NYSE:CLB Core Laboratories Q4 2023 Earnings Report $12.26 -0.07 (-0.58%) As of 10:06 AM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Core Laboratories EPS ResultsActual EPS$0.19Consensus EPS $0.20Beat/MissMissed by -$0.01One Year Ago EPS$0.23Core Laboratories Revenue ResultsActual Revenue$128.21 millionExpected Revenue$127.80 millionBeat/MissBeat by +$410.00 thousandYoY Revenue GrowthN/ACore Laboratories Announcement DetailsQuarterQ4 2023Date1/31/2024TimeAfter Market ClosesConference Call DateThursday, February 1, 2024Conference Call Time8:30AM ETUpcoming EarningsCore Laboratories' Q2 2025 earnings is scheduled for Wednesday, July 23, 2025, with a conference call scheduled on Thursday, July 24, 2025 at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Earnings HistoryCompany ProfilePowered by Core Laboratories Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 1, 2024 ShareLink copied to clipboard.There are 6 speakers on the call. Operator00:00:00Good morning, and welcome to the CORE Laboratories 4th Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Larry Bruno, Chairman and CEO. Please go ahead. Speaker 100:00:42Thanks, Andrea. Good morning in the Americas. Good afternoon in Europe, Africa and the Middle East, and good evening in Asia Pacific. We'd like to welcome all of our shareholders, analysts and most importantly, our employees to Core Laboratories' 4th quarter 2023 earnings call. This morning, I'm joined by Chris Hill, Core's Chief Financial Officer and Gwen Gresham, Core's Senior Vice President and Head of Investor Relations. Speaker 100:01:06The call will be divided into 6 segments. Gwen will start by making remarks regarding forward looking statements. We'll then have some opening comments, a high level review of important factors in Core's Q4 performance. In addition, we'll review Core's strategies are the 3 financial tenets that the company employs to build long term shareholder value. Chris will then give a detailed financial overview and have additional comments regarding shareholder value. Speaker 100:01:32Following Chris, Gwen will provide some comments on the company's outlook and guidance. I'll then review Core's 2 operating segments, detailing our progress and discussing the continued successful introduction and deployment of Core Lab's technologies as well as highlighting some of Core's operations and major projects worldwide. Then we'll open the phones for a Q and A session. I'll now turn the call over to Gwen for remarks on forward looking statements. Speaker 200:01:58Before we start the conference this morning, I'll mention some of the statements we'll make during this call may projections, estimates and other forward looking information. This would include any discussion of the company's business outlook. These types of forward looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from our forward looking statements. These risks and uncertainties are discussed in our most recent annual report on Form 10 ks as well as other reports and registration statements filed by us with the SEC. We undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Speaker 200:02:43Our comments also include non GAAP financial measures. Reconciliation to those directly comparable GAAP financial measures is included in the press release announcing our 4th quarter results. These non GAAP measures can also be found on our website. With that said, I'll pass the discussion back to Larry. Speaker 100:03:03Thanks, Gwen. Moving now to some high level comments about the Q4 of 2023. Core continued to build on the operational momentum established over the past few quarters. Revenue was up 2% compared to Q3. Softness in U. Speaker 100:03:18S. Land completion activity late in the quarter, Along with disruptions to the demand for crude oil assay work in response to the Middle East conflict that emerged in Q4 produced headwinds. Offsetting those headwinds, we saw continued improvement in the demand for reservoir core and fluid analysis, and there was a rebound in both international product sales and the demand for completion diagnostic services for production enhancement compared to the Q3. Ex items, operating income for the 4th quarter was 15,000,000 operating margins were 12%, down slightly from 13% in Q3 of 2023. 4th quarter 2023 operating margins, ex items, remained strong in Reservoir Description at 15%, although were down from 17% Q3 due to increased labor costs. Speaker 100:04:09As noted, demand for reservoir rock and fluid analysis across our global client base continues to rise And more projects are progressing from the planned and committed phase and into the early stages of execution. Demand for reservoir description assay work on crude oil and derived products was somewhat uneven during the Q4 as geopolitical Conflicts in both Ukraine and the Middle East impacted maritime hydrocarbon cargo movement and trading patterns. We anticipate volatility and uncertainties to remain in the demand for these laboratory services as these conflicts continue. Production enhancement revenue, Operating income and margins all improved sequentially, but U. S. Speaker 100:04:51Land completion activity, particularly in December, was below our earlier expectations. For Q4, operating margins and Production Enhancement ex items were 6%, up from 4% in Q3. In line with our stated financial strategy, Core dedicated free cash to reducing debt by $15,000,000 in the 4th quarter, Accounting for approximately 8% of our outstanding debt balance, we will continue to focus free cash on reducing debt and strengthening our balance sheet. Lastly, for the full company, EPS was $0.19 per share ex items compared to $0.22 in Q3, reflecting both increased labor costs and higher interest expense in Q4. As we look ahead, Core will continue to execute on its key strategic objectives by: 1, introducing new product and service offerings in key geographic markets 2, maintaining a lean and focused organization and 3, maintaining our commitment to delevering the company. Speaker 100:05:52We achieved strong quarter over quarter improvements in cash from operations and free cash flow. In the Q4, our leverage ratio was reduced to 1.76, the lowest level since Q2 of 2019 and a meaningful step in strengthening our balance sheet and advancing to our stated goal of achieving a leverage ratio of 1.5 times or lower. As we continue to reduce debt, Core will also review various options for returning value to our shareholders through the use of excess free cash. Now to review Core Lab's strategies and the financial tenants that Core has used to build shareholder value over our 27 plus year history as a public traded company. The interest of our shareholders, clients and employees will always be well served by Core Lab's resilient culture, which relies on innovation, leveraging technology to solve problems and dedicated customer service. Speaker 100:06:43I'll talk more about some of our latest innovations in the operational review section of the call. While we navigate through the current challenges and pursue growth opportunities, the company will remain focused on its 3 long standing long term financial tenets, Those being to maximize free cash flow, maximize return on invested capital and returning excess free cash to our shareholders. Before moving on, I want to thank our employees for their dedication, loyalty and adaptability in meeting all of our client needs and for the commitment many have shown as we navigate the current challenges and prepare for more active market. I'll now turn it over to Chris for the detailed financial review. Speaker 300:07:22Thanks, Larry. Before we review the financial performance for the quarter, the guidance we gave on our last call and past calls Specifically excluded the impact of any FX gains or losses and assumed an effective tax rate of 20%. So accordingly, our discussion today excludes any foreign exchange gain or loss for current and prior periods. So now looking at the income statement, Revenue was $128,200,000 in the 4th quarter, up 2% compared to the prior quarter and flat year over year. Activity associated with international upstream projects and product sales to international clients continues to expand. Speaker 300:08:00However, the growth was partially offset by lower level of product sales in the U. S. Land market. Additionally, laboratory associated with crude assay analysis have been adversely impacted in certain regions due to the ongoing conflicts in Ukraine, Russia and the Middle East causing disruptions to the trading and maritime movement of crude oil. Of this revenue, service revenue which is more international was $94,700,000 for the quarter, up 2% sequentially and up 6% from last year. Speaker 300:08:33During the quarter committed work volumes for traditional reservoir rock and fluid analysis as well as carbon capture and storage projects continue to build across our global laboratory network. Additionally, we experienced nice sequential growth in revenue from our well and completion diagnostic services associated with both international and Gulf of Mexico projects. However, sequential growth in service revenue was partially offset by lower levels of crude assay work due to these disruptions caused by the ongoing conflicts previously mentioned. For the full year of 2023, Service revenue of $371,900,000 was up over 7% compared to $347,000,000 in 2022. As Larry mentioned earlier, client activity levels associated with international upstream projects improved nicely in 2023 and are expected to continue building throughout 2024. Speaker 300:09:31Product sales, which is more equally tied to U. S. And international activity $33,500,000 for the quarter, up 3% sequentially, but down 13% from the same quarter in 2022. Product sales to international markets were up 18% sequentially with strong sales during the quarter and a couple of sales that were originally scheduled for the 3rd quarter which were delivered in the 4th quarter. Growth in international product sales was partially offset by the decrease in U. Speaker 300:10:01S. Onshore and associated U. S. Product sales during the quarter. For the full year of 2023, product sales of 100 and $7,900,000 were down a little over 3% from $142,800,000 in 2022, primarily associated with activity decline in the U. Speaker 300:10:19S. Onshore