Core Laboratories Q4 2024 Earnings Report

Core Laboratories EPS Results

• Actual EPS: $0.23
• Consensus EPS: $0.23
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Core Laboratories Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $133.35 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Core Laboratories Announcement Details

• Quarter: Q4 2024
• Date: 1/29/2025
• Time: After Market Closes
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 8:30AM ET

Core 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.

Core Laboratories Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, and welcome to the Core Laboratories Fourth Quarter twenty twenty four Earnings 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.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Thanks, Dave. 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' fourth quarter twenty twenty four earnings call. This morning I'm joined by Chris Hill, Core's Chief Financial Officer and Gwen Gresham, Chorus' Senior Vice President and Head of Investor Relations.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

The call will be divided into 6 segments. Gwen will start by making remarks regarding forward looking statements. We'll then have some opening comments, including a high level review of important factors in Core's Q4 performance. In addition, we'll review Core's strategies and the 3 financial tenants 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.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Following Chris, Gwen will provide some comments on the company's outlook and guidance. I'll then review Cor's two operating segments detailing our progress and discussing the continued successful introduction and deployment of Cora Labs technologies, as well as highlighting some of Cora'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.

[Gwen Gresham, SVP & Head, IR at Core Laboratories]

Before we start the conference this morning, I'll mention that some of the statements we make during this call may include 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.

[Gwen Gresham, SVP & Head, IR at Core Laboratories]

Our comments also include non GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures is included in the press release announcing our results. Those non GAAP measures can also be found on our website. With that, I'll pass the discussion back to Larry.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Thanks, Gwen. Moving now to some high level comments about our and full year 2024 results. Core continued to execute a strategic plan of technology investments targeted to both solve client problems and capitalize on Core's technical and geographic opportunities. Revenue was down just under 4% compared to However, full year revenue saw an increase of 3%. In addition, while operating income and earnings per share were down sequentially for full year 2024, the company's operating income was up 7% and earnings per share was up 9% compared to 2023.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

In Reservoir Description, revenue for the was down 2% compared to but up 3% from reflecting the continued market demand for our global rock and fluid laboratory services. This year over year improvement occurred despite the ongoing trade sanctions and geopolitical conflicts in Russia, Ukraine and The Middle East that continue to negatively impact demand for laboratory services that are specifically tied to the assay of crude oil and derived products. These geopolitical factors and sanctions are still producing headwinds to both revenue growth and operating margins for reservoir description. Despite these hurdles for the ex items, operating margins in reservoir description were still strong at 16%, down sequentially by 110 basis points, but up year over year by 170 basis points as we continue to focus on operational efficiencies. In production enhancement, revenue was down 7% sequentially compared to and roughly flat for the full year 2024 versus 2023.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Ex items, operating margins in Production Enhancement were 4%. In 2024, the company did experience a higher level of international product sales compared to 2023. However, these were offset by a decline in U. S. Product sales reflecting lower levels of onshore completion activity in 2024 compared to 2023.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Completion diagnostic services that were scheduled for 2024 in the Gulf Of Mexico and were delayed by multiple hurricanes have now been rescheduled by our clients to Despite lower U. S. Onshore completion activity for the full year demand for completion diagnostics were up nicely. In line with our stated financial strategy after funding our dividend, Core continued to dedicate the majority of its free cash to paying down debt. During the net debt was reduced by nearly $12,000,000 This reduction in our outstanding net debt also decreased Core's leverage ratio to 1.31 down from 1.47 last quarter, eliminating approximately 10% of the company's outstanding debt compared to the This is the lowest core's leverage ratio has been in the last eight years marking another significant step in our pledge to strengthen our balance sheet and delever the company.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

In addition to paying our quarterly dividend, Core Lab returned excess free cash to our shareholders by repurchasing nearly 265,000 shares of company stock during the We will continue to focus free cash on reducing debt and strengthening our balance sheet while evaluating other opportunistic uses of free cash to improve shareholder value. Lastly, for the full company, X items for the full year 2024, EPS was 0.87 per share representing a year over year growth in earnings of 9%. As we look ahead, Core will continue to execute its key strategic objectives by 1, introducing new product and service offerings in key geographic markets, 2, maintaining a lean focused organization and 3, maintaining our commitments to delevering the company and returning excess free cash to shareholders. Now to review Core Lab's strategies and the financial tenants the company has used to build shareholder value over our twenty nine year history as a publicly 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.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

