UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020March 31, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ______________
Commission File Number: 001-14273
CORE LABORATORIES N.V.
(Exact name of registrant as specified in its charter)
The Netherlands |
| Not Applicable |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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The Netherlands |
| Not Applicable |
(Address of principal executive offices) |
| (Zip Code) |
(31-20) 420-3191
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock (par value EUR 0.02) |
| CLB |
| New York Stock Exchange |
Common Stock (par value EUR 0.02) |
| CLB |
| Euronext Amsterdam Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of common shares of the registrant, par value EUR 0.02 per share, outstanding at July 22, 2020April 21, 2021 was 44,484,254.46,306,196.
CORE LABORATORIES N.V.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2020MARCH 31, 2021
INDEX
PART I - FINANCIAL INFORMATION
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| Consolidated Balance Sheets (Unaudited) at | 3 |
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| 4 | |
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| �� |
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| 8 | |
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| Notes to the Unaudited Interim Consolidated | 9 |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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PART II - OTHER INFORMATION | ||
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORE LABORATORIES N.V.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
ASSETS |
| (Unaudited) |
|
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|
|
| (Unaudited) |
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CURRENT ASSETS: |
|
|
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|
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Cash and cash equivalents |
| $ | 20,958 |
|
| $ | 11,092 |
|
| $ | 27,806 |
|
| $ | 13,806 |
|
Accounts receivable, net of allowance for credit losses of $3,313 and $2,730 at 2020 and 2019, respectively |
|
| 101,464 |
|
|
| 131,579 |
| ||||||||
Accounts receivable, net of allowance for credit losses of $3,919 and $4,068 at 2021 and 2020, respectively |
|
| 86,567 |
|
|
| 83,192 |
| ||||||||
Inventories |
|
| 41,528 |
|
|
| 50,163 |
|
|
| 39,117 |
|
|
| 38,151 |
|
Prepaid expenses |
|
| 12,617 |
|
|
| 15,951 |
|
|
| 13,107 |
|
|
| 14,797 |
|
Income taxes receivable |
|
| 8,534 |
|
|
| 6,527 |
|
|
| 13,374 |
|
|
| 9,675 |
|
Other current assets |
|
| 6,292 |
|
|
| 5,925 |
|
|
| 5,846 |
|
|
| 6,227 |
|
TOTAL CURRENT ASSETS |
|
| 191,393 |
|
|
| 221,237 |
|
|
| 185,817 |
|
|
| 165,848 |
|
PROPERTY, PLANT AND EQUIPMENT, net |
|
| 119,866 |
|
|
| 123,506 |
|
|
| 113,491 |
|
|
| 115,293 |
|
RIGHT OF USE ASSETS |
|
| 70,147 |
|
|
| 75,697 |
|
|
| 70,295 |
|
|
| 66,385 |
|
INTANGIBLES, net |
|
| 8,743 |
|
|
| 17,450 |
|
|
| 8,423 |
|
|
| 8,583 |
|
GOODWILL |
|
| 99,445 |
|
|
| 213,425 |
|
|
| 99,445 |
|
|
| 99,445 |
|
DEFERRED TAX ASSETS, net |
|
| 71,805 |
|
|
| 67,312 |
|
|
| 67,966 |
|
|
| 72,775 |
|
OTHER ASSETS |
|
| 53,042 |
|
|
| 56,046 |
|
|
| 39,009 |
|
|
| 40,250 |
|
TOTAL ASSETS |
| $ | 614,441 |
|
| $ | 774,673 |
|
| $ | 584,446 |
|
| $ | 568,579 |
|
LIABILITIES AND EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
| $ | 23,693 |
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| $ | 35,611 |
|
| $ | 25,500 |
|
| $ | 23,028 |
|
Accrued payroll and related costs |
|
| 34,663 |
|
|
| 26,689 |
|
|
| 23,063 |
|
|
| 26,526 |
|
Taxes other than payroll and income |
|
| 5,633 |
|
|
| 8,366 |
|
|
| 4,497 |
|
|
| 6,556 |
|
Unearned revenues |
|
| 10,513 |
|
|
| 13,381 |
|
|
| 5,864 |
|
|
| 5,457 |
|
Operating lease liabilities |
|
| 12,028 |
|
|
| 11,841 |
|
|
| 12,357 |
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|
| 11,437 |
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Income taxes payable |
|
| 3,306 |
|
|
| 6,324 |
|
|
| 7,423 |
|
|
| 8,347 |
|
Other current liabilities |
|
| 9,448 |
|
|
| 9,382 |
|
|
| 6,829 |
|
|
| 8,399 |
|
TOTAL CURRENT LIABILITIES |
|
| 99,284 |
|
|
| 111,594 |
|
|
| 85,533 |
|
|
| 89,750 |
|
LONG-TERM DEBT, net |
|
| 286,610 |
|
|
| 305,283 |
|
|
| 208,166 |
|
|
| 259,433 |
|
LONG-TERM OPERATING LEASE LIABILITIES |
|
| 57,449 |
|
|
| 64,660 |
|
|
| 58,635 |
|
|
| 56,108 |
|
DEFERRED COMPENSATION |
|
| 49,267 |
|
|
| 50,485 |
|
|
| 38,005 |
|
|
| 39,145 |
|
DEFERRED TAX LIABILITIES, net |
|
| 24,277 |
|
|
| 27,338 |
|
|
| 20,480 |
|
|
| 20,585 |
|
OTHER LONG-TERM LIABILITIES |
|
| 31,407 |
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| 33,173 |
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| 27,581 |
|
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| 27,985 |
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COMMITMENTS AND CONTINGENCIES |
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EQUITY: |
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Preference shares, EUR 0.02 par value; 6,000,000 shares authorized, NaN issued or outstanding |
|
| — |
|
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| — |
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| 0 |
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| 0 |
|
Common shares, EUR 0.02 par value; 200,000,000 shares authorized, 44,796,252 issued and 44,477,267 outstanding at 2020 and 44,796,252 issued and 44,465,562 outstanding at 2019 |
|
| 1,148 |
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| 1,148 |
| ||||||||
Common shares, EUR 0.02 par value; 200,000,000 shares authorized, 46,454,264 issued and 46,240,481 outstanding at 2021 and 44,796,252 issued and 44,572,801 outstanding at 2020 |
|
| 1,188 |
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| 1,148 |
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Additional paid-in capital |
|
| 60,901 |
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| 51,872 |
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|
| 103,358 |
|
|
| 41,184 |
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Retained earnings |
|
| 34,846 |
|
|
| 160,539 |
|
|
| 58,115 |
|
|
| 50,456 |
|
Accumulated other comprehensive income (loss) |
|
| (8,358 | ) |
|
| (6,330 | ) |
|
| (7,861 | ) |
|
| (7,200 | ) |
Treasury shares (at cost), 318,985 at 2020 and 330,690 at 2019 |
|
| (26,434 | ) |
|
| (29,364 | ) | ||||||||
Treasury shares, at cost, 213,783 at 2021 and 223,451 at 2020 |
|
| (12,916 | ) |
|
| (14,075 | ) | ||||||||
Total Core Laboratories N.V. shareholders' equity |
|
| 62,103 |
|
|
| 177,865 |
|
|
| 141,884 |
|
|
| 71,513 |
|
Non-controlling interest |
|
| 4,044 |
|
|
| 4,275 |
|
|
| 4,162 |
|
|
| 4,060 |
|
TOTAL EQUITY |
|
| 66,147 |
|
|
| 182,140 |
|
|
| 146,046 |
|
|
| 75,573 |
|
TOTAL LIABILITIES AND EQUITY |
| $ | 614,441 |
|
| $ | 774,673 |
|
| $ | 584,446 |
|
| $ | 568,579 |
|
The accompanying notes are an integral part of these interim consolidated financial statements.
3
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
| Three months ended |
|
| Three Months Ended |
| ||||||||||
|
| June 30, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
REVENUE: |
|
|
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|
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|
Services |
| $ | 91,009 |
|
| $ | 117,874 |
|
| $ | 83,982 |
|
| $ | 109,967 |
|
Product sales |
|
| 24,727 |
|
|
| 51,164 |
|
|
| 24,401 |
|
|
| 42,433 |
|
Total revenue |
|
| 115,736 |
|
|
| 169,038 |
|
|
| 108,383 |
|
|
| 152,400 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, exclusive of depreciation expense shown below |
|
| 67,054 |
|
|
| 86,007 |
|
|
| 63,533 |
|
|
| 80,941 |
|
Cost of product sales, exclusive of depreciation expense and inventory write-down shown below |
|
| 23,626 |
|
|
| 38,444 |
| ||||||||
Cost of product sales, exclusive of depreciation expense and impairment and other charges shown below |
|
| 20,617 |
|
|
| 34,190 |
| ||||||||
General and administrative expense, exclusive of depreciation expense shown below |
|
| 9,221 |
|
|
| 9,801 |
|
|
| 8,461 |
|
|
| 19,567 |
|
Depreciation |
|
| 5,069 |
|
|
| 5,193 |
|
|
| 4,633 |
|
|
| 5,042 |
|
Amortization |
|
| 356 |
|
|
| 593 |
|
|
| 238 |
|
|
| 399 |
|
Inventory write-down |
|
| 9,932 |
|
|
| — |
| ||||||||
Impairments and other charges |
|
| — |
|
|
| 122,204 |
| ||||||||
Other (income) expense, net |
|
| 3,045 |
|
|
| 992 |
|
|
| (721 | ) |
|
| (970 | ) |
OPERATING INCOME (LOSS) |
|
| (2,567 | ) |
|
| 28,008 |
|
|
| 11,622 |
|
|
| (108,973 | ) |
Interest expense |
|
| 3,369 |
|
|
| 3,714 |
|
|
| 1,363 |
|
|
| 3,411 |
|
Income (loss) from continuing operations before income tax expense |
|
| (5,936 | ) |
|
| 24,294 |
|
|
| 10,259 |
|
|
| (112,384 | ) |
Income tax expense (benefit) |
|
| (261 | ) |
|
| 4,808 |
|
|
| 2,052 |
|
|
| (4,046 | ) |
Income (loss) from continuing operations |
|
| (5,675 | ) |
|
| 19,486 |
|
|
| 8,207 |
|
|
| (108,338 | ) |
Income (loss) from discontinued operations, net of income taxes |
|
| — |
|
|
| 7,971 |
|
|
| — |
|
|
| — |
|
Net income (loss) |
|
| (5,675 | ) |
|
| 27,457 |
|
|
| 8,207 |
|
|
| (108,338 | ) |
Net income (loss) attributable to non-controlling interest |
|
| 41 |
|
|
| 43 |
| ||||||||
Net income attributable to non-controlling interest |
|
| 102 |
|
|
| 83 |
| ||||||||
Net income (loss) attributable to Core Laboratories N.V. |
| $ | (5,716 | ) |
| $ | 27,414 |
|
| $ | 8,105 |
|
| $ | (108,421 | ) |
|
|
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|
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|
|
|
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EARNINGS (LOSS) PER SHARE INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share from continuing operations |
| $ | (0.13 | ) |
| $ | 0.44 |
|
| $ | 0.18 |
|
| $ | (2.44 | ) |
Basic earnings (loss) per share from discontinued operations |
| $ | — |
|
| $ | 0.18 |
|
| $ | — |
|
| $ | — |
|
Basic earnings (loss) per share attributable to Core Laboratories N.V. |
| $ | (0.13 | ) |
| $ | 0.62 |
|
| $ | 0.18 |
|
| $ | (2.44 | ) |
|
|
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|
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|
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Diluted earnings (loss) per share from continuing operations |
| $ | (0.13 | ) |
| $ | 0.43 |
|
| $ | 0.18 |
|
| $ | (2.44 | ) |
Diluted earnings (loss) per share from discontinued operations |
| $ | — |
|
| $ | 0.18 |
|
| $ | — |
|
| $ | — |
|
Diluted earnings (loss) per share attributable to Core Laboratories N.V. |
| $ | (0.13 | ) |
| $ | 0.61 |
|
| $ | 0.18 |
|
| $ | (2.44 | ) |
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 44,470 |
|
|
| 44,354 |
|
|
| 45,177 |
|
|
| 44,447 |
|
Assuming Dilution |
|
| 44,470 |
|
|
| 44,815 |
|
|
| 45,964 |
|
|
| 44,447 |
|
The accompanying notes are an integral part of these interim consolidated financial statements.
