Q2 2024 Pason Systems Inc Earnings Call

August 8, 2024

Celine Boston: Consolidated adjusted EBITDA in the second quarter of 2024 was $33.1 million, or 34.6% of revenue compared to $37.9 million, or 44.7% of revenue in the second quarter of 2023. Adjusted EBITDA margin in the second quarter was impacted by lower industry activity levels in the North American drilling segment over our mostly fixed cost base, along with the addition of lower margin revenue from IWS given its current stage of maturity and growth. We will continue to manage our fixed cost structure towards our expectation of upcoming activity levels and with the acquisition of IWS this year.

Sylvie: Good morning, my name is Sylvia, and I will be your conference operator. The contents of today's call are protected by copyright and may not be reproduced without the prior written consent of Pason Systems. Please note the advisories located at the end of the press release issued by Pason Systems yesterday, which describe 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. At this time, I would like to welcome everyone to Pason Systems. Second Quarter 2024 Earnings Call. Note that all lines have been placed on mute to prevent any background noise.

Sylvie: Good morning, my name is Sylvie, and I will be your conference operator. 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 the advisories 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.

Sylvie: Good morning, my name is Sylvie and I will be your conference operator. The contents of today's call are protected by copyright and may not be reproduced without the prior written consent of Pason Systems, Inc.

Sylvie: Please note the advisories located at the end of the press release issued by Pason Systems yesterday, which describe forward-looking information.

Sylvie: Certain information about the company that is discussed on today's call may constitute forward-looking information.

Speaker: Additional information about Pason Systems, including the risk factors relevant to the company, can be found in its Annual Information Form.

Sylvie: Additional information about Pason Systems, including the risk factors relevant to the company, can be found in its annual information form. At this time, I would like to welcome everyone to Pason Systems, Inc.

Sylvie: At this time, I would like to welcome everyone to Pason Systems Inc. 2nd quarter, 2024 earnings call. Note that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. And if you would like to ask a question during this time, simply press star, then number one on your telephone keypad. And if you would like to withdraw your question, please press star followed by two. Thank you.

Celine Boston: Furthermore, 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. As we've seen many times in Pason's history, growth in industry activity levels in the company's North American drilling segment would highlight the significant operating leverage within the business. Depreciation and amortization for the company increased from $5.8 million in the second quarter of 2020-2023 to $12.9 million in the current quarter.

Sylvie: Second Quarter 2024 Earnings Call Note that all lines have been placed on mute to prevent any background noise.

Sylvie: After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, simply press star then number 1 on your telephone keypad. And if you would like to withdraw your question, please press star followed by 2. Thank you. Celine Boston, CFO, you may begin your conference.

Sylvie: After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during this time, simply press star then number 1 on your telephone keypad, and if you would like to withdraw your question, please press star followed by 2. Thank you. Celine Boston, CFO , you may begin your conference.

Celine Boston: Celine Boston, CFO, you may begin your conference. Thank you, operator. Good morning, and thank you for attending Pason's 2024 2nd 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 2nd quarter. And John will then provide a brief perspective on the outlook for the industry and for Pason, and we will then take questions. I'm pleased to report on Pason's 2nd quarter 2024 result, which incorporate results from newly acquired intelligent well-head systems, and also demonstrates our continued ability to outperform industry drilling activity.

Celine Boston: This increase is attributable to higher levels of capex in recent quarters with growth-related investments within our drilling segment and newly acquired completion segment, along with the depreciation and amortization associated with the fixed assets and intangibles capitalized as part of the IWS acquisition earlier this year. As a result, net income attributable to Pason for the three months ended June 30, 2024, was $10.9 million, or $0.14 per share, compared to $25.5 million, or $0.32 per share, generated in the second quarter of 2020.

Celine Boston: Good morning, and thank you for attending PASON's 2024 second quarter conference call. I'm joined on today's call by John Faber, our president and CEO.

John Faber: Thank you, Operator.

Celine Boston: Good morning and thank you for attending PASON's 2024 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.

Celine Boston: I'll start today's call with an overview of our financial performance in the second quarter, and John will then provide a brief perspective on the outlook for the industry and for PASON, and we will then take questions. I'm pleased to report on Pason's second-quarter 2020-24 results, which incorporate results from newly acquired intelligent wellhead systems and also demonstrate our continued ability to outperform industry drilling activities. Pason generated $95.9 million in revenue in the second quarter, a 13% improvement from the $84.7 million generated in the second quarter of 2023, despite a 13% reduction in North American industry drilling activity during that same period.

Celine Boston: Our balance sheet remains strong and, coupled with our free cash flow generation, allows us to make growth-related investments while returning meaningful levels of cash to shareholders. Net capital expenditures in the second quarter of 2024 totaled $17.9 million, which included the addition of capital expenditures for IWS's business as we make investments to support their growth trajectory. Resulting free cash flow in the second quarter of 2024 was $8 million, compared to $18 million in the second quarter of 2020.

Celine Boston: And John will then provide a brief perspective on the outlook for the industry and for Pason, and we will then take questions.

Celine Boston: With this free cash flow and cash on hand, we returned $13.1 million to shareholders through our quarterly dividend and share repurchase program and ended the quarter with total cash, including short-term investments of $71.2 million with no interest-bearing debt. In summary, we continue to be well-positioned for growth with our established and resilient position within drilling and our growing position in completions in solar and energy storage. I will now turn the call over to John for his comments on our outcome.

Celine Boston: I'm pleased to report on PASON's second quarter 2020-2024 results, which incorporate results from newly acquired intelligent wellhead systems, and also demonstrates our continued ability to outperform industry drilling activity.

Celine Boston: Pason generated 95.9 million in revenue in the 2nd quarter, a 13% improvement from the 84.7 million generated in the 2nd quarter of 2023, despite a 13% reduction in North American industry drilling activity in that same period. I'll start with an overview of segment performance for the quarter. Against a challenging industry activity backdrop, Pason's North American drilling business unit generated revenue per industry day of $993, which represents a 9% increase from the level seen in the 2nd quarter of 2023. With the 13% decline seen in industry activity, mostly driven by the U.S., the North American drilling segment generated revenue of 63.8 million for the 2nd quarter, which was only 5% lower than the 2nd quarter of 2023.

John Faber: Our financial results for the second quarter of 2024 highlight the resilience of all three areas of our business, namely oil and gas drilling, completions, and solar and energy storage. Consolidated revenue in the quarter was 13% higher than the prior year period, despite North American land drilling activity being down 13% over the same period.

Celine Boston: Pason generated $95.9 million in revenue in the second quarter, a 13% improvement from the $84.7 million generated in the second quarter of 2023, despite a 13% reduction in North American industry drilling activity in that same period.

John Faber: While Pason would benefit from growing North American land drilling activity, our ability to deliver meaningful growth and strong financial results is not fully dependent on higher activity loans. There are three important ways in which we look to position ourselves to outpace underlying North American land drilling activity. First, we look to outpace underlying industry activity through growth in North American revenue per industry. Second, we look to grow international revenue. And third, we are generating increasing revenue from higher growth markets, including technology offerings in the completions market and in solar and energy storage.

Celine Boston: I'll start with an overview of segment performance for the quarter. Against a challenging industry activity backdrop, Pason's North American drilling business unit generated revenue per industry day of $993, which represents a 9% increase from the level seen in the second quarter of 2023. With the 13% decline seen in industry activity, mostly driven by the U.S., the North American drilling segment generated revenue of $63.8 million for the second quarter, which was only 5% lower than the second quarter of 2023.

John Faber: Our North American drilling segment displayed the strength of its competitive position again by posting revenue per industry day of $993 in the quarter, up 9% compared to the second quarter of 2023. We continue to see strong product adoption and improved price realization, and we anticipate that growing demand for high-quality data will result in continued growth and adoption of our core product offering. During the second quarter, we began to receive additional deliveries of mud analyzer units, which provide customers with continuous, real-time readings of critical drilling mud parameters.

Celine Boston: I'll start with an overview of segment performance for the quarter.

Celine Boston: Against a challenging industry activity backdrop, Pason's North American Drilling Business Unit generated revenue per industry day of $993, which represents a 9% increase from the level seen in the second quarter of 2023.

Celine Boston: With the 13% decline seen in industry activity, mostly driven by the U.S., the North American drilling segment generated a revenue of $63.8 million for the second quarter, which was only 5% lower than the second quarter of 2023.

Celine Boston: The segment's cost-based remains mostly fixed in nature, and depreciation and amortization expenses grew year-over-year, with increased capital expenditures in recent quarters, resulting in segment growth profit of $34.1 million in the 2nd quarter of 2024, compared to $40.8 million in the 2nd quarter of 2023. Our international drilling segment generated 15.3 million in quarterly revenue, which represents a 2% increase from the 2nd quarter of 2023, with strong industry activity and improved revenue per day across the segments and markets. The segment also saw slightly higher depreciation and amortization in Q2 of 2024, with resulting growth profit of $7.3 million, compared to $7.4 million in the 2nd quarter of 2020.

Celine Boston: The segment's cost base remains mostly fixed in nature, and depreciation and amortization expenses grew year over year with increased capital expenditures in recent quarters, resulting in a segment gross profit of $34.1 million in the second quarter of 2024, compared to $40.8 million in the second quarter of 2023. Our international drilling segment generated $15.3 million in quarterly revenue, which represents a 2% increase from the second quarter of 2023, due to strong industry activity and improved revenue per day across the segment's end market.

