The 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 advisories 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 Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pason 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 one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. Celine Boston, Chief Financial Officer, you may begin your conference.
Thank you. Good morning, and thank you for attending Pason 's 2025 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 a brief perspective on the outlook for the industry and for Pason , and we will then take questions. I'm pleased to report on Pason 's Second Quarter 2025 Results, which continue to demonstrate the resilience in our business through challenging industry conditions. Pason generated consolidated revenue of $96.4 million in the second quarter of 2025, a 1% increase from the $95.9 million generated in the second quarter of 2024, despite more challenging industry conditions. With this revenue, Pason
generated $31.6 million in adjusted EBITDA, or 32.7% of revenue, which compares to $33.1 million, or 34.6% of revenue generated in the second quarter of 2024. From a segment performance perspective, in our North American drilling segment, Canadian drilling activity fell throughout the second quarter as is easily expected through spring breakup, which coupled with reductions in U.S. drilling activity resulted in a 5% decline in North American industry drilling year-over-year. In this challenging environment, Pason Systems Inc. continues to generate growth in revenue per Industry Day, and the metric grew 3% year -over -year. As a reminder to listeners, revenue per 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 U.S.
dollar compared to the Canadian dollar, which moved in an unfavorable way during the second quarter with a weakening U.S. dollar. Revenue in the North American drilling segment only fell by 2% year-over-year, outpacing the 5% decline seen in industry activity. The segment's 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 gross 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 unconventional drilling.
The segment generated $13.6 million in quarterly revenue and $6.4 million in segment gross profit in the second quarter. Operating expenses for the segment are mostly fixed and came down by 5% year-over-year as the segment remains focused on discipline management and operating costs during a period of lower activity levels. In our completions segment, IWS had 33 active jobs, up from 32 in the first quarter and 29 in the second quarter of 2024, while industry activity levels fell in both of those comparative periods. In that time, the completions segment maintained revenue for IWS Day at relatively flat levels, generating $5,069 per day in the second quarter. Revenue for IWS Day will fluctuate depending on the mix of technologies adopted amongst existing customers and further will be impacted by foreign exchange fluctuations between the U.S.
and Canadian dollar, which when comparing sequential results for the completions 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 fell by 25% during that same time. Gross profit for the segment of $1.2 million represents operating expense investments made for the segment's current stage of growth, along with $6.2 million in depreciation and amortization expense associated with the property and equipment and intangible assets acquired on and since January 1st, 2024. Our solar and energy storage segment generated $5 million in quarterly revenue, an 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 segment's revenue will continue to fluctuate with timing of these deliveries going forward. Sequentially, Pason Systems Inc.'s results were mostly impacted by the seasonal decline in Canadian drilling activity, along with further reductions in U.S. drilling activity and a weaker U.S. dollar in the second quarter, all of which impacted revenue levels over the company's mostly fixed cost base. Revenue of $96.4 million in the second quarter compares to revenue of $113.2 million in the first quarter. Similarly, adjusted EBITDA was $31.6 million in the second quarter compared to $45.2 million in the first quarter. Net income attributable to Pason
for the second quarter of 2025 was $12.6 million, or $0.16 per share, up from $10.9 million and $0.14 per share in the second quarter of 2024, reflecting lower levels of adjusted EBITDA that were more than offset by lower stock-based compensation expense. We continued 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 and the ongoing investments in our drilling-related technology platform. Free cash flow in the second quarter of 2025 was $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 to shareholders in the second quarter, $10.2 million through our quarterly dividends, and $10 million through our share repurchase program. In summary, we remain very well positioned in the face of challenging industry conditions. I will now turn the call over to Jon for his conference overall.
Thank you, Celine. Our second quarter financial and operating results demonstrated the continued strength of Pason's 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. As the customer increases its unconventional drilling activity, we anticipate greater adoption of higher-value products and a more attractive margin profile. Our completions segment again boasted significant outperformance in comparison to underlying industry activity.
