Q2 2025 Pason Systems Inc Earnings Call
The contents of today's call are protected by copyright and may not be reproduced without the prior written consent of patient Systems Inc. Please note the advisor is located at the end of the press release issued by pace and 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 patient systems including the risk factors relevant to the company can be found in its annual information form. Thank you. Good morning. My name is Amy and I will be your conference operator today.
At this time, I would like to welcome everyone to the patent Systems Inc. Second quarter, 2025 earnings, call 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. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star then the number 2. Thank you.
Celine. Boston Chief Financial Officer? You may begin your conference
Thank you.
Good morning, and thank you for attending payson's 2025 second quarter conference call.
I'm joined on today's call by John Faber, our president and CEO.
I'll start today's calls with an overview of our financial performance. In the second quarter, John will then provide a brief perspective on the outlook for the industry and for Payson and we will then take questions.
I'm pleased to report on Pace on second quarter, 2025 results, which continue to demonstrate the resilience in our business through challenging industry conditions.
Pace on generated Consolidated, revenue of 96.4 million. In the second quarter of 2025 a 1% increase from the 95.90% 2024, despite more challenging industry conditions,
with this Revenue Pace on generated 31.6 million in adjusted Eva or 32.7% of Revenue, which compares to 33.1 million or 34.6% of revenue generated at second quarter of 2024
From a segment performance perspective in our North and our North American Drilling segment.
Canadian drilling activity cells. Throughout the second quarter as is seasonally expected through spring break up which coupled with reductions in US drilling activity. Resulted in a 5% decline in North American industry, Drilling year-over-year?
In this challenging environment based on continued to generate growth in Revenue per industry day and the metric groups represent year-over-year.
As a reminder to listeners revenue for industry, day is a representation of the company's market share position pricing and product adoption across North America and will also be impacted by changes in the US dollar compared to the Canadian dollar which moves in an unfavorable way. During the second quarter with a weakening US dollar
Revenue in the North American Drilling segment. Only fell by 2% year-over-year outpacing. The 5% decline seen in Industry activity. The segments operating expenses remain mostly fixed in nature and fell by 6% year-over-year as the company focuses on disciplined cost Management in the context of more challenging industry conditions.
Resulting segment. Growth profit of 34 million was flat to the level generated in the same quarter in 2024. Despite the 2% decline in revenue and the 5% reduction in Industry activity.
Continuing from the first quarter of this year, our International drilling segment faced headwinds in the second quarter, with a larger customer in Argentina reducing activity levels, through a pending shift in operational. Focus away from conventional Wells towards more on conventional Drilling.
The segment generated 13.6 million in quarterly revenue, and 6.4 million in segments. Gross profit in the second quarter.
Operating expenses for the segments are mostly fixed and came down by 5% year-over-year, as the segment remains focused on disciplined management of operating costs during a period of lower activity levels.
Depending on the mix of Technology adopted amongst existing customers and further will be impacted by Foreign Exchange fluctuations between the US and Canadian dollar which When comparing sequential results for the completion segment had a negative effect.
Reported revenue for the segment was 15.3 million up from 13.7 million in the second quarter of 2024, which represents a 12% increase against industry activity that saw by 25% during that same time.
Gross profit for the segment of 1.2 million represents operating expense Investments, made for segments, current stage of growth, along with 6.2 million in depreciation and amortization expense associated with the property and equipment and enchant intangible assets acquired on. And since January 1st of 2024,
Our solar and energy storage segment, generated, 5 million dollars, in quarterly, revenue, and increase of 58% from the 2024 comparative period. With the timing on deliveries of control system sales driving the difference year-over-year.
As we've noted in previous calls, the segments, Revenue will continue to fluctuate with timing of these deliveries going forward.
Sequentially payson's results were mostly impacted by the seasonal decline, in Canadian drilling activity, along with further, reductions in US drilling activity and a weaker US dollar in the second quarter, all of which impacted Revenue levels over the companies mostly fixed cost base.
Revenue of 96.4 million in the second quarter compared to revenue of 113.2 million in the first quarter.
Similarly, adjusted IA was 31.6 million in the second quarter compared to 45.22%
net income attributable to Pace on. For the second quarter of 2025 was 12.6 million or 16 cents per share up from 10.9 million and in 14 cents per share. And the second quarter of 2024 reflecting lower levels of adjusted ibida that were more than offset by lower stock based compensation expense.