Celine Boston: compared to $40.8 million in the second quarter of 2023.

John Faber: And we are beginning to deploy these in the field with early positive market feedback. We've also seen greater traction among our automation products in 2024, most notably the Drilling Advisory System and Tool Face Control. Our second important area of growth is in international markets, where we generated $15.3 million in revenue in the second quarter. Market dynamics and geopolitical conditions and their impact on near-term activity will vary across our international markets.

Celine Boston: Our international drilling segment generated $15.3 million in quarterly revenue, which represents a 2% increase from the second quarter of 2023, with strong industry activity and improved revenue per day across the segments and markets.

Celine Boston: The segment also saw slightly higher depreciation and amortization in Q2 of 2024 with a resulting gross profit of $7.3 million compared to $7.4 million in the second quarter of 2023. Our completions segment includes results from Intelligent Wellhead Systems, a completions technology business that we fully acquired and began consolidating results for on January 1st of this year.

Celine Boston: The segment also saw slightly higher depreciation and amortization in Q2 of 2024, with resulting gross profit of $7.3 million compared to $7.4 million in the second quarter of 2023.

Celine Boston: Our completion segment includes results from Intelligent Well-Head Systems, a completion technology business that we fully acquired and began consolidating results for on January 1st of this year. In the second quarter of 2024, Pason's completion segment had 29 active jobs, up from 28 in the first quarter of 2024, and a revenue per IWS day of 5,000 and three. Also, it increased from the first quarter of 2024. These increases occurred against a challenging industry condition backdrop in the completion sector in the second quarter. Reported revenue for the segment was a new quarterly record at $13.7 million. Gross profit for the segment of $1.4 million represents operating expense investments made for the rapid growth IWS has seen, along with $5 million in depreciation and amortization expense associated with the property and equipment and intangible assets that were acquired on January 1st of 2024.

John Faber: But across all markets, we continue to see favorable trends of growing technology adoption and a greater use of drilling data in planning and operations. The third growth area is our investments in higher-growth markets, namely completions and solar and energy storage. In completions, we see strong growth over the short to medium term as companies more fully utilize data-driven technology. IWS generated $13.7 million in revenue in the second quarter, representing another all-time high for the business, on the strength of $5,103 in revenue per IWS customer.

John Faber: We continue to be encouraged by the profile of IWS's revenue growth. While the company has been disproportionately exposed to the effects of a challenging natural gas market and significant M&A activity in the E&P sector, which has resulted in slowing activity among existing customers, IWS continues to hold its share within those customers while adding new customers. With a growing customer base and strong customer loyalty, we expect the benefit as customers who have slowed their completions programs begin to increase their activity, which we anticipate seeing heading into 2025.

Celine Boston: our completion segment includes results from intelligent well-head systems a completion technology business that we fully acquired to and began consolidating results for on january first of this year

John Faber: Over the medium term, increased use of technology within the broader completions market and further gains in product adoption are expected to drive further revenue growth. We're also bringing together the unique expertise and experience of Pason and IWS to develop a compelling data aggregation and data delivery offering for the completions market. In order to access the full benefits of data-driven technologies, the completions market will need access to reliable, consistent, high-quality data, and we believe that Pason's long history of providing drilling data to customers gives us a unique ability to meet this need in completions.

Celine Boston: In the second quarter of 2024, Pason's completion segment had 29 active jobs, up from 28 in the first quarter of 2024, and a revenue per IWS day of $5,003, also an increase from the first quarter of 2024. These increases occurred against a challenging industry condition backdrop in the completion sector in the second quarter.

Celine Boston: In the second quarter of 2024, Pason's completion segment had 29 active jobs, up from 28 in the first quarter of 2024, and a revenue per IWS day of $5,003.

Celine Boston: also an increaseed from the first quarter of two thousand and twenty four these increases occurred against a challenging industry condition backdrop in the completion sector in the second quarter

Celine Boston: Reported revenue for the segment was a new quarterly record at $13.7 million. Gross profit for the segment of $1.4 million represents operating expense investments made for the rapid growth IWS has seen, along with $5 million in depreciation and amortization expense associated with the property and equipment and intangible assets that were acquired on January 1st, 2024. Energy Toolbase, which is reported within our solar and energy storage segment, generated $3.1 million in quarterly revenue, an increase of 31% from the 2023 comparative period, with increased control system sales year over year.

Celine Boston: Reported revenue for the segment was a new quarterly record at $13.7 million.

Celine Boston: Gross profit for the segment of $1.4 million represents operating expense investments made for the rapid growth IWS has seen, along with $5 million in depreciation and amortization expense associated with the property and equipment and intangible assets that were acquired on January 1st of 2024.

Celine Boston: Energy Toolbase, which is reported within our solar and energy storage segment, generated $3.1 million in quarterly revenue, an increase of 31% from the 2023 comparative period, with increased control system sales year over year. The segment's revenue will fluctuate with timing and control system deliveries. Sequentially, Pason's results were impacted by the seasonal decline in Canadian drilling activity coupled with a decline in U.S. drilling activity as well. Revenue fell 8.5% quarter over quarter as a result, despite a 13% decline in North American industry drilling activity quarter over quarter. Consolidated Adjusted EBITDA in the second quarter of 2024 was $33.1 million, or 34.6% of revenue, compared to $37.9 million, or 44.7% of revenue, in the second quarter of 2023.

John Faber: ETB posted revenue of $3.1 million in the second quarter, up 31% year over year from the same period last year, driven primarily by the sales of additional control systems. As a reminder, quarterly revenue for ETP will fluctuate as a result of the timing of control system delivery.

Celine Boston: Energy Tool Base, which is reported within our solar and energy storage segment, generated $3.1 million in quarterly revenue, an increase of 31% from the 2023 comparative period, with increased control system sales year-over-year.

Celine Boston: The segment's revenue will fluctuate with the timing of control system delivery. Sequentially, Pason's results were impacted by the seasonal decline in Canadian drilling activity, coupled with a decline in U.S. drilling activity as well. Revenue fell 8.5% quarter-over-quarter as a result, despite a 13% decline in North American industry drilling activity quarter-over-quarter.

Celine Boston: The segment's revenue will fluctuate with timing of control system deliveries.

Celine Boston: Sequentially, Pason's results were impacted by the seasonal decline in Canadian drilling activity, coupled with a decline in U.S. drilling activity as well. Revenue fell 8.5% quarter over quarter as a result, despite a 13% decline in North American industry drilling activity quarter over quarter.

Celine Boston: Consolidated adjusted EBITDA in the second quarter of 2024 was $33.1 million, or 34.6% of revenue, compared to $37.9 million, or 44.7% of revenue, in the second quarter of 2023.

Celine Boston: Adjusted EBITDA margin in the second quarter was impacted by lower industry activity levels in the North American drilling segment over our mostly fixed cost base, along with the addition of lower margin revenue from IWS given its current stage of maturity and growth. We will continue to manage our fixed cost structure towards our expectation of upcoming activity levels and with the acquisition of IWS this year. Further, 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. As we've seen many times in pace on history, growth and industry activity levels in the company's North American drilling segment would highlight the significant operating leverage within the business.

Celine Boston: We will continue to manage our fixed cost structure towards our expectation of upcoming activity levels and with the acquisition of IWS this year. Further, 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.

Celine Boston: In addition, 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. As we've seen many times in Pason's history, growth in industry activity levels in the company's North American drilling segment would highlight the significant operating leverage within the company. Depreciation and amortization for the company has increased from $5.8 million in the second quarter of 2020-2023 to $12.9 million in the current quarter.

Celine Boston: As we've seen many times in Pason's history, growth in industry activity levels in the company's North American drilling segment would highlight the significant operating leverage within the business.

Celine Boston: Depreciation and amortization for the company has increased from $5.8 million in the second quarter of 2023 to $12.9 million in the current quarter. This increase is attributable to higher levels of cat-backs in the recent quarter, with growth-related investments within our drilling segment and newly acquired completion segment, along with the depreciation and amortization associated with the fixed asset and intangibles capitalized as part of the IWS acquisition earlier this year. As a result, net income attributable to PayZone for the three months ended June 30th, 2024, was $10.9 million or $0.14 cents per share compared to $25.5 million or $0.32 cents per share generated in the second quarter of 2023.

Celine Boston: Depreciation and amortization for the company has increased from $5.8 million in the second quarter of 2020-23 to $12.9 million in the current quarter.

Celine Boston: This increase is attributable to higher levels of CapEx in recent quarters with growth-related investments within our drilling segment and newly acquired completion segment, along with the depreciation and amortization associated with the fixed assets and intangibles capitalized as part of the IWS acquisition earlier this year.

Celine Boston: As a result, net income attributable to Pason for the three months ended June 30, 2024 was $10.9 million, or $0.14 per share, compared to $25.5 million, or $0.32 per share generated in the second quarter of 2023.

Celine Boston: Our balance sheet remains strong and coupled with our free cash flow generation allows us to make growth-related investments while returning meaningful levels of cash to share. Net Capital Expenditures in the second quarter of 2024 totaled 17.9 million, which included the addition of capital expenditures of IWS's business as we make investments to support their growth trajectory. Resulting free cash flow in the second quarter of 2024 was $8 million dollars compared to $18 million in the second quarter of 2023. With this free cash flow and cash on hand, we returned $13.1 million to shareholders through a quarterly dividend and share repurchase program and ended the quarter with total cash, including short-term investments, of $71.2 million with no interest-bearing debt.

