Invesco Dynamic Semiconductors ETF Price & Performance (PSI)

As a reminder to listeners, Pason acquired and began consolidating Intelligent Well Head Systems or IWS on 01/01/2024 creating a new completion segment for the company. As such reference made to 2024 will include IWS financial results, whereas 2023 will not. In 2024, Pason generated $414,000,000 in consolidated revenue, a result that was 12% higher than revenue generated in 2023. Through a 10% decline in industry activity year over year, Pason's North American Drilling segment generated annual revenue of $283,000,000 a result that was only 2% lower than the prior year. Kaesong's annual revenue per industry day grew by 8% from 2023 and with a new annual record for the company at $1,000.25 through continued gains in product adoption and improved price realization. Kason's newly acquired completion segment generated $52,600,000 in revenue in 2024, a 15% increase from the revenue IWS generated in the 2023 year prior to being consolidated within PayFound's results, and that significantly outpaced the 10% decline seen in active frac spreads in The U. S. Adjusted EBITDA in 2024 was $161,800,000 or 39.1% of revenue, compared to $171,500,000 or 46.4% in 2023. Revenue growth in 2024 coming from earlier stage segments Further, within drilling segments, lower industry activity levels over a mostly fixed cost base impacted margins in 2020 or $1.53 per share and included a $50,800,000 non cash accounting gain relating to the acquisition of IWS.

IWS. From a quarterly perspective, Pason generated a consolidated revenue of $107,600,000 in the fourth quarter of twenty twenty four compared to $93,300,000 in the fourth quarter of twenty twenty three. With this revenue, Pason generated $42,100,000 in adjusted EBITDA or 39.1% of revenue. I'll now provide an overview of the fourth quarter by business unit. Against the challenging industry activity backdrop, particularly in The U. S, Pason's North American Drilling business unit generated revenue per industry day of $10.46 a 5% increase from the fourth quarter twenty twenty three. As a result, outpacing the 3% reduction in industry drilling activity, the North American Drilling segment generated revenue Remained mostly fixed in nature and saw lower repair expenses in the fourth quarter, while depreciation and amortization expenses grew year over year with increased capital expenditure [indiscernible] Resulting segment gross profit of $43,400,000 in the fourth quarter twenty twenty four was 4% higher than the $41,500,000 generated in the fourth quarter of last year, highlighting the segment's operating leverage. Our International Drilling segment generated $15,000,000 in quarterly revenue and $6,500,000 in segment gross profit in the fourth quarter. Prior year Q4 revenue and segment gross [indiscernible] with a significant devaluation seen in the Argentinian peso in that period.

In our Completion segment, IWS had 26 active jobs and revenue per IWS day of 5,000 hundred and $68 through very challenging industry conditions in the fourth quarter of twenty twenty four. And further will be impacted by foreign exchange fluctuations with The U. S. And Canadian dollar. Reported revenue for the segment was $13,600,000 up from $12,500,000 in the third quarter of twenty twenty four. Gross profit for the segment of $800,000 represents operating expense investments made in depreciation and amortization expense associated with the property and equipment and intangible acquired on 01/01/2024. Energy Toolbase, which is reported within our Solar and Energy Storage segment, generated $7,200,000 in quarterly revenue, a new quarterly record and an increase of 49% from the 2023 comparative period. With the timing on deliveries of control systems driving the difference year over year. The segment's revenue will continue to fluctuate with timing of these deliveries going forward. Sequentially, revenue growth in the company's completion industry drilling activity leading up to the December holiday period. Revenue grew by 2% quarter over quarter as a result. Adjusted EBITDA of $42,100,000 in the fourth quarter compares to $44,100,000 in the prior quarter and reflects the addition of lower margin revenue from IWS and Energy Toolbase given their current stage of maturity and growth.