I'll talk more about some of our latest innovations in the operational review section of this call. While we continue to pursue opportunities, the company will remain focused on its 3 long standing long term financial tenants. Those being to maximize free cash flow, maximize return on invested capital and returning excess free cash to our shareholders. I'll now turn it over to Chris for the detailed financial review.

[Christopher Hill, SVP & CFO at Core Laboratories]

Thanks, 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. Additionally, during the the company recorded an adjustment of $410,000,0.0 for the write down of certain assets and discontinued inventory items, as well as costs associated with further consolidation of operational facilities. The also includes a gain of $330,000,0.0 on insurance proceeds received and the reversal of stock compensation expense for certain performance share awards, which did not vest.

[Christopher Hill, SVP & CFO at Core Laboratories]

The comparison periods for the and also include items that were discussed in those calls and highlighted in our earnings release for those periods. These items have also been excluded from our discussion of the financial results today. You can find a summary of those items in the tables attached to our press release for the and full year of 2024. So now looking at the income statement, revenue was $12,920,000,0.0 in the down 4% compared to the prior quarter and up slightly year over year. The sequential decline was primarily associated with a decrease in U.

[Christopher Hill, SVP & CFO at Core Laboratories]

S. Onshore activity. Additionally, our laboratory services associated with crude assay analysis have been adversely impacted in certain regions due to the ongoing conflicts in Ukraine, Russia and The Middle East. For the full year 2024, revenue was $52,380,000,0.0 up 3% year over year, which was driven by growth in our service revenue and partially offset by a lower level of product sales. Of this revenue, service revenue which is more international was $9,650,000,0.0 for the quarter, down 2% sequentially and up 2 from last year.

[Christopher Hill, SVP & CFO at Core Laboratories]

The decline in U. S. Land activity continued throughout the and into the However, this was partially offset by improved activity on completion diagnostic projects in the Gulf Of Mexico, which were negatively impacted by storms in the Although the ongoing geopolitical conflicts continue negatively impact crude assay laboratory services in certain international regions, we continue to see growth for both our reservoir rock and fluid analysis as well as completion diagnostic services in several international regions. For the full year of 2024, service revenue of $38,820,000,0.0 was up over 4% compared to $37,190,000,0.0 in 2023. Product sales, which is equally tied to U.

[Christopher Hill, SVP & CFO at Core Laboratories]

S. And international activity was $3,270,000,0.0 for the quarter, down 8% sequentially and down 2% from the The sequential and year over year decrease in product sales was primarily due to a decline in The U. S. Onshore activity, while product sales to international markets were flat sequentially, but increased 8% year over year. For the full year of 2024, product sales of $13,560,000,0.0 were down 2% from $13,790,000,0.0 in 2023, which is primarily associated with the activity decline in The U.

[Christopher Hill, SVP & CFO at Core Laboratories]

S. Onshore market. Moving on to cost of services, X items for the quarter was slightly below 76% of service revenue, comparable to the prior quarter and the same quarter in 2023. We will continue to see improvements in absorption of costs and utilization of our global laboratory network with growth in these services. However, the service side of our business has been more impacted by the geopolitical conflicts and associated sanctions.

[Christopher Hill, SVP & CFO at Core Laboratories]

The volatility in crude oil prices and more recently expanded sanctions continue to cause disruptions to the trading and maritime movement of crude oil and derived products and the associated crude assay laboratory services that we provide. The company will continue to manage its cost structure as effectively as we can through these temporary disruptions in certain regions. For full year 2024, cost of services x items was below 77% of service revenue, which compared to 76% in 2023. Cost of sales ex items in the was 90% of sales revenue compared to 88% in the prior quarter and 91% in the same quarter in 2023. The increase this quarter is primarily due to reduced manufacturing efficiencies associated with lower U.