Celine Boston: Net capital expenditures in the second quarter of 2024 totaled $17.9 million, which included the addition of capital expenditures of IWS's business as we make investments to support their growth trajectory.

Celine Boston: Resulting free cash flow in the second quarter of 2024 was $8 million compared to $18 million in the second quarter of 2023.

Celine Boston: With this free cash flow and cash on hand, we returned $13.1 million to shareholders through our quarterly dividend and share repurchase program, and ended the quarter with total cash, including short-term investments, of $71.2 million with no interest-bearing debt. In summary, we continue to be well-positioned for growth with our established and resilient position within drilling and our growing position in completions in solar and energy storage. I will now turn the call over to John for his comments on our outcome.

Celine Boston: In summary, we continue to be well-positioned for growth with our established and resilient position within drilling and our growing position in completions in solar and energy storage.

John Faber: I will now turn the call over to John for his comments on our outlook. Thank you, Celine. Our financial results for the second quarter of 2024 highlight the resilience of all three areas of our business, namely oil and gas drilling, completions, and solar and energy storage. Consolidated revenue in the quarter was 13% higher than the prior year period, despite North American land drilling activity being down 13% over the same period. While Payson would benefit from growing North American land drilling activity, our ability to deliver meaningful growth and strong financial results is not fully dependent on higher activity levels.

John: Thank you, Celine.

John: Our financial results for the second quarter of 2024 highlight the resilience of all three areas of our business, namely oil and gas drilling, completions, and solar and energy storage.

John: Consolidated revenue in the quarter was 13% higher than the prior year period, despite North American land drilling activity being down 13% over the same period.

John: While Pason would benefit from growing North American land drilling activity, our ability to deliver meaningful growth and strong financial results is not fully dependent on higher activity levels.

John Faber: There are three important ways in which we look to position ourselves to outpace underlying North American land drilling activity. First, we look to outpace underlying industry activity through growth in North American revenue per industry day. Second, we look to grow international revenue. And third, we are generating increasing revenue from higher growth markets, including technology offerings in the completions market and in solar and energy storage. Our North American drilling segment displayed the strength of its competitive position again by posting revenue per industry day of $993 in the quarter, up 9% compared to the second quarter of 2023.

John Faber: There are three important ways in which we look to position ourselves to outpace underlying North American land drilling activity.

John Faber: First, we look to outpace underlying industry activity through growth in North American revenue per industry day.

John Faber: Second, we look to grow international revenue. And third, we are generating increasing revenue from higher growth markets, including technology offerings in the completions market and in solar and energy storage.

John Faber: We continue to see strong product adoption and improved price realization, and we anticipate that growing demand for high quality data will result in continued growth and adoption of our core product offering. During the second quarter, we began to receive additional deliveries of mud analyzer units, which provide customers with continuous real-time readings of critical drilling mud parameters, and we are beginning to deploy these to the field to early positive market feedback. We've also seen greater traction among our automation products in 2024, most notably the drilling advisory system and tool face control. Our second important area of growth is in international markets where we generated $15.3 million in revenue in the second quarter.

John Faber: We continue to see strong product adoption and improved price realization and we anticipate that growing demand for high quality data will result in continued growth and adoption of our core product offering.

John Faber: During the second quarter, we began to receive additional deliveries of mud analyzer units, which provide customers with continuous, real-time readings of critical drilling mud parameters. And we are beginning to deploy these to the field to early positive market feedback.

Operator: Good morning, my name is Sylvie, and I will be your conference operator. 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 the advisories 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.

John Faber: And we are beginning to deploy these in the field with early positive market feedback. The third growth area is our investments in higher growth markets, namely completions and solar and energy storage. We continue to be encouraged by the profile of IWS's revenue growth. Over the medium term, increased use of technology within the broader completions market and further gains in product adoption are expected to drive further revenue growth. Our priorities with respect to capital allocation remain focused on pursuing attractive growth opportunities while returning meaningful capital to shareholders. As of June 30th, we had $71.2 million in total cash, including short-term investments, and positive working capital of $113.5 million.

John Faber: We've also seen greater traction among our automation products in 2024, most notably the Drilling Advisory System and Tool Face Control.

John Faber: Our second important area of growth is in international markets where we generated 15.3 million dollars in revenue in the second quarter.

John Faber: Market dynamics and geopolitical conditions and their impact on near-term activity will vary across our international markets, but across all markets we continue to see favorable trends of growing technology adoption and a greater use of drilling data in planning and operations.

John Faber: Market dynamics and geopolitical conditions and their impact on near-term activity will vary across our international markets. But across all markets, we continue to see favorable trends of growing technology adoption and a greater use of drilling data in planning and operations.

Operator: At this time, I would like to welcome everyone to Pason Systems Inc.

John Faber: The third growth area is our investments in higher growth markets, namely completions and solar and energy storage. In completions, we see strong growth over the short to medium-term as companies more fully utilize data-driven technologies. IWS generated $13.7 million in revenue in the second quarter, representing another all-time high for the business, on the strength of $5,103 in revenue for IWS. We continue to be encouraged by the profile of IWS's revenue growth. While the company has been disproportionately exposed to the effects of a challenging natural gas market and significant M&A activity in the E&P sector, which has resulted in slowing activity among existing customers, IWS continues to hold their share within those customers while adding new customers.

Operator: 2nd quarter, 2024 earnings call. Note that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, simply press star then number one on your telephone keypad. And if you would like to withdraw your question, please press star followed by two. Thank you.

John Faber: The third growth area is our investments in higher growth markets, namely completions and solar and energy storage.

John Faber: In completions, we see strong growth over the short to medium term as companies more fully utilize data-driven technologies.

John Faber: IWS generated $13.7 million in revenue in the second quarter, representing another all-time high for the business, on the strength of $5,103 in revenue per IWS day.

Celine Boston: Celine Boston, CFO, you may begin your conference. Thank you, operator. Good morning, and thank you for attending Pason's 2024 2nd 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 2nd quarter. And John will then provide a brief perspective on the outlook for the industry and for Pason, and we will then take questions. I'm pleased to report on Pason's 2nd quarter 2024 result, which incorporate results from newly acquired intelligent well-head systems, and also demonstrates our continued ability to outperform industry drilling activity.

John Faber: we continue to be encouraged by the profile of ids's revenue growth

John Faber: While the company has been disproportionately exposed to the effects of a challenging natural gas market and significant M&A activity in the E&P sector, which has resulted in slowing activity among existing customers, IWS continues to hold their share within those customers while adding new customers.

John Faber: With a growing customer base and strong customer loyalty, we expect to benefit as customers who have slowed their completions programs begin to increase their activity, which we anticipate seeing heading into 2025. Over the medium term, increased use of technology within the broader completions market and further gains in product adoption are expected to drive further revenue growth. We're also bringing together the unique expertise and experience of Pason and IWS to develop a compelling data aggregation and data delivery offering for the completions market. In order to access the full benefits of data-driven technologies, the completions market will need access to reliable, consistent, high-quality data.

John Faber: Over the medium term, increased use of technology within the broader completions market and further gains in product adoption are expected to drive further revenue growth.

John Faber: We're also bringing together the unique expertise and experience of Pason and IWS to develop a compelling data aggregation and data delivery offering for the completions market.

John Faber: And we believe that Pason's long history of providing drilling data to customers gives us a unique ability to meet this need in completions. ETB posted revenue at $3.1 million in the second quarter, up 31% year-over-year from the same period of 2023, driven primarily by the sales of additional control systems. As a reminder, quarterly revenue for ETB will fluctuate as a result of the timing of control system deliveries.

Celine Boston: With the 13% decline seen in industry activity, mostly driven by the U.S., the North American drilling segment generated revenue of 63.8 million for the 2nd quarter, which was only 5% lower than the 2nd quarter of 2023. The segment's cost-based remains mostly fixed in nature, and depreciation and amortization expenses grew year-over-year, with increased capital expenditures in recent quarters, resulting in segment growth profit of $34.1 million in the 2nd quarter of 2024, compared to 40.8 million in the 2nd quarter of 2023.

Speaker Change: ev posted revenue at three point one million dollars in the second quarter up thirty-one percent year-over- year from the same period oftwo thousand and twenty three driven primarily by the sales of additional control systems

Speaker Change: As a reminder, quarterly revenue for ETP will fluctuate as a result of timing of control system deliveries.

John Faber: As storage attachment rates to solar projects increase and as customers look to optimize the performance of those storage assets, Energy ToolVates has seen strong growth in its bookings and in its pipeline of sales opportunities for energy management control systems. Our priorities with respect to capital allocation remain focused on pursuing attractive growth opportunities while returning meaningful capital to shareholders. We continue to expect capital spending of between $75 and $80 million in 2024. We will continue to pursue disciplined returns over time through our regular quarterly dividend, which we are maintaining at $0.13 per share. Outside of the regular dividend, our primary focus in 2024 remains making the necessary investment to position ourselves for higher levels of free cash flow in our drilling and completions-related businesses.

John Faber: As storage attachment rates to solar projects increase and as customers look to optimize the performance of those storage assets, Energy Toolbase has seen strong growth in its bookings and in its pipeline of sales opportunities for energy management control systems. Our priorities with respect to capital allocation remain focused on pursuing attractive growth opportunities while returning meaningful capital to shareholders. We continue to expect capital spending of between $75 and $80 million in 2024.

