Good morning. My name is Joelle, I'll be your conference operator today. At this time, I would like to welcome everyone to the Pason Systems Inc's fourth quarter 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remark, 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 followed by two. The contents of today's call are protected by copyright and may not be reproduced without the prior consent of Pason Systems Inc. Please note the advisory is located at the end of the press release issued by Pason Systems yesterday, which described 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. Celine Boston, CFO, you may begin your conference.
Thank you, operator. Good morning, thank you for attending Pason's 2023 first 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 first quarter. Jon will then provide a brief perspective on the outlook for the industry and for Pason, and we'll then take questions. I'm very pleased to report on Pason's first quarter 2023 results, which continue to demonstrate our strong competitive positioning, the increasing demand for our products and technologies, and significant operating leverage. Pason generated consolidated revenue of CAD 98.2 million in the first quarter of 2023, a 32% improvement over the first quarter of 2022.
With this revenue, Pason posted CAD 52.4 million in adjusted EBITDA, which represents 53.4% of revenue, a significant increase from the CAD 33.4 million or 45% of revenue generated in the first quarter of 2022 and a continued demonstration of our mostly fixed cost base. All of the company's big business segments contributed to this strong quarterly result. Our North American segment set a new quarterly record level for revenue per industry day at $922, beating the previous record of $890 in the fourth quarter of last year. This result benefited from a strong Canadian winter drilling season, which is a region that has historically generated higher levels of revenue per day but also represents maintained leading market share and an improved pricing environment.
Resulting North American revenue was CAD 80 million in the first quarter, a 29% increase from the first quarter of 2022, while segment gross profit increased by 43%. Both of these results once again outpaced the improvement in underlying industry conditions. Similarly, activity levels and revenue generated per day in our international end markets also improved year-over-year, and revenue generated by the international business unit was CAD 15.6 million in the first quarter, a 46% improvement from the first quarter of 2022. Segment gross profit was CAD 7.8 million in the first quarter of 2023, a 70% increase from the CAD 4.6 million generated in the first quarter of 2022.
Energy Toolbase, our emerging business in the solar and energy storage market, posted its highest quarterly revenue level yet, with CAD 2.9 million generated in the first quarter of 2023, a 61% increase from the first quarter of 2022. First quarter revenue for this segment benefited from commissioning of control system projects and improved pricing on its economic modeling software tool. As we've previously noted, reported quarterly revenue for this segment will fluctuate with the timing of control system installations. While we benefited from strong industry activity in Canada through its winter drilling season, U.S. rig counts fell slightly quarter-over-quarter. Despite North American activity levels remaining relatively flat sequentially, both revenue and adjusted EBITDA results improved from the fourth quarter of 2022 to the first quarter of 2023.
With respect to our cost structure, our first quarter results continues to highlight our mostly fixed cost base and our ability to benefit from higher levels of revenue within this context. We will continue to see variable elements of our cost structure fluctuate with revenue, and we'll continue to work to manage inflationary effects on our business. These effects, along with changes in foreign exchange and the relative mix of rigs within our end markets, could have an impact on quarterly margins in the coming quarters. That said, our first quarter adjusted EBITDA results of CAD 52.4 million represents 53.4% of revenue and 80% incremental adjusted EBITDA when compared to the prior year comparative period, demonstrating significant operating leverage.
Net income attributable to Pason for the 3 months ended March 31st, 2023, was CAD 35.8 million or CAD 0.44 per share, a significant increase from the CAD 18.6 million or CAD 0.23 per share generated in the first quarter of 2022. Net income in the first quarter of 2023 benefited from much lower stock-based compensation expense, which reflects the mark-to-market on the company's cash-settled stock-based compensation plans. Our balance sheet remains strong and incredibly well-positioned to make strategic investments while returning meaningful cash flow to shareholders. Pason generated CAD 46.3 million in cash flow from operations in the first quarter, a 65% increase from the first quarter of 2022. The company's proactive efforts on building inventory levels to mitigate supply chain challenges are now mostly complete.