[Christopher Hill, SVP & CFO at Core Laboratories]

S. Onshore sales. The company anticipates The U. S. Onshore activity levels will begin to improve as the unfolds and reach similar levels compared to 2024.

[Christopher Hill, SVP & CFO at Core Laboratories]

The company will continue to manage the business as efficiently as possible through this volatility in The U. S. Market. For the full year 2024, cost of sales ex items was approximately 88% of sales revenue, which compares to 85% in 2023. G and A ex items for the quarter was $990,000,0.0 down slightly compared to the prior quarter.

[Christopher Hill, SVP & CFO at Core Laboratories]

Full year 2024 G and A ex item was $3,840,000,0.0 compared to $3,660,000,0.0 in the full year of 2023. For 2025, we expect G and A to be approximately $40,000,000 to $44,000,000 It is also important to note that 100% of our corporate G and A expenses are allocated and absorbed into the financial performance of the reported segments. Depreciation and amortization for the quarter was $370,000,0.0 and flat compared to the last quarter, but down compared to $390,000,0.0 in the same quarter last year. EBIT ex items for the quarter was 15700000.0 down $250,000,0.0 from last quarter yielding an EBIT margin of over 12%. Year over year EBIT ex items for the was up slightly from last year.

[Christopher Hill, SVP & CFO at Core Laboratories]

Our operating income for the quarter on a GAAP basis was $1,420,000,0.0 Full year 2024 EBIT ex items was $6,530,000,0.0 up 7% from $6,120,000,0.0 in 2023. And on a GAAP basis, EBIT was $5,860,000,0.0 for 2024 compared to $5,460,000,0.0 in 2023. Interest expense of $260,000,0.0 decreased over 15% compared to $310,000,0.0 in the prior quarter and decreased 27% compared to $360,000,0.0 in the The decrease in interest expense is a direct result of the company's continued effort to reduce debt. Income tax expense at an effective tax rate of 20% and ex items was $260,000,0.0 for the quarter. On a GAAP basis, tax expense was 4100000.0 for the quarter and for the full year of 2024 income tax expense on a GAAP basis was $14,000,000 compared to $420,000,0.0 in 2023.

[Christopher Hill, SVP & CFO at Core Laboratories]

And the lower tax expense in 2023 is primarily due to the tax benefit of $1,160,000,0.0 associated with the redomestication transaction that was executed in 2023. Additionally, the company continues to evaluate and finalize tax planning associated with the new tax structure after redomesticating the parent company from The Netherlands to The U. S. For 2025, we project the company's effective tax rate to be approximately 25%. However, the effective tax rate will continue to be somewhat sensitive to the geographic mix of earnings across the globe and items that are discrete to each quarter.

[Christopher Hill, SVP & CFO at Core Laboratories]

Net income ex items for the quarter was $1,040,000,0.0 down from $1,180,000,0.0 in the prior quarter, but up from $890,000,0.0 in the same quarter last year. On a GAAP basis, we recorded net income of $740,000,0.0 for the quarter. For the full year 2024, net income ex items was $4,160,000,0.0 up 10% from $3,780,000,0.0 in 2023. GAAP net income for the full year of 2024 was $3,140,000,0.0 Earnings per diluted share ex items was $0,.22 for the quarter, down from $0,.25 in the prior quarter, but up from $0,.19 in the same quarter last year. On a GAAP basis, earnings per diluted share was 0.15 for the quarter and for the full year 2024, earnings per diluted share, ex items was $0,.87 up 9% from 2023 and on a GAAP basis full year 2024 EPS was 0.66 Turning to the balance sheet, receivables were $11,180,000,0.0 which decreased approximately $580,000,0.0 from the prior quarter.

[Christopher Hill, SVP & CFO at Core Laboratories]

Our DSOs for the were at seventy six days compared to seventy four days in the prior quarter. Inventory was $5,940,000,0.0 as of December '31, a decrease of approximately $610,000,0.0 from last quarter end and down $1,230,000,0.0 from the end of last year. Inventory turns for the quarter improved to $210,000,0.0 from $190,000,0.0 in the last quarter and have continued to improve over the last few quarters. Despite a challenging U. S.

