Core Laboratories Inc DE

Previous wording

The current global demand for crude oil and natural gas remains at a high level and according to the latest International Energy Agency’s report, global demand is expected to increase in 2024 and 2025. As a result, it is anticipated that crude-oil commodity prices for the near-term will remain at current levels or increase if projections for demand remain accurate. In 2022 and 2023, capital spending towards the exploration of crude oil and natural gas reached their highest level in over a decade with modest growth expected in 2024 and 2025. Therefore, our clients' activities associated with the appraisal, development and production of crude oil and natural gas are also expected to remain at current levels or increase for the remainder of 2024. Outside the U.S., international oil and gas projects continue to build and are expected to grow and accelerate into the next several years. U.S. onshore drilling and completion activities are expected to remain at current levels with some typical seasonal decrease towards the end of the year.

Current wording

The current global demand for crude oil and natural gas remains at a high level and according to the latest International Energy Agency’s report, global demand is expected to increase in 2024 and 2025. As a result, it is anticipated that crude-oil commodity prices for the near-term will remain at current levels or increase if projections for demand remain accurate. In 2023, capital spending towards the exploration of crude oil and natural gas reached their highest level in over a decade with modest growth expected in 2024 and 2025. Therefore, our clients' activities associated with the appraisal, development and production of crude oil and natural gas are also expected to remain at current levels or increase for the remainder of 2024. Outside the U.S., international oil and gas projects continue to build and are expected to grow and accelerate into the next several years. U.S. onshore drilling and completion activities are expected to remain at current levels with some typical seasonal decrease towards the end of the year.

Previous wording

Operating Results for the Three Months Ended March 31, 2024 compared to the Three Months Ended March 31, 2023 and December 31, 2023

Current wording

Operating Results for the Three Months Ended June 30, 2024 compared to the Three Months Ended June 30, 2023 and March 31, 2024 and for the Six Months Ended June 30, 2024 compared to the Six Months Ended June 30, 2023

Previous wording

Service revenue is primarily tied to activities associated with the exploration, appraisal, development, and production of oil, gas and derived products outside the U.S. For the three months ended March 31, 2024, service revenue was $96.5 million, an increase of 6% year-over-year and 2% sequentially. Year-over-year, the increase was due to growth in activity levels in both international and U.S. markets. Activity on reservoir rock and fluid projects in the Middle East has continued to expand and reservoir fluid analysis services in the European and Asian regions showed improvement from the disruptions last year caused by the on-going conflict between Russia-Ukraine. This growth was partially offset by typical seasonal decline, lower revenue in Russia and delayed project revenue of approximately $0.7 million due to a fire incident that occurred at one of our facilities in the United Kingdom. Sequentially, the growth was primarily driven by increased activity on reservoir rock and fluids projects in the Middle East and well completion diagnostic services in the U.S., partially offset by a loss of revenue due to the fire incident in the United Kingdom and lower revenue in Russia, as discussed above.

Current wording

Service revenue is primarily tied to activities associated with the exploration, appraisal, development, and production of oil, gas and derived products outside the U.S. For the three months ended June 30, 2024, service revenue was $96.3 million, an increase of 3% year-over-year and relatively flat sequentially. Year-over-year, the increase was due to growth in activity levels in both international and U.S. markets. Activity on reservoir rock and fluid projects continues to expand and reservoir fluid analysis services in the European region showed improvement when compared to the prior year. Additionally, well completion diagnostic services in the U.S. market show a strong growth in 2024 when compared to the same period in 2023.

Previous wording

Product sales are primarily tied to supporting the U.S. onshore drilling and completion operations and bulk product sales to international markets. Product sales to international markets are typically shipped and delivered in bulk and the timing of delivery can vary from one quarter to another. For the three months ended March 31, 2024, product sales revenue of $33.1 million decreased 11% year-over-year and remained relatively flat sequentially. Year-over-year the decline in our product sales revenue is primarily due to lower U.S. onshore activity, where the average U.S. land rig count decreased 19% over the same period in the prior year. Additionally, we had lower sales of manufactured laboratory equipment when compared to the same quarter in the prior year. Sequentially, product sales increased in North America but were offset by fewer international bulk sales during the three months ended March 31, 2024.

