Pason Systems Inc.

Pason reported second-quarter consolidated revenue of $101 million, up 5% from $96.4 million a year ago. Adjusted EBITDA was $35.7 million, or 35.4% of revenue, versus $31.6 million, or 32.7% of revenue, in the prior-year quarter. Net income attributable to Pason was $14.1 million, or $0.18 per share, versus $12.6 million, or $0.16 per share. North American Drilling revenue increased 7% to $67.1 million, with gross profit up 14% to $38.6 million; International Drilling revenue was $13.1 million versus $13.6 million; Completion revenue rose 3% to $15.9 million; and Solar and Energy Storage revenue was $4.8 million, roughly in line with last year. Funds flow from operations totaled $33.5 million, cash from operating activities was $20.5 million, net capital expenditures were $17.1 million, and free cash flow was $3.5 million. The company ended the quarter with $68.3 million of total cash, $107 million of working capital, and no interest-bearing debt. For 2020, management still expects capital expenditures of $60 million to $70 million; no next-quarter numeric revenue or EPS guide was given.

Jon Faber said the quarter reinforced Pason’s competitive position and the operating leverage in its model, especially in North American drilling. He emphasized a medium-term goal of doubling revenue from 2023 levels from oil and gas well construction activities over a 5- to 7-year horizon, and said Pason can grow meaningfully even without a step-up in North American land drilling activity. He highlighted five growth areas: scaling completions, improving adoption and pricing in drilling, launching new technologies such as the mud analyzer, expanding internationally, and pursuing adjacent data-management opportunities.

Celine Boston said Q2 results reflected improving drilling and completions activity, continued execution in completions, and strong leverage in North American drilling. She cited revenue of $101 million, adjusted EBITDA of $35.7 million, segment gross profit growth in North American Drilling to $38.6 million, and Completion revenue growth to $15.9 million with revenue per IWS day up 11% to $5.63 thousand. She also pointed to $33.5 million of funds flow from operations, $17.1 million of net capital expenditures, $3.5 million of free cash flow, and a very strong balance sheet with $68.3 million of cash, $107 million of working capital, and no debt. The company returned $11.5 million to shareholders in the quarter, including $10.1 million in dividends and $1.4 million in buybacks.

The main analyst focus was operating leverage and the outlook for IWS/completions. On drilling leverage, management said a useful rule of thumb is incremental margins of around 75% on an additional $50 million of North American Drilling revenue, while noting Q2 was a bit higher than that and that consolidated margins will depend on segment mix. On IWS, management estimated current market share at about 15% based on roughly 30 active jobs in a market around 200 rigs and said the addressable market is still expanding as more complex completions adopt technology; they also noted some simpler frac operations may not justify the product. The call ended early after a line issue, so some analyst questions were not fully addressed.