market where the onshore rig count in the U. S. Decreased by approximately 20%. Moving on to cost of services, ex items for the quarter was approximately 75% of service revenue comparable to the prior quarter and an improvement of 78% compared to the Q4 of 2022. Speaker 300:10:41Over 80% of the company's personnel support our services business, and the company implemented its annual merit cycle October 1, which increased personnel costs for the Q4. Additionally, the service side of our business has been more impacted by the geopolitical conflicts and disruptions with the associated crude assay laboratory services. However, reservoir rock and fluid analytical programs associated with international upstream projects have not been impacted by these conflicts and continue to build. Outside of the temporary disruptions, we continue to see improvements in absorption of costs and utilization of our laboratory network and anticipate additional improvement with continuing growth in service revenue. For the full year of 2023, cost services ex items was approximately 76% of service revenue, an improvement from 79% last year. Speaker 300:11:37Cost of sales ex items in the 4th quarter was 91% of revenue compared to 85% in the prior quarter. The increase this quarter is primarily due to reduced manufacturing efficiencies associated with lower U. S. Onshore sales. The company anticipates the U. Speaker 300:11:53S. Onshore activity levels will remain at similar levels for 2024. As such, we are finalizing plans to improve and manufacturing efficiencies. G and A ex items for the quarter was $8,700,000 a decrease from the prior quarter, which was $9,500,000 Full year 2023 G and A ex items was $36,600,000 compared to $39,300,000 in the full year of 2022. For 2024, we expect G and A to be approximately $40,000,000 to $44,000,000 Depreciation and amortization for the quarter was $3,900,000 flat compared to the last quarter. Speaker 300:12:34EBIT ex items for the quarter was $15,000,000 down $1,000,000 from last quarter, yielding an EBIT margin of 12%. Year over year EBIT ex items for the Q4 was relatively flat to last year. Our operating income for the 4th quarter on a GAAP basis was $14,600,000 Full year 2023 EBIT ex items was $61,200,000 up 36 percent from 44.8 $1,000,000 in 20.22. On a GAAP basis, EBIT was $54,600,000 for 2023 $41,500,000 in 2022. Interest expense of $3,600,000 increased this quarter when compared to $3,100,000 in the prior quarter. Speaker 300:13:20Despite reducing our debt by $15,000,000 during the quarter, as discussed during the last call, $75,000,000 in senior notes matured on September 30, 2023, which carried a fixed interest rate of 4.1%. We use the borrowing capacity under our credit facility to partially fund the maturity of these notes. The credit facility as a variable interest rate and currently the borrowing rate under the facility is approximately 8%. As such, our interest expense increased for the Q4 of 2023. Income tax expense at an effective tax rate of 20% and ex items was $2,300,000 for the quarter. Speaker 300:14:00On a GAAP basis, tax expense was $4,300,000 for the quarter, which was primarily impacted by an additional adjustment of deferred income taxes associated with the redomestication of our parent company from the Netherlands to the U. S. For the full year, income tax expense on a GAAP basis was a small benefit primarily due to the tax benefit of $11,600,000 associated with the redomestication transaction. The effective tax rate will continue to be somewhat sensitive to the geographic mix of earnings across the globe and the impact of items discrete to each quarter. However, we continue to project the company's effective tax rate to be approximately 20%. Speaker 300:14:41Net income items for the quarter was $8,900,000 down from $10,300,000 in the prior quarter and $9,300,000 from the same quarter last year. On a GAAP basis, we recorded net income of $6,500,000 for the quarter. For the full year 2023, Net income ex items was $37,800,000 up 42 percent from $26,600,000 last year And GAAP net income for the full year 2023 was $40,900,000 Earnings per diluted share ex items was $0.19 for the quarter, down from $0.22 in the prior quarter and $0.20 from the same quarter last year. On a GAAP basis, earnings per diluted share was 0.14 dollars for the quarter. For the full year 2023, earnings per diluted share ex items was $0.80 up 40% from last year. Speaker 300:15:34And on a GAAP basis full year 2023 was $0.86 Turning to the balance Receivables were $109,400,000 an increase of approximately $5,300,000 from the prior quarter. Our DSOs for the Q4 were at 71 days and comparable to the prior quarter. Inventory was $71,700,000 at the end of quarter, a decrease of approximately $3,400,000 from last quarter end. Inventory turns for the quarter improved to 1.7 from 1.5 in the last quarter and with the focused effort for improvement in our inventory management, we anticipate inventory turns will gradually improve and inventory levels to decline as we progress into 2024. On the liability side of the balance sheet, our long term debt was $166,000,000 at December 31, 2023, a reduction of $15,000,000 this quarter. Speaker 300:16:32Considering cash of $15,100,000 net debt was $150,900,000 down from $164,400,000 at the end of the prior quarter. We remain focused on reducing debt and improving the leverage ratio of the company. Free cash flow generated during the quarter was primarily used to reduce debt. Our leverage ratio improved considerably to 1.7 from 1.92 in the prior quarter. Our debt is currently comprised of our senior notes at 110,000,000 and $56,000,000 outstanding under our bank credit facility. Speaker 300:17:09Our credit facility has a borrowing capacity of $135,000,000 of which approximately $69,000,000 was still available at December 31. Still announcing the company's commitment and focus on reducing debt in the 4th quarter from the since announcing from the Q4 of 2019, We have reduced our net debt by almost 50%. The company will continue applying free cash towards reducing debt until we reach our target ratio of 1.5 times or lower. Looking at cash flow For the Q4 of 2023, cash flow from operating activities was $19,400,000 and after paying for $2,700,000 of CapEx during the quarter, Our free cash flow was $16,700,000 The 4th quarter's cash flow includes the receipt of a tax refund of approximately 7,000,000 However, it's also a reflection of improved profitability and inventory management. Looking ahead to 20 24, we are forecasting cash from operations to improve compared to 2023 and we will continue to manage investment in working capital during a period of growth. Speaker 300:18:20Additionally, we expect CapEx to remain aligned with activity levels and for the full year of 2024 we expect capital expenditures to be in the range of $14,000,000 to $16,000,000 Projected CapEx for 2024 also includes approximately $2,000,000 associated consolidation of some operational facilities in Houston, which will reduce long term operating costs once complete. Core will continue its strict capital discipline and asset light business model with capital expenditures primarily targeted at growth opportunities. Core Lab's operational leverage continues to provide the ability to grow revenue and profitability with minimal capital requirements. Capital expenditures have historically ranged from 2% to 4% of revenue even during periods of significant growth. That same level of laboratory infrastructure, intellectual property and leverage exists in the business today. Speaker 300:19:16We believe evaluating a company's ability to generate free cash flow and free cash flow yield is an important metric for shareholders when comparing and projecting company's financial results, particularly for those shareholders who utilize discounted cash flow models to assess valuations. I will now turn it over to Gwen for an update on our guidance and outlook. Speaker 200:19:38Thank you, Chris. For 2024, the company will continue our strategic plan of technology investments targeted to both solve client problems and capitalize on Core's growth opportunities. As part of the strategic plan, the company will remain focused on generating free cash, reducing debt and maximizing return on invested capital. We maintain our constructive outlook on international upstream projects for 20 24 and anticipate 2023 and is anticipated to continue growing in 2024. Consequently, Increased investment in the development of onshore and offshore crude oil fields will be required to maintain and grow hydrocarbon production. Speaker 200:20:35In the near term, global crude oil markets may remain volatile due to global recession fears and the uncertainties related to the ongoing conflicts in Russia, Ukraine and the Middle East. As the international recovery continues, Committed long term upstream projects from the Middle East, South Atlantic Margins, Certain Areas of Asia Pacific and West Africa support year over year growth for Core Lab. As customary, with typical seasonal patterns will cause activity in the Q1 of 2024 to decline in some regions. As such, The company anticipates Reservoir Description's 1st quarter revenue to be down lowtomidsingledigits. Increased client activity in some regions may help mitigate the typical seasonal decline. Speaker 200:21:32The geopolitical situations in Russia, Ukraine and the Middle East continue to create volatility with respect to trading patterns and maritime transportation of crude oil and derived products along with the associated laboratory assay services that we provide. Now turning to the U. S. Onshore drilling and completion activity in 2024 is anticipated to be flat compared to 2023. However, market penetration of Core's proprietary energetic system and completion diagnostic service technologies are projected to outperform activity levels. Speaker 200:22:15For the Q1 of 2024, onshore drilling and completion activity was adversely impacted by freezing conditions in January. However, activity is expected to improve as the quarter progresses. As a result of these factors, Reservoir Description's 1st quarter revenue is projected to range from $80,000,000 to 84,000,000 and operating income of $10,100,000 to $11,900,000 Core's Production Enhancement segment's 1st quarter revenue is estimated