We continue to maintain a prudent balance sheet, ending the quarter with total cash including short-term Investments of 69.3 million and no interest-bearing debt.
In the second quarter of 2025, net capital expenditures were $15 million, which includes investments in building out our valve management and automation technology offering within completions, as well as the ongoing investments in our drilling-related technology platform.
free cash flow in the second quarter of 2025 with 5.3 million compared to 8 million in the second quarter of 2024 reflecting, the more challenging industry conditions year-over-year
With this free cash flow and our cash balance, we returned 20.2 million dollars to shareholders in the second quarter 10.2 million through our quarterly dividend and 10 million through our sharing purchase program.
In summary. We remain very well positioned in the face of challenging expeditions.
I will now turn the call over to John for his comments on our Outlook.
Thank you, Seline.
our second quarter financial and operating results, demonstrated the continued strength of based on strong competitive position, even in challenging industry conditions
Revenue from our North American Drilling segment decreased by 2% year-over-year. Despite a 5% decrease in North American, land drilling activity over the same period.
Revenue per industry day, grew 3% year-over-year to 1,026 per day in the quarter.
In our International drilling segment, the operational shift of a large customer in Argentina away from conventional assets. Resulted in an 11% year-over-year, decrease in Revenue.
It is worth noting that the revenue associated with the conventional drilling activity. In Argentina, had a low margin profile and as the customer increases its unconventional drilling activity. We anticipate greater adoption of higher value products and a more attractive margin profile.
Our completion segment. Again, boasted significant outperformance in comparison to underlying industry activity.
revenue from our completion segment, grew, 12% from the second quarter of 2024, despite a 25% decrease, in the reported number of active fra spreads in the United States,
Our average number of iws active jobs increased by 14% year-over-year. While revenue for iws Day, held strong at 5,069 per day.
As we have noted in previous calls as we continue to grow our customer base in the completion segment. We expect that Revenue per iws day will fluctuate based on customer mix.
In our Solar and energy storage segment, Toolbase revenue increased 58% year-over-year from 2024 levels to $5 million in the second quarter, on the strength of increased control system project deliveries.
Keep it off for the quarter. Total 31.6 million was down 5% from 2024 levels while an adjusted even margin of 32.7% was lower than the prior year owing to higher Revenue contribution from the completions and solar and energy storage segment or segments. Margins are lower given their current stage of development.
We expect margins in these segments to expand over time as revenues increase.
Geopolitical factors continued to dominate the headlines, with ongoing trade negotiations and changing tariff policies. The unwinding of OPEC+ production cuts and concerns about economic growth created significant uncertainty in economic outlooks.
As a result, we have seen customers make adjustments to their Capital programs in response to the uncertainty. Despite the fact that WTI oil prices have held relatively steady in the mid-60s for Barrel range.
A significant portion of current activity is directed at maintaining current production levels, rather than growth. And we continue to believe that maintenance capital is among the highest Capital allocation priorities of most producers,
The outlook for natural gas is more favorable than it has. Been for many years driven by LNG project development and increased power demand.
Since the start of 2025, the gas directed us land rig count has increased by 22% despite the overall Market slowing by 8%.
We expect Pace On to continue to outpace industry activity as both our drilling and completion businesses benefit from increasing complexity in drilling and completion operations.
As customers continue to pursue automation and analytics efforts, including leveraging artificial intelligence applications and the establishment of real-time operating systems, access to consistent, reliable, high-quality data is increasingly important for both drilling and completions operations.
Face ons experience over more than 4 decades in serving. The data needs of the drilling Market provides us with the ability to make meaningful advancements in helping customers Access Data across the entire well construction process.
The gains that we have made increasing North American Revenue per industry day in our drilling segment and an expanding our customer base while maintaining strong revenue for any up iws day. In our completions business, should translate into continued, outperformance against industry conditions.
Our Capital allocation priorities are driven by a focus on return on invested capital.
Our highest expected return on Capital, continue to come from the organic Investments. We are making to continue the growth of our completion segment, coupled with the ongoing, enrollment roll out of the mud analyzer in our drilling related business.
With the Slowdown of Industry activity. We anticipate our 2025 Capital program will be lower than the 65 million originally planned. And we now expect our full year. Capital expenditures to Total between 55 million and 60 million for the year.
We have evaluated 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, we will continue to pursue shareholder returns over time through our regular quarterly dividend and share repurchases.
This combination of shareholder returns provides disciplined. Return to shareholders over time while retaining flexibility. To adjust our Capital allocation during times of changes in Industry conditions.
