, I'm willing to say Cole. What's fascinating is that in some areas, there is customer overlap. But in some areas where they have pockets of strength, I would say those are areas where we might have had more challenges historically on the Pason side.
On site and so there is reciprocal opportunities to facilitate some conversations and some of those conversations.
The opportunities in the eyes of customers are more exciting as we think about the opportunity to take.
A more holistic look at the data management space over drilling and completions, so bringing the two together.
<unk> allows us to have opportunities with different customers.
Jon Faber: And in areas where they haven't been able to get quite as much early traction, we have a very strong relationship on the Pason side, and so there are reciprocal opportunities to facilitate some conversations. And some of those conversations, the opportunities in the eyes of customers are more exciting as they think about the opportunity to take a more holistic look at the data management space for drilling and completions. So bringing the two together allows us to have opportunities with different customers on both sides of the customer base. But they're not a direct overlap, notwithstanding what our market share has been for a long time. There are opportunities for us to expand that in the drilling business, even through some of the ideas for us. Okay, I got it. That's helpful.
Both sides of the customer basis, but they're not a direct overlap notwithstanding what our market share has been for a long time, there are opportunities for us to expand that in the drilling business even through some of the IP address relationships.
Okay got it that's helpful. Thanks.
<unk> been relatively successful in getting some pricing increases despite flat to down rig count I mean, you touched on it a little bit but how are you kind of thinking about additional pricing increases from here. If there is an opportunity and what's kind of really the driver there.
Yeah. Good question. So we think about pricing increases probably in two different ways. One is like for like pricing increases just to kind of capture inflation and then the other would be pricing increases that are associated with delivering new functions or features or improved functions and features on our technology offerings. So I think certainly see.
Cole J. Pereira: Thanks. And, you know, you've been relatively successful at getting some pricing increases despite, you know, a flat to down rig count. I mean, you touched on it a little bit, but how are you kind of thinking about additional pricing increases from here if there is an opportunity and what's really the driver there? Yeah, good question.
Lots of opportunities in the latter category continuing into this year on the first category, that's a little bit more subject to industry conditions and what's happening from that perspective.
Gotcha.
Jon Faber: So we think about pricing increases probably in two different ways. One is like-for-like pricing increases just to kind of capture inflation. And then the other would be pricing increases that are associated with delivering new functions or features or improved functions or features on our technology offering. So I think I certainly see lots of opportunities in the latter category continuing into this year. On the first category, that's a little bit more subject to industry conditions and what's happening from that perspective. Gotcha. Okay, that's all for me. Thanks. I'll turn it back.
That's all from me, Thanks, I'll turn it back.
Thanks, Paul.
Just a reminder, if you have a question. Please press star one on your telephone keypad.
Your next question comes from the line of Keith Mackey from RBC. Your line is now open.
Hey, John Sweet and good morning.
Just wanted to start and continue along with the <unk>.
You mentioned that you could ultimately see rivaling the drilling business in terms of the margin and return economics.
Ron can you just walk through a little bit more about what underpins that confidence you have in the size of that market.
Cole J. Pereira: As a reminder, if you have a question, please press star 1 on your telephone keypad. Your next question comes from the line of Keith Mackey from RBC. Your line is now open. Hey, Jon, Celine, good morning.
And anything you can say on the timing.
In getting there would be helpful as well.
Yes, sure. So I think your question was around the size of the market. So.
High level the way, we look at that is that the AWS revenue per activity to a similar how we would think about revenue per.
Keith Mackey: Hey, just wanted to start or continue with the IWS topic. You mentioned that you could ultimately see it rivaling the drilling business in terms of margin and return economics. Jon, can you just walk through a little bit more about what underpins that confidence you have in the size of that market? And anything you can say on the timing of getting there would be helpful as well. Sure, so I think your question was around the size of the market. So, at a high level, the way we look at that is that the IWS revenue per activity day, similar to how we would think about revenue per EDR day, if you will, not quite at the industry day level, but their own activity days, that's about three times what Pasons would be. And the completions market historically has had a relationship of about two and a half drilling rigs to one Bragg spread.
Edr day, if you will not quite at the industry level, but their own activity days.
