Mr. Jon Faber reports

PASON REPORTS THIRD QUARTER 2023 RESULTS AND DECLARES QUARTERLY DIVIDEND

Pason Systems Inc. has released its 2023 third quarter results and declared a quarterly dividend. The following news release should be read in conjunction with the company's management discussion and analysis (MD&A), the unaudited interim condensed consolidated financial statements, and related notes for the three and nine months ended Sept. 30, 2023, as well as the annual information form for the year ended Dec. 31, 2022. All of these documents are available on SEDAR+.

Pason's financial results for the three and nine months ended Sept. 30, 2023, reflect the company's strong competitive positioning, prudent balance sheet and continued ability to outpace underlying industry activity.

Pason generated $93.1-million of revenue during the three months ended Sept. 30, 2023, a 1-per-cent increase from the three months ended Sept. 30, 2022. While industry activity levels in North America, the company's largest end-market, decreased by 14 per cent year over year, the company was able to grow revenue per industry day by 12 per cent in that same period, posting a new record quarterly level. In addition, the company's solar energy and storage business unit generated its highest level of quarterly revenue to date, with $5.6-million recognized in the third quarter of 2023, a 293-per-cent increase from the $1.4-million generated in the third quarter of 2022. With this revenue, Pason generated $42.3-million in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), or 45.4 per cent of revenue in the third quarter of 2023, compared with $46.2-million in the third quarter of 2022, or 50.0 per cent of revenue. A comparison of adjusted EBITDA margin year over year reflects the company's mostly fixed cost base for its drilling related business units, which is currently sized for higher levels of activity than seen in the third quarter of 2023.

Resulting net income attributable to Pason of $27.7-million (35 cents per share) in the third quarter of 2023 compared with a net income attributable to Pason of $34.2-million (42 cents per share) in the corresponding period of 2022. The year-over-year decline is driven by the lower level of adjusted EBITDA seen in the third quarter of 2023 as outlined above, along with higher levels of depreciation expense with increased capital expenditures in recent quarters, and higher stock-based compensation expense as a result of current quarter share price changes on the company's cash settled stock-based compensation plans.

Industry activity in North America declined by 14 per cent compared with the prior-year comparative period, primarily driven by a decline in U.S. rig counts. Despite this, Pason's revenue per industry day in the third quarter of 2023 of $975 was a new quarterly record for the company and a 12-per-cent increase from the comparative 2022 period. Revenue per industry day in the current quarter continues to represent strong product adoption and improved pricing for the company's products and technologies. As a result, improvements in revenue per industry day largely offset the decline in industry activity and revenue only fell by 4 per cent year over year from $75.2-million in the third quarter of 2022 to $72.2-million in the third quarter of 2023. Total revenue and revenue per industry day for the North American business unit also benefited from a stronger U.S. dollar in the current quarter, in comparison with the prior-year comparative period. North American segment gross profit was $42.9-million during the third quarter of 2023, compared with $49.0-million in the comparative period of 2022, with lower levels of revenue in the current quarter over the business unit's mostly fixed cost base, which is in place to support higher levels of activity than seen in the third quarter of 2023.

The international business unit generated $15.3-million of revenue in the third quarter of 2023, compared with $15.8-million in the comparative period of 2022. The year-over-year decrease is primarily due to the impacts of hyperinflationary accounting on the company's Argentinian operations. Excluding this adjustment, the international business unit would have generated $15.6-million of revenue in the current quarter, resulting in a year-over-year increase of 14 per cent compared with $13.7-million in the third quarter of 2022. This year-over-year increase reflects higher levels of activity in the company's international end-markets, along with improved product adoption and a more favourable pricing environment. Resulting international segment gross profit was $7.3-million during the third quarter of 2023, compared with $7.8-million in the 2022 comparative period, due to the year-over-year decline in reported revenue over the segment's mostly fixed cost base.

The solar and energy storage business unit generated $5.6-million in revenue in the third quarter of 2023, a new quarterly record and a significant increase from the comparative period in 2022, driven primarily by increased control system sales. Quarterly revenue for the solar and energy storage business unit will fluctuate with the timing of control system project deliveries. Segment gross profit was $600,000 for the third quarter of 2023, compared with a segment gross loss of $1.0-million in the comparable period in 2022.

Sequentially, Q3 2023 revenue of $93.1-million represented a 10-per-cent increase from $84.7-million generated in the second quarter of 2023. While drilling activity remained relatively flat in North America, revenue per industry day grew by 7 per cent with a more favourable mix of drilling activity and higher levels of product adoption. Resulting North American revenue grew by 7 per cent from $67.3-million in the second quarter of 2022 to $72.2-million in the current quarter. Sequential revenue growth also reflects the record quarterly revenue result in the third quarter from the solar and energy storage business unit, as further outlined above. The company's gross profit increased sequentially with the increase in revenue, from $46.1-million in Q2 2023 to $50.8-million in Q3 2023. Similarly, adjusted EBITDA was $42.3-million in the third quarter of 2023, a 12-per-cent increase from $37.9-million in the second quarter of 2023. Sequential gross profit and adjusted EBITDA increases reflect the company's primarily fixed cost structure, and the record quarterly result from the company's solar and energy storage business unit.

For the nine-month period ended Sept. 30, 2023, Pason generated $276.0-million of revenue, a 15-per-cent increase from $240.6-million recorded in the corresponding 2022 period. Adjusted EBITDA for the nine months ended Sept. 30, 2023, was $132.6-million or 48.0 per cent of revenue, compared with $110.6-million, or 46.0 per cent of revenue in the first nine months of 2022. Net income attributable to Pason in the nine months ended Sept. 30, 2023, was $89.0-million ($1.10 per share), up from $71.4-million (87 cents per share) in the comparative 2022 period. A comparison of year-to-date results reflects the company's operating leverage with higher levels of revenue generated per operating day, improved industry conditions in the first quarter of 2023 and the effects of a strengthening U.S. dollar.