We are maintaining our quarterly dividend at 13 cents per share, and we are deploying additional Capital beyond the requirements, of our organic Investments, and regular dividends to share repurchases.
Our balance sheet remains strong.
At 230th, we had 69.3 million in total cash, including short-term Investments, and positive, working capital of 104.8 million.
And we would now be happy to take any questions.
Q, ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star. Then the number 2.
Thank you.
Our first question today will come from Keith mcke RBC, Capital markets, go ahead.
Hi, good morning John Seline. Um morning, I just wanted to morning just wanted to start out on completions
About the trajectory of of your you know, where you'd expect your job count to go. Uh, the other thing that we hear more is a bit of a Divergence in the outlook for oil, directed Drilling and completion activity versus gas directed Drilling and completion activity. Uh, do you expect, you know, that Dynamic to, to help, uh, bolster the uh, the overall job count as we go through the second half of the year, just any color on on, on those items that you can provide, would be helpful.
Yeah, sure. Keith I think it's important when you think about Job count to kind of maybe separate and how we think about existing customers and new customers. Well, the existing customer side. We continue to have really strong position with our customers. So many of them have slowed, their activity, uh, over time and so our ability to hold and grow job count has largely come from adding new customers to more than offset, existing customers, slowing their activities. So, um, to the extent that we continue to add new customers, we think that will continue to be additive to job count. We don't know that. We'll see, uh, much more in terms of slowdown from some of the existing customers we've made reference over the last year. I think to the fact that some of our larger customers historically. Uh we're a little bit more gas focused and they would have slowed their activity down uh quite a bit uh year 18 months ago. And so to answer the second question there, Keith does gas activity comes back. We would expect that to help on the side of growth from existing customers. Uh,
Bringing activities back to, uh, to their programs.
Got it. And can you translate that into how you'd expect your job count to Trend over the second half of the Year versus maybe the industry industry type of uh Frac count or markers there.
well, I think when you just think about the
commercial requirements to secure a new customer and go through the process of getting set up for the the first job, it probably becomes harder and harder over time to significantly outpace what the underlying industry does we think we will continue to outpace the industry, but, uh, you know, the significant, you know, performance, be does become more challenging if you're doing it with, you know, additions of 1 or 2 jobs with new customers. So, uh, it'll really be a question of how much some of those existing customers layer on more activity. In addition to the adding, uh, new customers.
Got it.
And and just turning to Argentina.
Uh, can you talk a little bit more about the dynamic of the customer shifting from conventional to unconventional? Uh, how, how can you be still confident that, um, that you'll you, you know that unconventional activity will come to Pace on, you know, are these the same rigs? They're just moving areas or or these new rigs that you think you'll also get a a portion of maybe just a little bit more color on how you see, uh, that Dynamic playing out as well as the, the trajectory for our
Argentina, over the next, you know, 2 to 3 quarters, is to the extent. You can.
Yeah, your question around the confidence of getting the unconventional activity. Really comes down to the question of who the customer is in the future, on those 2 different asset bases. So, when we talk about transitioning, the activity, what we're seeing is, the large customers selling assets with conventional Drilling and those assets have much lower Revenue opportunities. Uh, standardly keep. They're probably not assets that were interested in working on, uh, at the types of Revenue. They generated if it's not part of a portfolio of of assets for a larger company that has also the unconventional sites. So in the short term, what that means is that as those assets are sold off, that is revenue that we are happy to forego. And it also means that we continue to have some operating costs to service. The remaining assets, while the portfolio is being sold uh over time because of the large customer, when we have all of their work, we would anticipate that we will continue to have the Lion Share of the work. We're all of the work as they continue to do things on the unconventional.
Side and that does draw a different set of the products we that is higher valued in a much better margin profile.
Understood, do you have a sense of timing of of when some of that unconventional drilling might might ramp up.
I we're starting to see it ramping up now but it will take time for it to to match the same type of Revenue level that you would see from the just the revenue dollars associated with a high volume of low Revenue rates, right? So it might actually take 1824 months or more for the overall Revenue to kind of come back to what you would. Maybe see in Argentina but certainly wouldn't take that measure of time for the margins. When you start to talk about the types of opportunities you have in that space.
Understood. Appreciate the comments. Thanks very much.
Our next question today comes from Aaron mcneel. TD Cohen. Go ahead please.
Hey morning, all thanks for taking my questions. Um, hey, Aaron on on iws, just building on Keith's question.