4
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
| Six months ended |
| |||||
|
| June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (Unaudited) |
| |||||
REVENUE: |
|
|
|
|
|
|
|
|
Services |
| $ | 200,976 |
|
| $ | 238,212 |
|
Product sales |
|
| 67,160 |
|
|
| 100,020 |
|
Total revenue |
|
| 268,136 |
|
|
| 338,232 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
Cost of services, exclusive of depreciation expense shown below |
|
| 147,995 |
|
|
| 176,373 |
|
Cost of product sales, exclusive of depreciation expense and inventory write-down shown below |
|
| 57,816 |
|
|
| 75,461 |
|
General and administrative expense, exclusive of depreciation expense shown below |
|
| 28,788 |
|
|
| 27,238 |
|
Depreciation |
|
| 10,111 |
|
|
| 10,432 |
|
Amortization |
|
| 755 |
|
|
| 941 |
|
Impairments and other charges |
|
| 122,204 |
|
|
|
|
|
Inventory write-down |
|
| 9,932 |
|
|
| — |
|
Other (income) expense, net |
|
| 2,075 |
|
|
| 3,365 |
|
OPERATING INCOME (LOSS) |
|
| (111,540 | ) |
|
| 44,422 |
|
Interest expense |
|
| 6,780 |
|
|
| 7,440 |
|
Income (loss) from continuing operations before income tax expense |
|
| (118,320 | ) |
|
| 36,982 |
|
Income tax expense (benefit) |
|
| (4,307 | ) |
|
| (22,802 | ) |
Income (loss) from continuing operations |
|
| (114,013 | ) |
|
| 59,784 |
|
Income (loss) from discontinued operations, net of income taxes |
|
| — |
|
|
| 8,230 |
|
Net income (loss) |
|
| (114,013 | ) |
|
| 68,014 |
|
Net income attributable to non-controlling interest |
|
| 124 |
|
|
| 90 |
|
Net income (loss) attributable to Core Laboratories N.V. |
| $ | (114,137 | ) |
| $ | 67,924 |
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE INFORMATION: |
|
|
|
|
|
|
|
|
Basic earnings (loss) per share from continuing operations |
| $ | (2.57 | ) |
| $ | 1.35 |
|
Basic earnings (loss) per share from discontinued operations |
| $ | — |
|
| $ | 0.18 |
|
Basic earnings (loss) per share attributable to Core Laboratories N.V. |
| $ | (2.57 | ) |
| $ | 1.53 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share from continuing operations |
| $ | (2.57 | ) |
| $ | 1.33 |
|
Diluted earnings (loss) per share from discontinued operations |
| $ | — |
|
| $ | 0.18 |
|
Diluted earnings (loss) per share attributable to Core Laboratories N.V. |
| $ | (2.57 | ) |
| $ | 1.51 |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
Basic |
|
| 44,459 |
|
|
| 44,339 |
|
Assuming Dilution |
|
| 44,459 |
|
|
| 44,848 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
Net income (loss) |
| $ | (5,675 | ) |
| $ | 27,457 |
|
| $ | (114,013 | ) |
| $ | 68,014 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) in fair value of interest rate swaps |
|
| (461 | ) |
|
| (657 | ) |
|
| (2,790 | ) |
|
| (1,029 | ) |
Interest rate swap amounts reclassified to interest expense |
|
| 176 |
|
|
| (45 | ) |
|
| 223 |
|
|
| (94 | ) |
Income taxes on derivatives |
|
| 166 |
|
|
| 147 |
|
|
| 539 |
|
|
| 236 |
|
Total derivatives (loss) |
|
| (119 | ) |
|
| (555 | ) |
|
| (2,028 | ) |
|
| (887 | ) |
Pension and other postretirement benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization to net income of prior service cost |
|
| — |
|
|
| (25 | ) |
|
| — |
|
|
| (50 | ) |
Amortization to net income of actuarial loss |
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| 29 |
|
Income taxes on pension and other postretirement benefit plans |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 5 |
|
Total pension and other postretirement benefit plans |
|
| — |
|
|
| (9 | ) |
|
| — |
|
|
| (16 | ) |
Total other comprehensive income (loss) |
|
| (119 | ) |
|
| (564 | ) |
|
| (2,028 | ) |
|
| (903 | ) |
Comprehensive income (loss) |
|
| (5,794 | ) |
|
| 26,893 |
|
|
| (116,041 | ) |
|
| 67,111 |
|
Comprehensive income attributable to non-controlling interest |
|
| 41 |
|
|
| 43 |
|
|
| 124 |
|
|
| 90 |
|
Comprehensive income (loss) attributable to Core Laboratories N.V. |
| $ | (5,835 | ) |
| $ | 26,850 |
|
| $ | (116,165 | ) |
| $ | 67,021 |
|
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
| (Unaudited) |
| |||||
Net income (loss) |
| $ | 8,207 |
|
| $ | (108,338 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
Gain (loss) on fair value of interest rate swaps |
|
| (298 | ) |
|
| (2,329 | ) |
Interest rate swap amount reclassified to net income (loss) |
|
| (341 | ) |
|
| 47 |
|
Income tax expense (benefit) on interest rate swaps reclassified to net income (loss) |
|
| (22 | ) |
|
| 373 |
|
Total interest rate swaps |
|
| (661 | ) |
|
| (1,909 | ) |
Total other comprehensive income (loss) |
|
| (661 | ) |
|
| (1,909 | ) |
Comprehensive income (loss) |
|
| 7,546 |
|
|
| (110,247 | ) |
Comprehensive income (loss) attributable to non-controlling interest |
|
| 102 |
|
|
| 83 |
|
Comprehensive income (loss) attributable to Core Laboratories N.V. |
| $ | 7,444 |
|
| $ | (110,330 | ) |
The accompanying notes are an integral part of these interim consolidated financial statements.
65
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands)thousands, except share and per share data)
|
| Three months ended |
|
| Six months ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
| |||||||||||||||
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
| $ | 1,148 |
|
| $ | 1,148 |
|
| $ | 1,148 |
|
| $ | 1,148 |
|
| $ | 1,148 |
|
| $ | 1,148 |
|
New share issuance |
|
| 40 |
|
|
| — |
| ||||||||||||||||
Balance at End of Period |
| $ | 1,148 |
|
| $ | 1,148 |
|
| $ | 1,148 |
|
| $ | 1,148 |
|
| $ | 1,188 |
|
| $ | 1,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
| $ | 60,982 |
|
| $ | 65,084 |
|
| $ | 51,872 |
|
| $ | 57,438 |
|
| $ | 41,184 |
|
| $ | 51,872 |
|
Stock based-awards |
|
| (81 | ) |
|
| (1,020 | ) |
|
| 9,029 |
|
|
| 6,626 |
| ||||||||
Stock-based compensation |
|
| 3,075 |
|
|
| 9,110 |
| ||||||||||||||||
New share issuance |
|
| 59,099 |
|
|
| — |
| ||||||||||||||||
Balance at End of Period |
| $ | 60,901 |
|
| $ | 64,064 |
|
| $ | 60,901 |
|
| $ | 64,064 |
|
| $ | 103,358 |
|
| $ | 60,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
| $ | 41,007 |
|
| $ | 172,266 |
|
| $ | 160,539 |
|
| $ | 156,130 |
|
| $ | 50,456 |
|
| $ | 160,539 |
|
Dividends paid |
|
| (445 | ) |
|
| (24,395 | ) |
|
| (11,556 | ) |
|
| (48,769 | ) |
|
| (446 | ) |
|
| (11,111 | ) |
Net income (loss) attributable to Core Laboratories N.V. |
|
| (5,716 | ) |
|
| 27,414 |
|
|
| (114,137 | ) |
|
| 67,924 |
|
|
| 8,105 |
|
|
| (108,421 | ) |
Balance at End of Period |
| $ | 34,846 |
|
| $ | 175,285 |
|
| $ | 34,846 |
|
| $ | 175,285 |
|
| $ | 58,115 |
|
| $ | 41,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
| $ | (8,239 | ) |
| $ | (5,795 | ) |
| $ | (6,330 | ) |
| $ | (5,456 | ) |
| $ | (7,200 | ) |
| $ | (6,330 | ) |
Amortization of deferred pension costs, net of tax |
|
| — |
|
|
| (9 | ) |
|
| — |
|
|
| (16 | ) | ||||||||
Interest rate swaps, net of tax |
|
| (119 | ) |
|
| (555 | ) |
|
| (2,028 | ) |
|
| (887 | ) |
|
| (661 | ) |
|
| (1,909 | ) |
Balance at End of Period |
| $ | (8,358 | ) |
| $ | (6,359 | ) |
| $ | (8,358 | ) |
| $ | (6,359 | ) |
| $ | (7,861 | ) |
| $ | (8,239 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Treasury Shares |
|
|
|
|
|
|
|
| ||||||||||||||||
Balance at Beginning of Period |
| $ | (29,182 | ) |
| $ | (49,538 | ) |
| $ | (29,364 | ) |
| $ | (52,501 | ) |
| $ | (14,075 | ) |
| $ | (29,364 | ) |
Stock based-awards |
|
| 2,946 |
|
|
| 4,265 |
|
|
| 4,366 |
|
|
| 7,715 |
| ||||||||
Stock-based compensation |
|
| 1,330 |
|
|
| 1,420 |
| ||||||||||||||||
Repurchase of common shares |
|
| (198 | ) |
|
| (604 | ) |
|
| (1,436 | ) |
|
| (1,091 | ) |
|
| (171 | ) |
|
| (1,238 | ) |
Balance at End of Period |
| $ | (26,434 | ) |
| $ | (45,877 | ) |
| $ | (26,434 | ) |
| $ | (45,877 | ) |
| $ | (12,916 | ) |
| $ | (29,182 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Controlling Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
| $ | 4,358 |
|
| $ | 4,188 |
|
| $ | 4,275 |
|
| $ | 4,141 |
|
| $ | 4,060 |
|
| $ | 4,275 |
|
Non-controlling interest dividends |
|
| (355 | ) |
|
| — |
|
|
| (355 | ) |
|
| — |
| ||||||||
Net income (loss) attributable to non-controlling interest |
|
| 41 |
|
|
| 43 |
|
|
| 124 |
|
|
| 90 |
|
|
| 102 |
|
|
| 83 |
|
Balance at End of Period |
| $ | 4,044 |
|
| $ | 4,231 |
|
| $ | 4,044 |
|
| $ | 4,231 |
|
| $ | 4,162 |
|
| $ | 4,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
| $ | 70,074 |
|
| $ | 187,353 |
|
| $ | 182,140 |
|
| $ | 160,900 |
|
| $ | 75,573 |
|
| $ | 182,140 |
|
Stock based-awards |
|
| 2,865 |
|
|
| 3,245 |
|
|
| 13,395 |
|
|
| 14,341 |
| ||||||||
Stock-based compensation |
|
| 4,405 |
|
|
| 10,530 |
| ||||||||||||||||
Repurchase of common shares |
|
| (198 | ) |
|
| (604 | ) |
|
| (1,436 | ) |
|
| (1,091 | ) |
|
| (171 | ) |
|
| (1,238 | ) |
Dividends paid |
|
| (445 | ) |
|
| (24,395 | ) |
|
| (11,556 | ) |
|
| (48,769 | ) |
|
| (446 | ) |
|
| (11,111 | ) |
Non-controlling interest dividends |
|
| (355 | ) |
|
| — |
|
|
| (355 | ) |
|
| — |
| ||||||||
Amortization of deferred pension costs, net of tax |
|
| — |
|
|
| (9 | ) |
|
| — |
|
|
| (16 | ) | ||||||||
New share issuance |
|
| 59,139 |
|
|
| — |
| ||||||||||||||||
Interest rate swaps, net of tax |
|
| (119 | ) |
|
| (555 | ) |
|
| (2,028 | ) |
|
| (887 | ) |
|
| (661 | ) |
|
| (1,909 | ) |
Net income (loss) |
|
| (5,675 | ) |
|
| 27,457 |
|
|
| (114,013 | ) |
|
| 68,014 |
|
|
| 8,207 |
|
|
| (108,338 | ) |
Balance at End of Period |
| $ | 66,147 |
|
| $ | 192,492 |
|
| $ | 66,147 |
|
| $ | 192,492 |
|
| $ | 146,046 |
|
| $ | 70,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends per Share |
| $ | 0.01 |
|
| $ | 0.55 |
|
| $ | 0.26 |
|
| $ | 1.10 |
|
| $ | 0.01 |
|
| $ | 0.25 |
|
The accompanying notes are an integral part of these interim consolidated financial statements.