Depreciation and amortization for the company has increased from $7,800,000 in the fourth quarter of twenty twenty three to $13,900,000 in the current quarter. This increase is attributable to higher levels of capital expenditures in recent quarters with gross related investments within our Completion segment along with the depreciation and amortization associated with the fixed assets and intangibles capitalized as part of the IWS acquisition on January one of this year. Net income attributable to Pason for the three months ended December 31, 2024 were $16,900,000 or $0.21 per share compared to $8,500,000 or $0.11 per share generated in the fourth quarter of twenty twenty three. Our balance sheet remains very strong and coupled with our free cash flow generation allows us to make gross related investments while returning meaningful levels of cash to shareholders. In 2024, net capital expenditures were $69,000,000 which now includes the addition of capital expenditures for IWS' business as we make investments to build out their fleet of rental assets. Reflecting these investments, free cash flow in 2024 was $54,100,000 compared to $97,000,000 in 2023. With this free cash flow, we returned $51,400,000 to shareholders through our quarterly dividend and share repurchase program and ended the quarter with total cash including short term investments of $81,000,000 and no interest bearing debt.

In summary, we continue to be well positioned for growth within our established and resilient position within drilling and our growing position in completions and solar and energy storage. I will now turn the call over to John for his comments on our outlook. Thank you, Saleem. Our financial results for 2024 demonstrate the ability of our business to outperform industry activity. Our North American drilling segment declined by 2% compared to a 10% decrease in North American land drilling activity. North American revenue for Industry Day was $25 for the year, an 8% increase from 2023 largely driven by increased product adoption, and to a lesser extent improved price realization. Revenue from our Completion segment grew 15% from 2023 levels, far outpacing a 10% decrease in the reported number of 25% outperformance. [indiscernible] our International Drilling segment reported revenue decreased by 6% in 2024 with 2023 results benefiting from inflationary and foreign exchange fact Energy tool based revenue increased 15% year over year from 2023 levels. Consolidated revenue for the year of $414,000,000 was 12% higher than the prior year. Adjusted EBITDA for the year totaled $162,000,000 representing adjusted EBITDA margin of 39%. Margins decreased from 2023 levels as a result of higher revenue contribution from the completions and solar and energy storage segments where segment margins are lower at their current stage of development.

We do expect the margins in these segments to expand over time as revenues in Fourth quarter results for 2024 similarly demonstrated our ability to outpace industry activity particularly in our North American Drilling segment where a 2% year over year increase in quarterly activity outpaced a 3% decrease in industry activity. And in our Completion segment where a 9% sequential increase in revenue outpaced a 4% decrease in the number of active frac spreads The United States in the quarter. Currently expect that North American land drilling activity in 2025 will be similar to 2024 levels, while completions industry activity for the year may be slightly lower owing to a stronger first half of twenty twenty four. [indiscernible] In that context, we expect Pason to continue to outpace industry activity and to deliver meaningful growth and strong financial results. Both our drilling and completions businesses benefit from increasing 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 Pason experienced over more than four decades in serving the data needs of the drilling market provide 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 a should translate into continued outperformance against industry conditions. Our innovative new drilling mud analyzer provides continuous real time readings of critical drilling mud parameters and we are seeing higher adoption of our automation products. Our well site automation products provide valuable safety and benefits for customers in their completions operations. And we are working closely with customers to develop compelling data management solutions for the completions market benefiting both operators and service companies. Strong bookings of control systems in our solar and energy Storage segment in 2024 are expected to in 2025. Our capital allocation priorities are driven by a focus return on invested capital. Today, our highest expected returns on capital come from the organic investments we are making to continue the growth of our Completion segment coupled with the ongoing rollout the mud analyzer in our drilling related business. In 2025, we expect to spend approximately $65,000,000 in capital expenditures. We will continue to pursue disciplined shareholder returns over time through our regular quarterly dividend and share repurchases. We aim to consistently deploy capital to share repurchases through market cycles thus buying back a larger number of shares during periods of market weakness and less shares when the market is stronger.

We are maintaining our quarterly dividend at $0.13 per share and preserving flexibility to continue repurchasing shares in the current environment of uncertainty. 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 in response to prevailing near term industry conditions. Our balance sheet remains strong. At December 31, we had $81,000,000 in total cash including short term investments and positive working capital of $121,000,000 We would now be happy to take any questions. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Your first question is from Keith McKee from RBC Capital Markets. Hey, good morning. Before I just [indiscernible] I'm just curious about the Completion segment. You just talk a little bit more about what where you are in terms of the rollout completions IWS business And ultimately, what needs to happen to see the margin inflection that you talked about there in your prepared remarks, John? Sure, Keith. In terms of the rollout of where we are in the completion segment, it's still fairly early days in the completions market for this type of technology, right? So we would continue to estimate that the rollout of this technology is probably somewhere in the order of 25% to 30% of the overall market for all providers of this type of technology.