to range from $42,000,000 to $44,000,000 and operating income of $1,500,000 to 2,200,000 In summary, the company's Q1 2024 revenue is projected to range from $122,000,000 to $128,000,000 and operating income of $11,800,000 to 14,300,000 yielding operating margins of approximately 10%. EPS for the Q1 is expected to range from 0 point $0.18 The company's Q1 2024 guidance is based on projections for underlying operations and excludes gains and losses in foreign exchange. Our first quarter guidance also assumes an effective tax rate of 20%. Speaker 200:23:42And now I will pass the discussion back to Larry. Speaker 100:23:45Thanks, Gwen. First, I'd like to thank our global team of employees for providing innovative solutions, Integrity and superior service to our clients. The team's collective dedication to servicing our clients is the foundation of Core Lab's success. Looking at the macro outlook, the IEA recently updated its forecast for crude oil demand for 2024 to average a record high 103,500,000 barrels per day. That's up by approximately 1,200,000 barrels per day from 2023 even after assessing current global financial forecasts. Speaker 100:24:20This continues to bode well for the increasing demand for reservoir description services that will be required to grow production and replace the national decline of existing producing fields. As we look ahead, we see the rising international rig count the past 1.5 years as a harbinger of an improving landscape for reservoir description, a trend that we project will play out Speaker 400:24:43for the next several Speaker 100:24:43quarters, particularly in the Middle East, North and South America as well as most other regions. Production Enhancement, in addition to its exposure to the U. S. Land market, also has expanding opportunities in international areas such as with unconventional plays in the Middle East and emerging conventional plays in a number of regions. Furthermore, Core continues to expand its line of innovative offerings for plug in abandonment programs in mature offshore basins around the globe. Speaker 100:25:09Now let's review the Q4 performance of our 2 business segments. Turning first to Reservoir Description. For the Q4 of 2023, revenue came in at $84,600,000 flat compared to Q3. Operating income for Reservoir Description ex items was $12,300,000 and operating margins were 15%. While still strong, margins were down approximately 200 basis points compared to Q3 due to increased labor costs. Speaker 100:25:38For the full year 2023, Reservoir Description revenue was up 8% compared to 2022, and margins, ex items were 14% for 2023, up from 8% in 2022. For the segment, Ex items, full year incremental margins were over 85%, nicely reflecting both our strategic focus on improving operational efficiencies and the strong operational leverage available in our business model as client activity picks up. Now for some operational highlights from Reservoir Description. In the Q4 of 2023, Corelib initiated a reservoir characterization research program at our state of the art reservoir rock and fluid laboratory in Rio de Janeiro, Brazil. This project, in collaboration with an international operating company, focused on 600 feet of conventional core recovered from the Santos Basin, specifically targeting deepwater presalt formations. Speaker 100:26:36Central to the evaluation of these rocks was Core Lab's dual energy CAT scan technology. The CAT scan data enabled the identification of depositional textures and sedimentary structures and also delineated diagenetic variables that control reservoir quality. This cutting edge digital technology seamlessly complements other rock characterization tools, along with the traditional physically measured core analysis data sets employed in the project. Core Lab advances in applying CAT scan technology to reservoir description projects are being to improve and accelerate analytical programs across our global lab network. Also during the Q4, Core Lab's Colombian operation conducted an enhanced oil recovery project Speaker 400:27:22in Speaker 100:27:22the Llanos Piedamonte Basin of Colombia. The project objective was to maximize hydrocarbon production and identify the optimum enhanced recovery mechanism for these aging fields. The study included a full suite of tests, such as pressure volume temperature, or PBT testing, hydrocarbon swelling, multi contact tests and asphalting onset pressure determination. Core leveraged the internal expertise capabilities at several of its advanced technology centers to accelerate the delivery on this time sensitive project. Moving now to Production Enhancement, where Core Lab Technologies continue to help our clients optimize their well completions and improve production. Speaker 100:28:05Revenue from Production Enhancement came in at $43,600,000 up approximately 8% sequentially. Operating income, Ex items was $2,400,000 and operating margins were 6% for the Q4 of 2023, up from 4% in Q3. Sequential incremental margins were over 20%. These quarter over quarter improvements reflect higher U. S. Speaker 100:28:28And international demand for completion diagnostics, along with a rebound in international product sales. Now for some operational highlights. In the Q4 of 2023, an operator in the Rocky Mountains approached Core Lab's production enhancement team for recommendations on how to meet specific reservoir treatment rates and pressures for their ongoing plug and perf completions. Core's production enhancement team proprietary modeling software to predict perforation hole requirements for a given treatment pressure, treatment rate and hole size consistency. Core Lab's team provided the client with the optimum solution with computational results verified by direct physical measurement conducted at Core Lab's testing facility. Speaker 100:29:12The solution utilized Core's industry leading hero perfrac family of consistent hole size shape charges to achieve the treatment rates and pressures the operator desired for their completion design. Heroprofrec shape charges aid in reducing both treatment rates and pressures as well as reducing costs by achieving industry leading whole size consistency. After deploying the hero perfrac shaped charges in a series of wells, The operator achieved the desired rates and pressures, which aligned with those predicted by both the laboratory physical tests and the computational models that Core Lab provided. Core's collaboration led to successful field trials. Subsequently, the operator specified the Core Laboratories' hero perfrac family of system hole shaped charges will be utilized for all of their 2024 completion needs. Speaker 100:30:04Also during the Q4 of 2023, Core diagnostic technologies were employed to assess high profile sand control well completions in both the U. S. And international offshore markets. In the Gulf of Mexico, a deepwater operator needed to diagnose the competency of their frac pack completion. Core Lab's proprietary Spectra STIM prop and tracing, SpectraSCAN gamma ray logging and PACSCAN density logging technologies were brought to the task. Speaker 100:30:33After processing the logs, Core's engineering team determined that there was an effective annular gravel pack. However, the diagnostic technologies also revealed that there was insufficient proppant placement across the producing zone to ensure the long term stability of the completion that would be required to maintain optimum hydrocarbon production rates. The operator executed a cost effective remediation refrac pack to top off the interval, thus averting a costly completion failure in the future. Also, offshore Trinidad, Core's proprietary logging technologies were used to determine the competency of an open hole gravel pack. Core's PAC log revealed an annular void in the lower portion of the sand control screen. Speaker 100:31:18With careful measurement and calculation, Core's team determined that there was a sufficient proppant reserve above the top of the screen to fill in this void. Core's technical team recommended that the operator slowly bring the well on production so as to allow the void to be gradually filled from the proppant reserve. The operator followed Core's recommendation and the well generated sand free hydrocarbon production. The operator shared that had it not been for Core's recommendation, They would have flowed the well hard as per their standard practice, and the completion would have likely failed. That concludes our operational review. Speaker 100:31:55We appreciate your participation. And Andre, we'll now open the call for questions. Operator00:32:01We will now begin the question and answer session. And our first question will come from Patrick Ouellet of Stifel. Please go ahead. Speaker 200:32:36Good morning, Patrick. Speaker 400:32:38Hey, good morning. Jeff Hat on for Steven Jagero. Thanks for taking the time. Could you give us an update on the competitive landscape for the US. Propane market. Speaker 400:32:47And do you have any thoughts on the potential sale of DynaEnergetics and the impact that has on competition? Speaker 100:32:55Yes, I mean, I think it's a crowded market. There's no other way to look at it. There's been a lot of entrance into the field. I think from Core Lab's perspective, We still maintain a strong competitive edge in the shaped charge energetics that are used to perforate the wells. That always has been our wheelhouse. Speaker 100:33:19We offer competitive preassembled gun systems and a variety of other products into that market that we think offer a highly competitive set of solutions. Yes, the Dyna folks, I mean, I think that's a question best asked to the good folks up there. I think there that you may be seeing some reflection of the landscape that they see that there's alternative products including Core Labs that are gaining traction. Chris or Gwen, you want to add anything to that? Speaker 300:33:55No, I mean, when we look at it from the outside, it makes sense what they've announced. So it doesn't surprise us that They are looking at how to best maximize the businesses that they have in the shareholder value. So it makes sense to us that they're divesting some of the Businesses that it looks like they projected they want to go with Arcadia. Speaker 100:34:22Yes, they make good products for completions, no