Core Laboratories N.V. (NYSE:CLB) Q3 2023 Earnings Call Transcript

Core Laboratories N.V. (NYSE:CLB) Q3 2023 Earnings Call Transcript November 2, 2023

Operator: Good day and welcome to the Core Laboratories Third Quarter 2023 Earnings Conference Call. [Operator instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Larry Bruno, Chairman and CEO of Core Laboratories. Please go ahead.

Larry Bruno: Thanks, Merlis. 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 third 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. The call will be divided into six 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 Q3 performance. In addition, we’ll review Core’s strategies and the three 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. Following Chris, Gwen will provide some comments on the company’s outlook and guidance. I’ll then review Core’s two 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 Q&A session. I’ll now turn the call over to Gwen for remarks on forward-looking statements.

Gwen Gresham: Before we start the conference this morning, I’ll mention that some of the statements that 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-K 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.

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 third quarter results. Those non-GAAP measures can also be found on our website. With that said, I’ll pass a discussion back to Larry.

See also 15 Most Undervalued Large Cap Stocks to Buy and 13 NASDAQ Stocks with Lowest PE Ratios.

Q&A Session

Larry Bruno: Thanks Gwen. Moving now to some high-level comments about the third quarter of 2023, Core continued to build on the operational momentum established over the past few quarters. While revenue was down slightly compared to Q2, we achieved sequential and year-over-year improvements in operating income, operating margins, and earnings per share. Ex-items, operating income for the third quarter was $16 million, up 2% sequentially, and up 20% year-over-year. Operating margins were 13%, up from 12% in Q2 of 2023, and up from 11% in Q3 of 2022. Third quarter 2023 operating margins, as well as year-over-year and sequential incremental margins, were particularly strong in reservoir description, where demand for rock and fluid analysis across our global client base continues to rise.

Ex-items, operating margins for reservoir description, improved to 17%, the highest since Q2 of 2020. These improvements in reservoir description were partially offset by declines in revenue and operating income in production enhancement, largely reflecting lower than anticipated U.S. land completion activity, which was down 10% sequentially, along with some project delays in the Gulf of Mexico and some international product deliveries that were pushed into Q4. Production Enhancement operating margins, ex-items, came in at just over 4% for the third quarter, which was down both sequentially and year-over-year. Demand for reservoir description, assay work on crude oil and derived products continued to stabilize throughout the quarter, as trading patterns have relied in response to sanctions.

However, the ongoing Russia-Ukraine conflict and associated sanctions, as well as the emergent political turmoil in the Middle East that began in early Q4, still leave volatility in some uncertainties and the demand for these laboratory services. Lastly for the full company, EPS was $0.22 per share, ex-items, up from $0.21 in Q2 of 2023 and up from $0.18 in Q3 of 2022. As we look ahead, Core will continue to execute on its key strategic objectives by, one, introducing new product and service offerings in key geographic markets. Two, maintaining a lean and focused organization, and three, maintaining our commitment to de-levering the company. Now to review Core Lab’s strategies and the financial tenets that Core has used to build shareholder value over our 27 plus 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. I’ll talk more about some of our latest innovations in the operational review section of this call. While we navigate the current challenges and pursue growth opportunities, the company will remain focused on its three long-standing, long-term financial tenets, those being two, maximize free cash flow, maximize return on invested capital, and returning excess free cash to our shareholders. Before moving on, I want to thank all of our employees for their dedication, loyalty, and adaptability in meeting all of our clients’ needs, and for the commitment that many have shown as we navigate the moment and prepare for a more active market.

I’ll now turn it over to Chris for the detailed financial review.

Chris Hill : 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, the financial results for the third quarter of 2023 include a charge of $1.1 million associated with the termination of our ATM program, and secondly, facility exit costs, which are aligned with our continuing efforts to improve operational efficiencies. These items have also been excluded from the discussion of our financial results. So now looking at the income statement, revenue was $125.3 million in the third quarter, down 2% compared to the prior quarter, and flat year-over-year.

Activity associated with international upstream projects continue to expand, however, lower than expected activity in the U.S. and a lower level of product sales to international clients has offset the growth in other regions. Of this revenue, service revenue, which is more international, was $92.9 million for the quarter, flat sequentially, and up 6% from last year. 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. However, revenue from our diagnostic services were down this quarter due to a decrease in U.S. onshore activity and some projects in the Gulf of Mexico moving from the third quarter into the fourth quarter.