- THIRD QUARTER REVENUE OF $134.4 MILLION, UP 3% SEQUENTIALLY AND OVER 7% YEAR-OVER-YEAR
- THIRD QUARTER OPERATING INCOME OF $19.8 MILLION; EX-ITEMS, $18.2 MILLION, UP 11% SEQUENTIALLY AND 14% YEAR-OVER-YEAR
- THIRD QUARTER OPERATING MARGINS, EX-ITEMS, OF 14% UP 100 BPS SEQUENTIALLY
- THIRD QUARTER GAAP EPS OF $0.25; EX-ITEMS, $0.25, UP 14% SEQUENTIALLY AND YEAR-OVER-YEAR
- THIRD QUARTER FREE CASH FLOW OF $10.4 MILLION
NET DEBT REDUCED BY $11.8 MILLION; DEBT LEVERAGE RATIO REDUCED TO 1.47
Core Laboratories Inc. (NYSE: "CLB") ("Core", "Core Lab") reported third quarter 2024 revenue of $134,400,000. Core's operating income was $19,800,000, with diluted earnings per share ("EPS") of $0.25, all in accordance with U.S. generally accepted accounting principles ("GAAP"). Operating income, ex-items, a non-GAAP financial measure, was $18,200,000, yielding operating margins of 14%, up 100 basis points sequentially, and EPS, ex-items, of $0.25. During the third quarter of 2024, the Company recorded an adjustment of $1,400,000 to stock compensation expense for certain performance share awards which are no longer expected to vest.
Core's CEO, Larry Bruno stated, "In the third quarter of 2024, Core Lab delivered solid sequential improvements in revenue, operating income, operating margins, incremental margins and earnings per share. Demand for our Reservoir Description services continued to grow across our international laboratory network despite headwinds from on-going geopolitical conflicts. In Production Enhancement, revenue increased sequentially, driven by higher international product sales. However, these improvements were somewhat offset by hurricane-related delays in diagnostic service revenue tied to suspended well operations in the Gulf of Mexico. Following positive meetings with Middle East operators in the second quarter of 2024, personal face-to-face meetings with Asia-Pacific operators during the third quarter reinforced growth opportunities for both of Core's operating segments. Collectively, these client meetings support our perspective for a multi-year cycle of expanded project activity. At the end of the third quarter, the Company achieved its longstanding goal of reducing our debt leverage ratio to below 1.50. The leverage ratio is now at its lowest level in over six years. Core remains focused on executing its strategic business initiatives while also reducing our debt leverage ratio, as the Company evaluates various opportunities to increase shareholder value."
Reservoir Description
Reservoir Description operations are closely correlated with trends in international and offshore activity levels, with approximately 80% of revenue sourced from projects originating outside the U.S. Revenue in the third quarter of 2024 was $88,800,000, up 3% sequentially and over 4% from last year. Operating income on a GAAP basis was $16,500,000, while operating income, ex-items, was $15,400,000, yielding operating margins of over 17%, a sequential improvement of 370 basis points. The segment's financial performance in the third quarter reflects growing demand for reservoir rock and fluid analysis across the Company's global operations. This growth occurred despite negative impacts from both on-going geopolitical conflicts, as well as disruption of work in the Gulf of Mexico due to weather events.
Core Lab continues to expand its engagement in Carbon Capture and Sequestration ("CCS") projects, leveraging its expertise in reservoir characterization. In addition to Core's multi-company joint industry project that is being conducted in conjunction with Dr. Birol Dindoruk of the University of Houston, during the third quarter of 2024, the Company secured multiple contracts to evaluate CCS sites across the Gulf Coast region and other parts of the United States. Employing its proprietary laboratory reservoir characterization technologies, Core Lab is performing detailed petrophysical, geological and geochemical analyses, along with fluid flow experiments, formation damage assessments, and geomechanical testing. Core Lab's technologies are critical for evaluating the long-term viability of potential CO2 injection sites.
Also, during the third quarter of 2024, engagement on projects in the Middle East continued to expand. Kuwait Oil Company ("KOC") selected Core Laboratories to lead a comprehensive fluid analysis campaign as part of an offshore exploration program in the Arabian Gulf. The project area is considered to have high potential for contributing to KOC's long-term production growth goals. High-quality pressure-volume-temperature ("PVT") analysis and advanced analytical chemistry are critical for evaluating reservoir maturity, volumetric potential, and production characteristics. The hard data points that Core Lab provides form the backbone of the reservoir models operators use to make major investment decisions.
Production Enhancement
Production Enhancement operations, which are focused on complex completions in unconventional oil and gas reservoirs in the U.S., as well as conventional and unconventional projects across the globe, posted third quarter 2024 revenue of $45,600,000, up 3% sequentially and over 13% year-over-year. Operating income on a GAAP basis was $3,200,000, while operating income, ex-items, was $2,600,000, yielding operating margins of 6%. The sequential financial performance reflects improvement in international product sales; however, this was offset by 1) a delay of diagnostic service revenue related to multiple hurricanes in the Gulf of Mexico and 2) to a lesser extent, a decline in U.S. land completion activity.
In the third quarter of 2024, Core Lab's completion diagnostic technologies were utilized to provide insight into complex unconventional completions. For several years, operators in Alberta, Canada have been drilling and completing open-hole multilateral wells to optimize reservoir drainage. This wellbore architecture makes it difficult to confirm oil production from comingled laterals. Recently, an operator used Core's diagnostic technologies to determine if oil was being produced from individual laterals. To accomplish this, Core deployed its proprietary solid Flow Profiler OilTM technology, which placed a unique oil-activated tracer in each lateral. During initial production, fluid samples were collected at the surface and analyzed in the laboratory. The test results confirmed oil production from each lateral. Subsequently, the operator asked Core Lab to both confirm oil production from each lateral, and to identify the source(s) of produced water. The lab data from water tracers will provide the operator with the option to shut off boreholes with excessive water-production, thus reducing disposal costs. Core is currently preparing to deploy a family of newly developed solid water tracers that will also be placed in each lateral. By utilizing both oil and water tracers, the produced fluid samples will help the operator better understand how individual boreholes are contributing to comingled production.