question about it, highly regarded. I think they run a good shop there. And we'll see how that plays out. Speaker 400:34:33Great. Okay. Thanks for that. And then could you talk about margin progression in Reservoir Description? And any thoughts around potential incrementals in the second half of twenty twenty four? Speaker 100:34:46Yes. I think that segment is highly exposed to international which we see that progressing, call it, low double digits next year. Again, I mean, I think We had a full year incremental margins in 2023 for Reservoir Description of over 85%. That's pretty lofty number there. And so whether we can maintain that exact number might be a little bit challenging, but it's going to be high. Speaker 100:35:16Modeling that out At greater than 50%, 60% incremental margins on growth there on incremental revenue, I think, is very achievable for us. And our we always look at the Our goal of getting back to that 20% operating margin as sort of the baseline that we'd like to see in a normal environment and then up from there. And we got kind of close in Q3. It was Timely to do some merit increase at the beginning of Q4 that raised our labor costs, but we felt was needed to be done to for our staff. So a little bit of step back from 17% to 15% there. Speaker 100:36:07But we think it will progress up. And I think dialing in that low double digit growth for international And applying a 50%, 60% incremental margins probably toward the higher end of that is a good basis for coming up with a model for Forecasting Reservoir Description performance. Speaker 300:36:27The only thing I would add that's a little bit of a headwind for us is and we mentioned it because it's The disruptions from the geopolitical and when these happen, it's very difficult for us to adjust our costs. So the impact, it's not just a revenue, it does impact the margins as well. And sometimes they're temporary. So you just have to kind of manage your way through that with your cost structure. So that's a little bit of a headwind. Speaker 100:36:56Yes. So for example, one of the things we dialed into our thoughts Q1 was you saw a pickup in the conflict in Russia, Ukraine. And of course, The focus of a lot of that conflict has been on infrastructure that deals with the maritime transportation of hydrocarbons It's kind of and I think Core Lab maybe among our peer group a little bit unique in having exposure to that those laboratory services that are needed for that cargo transportation. So it kind of lands on us a bit and we dialed that into our thinking, Seeing what happened both in the Red Sea and across some of the Russian ports, and so hard to predict that. And to Chris' point, it's also hard to manage your costs there. Speaker 100:37:50You don't want to reflexively start slashing costs if it's going to be a temporary disruption. So we'll make the right decision over time on those, and we'll keep our costs aligned. But it's very hard to make those cost adjustments real time when things are unfolding at an unpredictable pace. Speaker 400:38:12Yes, that all makes sense. Thanks a lot. I'll turn it back. Speaker 200:38:16Thanks, Pat. Speaker 400:38:16Okay. Thanks, Pat. Operator00:38:20The next question comes from Dawn Chirst of Johnson Rice. Please go ahead. Speaker 200:38:25Hey, Dawn. Speaker 400:38:26Good morning. Speaker 500:38:26Good morning, guys. In your commentary in the press release, you talked about many of the Middle East projects Kind of moving into implementation now. Where are we in the other parts of the world from the implementation standpoint, I. E. Is Brazil and Guyana really kind of ramping up now in the Far East as well? Speaker 500:38:50Or where are we in the life cycle of those projects? Speaker 100:38:54Yes, John, I'd probably put them in that order. Middle East is the tip of the spear, and that's across multiple countries in the region. And then I'd say South Atlantic margin picking up for us. I would throw in also some West Africa work as well. And then I would say lagging that a bit is Asia Pac, although we've got some pretty bright spots in Australia and Indonesia. Speaker 500:39:27Okay. And one question on the U. S. As Basins mature, obviously you go towards from Tier 1 acreage towards Tier 2, Tier 3. Where are we in the life cycle, particularly in the Bakken, but number 2 in the Permian? Speaker 500:39:45Are you starting to get Some inquiries to evaluate kind of Tier 2 and Tier 3 rock in the Permian? Speaker 100:39:52Yes. I mean, we've got Because of the multi company studies that we've done across all of the major unconventional basins in North America and in many cases, parts of the world. We've got a pretty good sensibility of where the Tier 1, Tier 2 and Tier 3 rock is. And I've joked in the past that we sell that information, where the good stuff is and where the intermediate stuff is and where the not so good stuff is. And clearly, there's been a progression Moving toward the latter stages of Tier 1 and into Tier 2 and in some cases, the lower ends of Tier 2 rock. Speaker 100:40:32I think if you look at production in a lot of the fields, the only one that's really, in our mind, got some growth potential is the Permian. You have to dial that rock quality issue in also with things like Lateral length expansion, that 3rd mile on oil wells, oil producing wells is becoming common practice. But the rock quality, clearly, the best of the best has either been consumed or is rapidly being depleted across all of the basins. And then now it's more of an engineering and completion optimization program, which our Enhancement Group will play into to try to get the most out of those rocks. I'd add a little bit more to that too and say We do see from time to time companies taking refreshed looks at restimulation, refracs and things like that try to go into some of the older legacy wells to try to get to unstimulated rock where the stages were very far apart. Speaker 100:41:39But I do think the growth rate the key point here, Don, is the growth rate that we've seen in production in North America is either not going to continue or is going to be at a much lower pace. Speaker 300:41:53Right. I think it's fair to say too, it's still real early, but with Some of the focus on capturing CO2 and as that becomes maybe more available, There might be opportunities, better opportunities to look at EOR type projects and the unconventionals where The availability of CO2 may have been a limiting factor in that in the past. Speaker 500:42:23Right. And are you getting a lot of work in the Bakken to re stimulate and try to go after that rock that maybe hadn't Been stimulated the first time? Speaker 100:42:34Less so than in some of the other basins, I'd say, is a generalization. And I would add that Some EOR programs that we validated in the lab have seemed to work better in some of the other basins than in some of the parts of the Bakken. Speaker 300:42:52Okay. Speaker 100:42:53But look, Bakken is still a world class field play and stratigraphic target, there's going to be a lot of oil coming out of that. The rate of growth is going to be From where we are today is going to be more determined by advancements in completion technologies and things like that. Speaker 500:43:16Right. But I think they're in the very, very early stages of kind of a refrac program in the basin if I'm reading that correctly, right? Speaker 100:43:25I think that's right, and I think it's highly operator dependent. I don't believe it's proper to characterize that as Broad based approach among a large number of operators to look at restimulation and EOR in that area yet. Speaker 500:43:44Right. Okay. I appreciate the conversation. I'll turn it back. Speaker 200:43:49Thank you, Dawn. Operator00:43:59Back over to Larry Bruno for any closing remarks. Speaker 100:44:03Okay. We'll wrap up here. In summary, Core's operational leadership continues to position the company For improving client activity levels for 2024 and beyond, we have never been better operationally or technologically positioned to help our global client base optimize their reservoirs and address their evolving needs. We remain uniquely focused and are the most technologically advanced, client focused reservoir optimization company in the oilfield service sector. The company will remain focused on maximizing free cash and returns on invested capital. Speaker 100:44:35In addition to our quarterly dividends, we'll bring value to our shareholders via growth opportunities driven by both the introduction of problem solving technologies and new market penetration. In the near term, Core will continue to use free cash to strengthen its balance sheet while always investing in growth opportunities. So in closing, we thank and appreciate all of our shareholders and the analysts that cover Core Lab. The executive management team and the Board of Core Laboratories give a special thanks to our worldwide employees that have made these results possible. We're proud to be associated with our continuing achievements. Speaker 100:45:09So thanks for spending time with us, and we look forward to our next update. Goodbye for now.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallCore Laboratories Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K) Core Laboratories Earnings HeadlinesCore Laboratories (NYSE:CLB) Stock Rating Lowered by StockNews.comApril 28, 2025 | americanbankingnews.comCore Laboratories price target lowered to $13 from $15 at StifelApril 27, 2025 | markets.businessinsider.comSilicon Valley Gold RushA new technology has sparked a modern-day gold rush in Silicon Valley. OpenAI’s Sam Altman invested $375M. Bill Gates has backed four companies in this space. The World Economic Forum calls it “the most exciting human discovery since fire.” Whitney Tilson believes this trend could mint a new class of wealthy investors—and he’s sharing one stock to watch now, for free.May 5, 2025 | Stansberry Research (Ad)Core Laboratories Inc. (CLB) Q1 2025 Earnings Call TranscriptApril 26, 2025 | seekingalpha.comCore Laboratories (CLB) Target Price Lowered by Stifel Analyst | CLB Stock NewsApril 25, 2025 | gurufocus.comCore Laboratories (CLB) Maintains Steady Quarterly DividendApril 24, 2025 | gurufocus.comSee More Core Laboratories Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Core Laboratories? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Core Laboratories and other key companies, straight to your email. Email Address About Core LaboratoriesCore Laboratories (NYSE:CLB) provides reservoir description and production enhancement services and products to the oil and gas industry in the United States, and internationally. It operates through Reservoir Description and Production Enhancement segments. The Reservoir Description segment includes the characterization of petroleum reservoir rock and reservoir fluid samples to enhance production and improve recovery of crude oil and gas from its clients' reservoirs. It offers laboratory-based analytical and field services to characterize properties of crude oil and oil delivered products; and proprietary and joint industry studies, as well as services that support carbon capture, utilization and storage, geothermal projects, and the evaluation and appraisal of mining activities. The Production Enhancement segment provides services and products relating to reservoir well completions, perforations, stimulations, production, and well abandonment. It offers integrated diagnostic services to evaluate and monitor the effectiveness of well completions and to develop solutions to improve the effectiveness of enhanced oil recovery projects. The company markets and sells its products through a combination of sales representatives, technical seminars, trade shows, and print advertising, as well as through distributors. Core Laboratories Inc. was founded in 1936 and is based in Houston, Texas.View Core Laboratories ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2Palantir Earnings: 1 Bullish Signal and 1 Area of ConcernVisa Q2 Earnings Top Forecasts, Adds $30B Buyback Plan Upcoming Earnings Advanced Micro Devices (5/6/2025)American Electric Power (5/6/2025)Constellation Energy (5/6/2025)Marriott International (5/6/2025)Energy Transfer (5/6/2025)Mplx (5/6/2025)Brookfield Asset Management (5/6/2025)Arista Networks (5/6/2025)Duke Energy (5/6/2025)Zoetis (5/6/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 6 speakers on the call. Operator00:00:00Good morning, and welcome to the CORE Laboratories 4th Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Larry Bruno, Chairman and CEO. Please go ahead. Speaker 100:00:42Thanks, Andrea. Good morning in the Americas. Good afternoon in Europe, Africa and the Middle East, and good evening in Asia Pacific. We'd like to welcome all of our shareholders, analysts and most importantly, our employees to Core Laboratories' 4th quarter 2023 earnings call. This morning, I'm joined by Chris Hill, Core's Chief Financial Officer and Gwen Gresham, Core's Senior Vice President and Head of Investor Relations. Speaker 100:01:06The call will be divided into 6 segments. Gwen will start by making remarks regarding forward looking statements. We'll then have some opening comments, a high level review of important factors in Core's Q4 performance. In addition, we'll review Core's strategies are the 3 financial tenets that the company employs to build long term shareholder value. Chris will then give a detailed financial overview and have additional comments regarding shareholder value. Speaker 100:01:32Following Chris, Gwen will provide some comments on the company's outlook and guidance. I'll then review Core's 2 operating segments, detailing our progress and discussing the continued successful introduction and deployment of Core Lab's technologies as well as highlighting some of Core's operations and major projects worldwide. Then we'll open the phones for a Q and A session. I'll now turn the call over to Gwen for remarks on forward looking statements. Speaker 200:01:58Before we start the conference this morning, I'll mention some of the statements we'll make during this call may projections, estimates and other forward looking information. This would include any discussion of the company's business outlook. These types of forward looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from our forward looking statements. These risks and uncertainties are discussed in our most recent annual report on Form 10 ks as well as other reports and registration statements filed by us with the SEC. We undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Speaker 200:02:43Our comments also include non GAAP financial measures. Reconciliation to those directly comparable GAAP financial measures is included in the press release announcing our 4th quarter results. These non GAAP measures can also be found on our website. With that said, I'll pass the discussion back to Larry. Speaker 100:03:03Thanks, Gwen. Moving now to some high level comments about the Q4 of 2023. Core continued to build on the operational momentum established over the past few quarters. Revenue was up 2% compared to Q3. Softness in U. Speaker 100:03:18S. Land completion activity late in the quarter, Along with disruptions to the demand for crude oil assay work in response to the Middle East conflict that emerged in Q4 produced headwinds. Offsetting those headwinds, we saw continued improvement in the demand for reservoir core and fluid analysis, and there was a rebound in both international product sales and the demand for completion diagnostic services for production enhancement compared to the Q3. Ex items, operating income for the 4th quarter was 15,000,000 operating margins were 12%, down slightly from 13% in Q3 of 2023. 4th quarter 2023 operating margins, ex items, remained strong in Reservoir Description at 15%, although were down from 17% Q3 due to increased labor costs. Speaker 100:04:09As noted, demand for reservoir rock and fluid analysis across our global client base continues to rise And more projects are progressing from the planned and committed phase and into the early stages of execution. Demand for reservoir description assay work on crude oil and derived products was somewhat uneven during the Q4 as geopolitical Conflicts in both Ukraine and the Middle East impacted maritime hydrocarbon cargo movement and trading patterns. We anticipate volatility and uncertainties to remain in the demand for these laboratory services as these conflicts continue. Production enhancement revenue, Operating income and margins all improved sequentially, but U. S. Speaker 100:04:51Land completion activity, particularly in December, was below our earlier expectations. For Q4, operating margins and Production Enhancement ex items were 6%, up from 4% in Q3. In line with our stated financial strategy, Core dedicated free cash to reducing debt by $15,000,000 in the 4th quarter, Accounting for approximately 8% of our outstanding debt balance, we will continue to focus free cash on reducing debt and strengthening our balance sheet. Lastly, for the full company, EPS was $0.19 per share ex items compared to $0.22 in Q3, reflecting both increased labor costs and higher interest expense in Q4. As we look ahead, Core will continue to execute on its key strategic objectives by: 1, introducing new product and service offerings in key geographic markets 2, maintaining a lean and focused organization and 3, maintaining our commitment to delevering the company. Speaker 100:05:52We achieved strong quarter over quarter improvements in cash from operations and free cash flow. In the Q4, our leverage ratio was reduced to 1.76, the lowest level since Q2 of 2019 and a meaningful step in strengthening our balance sheet and advancing to our stated goal of achieving a leverage ratio of 1.5 times or lower. As we continue to reduce debt, Core will also review various options for returning value to our shareholders through the use of excess free cash. Now to review Core Lab's strategies and the financial tenants that Core has used to build shareholder value over our 27 plus year history as a public traded company. The interest of our shareholders, clients and employees will always be well served by Core Lab's resilient culture, which relies on innovation, leveraging technology to solve problems and dedicated customer service. Speaker 100:06:43I'll talk more about some of our latest innovations in the operational review section of the call. While we navigate through the current challenges and pursue growth opportunities, the company will remain focused on its 3 long standing long term financial tenets, Those being to maximize free cash flow, maximize return on invested capital and returning excess free cash to our shareholders. Before moving on, I want to thank our employees for their dedication, loyalty and adaptability in meeting all of our client needs and for the commitment many have shown as we navigate the current challenges and prepare for more active market. I'll now turn it over to Chris for the detailed financial review. Speaker 300:07:22Thanks, Larry. Before we review the financial performance for the quarter, the guidance we gave on our last call and past calls Specifically excluded the impact of any FX gains or losses and assumed an effective tax rate of 20%. So accordingly, our discussion today excludes any foreign exchange gain or loss for current and prior periods. So now looking at the income statement, Revenue was $128,200,000 in the 4th quarter, up 2% compared to the prior quarter and flat year over year. Activity associated with international upstream projects and product sales to international clients continues to expand. Speaker 300:08:00However, the growth was partially offset by lower level of product sales in the U. S. Land market. Additionally, laboratory associated with crude assay analysis have been adversely impacted in certain regions due to the ongoing conflicts in Ukraine, Russia and the Middle East causing disruptions to the trading and maritime movement of crude oil. Of this revenue, service revenue which is more international was $94,700,000 for the quarter, up 2% sequentially and up 6% from last year. Speaker 300:08:33During the quarter committed work volumes for traditional reservoir rock and fluid analysis as well as carbon capture and storage projects continue to build across our global laboratory network. Additionally, we experienced nice sequential growth in revenue from our well and completion diagnostic services associated with both international and Gulf of Mexico projects. However, sequential growth in service revenue was partially