Current wording

Product sales are primarily tied to supporting the U.S. onshore drilling and completion operations and bulk product sales to international markets. Product sales to international markets are typically shipped and delivered in bulk and the timing of delivery can vary from one quarter to another. For the three months ended June 30, 2024, product sales revenue of $34.2 million remained relatively flat year-over-year and increased 3% sequentially. The average U.S. land rig count for the three months ended June 30, 2024 is 17% lower when compared to the same period in 2023, however product sales in the U.S. increased year-over-year. The year-over-year growth in product sales in the U.S. onshore market was offset by a lower level of international product sales during the three months ended June 30, 2024.

Previous wording

Cost of services was $73.9 million for the three months ended March 31, 2024, an increase of 4% year-over-year and sequentially. Cost of services expressed as a percentage of service revenue was 77% for the three months ended March 31, 2024, compared to 78% for the same period in the prior year, and 75% compared to the prior quarter. Year-over-year, improvement in cost of services as a percentage of service revenue primarily was associated with improved utilization of our global laboratory network on higher revenue, although it was partially offset by higher employee compensation costs and continuing inflation. Sequentially, the increase in cost of services as a percentage of services revenue was primarily due to higher employee compensation and inflation as discussed above.

Current wording

Cost of services was $74.8 million for the three months ended June 30, 2024, an increase of 5% year-over-year and 1% sequentially. Cost of services expressed as a percentage of service revenue was 78% for the three months ended June 30, 2024, compared to 76% for the same period in the prior year, and 77% compared to the prior quarter. Year-over-year, the increase in cost of services as a percentage of service revenue was primarily associated with higher employee compensation and operating costs.

Previous wording

Cost of product sales was $30.7 million for the three months ended March 31, 2024, relatively flat year-over-year and sequentially. Cost of product sales expressed as a percentage of product sales revenue was 93% for the three months ended March 31, 2024, compared to 82% year-over-year and 91% sequentially. The year-over-year increase in cost of product sales as a percentage of product sales was primarily due to higher absorption of fixed costs on a lower revenue base and inflation in material, personnel, and logistical costs. Sequentially, the increase in cost of product sales as a percentage of product sales was primarily due to a lower level of international bulk product sales, which have a higher gross margin.

Current wording

For the six months ended June 30, 2024, cost of product sales was $58.8 million, a decrease of 2% compared to the same period in the prior year. Cost of product sales expressed as a percentage of product sales revenue was 87% for the six months ended June 30, 2024, compared to 83% from the same period in the prior year. The increase in cost of product sales as a percentage of product sales revenue was primarily due to lower levels of product sales in the U.S., which resulted in higher absorption of fixed costs on a lower revenue base.

Previous wording

General and administrative (“G&A”) expense includes corporate management and centralized administrative services that benefit our operations. G&A expense for the three months ended March 31, 2024, was $11.8 million, a decrease of $4.5 million year-over-year and an increase of $3.1 million sequentially. Year-over-year, the three months ended March 31, 2024, included the acceleration of stock compensation expense for retirement eligible executives of $3.5 million, compared to $6.5 million included in the three months ended March 31, 2023. The remainder of the decrease was primarily associated with changes in market value of company owned life insurance investment instruments which fund certain employee retirement plans. Sequentially, the three months ended December 31, 2023, did not include any accelerated stock compensation expense for retirement eligible executives.

Current wording

General and administrative (“G&A”) expense includes corporate management and centralized administrative services that benefit our operations.

Previous wording

Depreciation and amortization expense for the three months ended March 31, 2024, was $3.8 million, a decrease of 5% year-over-year and relatively flat sequentially. The decrease in depreciation and amortization expense compared to the prior year is primarily due to assets which became fully depreciated.

Current wording

Depreciation and amortization expense for the three months ended June 30, 2024, was $3.8 million, a decrease of 4% year-over-year and 5% sequentially. Depreciation and amortization expense for the six months ended June 30, 2023, was $7.6 million, a decrease of 2% year-over-year. The decrease in depreciation and amortization expense compared to the prior year periods and sequentially is primarily due to assets which became fully depreciated and lower levels of capital expenditures.

