Pason Systems Q2 2026 Earnings Report

Pason Systems EPS Results

• Actual EPS: C$0.18
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Pason Systems Revenue Results

• Actual Revenue: $100.78 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Pason Systems Announcement Details

• Quarter: Q2 2026
• Date: 8/11/2026
• Time: After Market Closes
• Conference Call Date: Wednesday, August 12, 2026
• Conference Call Time: 11:00AM ET

Pason Systems (TSE:PSI) Inc is an oilfield specialist with fully integrated drilling data solutions. A host of products allow customers to collect, manage, report, and analyze drilling data for performance optimization and cost control. The electronic drilling recorder is the company's primary product, and provides a complete system of drilling data acquisition, data networking, drilling management tools, and reports at both the wellsite and customer office. Other product offerings include wellbore detection solutions, wellsite communications and bandwidth, wellbore gas analyzers, and software for data management. The company operates in three geographic segments: Canada, the United States, and International (Latin America, Offshore, the Eastern Hemisphere, and the Middle East).

Pason Systems Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Revenue rose 5% to CAD 100.8 million and adjusted EBITDA increased to CAD 35.7 million, with margin expanding to 35.4% from 32.7% year over year.
• Positive Sentiment: North American Drilling delivered record revenue per industry day of CAD 1,078 and 14% gross-profit growth, benefiting from product adoption, Canadian activity mix, and substantial operating leverage.
• Positive Sentiment: The Completions business continued to outperform industry activity, with revenue up 3% despite a 4% decline in U.S. frac spreads; revenue per IWS day increased 11% and active jobs rose sequentially to 31.
• Neutral Sentiment: Management maintained its 2026 capital-expenditure guidance of CAD 60 million–CAD 70 million and said organic investment currently offers better expected returns than acquisitions, while the company retains CAD 68.3 million in cash and no interest-bearing debt.
• Negative Sentiment: Free cash flow was only CAD 3.5 million as CAD 17.1 million of capital expenditures and higher accounts receivable absorbed operating cash, while International Drilling revenue and gross profit declined amid weaker activity in Argentina.

Presentation

[Operator]

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 advisory is 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. Thank you. Good morning. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pason Systems Inc.'s second quarter 2026 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.

[Operator]

If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. Celine Boston, CFO, you may begin your conference.

[Celine Boston, CFO at Pason Systems]

Thank you, Ina. Good morning, everyone, and thank you for attending Pason's 2026 Second Quarter Conference Call. I'm joined on today's call by Jon Faber, our President and CEO. I'll start today's call with an overview of our financial performance in the second quarter. Jon will then provide his perspectives on industry conditions, our strategic priorities, and our outlook before we open the call for questions. I'm pleased to report on Pason's second quarter 2026 results, which reflect improving levels of drilling and completions industry activity, continued execution on our completions efforts, and the strength and meaningful operating leverage of our North American drilling segment. Pason generated consolidated revenue of CAD 100.8 million in the second quarter of 2026, a 5% increase from the CAD 96.4 million generated in the second quarter of 2025.

[Celine Boston, CFO at Pason Systems]

Adjusted EBITDA was CAD 35.7 million, or 35.4% of revenue, exceeding CAD 31.6 million or 32.7% of revenue in the prior year period. I'll begin by discussing results by segment. Our North American drilling segment delivered another strong quarter, outperforming industry conditions. As a reminder for listeners, in the second quarter of 2025, North American activity levels began falling with geopolitical and macroeconomic uncertainty introducing headwinds on global commodity prices. Conversely, in the second quarter of 2026, while geopolitical uncertainty remains prevalent, we saw increasing levels of drilling activity through the quarter. On an average basis, industry drilling activity was relatively flat year-over-year. Against this backdrop, Pason generated a record quarterly revenue per Industry Day of CAD 1,078, a 5% increase from CAD 1,026 in the second quarter of 2025. Revenue for the segment increased 7% to CAD 67.1 million from CAD 62.5 million in the prior year period.