6
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
(In thousands, except share and per share data)
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Common Shares - Number of shares issued |
| (Unaudited) |
| |||||
Balance at Beginning of Period |
|
| 44,796,252 |
|
|
| 44,796,252 |
|
New share issuance |
|
| 1,658,012 |
|
|
| — |
|
Balance at End of Period |
|
| 46,454,264 |
|
|
| 44,796,252 |
|
|
|
|
|
|
|
|
|
|
Treasury Shares - Number of shares |
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
|
| (223,451 | ) |
|
| (330,690 | ) |
Stock-based compensation |
|
| 14,449 |
|
|
| 12,356 |
|
Repurchase of common shares |
|
| (4,781 | ) |
|
| (33,741 | ) |
Balance at End of Period |
|
| (213,783 | ) |
|
| (352,075 | ) |
|
|
|
|
|
|
|
|
|
Common Shares - Number of shares outstanding |
|
|
|
|
|
|
|
|
Balance at Beginning of Period |
|
| 44,572,801 |
|
|
| 44,465,562 |
|
New share issuance |
|
| 1,658,012 |
|
|
| — |
|
Stock-based compensation |
|
| 14,449 |
|
|
| 12,356 |
|
Repurchase of common shares |
|
| (4,781 | ) |
|
| (33,741 | ) |
Balance at End of Period |
|
| 46,240,481 |
|
|
| 44,444,177 |
|
The accompanying notes are an integral part of these interim consolidated financial statements.
7
CORE LABORATORIES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| June 30, |
|
| March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
| $ | (114,013 | ) |
| $ | 59,784 |
|
| $ | 8,207 |
|
| $ | (108,338 | ) |
Income (loss) from discontinued operations, net of tax |
|
| — |
|
|
| 8,230 |
|
|
| — |
|
|
| — |
|
Net income (loss) |
| $ | (114,013 | ) |
| $ | 68,014 |
|
|
| 8,207 |
|
|
| (108,338 | ) |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
| ||||||||||
Stock-based compensation |
|
| 13,395 |
|
|
| 14,341 |
|
|
| 4,405 |
|
|
| 10,530 |
|
Depreciation and amortization |
|
| 10,866 |
|
|
| 11,373 |
|
|
| 4,871 |
|
|
| 5,441 |
|
Changes to value of life insurance policies |
|
| 1,490 |
|
|
| (2,219 | ) |
|
| 496 |
|
|
| 2,328 |
|
Deferred income taxes |
|
| (7,554 | ) |
|
| (35,116 | ) |
|
| 4,704 |
|
|
| (7,374 | ) |
Gain on sale of business |
|
| — |
|
|
| (1,154 | ) | ||||||||
Gain on sale of discontinued operations |
|
| — |
|
|
| (8,808 | ) | ||||||||
Impairments, inventory write-down and other charges |
|
| 132,136 |
|
|
| — |
| ||||||||
Impairments and other charges |
|
| — |
|
|
| 122,204 |
| ||||||||
Other non-cash items |
|
| 927 |
|
|
| 292 |
|
|
| (632 | ) |
|
| 201 |
|
Changes in assets and liabilities, net of effect of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 29,072 |
|
|
| (6,321 | ) |
|
| (3,180 | ) |
|
| 4,784 |
|
Inventories |
|
| (1,298 | ) |
|
| (2,915 | ) |
|
| (400 | ) |
|
| (2,285 | ) |
Prepaid expenses and other current assets |
|
| 956 |
|
|
| 3,484 |
|
|
| (1,628 | ) |
|
| 1,724 |
|
Other assets |
|
| 2,634 |
|
|
| (2,284 | ) |
|
| (850 | ) |
|
| 4,931 |
|
Accounts payable |
|
| (12,211 | ) |
|
| 947 |
|
|
| 2,265 |
|
|
| 132 |
|
Accrued expenses |
|
| 2,294 |
|
|
| 11,647 |
|
|
| (8,012 | ) |
|
| (3,163 | ) |
Unearned revenues |
|
| (2,868 | ) |
|
| (4,824 | ) |
|
| 407 |
|
|
| (2,171 | ) |
Other long-term liabilities |
|
| (6,805 | ) |
|
| (4,221 | ) | ||||||||
Other liabilities |
|
| (2,666 | ) |
|
| (6,919 | ) | ||||||||
Net cash provided by operating activities |
| $ | 49,021 |
|
| $ | 42,236 |
|
|
| 7,987 |
|
|
| 22,025 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| $ | (6,406 | ) |
| $ | (12,230 | ) |
|
| (2,772 | ) |
|
| (3,340 | ) |
Patents and other intangibles |
|
| (272 | ) |
|
| 105 |
|
|
| (78 | ) |
|
| (77 | ) |
Proceeds from sale of assets |
|
| 435 |
|
|
| 440 |
|
|
| 218 |
|
|
| — |
|
Proceeds from sale of business |
|
| — |
|
|
| 2,980 |
| ||||||||
Proceeds from sale of discontinued operations |
|
| — |
|
|
| 16,642 |
| ||||||||
Premiums on life insurance |
|
| (913 | ) |
|
| (883 | ) | ||||||||
Net cash provided by (used in) investing activities |
| $ | (7,156 | ) |
| $ | 7,054 |
| ||||||||
Premiums on life insurance policies |
|
| 1,562 |
|
|
| (467 | ) | ||||||||
Net cash used in investing activities |
|
| (1,070 | ) |
|
| (3,884 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt borrowings |
| $ | (46,000 | ) |
| $ | (68,000 | ) | ||||||||
Proceeds from debt borrowings |
|
| 27,000 |
|
|
| 68,000 |
| ||||||||
Repayment of long-term debt |
|
| (119,000 | ) |
|
| (20,000 | ) | ||||||||
Proceeds from long-term debt |
|
| 68,000 |
|
|
| 17,000 |
| ||||||||
Proceeds from issuance of common stock |
|
| 59,139 |
|
|
| — |
| ||||||||
Dividends paid |
|
| (11,556 | ) |
|
| (48,769 | ) |
|
| (446 | ) |
|
| (11,111 | ) |
Repurchase of common shares |
|
| (1,436 | ) |
|
| (1,091 | ) |
|
| (171 | ) |
|
| (1,238 | ) |
Other financing activities |
|
| (7 | ) |
|
| — |
|
|
| (439 | ) |
|
| 6 |
|
Net cash used in financing activities |
| $ | (31,999 | ) |
| $ | (49,860 | ) | ||||||||
Net cash provided by (used in) financing activities |
|
| 7,083 |
|
|
| (15,343 | ) | ||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
| 9,866 |
|
|
| (570 | ) |
|
| 14,000 |
|
|
| 2,798 |
|
CASH AND CASH EQUIVALENTS, beginning of period |
|
| 11,092 |
|
|
| 13,116 |
|
|
| 13,806 |
|
|
| 11,092 |
|
CASH AND CASH EQUIVALENTS, end of period |
| $ | 20,958 |
|
| $ | 12,546 |
|
| $ | 27,806 |
|
| $ | 13,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest |
| $ | 5,911 |
|
| $ | 6,786 |
|
| $ | 3,739 |
|
| $ | 4,523 |
|
Cash payments for income taxes |
| $ | 4,370 |
|
| $ | 7,269 |
|
| $ | 1,429 |
|
| $ | 3,117 |
|
The accompanying notes are an integral part of these interim consolidated financial statements.
8
CORE LABORATORIES N.V.
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements include the accounts of Core Laboratories N.V. and its subsidiaries for which we have a controlling voting interest and/or a controlling financial interest. These financial statements have been prepared in accordance with United States ("U.S.") generally accepted accounting principles (" U.S. GAAP") for interim financial information using the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnote disclosures required by U.S. GAAP for the annual financial statements, and should be read in conjunction with the audited financial statements and the summary of significant accounting policies and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 20192020 (the "2019"2020 Annual Report"). Core Laboratories N.V.'s balance sheet information for the year ended December 31, 2020 was derived from the 2020 audited consolidated financial statements but does not include all disclosures in accordance with U.S. GAAP.