Celine Boston: Our international drilling segment generated 15.3 million in quarterly revenue, which represents a 2% increase from the 2nd quarter of 2023, with strong industry activity and improved revenue per day across the segments and markets. The segment also saw slightly higher depreciation and amortization in Q2 of 2024, with resulting growth profit of $7.3 million, compared to $7.4 million in the 2nd quarter of 2020. Our completion segment includes results from Intelligent Well-Head Systems, a completion technology business that we fully acquired and began consolidating results for on January 1st of this year.

John Faber: Our priorities with respect to capital allocation remain focused on pursuing attractive growth opportunities while returning meaningful capital to shareholders.

John Faber: We continue to expect capital spending of between $75 and $80 million in 2024.

John Faber: We will continue to pursue disciplined returns over time through our regular quarterly dividend, which we are maintaining at $0.13 per share. Outside of the regular dividend, our primary focus in 2024 remains making the necessary investments to position ourselves for higher levels of free cash flow in our drilling and completions business. In the first half of 2024, we spent $6 million on share repurchases as well. 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.

John Faber: we will continue to pursue disciplined returns over time through our regular quarterly dividend which we are maintaining at thirteen cents per share

John Faber: Outside of the regular dividend, our primary focus in 2024 remains making the necessary investments to position ourselves for higher levels of free cash flow in our drilling and completions-related businesses.

Celine Boston: In the second quarter of 2024, Pason's completion segment had 29 active jobs up from 28 in the first quarter of 2024 and a revenue per IWS day of 5,000 and three. Also, it increased from the first quarter of 2024. These increases occurred against a challenging industry condition backdrop in the completion sector in the second quarter. Reported revenue for the segment was a new quarterly record at $13.7 million. Gross profit for the segment of $1.4 million represents operating expense investments made for the rapid growth IWS has seen, along with $5 million in depreciation and amortization expense associated with the property and equipment and intangible assets that were acquired on January 1st of 2024.

John Faber: In the first half of 2024, we spent $6 million on share repurchases as well. 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.

John Faber: In the first half of 2024, we spent $6 million on share repurchases as well.

John Faber: 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.

John Faber: Our balance sheet remains strong. At June 30th, we had $71.2 million in total cash, including short-term investments, and positive working capital of $113.5 million. 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 oil and gas drilling, and to return meaningful capital to shareholders.

John Faber: Our balance sheet remains strong. As of June 30th, we had $71.2 million in total cash, including short-term investments, and positive working capital of $113.5 million. 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 oil and gas drilling, and to return meaningful capital to shareholders. We would now be happy to take any questions.

John Faber: Our balance sheet remains strong. At June 30th, we had $71.2 million in total cash, including short-term investments, and positive working capital of $113.5 million.

John Faber: 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 oil and gas drilling, and to return meaningful capital to shareholders.

Celine Boston: Energy Toolbase, which is reported within our solar and energy storage segment generated $3.1 million in quarterly revenue, an increase of 31% from the 2023 comparative period with increased control system sales year over year. The segments revenue will fluctuate with timing and control system deliveries. Sequentially, Pason's results were impacted by the seasonal decline in Canadian drilling activity coupled with a decline in U.S, drilling activity as well. Revenue fell 8.5% quarter over quarter as a result, despite a 13% decline in North American industry drilling activity quarter over quarter.

John Faber: We would now be happy to take any questions.

Sylvie: Thank you, sir. As stated earlier, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. And should you decide to withdraw from the question cue? You will need to please press star followed by two. And if you're using a speaker phone, please lift the handset before pressing any keys. Please go ahead and press star one now. If you do have any questions.

Operator: Thank you, sir. As stated earlier, ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touch-tone phone. And should you decide to withdraw from the question queue, you will need to please press the star followed by 2. And if you're using a speakerphone, please lift the handset before pressing any key. Please go ahead and press star 1 now if you do have any questions. And your first question will be from Aaron MacNeil at TD Cowen. Please go on.

Speaker Change: Thank you, sir. As stated earlier, ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touch-tone phone. And should you decide to withdraw from the question queue, you will need to please press star followed by 2. And if you're using a speakerphone, please lift the handset before pressing any keys.

Sylvie: Please go ahead and press star 1 now if you do have any questions.

Aaron MacNeil: And your first question will be from Aaron MacNeil at PD Cowan. Please go ahead. Hey, morning. Thanks for taking my question. Good evening.

Sylvie: Please go ahead and press star 1 now if you do have any questions.

Speaker Change: And your first question will be from Aaron MacNeil at TD Cowen. Please go ahead.

Celine Boston: Consolidated Adjusted EBITDA in the second quarter of 2024 was $33.1 million or $34.6% of revenue compared to $37.9 million or $44.7% of revenue in the second quarter of 2023. Adjusted EBITDA margin in the second quarter was impacted by lower industry activity levels in the North American drilling segment over our mostly fixed cost base, along with the addition of lower margin revenue from IWS given its current stage of maturity and growth. We will continue to manage our fixed cost structure towards our expectation of upcoming activity levels and with the acquisition of IWS this year.

Aaron MacNeil: Hey morning. Thanks for taking my question. Morning, Aaron.

John Faber: John, you've already touched on a lot of these themes in your prepared remarks, but, you know, a big theme from the investor day was growth, both in relative and absolute terms. We've obviously seen industry conditions deteriorate. You mentioned the M&A. But I just wanted to take your pulse and see if your view had materially changed on the potential growth trajectory for average revenue per industry day, or IWS, and mud analyzer growth

John Faber: John, you've already touched on a lot of these themes in your prepared remarks, but you know, a big theme from the investor day was growth, both in relative and absolute terms. We've obviously seen industry conditions deteriorate. You mentioned the M&A theme. But I just wanted to take your pulse and see if you view it materially changed on the potential growth trajectory for average revenue per industry day or IWS and the mud analyzer growth in the near term. So I guess I'll maybe break those into. You talked about it kind of the two areas: growth and revenue per industry day, of which mud analyzer is part of that question.

Speaker Change: morning thanks for taking my c year

Sylvie: John , you've already touched on a lot of these themes in your prepared remarks, but a big theme from the investor day was growth, both in relative and absolute terms.

Speaker Change: We've obviously seen industry conditions deteriorate. You mentioned the M&A theme.

Unnamed Speaker: But I just wanted to take your pulse and see if your view had materially changed.

Unnamed Speaker: But I just wanted to take your pulse and see if your view had materially changed on...

Unnamed Speaker: The potential growth trajectory for average revenue per industry day or IWS and the mud analyzer growth.

John Faber: So I guess I'll maybe break those down into two areas, growth and revenue per industry day, of which Mud Analyzer is part of that question. And then the other question you had was about IWS, so I'd say, if I take a look at the core drilling-related business, we continue to have confidence in our ability to grow that metric north of the 6-7% that we've historically done over the last 15-20 years on an average or a compound annual basis.

Unnamed Speaker: in the near term.

Celine Boston: Further, 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. As we've seen many times in pace on history, growth and industry activity levels in the company's North American drilling segment would highlight the significant operating leverage within the business. Depreciation and amortization for the company has increased from $5.8 million in the second quarter of 2023 to $12.9 million in the current quarter.

Speaker Change: So, I guess I'll maybe break those into, you know, you talked about kind of the two areas, growth and revenue per industry day, of which Mud Analyzer is part of that question.

John Faber: And then the other question you have was around IWS. So I would say, but I think I look at the core drilling related business. We continue to have confidence in our ability to grow that metric in north of the six to seven percent that we've historically done over the last 15 to 20 years on an average or a compound annual basis. That's always a function of both price and product adoption. I think when you get to more challenging environments, the product adoption opportunities are still very much there. The pricing opportunities are probably a little bit more challenged in a more challenging industry environment.

Speaker Change: and then the other question you had would around w s so 'would say i think a look at the core drilling-related business we continue to have confidence in our ability to grow that metric in north of the six to seven percent that weve historically done over the last fifteen to twenty years on an average

John Faber: That's always a function of both price and product adoption. I think when you get into more challenging environments, the product adoption opportunities are still very much there. The pricing opportunities are probably a little bit more difficult in a more challenging industry environment.

Unnamed Speaker: or a compound annual basis.

Speaker Change: That's always a function of both price and product adoption. I think when you get into more challenging environments, the product adoption opportunities are still very much there. The pricing opportunities are probably a little bit more challenged.

Celine Boston: This increase is attributable to higher levels of cat-backs in recent quarter with growth-related investments within our drilling segment and newly acquired completion segment, along with the depreciation and amortization associated with the fixed asset and intangibles capitalized as part of the IWS acquisition earlier this year. As a result, net income attributable to PayZone for the three months ended June 30th, 2024, was $10.9 million or $14 cents per share compared to $25.5 million or $32 cents per share generated in the second quarter of 2023.

John Faber: But we still have confidence in our ability to grow that metric. The truth is, there's just a lot more demand for data, and we're well positioned from a product adoption and technology basis to see some of those opportunities realized. Our confidence in the IWS revenue trajectory hasn't changed.

John Faber: We still have confidence in our ability to grow that metric. The truth is there's just a lot more demand for data that were well positioned from a product adoption and technology basis to see some of those opportunities realized. Our confidence in the IWS revenue trajectory hasn't changed. I think I made a comment in the previous quarter. I said our confidence around the deliverability of the revenue is very high. We can't be quite as confident about it, the timing of when that revenue delivers.

