Core Laboratories Inc DE

Previous wording

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see Part II, “Item 1A - Risk Factors” of this Quarterly Report and “Item 1A - Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed by us with the SEC.

Current wording

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see Part II, “Item 1A - Risk Factors” of this Quarterly Report and “Item 1A - Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed by us with the Securities and Exchange Commission (“SEC”).

Previous wording

Currently, global oil inventories are low relative to historical levels, and with continued supply restrictions from the Organization of the Petroleum Exporting Countries (“OPEC+”), global supply is expected to remain tight relative to forecasted growth in oil demand for the next few years. During the last couple of years, OPEC+ and its key member, Saudi Arabia, announced several mandatory and voluntary reductions in production that continue to remain in place and are aimed at supporting the stability of the oil market.

Current wording

Currently, global oil inventories are low relative to historical levels, and with continued supply restrictions from the Organization of the Petroleum Exporting Countries (“OPEC+”), global supply is expected to be managed and maintained at a level to meet forecasted growth in oil demand for the next few years. During the last couple of years, OPEC+ and its key member, Saudi Arabia, announced several mandatory and voluntary reductions in production that are expected to remain in place through November 2024, after which, the cuts will be phased out on a monthly basis as scheduled starting December 1, 2024, stretching to November 2025, with the flexibility to pause or reverse the adjustments as necessary.

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 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 continue increasing in 2024, 2025 and beyond. 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 or disruptions to supply occur. In 2023, capital spending towards the exploration of crude oil and natural gas reached its highest level in over a decade with modest growth in 2024 and additional growth expected in 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

The ongoing geopolitical conflicts between Russia and Ukraine and in the Middle East continue to cause disruptions to traditional maritime supply chains and the trading of crude oil and derived products, such as diesel fuel. The maritime supply chains associated with the movement of crude oil have continued to realign and stabilize throughout 2023 and in 2024, which has reduced some of the volatility in crude-oil prices and disruptions to our operations. Core Lab expects crude-oil supply lines to remain more stable, and the Company's volume of associated laboratory services to be commensurate with the trading and movement of crude-oil into Europe, the Middle East, Asia and across the globe. The United States, the European Union, the United Kingdom and other countries continue to expand sanctions, export controls and other measures against Russia, Belarus and other countries, regions, officials, individuals or industries in the respective territories, which may have further impact on the trading and movement of crude oil and derived products. We have no way to predict the progress or outcome of these events, and any resulting government responses are fluid and beyond our control.

Current wording

The ongoing geopolitical conflicts between Russia and Ukraine and in the Middle East continue to cause disruptions to traditional maritime supply chains and the trading of crude oil and derived products, such as diesel fuel. The maritime supply chains associated with the movement of crude oil have continued to realign and stabilize throughout 2023 and in 2024, which has reduced some of the volatility in crude-oil prices and disruptions to our operations. Core Lab expects crude-oil supply lines to remain more stable, and the Company's volume of associated laboratory services to be commensurate with the trading and movement of crude-oil into Europe, the Middle East, Asia and across the globe. The United States, the European Union, the United Kingdom and other countries continue to expand sanctions, export controls and other measures against Russia, Belarus, Iran and other countries, officials, individuals or industries in the respective territories, which may have further impact on the trading and movement of crude oil and derived products. We have no way to predict the progress or outcome of these events, and any resulting government responses are fluid and beyond our control.

Previous wording

We continue to focus on large-scale core analyses and reservoir fluids characterization studies in most oil-producing regions across the globe, which include both newly developed fields and brownfield extensions in many offshore developments in both the U.S. and internationally. In the U.S. we are involved in projects in many of the onshore unconventional basins and offshore projects in the Gulf of Mexico. Outside the U.S. we continue to work on many smaller and large-scale projects analyzing crude oil and derived products in every major producing region of the world. Notable larger projects are in locations such as Guyana and Suriname located offshore South America, Australia, Southern Namibia and the Middle East. Analysis and measurement of crude oil derived products also occurs in every major producing region of the world. Additionally, some of our major clients have increased their investment in projects to capture and sequester CO2. The Company’s activities on these projects have expanded and are expected to continue expanding in 2024 and beyond.