Revenue from our completions segment grew 12% from the second quarter of 2024, despite a 25% decrease in the reported number of active frac spreads in the U.S. Our average number of IWS active jobs increased by 14% year-over-year, while revenue per 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 completions segment, we expect that revenue per IWS Day will fluctuate based on customer mix. In our solar and energy storage segment, Energy 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.
Adjusted EBITDA for the quarter totaled $31.6 million and was down 5% from 2024 levels, while an adjusted EBITDA margin of 32.7% was lower than the prior year, owing to higher revenue contribution from the completions and solar and energy storage segment, where segment margins are lower given their current stage of development. We expect margins of these segments to expand over time as revenues increase. Geopolitical factors continue to dominate the headlines with ongoing trade negotiations and changing tariff policies, unwinding of OPEC Plus production cuts, and concerns about economic growth creating 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 $60 per 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 development and increased power demand. Since the start of 2025, the gas-corrected U.S. land rig count has increased by 22%, despite the overall market slowing by 8%. We expect Pason to continue to outpace industry activity, and both our drilling and completions businesses benefit from increasing complexity in drilling and completions operations. As customers continue to pursue automation and analytics efforts, including leveraging artificial intelligence applications and the establishment of real-time operating centers, access to consistent, reliable, high-quality data is increasingly important for both drilling and completions operations.
Pason 's experience over more than four 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 in increasing North American revenue per Industry Day in our drilling segment and in expanding our customer base while maintaining strong revenue per 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 continues to come from the organic investments we are making to continue the growth of our completions segment, coupled with the ongoing rollout 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 evaluate our capital program with a focus on increasing revenue, generating free cash flow, and creating value for shareholders over time rather than simply a 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 $0.13 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 June 30th, 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.
Thank you. 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 one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. Our first question today will come from Keith Mackey, RBC Capital Markets. Go ahead.
Hi, good morning, Jon, Celine.
Morning.
Morning. I just wanted to start out on completions. Job count looks like it was up slightly sequentially while the U.S. industry frac count was down and continuing to go down further in Q3. Can you just talk about the trajectory of where you'd expect your job count to go? 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. Do you expect that dynamic to help bolster the overall job count as we go through the second half of the year? Just any color 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 maybe separate how we think about existing customers and new customers. On the existing customer side, we continue to have a really strong position with our customers, though many of them have slowed their activity over time. Our ability to hold and grow job count has largely come from adding new customers to more than offset existing customers slowing their activity. To the extent that we continue to add new customers, we think that'll continue to be additive to job count. We don't know that we'll see 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 were a little bit more gas-focused, and they would have slowed their activity down quite a bit a year or 18 months ago. To answer the second question there, Keith, as gas activity comes back, we would expect that to help on the side of growth from existing customers to bringing activity back to their programs.
Got it. 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 type of frac count or markers there?
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 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 the significant outperformance does become more challenging if you're doing it with additions of one or two jobs with new customers. It will really be a question of how much some of those existing customers layer on more activity in addition to adding new customers.
Got it. Just turning to Argentina, can you talk a little bit more about the dynamic of a customer shifting from conventional to unconventional? How can you be so confident that you'll, you know, that unconventional activity will come to Pason? You know, are these the same rigs? They're just moving areas, or are these new rigs that you think you'll also get a portion of? Maybe just a little bit more color on how you see that dynamic playing out as well as the trajectory for Argentina over the next, you know, two to three quarters to the extent you can.
Yeah, the 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 two different asset bases. 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. Addedly, these are probably not assets that we're interested in working on at the types of revenue they generated if it's not part of a portfolio of assets for a larger company that owns also the unconventional side. In the short term, what that means is that as those assets are sold off, that is revenue that we are happy to forgo. It also means that we continue to have some operating costs to service the remaining assets while the portfolio is being sold.
Over time, because the large customers will have all of their work, we would anticipate that we will continue to have the lion's share of the work, we're all in the work as they continue to do things on the unconventional side. That does draw a different set of the product suite that is higher valued and a much better margin profile.