[Celine Boston, CFO at Pason Systems]

Improved product adoption and a greater proportion of Canadian activity, which carries higher average revenue per day than the U.S., both contributed to the increase. Operating expenses in the segment remained largely fixed in nature and declined 3% year over year. As a result, segment gross profit increased 14% to CAD 38.6 million compared to CAD 34 million in the second quarter of 2025, highlighting the operating leverage inherent to the segment. Our International Drilling segment continued to navigate a mixed operating environment across the regions that we serve. Revenue in the second quarter was CAD 13.1 million, compared to CAD 13.6 million in the second quarter of 2025. Activity remains below prior year levels, particularly in Argentina, where a large customer shift from conventional to unconventional development has reduced active rig counts during the transition period.

[Celine Boston, CFO at Pason Systems]

Operating expenses declined 9% year over year to CAD 6 million as we remained disciplined in managing costs in this environment. Gross profit for the segment was CAD 6 million, compared to CAD 6.4 million in the prior year quarter. Our Completions segment continued to outperform underlying frac activity levels, with the number of active frac spreads in the U.S. declining 4% and revenue growing 3% from CAD 15.3 million to CAD 15.9 million in the current period. The business averaged 31 active jobs during the quarter, compared to 33 a year ago. While active jobs were slightly lower, revenue per IWS day increased 11% year over year to CAD 5,625, reflecting our continued strategic focus away from lower value ancillary only jobs. Sequentially, active jobs have increased from 28 in the first quarter of this year to 31 active jobs this quarter.

[Celine Boston, CFO at Pason Systems]

As expected for a business in its current stage of growth, we continue to invest in our service infrastructure and technology deployment. Operating expenses increased slightly to CAD 8.8 million, while depreciation and amortization increased to CAD 7 million, reflecting continued investments in the hardware platform and approximately CAD 2.2 million of amortization expense related to intangible assets acquired through the IWS transaction. I will remind listeners that this acquisition-related intangible amortization expense is not indicative of ongoing capital requirements for the segment. Gross profit for the segment reflects these investments. Our Solar and Energy Storage segment generated revenue of CAD 4.8 million in the second quarter of 2026, relatively consistent with the level generated in the comparative prior year period. As we have discussed previously, quarterly revenue in this segment is largely driven by the timing of control system deliveries and can fluctuate meaningfully from quarter to quarter.

[Celine Boston, CFO at Pason Systems]

Turning back to consolidated results, across all segments, we remain disciplined on our approach to costs and our incremental Adjusted EBITDA margins of 95% in the second quarter highlight the mostly fixed cost nature of our business and the resulting operating leverage, particularly from our North American Drilling segment. Net income attributable to Pason was CAD 14.1 million, or CAD 0.18 a share, compared to CAD 12.6 million or CAD 0.16 a share in the second quarter of 2025. The increase reflects higher Adjusted EBITDA, partially offset by higher depreciation and amortization associated with our ongoing capital investments. Funds flow from operations totaled CAD 33.5 million in the second quarter, a 27% increase from the level generated in the second quarter of 2025, and reflective of improved results in the North American Drilling segment year over year.

[Celine Boston, CFO at Pason Systems]

While our cash collection trends remain strong, increasing levels of revenue through the quarter resulted in higher levels of accounts receivable at the end of the quarter, and we absorbed this increase within cash from operating activities of CAD 20.5 million in the quarter. In contrast, cash from operating activities of CAD 20.2 million in the second quarter of 2025 benefited from a declining accounts receivable balance. Net capital expenditures were CAD 17.1 million in the quarter and included investments supporting the continued expansion of our pressure control automation technology within completions, as well as ongoing investments in our drilling technology platform.

[Celine Boston, CFO at Pason Systems]

Free cash flow in the quarter was CAD 3.5 million and includes these capital expenditures, as well as the increased accounts receivable balance. Our balance sheet remains exceptionally strong. We ended the quarter with CAD 68.3 million of total cash, CAD 107 million of working capital, and no interest-bearing debt.

[Celine Boston, CFO at Pason Systems]

We returned CAD 11.5 million to shareholders during the quarter through our regular dividend and share repurchases, consisting of CAD 10.1 million of dividends and CAD 1.4 million of share buybacks. In summary, the second quarter demonstrated the strength and operating leverage of our North American drilling segment, record Revenue per Industry Day, and improving momentum across our Completions segment. I will now turn the call over to Jon for his comments on our outlook.