In the first quarter, Pason spent CAD 11.6 million in net capital expenditures in support of our core business, representing the ongoing refresh of our technology platform and the maintenance of our fleet. In the first quarter, we slightly increased our investment in Intelligent Wellhead Systems, an emerging completions technology business, through a CAD 400,000 increase in our minority ownership position. Subsequent to quarter end, Pason approved and funded CAD 5 million of the CAD 15 million that was remaining under the company's preferred share financing agreement with Intelligent Wellhead Systems. We remain committed to shareholder returns and in the first quarter, returned CAD 20 million to shareholders through dividends and share repurchases. We ended the quarter with no interest-bearing debt and CAD 185 million in total cash.
In summary, we are very proud of our first quarter results and feel incredibly well-positioned entering the 2023 year. I will now turn the call over to Jon for his comments on our outlook.
Thank you, Celine. Our first quarter financial results representing the continuation of strong performance by Pason. Pason again outpaced the growth in underlying drilling activity with a 32% increase in consolidated revenue, exceeding the 18% year-over-year change in North American land drilling activity. We posted another quarterly record for North American revenue per industry day in the quarter at $922, exceeding the $900 level for the first time. We maintained our leading market share position while seeing increases in product adoption and improved price realization, both of which we expect to see continue going forward. Our international business unit generated revenue of $15.6 million, up 46% from the prior year. Our international business benefited from increased industry activity and strong increases in revenue per EDR day from higher product adoption pricing.
Energy Toolbase revenue increased by 61% year-over-year due to the installation of additional energy storage systems and stronger price realization for our economic modeling software tool. We remain focused on maintaining appropriate control over our operating and capital costs. With our most significant cost increases coming in areas that directly impact our service and technology advantages and providing capacity for additional revenue growth. While U.S. land activity softened in the first quarter and Canada began to experience its seasonal declines due to winter breakup, our outlook for a return of steady growth in North American industry activity in the second half of 2023 is unchanged. Ultimately, the economic forces of supply and demand establish the prevailing direction of industry activity.
Significant draws from oil storage and inventories and an inventory of drilled but uncompleted wells below what industry analysts consider to be sustainable levels cannot persist in perpetuity while global oil demand continues to exceed pre-pandemic levels. Our outlook for continued growth in land drilling remains positive. Pason sits at the center of the drilling data ecosystem on the majority of rigs in the Western Hemisphere. As customers use more automation and analytics technologies, data requirements are increasing. We are ensuring that we have the capabilities to manage additional sources of data, higher volumes, throughputs, and speeds of data, and additional transmission and storage protocols. We expect capital spending of approximately CAD 45 million in 2023 as we renew and extend the capabilities of important parts of our hosting platform.
We also continue to make investments in our operational assets which were curtailed in recent years by challenging supply chain conditions. We continue to evaluate our capital program with a focus on supporting increasing revenue, generating free cash flow, and creating shareholder value over time rather than simply in response to prevailing near-term industry conditions. We continue to make investments in growth-related opportunities outside of our core drilling-related business. The growth trajectory of Intelligent Wellhead Systems is encouraging. We will support the required investments in working capital and capital expenditures to ensure that IWS is positioned to fully capitalize on these opportunities. Demand for energy storage is growing as government policies such as the Inflation Reduction Act in the United States and or net metering 3.0 in California incentivize the deployment of additional energy storage assets.
We are adapting our approach to the sales of our intelligent energy management control systems to leverage Energy Toolbase's strong brand position to further build our pipeline of control system opportunities. We are also expanding the functionality of our economic modeling software tool to support higher price realization and to handle the unique requirements of additional markets. We remain committed to returning capital to shareholders through our regular quarterly dividend and through share repurchases. We returned CAD 20 million to shareholders in the first quarter, and we are maintaining our quarterly dividend at CAD 0.12 per share. Our balance sheet remains strong with cash and short-term investments of CAD 185 million and no debt.
The strength of our business allows us to make the required investments to secure our position as a leading provider of drilling data and technologies, to pursue additional sources of revenue outside the oil and gas drilling market, and to return meaningful capital to shareholders. We remain focused on ensuring that Pason is an innovative, profitable, and responsible company, we would now be happy to take any questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the hands up before pressing any keys. One moment please for your first question. Your first question comes from Keith Mackey with RBC Capital Markets. Please go ahead.
