Core Laboratories Inc. /DE/

Previous wording

The following discussion highlights the current operating environment and summarizes the financial position of Core Laboratories Inc. and its subsidiaries as of September 30, 2024, and should be read in conjunction with the unaudited interim consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”).

Current wording

The following discussion highlights the current operating environment and summarizes the financial position of Core Laboratories Inc. and its subsidiaries as of March 31, 2025, and should be read in conjunction with (i) the unaudited interim consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”) and (ii) the audited consolidated financial statements and accompanying notes thereto included in our 2024 Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

Core Laboratories Inc. is a Delaware corporation. It was established in 1936 and is one of the world's leading providers of proprietary and patented reservoir description and production enhancement services and products to the oil and gas industry. These services and products can enable our clients to evaluate and improve reservoir performance and increase oil and gas recovery from new and existing fields. We make measurements on reservoir rocks, reservoir fluids (crude oil, natural gas and water) and their derived products. In addition, we assist clients in evaluating subsurface targets associated with carbon capture and sequestration projects or initiatives. Core Laboratories Inc. has over 70 offices in more than 50 countries and employs approximately 3,500 people worldwide.

Current wording

Core Laboratories Inc. is a Delaware corporation. It was established in 1936 and is one of the world's leading providers of proprietary and patented reservoir description and production enhancement services and products to the oil and gas industry. These services and products can enable our clients to evaluate and improve reservoir performance and increase oil and gas recovery from new and existing fields. We make measurements on reservoir rocks, reservoir fluids (crude oil, natural gas and water) and their derived products. In addition, we assist clients in evaluating subsurface targets associated with carbon capture and sequestration projects or initiatives. Core Laboratories Inc. has over 70 offices in more than 50 countries and employs approximately 3,400 people worldwide.

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, 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.

Current wording

The ongoing geopolitical conflicts between Russia and Ukraine and in the Middle East, along with associated sanctions, continue to cause disruptions to traditional maritime supply chains and the trading of crude oil and derived products, such as diesel fuel. The announcement of expanded sanctions on January 10, 2025 by the United States, disrupted and temporarily decreased the trading and maritime transportation of crude oil, along with demand for the Company's associated laboratory assay services. Demand for the laboratory assay analysis services recovered somewhat in March 2025, however these geopolitical conflicts and associated sanctions continue to create a higher level of uncertainty. 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, companies, 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 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.

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 small and large-scale projects analyzing reservoir rock and fluid samples in every major producing region of the world. Notable larger projects are in locations such as offshore South America, Australia, West Africa and the Middle East. Analysis and measurement services also occur 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 expanded in 2024 and are expected to continue expanding in 2025 and beyond.

Previous 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

Current wording

Operating Results for the Three Months Ended March 31, 2025 compared to the Three Months Ended March 31, 2024 and December 31, 2024

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 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.

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 March 31, 2025, service revenue was $95.1 million, a decrease of 1% year-over-year and sequentially. Year-over-year, the slight decrease was due to lower activity levels in the international market. Revenue was negatively impacted by the ongoing geopolitical conflicts and expanded sanctions previously discussed, which disrupted and impacted the trading and maritime transportation of crude oil and derived products, and the associated laboratory assay services the Company provides. However, these decreases were partially offset by a strong growth in well completion diagnostic services in the U.S. and certain international markets when compared to the same period in 2024.

Previous 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.

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. For the three months ended March 31, 2025, product sales revenue of $28.5 million decreased 14% year-over-year and 13% sequentially. The year-over-year decrease was driven by a reduction in product sales to both the U.S. and international markets. One large international order scheduled for delivery in February 2025, was suspended when the expanded sanctions were announced in January 2025. Additionally, the U.S. onshore drilling and completion activity decreased throughout 2024 and remained at these lower levels in 2025. The average U.S. land rig count for the three months ended March 31, 2025 was 5% lower when compared to the same period in 2024.

Previous wording

Sequentially, the increase was due to a higher level of bulk shipments in the international market offset by a lower level of product sales in the U.S. onshore market.

Current wording

Sequentially, the decrease was due to a lower level of bulk shipments to international markets, including the international order that was suspended, described above. However, the lower international product deliveries were partially offset by a higher level of product sales in the U.S. onshore market.

Previous 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.

Current wording

Sequentially, the slight increase in cost of services as a percentage of services revenue was primarily due to a lower revenue base in the three months ended March 31, 2025, versus the prior quarter.

Previous 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.

Current wording

Depreciation and amortization expense for the three months ended March 31, 2025, was $3.7 million compared to $3.8 million for the three months ended March 31, 2024 and $3.7 million for the three months ended December 31, 2024. The slight decrease in depreciation and amortization expense compared to the prior year period is primarily due to assets which became fully depreciated.

Previous 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.

Current wording

As a result of consolidating and exiting certain facilities in the U.S. and other international locations, we incurred a total of $0.7 million and $1.8 million associated with lease abandonment, other exit costs, and write-down of the associated leasehold improvements, right of use assets and other assets during the three months ended March 31, 2025 and 2024, respectively.