offset by lower levels of crude assay work due to these disruptions caused by the ongoing conflicts previously mentioned. For the full year of 2023, Service revenue of $371,900,000 was up over 7% compared to $347,000,000 in 2022. As Larry mentioned earlier, client activity levels associated with international upstream projects improved nicely in 2023 and are expected to continue building throughout 2024. Speaker 300:09:31Product sales, which is more equally tied to U. S. And international activity $33,500,000 for the quarter, up 3% sequentially, but down 13% from the same quarter in 2022. Product sales to international markets were up 18% sequentially with strong sales during the quarter and a couple of sales that were originally scheduled for the 3rd quarter which were delivered in the 4th quarter. Growth in international product sales was partially offset by the decrease in U. Speaker 300:10:01S. Onshore and associated U. S. Product sales during the quarter. For the full year of 2023, product sales of 100 and $7,900,000 were down a little over 3% from $142,800,000 in 2022, primarily associated with activity decline in the U. Speaker 300:10:19S. Onshore market where the onshore rig count in the U. S. Decreased by approximately 20%. Moving on to cost of services, ex items for the quarter was approximately 75% of service revenue comparable to the prior quarter and an improvement of 78% compared to the Q4 of 2022. Speaker 300:10:41Over 80% of the company's personnel support our services business, and the company implemented its annual merit cycle October 1, which increased personnel costs for the Q4. Additionally, the service side of our business has been more impacted by the geopolitical conflicts and disruptions with the associated crude assay laboratory services. However, reservoir rock and fluid analytical programs associated with international upstream projects have not been impacted by these conflicts and continue to build. Outside of the temporary disruptions, we continue to see improvements in absorption of costs and utilization of our laboratory network and anticipate additional improvement with continuing growth in service revenue. For the full year of 2023, cost services ex items was approximately 76% of service revenue, an improvement from 79% last year. Speaker 300:11:37Cost of sales ex items in the 4th quarter was 91% of revenue compared to 85% in the prior quarter. The increase this quarter is primarily due to reduced manufacturing efficiencies associated with lower U. S. Onshore sales. The company anticipates the U. Speaker 300:11:53S. Onshore activity levels will remain at similar levels for 2024. As such, we are finalizing plans to improve and manufacturing efficiencies. G and A ex items for the quarter was $8,700,000 a decrease from the prior quarter, which was $9,500,000 Full year 2023 G and A ex items was $36,600,000 compared to $39,300,000 in the full year of 2022. For 2024, we expect G and A to be approximately $40,000,000 to $44,000,000 Depreciation and amortization for the quarter was $3,900,000 flat compared to the last quarter. Speaker 300:12:34EBIT ex items for the quarter was $15,000,000 down $1,000,000 from last quarter, yielding an EBIT margin of 12%. Year over year EBIT ex items for the Q4 was relatively flat to last year. Our operating income for the 4th quarter on a GAAP basis was $14,600,000 Full year 2023 EBIT ex items was $61,200,000 up 36 percent from 44.8 $1,000,000 in 20.22. On a GAAP basis, EBIT was $54,600,000 for 2023 $41,500,000 in 2022. Interest expense of $3,600,000 increased this quarter when compared to $3,100,000 in the prior quarter. Speaker 300:13:20Despite reducing our debt by $15,000,000 during the quarter, as discussed during the last call, $75,000,000 in senior notes matured on September 30, 2023, which carried a fixed interest rate of 4.1%. We use the borrowing capacity under our credit facility to partially fund the maturity of these notes. The credit facility as a variable interest rate and currently the borrowing rate under the facility is approximately 8%. As such, our interest expense increased for the Q4 of 2023. Income tax expense at an effective tax rate of 20% and ex items was $2,300,000 for the quarter. Speaker 300:14:00On a GAAP basis, tax expense was $4,300,000 for the quarter, which was primarily impacted by an additional adjustment of deferred income taxes associated with the redomestication of our parent company from the Netherlands to the U. S. For the full year, income tax expense on a GAAP basis was a small benefit primarily due to the tax benefit of $11,600,000 associated with the redomestication transaction. The effective tax rate will continue to be somewhat sensitive to the geographic mix of earnings across the globe and the impact of items discrete to each quarter. However, we continue to project the company's effective tax rate to be approximately 20%. Speaker 300:14:41Net income items for the quarter was $8,900,000 down from $10,300,000 in the prior quarter and $9,300,000 from the same quarter last year. On a GAAP basis, we recorded net income of $6,500,000 for the quarter. For the full year 2023, Net income ex items was $37,800,000 up 42 percent from $26,600,000 last year And GAAP net income for the full year 2023 was $40,900,000 Earnings per diluted share ex items was $0.19 for the quarter, down from $0.22 in the prior quarter and $0.20 from the same quarter last year. On a GAAP basis, earnings per diluted share was 0.14 dollars for the quarter. For the full year 2023, earnings per diluted share ex items was $0.80 up 40% from last year. Speaker 300:15:34And on a GAAP basis full year 2023 was $0.86 Turning to the balance Receivables were $109,400,000 an increase of approximately $5,300,000 from the prior quarter. Our DSOs for the Q4 were at 71 days and comparable to the prior quarter. Inventory was $71,700,000 at the end of quarter, a decrease of approximately $3,400,000 from last quarter end. Inventory turns for the quarter improved to 1.7 from 1.5 in the last quarter and with the focused effort for improvement in our inventory management, we anticipate inventory turns will gradually improve and inventory levels to decline as we progress into 2024. On the liability side of the balance sheet, our long term debt was $166,000,000 at December 31, 2023, a reduction of $15,000,000 this quarter. Speaker 300:16:32Considering cash of $15,100,000 net debt was $150,900,000 down from $164,400,000 at the end of the prior quarter. We remain focused on reducing debt and improving the leverage ratio of the company. Free cash flow generated during the quarter was primarily used to reduce debt. Our leverage ratio improved considerably to 1.7 from 1.92 in the prior quarter. Our debt is currently comprised of our senior notes at 110,000,000 and $56,000,000 outstanding under our bank credit facility. Speaker 300:17:09Our credit facility has a borrowing capacity of $135,000,000 of which approximately $69,000,000 was still available at December 31. Still announcing the company's commitment and focus on reducing debt in the 4th quarter from the since announcing from the Q4 of 2019, We have reduced our net debt by almost 50%. The company will continue applying free cash towards reducing debt until we reach our target ratio of 1.5 times or lower. Looking at cash flow For the Q4 of 2023, cash flow from operating activities was $19,400,000 and after paying for $2,700,000 of CapEx during the quarter, Our free cash flow was $16,700,000 The 4th quarter's cash flow includes the receipt of a tax refund of approximately 7,000,000 However, it's also a reflection of improved profitability and inventory management. Looking ahead to 20 24, we are forecasting cash from operations to improve compared to 2023 and we will continue to manage investment in working capital during a period of growth. Speaker 300:18:20Additionally, we expect CapEx to remain aligned with activity levels and for the full year of 2024 we expect capital expenditures to be in the range of $14,000,000 to $16,000,000 Projected CapEx for 2024 also includes approximately $2,000,000 associated consolidation of some operational facilities in Houston, which will reduce long term operating costs once complete. Core will continue its strict capital discipline and asset light business model with capital expenditures primarily targeted at growth opportunities. Core Lab's operational leverage continues to provide the ability to grow revenue and profitability with minimal capital requirements. Capital expenditures have historically ranged from 2% to 4% of revenue even during periods of significant growth. That same level of laboratory infrastructure, intellectual property and leverage exists in the business today. Speaker 300:19:16We believe evaluating a company's ability to generate free cash flow and free cash flow yield is an important metric for shareholders when comparing and projecting company's financial results, particularly for those shareholders who utilize discounted cash flow models to assess valuations. I will now turn it over to Gwen for an update on our guidance and outlook. Speaker 200:19:38Thank you, Chris. For 2024, the company will continue our strategic plan of technology investments targeted to both solve client problems and capitalize on Core's growth opportunities. As part of the strategic plan, the company will remain focused on generating free cash, reducing debt and maximizing return on invested capital. We maintain our constructive outlook on international upstream projects for 20 24 and anticipate 2023 and is anticipated to continue growing in 2024. Consequently, Increased investment in the development of onshore and offshore crude oil fields will be required to maintain and grow hydrocarbon production. Speaker 200:20:35In the near term, global crude oil markets may remain volatile due to global recession fears and the uncertainties related to the ongoing conflicts in Russia, Ukraine and the Middle East. As the international recovery continues, Committed long term upstream projects from the Middle East, South Atlantic Margins, Certain Areas of Asia Pacific and West Africa support year over year growth for Core Lab. As customary, with typical seasonal patterns will cause activity in the Q1 of 2024 to decline in some regions. As such, The company anticipates Reservoir