Core Laboratories N.V. uses the equity method of accounting for investments in which it has less than a majority interest and over which it does not exercise control but does exert significant influence. We use the cost method to record certain other investments in which we own less than 20% of the outstanding equity and do not exercise control or exert significant influence. Non-controlling interests have been recorded to reflect outside ownership attributable to consolidated subsidiaries that are less than 100% owned. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included in these financial statements. Furthermore, the operating results presented for the three and six months ended June 30, 2020March 31, 2021 may not necessarily be indicative of the results that may be expected for the year ending December 31, 2020.
Core Laboratories N.V.'s balance sheet information for the year ended December 31, 2019 was derived from the 2019 audited consolidated financial statements but does not include all disclosures in accordance with U.S. GAAP.2021.
References to “Core Lab”, "Core Lab"Laboratories", the "Company", "we", "our" and similar phrases are used throughout this Quarterly Report on Form 10-Q and relate collectively to Core Laboratories N.V. and its consolidated subsidiaries.
We operate our business in 2 reportable segments. These complementary segments provide different services and products and utilize different technologies for improving reservoir performance and increasing oil and gas recovery from new and existing fields.
| • | Reservoir Description: Encompasses the characterization of petroleum reservoir rock, fluid and gas samples to increase production and improve recovery of oil and gas from our clients' reservoirs. We provide laboratory based analytical and field services to characterize properties of crude oil and petroleum products to the oil and gas industry. We also provide proprietary and joint industry studies based on these types of analysis. |
| • | Production Enhancement: Includes services and products relating to reservoir well completions, perforations, stimulations and production. We provide integrated diagnostic services to evaluate and monitor the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects. |
Certain reclassifications were made to prior period amounts in order to conform to the current period presentation. These reclassifications had no impact on the reported net income or cash flows for the three and six months ended June 30, 2019.March 31, 2020.
2. INVENTORIES
Inventories consisted of the following (in thousands):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Finished goods |
| $ | 19,450 |
|
| $ | 26,507 |
|
Parts and materials |
|
| 18,764 |
|
|
| 21,419 |
|
Work in progress |
|
| 3,314 |
|
|
| 2,237 |
|
Total inventories |
| $ | 41,528 |
|
| $ | 50,163 |
|
9
We include freight costs incurred for shipping inventory to our clients in the Cost of product sales caption in the accompanying Consolidated Statements of Operations.
3. SIGNIFICANT ACCOUNTING POLICIES UPDATE
Our significant accounting policies are detailed in "Note 2: Summary of Significant Accounting Policies" of our 2020 Annual Report on Form 10-KReport.
9
3. INVENTORIES
Inventories consisted of the following (in thousands):
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Finished goods |
| $ | 17,921 |
|
| $ | 16,461 |
|
Parts and materials |
|
| 18,241 |
|
|
| 19,098 |
|
Work in progress |
|
| 2,955 |
|
|
| 2,592 |
|
Total inventories |
| $ | 39,117 |
|
| $ | 38,151 |
|
We include freight costs incurred for the year ended December 31, 2019. Significant changesshipping inventory to our accounting policies as a resultclients in the cost of adopting Topic 326 – Financial Instruments-Credit Losses and Topic 350 – Intangibles-Goodwill and Other are discussed below:
Financial Instruments-Credit Losses
We have adoptedproduct sales caption in the expected credit losses methodology for measurementaccompanying Consolidated Statements of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss impairment methodology. Our financial instruments that are potentially subject to credit losses consist primarily of cash and cash equivalents and accounts receivable. There is no significant impact in our consolidated financial statements or on our accounting policies and processes upon the adoption of this standard.
Intangibles-Goodwill and Other
We assess goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount. If the fair value of a reporting unit is less than its carrying value, then there is an impairment loss limited to the amount of goodwill-allocated to that reporting unit. Our reporting units are the same as our 2 reportable segments. On January 1, 2020, we adopted the FASB new methodology for assessing goodwill impairment, see Note 20 - Recent Accounting Pronouncements for additional information.Operations.
4. CONTRACT ASSETS AND CONTRACT LIABILITIES
ContractThe balance of contract assets and contract liabilities arise from differences in timingconsisted of revenue recognition, billings and cash collections.the following (in thousands):
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Contract assets |
|
|
|
|
|
|
|
|
Current |
| $ | 1,180 |
|
| $ | 1,238 |
|
Non-Current |
|
| — |
|
|
| — |
|
|
| $ | 1,180 |
|
| $ | 1,238 |
|
Contract Liabilities |
|
|
|
|
|
|
|
|
Current |
| $ | 1,074 |
|
| $ | 953 |
|
Non-current |
|
| 249 |
|
|
| 293 |
|
|
| $ | 1,323 |
|
| $ | 1,246 |
|
|
| March 31, 2021 |
| |
Estimate of when contract liabilities will be recognized as revenue |
|
|
|
|
within 12 months |
| $ | 1,074 |
|
within 12 to 24 months |
|
| 249 |
|
greater than 24 months |
|
| 0 |
|
Contract assets include our right to payment for goods and services already transferred to a customer when the right to payment is conditional on something other than the passageThe current portion of time. For example, we have contracts where we recognize revenue over time but do not have a contractual right to payment until we complete the performance obligations. Contractcontract assets are included in our accounts receivable in our Consolidated Balance Sheet.as of March 31, 2021 and 2020.
Contract liabilities consist of advance payments received and billings in excess of revenue recognized. We generally receive up-front payments relating to our consortia studies. We recognize revenue over the life of the study as the testing and analysis results are made available to our consortia members. We record billings in excess of revenue recognized for contracts with a duration less than twelve months as unearned revenue. We classify contract liabilities for contracts with a duration greater than twelve months as current or non-current based on the timing of revenue recognition.
The current portion of contract liabilities is included in unearned revenue and the non-current portion of contract liabilities is included in other long-term liabilities in our Consolidated Balance Sheet.
Theon the consolidated balance of contract assets and contract liabilities consisted of the following (in thousands):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Contract assets |
|
|
|
|
|
|
|
|
Current |
| $ | 1,199 |
|
| $ | 2,183 |
|
Non-Current |
|
| — |
|
|
| 244 |
|
|
| $ | 1,199 |
|
| $ | 2,427 |
|
Contract Liabilities |
|
|
|
|
|
|
|
|
Current |
| $ | 2,361 |
|
| $ | 4,473 |
|
Non-current |
|
| 320 |
|
|
| 383 |
|
|
| $ | 2,681 |
|
| $ | 4,856 |
|
10
|
| June 30, 2020 |
| |
Estimate of when contract liabilities will be recognized as revenue |
|
|
|
|
within 12 months |
| $ | 2,361 |
|
within 12 to 24 months |
|
| 320 |
|
greater than 24 months |
|
| — |
|
sheet. We did 0t recognize any impairment losses on our receivables and contract assets for the three and six months ended June 30, 2020March 31, 2021 and 2019.2020.
5. ACQUISITIONS
We had 0 significant acquisitions during the three and six months ended June 30,March 31, 2021 and 2020.
6. LONG-TERM DEBT, NET
We have 0 financing lease obligations.
Long-term debt is as follows (in thousands):
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||||
Senior Notes |
| $ | 150,000 |
|
| $ | 150,000 |
| ||||||||
2011 Senior Notes |
| $ | 150,000 |
|
| $ | 150,000 |
| ||||||||
2021 Senior Notes |
|
| 60,000 |
|
|
| — |
| ||||||||
Credit Facility |
|
| 138,000 |
|
|
| 157,000 |
|
|
| — |
|
|
| 111,000 |
|
Total long-term debt |
|
| 288,000 |
|
|
| 307,000 |
| ||||||||
Total debt |
|
| 210,000 |
|
|
| 261,000 |
| ||||||||
Less: Debt issuance costs |
|
| (1,390 | ) |
|
| (1,717 | ) |
|
| (1,834 | ) |
|
| (1,567 | ) |
Long-term debt, net |
| $ | 286,610 |
|
| $ | 305,283 |
|
| $ | 208,166 |
|
| $ | 259,433 |
|
10
We have 24 series of senior notes outstanding with an aggregate principal amount of $150$210 million ("Senior Notes")issued through private placement transactions. Two series of the notes were issued in a private placement transaction.2011 (“2011 Senior Notes”). Series A of the 2011 Senior Notes consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.01% and are due in full on September 30, 2021. Because we intend to draw on our Credit Facility (as defined below) as needed to retire Series A of the 2011 Senior Notes and our Credit Facility is classified as long-term debt, we have continued to classify the 2011 Senior Notes as long-term. Series B of the 2011 Senior Notes consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.11% and are due in full on September 30, 2023. Interest on each series of the Senior Notes is payable semi-annually on March 30 and September 30.
On October 16, 2020, we, along with Core Laboratories (U.S.) Interests Holdings, Inc. as issuer, entered into 2 new series of senior notes with aggregate principal amount of $60 million in a private placement transaction (“2021 Senior Notes”). The 2021 Senior Notes were issued and funded on January 12, 2021. Series A of the 2021 Senior Notes consists of $45 million in aggregate principal amount that bear interest at a fixed rate of 4.09% and are due in full on January 12, 2026. Series B of the 2021 Senior Notes consists of $15 million in aggregate principal amount that bear interest at a fixed rate of 4.38% and are due in full on January 12, 2028. Interest on each series of the 2020 Senior Notes is payable semi-annually on June 30 and December 30, commencing on June 30, 2021.
On June 22, 2020, we entered into Amendment No. 1 (the “Amendment”) to the Seventh Amended and Restated Credit Agreement, dated June 19, 2018 (as amended, the “Credit Facility”). The Amendment increases the maximum leverage ratio permitted under the Credit Facility for certain periods. Pursuant to the terms of the Amendment, the maximum leverage ratio permitted under the Credit Facility is equal to (a) 3.00 to 1.00 from the fiscal quarter ending June 30, 2020 through and including the fiscal quarter ending June 30, 2021; (b) 2.75 to 1.00 for the fiscal quarter ending September 30, 2021; and (c) 2.50 to 1.00 for the fiscal quarter ending December 31, 2021 and thereafter. as follows:
Quarter ending | Maximum leverage ratio permitted | |||
June 30, 2020 up to and including June 30, 2021 | 3.00 | |||
September 30, 2021 | 2.75 | |||
December 31, 2021 and thereafter | 2.50 |
Moreover, the Amendment modified the range of variable interest rates that the Credit Facility may bear to be a range from LIBOR plus 1.500% to LIBOR plus 2.875%, and included the addition of a LIBOR floor of 0.50%. In addition, pursuant to theThe Amendment also reduced the aggregate borrowing commitment under the Credit Facility was reduced to $225 million and the amount by which we may elect to increase the facility size, was reduced from $100 millionknown as the “accordion” feature, to $50 million, subject to the satisfaction of certain conditions. Interest payment terms are variable depending upon the specific type of borrowing under the Credit Facility.