Pason's balance sheet remains strong, with no interest bearing debt and $178.4-million in total cash as at Sept. 30, 2023, compared with $172.4-million at Dec. 31, 2022. During the third quarter of 2023, Pason generated $31.7-million in net cash from operating activities and $25.0-million in free cash flow, both representing slight increases from the levels generated in the 2022 comparative period, while the company continued to make required investments in working capital and capital expenditures.

In the third quarter of 2023, Pason returned $15.6-million to shareholders through the company's quarterly dividend of $9.6-million and $6.0-million in share repurchases. Also in the third quarter of 2023, the company approved and financed $5.0-million of the available preferred share subscriptions for its non-controlling investment in Intelligent Wellhead Systems Inc. (IWS). Subsequent to Sept. 30, 2023, the company approved the final $5.0-million of the remaining available preferred share subscriptions.

President's message

Pason's president and chief executive officer, Jon Faber, stated:

"Pason's third quarter 2023 financial and operational results again demonstrated the company's ability to outpace underlying drilling industry activity. Consolidated revenue in the quarter increased modestly from the same period in 2022, while North American land drilling activity decreased by 14 per cent. Growing customer demand for data to be used in their automation and analytics efforts continue to support Pason's dominant market share position and drive increases in revenue per industry day.

"Consolidated revenue totalled $93.1-million in the third quarter. Our North American business unit generated revenue per industry day of $975, a 12-per-cent increase from the third quarter of 2022, driven by higher product adoption and improved price realization. Our international business unit also posted strong results in the quarter, with revenue up 14 per cent before the impacts of hyperinflationary accounting related to our Argentinian operations. The majority of our operating costs are fixed in nature and reflect the investments we continue to make in our field service, support functions and technology development with a view toward expected medium-term activity levels.

"Energy Toolbase, which participates in the solar and energy storage markets, had an excellent quarter with revenue of $5.6-million, compared with $1.4-million the same period in 2022, primarily as a result of increased number of control system deliveries in the quarter. We continue to see strong growth in our pipeline of control systems opportunities, though the timing of bookings and deliveries can fluctuate meaningfully between quarters.

"Net capital expenditures of $6.7-million and free cash flow of $25.0-million in the third quarter were both similar to the third quarter of 2022. Net income attributable to Pason decreased 19 per cent year over year to $27.7-million, reflecting higher depreciation and amortization expense as a result of higher levels of capital expenditures in recent quarters.

"For the nine-month period ended Sept. 30, consolidated revenue of $276.0-million represented a 15-per-cent year-over-year increase, while North American land drilling activity was unchanged over the same period. Adjusted EBITDA of $132.6-million was up 20 per cent year over year, while free cash flow of $77.7-million and net income attributable to Pason of $89.0-million represented 16-per-cent and 25-per-cent increases, respectively.

"We allocate capital in three important areas: (1) supporting and strengthening our core, drilling-related business; (2) investing in growth opportunities beyond the core; and (3) returning capital to shareholders.

"In the first nine months of 2023, net capital expenditures were $30.0-million; our expectation of full-year capital expenditures of approximately $45-million in 2023 is unchanged and we expect our 2024 capital program will be at a similar level. During the third quarter, we funded an additional $5-million of growth capital for Intelligent Wellhead Systems under our previously announced preferred share financing agreement, with the final $5-million tranche funded subsequent to the end of the quarter. In the nine-month period ended Sept. 30, we returned $51.9-million to shareholders, with $29.0-million paid in dividends and $22.9-million in share repurchases.

"Our balance sheet allows us to withstand slowdowns in industry activity while making growth-related investments. As at Sept. 30, 2023, we had cash and short-term investments of $178.4-million and positive working capital of $221.3-million.

"We expect North American land rig counts to plateau near current levels in the near term before beginning to steadily increase. Oil prices have held above $80 (U.S.) per barrel as supply measures and geopolitical tensions come into greater focus. With production, crude oil and product inventories and the inventory of drilled but uncompleted wells (DUCs) all below prepandemic levels, any efforts to increase supply will require additional drilling activity.

"Pason remains well equipped to deliver exceptional operational and financial results, and to capitalize on increasing levels of drilling activity," concluded Mr. Faber.

Quarterly dividend

Pason announced today that the board of directors has declared a quarterly dividend of 12 cents per share on the company's common shares. The dividend will be paid on Dec. 29, 2023, to shareholders of record at the close of business on Dec. 15, 2023.

Third quarter conference call

Pason will be conducting a conference call for interested analysts, brokers, investors and media representatives to review its 2023 third quarter results at 9 a.m. MST on Friday, Nov. 3, 2023. The conference call dial-in numbers are 1-888-664-6383 and 1-416-764-8650, and the call will be simultaneously audio webcast on the company's website. You can access the 14-day replay by dialling 1-888-390-0541 or 1-416-764-8677, using the password 009529 followed by the pound key.

An archived audio webcast of the conference call will also be available on Pason's website.

About Pason Systems Inc.

Pason is a leading global provider of specialized data management systems for drilling rigs. Its solutions, which include data acquisition, wellsite reporting, remote communications, Web-based information management and analytics, enable collaboration between the rig and the office. Through its subsidiary, Energy Toolbase Software Inc. (ETB), Pason provides products and services for the solar power and energy storage industry. ETB's solutions enable project developers to model, control and monitor economics and performance of solar energy and storage projects. Pason's common shares trade on the Toronto Stock Exchange under the symbol PSI.

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