In 2023, a national oil company in the Middle East engaged Core's ballistic engineering team to develop a solution to improve operational efficiencies and reduce costs in offshore plug and abandonment ("P&A") well operations. Leveraging its expertise in energetics as an alternative to traditional casing section milling, Core developed an innovative technology to accelerate P&A operations. During the third quarter of 2024, the Company's ballistic engineering design team deployed its patented Pulverizor™ technology. The Pulverizor™ technology: 1) rubbilizes the cement, 2) generates a significant level of cement debonding with the target casing interval, and 3) allows the casing to be pulled to the surface without having to wash the annulus. Field trials successfully demonstrated that PulverizorTM reduced the amount of rig overpull required to retrieve casing without having to conduct the wash operation. Pulverizor™ not only contributes to the safety of offshore well abandonment, but also aligns with increasing global demand for cost-effective solutions in complex P&A applications. Core Lab is presenting this new technology as a co-author and co-presenter at ADIPEC in November of this year.
Liquidity, Free Cash Flow and Dividend
Core continues to focus on maximizing free cash flow ("FCF"), a non-GAAP financial measure defined as cash from operations less capital expenditures. For the third quarter of 2024, cash from operations was $13,100,000 and capital expenditures were $2,700,000, yielding FCF of $10,400,000. The Company generated $27,100,000 of FCF for the nine months ended September 30, 2024, a significant improvement from the same period last year. The year-over-year improvement in FCF generated during 2024 reflects higher profitability, as well as better management of inventory and working capital.
Core expects to continue generating positive free cash flow in future quarters. As of September 30, 2024, Core's net debt (defined as long-term debt less cash and cash equivalents) was $120,500,000, which was reduced by $11,800,000 during the quarter. The Company's leverage ratio (calculated as total net debt divided by adjusted EBITDA for the last four quarters) was reduced to 1.47 as of September 30, 2024, which improved from 1.66 as of June 30, 2024. Core will remain focused on executing its strategic business initiatives while also further reducing our debt leverage ratio as the Company continues to evaluate allocation of capital and other uses of free cash.
On July 24, 2024, Core's Board of Directors ("Board") announced a quarterly cash dividend of $0.01 per share of common stock, which was paid on August 26, 2024 to shareholders of record on August 5, 2024.
On October 23, 2024, the Board approved a cash dividend of $0.01 per share of common stock payable on November 25, 2024 to shareholders of record on November 4, 2024.
Return On Invested Capital
The Board and the Company's Executive Management continue to focus on strategies that maximize return on invested capital ("ROIC") and FCF, factors that have high correlation to total shareholder return. Core's commitment to an asset-light business model and disciplined capital stewardship promotes capital efficiency and are designed to produce more predictable and superior long-term ROIC.
The Board has established an internal metric to demonstrate ROIC performance relative to the oilfield service companies listed as Core's Comp Group by Bloomberg, as the Company continues to believe superior ROIC will result in higher total shareholder return. Using Bloomberg's formula, the Company's ROIC as of September 30, 2024 was 8.6%.
Industry and Core Lab Outlook and Guidance
Core Lab continues to see a multi-year international recovery due to underinvestment, increasing focus on energy security and rising crude-oil demand, all supporting continued activity growth into 2025. In alignment with this outlook, Core will continue to execute its strategic plan of investing in technology and pursuing growth opportunities, while remaining well-engaged on long-cycle international projects. The IEA, EIA and OPEC+ continue to forecast growth in crude-oil demand between 1.0 and 1.6 million barrels per day for 2025, which is in addition to the natural decline of production from existing fields. As such, continued investment in the development of onshore and offshore crude-oil fields will be required to meet the projected growth in demand. In the near-term, we expect that crude-oil markets will remain volatile due to global economic and geopolitical risks and uncertainties.
Consequently, as international project activity continues to expand, committed long-term upstream projects from the Middle East, South Atlantic Margin, certain areas of Asia Pacific and West Africa support year-over-year growth in demand for Core Lab's services and products. Core anticipates U.S. land activity to trend lower in the fourth quarter of 2024, however, return to similar activity levels year-over-year in 2025. For the near-term, U.S. land activity is currently negatively influenced by recent E&P consolidations and weak natural gas prices.
Fourth quarter 2024 guidance for both business segments includes the impact of client project delays caused by weather events in the Gulf of Mexico. Core projects Reservoir Description's fourth quarter 2024 revenue to be flat to up slightly. Turning to Production Enhancement, the U.S. frac spread count continues to trend lower. In addition, the Company anticipates the typical year-end seasonal decline in U.S. onshore completion activity.
Reservoir Description's fourth quarter 2024 revenue is projected to range from $87,500,000 to $90,500,000, with operating income of $13,400,000 to $14,900,000. Core's Production Enhancement segment's fourth quarter 2024 revenue is estimated to range from $41,000,000 to $45,000,000, with operating income of $1,300,000 to $2,700,000.
The Company's fourth quarter 2024 revenue is projected to range from $128,500,000 to $135,500,000, with operating income of $14,800,000 to $17,700,000, yielding operating margins of approximately 12%. EPS for the fourth quarter of 2024 is expected to be $0.20 to $0.25.
The Company's fourth quarter 2024 guidance is based on projections for underlying operations and excludes gains and losses in foreign exchange. Fourth quarter 2024 guidance also assumes an effective tax rate of 20%.