Any outstanding balance under the Credit Facility is due on maturity on June 19, 2023. Our available capacity at any point in time is reduced by borrowings outstanding at the timeborrowings and outstanding letters of credit which totaled $14.2$11.1 million at June 30, 2020,March 31, 2021, resulting in an available borrowing capacity under the Credit Facility of $72.8$213.9 million. In addition to indebtedness under the Credit Facility, we had $5.8$6.0 million of outstanding letters of credit and performance guarantees and bonds from other sources as of June 30, 2020.at March 31, 2021.
The Credit Facility remainsis unsecured, and contains customary representations, warranties, terms and conditions for similar types of facilities.
11
During the three months ended June 30, 2020, in connection with our entry into the Amendment, we recorded an additional expense of $0.3 million associated with unamortized debt issuance cost.
The terms of the Credit Facility and Senior Notes requirerequires us to meet certain covenants, including, but not limited to, an interest coverage ratio (calculated as consolidated EBITDA divided by interest expense) and a leverage ratio (calculated as consolidated net indebtedness divided by consolidated EBITDA), where consolidated EBITDA (as defined in each agreement) and interest expense are calculated using the most recent four fiscal quarters. The Credit Facility and Senior Notes include a cross-default provision, which means thatwhereby a default under one agreement may resulttrigger a default in the default of the other agreement. The Credit Facility has more restrictive covenants with a minimum interest coverage ratio of 3.0 to 1.0 and permitspermit a maximum leverage ratio as described above. The Credit Facility agreement allows non-cash charges such as impairment of assets, stock compensation and other non-cash charges to be added back in the calculation of consolidated EBITDA. The terms of our Credit Facility also allow us to negotiate in good faith to amend any ratio or requirement to preserve the original intent of the agreement if any change in accounting
11
principles would affect the computation of any financial ratio or requirementcovenant of the Credit Facility. Pursuant toIn accordance with the terms of ourthe Credit Facility, our leverage ratio is 2.21,2.33, and our interest coverage ratio is 6.745.58, each for the period ended June 30, 2020. March 31, 2021. We believe that we are in compliance with all covenants contained in our credit agreements.Credit Facility. Certain of our material, wholly-owned subsidiaries, are guarantors or co-borrowers under the Credit Facility and Senior Notes.Facility.
We entered into 2 interest rate swap agreements for a total notional amount of $50 million, including one of which was entered into during 2020. These 2 interest rate swap agreements were terminated and settled during the sixthree months ended June 30, 2020.March 31, 2021. See Note 16 -15, Derivative Instruments and Hedging Activities. for additional information.
We entered into 2 forward interest rate swap agreements for a total notional amount of $35 million during 2020. The purpose of these forward interest rate swap agreements are to fix the underlying risk-free rate, that would be associated with the anticipated issuance of new long-term debt by the Company. These 2 forward interest rate swap agreements were terminated and settled during the three months ended March 31, 2021.
The estimated fair value of total debt at June 30, 2020March 31, 2021 and December 31, 20192020 approximated the book value of total debt. The fair value was estimated using Level 2 inputs by calculating the sum of the discounted future interest and principal payments through the date of maturity.maturity date.
7. PENSION
Defined Benefit Plan
Prior to January 2020, we provided a noncontributory defined benefit pension plan covering substantially all of our Dutch employees ("Dutch Plan") who were hired prior to 2000. During 2019 and 2018, there was a curtailmentwere curtailments of the Dutch Plan for our Dutch employees whose pension benefit was based on years of service and final pay or career average pay, depending on when the employee began participating. These employees have been moved into the Dutch defined contribution plan. However, the unconditional indexation for this group of participants continues for so long as they remain in active service with the Company. There ishave been 0 further contributioncontributions to fund the Dutch Plan since end ofDecember 31, 2019.
The following table summarizes the components of net periodic pension cost under the Dutch Plan (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Service cost |
| $ | — |
|
| $ | 189 |
|
| $ | — |
|
| $ | 381 |
| ||||||||
Interest cost |
|
| 168 |
|
|
| 259 |
|
|
| 336 |
|
|
| 519 |
|
| $ | 82 |
|
| $ | 168 |
|
Expected return on plan assets |
|
| (154 | ) |
|
| (229 | ) |
|
| (308 | ) |
|
| (461 | ) |
|
| (78 | ) |
|
| (154 | ) |
Amortization of prior service cost |
|
| — |
|
|
| (25 | ) |
|
| — |
|
|
| (50 | ) | ||||||||
Amortization of actuarial loss |
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| 29 |
| ||||||||
Net periodic pension cost |
| $ | 14 |
|
| $ | 208 |
|
| $ | 28 |
|
| $ | 418 |
|
| $ | 4 |
|
| $ | 14 |
|
12
8. COMMITMENTS AND CONTINGENCIES
We have been and may from time to time be named as a defendant in legal actions that arise in the ordinary course of business. These include, but are not limited to, employment-related claims and contractual disputes orand claims for personal injury or property damage which occur in connection with the provision of our services and products. A liability is accrued when a loss is both probable and can be reasonably estimated.
See Note 6, Long-term Debt, net for amounts committed under letters of credits and performance guarantees and bonds.
9. EQUITY
On December 17, 2020, we entered into an Equity Distribution Agreement with Wells Fargo Securities, LLC (the “Equity Distribution Agreement”) for the issuance and sale of up to $60.0 million of our common shares. Under the terms of the Equity Distribution Agreement, sales of our common shares may be made by any method deemed to be an “at-the-market offering” as defined in Rule 415 under the Securities Act of 1933 (the “ATM program”). The Company elects when to issue a placement
12
notice which may, among other sales parameters, specify the number of shares to be sold, the minimum price per share to be accepted, the daily volume of shares that may be sold and the range of dates when shares may be sold. During the three and six months ended June 30, 2020,March 31, 2021, we completed the program and sold 1,658,012 common shares, which generated aggregate proceeds of $59.1 million, net of commissions and other associated costs. Proceeds were used to reduce outstanding debt on the Company’s Credit Facility during the first quarter of 2021.
During the three months ended March 31, 2021, we distributed 14,449 treasury shares upon vesting of stock-based awards. In connection with issuing the shares for vested stock-based awards, we repurchased 13,759 and 47,5004,781 of our common shares for $0.2 million and $1.4 million, respectively. Included in this total were rights to 17,500 shares valued at $0.3 million, which were surrendered to us pursuant to the terms of a stock-based compensation plan in consideration of the participants' tax burdens that may result from the issuance of common shares under that plan. Such common shares, unless canceled, may be reissued for a variety of purposes such as future acquisitions, non-employee director stock awards or employee stock awards. We distributed 46,849 and 59,205 treasury shares upon vesting of stock-based awards during the three and six months ended June 30, 2020, respectively.
In February and May 2020,2021, we paid a quarterly dividend of $0.25 and $0.01 per common share. In addition, on April 21, 2021 we declared a quarterly dividend of $0.01 per common share for shareholders of common stock, respectively.record on May 3, 2021 and payable on May 18, 2021.
Accumulated other comprehensive loss, net of income tax, consisted of the following (in thousands):
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Unrecognized net actuarial loss |
|
| (5,640 | ) |
|
| (5,640 | ) |
Fair value of derivatives, net of tax |
|
| (2,718 | ) |
|
| (690 | ) |
Total accumulated other comprehensive loss |
| $ | (8,358 | ) |
| $ | (6,330 | ) |
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Pension and other postretirement benefit plans - unrecognized prior service costs and net actuarial loss |
| $ | (5,375 | ) |
| $ | (5,375 | ) |
Interest rate swaps - net fair value loss |
|
| (2,486 | ) |
|
| (1,825 | ) |
Total accumulated other comprehensive loss |
| $ | (7,861 | ) |
| $ | (7,200 | ) |
10. EARNINGS PER SHARE
We compute basic earnings per common share by dividing net income attributable to Core Laboratories N.V. by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common shares include additional shares in the weighted average share calculations associated with the incremental effect of dilutive restricted stock awards and contingently issuable shares, as determined using the treasury stock method. The following table summarizes the calculation of weighted average common shares outstanding used in the computation of diluted earnings per share (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Weighted average basic common shares outstanding |
|
| 44,470 |
|
|
| 44,354 |
|
|
| 44,459 |
|
|
| 44,339 |
|
|
| 45,177 |
|
|
| 44,447 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance shares |
|
| — |
|
|
| 357 |
|
|
| — |
|
|
| 394 |
|
|
| 516 |
|
|
| — |
|
Restricted stock |
|
| — |
|
|
| 104 |
|
|
| — |
|
|
| 115 |
|
|
| 271 |
|
|
| — |
|
Weighted average diluted common and potential common shares outstanding |
|
| 44,470 |
|
|
| 44,815 |
|
|
| 44,459 |
|
|
| 44,848 |
|
|
| 45,964 |
|
|
| 44,447 |
|
For the three and six months ended June 30,March 31, 2020, the number of outstanding performance and restricted shares of Core Laboratories N.V. common stock that were excluded from the diluted earnings per share calculation, as their impact would be antidilutive, were as follows (in thousands):
Three Months Ended | ||||
March 31, 2020 | ||||
Performance shares | 398 | |||
Restricted stock | 9 |
13
|
| Three months ended |
|
| Six months ended |
| ||
|
| June 30, 2020 |
|
| June 30, 2020 |
| ||
Performance shares |
|
| 187 |
|
|
| 315 |
|
Restricted stock |
|
| 51 |
|
|
| 60 |
|
11. IMPAIRMENTS AND OTHER CHARGES
The coronavirus disease 2019 (“COVID-19”) global pandemic resulted in government mandated shut-downs, cross-border travel restrictions, home sheltering and social distancing efforts to contain the virus and mitigate the incidence of infection. The COVID-19 mitigation actionsefforts globally resulted in a sharp decline in the consumption of crude-oil and refined petroleum products, which in turn led to a significant decrease in spot and forward commodity prices. These events have resulted in sharp decreases tosubstantial declines in the valuation of companies associated withoperating in the energyoil and gas services industry, including Core Laboratories. As a result, in March of 2020, we determined that it was more likely than not that the fair value of our reporting units was less than their carrying value, which triggered the Company to perform an updated impairment assessment by the Company as of March 31, 2020. We performed an impairment test in accordance with ASC Topic 360 Impairment or Disposal of Long-Lived Assets and ASC Topic 350 Intangibles-Goodwill and Other, as updated by ASU 2017-04 Simplifying the Test for Goodwill Impairment, on our indefinite-lived and long-lived assets related to asset groups, and our reporting units.
We have 2 reporting units that are the same as our 2 reportable segments, with goodwill balances aggregating $213.4 million as of March 31, 2020. We performed a detailed quantitative impairment assessment of our reporting units. We determined that the fair value of one of the reporting units, our Production Enhancement segment representing approximately $114.0 million of the goodwill, was less than the carrying value. We determined that the Reservoir Description reporting unit’s fair value is above the carrying value, which represented $99.4 million of goodwill. As a result, we concluded that the goodwill associated with our Production Enhancement segment was fully impaired, resulting in a $114.0 million goodwill impairment charge in March of 2020. We determined that the Reservoir Description reporting unit’s fair value was above the carrying value, which represented the remaining balance of $99.4 million of goodwill as of March 31, 2020.