Current wording

We continue to focus on large-scale core analyses and reservoir fluids characterization studies in most oil-producing regions across the globe, which include both newly developed fields and brownfield extensions in many offshore developments in both the U.S. and internationally. In the U.S. we are involved in projects with many of the onshore unconventional basins and offshore projects in the Gulf of Mexico. Outside the U.S. we continue to work on many smaller and large-scale projects analyzing crude oil and derived products in every major producing region of the world. Notable larger projects are in locations such as Guyana and Suriname, located offshore South America, Australia, Southern Namibia and the Middle East. Analysis and measurement of crude oil derived products also occurs in every major producing region of the world. Additionally, some of our major clients have increased their investment in projects to capture and sequester carbon dioxide (“CO2”). The Company’s activities on these projects have expanded and are expected to continue expanding in 2024 and beyond.

Previous 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

Current wording

Operating Results for the Three Months Ended September 30, 2024 compared to the Three Months Ended September 30, 2023 and June 30, 2024 and for the Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 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 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.

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 September 30, 2024, service revenue was $98.8 million, an increase of 6% year-over-year and 3% 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 several international regions showed improvement when compared to the prior year. Additionally, well completion diagnostic services in the U.S. market showed strong growth in 2024 when compared to the same period in 2023. The growth in revenue continues to be negatively impacted by the on-going geopolitical conflicts previously discussed and delays of well diagnostic projects in the Gulf of Mexico caused by multiple hurricanes during the three months ended September 30, 2024.

Previous wording

For the six months ended June 30, 2024, service revenue was $192.8 million, an increase of 5% compared to the same period in the prior year, driven by increases in both international and U.S. activity discussed above.

Current wording

For the nine months ended September 30, 2024, service revenue was $291.7 million, an increase of 5% compared to the same period in the prior year, driven by increases in both international and U.S. activity, as well as strong growth in well completion diagnostic services in the U.S., as discussed above.

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 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.

Current wording

Product sales are primarily tied to supporting the U.S. onshore drilling and completion activities and bulk product sales to international markets. Product sales to international markets are typically sold and shipped in bulk and revenue can vary from one quarter to another. The average U.S. land rig count for the three months ended September 30, 2024 was 10% lower when compared to the same period in 2023, U.S. onshore drilling and completion activities continue to decline during the three months ended September 30, 2024. For the three months ended September 30, 2024, product sales revenue of $35.6 million increased 10% year-over-year and 4% sequentially. The year-over-year growth in product sales was driven primarily by a larger volume of bulk shipments to international markets partially offset by lower level of product sales in the U.S. onshore market during the three months ended September 30, 2024.

Previous wording

For the six months ended June 30, 2024, product sales revenue was $67.4 million, and decreased 6% compared to the same period in the prior year, primarily due to decreased sales in both the U.S. and international markets. Additionally, we had lower sales of laboratory equipment when compared to the same quarter in the prior year.

Current wording

For the nine months ended September 30, 2024, product sales revenue was $102.9 million, and decreased 1% compared to the same period in the prior year, primarily due to decreased sales in the U.S. onshore market as discussed above.

Previous 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.

Current wording

Cost of services was $75.5 million for the three months ended September 30, 2024, an increase of 9% year-over-year and 1% sequentially. Cost of services expressed as a percentage of service revenue was 76% for the three months ended September 30, 2024, compared to 74% for the same period in the prior year, and 78% 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 higher operating costs as a result of additional costs incurred due to the fire incident at one of our U.K. facilities. The additional costs and loss of income from business interruption were substantially covered by insurance proceeds recorded in Other (income) expense, net.

Previous wording

Sequentially, the increase in cost of services as a percentage of services revenue was primarily due to a slightly different mix of services provided in the three months ended June 30, 2024, versus the prior quarter.

Current wording

Sequentially, the improvement in cost of services as a percentage of services revenue was primarily due to the improved utilization of our global laboratory network with a higher revenue base and a slightly different mix of services provided in the three months ended September 30, 2024, versus the prior quarter.