Previous wording

During the three months ended March 31, 2024 and 2023, we abandoned certain leases in the U.S. and Canada, respectively, and incurred lease abandonment and other exit costs of $0.7 million and $0.6 million, respectively. As a result of consolidating and exiting these facilities, the associated leasehold improvements, right of use assets and other assets of $1.1 million and $1.0 million were abandoned and expensed, respectively.

Current wording

During the six months ended June 30, 2024 and 2023, we abandoned certain leases in the U.S. and Canada, respectively, and incurred lease abandonment and other exit costs of $0.7 million and $0.6 million, respectively. As a result of consolidating and exiting these facilities, the associated leasehold improvements, right of use assets and other assets of $1.1 million and $1.0 million were abandoned and expensed during the six months ended June 30, 2024 and 2023, respectively.

Previous wording

During the three months ended March 31, 2024, we had a fire incident at one of our U.K. facilities and have recorded partial insurance settlements of $1.0 million associated with costs incurred and loss of income from business interruption. During the three months ended March 31, 2023, the State of Louisiana expropriated the access road to one of our facilities and paid us a settlement of $0.6 million.

Current wording

During the six months ended June 30, 2024, we had a fire incident at one of our U.K. facilities and have recorded partial insurance settlements of $2.3 million, including $1.3 million recorded in the three months ended June 30, 2024, associated with costs incurred and loss of income from business interruption. During the six months ended June 30, 2023, the State of Louisiana expropriated the access road to one of our facilities and paid us a settlement of $0.6 million.

Previous wording

The Company recorded income tax expense of $1.7 million and $0.6 million for the three months ended March 31, 2024 and 2023, respectively. The effective tax rate for the three months ended March 31, 2024, was 32.2% recorded on income before income tax of $5.1 million. The effective tax rate for the three months ended March 31, 2023, was 20% recorded on income before income taxes of $3.1 million. The tax rate for the three months ended March 31, 2024, was largely impacted by the earnings mix of jurisdictions subject to tax for that period and items discrete to the quarter.

Current wording

The Company recorded an income tax expense of $3.6 million and $5.3 million for the three and six months ended June 30, 2024, respectively, compared to an income tax benefit of $7.3 million and $6.6 million for the three and six months ended June 30, 2023, respectively. The effective tax rate for the three and six months ended June 30, 2024 was 28.2% and 29.3%, respectively. The effective tax rate for the three and six months ended June 30, 2023 was (46.3%) and (35.5%), respectively. The tax rate for the six months ended June 30, 2024 was largely impacted by the earnings mix of jurisdictions subject to tax for the period and items discrete to the quarter. The tax rate for the three and six months ended June 30, 2023 was largely impacted by the reversal of net deferred tax liabilities attributable to Core Laboratories N.V., which were not realized following the Redomestication Transaction on May 1, 2023.

Previous wording

Revenue from the Reservoir Description operating segment of $84.2 million for the three months ended March 31, 2024 increased 5% year-over-year and was flat sequentially. The year-over-year increase was primarily due to growth in activity levels in both international and U.S. markets. Growth in reservoir rock and fluid analysis in both international and U.S. markets offset typical seasonal decline and delayed project revenue caused by the fire in our United Kingdom facility. The Company holds insurance policies for both property damage and business interruption, which has minimized the loss to the Company associated with the fire. Sequentially, the increase in demand for our reservoir rock and fluid analysis services on international projects was offset by disruptions caused by the on-going geopolitical conflicts and lower revenue associated with the sale of manufactured laboratory equipment.

Current wording

Revenue from the Reservoir Description operating segment of $86.3 million for the three months ended June 30, 2024 increased 3% year-over-year and 2% sequentially. The year-over-year increase was primarily due to growth in reservoir rock and fluid analysis in both international and U.S. markets. The growth was partially offset by a decline in crude-assay analysis services in certain regions impacted by the on-going geopolitical conflicts and delayed reservoir rock and fluids analysis projects caused by the fire in our Aberdeen, United Kingdom facility in February 2024. The Company holds insurance policies for both property damage and business interruption, which has minimized the loss to the Company associated with the fire.