Understood. Do you have a sense of timing of when some of that unconventional drilling might ramp up?
I think we're starting to see it ramping up now, but it will take time for it to match the same type of revenue level that you would see from just the revenue dollars associated with a high volume of low revenue rigs, right? You might actually take 18- 24 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 margin when you start to talk about the types of opportunities you have in that space.
Understood. Appreciate the comments. Thanks very much.
Thanks, Keith.
Our next question today comes from Aaron MacNeil, TD Cowen. Go ahead, please.
Hey, morning. Thanks for taking my questions.
Aaron.
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 additions are being contemplated in the current capital program? From a broader market perspective, how do you think about the IWS technology as well as competing technologies in terms of how much they've saturated that sort of multi-fract market?
Sure. If I want it, 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. I think all I could really say is that we are quite comfortable that at the capital program that we're now forecasting for 2025, we feel quite comfortable in our ability to continue to outpace what the underlying industry does. It is going to require capital to match because more jobs are taking more equipment over time, not less. That's probably all I can really directionally say in the question of capacity. The second part of the question, you'll have to trigger my memory. Where are you going again?
Yeah, just thinking about market saturation for IWS as well as competing technologies.
Yeah, sure. I think our view is there's still lots of run room for where the overall opportunity exists for automation in the completions space. I think for IWS and other folks competing in the market, the biggest tailwind for all of us is going to be the continued adoption of automation technologies. One of the things we've felt has been an advantage we've had in the drilling space for a lot of years, which translates as well on the completion side, is the fact that we can work with a variety of different providers. When customers choose to use a variety of providers, either on the drilling side as drillers or pressure control providers on the completion side, those are always opportunities for us.
We think we'll continue to have lots of opportunity, but the tailwind for all participants in that industry is around greater adoption of technology, in particular automation.
Gotcha. Maybe I'll just reframe the first question. I didn't want to get too specific, but are you operating at capacity today, or do you have underutilized capacity? What capacity additions are you adding, in any way you'd want to frame it in terms of percentage of fleet growth or asset growth or I don't know.
Yeah, I'm 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, with some additional capacity available or underutilized on things that are simpler types of jobs, like a different profile of equipment. It really becomes a mix of the types of jobs you're looking at in terms of whether there's capital required or not.
Gotcha. Okay. Maybe a similar sort of line of questioning on the MUD Analyzer, just haven't had an update in a while. How are you thinking about market demand, potential market saturation levels, and your ability to price the product?
Yeah. I think similar to what we would have said last quarter, the challenges on the MUD Analyzer for kind of more rapid scaling of the rollout really are sort of twofold. There are some technical things that we're working through to deal with some technical challenges around things like lost circulation materials and people's operating processes. There is the question for folks who have not had this data available historically, how to use that data. There are some investments we are making on the operational side to help customers understand how they might use the data to drive their drilling programs.
Fair enough. Happy to turn it back.
Thanks, Aaron.
Thank you. As a reminder, if you would like to ask a question, press star, then the number one on your telephone keypad. Our next question today comes from Sean Mitchell from Daniel Energy Partners. Please go ahead.
Good morning, guys. Jon, thanks for taking the question. Maybe in IWS, I know that revenue per day can vary depending on the mix of technology adopted by your customers. Is there a big difference between oil versus gas completions in terms of technology adoption by your customers?
We don't really see a difference in oil versus gas on the technology that we would be applying on the completion side. There's probably more difference if I want to show on the drilling side, where there are certain products that become more applicable as you're drilling at deeper depths, which you typically are on the gas side. Probably less of a question on the types of completions products we have where you'd see a difference.
Got it. Okay, that's it. Thank you.
That's terrific. Thanks, Jon.
There are no further questions at this time. I will now turn the call over to Jon. Please continue.
Great. Thank you very much, Amy. Thank you to all those who have joined the call this morning. We do understand that our calls sometimes compete with other calls, so thanks for taking time to join ours. We certainly appreciate your interest. 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 Celine or myself at any point, and we'd be happy 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.