Previous wording

For the six months ended June 30, 2024, cost of services was $148.7 million, an increase of 5% compared to the same period in the prior year. Cost of services expressed as a percentage of service revenue remained flat compared to the same period in the prior year. Although utilization of our global laboratory network has improved with higher revenue, these efficiency gains have been offset by the impact of inflation on our employee compensation and operating costs.

Current wording

For the nine months ended September 30, 2024, cost of services was $224.2 million, an increase of 6% compared to the same period in the prior year. Cost of services expressed as a percentage of service revenue remained relatively flat compared to the same period in the prior year. Although utilization of our global laboratory network has improved with higher revenue, these efficiency gains have been offset by the impact of higher employee compensation and operating costs as discussed above.

Previous 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.

Current wording

For the nine months ended September 30, 2024, cost of product sales was $90.1 million, an increase of 3% compared to the same period in the prior year. Cost of product sales expressed as a percentage of product sales revenue was 88% for the nine months ended September 30, 2024, compared to 84% for 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 and other factors as discussed above.

Previous wording

The G&A expense for the three months ended June 30, 2024, increased by $0.9 million associated with implementation costs of a global human capital management system and a third-party assessment of the Company’s IT cybersecurity environment.

Current wording

G&A expense for the three months ended September 30, 2024, was $8.6 million, which decreased $0.8 million compared to the same period in 2023. The year-over-year decrease was primarily due to a $1.9 million reversal of stock compensation expense previously recognized, as the performance targets levels were determined to be unachievable for certain awards vesting in 2024. The decrease in this compensation cost was partially offset by implementation costs of a global human capital management system and a third-party assessment of the Company’s IT cybersecurity environment initiated in 2024.

Previous wording

G&A expense for the three months ended June 30, 2024, of $10.3 million decreased $1.5 million when compared to the $11.8 million for the three months ended March 31, 2023. The sequential decrease of $1.5 million in G&A expense was primarily associated with:

Current wording

G&A expense for the three months ended September 30, 2024, of $8.6 million decreased $1.6 million compared to the three months ended June 30, 2024. The sequential decrease of $1.6 million in G&A expense was primarily due to the reversal of stock compensation expense discussed above partially offset by changes in other employee compensation costs.

Previous 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.

Current wording

Depreciation and amortization expense for the three months ended September 30, 2024, was $3.7 million, a decrease of 6% year-over-year and 2% sequentially. Depreciation and amortization expense for the nine months ended September 30, 2024, was $11.3 million, a decrease of 5% 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 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.

Current wording

During the nine months ended September 30, 2024 and 2023, we abandoned certain leases in the U.S. and Canada and incurred lease abandonment and other exit costs of $0.7 million and $1.1 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 $1.1 million were abandoned and expensed during the nine months ended September 30, 2024 and 2023, respectively. Amounts related to the three months ended September 30, 2023, were $0.5 million for lease abandonment and other exit costs and $0.1 million for assets write-down.

Previous 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.

Current wording

In February 2024, we had a fire incident at one of our U.K. facilities and have recorded partial insurance settlements of $3.2 million and $5.6 million during the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2024, amounts associated with costs incurred and loss of income from business interruption were $1.1 million and $3.5 million, respectively, and amounts associated with damage to property, plant and equipment were $2.1 million and $2.1 million, respectively.

Previous wording

Interest expense for the three months ended June 30, 2024 was $3.2 million relatively flat year-over-year and down slightly compared to $3.4 million in the prior quarter. The Company retired $75.0 million of senior notes on September 30, 2023, which carried a fixed interest rate of 4.11%. These senior notes were partially refinanced with $60 million of new senior notes which carry fixed interest rates of 7.25% and 7.50%. Although the total debt of the Company has been reduced, the current debt carries a higher blended interest rate. Sequentially, the decrease was primarily due to lower average borrowings on our bank revolving credit facility during the three months ended June 30, 2024. Interest expense for the six months ended June 30, 2024 was $6.6 million compared to $6.7 million for the six months ended June 30, 2023, primarily due to the changes in borrowings and the associated interest rates, as discussed above.