Unnamed Speaker: In a more challenging industry environment, we still have confidence in our ability to grow that metric. The truth is there's just a lot more demand for data and we're well positioned from a product adoption and technology basis to see some of those opportunities realized.

Speaker Change: Our confidence in the IWS revenue trajectory hasn't changed. I think I made a comment in the previous quarter. I said our confidence around the deliverability of the revenue is very high. We can't be quite as confident about the timing of when that revenue delivers.

John Faber: I think I made a comment in the previous quarter. I said our confidence around the deliverability of the revenue is very high. But we can't be quite as confident about the timing of when that revenue will be delivered. And so it might be helpful, Aaron, if I maybe just paint a little bit of a picture when we talk about the impact of the natural gas market and M&A and the fact that IWS is just much more exposed to those dynamics, which have been real near-term headwinds in terms of revenue growth.

John Faber: So it might be helpful, Aaron, if I maybe just paint a little bit of a picture when we talked about the impact of the natural gas market and M&A and the fact that IWS is just much more exposed to those dynamics, which have been real near-term headwinds in terms of the revenue growth side. So if we look at the natural gas side, the natural gas price has been weakening of late, and we've seen recently announcements of expected delays for the Golden Pass LNG project, so that will likely have an impact on the natural gas market side.

Speaker Change: And so it might be helpful, Aaron, if I maybe just paint a little bit of a picture when we talk about the impact of...

Unnamed Speaker: of the natural gas market and M&A and...

Speaker Change: And the fact that IWS is just much more exposed to those dynamics, which have been real near-term headwinds in terms of the revenue growth side.

John Faber: So if we look at the natural gas side, the natural gas price has been weakening of late, and we've recently seen announcements of expected delays for the Golden Pass LNG project, so that will likely have an impact on the natural gas market.

Celine Boston: With this free cash flow and cash on hand, we returned $13.1 million to shareholders through a quarterly dividend and share repurchase program and ended the quarter with total cash including short-term investments of $71.2 million with no interest bearing debt.

Speaker Change: If we look at the natural gas side, the natural gas price has been a weakening of late and we've seen recently announcements of expected delays for the Golden Pass LNG project, so that will likely have an impact on the natural gas market side.

John Faber: On the M&A side, maybe just to paint a picture for you, we had 29 average jobs at IWS in the quarter. So, as you can imagine, that implies that IWS has tens of customers, not hundreds of customers. More than half of IWS's top 10 customers are acquirers in announced large-scale M&A transactions. And so that is, in the medium term, very positive for us, and we feel quite encouraged about the opportunity to expand our activity when you have large-scale M&A acquirers as your customers. Now, what has happened is that activity levels for all of those customers has decreased as they're going through the M&A transactions, sorting out which assets are going to pre-prioritize, what's the sequence of the capital program on a pro-forma basis, all normal things that we see happen in M&A transactions.

Speaker Change: on the eida side maybe just to paint a picture for you you we re twenty-nine average jobs at e s in the quarter so asyou can imagine that implies that s has tens of customers not hundreds of customers

Unnamed Speaker: More than half of IWS's top 10 customers are acquirers in announced large-scale M&A transactions.

Unnamed Speaker: And so that is, in the medium term, very positive for us, and we feel quite encouraged about the opportunity to expand our activity.

John Faber: Now, what has happened is that activity levels for all of those customers have decreased as they're going through the M&A transactions, sorting out which assets are going to be prioritized, and what the sequence of the capital program on a pro forma basis, all normal things that we see happen in M&A transactions. But over the medium term, we think it's incredibly good news for IWS. What the whole form of the M&A transaction market sort of looks like for us.

Unnamed Speaker: when you have large-scale M&A acquirers as your customers. Now, what has happened...

John Faber: Consolidated revenue in the quarter was 13% higher than the prior year period, despite North American land drilling activity being down 13% over the same period. While Payson would benefit from growing North American land drilling activity, our ability to deliver meaningful growth and strong financial results is not fully dependent on higher activity levels. There are three important ways in which we look to position ourselves to outpace underlying North American land drilling activity.

Speaker Change: is that activity levels for all of those customers has decreased as they're going through the M&A transactions, sorting out which assets are going to be prioritized, what's the sequence of the capital program on a pro forma basis.

John Faber: But over the medium term, we think it's an incredibly good news for IWS, what that pro-forma of the M&A transaction market sort of looks like for us. The challenge you have with a small business that has tens of customers is that when a customer slows their activity by three or four fleets, you need to make that up by getting three or four new customers one fleet at a time. And the sales process and the sales intensity and the sales effort for a new customer to go from zero jobs to one is quite different than getting a customer go from two jobs to three, for example.

Speaker Change: All normal things that we see happen in M&A transactions, but over the medium term, we think it's incredibly good news for IWS, what that whole form of the M&A transaction market sort of looks like for us.

Unnamed Speaker: What the whole form of the M&A transaction market sort of looks like for us.

John Faber: The challenge you have with a small business that has tens of customers is that when a customer slows their activity by three or four fleets... You need to make that up by getting three or four new customers, one fleet at a time. And the sales process and the sales intensity and the sales effort for a new customer to go from zero jobs to one is quite different than getting a customer to go from two jobs to three, for example.

John Faber: First, we look to outpace underlying industry activity through growth in North American revenue per industry day. Second, we look to grow international revenue. And third, we are generating increasing revenue from higher growth markets including technology offerings in the completions market and in solar and energy storage. Our North American drilling segment displayed the strength of its competitive position again by posting revenue per industry day of $993 in the quarter up 9% compared to the second quarter of 2023.

Speaker Change: The challenge you have with a small business that has tens of customers is that when a customer slows their activity by three or four fleets.

Speaker Change: You need to make that up by getting three or four new customers one fleet at a time and the sales process and the sales intensity and the sales effort for a new customer to go from zero jobs to one is quite different than getting a customer to go from two jobs to three, for example.

John Faber: So if I break down revenue, and that's why in my comments, I said we're quite encouraged by the profile of the revenue growth. If you look at revenue, it's a function of customer activity. And customer activity has been challenging based on M&A and natural gas, particularly for IWS. The other things you look at are customer retention, which is very high at IWS; customer acquisition, where they're adding new customers every month. And customer spending where you've seen that revenue for IWS last day continues to be very strong. So the question for us is not whether there's deliverability of revenue, whether the trajectory of revenue is meaningfully higher at IWS.

John Faber: So if I break down revenue, and that's why in my comments, I said we were quite encouraged by the profile of revenue growth. If you look at revenue, it's a function of customer activity, and customer activity has been challenging based on M&A and natural gas, particularly for IWS. The other things you look at are customer retention, which is very high at IWS, customer acquisition, where they're adding new customers every month, and customer spending, where you've seen that revenue per IWS day continues to be very strong.

Speaker Change: so if i break down revenue andthat's why in my comments i said requite encouraged by the profile of the revenue growth

Speaker Change: If you look at revenue, it's a function of customer activity, and customer activity has been challenging based on M&A and natural gas, particularly for IWS.

Speaker Change: the other things you look at our customer retention which is very high at i s customer acquisition where they're adding new customers every month and customer spending where you've seen that revenue proide of u sa continues to be very strong

John Faber: So the question for us is not whether there's deliverability of revenue, whether the trajectory of revenue is meaningfully higher at IWS. The question is whether it delivers in a 2024 world, or it's more of a 2025 world. And when you look at what's happening in terms of timing of M&A transactions, either closing or the establishment of pro forma capital programs, or the expectations around the timing of the natural gas market conditions improving, that probably implies it's looking more like it's not going to occur in the second half of 2024 but more of a 2025 world.

Unnamed Speaker: So,

Speaker Change: The question for us is not whether there's deliverability of revenue, whether the trajectory of revenue is meaningfully higher at IWS. The question is whether it delivers in a 2024 world or it's more of a 2025 world.

John Faber: The question is whether it delivers in a 2024 world or it's more of a 2025 world. And when you look at what's happening in terms of timing of M&A transactions, either closing or the establishment of pro forma capital programs, or the expectations around the timing of the natural gas market conditions improving, that probably applies. It's looking more like it's not going to occur the second half of 2024, but more of a 2025 story. Makes sense.

John Faber: Our second important area of growth is in international markets where we generated $15.3 million in revenue in the second quarter. Market dynamics and geopolitical conditions and their impact on near-term activity will vary across our international markets, but across all markets we continue to see favorable trends of growing technology adoption and a greater use of drilling data in planning and operations. The third growth area is our investments in higher growth markets, namely completions and solar and energy storage.

Speaker Change: And when you look at what's happening in terms of timing of M&A transactions, either closing or the establishment of pro forma capital programs, or the expectations around the timing of the natural gas market conditions improving, that probably implies it's looking more like it's not going to occur in the second half of 2024, but more of a 2025 story.

John Faber: Maybe just a quick follow-up. Another big theme out of sort of Q2 reporting is just the outperformance of international energy service markets versus North America. So a couple of things. I guess, do you feel like you're in the right international markets to sort of benefit from that trend? And is there the potential that we could see Pace on expand its international footprint in the near to medium term? I don't know, though you'll see our footprint change significantly in the medium term here. And I think when you talk about the markets we're in, I would say one of our larger markets is in Argentina, and that market is going through some change with change of government and change of prioritization of the types of assets that YPF intends to focus on.

Aaron MacNeil: Makes sense. Maybe just a quick follow-up, another big theme out of sort of Q2 reporting is just the outperformance of international energy service markets versus North America. So, a couple things. I guess, do you feel like you're in the right international markets to sort of benefit from that trend? And is there the potential that we could see Pason expand its international footprint in the near to medium term?