[Jon Faber, President and CEO at Pason Systems]

Thank you, Celine. As Celine noted, our second quarter results demonstrate the continued strength of Pason's competitive position and the operating leverage embedded in our business. Through the quarter, we saw North American industry activity increase. While the quarterly average U.S. land rig count was largely unchanged from the second quarter of 2025, this year, the industry exited at higher levels of activity on an increasing trajectory, whereas in 2025, the industry had decreased through the second quarter in the midst of global trade uncertainty. Our medium-term goal has not changed. We are targeting a doubling of revenue from 2023 levels from our oil and gas well construction activities over a five to seven-year horizon. As we have said before, we believe that Pason can grow revenue and earnings in a meaningful way without needing a step-up in North American land drilling activity.

[Jon Faber, President and CEO at Pason Systems]

That said, clearly, increasing activity is a strong tailwind for our business. We expect to generate growth over and above industry activity in five areas. First, scaling our completions business. Second, increasing adoption and improving price realization of our established drilling products and services. Third, bringing compelling new technologies to the drilling and completions markets, with the Mud Analyzer being the most current example. Fourth, expanding our international revenue, particularly as more work shifts towards unconventional drilling and completions. Fifth, addressing data management opportunities in adjacent well construction activities. Across our business, customers continue to place increasing emphasis on automation, analytics, artificial intelligence, and centralized real-time operating centers. These trends increase the strategic value of consistent, accurate, and reliable operational data, an area where Pason has developed a unique competitive position for more than four decades.

[Jon Faber, President and CEO at Pason Systems]

Our business has long been recognized for strong margins and return on capital, and it can be easy to overlook the continued strength of our core drilling-related business while we scale earlier-stage businesses. Lower margin and return profiles at their earlier stage of development in completions and Solar and Energy Storage can obscure the strong margins from our drilling business. As an illustration of this point, our North American Drilling segment gross profit increased by CAD 4.6 million from the second quarter of 2025 on a CAD 4.6 million increase in revenue in the same period. The reality of a rental business model at an earlier stage of development is that capital intensity appears higher as we make capital expenditures in the short term that are expected to generate rental revenue and corresponding earnings over a period of several years.

[Jon Faber, President and CEO at Pason Systems]

Over time, as rental revenue streams continue from prior capital investments, free cash flow conversion is expected to migrate higher as aggregate capital intensity decreases. As we generate additional free cash flow, we look to allocate capital responsibly between shareholder returns and growth-oriented investments. We balance the discipline and predictability of our regular quarterly dividend, which we are holding at CAD 0.13 per share, with the flexibility to invest organically and to repurchase shares, both of which we evaluate through the lens of expected returns on capital. Any M&A opportunities that surface have to compete against the expected returns from reinvesting in our own business or buying back our own shares. Today, the highest expected returns we continue to see come from organic investment in our business. We continue to expect capital expenditures for 2026 to be between CAD 60 million and CAD 70 million.

[Jon Faber, President and CEO at Pason Systems]

Focusing on generating valuable products and services for customers in areas where we have a unique and distinctive advantage, and being disciplined in our costs allows us to outpace underlying North American land drilling activity. Continued outperformance over time leads to strong financial performance through the benefits of compounding over time. We are well-positioned to respond as activity continues to increase. The benefits of our leading market share and high operating leverage are the most pronounced when activity is rising. Recent trends in North American drilling and completions activity have been constructive, and we expect the longer-term direction of customer spending and demand for efficiency-enhancing technologies to support greater adoption of Pason technologies going forward. Pason is exceptionally well-positioned to benefit from those trends, particularly with our leadership in real-time operational data, the growing relevance of automation across both drilling and completions workflows, and the operating leverage of our business.

[Jon Faber, President and CEO at Pason Systems]

We continue to build our business with a focus on ensuring we have the foundation for continued growth and compounding over the medium and longer term. Our focus is on delivering exceptional performance in the areas within our control, extending our service and technology advantages, investing in growth opportunities that are not directly available to shareholders, keeping a strong balance sheet, and returning capital to shareholders in a disciplined way. With that, we would be happy to take your questions.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Thank you. Your first question comes on the line of Aaron MacNeil from TD Cowen. Please go ahead.