Can you give us a sense of your job capacity today based on equipment, that's ready for service. And what type of Supply editions are being contemplated in the current capital program. And then just from a broader Market perspective, how do you think about
You know the IWS technology as well as competing technologies in terms of how much they've saturated that sort of multi-frac market.
Sure, right. If I wanted there, it's a little tricky to give you an estimate of job. Count capacity. Only because the profile of jobs can be dramatically different in terms of the types, and quantity of different pieces of equipment required. So, I think all I could really say is that we are quite comfortable that at the the capital program that we're now forecasting for, uh, for 2025, we feel quite comfortable in our ability to continue to outpace what the underlying industry does. Uh but it is going to require Capital to to match because people you know more jobs are taking more equipment over time not less. And so uh so that's probably all I can really directionally say in the question of capacity.
Uh, the second part of the question, you'll have to trigger my memory. Uh, where you're going in? Aaron
Yeah, just thinking about Market saturation like for iws as well.
Competing Technologies. Yeah, sure. I think our our view is there's still lots of run room for, uh, for where the overall, uh, opportunity exists for Automation in the at the completion space. So I think for iws and other folks competing in the market, uh, there's going to be the biggest Tailwind for all of us is going to be the continued adoption of of automation Technologies. I think 1 of the things we've felt has been an advantage. We've had in the drilling space for a lot of years. Uh, which translates, uh, as well in the completion side is the the fact that we can work with a variety of different providers. And so, uh, when customers choose to use a variety of providers, you know, either on the drilling side is Drillers or pressure control providers on the completion side. Uh, those are always opportunities for us. So we think we'll continue to have lots of opportunity but there there's a Tailwind for all participants in uh in that industry around greater adoption of technology in particular automation.
Maybe I'll just reframe the, the first question I I didn't want to get too specific, but like, are you operating at capacity?
Today, or do you have?
Underutilized capacity and like, what?
I guess capacity additions. Are you adding? I guess in any way you'd want to frame it in terms of like percentage of
you know, Fleet growth or asset growth or
I don't know.
Yeah, again, not trying to avoid the question. It’s just a little bit tricky to address, right? I think it’s fair to say we’re probably operating at capacity for more complex types of jobs, and with some additional capacity available or underutilized on things that are simpler types of jobs, like it’s a different profile of equipment.
So we really becomes a mix of the types of of jobs you're looking at in terms of whether there's Capital required or not.
Got you, okay. And then, maybe a similar sort of line of questioning on the mud. Analyzer just haven't had an update in a while. Are you thinking about Market demands, potential Market, saturation levels, and your ability to price the product?
Yeah, so I think similar to what we would have said last quarter. The the, uh, the challenges on these, the 1 analysts kind of more rapid scaling on the roll out. Really are sort of 2-fold. There are some technical things that we're working through to deal with some some technical challenges around things like loss, circulation materials and people's operating processes. And then there's the question for folks who have not had this data available historically how to use that data? And so there are some Investments we are making on the operational side to help.
Help customers, uh, understand how they might use the data to drive their drilling programs.
Okay, fair enough.
To turn it back.
Thanks Eric.
Thank you as a reminder. If you would like to ask a question, press star, then the number 1 on your telephone keypad,
Our next question, today comes from Sean Mitchell.
From Daniel Energy Partners, please go ahead.
Good morning guys. Um John thanks for taking the question. Maybe in in iws, I know that Revenue per day, can vary depending on mix of Technology adapted by your customers.
Oil versus gas completions in terms of Technology adoption by your customers.
We don't really see a difference between oil and gas on the technology that we would be applying on the completion side. There are probably more differences, if I want to show on the drilling side, where there are certain products that become more applicable as you are drilling at deeper depths, which you typically are on the gas side. There's probably less of a question on the types of completion products we have, where you see a difference.
Got it.
Okay.
That's it. Thank you.
Trimming. Thanks, Sean.
There are no further questions at this time. I will now turn the call over to John. Please continue.
Great. Thank you very much. Amy and thank you. All those who have joined the, uh, the call this morning. We do understand that our calls sometimes compete with other calls. So thanks for taking time to to join ours. We, uh, we certainly appreciate your, your interests if you do have follow-up questions or if you're picking up a recording or a transcript later and you have questions, certainly do reach out to Selena and myself at any point and we'd be happy to, uh, to follow up, have a terrific day and we will look forward to talking again following our third quarter results.
This concludes the conference. Thank you everyone. You may now disconnect