Current wording

Interest expense for the three months ended September 30, 2024 was $3.1 million relatively flat year-over-year and down 3% compared to the prior quarter. The Company retired $75.0 million of senior notes on September 30, 2023, which carried a fixed interest rate of 4.11%. These senior notes were partially refinanced with $50 million of new senior notes which carry fixed interest rates of 7.25% and 7.50%. Although the total debt of the Company has been reduced, the current debt carries a higher blended interest rate. Sequentially, the decrease was primarily due to lower average borrowings on our bank revolving credit facility during the three months ended September 30, 2024. Interest expense for the nine months ended September 30, 2024 was $9.7 million compared to $9.8 million for the nine months ended September 30, 2023, primarily due to the changes in borrowings and the associated interest rates, as discussed above.

Previous 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.

Current wording

The Company recorded an income tax expense of $4.7 million and $10.0 million for the three and nine months ended September 30, 2024, respectively, compared to an income tax expense of $2.3 million and an income tax benefit of $4.3 million for the three months and nine months ended September 30, 2023, respectively. The effective tax rate for the three and nine months ended September 30, 2024, was 28.1% and 28.8%, respectively. The effective tax rate for the three and nine months ended September 30, 2023 was 20.0% and (14.4%), respectively. The tax rate for the three and nine months ended September 30, 2024 was impacted by the earnings mix of jurisdictions subject to tax for the period and items discrete to the quarter. The tax rate for the nine months ended September 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 $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.

Current wording

Revenue from the Reservoir Description operating segment of $88.8 million for the three months ended September 30, 2024 increased 4% year-over-year and 3% sequentially. The year-over-year increase was primarily due to growth in reservoir rock and fluid analysis projects in the international market and higher demand for crude-assay analysis services in certain regions. These increases continue to be negatively impacted by the on-going geopolitical conflicts previously discussed and delays in fluids analysis projects caused by the hurricanes in the Gulf of Mexico during the current quarter.

Previous wording

Sequentially, the increase in revenue is associated with a slightly elevated level of activity in reservoir rock and fluid analysis for international projects, as well as increased revenue associated with the sale of laboratory equipment. The increase in revenue was partially offset by disruptions caused by the on-going geopolitical conflicts as discussed above.

Current wording

Sequentially, the increase in revenue is associated with a slightly elevated level of activity in reservoir rock and fluid analysis for international projects, as well as increased revenue associated with crude-assay analysis services. These increases were partially offset by lower sales of laboratory equipment and delays in fluids analysis projects caused by the hurricanes in the Gulf of Mexico during the current quarter.

Previous wording

Revenue from the Reservoir Description segment of $170.5 million for the six months ended June 30, 2024 increased 4% from the same period in 2023. The increase in revenue during 2024 is primarily due to growth in activity levels on international projects for reservoir rock and fluid analysis services, particularly the South America and Middle East, and improvement in the level of some crude-assay services in Europe. The growth in revenue was partially offset by delayed project revenue caused by the fire in our Aberdeen facility as discussed above.

Current wording

Revenue from the Reservoir Description segment of $259.4 million for the nine months ended September 30, 2024 increased 4% from the same period in 2023. The increase in revenue during 2024 is primarily due to growth in activity levels on international projects for reservoir rock and fluid analysis services, particularly the Middle East and Asia Pacific, and improvement in the level of some crude-assay analysis services in the Europe and Africa regions. The growth in revenue was partially offset by delayed project revenue caused by the fire incident at one of our U.K. facilities as discussed above. 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

Operating income of $11.4 million for the three months ended June 30, 2024, decreased $1.9 million, year-over-year and increased $4.6 million sequentially. Operating margins were 13% for the three months ended June 30, 2024, compared to 16% year-over-year, and 8% sequentially. Year-over-year, the decrease in operating income and operating margins was primarily attributable to higher employee compensation and operating expenses. Sequentially, the increase in operating income and operating margins was primarily due to 1) incremental revenue in the three months ended June 30, 2024; and 2) a lower level of Corporate G&A expenses absorbed in the segment. See discussion of General and Administrative Expenses, above. Operating income of $18.3 million for the six months ended June 30, 2024, increased $2.5 million year-over-year compared to the same period in 2023. The increase in operating income is primarily driven by incremental revenue of $6.9 million year-over-year.