We identified a triggering event for one of the asset groups under the Production Enhancement reporting unit, Production Enhancement.unit. The estimated fair value, based on applying the income approach model, of one of the asset groups was determined to be below theirits carrying value. As of March 31, 2020, we recorded a charge of $8.2 million to impair the intangible assets relating to the business acquisition of Guardian Technology in 2018. This impairment charge was associated with our Production Enhancement segment.
During the three months ended June 30, 2020,March 31, 2021, we determined that there were no triggering events which require the Company to perform further impairment assessment for any of its reporting units.units or asset groups.
12. INVENTORY WRITE-DOWN
During the three months ended June 30, 2020 as a result of the continuing adverse impact of COVID-19 and significant reduction in rig count and completions that affect the current consumption and anticipated demand for certain of our products, we recorded an additional inventory obsolescence and write-down of $9.9 million in our Production Enhancement segment, for the three months ended June 30, 2020.
14
13. OTHER (INCOME) EXPENSE, NET
The components of other (income) expense, net, were as follows (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Gain on sale of assets |
| $ | (354 | ) |
| $ | (61 | ) |
| $ | (350 | ) |
| $ | (307 | ) | ||||||||
(Gain) loss on sale of assets |
| $ | (72 | ) |
| $ | 4 |
| ||||||||||||||||
Results of non-consolidated subsidiaries |
|
| (183 | ) |
|
| (24 | ) |
|
| (209 | ) |
|
| (97 | ) |
|
| 33 |
|
|
| (26 | ) |
Foreign exchange |
|
| (98 | ) |
|
| (218 | ) |
|
| (674 | ) |
|
| (181 | ) | ||||||||
Foreign exchange (gain) loss, net |
|
| (408 | ) |
|
| (576 | ) | ||||||||||||||||
Rents and royalties |
|
| (107 | ) |
|
| (487 | ) |
|
| (242 | ) |
|
| (593 | ) |
|
| (128 | ) |
|
| (135 | ) |
Employment related charges |
|
| — |
|
|
| (334 | ) |
|
| — |
|
|
| 2,866 |
| ||||||||
Return on pension assets and other pension costs |
|
| (154 | ) |
|
| (240 | ) |
|
| (307 | ) |
|
| (482 | ) |
|
| (78 | ) |
|
| 168 |
|
Gain on sale of business |
|
| — |
|
|
| (1,154 | ) |
|
| — |
|
|
| (1,154 | ) | ||||||||
Curtailment |
|
| — |
|
|
| — |
|
|
| (1,034 | ) |
|
| — |
|
|
| — |
|
|
| (1,187 | ) |
Cost reduction and other charges |
|
| 2,789 |
|
|
| 2,977 |
|
|
| 3,943 |
|
|
| 2,977 |
|
|
| — |
|
|
| 1,154 |
|
Loss on lease abandonment |
|
| 626 |
|
|
| — |
|
|
| 626 |
|
|
| — |
| ||||||||
Other, net |
|
| 526 |
|
|
| 533 |
|
|
| 322 |
|
|
| 336 |
|
|
| (68 | ) |
|
| (372 | ) |
Total other (income) expense, net |
| $ | 3,045 |
|
| $ | 992 |
|
| $ | 2,075 |
|
| $ | 3,365 |
|
| $ | (721 | ) |
| $ | (970 | ) |
Foreign exchange gains and losses are summarized in the following table (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
(Gains) losses by currency |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||
British Pound |
| $ | 100 |
|
| $ | 165 |
|
| $ | 12 |
|
| $ | 178 |
|
| $ | 86 |
|
| $ | (88 | ) |
Canadian Dollar |
|
| (419 | ) |
|
| 29 |
|
|
| 304 |
|
|
| 88 |
|
|
| 1 |
|
|
| 723 |
|
Euro |
|
| (90 | ) |
|
| 92 |
|
|
| (88 | ) |
|
| 2 |
|
|
| (353 | ) |
|
| 2 |
|
Other currencies, net |
|
| 311 |
|
|
| (504 | ) |
|
| (902 | ) |
|
| (449 | ) |
|
| (142 | ) |
|
| (1,213 | ) |
Total (gain) loss, net |
| $ | (98 | ) |
| $ | (218 | ) |
| $ | (674 | ) |
| $ | (181 | ) | ||||||||
Foreign exchange (gain) loss, net |
| $ | (408 | ) |
| $ | (576 | ) |
14
14.
13. INCOME TAX EXPENSE
The Company recorded an income tax benefitexpense of $0.3$2.1 million and income tax expensebenefit of $4.8$4.0 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and income tax benefit of $4.3 million and $22.8 million for the six months ended June 30, 2020 and 2019, respectively. The effective tax rate for the three and six months ended June 30, 2020 were 4.4% and 3.6%March 31, 2021 was 20% recorded on a lossincome from continuing operations before taxes of $5.9 million and $118.3 million, respectively. The income tax benefit for the three and six months ended June 30, 2020, was primarily impacted by the impairment of goodwill, intangible assets and other charges recorded during these periods, which were largely not deductible for tax purposes. We have refined our estimate of the tax impact associated with the $132.1 million for impairments and other charges, limiting the tax benefit to $5.5 million, and was a discrete item for the six months ended June 30, 2020.$10.3 million.
The effective tax rate for the three months ended June 30, 2019March 31, 2020 was 19.8%3.6% recorded on incomea loss from continuing operations before tax of $24.3$112.4 million. The effective tax rate for the six months ended June 30, 2019first quarter of 2020, was (61.7%) on income from continuing operations beforeprimarily impacted by the impairment of goodwill and intangible assets, which were largely not deductible for tax of $37.0 million.purposes. The income tax benefit recorded isassociated with the result of a corporate restructuring which resulted in a net deferred tax benefit of $58.5$122.2 million whichimpairment charge was reduced by tax expense of $26.7 million relatedlimited to unremitted earnings of foreign subsidiaries that we no longer consider to be indefinitely reinvested, each of which was a discrete item to the reporting periods. Income tax expense will continue to be impacted by changes in activity levels in jurisdictions with differing tax rates.$5.5 million.
15
15.14. LEASES
We have operating leases primarily consisting of offices and lab space, machinery and equipment and vehicles. The components of lease expense are as follows (in thousands):
��
|
| Three months ended |
|
| Six months ended |
| ||
|
| June 30, 2020 |
|
| June 30, 2020 |
| ||
Lease Cost |
|
|
|
|
|
|
|
|
Operating lease cost |
| $ | 4,286 |
|
| $ | 8,629 |
|
Short-term lease cost |
|
| 402 |
|
|
| 864 |
|
Variable lease cost |
|
| 351 |
|
|
| 771 |
|
Total lease cost |
| $ | 5,039 |
|
| $ | 10,264 |
|
|
|
|
|
|
|
|
|
|
Other Information |
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 4,431 |
|
| $ | 8,942 |
|
Right-of-use assets obtained in exchange for new lease liabilities |
| $ | (728 | ) |
| $ | 3,008 |
|
Weighted-average remaining lease term- operating leases |
| 8.71 years |
|
| 8.71 years |
| ||
Weighted-average discount rate - operating leases |
|
| 4.90 | % |
|
| 4.90 | % |
|
| Three Months Ended |
|
| |||||
|
| March 31, |
|
| |||||
|
| 2021 |
|
| 2020 |
|
| ||
Operating lease expense |
| $ | 4,349 |
|
| $ | 4,340 |
|
|
Short-term lease expense |
|
| 371 |
|
|
| 462 |
|
|
Variable lease expense |
|
| 432 |
|
|
| 423 |
|
|
Total lease expense |
| $ | 5,152 |
|
| $ | 5,225 |
|
|
|
|
|
|
|
|
|
|
|
|
Other information |
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: | |||||||||
Operating cash flows from operating leases |
| $ | 3,919 |
|
| $ | 4,336 |
|
|
Right-of-use assets obtained in exchange for new lease obligations: |
|
|
|
|
|
|
|
|
|
Operating leases |
| $ | 1,881 |
|
| $ | 3,073 |
|
|
Weighted-average remaining lease term- operating leases |
| 8.32 years |
|
| 8.79 years |
|
| ||
Weighted-average discount rate - operating leases |
|
| 4.59 | % |
|
| 4.99 | % |
|
Scheduled undiscounted cash flowslease payments for non-cancellable leases at June 30, 2020 consist of the following (in thousands):
| Operating Leases |
| March 31, 2021 |
| ||
Remainder of 2020 | $ | 7,633 |
| |||
2021 |
| 13,299 |
| |||
Remainder of 2021 | $ | 11,309 |
| |||
2022 |
| 11,608 |
|
| 13,537 |
|
2023 |
| 9,868 |
|
| 11,413 |
|
2024 |
| 7,622 |
|
| 9,151 |
|
2025 |
| 8,071 |
| |||
Thereafter |
| 36,251 |
|
| 33,196 |
|
Total undiscounted lease payments | $ | 86,281 |
|
| 86,677 |
|
Less: Imputed Interest |
| (16,804 | ) | |||
Total lease liabilities | $ | 69,477 |
| |||
Less: Imputed interest |
| (15,685 | ) | |||
Total operating lease liabilities | $ | 70,992 |
|
During the three months ended June 30, 2020, the Company recorded a loss on lease abandonment of $0.6 million for certain properties that ceased in use and expected to provide no future economic benefits.
The Company has elected to apply the short-term lease exemption to all of its classes of underlying assets. Accordingly, 0 Right of Use asset or lease liability is recognized for leases with a term of twelve months or less.
The Company has elected to apply the practical expedient for combining lease and non-lease components for vehicle leases and elected not to apply the practical expedient for combining lease and non-lease components to all other classes of underlying assets.
16.15. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to market risks related to fluctuations in interest rates. To mitigate these risks, we utilize derivative instruments in the form of interest rate swaps. We do not enter into derivative transactions for speculative purposes.
15
Interest Rate Risk
Our Credit Facility bears interest at variable rates from LIBOR plus 1.500% to a maximum of LIBOR plus 2.875% and includes the addition of a LIBOR floor of 0.50%. As a result of two interest rate swap agreements, we are subject to interest rate risk on debt in excess of $50 million drawn on our Credit Facility.
16
We entered into 2 interest rate swap agreements for a total notional amount of $50 million to hedge changes in the variable rate interest expense on $50 million of our existing or replacement LIBOR-priced debt. UnderIn 2014, we entered into the first swap agreement with a notional amount of $25 million we have fixed(2014 Variable-to-Fixed Swap), and the LIBOR portion of the interest rate was fixed at 2.5% through August 29, 2024. In February 2020, we entered into the second swap agreement with a notional amount of $25 million, we have fixedand the LIBOR portion of the interest rate was fixed at 1.3% through February 28, 2025. Each swap is measured at fair value and recorded in our Consolidated Balance Sheet as an asset or liability. They are designated and qualify as cash flow hedging instruments and are highly effective. Unrealized losses are deferred to shareholders' equity as a component of accumulated other comprehensive gain (loss) and are recognized in income as an increase or decrease to interest expense in the period in which the related cash flows being hedged are recognized in expense. At March 31, 2021, the outstanding balance on our Credit Facility had been reduced to zero, as such these interest rate swap agreements discussed above were terminated, dedesignated and settled.