Previous wording

Production Enhancement operations are largely focused on complex completions in unconventional oil and gas reservoirs in the U.S. as well as conventional projects across the globe. U.S. onshore drilling and completion activities typically experience a seasonal decline at end of the year with activity levels increasing at the beginning of the year. Average rig count in the U.S. land market for the three months ended March 31, 2024, was down by 19% year-over-year and remained flat sequentially. International drilling and completion activities continued to improve year-over-year, which increased by 5%, however remained flat sequentially.

Current wording

Production Enhancement operations are largely focused on complex completions in unconventional oil and gas reservoirs in the U.S. as well as conventional projects across the globe. U.S. onshore drilling and completion activities typically experience a seasonal decline at end of the year with activity levels increasing at the beginning of the year. Average rig count in the U.S. land market for the three months ended June 30, 2024, was down by 17% year-over-year and 3% sequentially. International drilling and completion activities remained flat year-over-year and sequentially.

Previous wording

Revenue from the Production Enhancement operating segment of $45.4 million for the three months ended March 31, 2024, decreased 6% year-over-year and increased 4% sequentially. Year-over-year, revenue decreased primarily due to lower product sales in the U.S. market as a result of lower U.S. onshore activity, however this was partially offset by strong growth in well completion diagnostic services. Sequentially, the increase was primarily driven by strong growth in well completion diagnostic services and product sales to the U.S. markets, partially offset by fewer bulk sales in the international market.

Current wording

Revenue from the Production Enhancement operating segment of $44.3 million for the three months ended June 30, 2024, remained flat year-over-year and decreased 2% sequentially. Year-over-year, growth in well completion diagnostic services was substantially offset by a lower level of bulk sales in the international markets. Bulk sales to international markets may vary from one quarter to another quarter. Sequentially, product sales to the U.S onshore markets increased, however this was offset by lower product sales in Canada and bulk sales to international markets. Additionally, well diagnostic services to the U.S. onshore market decreased slightly during the three months ended June 30, 2024.

Previous wording

We are a holding company incorporated in Delaware. Therefore, we conduct substantially all of our operations through our subsidiaries. Our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us and on the terms and conditions of our existing and future credit arrangements. There are no restrictions preventing any of our subsidiaries from repatriating earnings, except for the unrepatriated earnings of our Russian subsidiary which are not expected to be distributed in the foreseeable future, and there are no restrictions or income taxes associated with distributing cash to the parent company through loans or advances. As of March 31, 2024, $13.6 million of our $14.9 million of cash was held by our foreign subsidiaries.

Current wording

We are a holding company incorporated in Delaware. Therefore, we conduct substantially all of our operations through our subsidiaries. Our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us and on the terms and conditions of our existing and future credit arrangements. There are no restrictions preventing any of our subsidiaries from repatriating earnings, except for the unrepatriated earnings of our Russian subsidiary which are not expected to be distributed in the foreseeable future, and there are no restrictions or income taxes associated with distributing cash to the parent company through loans or advances. As of June 30, 2024, $15.7 million of our $17.7 million of cash was held by our foreign subsidiaries.

Previous wording

Comparing the three months ended March 31, 2024 to the same period in the prior year, cash flows provided by operating activities improved to $5.5 million in 2024 compared to cash used in operating activities of $3.2 million in the same period 2023. Net income was $1.0 million higher in 2024, and the Company improved its levels of working capital associated with inventory.

Current wording

Comparing the six months ended June 30, 2024 to the same period in the prior year, cash flows provided by operating activities improved to $22.7 million in 2024 compared to $5.6 million in the same period 2023. The Company improved its working capital by lowering its level of inventory and accounts payable during the six months ended June 30, 2024.

Previous wording

Cash flows used in investing activities for the three months ended March 31, 2024 of $1.7 million were driven primarily by funding capital expenditures of $3.1 million offset by proceeds on the sale of assets of $0.6 million and proceeds on company owned life insurance policies of $0.8 million. Cash flows used in investing activities for the three months ended March 31, 2023 of $2.0 million were driven primarily by funding capital expenditures of $2.2 million.