That's about three times, what pace ons would be and the completions market. Historically has had a relationship with about $2 five drilling rigs to one frac spread so if I simplify those numbers and just say the average price capture per day is about three times in a market that's roughly a third of the size that implies a market offer.
<unk> that would be similar to what we face in the drilling industry of course, that's with the current product offerings from AWS. We've made reference to the fact that we think there's opportunities to expand our product and service offering and so it will take time to be able to address the size or the share of the market that we have on the drilling side to be able to achieve.
Jon Faber: So, if I simplify those numbers and just say the average price capture per day is about three times in a market that's roughly a third of the size, that implies a market opportunity that would be similar to what we face in the drilling industry. Of course, that's with the current product offering from IWS. We've made reference to the fact that we think there are opportunities to expand the product and service offering. And so, it will take time to be able to address the size or the share of the market that we have on the drilling side to be able to achieve similar types of revenue on the revenue side. Probably don't need the same revenue to achieve the same types of margins and return on capital. To be honest, when you think about the revenue opportunity on a job site versus the operational effort required to support that, the operational effort to support is greater, but it's not necessarily 3X.
Similar types on the revenue side, probably don't need the same revenue to achieve the same types of margins and return on capital.
Be honest when you think about the revenue opportunity on a job site versus the operational effort required to support that.
The operational effort to support is greater but it's not necessarily three X and then when we think about the <unk>.
<unk> shipped between capital and revenue and utilization of assets that all feels very familiar to us in terms of how it looks on the ious side versus the pace on site.
But it's going to take some time Keith right. If you think about.
The ability to grow that revenue, we've said, obviously within the context of the industry, but we think <unk> can probably add 20 or $25 million to revenue. This year, it's going to take a few years of more than that in terms of dollar growth and revenue to be able to get to the revenues that would get us to that kind of margin and return on capital profile.
Jon Faber: And then, when we think about the relationship between capital and revenue and utilization of assets, that all feels very familiar to us. But it's going to take some time, Keith, right? If you think about the ability to grow that revenue, we've said, you know, obviously, within the context of the industry, but we think IWS can probably add 20 or 25 million to revenue this year. It's going to take a few years of more than that in terms of dollar growth and revenue to be able to get to the revenues that would get us to that kind of margin and return on capital profile. So it's a few years before you can get there.
So it's a few years before you can get there, but the onus is on us to both kind of grow the revenue within the existing operational capacity and grow the operational capacity to scale revenue faster.
Got it that's very helpful.
Secondly on AWS again.
I think it's worth asking.
In a public forum, even if you may not be able to say very much and we've certainly had questions on it.
Keith Mackey: But the onus is on us to both kind of grow the revenue within the existing operational capacity and grow the operational capacity to scale revenue. Got it. No, that's very helpful.
There is some active litigation going on.
With AWS and one of its competitors. So can you just talk a little bit about what's giving you the confidence to proceed with buying the rest of the business in light of that ongoing litigation.
Jon Faber: And just secondly, on IWS, again, I think it's worth asking, even in a public forum, even if you may not be able to say very much, and we certainly have questions about it, but there is some active litigation going on between IWS and one of its competitors. So can you just talk a little bit about what's given you the confidence to proceed with buying the rest of the business in light of that ongoing litigation? Sure Keith, I'm obviously going to be a little bit limited in what I can say because the matter is before the courts, and so I probably can't give a lot of color on the specifics around where our confidence would come from. What I would say, probably at the outset, is that IP mitigation is, of course, not particularly uncommon in oilfield service and technology, and it's particularly common when success in the marketplace draws the attention of competitors.
Sure Keith.
Obviously going to be a little bit limited in what I can say because of the matters before the courts and so I probably can't give a lot of color on the specifics around where our confidence would come from what I would say probably at the outset is that IP litigation is of course, not particularly uncommon in oilfield service and technology.
And it's particularly <unk>.
Common when success in the marketplace draw the attention of competitors right. So there is probably two areas that I can speak to.
In the context of the limitations I would have the first is I would remind folks that the peso has been involved with <unk> since 2019, and so we've been familiar with this matter for a long time and we've received a significant amount of advice and opinions from external legal counsel as part of our due diligence prior to making the decision to acquire.