Current wording

Operating income of $16.5 million for the three months ended September 30, 2024, increased $3.5 million, year-over-year and $5.0 million sequentially. Operating margins were 19% for the three months ended September 30, 2024, compared to 15% year-over-year, and 13% sequentially. Year-over-year, the increase in operating income and operating margins was primarily attributable to the improved utilization of our global laboratory network with higher revenue base, and some insurance proceeds received in the current quarter to recover losses previously absorbed from the fire in the Aberdeen facility. These improvements were partially offset by higher employee compensation and operating expenses. Sequentially, the increase in operating income and operating margins was primarily due to 1) incremental revenue in the three months ended September 30, 2024; 2) gain on insurance recovery of losses absorbed in previous quarters from the fire, and 3) a lower level of Corporate G&A expenses absorbed in the segment. See discussion of General and Administrative Expense, above. Operating income of $34.8 million for the nine months ended September 30, 2024, increased $6.0 million year-over-year compared to the same period in 2023. Operating margins were 13% for the nine months ended September 30, 2024, a slight increase compared to 12% in the same period in prior year. The increase in operating income is primarily driven by incremental revenue of $10.6 million year-over-year.

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 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.

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 September 30, 2024, was down by 10% year-over-year and 3% sequentially. International rig count remained flat year-over-year and decreased 3% sequentially.

Previous 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.

Current wording

Revenue from the Production Enhancement operating segment of $45.6 million for the three months ended September 30, 2024, increased 13% year-over-year and 3% sequentially. Year-over-year, there was strong growth in well completion diagnostic services coupled with a higher level of bulk sales in the international markets. Sequentially, increased product sales to international market substantially offset by a decline in the U.S land completion activity and delayed well completion diagnostic projects in the Gulf of Mexico caused by hurricanes during the three months ended September 30, 2024.

Previous wording

Revenue from the Production Enhancement segment of $89.7 million for the six months ended June 30, 2024, decreased 3% from the same period in 2023. The decrease in revenue in 2024 is primarily due to a decline of drilling and completion activity in the U.S. land market, partially offset by growth in well completion diagnostic services in the U.S. markets.

Current wording

Revenue from the Production Enhancement segment of $135.3 million for the nine months ended September 30, 2024, increased 2% from the same period in 2023. The increased revenue in 2024 was primarily driven by strong growth in well completion diagnostic services in the U.S. markets substantially offset by lower activity and product sales into the U.S. onshore market.

Previous wording

Operating income of $4.4 million for the three months ended June 30, 2024, decreased $1.1 million year-over-year, and increased $2.8 million sequentially. Operating margins for the three months ended June 30, 2024, was 10%, compared to operating margins of 12% year-over-year and 3% sequentially. Year-over-year, the decrease in operating income and margins was primarily due to lower product sales to the U.S. onshore market, resulting in lost manufacturing efficiencies increasing the cost of manufacturing products. Sequentially, the increase in operating income and margins was primarily driven by benefits from cost optimization initiatives on manufacturing efficiencies initially implemented in March 2024, and a lower level of corporate G&A expenses absorbed by the segment.

Current wording

Operating income of $3.2 million for the three months ended September 30, 2024, increased $1.7 million year-over-year, and decreased $1.2 million sequentially. Operating margins for the three months ended September 30, 2024, were 7%, compared to operating margins of 4% year-over-year and 10% sequentially. Year-over-year, the increase in operating income and margins was primarily driven by a higher level of service revenue that contributed to higher margins in 2024 compared to 2023, and a lower level of corporate G&A expenses absorbed by the segment. Sequentially, the decrease in operating income and margins was primarily due to delayed well diagnostic projects with high decremental margins caused by the hurricanes in the Gulf of Mexico during the three months ended September 30, 2024 although a lower level of corporate G&A expenses was absorbed by the segment.

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 June 30, 2024, $15.7 million of our $17.7 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 September 30, 2024, $20.0 million of our $21.5 million of cash was held by our foreign subsidiaries.

Previous 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.