Current wording

Cash flows used in investing activities for the six months ended June 30, 2024 of $2.3 million were driven primarily by funding capital expenditures of $5.9 million offset by proceeds on the sale of assets of $0.8 million and proceeds on company owned life insurance policies of $2.8 million. Cash flows used in investing activities for the six months ended June 30, 2023 of $0.8 million were driven primarily by funding capital expenditures of $4.4 million offset by proceeds on company owned life insurance policies of $3.4 million.

Previous wording

Cash flows used in financing activities for the three months ended March 31, 2024 of $4.1 million includes a $3.0 million net reduction in long-term debt, quarterly dividends of $0.5 million and $0.6 million associated with the Redomestication Transaction. Cash flows provided by financing activities for the three months ended March 31, 2023 of $6.1 million includes drawdowns on our Credit Facility of $8.0 million, offset by quarterly dividend payments of $0.5 million and $1.3 million associated with the Redomestication Transaction.

Current wording

Cash flows used in financing activities for the six months ended June 30, 2024 of $17.8 million includes a $16.0 million net reduction in long-term debt, quarterly dividends of $0.9 million and $0.6 million associated with the Redomestication

Previous wording

During the three months ended March 31, 2024, we repurchased 2,845 shares of our common stock to satisfy personal tax liabilities of participants in our stock-based compensation plan for an aggregate purchase price of $44 thousand.

Current wording

During the six months ended June 30, 2024, we repurchased 12,912 shares of our common stock to satisfy personal tax liabilities of participants in our stock-based compensation plan for an aggregate purchase price of $0.2 million.

Previous wording

Free cash flow for the three months ended March 31, 2024 was $2.5 million, compared to negative $5.4 million for the same period in 2023. The cash used in operating activities during the three months ended March 31, 2023 was primarily associated with an increase in inventory and lower net income. Additionally, capital expenditures were $0.8 million higher during the three months ended March 31, 2024.

Current wording

Free cash flow for the six months ended June 30, 2024 was $16.8 million, compared to $1.2 million for the same period in 2023. The cash flows of $5.6 million provided by operating activities during the six months ended June 30, 2023, was largely impacted by an $11.2 million increase in inventory during this six-month period. Capital expenditures were $1.6 million higher during the six months ended June 30, 2024 compared to the same period in the prior year.

Previous wording

Additionally, we, along with CLIH, have a secured credit facility, the Eighth Amended and Restated Credit Agreement (as amended, the “Credit Facility”) for an aggregate borrowing commitment of $135.0 million with a $50.0 million “accordion” feature. As of March 31, 2024, the Credit Facility has an available borrowing capacity of approximately $72.2 million.

Current wording

Additionally, we, along with CLIH, have a secured credit facility, the Eighth Amended and Restated Credit Agreement (as amended, the “Credit Facility”) for an aggregate borrowing commitment of $135.0 million with a $50.0 million “accordion” feature. As of June 30, 2024, the Credit Facility has an available borrowing capacity of approximately $85.3 million.

Previous wording

In accordance with the terms of the Credit Facility, our leverage ratio is 1.76, and our interest coverage ratio is 6.27, each for the period ended March 31, 2024. We are in compliance with all covenants contained in our Credit Facility and Senior Notes as of March 31, 2024. Certain of our material, wholly owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes. See Note 7 -Long-term Debt, net of the Notes to the Interim Consolidated Financial Statements for additional information regarding the terms and financial covenants of the Senior Notes and the Credit Facility.

Current wording

In accordance with the terms of the Credit Facility, our leverage ratio is 1.66, and our interest coverage ratio is 5.94, each for the period ended June 30, 2024. We are in compliance with all covenants contained in our Credit Facility and Senior Notes as of June 30, 2024. Certain of our material, wholly owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes. See Note 7 -Long-term Debt, net of the Notes to the Interim Consolidated Financial Statements for additional information regarding the terms and financial covenants of the Senior Notes and the Credit Facility.