Previous 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.

Current wording

In February 2024, we had a fire incident at our Aberdeen, U.K. facility and have recorded a partial insurance settlement of $1.0 million during the three months ended March 31, 2024, associated with costs incurred and loss of income from business interruption.

Previous 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.

Current wording

The Company recorded an income tax expense of $1.7 million for the three months ended March 31, 2025 and 2024. The effective tax rate for the three months ended March 31, 2025, was 96.2% recorded on income before income taxes of $1.8 million. The effective tax rate for the three months ended March 31, 2024, was 32.2%, recorded on income before income taxes of $5.1 million. The effective tax rate for the three months ended March 31, 2025, was impacted by approximately $1.4 million of additional tax expense recorded for items discrete to the quarter. These discrete items are primarily associated with the finalization of certain tax jurisdictions’ return to provision assessments due to changes in estimates. The effective tax rate for the three months ended March 31, 2024, was impacted by the earnings mix of jurisdictions subject to tax for the period and items discrete to the quarter.

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 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.

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 March 31, 2025, was down by 5% year-over-year and relatively flat sequentially. International rig count was down over 6% year-over-year and down 2% sequentially.

Previous 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.

Current wording

Operating income of $1.5 million for the three months ended March 31, 2025, decreased slightly year-over-year, and increased $4.1 million sequentially. Operating margins for the three months ended March 31, 2025, were 4%, compared to operating margins of 3% year-over-year and (6)% sequentially. Year-over-year, the increase in operating income and margins was primarily driven by a different mix of revenue, with a higher level of service revenue that contributed to higher margins in 2025 compared to 2024, mostly offset by a higher level of corporate G&A expenses absorbed by the segment. Sequentially, the increase in operating income and margins was primarily due to 1) a strong growth in well diagnostic projects with high incremental margins; 2) certain severance costs, inventory and other related asset write-downs of approximately $4.1 million recorded in the prior quarter, compared to $0.5 million recorded in the current quarter; offset by 3) a higher level of corporate G&A expenses absorbed by the segment in the current quarter. See discussion of General and Administrative Expense, above.

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 September 30, 2024, $20.0 million of our $21.5 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 March 31, 2025, $21.2 million of our $22.1 million of cash was held by our foreign subsidiaries.

Previous wording

The Company continues to maintain the quarterly dividend of $0.01 per share.

Current wording

The Company maintains the quarterly dividend of $0.01 per share.

Previous 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.

Current wording

Comparing the three months ended March 31, 2025 to the same period in the prior year, cash flows provided by operating activities improved to $6.7 million in 2025 compared to $5.5 million in the same period 2024. The Company’s working capital improved primarily due to effectiveness in leveraging credit terms on accounts payable.

Previous 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.

Current wording

Cash flows provided by investing activities for the three months ended March 31, 2025 of $0.8 million were primarily driven by proceeds on the sale of assets of $1.2 million and proceeds from insurance recovery associated with the fire incident at the Aberdeen, U.K. facility of $3.1 million, offset by capital expenditures of $3.6 million, which includes $0.8 million related to the replacement of assets damaged in the fire incident. 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 net proceeds on company owned life insurance policies of $0.8 million.

Previous 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.

Current wording

Cash flows used in financing activities for the three months ended March 31, 2025 of $4.5 million include a $2.0 million net reduction in long-term debt, $0.5 million for quarterly dividends and $2.0 million for the repurchase of common stock. Cash flows provided by financing activities for the three months ended March 31, 2024 of $4.1 million were primarily driven by a $3.0 million net reduction in long-term debt, $0.5 million for quarterly dividends and $0.5 million in costs associated with equity transactions.

Previous 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.

Current wording

During the three months ended March 31, 2025, we repurchased 131,598 shares of our common stock for $2.0 million, including rights to 2,123 shares of our common stock to satisfy personal tax liabilities of participants in our stock-based compensation plan for an aggregate purchase price of $32 thousand.

Previous 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.

Current wording

Free cash flow for the three months ended March 31, 2025, increased $1.4 million from $2.5 million for the same period in 2024. The net cash provided by operating activities of $6.7 million during the three months ended March 31, 2025, was primarily driven by effectiveness in leveraging credit terms on accounts payable. Capital expenditures, excluding capital expenditures of $0.8 million associated with the Aberdeen, U.K. fire incident that were recovered from insurance proceeds, were $0.3 million lower during the three months ended March 31, 2025 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 September 30, 2024, the Credit Facility has an available borrowing capacity of approximately $92.1 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 March 31, 2025, the Credit Facility has an available borrowing capacity of approximately $108.0 million.

Previous 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.

Current wording

In accordance with the terms of the Credit Facility, our leverage ratio is 1.31, and our interest coverage ratio is 6.86, each for the period ended March 31, 2025. We are in compliance with all covenants contained in our Credit Facility and Senior Notes as of March 31, 2025. 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.