Pason Systems Inc. today announced its results for the nine-month period ended September 30, 2008.
PRESIDENT'S MESSAGE
Operations Review
Driven by a currently very strong U.S. drilling market, Pason is pleased to report not only record third quarter financial results but a record for any quarter as well. Revenue for the three months ended September 30, 2008 increased 32% from the prior year to $80.5 million, earnings jumped 36% to $21.4 million and earnings per diluted share were $0.26 versus $0.19 in 2007.
United States segment operating profit rose 39% to $21.5 million, up from $15.4 million last year. Our revenue per U.S. industry drilling day also improved significantly to $251 compared to $198 in 2007. This gain was aided by the U.S. currency which began to reverse its slide against the Canadian dollar and for the first time in several years, contributed towards increased rather than reduced earnings once translated into Canadian dollars. Our rental revenue for the quarter grew 42% over 2007, exceeding the 12% rise in industry drilling days, due to the continuing growth in the number of rigs with some Pason instrumentation presence. In the third quarter we had strong market share gains adding another 4 points to 62% of all U.S. land rigs with at least a Pason EDR system installed. Much of the U.S. drilling activity has been created by the dense drilling patterns of the Barnett and Haynesville shale areas where we have excellent coverage by our field technician staff. Margin from geological services was also up sharply to $1.7 million compared to $1.1 million in the third quarter a year ago. Management of this department has been making a concerted effort to reduce our fixed costs and increase the leverage on our geological people and solutions. The margin for the quarter of 40% compared to 33% last year clearly indicates they are having success in this effort.
In Canada, our segment operating profit was $13.8 million for the quarter compared to $10.2 million recorded in 2007. Revenue improved 23%, consistent with the 24% increase in Canadian industry drilling days. Our revenue per industry drilling day increased to $762 for the quarter versus $756 a year ago. Revenue gains were spread evenly over all products. While we continue to increase revenue on our service rig recorder system (ESR) from contractors, acceptance by oil and gas company users continues to be illusive. As a result, we have slowed our capital expenditures in this area although there is sufficient business to amortize the amounts expended to date on R&D and equipment for the ESR. In early 2009, we expect to be earning revenue from our directional drilling software. This product is being viewed with great interest by oil and gas companies, drilling contractors and directional service companies as it addresses a skilled field labour shortage that all groups experience.
International segment operating profit was down slightly to $1.2 million compared to $1.5 million in 2007. The flat financial return, despite increased rig utilization throughout South America, results primarily from Pason giving back an extra portion of its revenue share to its South American partner. This was done to permit the partner to finance the addition of a bilingual corporate services level to manage all Latin American countries, which will eventually lead to more field leverage and greater returns to Pason. To further benefit from this increased management team, to be headquartered in Bogota, Colombia, we will be rolling our Mexican operations under the control of our South American partner, effective December 1. We are also going to start reporting a revenue per industry day number for Latin America that includes Mexico and all of South America, except Venezuela where we have chosen not to operate. Our revenue per Latin America industry day was $97 in the third quarter but is not easily comparable to the prior year so we will not provide comparatives until 2009. The turmoil in world credit and oil markets has impacted everyone and has delayed introduction of our products in Russia as the target rigs have not yet been deployed.
Outlook
In this letter exactly a year ago I referred to a number of challenges specific to the Canadian oil and gas market. Many of these issues were resolving themselves until the simultaneous collapse of the world's credit markets and the price of oil at the end of the third quarter. This has spawned an extremely pessimistic forecast for future drilling activity by Industry analysts. While we are hard pressed to see much to be optimistic about, somewhat paradoxically we are in the strongest financial position in our company history. We currently have $92.1 million in cash as of September 30, 2008 and have generated operating cash flow of $93.4 million in the nine months to date, up 21% from the same period in 2007. This cash position is after expending $4.3 million repurchasing our stock in the third quarter.
We have many options at our disposal to continue to increase shareholder value - opportunistic purchases of new business lines or companies, launching new products, continuing our stock repurchase program and/or increasing our dividend rate. Further to this last point the Board of Directors recently approved a 20% increase in our annual dividend to $0.24 a share.
While we are uncertain as to where the financial markets will go in the next year we are clearly well positioned to meet difficult challenges.
Third Quarter Conference Call
Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its third quarter results at 9:00 a.m. (Calgary time) on Thursday, November 6, 2008.
Pason Systems Inc. is the world's largest provider of rental oilfield instrumentation systems that are designed and manufactured for use on land-based drilling and service rigs. Pason offers a tightly integrated package of complex services, including data acquisition, wellsite reporting software, remote communications and Internet information management tools.
Pason's common shares trade on the Toronto Stock Exchange under the symbol PSI. -- www.cnxmarketlink.com
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