Description's 1st quarter revenue to be down lowtomidsingledigits. Increased client activity in some regions may help mitigate the typical seasonal decline. Speaker 200:21:32The geopolitical situations in Russia, Ukraine and the Middle East continue to create volatility with respect to trading patterns and maritime transportation of crude oil and derived products along with the associated laboratory assay services that we provide. Now turning to the U. S. Onshore drilling and completion activity in 2024 is anticipated to be flat compared to 2023. However, market penetration of Core's proprietary energetic system and completion diagnostic service technologies are projected to outperform activity levels. Speaker 200:22:15For the Q1 of 2024, onshore drilling and completion activity was adversely impacted by freezing conditions in January. However, activity is expected to improve as the quarter progresses. As a result of these factors, Reservoir Description's 1st quarter revenue is projected to range from $80,000,000 to 84,000,000 and operating income of $10,100,000 to $11,900,000 Core's Production Enhancement segment's 1st quarter revenue is estimated to range from $42,000,000 to $44,000,000 and operating income of $1,500,000 to 2,200,000 In summary, the company's Q1 2024 revenue is projected to range from $122,000,000 to $128,000,000 and operating income of $11,800,000 to 14,300,000 yielding operating margins of approximately 10%. EPS for the Q1 is expected to range from 0 point $0.18 The company's Q1 2024 guidance is based on projections for underlying operations and excludes gains and losses in foreign exchange. Our first quarter guidance also assumes an effective tax rate of 20%. Speaker 200:23:42And now I will pass the discussion back to Larry. Speaker 100:23:45Thanks, Gwen. First, I'd like to thank our global team of employees for providing innovative solutions, Integrity and superior service to our clients. The team's collective dedication to servicing our clients is the foundation of Core Lab's success. Looking at the macro outlook, the IEA recently updated its forecast for crude oil demand for 2024 to average a record high 103,500,000 barrels per day. That's up by approximately 1,200,000 barrels per day from 2023 even after assessing current global financial forecasts. Speaker 100:24:20This continues to bode well for the increasing demand for reservoir description services that will be required to grow production and replace the national decline of existing producing fields. As we look ahead, we see the rising international rig count the past 1.5 years as a harbinger of an improving landscape for reservoir description, a trend that we project will play out Speaker 400:24:43for the next several Speaker 100:24:43quarters, particularly in the Middle East, North and South America as well as most other regions. Production Enhancement, in addition to its exposure to the U. S. Land market, also has expanding opportunities in international areas such as with unconventional plays in the Middle East and emerging conventional plays in a number of regions. Furthermore, Core continues to expand its line of innovative offerings for plug in abandonment programs in mature offshore basins around the globe. Speaker 100:25:09Now let's review the Q4 performance of our 2 business segments. Turning first to Reservoir Description. For the Q4 of 2023, revenue came in at $84,600,000 flat compared to Q3. Operating income for Reservoir Description ex items was $12,300,000 and operating margins were 15%. While still strong, margins were down approximately 200 basis points compared to Q3 due to increased labor costs. Speaker 100:25:38For the full year 2023, Reservoir Description revenue was up 8% compared to 2022, and margins, ex items were 14% for 2023, up from 8% in 2022. For the segment, Ex items, full year incremental margins were over 85%, nicely reflecting both our strategic focus on improving operational efficiencies and the strong operational leverage available in our business model as client activity picks up. Now for some operational highlights from Reservoir Description. In the Q4 of 2023, Corelib initiated a reservoir characterization research program at our state of the art reservoir rock and fluid laboratory in Rio de Janeiro, Brazil. This project, in collaboration with an international operating company, focused on 600 feet of conventional core recovered from the Santos Basin, specifically targeting deepwater presalt formations. Speaker 100:26:36Central to the evaluation of these rocks was Core Lab's dual energy CAT scan technology. The CAT scan data enabled the identification of depositional textures and sedimentary structures and also delineated diagenetic variables that control reservoir quality. This cutting edge digital technology seamlessly complements other rock characterization tools, along with the traditional physically measured core analysis data sets employed in the project. Core Lab advances in applying CAT scan technology to reservoir description projects are being to improve and accelerate analytical programs across our global lab network. Also during the Q4, Core Lab's Colombian operation conducted an enhanced oil recovery project Speaker 400:27:22in Speaker 100:27:22the Llanos Piedamonte Basin of Colombia. The project objective was to maximize hydrocarbon production and identify the optimum enhanced recovery mechanism for these aging fields. The study included a full suite of tests, such as pressure volume temperature, or PBT testing, hydrocarbon swelling, multi contact tests and asphalting onset pressure determination. Core leveraged the internal expertise capabilities at several of its advanced technology centers to accelerate the delivery on this time sensitive project. Moving now to Production Enhancement, where Core Lab Technologies continue to help our clients optimize their well completions and improve production. Speaker 100:28:05Revenue from Production Enhancement came in at $43,600,000 up approximately 8% sequentially. Operating income, Ex items was $2,400,000 and operating margins were 6% for the Q4 of 2023, up from 4% in Q3. Sequential incremental margins were over 20%. These quarter over quarter improvements reflect higher U. S. Speaker 100:28:28And international demand for completion diagnostics, along with a rebound in international product sales. Now for some operational highlights. In the Q4 of 2023, an operator in the Rocky Mountains approached Core Lab's production enhancement team for recommendations on how to meet specific reservoir treatment rates and pressures for their ongoing plug and perf completions. Core's production enhancement team proprietary modeling software to predict perforation hole requirements for a given treatment pressure, treatment rate and hole size consistency. Core Lab's team provided the client with the optimum solution with computational results verified by direct physical measurement conducted at Core Lab's testing facility. Speaker 100:29:12The solution utilized Core's industry leading hero perfrac family of consistent hole size shape charges to achieve the treatment rates and pressures the operator desired for their completion design. Heroprofrec shape charges aid in reducing both treatment rates and pressures as well as reducing costs by achieving industry leading whole size consistency. After deploying the hero perfrac shaped charges in a series of wells, The operator achieved the desired rates and pressures, which aligned with those predicted by both the laboratory physical tests and the computational models that Core Lab provided. Core's collaboration led to successful field trials. Subsequently, the operator specified the Core Laboratories' hero perfrac family of system hole shaped charges will be utilized for all of their 2024 completion needs. Speaker 100:30:04Also during the Q4 of 2023, Core diagnostic technologies were employed to assess high profile sand control well completions in both the U. S. And international offshore markets. In the Gulf of Mexico, a deepwater operator needed to diagnose the competency of their frac pack completion. Core Lab's proprietary Spectra STIM prop and tracing, SpectraSCAN gamma ray logging and PACSCAN density logging technologies were brought to the task. Speaker 100:30:33After processing the logs, Core's engineering team determined that there was an effective annular gravel pack. However, the diagnostic technologies also revealed that there was insufficient proppant placement across the producing zone to ensure the long term stability of the completion that would be required to maintain optimum hydrocarbon production rates. The operator executed a cost effective remediation refrac pack to top off the interval, thus averting a costly completion failure in the future. Also, offshore Trinidad, Core's proprietary logging technologies were used to determine the competency of an open hole gravel pack. Core's PAC log revealed an annular void in the lower portion of the sand control screen. Speaker 100:31:18With careful measurement and calculation, Core's team determined that there was a sufficient proppant reserve above the top of the screen to fill in this void. Core's technical team recommended that the operator slowly bring the well on production so as to allow the void to be gradually filled from the proppant reserve. The operator followed Core's recommendation and the well generated sand free hydrocarbon production. The operator shared that had it not been for Core's recommendation, They would have flowed the well hard as per their standard practice, and the completion would have likely failed. That concludes our operational review. Speaker 100:31:55We appreciate your participation. And Andre, we'll now open the call for questions. Operator00:32:01We will now begin the question and answer session. And our first question will come from Patrick Ouellet of Stifel. Please go ahead. Speaker 200:32:36Good morning, Patrick. Speaker 400:32:38Hey, good morning. Jeff Hat on for Steven Jagero. Thanks for taking the time. Could you give us an update on the competitive landscape for the US. Propane market. Speaker 400:32:47And do you have any thoughts on the potential sale of DynaEnergetics and the impact that has on competition? Speaker 100:32:55Yes, I mean, I think it's a crowded market. There's