And our best information would suggest that our completion segment would have the largest share of that portion of the market. But there's still a long ways to go. In terms of overall market adoption. We certainly have a number of customers [indiscernible] But we have some customers who are continuing to roll it out within their various operations And then of course, we're continuing to add new customers around that. So in terms of the rollout, there's what needs to happen next for revenue continue to grow, I guess there's the overall market needs to continue adopting more Some of the existing customers weren't using it on all of their operations yet continuing to adopt it across more of their fleets and then continuing to add new customers. I'll let Celine comment on the trajectory of margins sort of what it would take to get to similar margins we see on the drilling side.

Yes. So I mean, couple dynamics there, Keith. As you know, one is we're investing in advance of the revenue showing up. The cost base on the completion side would be much like what you're used to seeing on the drilling side and that it's mostly fixed in nature. We have to make those investments in advance of that revenue growth showing up.

And then the second part is that the business is just not fully at scale yet. So I would say at scale, we continue to believe that the Completion segment is capable of generating drilling like margins, but it's going to take a little bit of time to get there. I guess maybe the other comment I would quickly add, Keith, when you talk about kind of continue to come back. We talked a lot in 2024, if you recall, about some of the headwinds that that segment would have seen in terms of natural gas prices and also customers involved in M and A transactions. We think that kind of normalizes through 2025. So we think that would help on the activity side. I think if we look at the fourth quarter of the completion segment, I think the performance of that segment was a bit of an outlier relative to other North American completions providers. Which is an indication of the continued ability to gain new customers and see some of those customers increasing their activity. Got it. Thanks for that color. Maybe just secondly on on capital allocation, you talked about $65,000,000 capital program. Can you just maybe discuss a little bit about where that's going to be allocated between maintenance and then the completions growth versus the Budd Analyzer?

Yes. As you know, Keith, it's difficult for us to completely bifurcate between maintenance and expansion because a lot of the CapEx that we incur out on any given year is related to the the refresh of our ongoing technology platform in our drilling infrastructure and our drill business. And although there are parts of the technology that we have to update and refresh, it also allows us to do more with that technology and more capable in the context of more capabilities for our customers, which potentially results in higher price And other day to day expenditures. And then the other piece would be that refresh of our technology platform that I talked about. And then also the ongoing build out of our mud analyzer. And then roughly $25,000,000 would be allocated towards our completion segment and that's the continued build out of the valve management and automation technology. Okay, got it. Thanks very much. Thanks, Keith.

Your next question is from Aaron Kneil from TD Cowen. Please go ahead. Hey, morning all. Thanks for taking my questions.

Good morning.

Maybe building on Keith's first question, And I can appreciate market conditions are pretty tough. But can you speak to the pace of customer acquisition at IWS like are you adding new customers? Are you starting to grow again with existing customers? Like what sort of that dynamic look like?

Well, I guess at a high level, Aaron, I would say the adding new customer has actually been ahead of our expectations even through 2024.

Where we would have seen softer than we expected in 2024 was actually existing customers slowing their own activity down. And so the challenge in 2024 was that if a customer who is working on to make up numbers five or six jobs would would slow down to two or three, I. E. Slowdown by two or three jobs. You then have to find two or three new customers to each take one new job each as they trial the equipment. So there's there's kind of timing differences between those commercial endeavors. But the addition of new customers has actually gone very well through 2024 and next continues to go very well. So we're very encouraged about that. And in some cases on with these M and A transactions, we are now installing on the the assets or the fleets of the acquired companies. And so that wouldn't be direct new customer acquisition, but exposure to fleet that we might not have otherwise been on before. So the new customer acquisition is going very well. It's just when you're acquiring new customers, it tends to come one job at a time, only trial and then scale from there. And when customers slow down activity, that can come in more year two, three, four at a time.