During the three months ended March 31, 2021, we entered into a new forward interest rate swap agreement for a notional amount of $60 million, and carried the fair market value of the 2014 Variable-to-Fixed Swap into the new agreement in a Blend and Extend structured transaction. The purpose of this forward interest rate swap agreement is to fix the underlying risk-free rate, that would be associated with the anticipated issuance of new long-term debt by the Company in future periods. Risk associated with future changes in the 10-year LIBOR interest rates have been fixed up to a notional amount of $60 million with this instrument. Upon issuing new long-term debt in future periods, this forward interest rate swap agreement would be settled and value of the agreement at settlement would be amortized as interest expense in association with recognition of interest expense on the new fixed rate debt instrument.
We entered into 2 forward interest rate swap agreements for a total notional amount of $35 million during 2020. The purpose of these forward interest rate swap agreements are to fix the underlying risk-free rate, that would be associated with the anticipated issuance of new long-term debt by the Company. These 2 forward interest rate swap agreements were terminated and settled during the three months ended March 31, 2021.
At June 30, 2020,March 31, 2021, we had fixed rate long-term debt aggregating $200$210 million and 0 variable rate long-term debt aggregating $88 million, after taking into account the effect of the swap.debt.
The fair values of outstanding derivative instruments are as follows (in thousands):
|
| Fair Value of Derivatives |
|
|
|
| Fair Value of Derivatives |
|
|
| ||||||||||
|
| June 30, 2020 |
|
| December 31, 2019 |
|
| Balance Sheet Classification |
| March 31, 2021 |
|
| December 31, 2020 |
|
| Balance Sheet Classification | ||||
Derivatives designated as hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 year interest rate swap |
| $ | (1,175 | ) |
| $ | — |
|
| Other current (liabilities) |
| $ | — |
|
| $ | (368 | ) |
| Other long-term (liabilities) |
10 year interest rate swap |
|
| (2,446 | ) |
|
| (1,054 | ) |
| Other long-term (liabilities) |
|
| — |
|
|
| (2,123 | ) |
| Other long-term (liabilities) |
10 year forward interest rate swap |
|
| (2,386 | ) |
|
| — |
|
| Other long-term (liabilities) | ||||||||||
|
| $ | (3,621 | ) |
| $ | (1,054 | ) |
|
|
| $ | (2,386 | ) |
| $ | (2,491 | ) |
|
|
The fair value of all outstanding derivatives was determined using a model with inputs that are observable in the market (Level 2) or can be derived from or corroborated by observable data.data (Level 2).
16
The effect of the interest rate swaps on the Consolidated Statementconsolidated statement of Operationsoperations was as follows (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
|
|
| Three Months Ended |
|
|
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
|
|
| March 31, |
|
|
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Income Statement Classification |
| 2021 |
|
| 2020 |
|
| Income Statement Classification | ||||||
Derivatives designated as hedges: | Derivatives designated as hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivatives designated as hedges: |
|
|
|
|
|
|
| ||||
5 year interest rate swap |
| $ | 51 |
|
| $ | (47 | ) |
| $ | 45 |
|
| $ | (96 | ) |
| Increase (decrease) to interest expense |
| $ | (831 | ) |
| $ | (6 | ) |
| Increase (decrease) to interest expense |
10 year interest rate swap |
|
| 126 |
|
|
| 2 |
|
|
| 178 |
|
|
| 2 |
|
| Increase (decrease) to interest expense |
|
| 490 |
|
|
| 52 |
|
| Increase (decrease) to interest expense |
|
| $ | 177 |
|
| $ | (45 | ) |
| $ | 223 |
|
| $ | (94 | ) |
|
|
| $ | (341 | ) |
| $ | 46 |
|
|
|
17The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months. Therefore, the interest rate swap is classified as a non-current asset.
17.16. FINANCIAL INSTRUMENTS
The Company's only financial assets and liabilities which are measured at fair value on a recurring basis relate to certain aspects of the Company's benefit plans and our derivative instruments. We use the market approach to determine the fair value certainof these assets and liabilities at fair value using significant other observable inputs (Level 2) with the assistance of a third-party specialist. We do not have any assets or liabilities measured at fair value on a recurring basis using quoted prices in an active market (Level 1) or significant unobservable inputs (Level 3). Gains and losses related to the fair value changes in the deferred compensation assets and liabilities are recorded in Generalgeneral and administrative expense in the Consolidated Statementsconsolidated statements of Operations.operations. Gains and losses related to the fair value of the interest rate swaps are recorded in Otherother comprehensive income.
The following table summarizes the fair value balances (in thousands):
|
|
|
|
|
| Fair Value Measurement at |
| |||||||||
|
|
|
|
|
| June 30, 2020 |
| |||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation assets (1) |
| $ | 44,056 |
|
| $ | — |
|
| $ | 44,056 |
|
| $ | — |
|
|
| $ | 44,056 |
|
| $ | — |
|
| $ | 44,056 |
|
| $ | — |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan |
| $ | 33,861 |
|
| $ | — |
|
| $ | 33,861 |
|
| $ | — |
|
5 year interest rate swap |
|
| 1,175 |
|
|
| — |
|
|
| 1,175 |
|
|
| — |
|
10 year interest rate swap |
|
| 2,446 |
|
|
| — |
|
|
| 2,446 |
|
|
| — |
|
|
| $ | 37,482 |
|
| $ | — |
|
| $ | 37,482 |
|
| $ | — |
|
|
|
|
|
|
| Fair Value Measurement at |
| |||||||||
|
|
|
|
|
| March 31, 2021 |
| |||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company owned life insurance policies (1) |
| $ | 29,908 |
|
| $ | — |
|
| $ | 29,908 |
|
| $ | — |
|
|
| $ | 29,908 |
|
| $ | — |
|
| $ | 29,908 |
|
| $ | — |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation liabilities |
| $ | 23,275 |
|
| $ | — |
|
| $ | 23,275 |
|
| $ | — |
|
10 year forward interest rate swap |
|
| 2,386 |
|
|
| — |
|
|
| 2,386 |
|
|
| — |
|
|
| $ | 25,661 |
|
| $ | — |
|
| $ | 25,661 |
|
| $ | — |
|
|
|
|
|
|
| Fair Value Measurement at |
|
|
|
|
|
| Fair Value Measurement at |
| ||||||||||||||||||
|
|
|
|
|
| December 31, 2019 |
|
|
|
|
|
| December 31, 2020 |
| ||||||||||||||||||
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation assets (1) |
| $ | 47,009 |
|
| $ | — |
|
| $ | 47,009 |
|
| $ | — |
| ||||||||||||||||
Company owned life insurance policies (1) |
| $ | 30,985 |
|
| $ | — |
|
| $ | 30,985 |
|
| $ | — |
| ||||||||||||||||
|
| $ | 47,009 |
|
| $ | — |
|
| $ | 47,009 |
|
| $ | — |
|
| $ | 30,985 |
|
| $ | — |
|
| $ | 30,985 |
|
| $ | — |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan |
| $ | 34,081 |
|
| $ | — |
|
| $ | 34,081 |
|
| $ | — |
| ||||||||||||||||
Deferred compensation liabilities |
| $ | 22,559 |
|
| $ | — |
|
| $ | 22,559 |
|
| $ | — |
| ||||||||||||||||
5 year interest rate swap |
|
| 368 |
|
|
| — |
|
|
| 368 |
|
|
| — |
| ||||||||||||||||
10 year interest rate swap |
|
| 1,054 |
|
|
| — |
|
|
| 1,054 |
|
|
| — |
|
|
| 2,123 |
|
|
| — |
|
|
| 2,123 |
|
|
| — |
|
|
| $ | 35,135 |
|
| $ | — |
|
| $ | 35,135 |
|
| $ | — |
|
| $ | 25,050 |
|
| $ | — |
|
| $ | 25,050 |
|
| $ | — |
|
(1) |
|
18.17
17. DISCONTINUED OPERATIONS
In 2018, in a continuing effort to streamline our business and align our business strategy for further integration of services and products, the Company committed to divest the business of our full range of permanent downhole monitoring systems and related services, which had been part of our Production Enhancement segment.
On June 7, 2019, we entered into a definitive purchase agreement for approximately $16.6 million in cash. A pre-tax gain of $8.3 million was recognized in connection with this transaction, subject to adjustments for working capital purposes and is classified as Income from discontinued operations in the Consolidated Statements of Operations. The purchase agreement also provides for additional proceeds of up to $2.5 million based on the results of operations of the sold business in 2019 and 2020, none of which has been recognized. We completed the divestment of this business in 2019 and we concluded final adjustments to the purchase agreement in 2020. We determined there were 0 additional proceeds based on the results of operations of the sold business.
The associated results of operations are separately reported as Discontinued Operations for all periods presented on the Consolidated Statements of Operations. Cash flows from this discontinued business are shown below. As such, the results from continuing operations for the Company and segment highlights for Production Enhancement, exclude these discontinued operations.
18
Selected data for this discontinued business consisted of the following (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
| ||
|
| June 30, 2019 |
| |||||
Service revenue |
| $ | 466 |
|
| $ | 1,165 |
|
Product sales |
|
| 2,465 |
|
|
| 4,233 |
|
Total revenue |
|
| 2,931 |
|
|
| 5,398 |
|
Cost of services, exclusive of depreciation expense shown below |
|
| 345 |
|
|
| 690 |
|
Cost of product sales, exclusive of depreciation expense shown below |
|
| 1,554 |
|
|
| 3,196 |
|
Other expense |
|
| 117 |
|
|
| 91 |
|
Operating income (loss) |
|
| 915 |
|
|
| 1,421 |
|
Adjustment to gain on sale |
|
| 8,804 |
|
|
| 8,804 |
|
Income (loss) from discontinued operations before income tax expense |
|
| 9,719 |
|
|
| 10,225 |
|
Income tax expense (benefit) |
|
| 1,748 |
|
|
| 1,995 |
|
Income (loss) from discontinued operations, net of income taxes |
| $ | 7,971 |
|
| $ | 8,230 |
|
There are 0 activities recorded for the three and six months ended June 30, 2020March 31, 2021 and 2020. There are 0 balances recorded for the discontinued operations as of June 30, 2020March 31, 2021 and December 31, 2019.2020.
NetThere are 0 net cash provided by operating activities of discontinued operations for the sixthree months ended June 30, 2020March 31, 2021 and 2019 was $0.0 million and $0.7 million, respectively.2020.