[Christopher Hill, SVP & CFO at Core Laboratories]

Onshore market this quarter, our our team did a nice job remaining focused on our inventory management and we will remain focused on these efforts as we continue to look for improvement in 2025. Now to the liability side of the balance sheet, our long term debt was $128,000,000 dollars at Dec. 31, 2024, a reduction of $14,000,000 this quarter. Considering cash of $1,920,000,0.0 net debt was $10,880,000,0.0 a decrease of $1,170,000,0.0 from $12,050,000,0.0 at the end of the prior quarter. For 2024, net debt was reduced by 42000000 or 28% from the end of last year.

[Christopher Hill, SVP & CFO at Core Laboratories]

Additionally, our leverage ratio continued to improve throughout 2024 and decreased from 1.76 last year end to 1.31 at Dec. 31, 2024. As Larry mentioned earlier, this is the lowest our leverage ratio has been in over eight years. Our debt is currently comprised of our senior notes at $110,000,000 and $18,000,000 outstanding under our bank credit facility. Our credit facility has a borrowing capacity of 135000000 of which approximately $10,610,000,0.0 was still available as of Dec.

[Christopher Hill, SVP & CFO at Core Laboratories]

31, 2024. Since announcing the company's commitment and focus on reducing debt in the we have reduced net debt by 63. The company will remain focused on executing its strategic business initiatives, while continuing to apply free cash towards reducing debt and lowering the leverage ratio. Looking at cash flow for the cash flow from operating activities was $2,060,000,0.0 and after paying for $440,000,0.0 of CapEx during the quarter, our free cash flow was $1,620,000,0.0 For the full year 2024, cash flow from operating activities was $5,640,000,0.0 and capital expenditures totaled a little over $13,000,000 From this, the company generated free cash flow of $4,340,000,0.0 a significant improvement from $1,420,000,0.0 in 2023. Looking ahead to 2025, we will continue to manage investment in working capital during a period of growth and continue our capital discipline with capital expenditures primarily targeted at growth opportunities.

[Christopher Hill, SVP & CFO at Core Laboratories]

However, our capital expenditures are expected to be elevated as the rebuilding of our Aberdeen facility that was damaged by a fire in is planned for 2025. Capital expenditures associated with restoring this facility is estimated to be between $10,000,000 and $12,000,000 However, these investments are covered by insurance proceeds either received in 2024 or to be received in 2025. The company will report the CapEx associated with rebuilding the Aberdeen facility separately. So excluding the Aberdeen facility, we expect capital expenditures in 2025 to be in the range of $15,000,000 to $17,000,000 Core Lab's global laboratory network and intellectual property continues to provide operational leverage and the ability to grow revenue and profitability with minimal capital requirements. Additionally, we continue to improve the efficiencies in our global laboratory infrastructure through some consolidation of operations and investments in automation.

[Christopher Hill, SVP & CFO at Core Laboratories]

Capital expenditures have historically ranged from 2.5% to 4% of revenue even during periods of significant growth. We 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.

[Gwen Gresham, SVP & Head, IR at Core Laboratories]

Thank you, Chris. As 2025 unfolds, Core will continue to execute its strategic plan of technology investments targeted to both solve client problems and capitalize on Core's growth opportunities. A cautious near term approach was adopted by operators in the 04/00, driven by concerns over a potential imbalance between crude oil supply and demand. However, we maintain our constructive long term outlook on international upstream projects for 2025 and beyond. The IEA, the EIA and OPEC plus continue to forecast growth in crude oil demand of approximately 1100000.0 to 1400000.0 barrels per day for 2025, which is in addition to the natural decline of production from existing fields.

[Gwen Gresham, SVP & Head, IR at Core Laboratories]

As such, continued investment in the development of onshore and offshore crude oil fields will be required to meet demand. In the near term, we expect that crude oil markets will remain volatile due to the global economic uncertainties and geopolitical risks. In expanded sanctions impacted the maritime movement and trading of crude oil and derived products along with the demand of necessary laboratory assay work and prohibited product sales and services to a broader group of entities. In alignment with this outlook, Core will remain well engaged on long cycle international projects. Looking ahead as international project activity is expected to be steady, committed long term upstream projects from the South Atlantic margin, North And West Africa, Norway, The Middle East and certain areas of Asia Pacific support mid single digit growth year over year and demand for Core Lab services and products.