Current wording

Comparing the nine months ended September 30, 2024 to the same period in the prior year, cash flows provided by operating activities improved to $35.8 million in 2024 compared to $5.4 million in the same period 2023. The Company improved its overall working capital primarily by lowering its level of inventory during the nine months ended September 30, 2024.

Previous 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.

Current wording

Cash flows used in investing activities for the nine months ended September 30, 2024 of $2.8 million were primarily driven by funding capital expenditures of $8.6 million offset by proceeds on the sale of assets of $0.9 million, net proceeds of $2.1 million from insurance recovery associated with the fire incident earlier in the year at one of the U.K. facilities and proceeds on company owned life insurance policies of $2.8 million. Cash flows used in investing activities for the nine months ended September 30, 2023 of $4.2 million were driven primarily by funding capital expenditures of $7.8 million offset by proceeds on company owned life insurance policies of $3.4 million.

Previous 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

Current wording

Cash flows used in financing activities for the nine months ended September 30, 2024 of $26.6 million includes a $24.0 million net reduction in long-term debt, quarterly dividends of $1.4 million and $0.8 million costs associated with the Redomestication Transaction. Cash flows provided by financing activities for the nine months ended September 30, 2023 were nominal and primarily driven by a $6.0 million net increase in long-term debt, and $1.3 million of debt issuance costs associated with the new senior notes issued in July 2023. Additionally, we paid quarterly dividends of $1.4 million and incurred $2.8 million in costs associated with the Redomestication Transaction.

Previous 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.

Current wording

During the nine months ended September 30, 2024, we repurchased 21,458 shares of our common stock to satisfy personal tax liabilities of participants in our stock-based compensation plan for an aggregate purchase price of $0.4 million.

Previous wording

We utilize the non-GAAP financial measure of free cash flow to evaluate our cash flows and results of operations. Free cash flow is defined as net cash provided by operating activities (which is the most directly comparable GAAP measure) less cash paid for capital expenditures. Management believes that free cash flow provides useful information to investors regarding the cash available in the period that was in excess of our needs to fund our capital expenditures and operating activities. Free cash flow is not a measure of operating performance under GAAP and should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. Free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure. Moreover, since free cash flow is not a measure determined in accordance with GAAP and thus is susceptible to varying interpretations and calculations, free cash flow as presented, may not be comparable to similarly titled measures presented by other companies. The following table reconciles this non-GAAP financial measure to the most directly comparable measure calculated and presented in accordance with GAAP (in thousands):

Current wording

We utilize the non-GAAP financial measure of free cash flow to evaluate our cash flows and results of operations. Free cash flow is defined as net cash provided by operating activities (which is the most directly comparable GAAP measure) less cash paid for capital expenditures. Management believes that free cash flow provides useful information to investors regarding the cash available in the period that was in excess of our needs to fund our capital expenditures and operating activities. Free cash flow is not a measure of operating performance under GAAP and should not be considered in isolation nor construed as an alternative to operating income, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. Free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure. Moreover, since free cash flow is not a measure determined in accordance with GAAP and thus is susceptible to varying interpretations and calculations, free cash flow as presented, may not be comparable to similarly titled measures presented by other companies. The following table reconciles this non-GAAP financial measure to the most directly comparable measure calculated and presented in accordance with GAAP (in thousands):

Previous 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.

Current wording

Free cash flow for the nine months ended September 30, 2024 increased $27.1 million, compared to a decrease of $2.5 million for the same period in 2023. The net cash provided by operating activities of $35.8 million during the nine months ended September 30, 2024, was primarily driven by improvement in overall working capital with a significant reduction in inventory levels during this nine-month period. Capital expenditures were $0.8 million higher during the nine months ended September 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 June 30, 2024, the Credit Facility has an available borrowing capacity of approximately $85.3 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 September 30, 2024, the Credit Facility has an available borrowing capacity of approximately $92.1 million.

Previous 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.

Current wording

In accordance with the terms of the Credit Facility, our leverage ratio is 1.47, and our interest coverage ratio is 6.13, each for the period ended September 30, 2024. We are in compliance with all covenants contained in our Credit Facility and Senior Notes as of September 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.