Got you. Okay. And similar question on the mud analyzer. Just can you speak to its performance relative to, I guess, your own internal and customer expectations And what the potential appetite might be for other customers that might have to pay the full rate now that you've sort of got some operating in the field?

Yes. So the Vinylizer is going quite well relative to our initial expectations. I think we've talked in previous calls about affected for customers outside of our technology partner on the particular technology They may be a little less familiar with the data feeds that are coming from the MUD analyzer. There may be some operational changes in their drilling operations to best utilize the technology And so that has been things that have slowed a little bit the adoption outside of the technology partner. The technology partners currently using it on all of their fleets, including fleets of companies they would have recently acquired. So that has gone very, very well. We're growing the number of other customers using the technology. Encouragingly, we're removing people from their first trial to their second trial on companies that would have double digit number of active drilling rigs. And so it's the most friction is always from zero to one. You always have a reasonable amount of friction from one one to two and then from two to three, three to four and so on becomes less friction And so we're quite encouraged about the ability to expand into the growing the number with some of those customers who are now on kind of number two, if you will, on trajectory to double digit types of rig fleets and then adding new customers as well are starting to use it for the first time.

So it's going well there. But it's out now with all the fleets technology partner and so now it's continuing to grow with other companies for growth on the mud analyzer side.

Okay. Maybe I'll ask one more. I don't want to leave out Celine Are there any firm targets for 2025? In terms of capital allocation to the buyback, like Is there anything internally, even if you don't want to disclose it, where you say we're going to put X dollars towards the buyback or do number of shares Yes. And I think for us, the importance is the discipline around the continuous repurchasing and as John said in his comments, we see an opportunity today in light of ongoing uncertainty and what that potentially does from a a stock market perspective to be to favor the buyback over the dividend.

But nothing's concrete in terms of a target No, I don't know that we'll be giving target numbers at this point. Fair enough. Appreciate the time. You bet.

Ladies and gentlemen, as a reminder, Your next question is from John Gibson from BMO Capital Markets.

Please go ahead.

Good morning all. I just wanted to follow on Aaron's question, maybe asked a different way. I mean, obviously, your valuation has compressed quite a bit. [indiscernible] solid in The U. S. And Canada and you still build cash throughout 2024. I'm wondering if you could I know it's in case some of the old cash on the balance sheet, but wondering if you could a little bit into that cash balance to ramp the buyback here in 2025.

I think John, it's been in our DNA to have more cash on the balance sheet in anticipation of having acquisition opportunities for changing the risk and growth profile of the company. I. E. The acquisition of IWS. So we would have carried quite a bit more cash in anticipation of the completion of the acquisition of the rest of IWS. We now carry quite a bit less cash. We continue to think it's a net cash business given the to be higher than what it would be today. So then the question becomes where do the incremental capital dollars get spent. There's a finite limit to the amount of capital you can put into organic investments or certainly at the pace at which you can make organic investments in order to get appropriate returns on those investments. And so we do think the number one use of capital today is continuing to grow the completion segment, continuing to roll up more mud and but there's still surplus cash. The dividend has been profile of the company for a very, very long time. And we've said that that will grow slowly and steadily over time. This quarter, of course, we've maintained the dividend in recognition of the fact that in the current environment of uncertainty, incremental shareholder return dollars are better deployed to a repurchase program than to the dividend side.

I don't think we see any need to build cash the way the company would have historically done. We see the ability to continue to grow the business as the first priority. And then beyond that, we, as Jean said, we would favor repurchases over incremental dividends in the current environment.

That's fair. It seems to me like you can kind of do it all here, especially with where CapEx is at, growth is at and maintenance is at. So Got to come, I guess. But thanks. I appreciate the response.

Thanks, John.

Ladies and gentlemen, We'll pause for any further questions.

There are no further questions at this time. Please proceed with closing remarks.

Appreciate everybody's time this morning joining us for the call. We'll look forward to speaking with you again when we release our first quarter results. But if you have any questions in the meantime, certainly don't hesitate to reach out to Celine or myself. Thanks very much for your time.

Ladies and gentlemen, We thank you for participating and ask that you please disconnect your lines.