[Gwen Gresham, SVP & Head, IR at Core Laboratories]

In The U. S, onshore activity is projected to be flat to slightly down compared to 2024. In addition to the geopolitical risk and recently expanded sanctions, seasonal industry patterns will cause activity in the to decline in some regions. Severe weather in The U. S.

[Gwen Gresham, SVP & Head, IR at Core Laboratories]

And The Mediterranean resulted in suspended client activities and facility closures. As such, Core Projects Reservoir Description's excuse me, revenue to range from $82,000,000 to $85,000,000 with operating income of $9,000,000 to $1,070,000,0.0 The onshore U. S. Drilling and completion activity was adversely impacted by freezing conditions and continued to decline throughout Jan. 0.

[Gwen Gresham, SVP & Head, IR at Core Laboratories]

However, activity is expected to improve as the quarter unfolds. Consequently, Production Enhancement's first quarter revenue is expected to range from $39,000,000 to $42,000,000 with operating income of $110,000,0.0 to $2,000,000 dollars The company's revenue is projected to range from $121,000,000 to $127,000,000 with operating income of $1,020,000,0.0 to $1,280,000,0.0 yielding operating margins of approximately 9%. Core's effective tax rate is projected at approximately 25% for 2025. This change in the effective tax rate is projected to increase income tax expense for the by approximately $500,000 As such, EPS for the is expected to range from 0.12 to $0,.16 The company's guidance is based on projections for underlying operations and excludes gains and losses and foreign exchange. I'll now turn the call back to Larry.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Thanks, 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 success. Looking at the macro, as Gwen mentioned, after assessing current and near term economic conditions, recent IEA, EIA and OPEC projections are forecasting growth in global crude oil demand of between one point one million and one point four million barrels per day for 2025 compared to 2024. This projected growth in demand is in addition to the production that needs to be brought online to account for the natural decline from existing producing fields.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Furthermore, the EIA is forecasting U. S. Oil production to only rise from 13200000.0 barrels per day in 2024 to 13500000.0 barrels per day in 2025. Excluding the COVID period, year over year growth of only 300000 barrels per day would would represent the smallest annual add to U. S.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Oil production since 2018. In addition, the most recent EIA forecast projects that U. S. Production growth will rise to only 13600000.0 barrels per day in 2026, an increase of just 100000 barrels per day. U.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

S. Tight oil production has been by far the largest component of non OPEC production growth since 2010. Continued growth in global oil demand combined with slowing year over year U. S. Oil production growth supports the thesis that future crude oil demand will be largely met from international, conventional, offshore discoveries and developments, all trends that bode well for increasing demand for reservoir description services, a pattern that we project will play out for the next several years.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Production Enhancement in addition to its exposure to The U. S. Land market also has expanding opportunities in international markets such as with unconventional plays in The Middle East and emerging onshore and offshore conventional plays in a number of regions. Core Lab also continues to expand its portfolio of innovative offerings for perforating applications, plug in abandonment operations and completion diagnostics. In addition, in 2024, opened a completion diagnostics lab in The Middle East to better serve the opportunities in opportunities in that region.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Now let's review the performance of our 2 business segments. Turning first to reservoir description. For the revenue came in at $8,680,000,0.0 down 2% compared to For operating income from Reservoir Description, ex items was $1,410,000,0.0 down from $1,540,000,0.0 in but operating margins were still strong at over 16% slightly below the 17% achieved in While demand for reservoir description lab services remained strong across our global network, demand softened in The U. S. Market in in line with reduced U.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