Speaker Change: that makes senseum

Speaker Change: And maybe just a quick follow-up, another big theme out of...

Unnamed Speaker: sort of q two reporting is just the outperformance of

John Faber: In completions, we see strong growth over the short to medium-term as companies more fully utilize data-driven technologies. IWS generated $13.7 million in revenue in the second quarter, representing another all-time high for the business, on the strength of $5,103 in revenue for IWS. We continue to be encouraged by the profile of IWS's revenue growth. While the company has been disproportionately exposed to the effects of a challenging natural gas market and significant M&A activity in the E&P sector, which has resulted in slowing activity among existing customers, IWS continues to hold their share within those customers while adding new customers.

Unnamed Speaker: The International Energy Service Markets versus North America.

Speaker Change: A couple things, I guess, do you feel like you're in the right international markets to sort of benefit from that trend and is there the potential that we could see Pason expand?

John Faber: I don't know that you'll see our footprint change significantly in the medium term, Aaron. I think when you talk about the markets we're in, I would say one of our larger markets is in Argentina, and that market is going through some changes with the change of government and change of prioritization of the types of assets that YPF intends to focus on. And so there are probably some areas of the market where, I'll call them the lower end of the market in terms of revenue opportunity, we see less activity, but we see a greater focus on the types of jobs that tend to draw higher product adoption for Pason.

Unnamed Speaker: and its international footprint in the near-to-media.

Speaker Change: I don't know that you'll see our footprint change significantly

Unnamed Speaker: The medium term, Aaron, I think when you talk about the markets we're in.

Speaker Change: I would say one of our larger markets is in Argentina, and that market is going through some change with change of government and change of prioritization of the types of assets that YPF intends to...

John Faber: So there are probably some areas of the market there where on the I'll call them the lower end of the market in terms of revenue opportunity. We see less activity, but we see a greater focus on the types of jobs that tend to draw higher product adoption for pace on. The other other market that of course is an important market going forward is the Middle East, and we think the value proposition of pace on is significantly enhanced when you look at the Middle East and you incorporate things like the solutions that IWS provides and a money analyzer.

Speaker Change: to focus on, and so there are probably some areas of the market there where on the, I'll call them the lower end of the market in terms of revenue opportunity, we see less activity, but we see a greater focus on the types of jobs that tend to draw higher product adoption for Pason.

John Faber: The other market that, of course, is an important market going forward is the Middle East. And we think the value proposition of Pason is significantly enhanced when you look at the Middle East and you incorporate things like the solutions that IWS provides and the money analyzer. So as we look at the sort of medium term, we're encouraged about the opportunities in those markets. In the near term, however, the conditions in each market will be different, of course.

Unnamed Speaker: The other market that, of course, is an important market going forward is the Middle East.

Speaker Change: And we think the value proposition of Pason is significantly enhanced when you look at the Middle East and you incorporate things like the solutions that IWS provides and the Mud Analyzer. So, as we look at the sort of medium term, we're encouraged about the opportunities in those markets.

John Faber: So, as we look at the sort of medium term, we're encouraged about the opportunities in those markets. And here, in terms of the conditions in each market, it will be different, of course, socially. Yeah, I just add to that a little bit. I think just in the context of looking at reported revenue results in 2024 versus 2023. I know you know that, but in 2023 there was quite a bit of, you know, noise, and it relates to some of our Argentinian operations and for an export and exchange and inflationary impacts, particularly in the fourth quarter of last year, that made that number probably a little bit more elevated than what we call normal course numbers that you're seeing closer to this year.

John Faber: Yeah, Aaron, I'd just add to that a little bit. I think just in the context of looking at reported revenue results in 2024 versus 2023, I know you know this, but in 2023, there was quite a bit of, you know, we'll call it noise as it relates to some of our Argentinian operations and foreign exchange and inflationary impacts, particularly in the fourth quarter of last year, that made that number probably a little bit more elevated than what we call normal course numbers that you're So that's just something to keep in mind as you're looking at 2024 results over 2023 as well.

Unnamed Speaker: In the near term, the conditions in each market will be different, of course.

John Faber: In order to access the full benefits of data-driven technologies, the completions market will need access to reliable, consistent, high-quality data. And we believe that Pason's long history of providing drilling data to customers gives us a unique ability to meet this need in completions. ETB posted revenue at $3.1 million in the second quarter, up 31% year-over-year from the same period of 2023, driven primarily by the sales of additional control systems. As a reminder, quarterly revenue for ETB will fluctuate as a result of timing of control system deliveries.

Speaker Change: i now just add to that a little bit i think just in the context of looking at reported revenue relts in twothousand twentyfour versus thousandy twenty three you know this but intwo and twenty three there was it was quite a bit of

Speaker Change: You know, we'll call it noise as it relates to some of our Argentinian operations and foreign exchange and inflationary impacts, particularly in the fourth quarter of last year, that made that number probably a little bit more elevated than what we call normal course numbers that you're seeing closer to this year. So that's just something to keep in mind as you're looking at 2024 results over 2023 as well.

John Faber: So that's just something to keep in mind as you're looking at 2024 results over 2023 as well. Thanks, we'll try to back. Thanks Aaron, appreciate it.

Aaron MacNeil: Thanks, Total Sense. Thanks. I'll turn it back on.

Speaker Change: Thanks Total Sense. Thanks. We'll turn it back. Thanks Aaron. Appreciate it.

Sylvie: Once again, as a reminder, ladies and gentlemen, if you do have any questions, you will need to please press star followed by one on your touchtone phone.

Operator: Once again, as a reminder, ladies and gentlemen, if you do have any questions, you will need to please press star followed by 1 on your touch-tone phone. And your next question will be from Keith MacKey at RBC. Please go ahead.

Sylvie: Once again, as a reminder, ladies and gentlemen, if you do have any questions, you will need to please press star followed by one on your touch-tone phone. And your next question will be from Keith MacKey at RBC. Please go ahead.

Sylvie: Once again, as a reminder, ladies and gentlemen, if you do have any questions, you will need to please press star followed by 1 on your touch-tone phone.

John Faber: As storage attachment rates to solar projects increase and as customers look to optimize the performance of those storage assets, energy toolvates has seen strong growth in its bookings and in its pipeline of sales opportunities for energy management control systems. Our priorities with respect to capital allocation remain focused on pursuing attractive growth opportunities while returning meaningful capital to shareholders. We continue to expect capital spending of between $75 and $80 million in 2024.

Keith Mackey: And your next question will be from Keith MacKey at RBC. Please go ahead. Hi, good morning. Can you just talk a little bit more about the rollout of mud analyzer? It's a part of the forecasted increase in revenue per industry day, but can you talk about how the rollout of that is going, manufacturing, customer adoption, all of those factors? Yeah, so on the money analyzer side, the manufacturing and the pace of deliveries is very much consistent with what we expected. We expected we would have close to 50 units around this time of the year, growing towards close to 100 by the end of the year.

Sylvie: And your next question will be from Keith MacKey at RBC. Please go ahead.

Keith Mackey: Hi, good morning. Morning, Keith. Good morning.

Keith Mackey: Hi, good morning. Morning, Keith. Can you just talk a little bit more about the rollout of Mud Analyzer? I know it's a part of the forecasted increase in revenue per industry day, but can you talk about how the rollout of that is going, manufacturing, customer adoption, all of those factors?

Keith Mackey: Can you just talk a little bit more about the rollout of Mud Analyzer? I know it's a part of the forecasted increase in revenue per industry day, but can you talk about how the rollout of that is going? Manufacturing, customer adoption, all of those factors.

Keith Mackey: Hi, good morning.

Keith Mackey: Thank you.

Speaker Change: Morning. Can you just talk a little bit more about the rollout of Mud Analyzer? I know it's a part of the forecasted increase in revenue per industry day, but can you talk about how the rollout of that is going? Manufacturing, customer adoption, all of those factors.

John Faber: Yeah, so on the Mudd Analyzer side, the manufacturing and the pace of deliveries are very much consistent with what we expected. We expected we would have close to 50 units around this time of the year, growing towards close to 100 by the end of the year. So delivery on the capital side or the equipment side continues to be very much in line with expectations. If you recall, in some of the conversations, Keith, we indicated that with the Mudd Analyzer, that's a product that's been developed in partnership with Exxon, who, of course, have recently acquired Pioneer, and they have an ambition to have that on all of their rigs over time.

John Faber: We will continue to pursue disciplined returns over time through our regular quarterly dividend, which we are maintaining at $0.13 per share. Outside of the regular dividend, our primary focus in 2024 remains making the necessary investment to position ourselves for higher levels of free cash flow in our drilling and completions related businesses. In the first half of 2024, we spent $6 million on share repurchases as well. 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.

Speaker Change: And so, on the money analyzer side,

Keith Mackey: The manufacturing and the pace of delivery is very much consistent with what we expected. We expected we would have...

Keith Mackey: Close to 50 units around this time of the year, growing towards close to 100 by the end of the year. So that delivery on the capital side, or the equipment side, continues to be very much in line with expectations.

John Faber: So that delivery on the capital side or the equipment side continues to be very much in line with expectations. If you recall in some of the conversations, Keith, we've indicated that with the money analyzer, that's a product that's been developed in partnership with Exxon, who of course has recently acquired Pioneer and they have an ambition to have that on all of their rigs over time. So there are units that are going out to them. They're also units going out to other customers. I think the one thing that's maybe surprised us is we now have units in the Canadian market that we probably came a little quicker than we expected based on some customer demand.

