Pason Systems Inc.

The contents of today's call are protected by copyright and may not be reproduced without the prior written consent of Payson Systems, Inc. Certain information about the company that is discussed on today's call may constitute forward-looking information. Additional information about Payson Systems, including the risk factors relevant to the company, can be found in its annual information form. Thank you. Good morning. My name is Andrew, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Payson Systems, Inc.' 's third 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, please press star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press the pound key. Thank you. Selene Boston, CFO.

You may begin your conference.

Thanks, Andrew. Good morning, everyone, and thank you for attending Paython's 2025 third quarter conference call. I'm joined on today's call by John Faber, our president and CEO. I'll start today's call with an overview of our financial performance in the third quarter. John will then provide a brief perspective on the outlook for the industry and for Paython, and we'll then take questions. PaySound's results in the third quarter of 2025 continues to demonstrate the resilience in our business model for very challenging industry conditions. PaySound generated consolidated revenue of $101 million and adjusted EBITDA of $38.5 million, or 38.1% of revenue in the third quarter of 2025. Inter-North American drilling segment. Canadian drilling activity increased through the third quarter as is seasonally expected after spring breakups, However, at a more moderate pace than the increases seen in the third quarter of 2024, resulting in a 15% decline in Canadian industry drilling activity year over year. U.S. drilling activity fell slightly through the third quarter, resulting in a 9% decline in overall North American industry drilling activity in Q3 2025 versus the prior year comparative period. Despite this decline, revenue in the segment only decreased by 7% year over year. In this challenging environment, Payson grew revenue per industry day by 1% to a new quarterly record level of $1,071 as the company continues to make progress with growing product adoption across its technology offering. Within the North American drilling segment, Payson generates a higher revenue per industry day with Canadian activity as compared to U.S. activity. In the third quarter of 2025, Canadian activity represented a lower percentage of total when compared to Q3 of 2024, and this muted the growth seen in consolidated revenue per industry day year over year. 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 and has seen lower levels of repair expenses, which can fluctuate with revenue levels. Resulting segment gross profit of $42.2 million was consistent as a percentage of revenue at 61% when compared to Q3 of 2024, despite the more challenging industry conditions. Continuing from earlier this year, our international drilling segment faced headwinds in the third 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 $12.5 million in quarterly revenue. and $5.2 million in segment gross profit in the third quarter. Operating expenses for the segment are mostly fixed and came down by 11% year-over-year, as the segment remains focused on disciplined cost management during a period of lower activity levels. Even more pronounced than our drilling segments, industry conditions for completions were very challenging for the third quarter of 2025, with several of IWS's existing customers beginning to slow their number of active frack spreads. In the third quarter of 2020-25, IWS had 30 active jobs, up from 28 in the prior year comparative period, despite a 27% decline in active FRAC fleets in the U.S. Revenue for IWS Day also grew year-over-year by 11%. Revenue for IWS Day will fluctuate depending on the mix of technology adopted amongst new and existing customers going forward. Reported revenue for the segment was $14.6 million, up from $12.5 million in the third quarter of 2024, which represents a 17% increase against industry activity that fell by 27% during that time. Gross loss of $1.2 million for the segment represents operating expense investments made for the segment's current stage of growth, along with $7.6 million in depreciation and amortization expense, associated with the property and equipment and intangible assets acquired on and since January 1st of 2024. Our solar and energy storage segment generated $5.1 million in quarterly revenue, an increase of 30% 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, Paython's results were mostly impacted by the seasonal increase in Canadian drilling activity, partially offset by further reductions in U.S. drilling incompletions, resulting in a 5% increase in revenue quarter-over-quarter. Demonstrating the company's mostly fixed cost base and resulting operating leverage, revenue grew by $4.5 million quarter-over-quarter and adjusted EBITDA grew by $7 million in that time. Net income attributable to Paython for the third quarter of 2025 was $12.5 million, or $0.16 per share, down from $24.2 million and $0.30 per share in the third quarter of 2024, reflecting lower levels of industry activity year-over-year and higher levels of depreciation and stock-based compensation expense. We continue to maintain a prudent balance sheet ending the quarter with total cash, including short-term investments, of $75.6 million and no interest-bearing debt. In the third quarter of 2025, net capital expenditures were $10.7 million, which includes investments in building out our valve management and automation technology offering with incompletions and the ongoing investments in our drilling-related technology platforms. Free cash flow in the third quarter of 2025 was $18.7 million, compared to $16.7 million in the third quarter of 2024, reflecting lower levels of capital expenditures and working capital investments year over year. With this free cash flow, we've returned $13.1 million to shareholders, $10.1 million through our quarterly dividend, and $3 million through our share repurchase program. Year to date, we've returned $49.6 million to shareholders, to our quarterly dividend totaling $30.6 million and $19 million in share repurchases. In summary, we remain very well positioned in the face of challenging industry conditions. I will now turn the call over to John for his comments on our outlook.