S. Land activity and headwinds persisted from international geopolitical conflicts and associated sanctions. These geopolitical conflicts and sanctions detracted from growth trends that are occurring across other regions. Now for some operational highlights from reservoir description. During the a leading Middle East Offshore Operator engaged CorLapse formation damage team to address challenges related to the re injection of produced water from a mature field.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Cost effective and environmentally sound disposal of produced water often influences the return on investment that operators can achieve from an oil and gas field. Core's team conducted advanced fluid compatibility and core flooding experiments in the laboratory. These analytical results provided critical data for both the design of cost effective water treatment facilities and the optimization of the operators re injection strategies. Specifically, these tests determine the need for filtration and chemical treatment strategies This project nicely This project nicely illustrates how Core Lab's reservoir description services are required throughout the lifecycle of oil and gas fields. Now to production enhancement, where Core Lab's technologies continue to help our clients optimize their well completions and improve production.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Revenue for Production Enhancement for came in at $4,240,000,0.0 down 7% compared to and down 3% year over year. Operating income for Production Enhancement, ex items was $150,000,0.0 yielding operating margins of 4%. For the full year, revenue was $178,000,000 and operating income ex item was $12,000,000 down 16% compared to 2023. Production enhancement did achieve both slightly higher levels of international product sales up 1.1% as well as growth in demand for completion diagnostic services which were up 15% largely reflecting improved market penetration of innovative technology offerings in The U. S.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

However, product sales in The U. S. Did feel the impact of reduced U. S. Land completion activity.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Now for operational highlights for production enhancement. During the continued to build on the success of its refrac energetic technologies for mechanical isolation recompletions in unconventional reservoirs. Recompletions allow operators to extend the productive life of their well horizontal well. Several North American operators approach Core Lab's ballistic engineers to design fit for purpose energetic solutions for recompletions. Conventional shaped charges would provide inferior performance leading to lower frac efficiencies and reduced stimulated reservoir volumes in the new stages.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Core Lab's experts developed proprietary ballistics to overcome the completion challenges presented in these mechanical isolation recompletions, which include the penetration of multiple downhole casing strings. In recompletions that use Core's proprietary refrac technology, operators reported approximately 50 improved hydraulic fracturing efficiencies leading to significantly higher hydrocarbon recovery rates. Also in the completion diagnostic technologies were used by a deepwater Gulf Of Mexico Operator who sought Core's help to confirm the competency of their frac pack completion. To do so, Core employed its SpectraStim proppant tracing, SpectraScan gamma ray logging and PACScan technologies. The diagnostic data showed sufficient proppant reserve above the top of the sand control screen but a complete absence of proppant across the lower third of the screen.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Core's engineering team was able to identify that formation finds had entered the annular space prior to the frac pack. The daily drilling reports revealed that numerous tubing movements had occurred while pumping the frac pack. Forre's diagnostic experts and the operator's completions team agree that the excess tubing movements had drawn formation fines into the annulus. The operator chose to set a plug in the tubing above the formation material and proceed with production operations thus preventing an expensive completion failure. That concludes our operational review.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

We appreciate your participation and Dave will now open the call for questions.

[Operator]

We will now begin the question and answer session. Our first question comes from Stephen Gengaro with Stifel. Please go ahead.

[Stephen Gengaro, Managing Director at Stifel Financial Corp]

Thanks. Good morning, everybody.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Good morning, Steve.

[Stephen Gengaro, Managing Director at Stifel Financial Corp]

I probably ask you this almost every quarter, but when we think about production enhancement in The U. S.

[Stephen Gengaro, Managing Director at Stifel Financial Corp]

Market, how do you think about the competitive dynamics and the pricing environment? We heard recently that the oriented perf guns were having a great deal of success in kind of enhancing production. So just curious how you kind of what you see in that market and how you what you could do maybe to get paid more for the value you generate?

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Yes. Well, look, it's a crowded market, Steve. We've talked about this with you and across our conversations. It's a crowded market with a lot of competition and you've got some buyers that want to pay for technology and you've got and performance and you've got some buyers that want commodity products. And so we're going to always try to aim ourselves at technology advantages that differentiate our projects.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

So I'd say we've seen stable pricing in that market. I wish it was higher and we were getting rewarded more for that technology, but with so much capacity in that space, I think that it's going to weigh on everybody that's playing in that market.