[Aaron MacNeil, Analyst at TD Cowen]

Good morning, all. Thanks for taking my question.

[Jon Faber, President and CEO at Pason Systems]

Morning.

[Aaron MacNeil, Analyst at TD Cowen]

You guys highlighted that the North American drilling segment generated CAD 4.6 million of additional revenue and essentially dropped down to the gross margin line. I'm just hoping you can speak a bit more about the operating leverage embedded in the business and if you see this quarter as representative of what we should expect in the near term, or maybe if that was exceptional in your view, if you have sort of a rule of thumb that you think would be helpful for forecasting purposes.

[Celine Boston, CFO at Pason Systems]

Hey, Aaron. Thanks for the question. In previous cycles, we would've spoken about the fact that the North American drilling segment's ability to generate incremental margins of around 75% on an additional CAD 50 million of revenue, and I would say that's a good rule of thumb that you can use as you think about going forward. That segment continues to have very meaningful operating leverage opportunities. As you pointed out, the second quarter was a little bit higher than that. I will point out, though, that on a consolidated basis, you do have to keep in mind the revenue mix by segment, when you're looking at incremental EBITDA. As you know, we have some earlier-stage segments. They have lower margins today than on the drilling side, and so that will impact the consolidated figure in any given quarter.

[Celine Boston, CFO at Pason Systems]

You will have to build it up a little bit by segment, but we continue to see the drilling segment being significantly levered to activity, and that would be consistent with what we have seen in previous cycles.

[Aaron MacNeil, Analyst at TD Cowen]

That is helpful. Thank you. Then Jon, I want to better understand the market landscape for IWS today as well as how you are thinking about the future market opportunity, and specifically, what do you think IWS's current market share is today, and how do you think about sort of the potential total addressable market changing in the future?

[Jon Faber, President and CEO at Pason Systems]

Yeah. Aaron, if you look at what we would report for kind of active jobs in and around 30 jobs or so in a market that is reported in and around the 200 range, depending on sort of what you read for industry, that would suggest a market share in and around that kind of 15% of the overall. We think there is a lot of opportunity for all participants in the market to grow. That 15% maybe represents our best information is maybe about half of the opportunity that is currently in the market. So there is a lot of people who are not using the type of technology yet. So we see just greater adoption of technology benefiting sort of all players in the industry. I do not think it would be 100% of the market for the type of technology we are talking about.

[Jon Faber, President and CEO at Pason Systems]

There are some simpler fracturing operations which it is a little less applicable or harder to sort of make that translation of value versus cost potentially. But as you look at the landscape in completions, the market is moving towards a greater proportion of activity being more complex operations, and we stand to benefit from that. So, we think there is lots of additional addressable market with where the market is today, and we see the addressable market growing naturally as you go to larger and more complex completions operations.

[Aaron MacNeil, Analyst at TD Cowen]

Maybe if I can sneak one more in on that theme. What do you think the friction point is today for a potential client that has that complex well profile that's not using either IWS or one of its competitors?

[Jon Faber, President and CEO at Pason Systems]

Do you have a follow-up at all, Aaron?

[Aaron MacNeil, Analyst at TD Cowen]

Oh, did I cut out there? Can you hear me now?

[Jon Faber, President and CEO at Pason Systems]

Okay. I think we'll take the next question then, operator.

[Operator]

Thank you. Your next question comes on the line of Keith Mackey from RBC. Please go ahead.

[Keith Mackey, Analyst at RBC]

Hey, thanks, and good morning. I think over the last three to six months, commodity prices have increased and certainly brought more rigs to market.

[Jon Faber, President and CEO at Pason Systems]

Just bear with us if you can hear us. We cannot hear you on the other end. I think we might have another question or two yet, but we will just pause here for a second to check with the operator if there is a problem on the line here.

[Operator]

Please continue to stand by. We will resume shortly. Your conference will resume shortly. Thank you, and this concludes today's call.

Participants

Executives

• Celine Boston, CFO
• Jon Faber, President and CEO

Analysts

• Aaron MacNeil, Analyst at TD Cowen
• Keith Mackey, Analyst at RBC