Hi, Jon, Celine. Good morning. Thanks for taking my questions.
Good morning, Keith.
Just maybe to start out with the international, certainly a good quarter there. Can you just maybe compare and contrast the relative profitability between North American international markets? I know the international has generally been lower margin, but where is that segment in terms of adoption and market share relative to North America and how close do you think it could ultimately get, if not higher?
Yeah, good question, Keith. I think you asked a few questions there, actually.
Yeah.
I think when we think about market share, and certainly in markets like in South America and Australia, we would have very high market share, as you would know. I don't think that's quite so dissimilar. On the product adoption side, some of the newer, more advanced technologies are starting to get adopted into the international markets, probably faster than they used to in the history of Pason. I think it took longer for some of the new technologies to find their way to the international markets. They're getting adopted a little sooner in some of the international markets. That obviously helps us.
There's been a move in the types of rigs and the complexity of what they're doing in some of the international markets, which helps drive product adoption of existing products, beyond just the new products, which helps us. I think when you talk about ultimately where could the margins get to, one of the things in certain international markets is that you just don't have the density of rigs in a specific geographic location, like you do in the North American markets. That just ultimately means you have a little bit higher operating costs in support of that revenue at times because of the rig density and the ability to have, you know, a certain number of field folks looking after the rigs that are there.
Got it. That's helpful. Thanks, Jon. Just secondly, in North America, certainly the operating leverage in the business has been very good as things have come up. As the US rig count takes a bit of a breather here and has, you know, retraced, like, should we be thinking about a similar decremental margin on the way down? Do you think that you can kinda hold this revenue and margin levels more, you know, flat, assuming the rig count kinda drops this in the 30-40 range and then recovers in the second half of the year?
Sure. you're certainly gonna see some seasonality effects on the Canadian side that will put some downward pressure, I would say, in the second quarter, and that's expected. you, I mean, you see that every year for Pason. On the US side, you know this well, Keith, the, that a large majority of the, those costs on the rental services side for the North American business are fixed in nature. We've kind of scaled up the organization for these levels of activity, and that's where, and we've kinda chipped away at that over the last couple of years, you've seen those levels remain much more stable in the last couple of quarters. We view that softness that you mentioned on the US rig count side of things really being more short term in nature.
We really probably don't see any significant cuts on the cost side of things. But that said, I mean, you're talking 30 to 40 rigs on a U.S. land rig count of 730, I think we're at close to today. That's, you know, we still generate very attractive margins in that business unit at those levels.
Okay. I'll leave it there. Thanks very much.
Thanks, Keith.
Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. There are no further questions at this time. Please proceed. Oh.
Thank you, Joelle.
There's another question.
Yeah, thank you for those. Oh, sorry. We do have a question. I apologize.
Your next question comes from Eddie Kim from Barclays. Please go ahead.
Hi. Good morning. I just wanted to dig in a little deeper on the softening rig count that you saw in the first quarter and your expectations for a rebound in the second half. I imagine the softness is coming out of the gas basins, and I have to imagine the rebound that you expect in the second half is on the oilier basins. Did I get that right? If you could just provide a little bit more color by basin that-- what you're seeing currently, that'd be great.
Eddie, at a high level, I would say that's consistent with what we would see and what we would hear in conversations with customers. Obviously, the oil price itself has become quite volatile in the last week or so. What that'll ultimately mean, I think, will be a question. But yeah, the conversations we would have, we do see a difference between some of the gassier areas and the oilier areas. I think when we talk about the second half kind of increasing, we think that's slow and steady. We don't think we necessarily sort of make up for what we maybe would have initially anticipated as growth in the first half. We think that once we sort of stabilize and start to move up, it'll be slow and steady from there.
Okay. Okay. Understood. That's very helpful. Thank you. That was all on my end. I'll turn it back.
Thanks, Eddie.
Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. There are no further questions at this time. Please proceed.
Thank you, Joelle. Thanks for those who have joined us for the call this morning. We appreciate your continued interest and your support. If you do have further questions, you can certainly reach out to Celine or myself, and we would welcome your calls. We'll look forward to speaking to you again after the second quarter. Have a great day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.