[Stephen Gengaro, Managing Director at Stifel Financial Corp]

Okay, great. Thanks. And then can you talk a little bit about the R and D business internationally and kind of what you're seeing on the on both the I guess on the pricing side, but also like when you think about 25%, like what do you think will be the biggest drivers of that business?

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Yes. So I think we maybe bifurcate a little bit of what we're seeing in and what we dialed into our forecast for Couple of things, we very regularly, I'll call it typically see and expect a seasonal decline from to in reservoir description operations. Some of that's weather and we've had some activity, severe weather recently that resulted in some closures along the Gulf Coast that accentuated that a bit. And that never helps when you've got office closures tied to that. But more importantly, there's a normal seasonal pattern that unfolds with our client activity that pushes our description down.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

On top of that and rather significantly for us, the sanctions that came out and were announced on January '10, actually hit both segments of our business. And it affected product sales into Eastern Europe and it affects reservoir description operations as they relate to laboratory work on the crude assay work that are required for trading and transportation of crude oil. So a bunch of ships were added to be excluded from the market and trading activity really kind of came to a halt for a little while and thus the demand for the lab services while people sort out the sanctions. So that influences the outlook for us. As we look further throughout the year, we still think reservoir description will be up by mid single digits.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

International activity still strong for us. Project progression still looks good. I think we're probably a bit more optimistic than some of the others have forecast for international activity as it relates to reservoir description. So no, I'd say no downside for us on pricing. And in fact, I think year over year we're seeing up by mid single digits for reservoir description.

[Stephen Gengaro, Managing Director at Stifel Financial Corp]

Great. Thank you for the color.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Yes, sure.

[Operator]

And the next question comes from Josh Jain with Daniel Energy Partners. Please go ahead.

[Gwen Gresham, SVP & Head, IR at Core Laboratories]

Hey, Josh.

[Josh Jayne, Managing Director at Daniel Energy Partners]

Thanks. Good morning. First question, I just wanted to dig into that a little bit more going back to the mid single digit activity increase internationally. Maybe you guys could give a bit more detail walking through the world through your international markets where you're seeing the most growth and where things may be more muted over the course of 2025?

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Yes. So, I guess 1 thing Josh that we talked about over time is, we tend to by somewhat by design, somewhat by just how our projects unfold. We tend to not be a leading indicator of what's happening in a sector in the industry, particularly in reservoir description. We tend to lag on the way up and lag on the way down. And so some of the folks that are more involved in well construction, they see an early bump in activity and then they things slow down for them.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

We're still, I call it in a very constructive phase for us as it relates to formation evaluation. In particular, I point out The Middle East on that projects in multiple countries that are in the early stages of execution for us. And so we think those have some pretty nice legs on them. I think the South Atlantic margin still looks good, although in a few places like West Africa and the South Atlantic margin. We have seen some clients report some dry holes that will impact us over time.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

They didn't discover the sand that they were looking for or didn't find any hydrocarbon. So rock and fluid analysis will kind of fall off on that. But I think still very constructive on the South Atlantic margin for several years to come. Middle East, Asia Pacific, I'd say we are very optimistic about Australia and Indonesia. We see project work in the North Sea on the Norway side of the North Sea looks good for us.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

So I think that looks pretty strong for us. I will point out 1 place where we're not active and I think is going to pose a headwind for some others is Mexico. We got out of Mexico operationally a while ago. We'll still sell product or service into it, but we won't, if they want to come to us and have that done out of The U. S, but we're out of operationally out of Mexico.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

And so I think that will be, at least for the near term that will prove out to be a good move by us to vacate that market.

[Josh Jayne, Managing Director at Daniel Energy Partners]

Thanks for all that detail. I appreciate it. Second question is more of a shorter term, but I just want to get a bit of a grasp on it a little bit, which is the weather. Could you just talk about where exactly you saw the largest impact? How many days you were ultimately down?