Speaker Change: If you recall, in some of the conversations, Keith, we've indicated that with the money analyzer, that's a product that's been developed in partnership.

Speaker Change: We have a lot of customers that are interested in the XON, who of course have recently acquired Pioneer. They have an ambition to have that on all of their rigs over time. There are units that are going out to them, there are also units going out to other customers.

John Faber: So there are units that are going out to them. There are also units going out to other customers. I think the one thing that's maybe surprised us is we now have units in the Canadian market that we probably came a little quicker than we expected based on some customer demand, and that's going to push a little bit of effort around cold climate development sooner than we expected. And then for some of the other ones, this is a very new technology, and so it does take some time to work with customers to introduce them to what the technology does, what the types And so there is a sales process around that that's different with new technology than simply rolling out a new version of something that's already in the market.

Speaker Change: think the one thing thats maybe surpris us as we now have un in the canadian market that we probably came alittle quick than we expect and based on some customer demand

John Faber: And that's going to push a little bit of effort around cold climate development sooner than we expected. And then for some of the other ones, this is a very new technology, and so it does take some time to work with customers, introduce them to what the technology does, what the types of data feeds that they can get off of the analyzer are, and how they might use them in their operations. And so there is a sales process around that that's different with a new technology than simply rolling out a new version of something that's already in the market.

Speaker Change: And that's going to push a little bit of effort around cold climate development sooner than we expected.

Speaker Change: And then for some of the other ones, this is a very new technology and so it does take some time to work with customers to introduce them to what the technology does, what the types of data feeds that they can get off of the analyzer are, how they might use them in their operations.

Operator: We would now be happy to take any questions. Thank you, sir. As stated earlier, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. And should you decide to withdraw from the question cue? You will need to please press star followed by two. And if you're using a speaker phone, please lift the handset before pressing any keys. Please go ahead and press star one now. If you do have any questions.

Keith Mackey: And so there is a sales process around that that's different with a new technology than simply rolling out a new version of something that's already in the market.

John Faber: Okay, very helpful. And I'm going to take a stab at asking you if you can quantify the impact of the mud analyzer on Q2's revenue per industry day. Well, it would be very minimal on Q2 and again, because of the profile of customer mix as you roll out the earlier units and, of course, it's a different pricing for technology partners versus the broader market in the early days. I don't think it's going to be significant in terms of revenue per industry day in 2024, but it'll continue to roll out into the market and establish market presence and get more customer exposure and market exposure, which is, of course, also a priority.

John Faber: Okay, very helpful, and I'm going to take a stab at asking you if you can quantify the impact of the mud analyzer on Q2's revenue per industry day.

Speaker Change: okay very helpful and and i'm going to take a stab at asking you if you can quantify the impact of of the mud analyzer on q two s revenue per industry day

John Faber: Well, it would be very minimal in Q2, and again because of the profile of the customer mix as you roll out the earlier units, and, of course, there is different pricing for technology partners versus the broader market in the early days. I don't think it's going to be significant in terms of revenue per industry day in 2024, but it'll continue to roll out into the market and establish a market presence and get more customer exposure and market exposure, which is, of course, also a priority.

John Faber: I would be very minimal on Q2, and again, because of the profile of customer mix as you roll out the earlier units, and of course it's different pricing for technology partners versus the broader market in the early days, I don't think it's going to be significant in terms of revenue per industry day in 2024, but it'll continue to roll out into the market and establish market presence and get more customer exposure and market exposure, which is, of course, also a priority.

John Faber: I would be very minimal on Q2 and again because of the profile of customer mix as you roll out the earlier units and of course it's different pricing for technology partners.

Aaron MacNeil: And your first question will be from Aaron MacNeil at PD Cowan. Please go ahead. Hey, morning. Thanks for taking my question. Good evening.

John Faber: versus the broader market in the early days i don't think it's going to be significant in terms of revenue industry day intwothousandandtwenty four but continue to roll out into the market and established market presence and get more customer exposure and market exposure which is of course also a priority

Speaker: Perfect.

John Faber: Perfect. And just given the, you know, slowdown in general activity and the impact that has on the revenue trajectory for completions in IWS, can you talk about what any of this might mean for your capital expenditures and free cash flow for this year?

Keith Mackey: And just given the slowdown in general activity and the impact that has on the revenue trajectory for completions in IWS, can you talk about what any of this might mean for your capital expenditures and free cash flow for this year? Again, we're building on the CapEx side for an anticipation of activity levels that we continually will show up as these customers go back to work, particularly if you talk with those who are active on the M&A side. And of course, the other side is not only do we expect that they'll increase their fleets; those fleets will also be larger by virtue of the fact that they're acquiring other businesses with a view towards deploying technology to those fleets.

John Faber: perfect and just given the

Speaker Change: The slowdown in general activity and the impact that has on the revenue trajectory for completions in IWS. Can you talk about what any of this might mean for your capital expenditures and free cash flow for this year?

John Faber: Again, we're building on the CapEx side for an anticipation of activity levels that we continue to believe will show up as these customers go back to work, particularly if you've talked with those who are active on the M&A side, and of course, the other side is that not only do we expect that they'll increase their fleets, those fleets will also be larger by virtue of the fact that they're acquiring other businesses with a view to So to the extent that we expect actually probably a little bit more activity in the medium term than we might have with those customers based on the fact that they've scaled up, I don't think you'll see the capital side of the IWS slow down significantly in 2024.

John Faber: So I guess I'll maybe break those into. You talked about it kind of the two areas growth and revenue per industry day of which mud analyzer is part of that question. And then the other question you have was around IWS. So I would say, but I think I look at the core drilling related business. We continue to have confidence in our ability to grow that metric in north of the six to seven percent that we've historically done over the last 15 to 20 years on an average or a compound annual basis.

John Faber: Again, we're building on the CapEx side for...

John Faber: in anticipation of activity levels that we continue to believe will show up as these customers go back to work.

Speaker Change: particularly if you talkked with those reactive on the ma side and course the other side is not only expect that theyll increase their fames ill those slas also be larger by virt the factorthat they'requiring other businesses with a vie towards deploing technology to those fleets

John Faber: So, to the extent that we expect actually probably a little bit more activity in the medium term than we might have with those customers based on the fact that they've scaled up. I don't think you'll see the capital side on the IWS slowdown significantly in 2024. We always form a view of what we're going to need for kind of the medium term as it relates to that side. And we will have to spend some time thinking about how do we think about the 2025 build schedule as we get some more clarity on what the timing of some of that return to work looks.

John Faber: So, to the extent that...

John Faber: That's always a function of both price and product adoption. I think when you get to more challenging environments, the product adoption opportunities are still very much there. The pricing opportunities are probably a little bit more challenged in a more challenging industry environment. We still have confidence in our ability to grow that metric. The truth is there's just a lot more demand for data that were well positioned from a product adoption and technology basis to see some of those opportunities realized.

John Faber: We expect actually probably a little bit more activity in the medium term than we might have with those customers based on the fact that they've scaled up.

Speaker Change: i don't think you'll see the capital side the end of u s slow down significantly in the two thousand twenty four we always form a view of what we're going to need for

John Faber: We always form a view of what we're going to need for kind of the medium term as it relates to that side, and we will have to spend some time thinking about how we think about the 2025 build schedule as we get some more clarity on what the timing of some of that return to work looks like.

John Faber: and the medium term as it relates to that side. And we will have to spend some time thinking about how do we think about the 2025 build schedule as we get some more clarity on what the timing of some of that return to work looks like.

John Faber: And maybe just add to that, Keith, as well, as you think about the working capital side of things, you asked about free cash flow as well. Less of a ramp in 2024 as it relates to revenue requires less working capital investment. So you don't necessarily see that same adjustment that you see potentially to adjusted EBITDA on the free cash flow side of things.

Celine Boston: And maybe just add to that, Keith, as well as you think about working capital side of things. You're asked about free cash flow as well. Less of a ramp in 2024, as it relates to revenue, requires less working capital investment. So you don't necessarily see that same adjustment that you see potentially do just in EBITDA to the free cash flow side of things.

John Faber: Our confidence in the IWS revenue trajectory hasn't changed. I think I made a comment in the previous quarter. I said our confidence around the deliverability of the revenue is very high. We can't be quite as confident about it, the timing of when that revenue delivers.

John Faber: And maybe just add to that, Keith, as well, as you think about...

Speaker Change: Working capital side of things, you asked about free cash flow as well, less of a ramp in 2024 as it relates to revenue requires less working capital investment. So you don't necessarily see that same adjustment that you see potentially to adjusted EBITDA to the free cash flow side of things.

Speaker: Yeah, perfect.

John Faber: So it might be helpful, Aaron, if I maybe just paint a little bit of a picture when we talked about the impact of the natural gas market and M&A and the fact that IWS is just much more exposed to those dynamics, which have been real near term headwinds in terms of the revenue growth side. So if we look at the natural gas side, the natural gas price has been weakening of late, and we've seen recently announcements of expected delays for the Golden Pass LNG project, so that will likely have an impact on the natural gas market side.

Keith Mackey: Yeah, perfect. Okay, I'll leave it there. Thanks very much. Thank you.

Speaker: Okay, I'll leave it there. Thanks very much. Thank you.