Jon Faber: Right, so there's probably two areas that I can speak to in the context of the limitations I would have. The first is that I would remind folks that Patreon has been involved with IWS since 2019. And so we've been familiar with this matter for a long time, and we received a significant amount of advice and opinions from external legal counsel as part of our due diligence prior to making the decision to acquire the rest of the business. The other thing I think I can do today is provide a brief update on the status of the case. That is a matter of public record.
The rest of the business.
The other thing I think I can do today is provide a brief update on the status of the case that as a matter of public record. So where we are today. The courts have granted a stay of the litigation proceedings, while we await a decision from the U S patent office as to whether they will undertake a review of the validity of the competitors' patents.
Beyond that Theres, probably not a lot more that I can say at this point, but I would say that we're confident that our disclosure on the matter appropriately reflects our assessment of both the likelihood and the materiality of the situation.
Jon Faber: So where we are today, the courts have granted a stay of the litigation proceedings while we await a decision from the U.S. Patent Office as to whether it will undertake a review of the validity of the competitor's patent. Beyond that, there's probably not a lot more that I can say at this point, but I would say that we're confident that our disclosure on the matter appropriately reflects our assessment of both the likelihood and the materiality of the situation. We're confident that we operate within our own intellectual property rights and within publicly available intellectual property. And I think it's fair to say that there are likely some folks who are probably not as excited about Pason bringing 40 years of expertise and experience to the completions industry as we are. Fair enough. Thanks for that! And just one final one.
We're confident that we operate within our own intellectual property rights and within publically available IP.
And I think it's fair to say that there are likely some folks who are probably not as excited about price on bringing 40 years of expertise and experience to the completions industry as we are.
Fair enough thanks for that.
Just one final one.
Could slip in a third just on capital allocation.
So capex is going up a little this year, that's well understood even announced an increase to the dividend.
What do you think that will mean for buybacks in 2024 relative to 2023.
Keith Mackey: If I could slip in a third just on capital allocation, so CapEx is going up a little this year. That's well understood. You announced an increase in the dividend. What do you think that will mean for buybacks in 2024 relative to 2025? Yeah, so we've always been quite clear about the fact that one of the things we really like about the buyback program is the flexibility element of the program, and it allows us to kind of scale up or down depending on other attractive investment opportunities that we see. So I'd say specifically as it relates to 2024, we certainly see an opportunity to invest in very attractive investments on both the drilling side and the completion side. And so the flexibility element of the share you purchase program will certainly be a factor as we think about making those investments.
Yes, so we've always been quite clear about the fact that one of the things we really like about the buyback program is the flexibility element to the program and it allows us to kind of scale up or down depending on other attractive attractive investment opportunities that we see so I would say specifically as it relates to 2024, we certainly see an opportunity.
To invest in very attractive investments on both the drilling side and the completion side and so the flexibility element of the share repurchase program will certainly be a factor as we think about making those investments.
Okay. Thanks very much.
Great. Thanks, Keith.
Ladies and gentlemen reminder, should you have a question. Please press star followed by the number one on your telephone keypad.
Okay.
Once again it is tier one.
Okay.
There are no further questions at this time I will now hand, the call over to Jon Faber. Please continue thank.
Jon Faber: Okay, thanks very much. Great, thanks, Keith. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the number one on your telephone keypad. Once again, it is star one.
Thanks, very much Jon I was reflecting this morning tomorrow.
Tomorrow marks my 10th anniversary at pace on it would have been today if it wasn't 29 days in February of this year.
And I am more excited about where this business is today than I have been at any point in the 10 years I've been here. So I really do appreciate the continued support of all of our stakeholders offer the business shareholders, our suppliers our employees our customers and we look forward to speaking to you again after our first quarter results in May.
unknown: There are no further questions at this time. I will now hand the call over to Jon Faber. Please continue. Thanks very much, Jon. I was reflecting this morning. Tomorrow will mark my 10th anniversary at Pason. It would have been today if it wasn't 29 days in February this year.
Jon Faber: And I am more excited about where this business is today than I've been at any point in the 10 years I've been here. So I really do appreciate the continued support of all of our stakeholders in the business, shareholders, our suppliers, our employees, and our customers. And we look forward to speaking to you again after our first quarter results in May. Thanks very much for joining us. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Thanks, very much for joining us today.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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