[Josh Jayne, Managing Director at Daniel Energy Partners]

I know you talked about Gulf Coast and office closures, and I know we felt some of it in Houston. But maybe you could just go into that a little bit more so the industry could have a better idea of where we stood over the course of Thanks.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Yes, sure. So our main product manufacturing facility is up in Godley, Texas. We had two plus days, two and a half days or so of freeze related closures there. Our largest laboratory facility in the world in Houston was closed for a couple of days. And we got the I guess we got the light end of it on the reservoir description side.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Laboratories in the along the Texas Louisiana border, so the Beaumont, Port Arthur area and over into New Orleans area, South Louisiana, Broussard all had closures of three days or so. And so we had multiple days in the early part of the quarter. We know those we were closed there. Some of the ports that handle the ships that drive our shipping related laboratory analytical work for crude assay work that had a they were closed, so we weren't operating. I'd say all told about $1,000,000 of revenue with very high incrementals because we still have all the employees and staff came out of just from those closures along the Gulf Coast and a little bit of interaction as well in the Mediterranean.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

We had a few closures there.

[Josh Jayne, Managing Director at Daniel Energy Partners]

Thank you very much. I'll turn it back.

[Operator]

Our next question comes from David Smith with Pickering Energy Partners. Please go ahead.

[David Smith, Director at Pickering Energy Partners]

Hey, thank you for taking my question. Good morning. Congratulations on the strong free cash flow and the balance sheet progress.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Yes, thanks. Thank you.

[David Smith, Director at Pickering Energy Partners]

Following up on the commentary for the full year outlook on reservoir description. I guess first, I did want to ask if it's fair to think that maybe it's the geopolitical disruptions having an outsized impact on the decremental margins for reservoir description in

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

No question about that Dave. And I guess we can all take our view of what's going to happen with the sanctions. I will say we didn't see the expansion that was announced on January '10, but it had immediate impact on both segments of our business. Like I said, product shipments into Eastern Europe, that won't go through in We think it'll come back if the sanctions are withdrawn or pullback. And then also on the crude assay work, it has a very quick effect on our profitability.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

So if those unwind and we think that to keep the price of oil where people are comfortable with it, we think they will unwind, then there's opportunity for us to maybe claw some of that back later in the year. But right now as we look at the just wanted to be open about those headwinds that emerged.

[David Smith, Director at Pickering Energy Partners]

Appreciate it. So if reservoir description were up mid single digits and '25 revenue was up, would you think that the almost 60% incremental margins from '24 would be a good framework for '25 after at least?

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Yes, I think so. I mean that's and that's not just a 2024 number. That's a long standing number. And I think as activity increases that could even be higher, right? Think about the fixed cost structure of our lab network.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

You put more rocks, more fluids through that lab structure on reservoir description and the incrementals, 60% is a good run rate. We talk about north of 50% being, I hate to say this easily achievable, but regularly achievable. We had nearly 60% last year. And if we're busier, I think those can be that can be even a little bit higher.

[David Smith, Director at Pickering Energy Partners]

Great. Thank you very much.

[Gwen Gresham, SVP & Head, IR at Core Laboratories]

Okay.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Larry Bruno for any closing remarks.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

Okay. We'll wrap up here. In summary, Core's operational leadership continues to position the company for improving client activity levels in the coming quarters. We have never been better operationally or technologically positioned to help our global client base optimize their reservoirs and to address their evolving needs. We remain uniquely focused and are the most technologically advanced client focused reservoir optimization company in the oilfield sector.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

The company will remain focused on maximizing free cash and returns on invested capital. In 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, Corl will continue to use free cash to strengthen its balance sheet while always investing in growth opportunities and evaluating various methods to increase shareholder value, including returning excess free cash to our shareholders. 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.

[Lawrence Bruno, Chairman of the Board, CEO, President & COO at Core Laboratories]

We're proud to be associated with our continuing achievements. So thanks for spending time with us and we look forward to our next update. Goodbye for now.

[Operator]

Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Lawrence Bruno, Chairman of the Board, CEO, President & COO
• Gwen Gresham, SVP & Head, IR
• Christopher Hill, SVP & CFO

Analysts

• Stephen Gengaro, Managing Director at Stifel Financial Corp
• Josh Jayne, Managing Director at Daniel Energy Partners
• David Smith, Director at Pickering Energy Partners