Speaker Change: Yeah, perfect. Okay, I'll leave it there. Thanks very much. Thanks, Keith.

Sylvie: Again, ladies and gentlemen, a reminder to press star one on your touch-tone phone. Should you have any questions?

Operator: Again, ladies and gentlemen, a reminder to press star 1 on your touch-tone phone should you have any questions. And at this time, Mr. Faber, it appears we have no other questions. Please proceed.

Sylvie: Again, ladies and gentlemen, a reminder to press star 1 on your touchtone phone should you have any questions.

Sylvie: Again, ladies and gentlemen, a reminder to press star 1 on your touch-tone phone should you have any questions.

John Faber: And at this time, Mr. Faber, it appears we have no other questions. Please proceed. Traffic, we appreciate those who were able to join us this morning for the call.

John Faber: Terrific, we appreciate those who were able to join us this morning for the call. We look forward to speaking with you again in November following the release of our third quarter results. Until then, if you have any further questions, certainly don't hesitate to reach out to Celine or myself, and we'd be happy to set up some time to connect and answer those questions. Thanks very much, and have a terrific day. Ladies and gentlemen, this does indeed conclude...

Sylvie: And at this time, Mr. Faber, it appears we have no other questions. Please proceed.

John Faber: We look forward to speaking with you again in November, following the release of our third quarter results. Until then, if you have any further questions, certainly don't hesitate to reach out to Celine or myself, and we'd be happy to set up some time to connect and answer those questions.

Sylvie: Terrific. We appreciate those who were able to join us this morning for the call. We look forward to speaking with you again in November , following the release of our third quarter results. Until then, if you have any further questions, certainly don't hesitate to reach out to Celine or myself, and we'd be happy to set up some time to connect and answer those questions.

John Faber: On the M&A side, maybe just to paint a picture for you, we had 29 average jobs at IWS in the quarter, so as you can imagine that implies that IWS has tens of customers, not hundreds of customers. More than half of IWS's top 10 customers are acquirers in announced large-scale M&A transactions. And so that is in the medium term very positive for us, and we feel quite encouraged about the opportunity to expand our activity when you have large-scale M&A acquirers as your customers.

Speaker: Thanks very much, and have a terrific day.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.

Speaker: Thank you, sir.

Speaker: Ladies and gentlemen, this doesn't de-concuted your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Speaker Change: Thanks very much and have a terrific day.

Speaker Change: Thank you, sir.

Operator: [music]

John Faber: Now, what has happened is that activity levels for all of those customers has decreased as they're going through the M&A transactions, sorting out which assets are going to pre-prioritize, what's the sequence of the capital program on a pro-forma basis, all normal things that we see happen in M&A transactions. But over the medium term, we think it's a incredibly good news for IWS, what that pro-forma of the M&A transaction market sort of looks like for us.

John Faber: The challenge you have with a small business that has tens of customers is that when a customer slows their activity by three or four fleets, you need to make that up by getting three or four new customers one fleet at a time. And the sales process and the sales intensity and the sales effort for a new customer to go from zero jobs to one is quite different than getting a customer go from two jobs to three, for example.

John Faber: So if I break down revenue, and that's why in my comments, I said we're quite encouraged by the profile of the revenue growth. If you look at revenue, it's a function of customer activity. And customer activity has been challenging based on M&A and natural gas, particularly for IWS. The other things you look at are customer retention, which is very high at IWS, customer acquisition where they're adding new customers every month. And customer spending where you've seen that revenue for IWS last day continues to be very strong.

John Faber: So the question for us is not whether there's deliverability of revenue, whether the trajectory of revenue is meaningfully higher at IWS. The question is whether it delivers in a 2024 world or it's more of a 2025 world. And when you look at what's happening in terms of timing of M&A transactions either closing or the establishment of pro forma capital programs or the expectations around the timing of the natural gas market conditions improving, that probably applies. It's looking more like it's not going to occur the second half of 2024, but more of a 2025 story.

Aaron MacNeil: Makes sense. Maybe just a quick follow-up.

John Faber: Another big theme out of sort of Q2 reporting is just the outperformance of international energy service markets versus North America. So a couple of things. I guess do you feel like you're in the right international markets to sort of benefit from that trend? And is there the potential that we could see pace on expand its international footprint in the near to medium term? I don't know though you'll see our footprint change significantly in the the medium term here.

John Faber: And I think when you talk about the markets we're in, I would say one of our larger markets is in Argentina and that market is going through some change with change of government and change of prioritization of the types of assets that YPF intends to focus on. So there are probably some areas of the market there where on the I'll call them the lower end of the market in terms of revenue opportunity.

John Faber: We see less activity but we see a greater focus on the types of jobs that tend to draw higher product adoption for pace on. The other other market that of course is an important market going forward is the Middle East and we think the value proposition of pace on is significantly enhanced when you look at the Middle East and you incorporate things like the solutions that IWS provides and a money analyzer.

John Faber: So as we look at the sort of medium term we're encouraged about the opportunities in those markets. And here in terms of the conditions in each market it will be different of course, socially. Yeah I just add to that a little bit I think just in the context of looking at reported revenue results in 2024 versus 2023. I know you know that but in 2023 there was there was quite a bit of you know we'll call it noise and it relates to some of our Argentinian operations and for an export and exchange and inflationary impacts particularly in the fourth quarter of last year that made that number probably a little bit more elevated than what we call normal course numbers that you're seeing closer to this year. So that's just something to keep in mind as you're looking at 2024 results over 2023 as well.

Aaron MacNeil: Thanks, we'll try to back. Thanks Aaron, appreciate it.

Operator: Once again as a reminder ladies and gentlemen if you do have any questions, you will need to please press star followed by one on your touchtone phone.

Keith Mackey: And your next question will be from Keith MacKey at RBC, please go ahead. Hi, good morning. Can you just talk a little bit more about the rollout of mud analyzer?

John Faber: It's a part of the forecasted increase in revenue per industry day, but can you talk about how the rollout of that is going, manufacturing, customer adoption, all of those factors? Yeah, so on the money analyzer side, the manufacturing and the pace of deliveries is very much consistent with what we expected. We expected we would have close to 50 units around this time of the year growing towards close to 100 by the end of the year.

John Faber: So that delivery on the capital side or the equipment side continues to be very much in line with expectations. If you recall in some of the conversations Keith, we've indicated that with the money analyzer, that's a product that's been developed in partnership with Exxon who of course has recently acquired pioneer and they have an ambition to have that on all of their rigs over time. So there are units that are going out to them.

John Faber: They're also units going out to other customers. I think the one thing that's maybe surprised us is we now have units in the Canadian market that we probably came a little quicker than we expected based on some customer demand. And that's going to push a little bit of effort around cold climate development sooner than we expected. And then for some of the other ones, this is a very new technology and so it does take some time to work with customers, introduce them to what the technology does, what the types of data feeds that they can get off of the analyzer are how they might use them in their operations. And so there is a sales process around that that's different with a new technology than simply rolling out a new version of something that's already in the market.

John Faber: Okay, very helpful. And I'm going to take a stab at asking you if you can quantify the impact of the mud analyzer on Q2's revenue per industry day. Well, it would be very minimal on Q2 and again, because of the profile of customer mix as you roll out the earlier units and of course it's a different pricing for technology partners versus the broader market in the early days. I don't think it's going to be significant in terms of revenue per industry day in 2024, but it'll continue to roll out into the market and establish market presence and get more customer exposure and market exposure, which is of course also a priority.

Keith Mackey: Perfect.

John Faber: And just given the slowdown in general activity and the impact that has on the revenue trajectory for completions in IWS, can you talk about what any of this might mean for your capital expenditures and free cash flow for this year? Again, we're building on the CapEx side for an anticipation of activity levels that we continually will show up as these customers go back to work, particularly if you talk with those who are active on the M&A side.

John Faber: And of course, the other side is not only do we expect that they'll increase their fleets, those fleets will also be larger by virtue of the fact that they're acquiring other businesses with a view towards deploying technology to those fleets. So to the extent that we expect actually probably a little bit more activity in the medium term than we might have with those customers based on the fact that they've scaled up.

John Faber: I don't think you'll see the capital side on the IWS slowdown significantly in 2024. We always form a view of what we're going to need for kind of the medium term as it relates to that side. And we will have to spend some time thinking about how do we think about the 2025 build schedule as we get some more clarity on what the timing of some of that return to work looks.

John Faber: And maybe just add to that, Keith, as well as you think about working capital side of things. You're asked about free cash flow as well. Less of a ramp in 2024, as it relates to revenue, requires less working capital investment. So you don't necessarily see that same adjustment that you see potentially do just in EBITDA to the free cash flow side of things.

Keith Mackey: Yeah, perfect.

John Faber: Okay, I'll leave it there. Thanks very much. Thank you. Again, ladies and gentlemen, a reminder to press star one on your touch on phone. Should you have any questions? And at this time, Mr. Faber, it appears we have no other questions.

John Faber: Please proceed. Traffic, we appreciate those who were able to join us this morning for the call. We look forward to speaking with you again in November, following the release of our third quarter results. Until then, if you have any further questions, certainly don't hesitate to reach out to Celine or myself, and we'd be happy to set up some time to connect and answer those questions.

Operator: Thanks very much and have a terrific day. Thank you, sir. Ladies and gentlemen, this doesn't de-concuted your conference call for today. Once again, thank you for attending.

Operator: And at this time, we do ask that you please disconnect your lines.

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