no other way to look at it. There's been a lot of entrance into the field. I think from Core Lab's perspective, We still maintain a strong competitive edge in the shaped charge energetics that are used to perforate the wells. That always has been our wheelhouse. Speaker 100:33:19We offer competitive preassembled gun systems and a variety of other products into that market that we think offer a highly competitive set of solutions. Yes, the Dyna folks, I mean, I think that's a question best asked to the good folks up there. I think there that you may be seeing some reflection of the landscape that they see that there's alternative products including Core Labs that are gaining traction. Chris or Gwen, you want to add anything to that? Speaker 300:33:55No, I mean, when we look at it from the outside, it makes sense what they've announced. So it doesn't surprise us that They are looking at how to best maximize the businesses that they have in the shareholder value. So it makes sense to us that they're divesting some of the Businesses that it looks like they projected they want to go with Arcadia. Speaker 100:34:22Yes, they make good products for completions, no question about it, highly regarded. I think they run a good shop there. And we'll see how that plays out. Speaker 400:34:33Great. Okay. Thanks for that. And then could you talk about margin progression in Reservoir Description? And any thoughts around potential incrementals in the second half of twenty twenty four? Speaker 100:34:46Yes. I think that segment is highly exposed to international which we see that progressing, call it, low double digits next year. Again, I mean, I think We had a full year incremental margins in 2023 for Reservoir Description of over 85%. That's pretty lofty number there. And so whether we can maintain that exact number might be a little bit challenging, but it's going to be high. Speaker 100:35:16Modeling that out At greater than 50%, 60% incremental margins on growth there on incremental revenue, I think, is very achievable for us. And our we always look at the Our goal of getting back to that 20% operating margin as sort of the baseline that we'd like to see in a normal environment and then up from there. And we got kind of close in Q3. It was Timely to do some merit increase at the beginning of Q4 that raised our labor costs, but we felt was needed to be done to for our staff. So a little bit of step back from 17% to 15% there. Speaker 100:36:07But we think it will progress up. And I think dialing in that low double digit growth for international And applying a 50%, 60% incremental margins probably toward the higher end of that is a good basis for coming up with a model for Forecasting Reservoir Description performance. Speaker 300:36:27The only thing I would add that's a little bit of a headwind for us is and we mentioned it because it's The disruptions from the geopolitical and when these happen, it's very difficult for us to adjust our costs. So the impact, it's not just a revenue, it does impact the margins as well. And sometimes they're temporary. So you just have to kind of manage your way through that with your cost structure. So that's a little bit of a headwind. Speaker 100:36:56Yes. So for example, one of the things we dialed into our thoughts Q1 was you saw a pickup in the conflict in Russia, Ukraine. And of course, The focus of a lot of that conflict has been on infrastructure that deals with the maritime transportation of hydrocarbons It's kind of and I think Core Lab maybe among our peer group a little bit unique in having exposure to that those laboratory services that are needed for that cargo transportation. So it kind of lands on us a bit and we dialed that into our thinking, Seeing what happened both in the Red Sea and across some of the Russian ports, and so hard to predict that. And to Chris' point, it's also hard to manage your costs there. Speaker 100:37:50You don't want to reflexively start slashing costs if it's going to be a temporary disruption. So we'll make the right decision over time on those, and we'll keep our costs aligned. But it's very hard to make those cost adjustments real time when things are unfolding at an unpredictable pace. Speaker 400:38:12Yes, that all makes sense. Thanks a lot. I'll turn it back. Speaker 200:38:16Thanks, Pat. Speaker 400:38:16Okay. Thanks, Pat. Operator00:38:20The next question comes from Dawn Chirst of Johnson Rice. Please go ahead. Speaker 200:38:25Hey, Dawn. Speaker 400:38:26Good morning. Speaker 500:38:26Good morning, guys. In your commentary in the press release, you talked about many of the Middle East projects Kind of moving into implementation now. Where are we in the other parts of the world from the implementation standpoint, I. E. Is Brazil and Guyana really kind of ramping up now in the Far East as well? Speaker 500:38:50Or where are we in the life cycle of those projects? Speaker 100:38:54Yes, John, I'd probably put them in that order. Middle East is the tip of the spear, and that's across multiple countries in the region. And then I'd say South Atlantic margin picking up for us. I would throw in also some West Africa work as well. And then I would say lagging that a bit is Asia Pac, although we've got some pretty bright spots in Australia and Indonesia. Speaker 500:39:27Okay. And one question on the U. S. As Basins mature, obviously you go towards from Tier 1 acreage towards Tier 2, Tier 3. Where are we in the life cycle, particularly in the Bakken, but number 2 in the Permian? Speaker 500:39:45Are you starting to get Some inquiries to evaluate kind of Tier 2 and Tier 3 rock in the Permian? Speaker 100:39:52Yes. I mean, we've got Because of the multi company studies that we've done across all of the major unconventional basins in North America and in many cases, parts of the world. We've got a pretty good sensibility of where the Tier 1, Tier 2 and Tier 3 rock is. And I've joked in the past that we sell that information, where the good stuff is and where the intermediate stuff is and where the not so good stuff is. And clearly, there's been a progression Moving toward the latter stages of Tier 1 and into Tier 2 and in some cases, the lower ends of Tier 2 rock. Speaker 100:40:32I think if you look at production in a lot of the fields, the only one that's really, in our mind, got some growth potential is the Permian. You have to dial that rock quality issue in also with things like Lateral length expansion, that 3rd mile on oil wells, oil producing wells is becoming common practice. But the rock quality, clearly, the best of the best has either been consumed or is rapidly being depleted across all of the basins. And then now it's more of an engineering and completion optimization program, which our Enhancement Group will play into to try to get the most out of those rocks. I'd add a little bit more to that too and say We do see from time to time companies taking refreshed looks at restimulation, refracs and things like that try to go into some of the older legacy wells to try to get to unstimulated rock where the stages were very far apart. Speaker 100:41:39But I do think the growth rate the key point here, Don, is the growth rate that we've seen in production in North America is either not going to continue or is going to be at a much lower pace. Speaker 300:41:53Right. I think it's fair to say too, it's still real early, but with Some of the focus on capturing CO2 and as that becomes maybe more available, There might be opportunities, better opportunities to look at EOR type projects and the unconventionals where The availability of CO2 may have been a limiting factor in that in the past. Speaker 500:42:23Right. And are you getting a lot of work in the Bakken to re stimulate and try to go after that rock that maybe hadn't Been stimulated the first time? Speaker 100:42:34Less so than in some of the other basins, I'd say, is a generalization. And I would add that Some EOR programs that we validated in the lab have seemed to work better in some of the other basins than in some of the parts of the Bakken. Speaker 300:42:52Okay. Speaker 100:42:53But look, Bakken is still a world class field play and stratigraphic target, there's going to be a lot of oil coming out of that. The rate of growth is going to be From where we are today is going to be more determined by advancements in completion technologies and things like that. Speaker 500:43:16Right. But I think they're in the very, very early stages of kind of a refrac program in the basin if I'm reading that correctly, right? Speaker 100:43:25I think that's right, and I think it's highly operator dependent. I don't believe it's proper to characterize that as Broad based approach among a large number of operators to look at restimulation and EOR in that area yet. Speaker 500:43:44Right. Okay. I appreciate the conversation. I'll turn it back. Speaker 200:43:49Thank you, Dawn. Operator00:43:59Back over to Larry Bruno for any closing remarks. Speaker 100:44:03Okay. We'll wrap up here. In summary, Core's operational leadership continues to position the company For improving client activity levels for 2024 and beyond, we have never been better operationally or technologically positioned to help our global client base optimize their reservoirs and address their evolving needs. We remain uniquely focused and are the most technologically advanced, client focused reservoir optimization company in the oilfield service sector. The company will remain focused on maximizing free cash and returns on invested capital. Speaker 100:44:35In addition to our quarterly dividends, we'll bring value to our shareholders via growth opportunities driven by both the introduction of problem solving technologies and new market penetration. In the near term, Core will continue to use free cash to strengthen its balance sheet while always investing in growth opportunities. So in closing, we thank and appreciate all of our shareholders and the analysts that cover Core Lab. The executive management team and the Board of Core Laboratories give a special thanks to our worldwide employees that have made these results possible. We're proud to be associated with our continuing achievements. Speaker 100:45:09So thanks for spending time with us, and we look forward to our next update. Goodbye for now.Read morePowered by