19.18. SEGMENT REPORTING
We operate our business in2 reportable segments. These complementary segments provide different services and products and utilize different technologies for improving reservoir performance and increasing oil and gas recovery from new and existing fields.
| • | Reservoir Description: Encompasses the characterization of petroleum reservoir rock |
| • | Production Enhancement: Includes services and manufactured products relating to reservoir well completions, perforations, stimulations and production. We provide integrated diagnostic services to evaluate and monitor the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects. |
1918
Results for these segments are presented below. We use the same accounting policies to prepare our segment results as are used to prepare our Consolidated Financial Statements. All interest and other non-operating income (expense) is attributable to Corporate & Other and is not allocated to specific segments. Summarized financial information concerning our segments is shown in the following table (in thousands):
|
| Reservoir Description |
|
| Production Enhancement |
|
| Corporate & Other 1 |
|
| Consolidated |
|
| Reservoir Description |
|
| Production Enhancement |
|
| Corporate & Other 1 |
|
| Consolidated |
| ||||||||
Three months ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Three months ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Revenue from unaffiliated clients |
| $ | 88,442 |
|
| $ | 27,294 |
|
| $ | — |
|
| $ | 115,736 |
|
| $ | 76,486 |
|
| $ | 31,897 |
|
| $ | — |
|
| $ | 108,383 |
|
Inter-segment revenue |
|
| 62 |
|
|
| 88 |
|
|
| (150 | ) |
|
| — |
|
|
| 57 |
|
|
| 36 |
|
|
| (93 | ) |
|
| — |
|
Segment operating income (loss) |
|
| 13,534 |
|
|
| (16,324 | ) |
|
| 223 |
|
|
| (2,567 | ) |
|
| 10,051 |
|
|
| 1,560 |
|
|
| 11 |
|
|
| 11,622 |
|
Total assets (at end of period) |
|
| 321,003 |
|
|
| 133,133 |
|
|
| 160,305 |
|
|
| 614,441 |
|
|
| 332,429 |
|
|
| 131,096 |
|
|
| 120,921 |
|
|
| 584,446 |
|
Capital expenditures |
|
| 1,820 |
|
|
| 1,198 |
|
|
| 47 |
|
|
| 3,065 |
|
|
| 2,400 |
|
|
| 304 |
|
|
| 68 |
|
|
| 2,772 |
|
Depreciation and amortization |
|
| 3,452 |
|
|
| 1,706 |
|
|
| 267 |
|
|
| 5,425 |
|
|
| 3,126 |
|
|
| 1,447 |
|
|
| 298 |
|
|
| 4,871 |
|
Three months ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Three months ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Revenue from unaffiliated clients |
| $ | 105,649 |
|
| $ | 63,389 |
|
| $ | — |
|
| $ | 169,038 |
|
| $ | 102,702 |
|
| $ | 49,698 |
|
| $ | — |
|
| $ | 152,400 |
|
Inter-segment revenue |
|
| 151 |
|
|
| 176 |
|
|
| (327 | ) |
|
| — |
|
|
| 100 |
|
|
| 316 |
|
|
| (416 | ) |
|
| — |
|
Segment operating income |
|
| 15,878 |
|
|
| 10,424 |
|
|
| 1,706 |
|
|
| 28,008 |
| ||||||||||||||||
Segment operating income (loss) |
|
| 11,062 |
|
|
| (121,299 | ) |
|
| 1,264 |
|
|
| (108,973 | ) | ||||||||||||||||
Total assets (at end of period) |
|
| 342,843 |
|
|
| 290,967 |
|
|
| 147,708 |
|
|
| 781,518 |
|
|
| 337,406 |
|
|
| 159,608 |
|
|
| 149,595 |
|
|
| 646,609 |
|
Capital expenditures |
|
| 2,744 |
|
|
| 4,281 |
|
|
| 22 |
|
|
| 7,047 |
|
|
| 1,412 |
|
|
| 1,914 |
|
|
| 14 |
|
|
| 3,340 |
|
Depreciation and amortization |
|
| 3,834 |
|
|
| 1,544 |
|
|
| 408 |
|
|
| 5,786 |
|
|
| 3,521 |
|
|
| 1,642 |
|
|
| 278 |
|
|
| 5,441 |
|
Six months ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Revenue from unaffiliated clients |
| $ | 191,144 |
|
| $ | 76,992 |
|
| $ | — |
|
| $ | 268,136 |
| ||||||||||||||||
Inter-segment revenue |
|
| 162 |
|
|
| 404 |
|
|
| (566 | ) |
|
| — |
| ||||||||||||||||
Segment operating income (loss) |
|
| 24,596 |
|
|
| (137,623 | ) |
|
| 1,487 |
|
|
| (111,540 | ) | ||||||||||||||||
Total assets |
|
| 321,003 |
|
|
| 133,133 |
|
|
| 160,305 |
|
|
| 614,441 |
| ||||||||||||||||
Capital expenditures |
|
| 3,232 |
|
|
| 3,112 |
|
|
| 62 |
|
|
| 6,406 |
| ||||||||||||||||
Depreciation and amortization |
|
| 6,974 |
|
|
| 3,347 |
|
|
| 545 |
|
|
| 10,866 |
| ||||||||||||||||
Six months ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Revenue from unaffiliated clients |
| $ | 208,941 |
|
| $ | 129,291 |
|
| $ | — |
|
| $ | 338,232 |
| ||||||||||||||||
Inter-segment revenue |
|
| 247 |
|
|
| 220 |
|
|
| (467 | ) |
|
| — |
| ||||||||||||||||
Segment operating income |
|
| 22,057 |
|
|
| 20,336 |
|
|
| 2,029 |
|
|
| 44,422 |
| ||||||||||||||||
Total assets |
|
| 342,843 |
|
|
| 290,967 |
|
|
| 147,708 |
|
|
| 781,518 |
| ||||||||||||||||
Capital expenditures |
|
| 4,646 |
|
|
| 7,132 |
|
|
| 452 |
|
|
| 12,230 |
| ||||||||||||||||
Depreciation and amortization |
|
| 7,821 |
|
|
| 2,727 |
|
|
| 825 |
|
|
| 11,373 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
(1) "Corporate & Other" represents those items that are not directly related to a particular segment, eliminations and the assets and liabilities of discontinued operations. |
| |||||||||||||||||||||||||||||||
(1) "Corporate & Other" represents those items that are not directly related to a particular segment and eliminations. | (1) "Corporate & Other" represents those items that are not directly related to a particular segment and eliminations. |
|
20. RECENT ACCOUNTING PRONOUNCEMENTS
Pronouncements Adopted in 2020
In June 2016, the FASB issued ASU 2016-13 ("Measurement of Credit Losses on Financial Instruments") which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We adopted this standard on January 1, 2020, and there has been no significant impact on our consolidated financial statements or on our accounting policies and processes.
2019
In January 2017, the FASB issued ASU 2017-04 (“Simplifying the Test for Goodwill Impairment”) which eliminates a step in computing the implied fair value of goodwill with a new methodology of an entity performing an annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. We adopted this standard on January 1, 2020, and although the new methodology was applied for the goodwill impairment analysis performed for the three month period ending March 31, 2020, it did not change the conclusion that goodwill had been impaired, and there has been no significant impact on our consolidated financial statements or on our accounting policies and processes as a result of adopting this updated accounting standard.
21
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion highlights the current operating environment and summarizes the financial position of Core Laboratories N.V. and its subsidiaries as of June 30, 2020March 31, 2021 and should be read in conjunction with (i) the unaudited interim consolidated interim financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report") and (ii) the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the fiscal year ended December 31, 20192020 (the "2019"2020 Annual Report").
General
Core Laboratories N.V. is a limited liability company incorporated and domiciled in the Netherlands. It was established in 1936 and is one of the world's leading providers of proprietary and patented reservoir description and production enhancement services and products to the oil and gas industry. These services and products can enable our clients to improve reservoir performance and increase oil and gas recovery from their producing fields. Core Laboratories N.V. has over 70 offices in more than 50 countries and employs approximately 3,8003,700 people worldwide.
References to "Core Lab", “Core Laboratories”, the "Company", "we", "our" and similar phrases are used throughout this Quarterly Report and relate collectively to Core Laboratories N.V. and its consolidated affiliates.
We operate our business in two reportable segments: Reservoir Description and Production Enhancement. These complementary segments provide different services and products and utilize different technologies for improving reservoir performance and increasing oil and gas recovery from new and existing fields.
| • | Reservoir Description: Encompasses the characterization of petroleum reservoir rock, |
| • | Production Enhancement: Includes services and manufactured products relating to reservoir well completions, perforations, |
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations section, including those under the headings "Outlook" and "Liquidity and Capital Resources", and in other parts of this Quarterly Report, are forward-looking. In addition, from time to time, we may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. Forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "believe", "expect", "anticipate", "estimate", "continue", or other similar words, including statements as to the intent, belief, or current expectations of our directors, officers, and management with respect to our future operations, performance, or positions or which contain other forward-looking information. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, no assurances can be given that the future results indicated, whether expressed or implied, will be achieved. While we believe that these statements are and will be accurate, our actual results and experience may differ materially from the anticipated results or other expectations expressed in our statements due to a variety of risks and uncertainties.
2220
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see "Item 1A - Risk Factors" in our 20192020 Annual Report and “Item 8.01- Other Events” in the Current Report Form 8-K filed on June 23, 2020, as well as the other reports filed by us with the Securities and Exchange Commission ("SEC").
Outlook
The events occurring during first and second quarters of 2020 associated with the COVID-19 pandemic and global government mandated shut-downs, home sheltering and social distancing policies have caused a significant decline in the demand for crude oil and associated products. The significant decline in demand has resulted in a significant declineproducts during 2020 which continued in the pricefirst quarter of crude oil, which has also resulted in a high degree of uncertainty about future demand and the future price for crude oil.2021. U.S. land drilling and completion activityactivities have experienced the most significant impact, as the rig count and completion of wells have declined significantly during the first and second quartersmost of 2020 from previous levels. U.S. land drilling and completion activity began to improve in the second half of 2020 and continued to show improvement during the first quarter of 2021. International activity has also been impacted by disruption to our clients’ operations.operations and lower crude oil commodity prices. Crude oil commodity prices have increased during 2021, and the outlook for the energy industry has become more positive but remains tempered in 2021. As a result, it is anticipated that crude oil commodity prices will remain at current levels for the remainder of 2021, however activity associated with the energy markets and our clients will remain lowmoderately improve and could accelerate in the commodity pricesecond half of crude oil will also continue to be depressed and volatile for the remainder of 2020.2021.
While the full impact of COVID-19 and the long-term worldwide impact still remains unknown, Core Laboratories has continued to operate as an essential business with timely delivery of products and services to our clients during the COVID-19 global pandemic. Continued government restrictions, widespread growth in infections,increasing infection rates, travel restrictions, quarantines, and site closures have led to business disruptions, which are expected to continue forcontinued during the remainderfirst quarter of the year and possibly beyond 2020.2021. These disruptions have primarily been associated with operational workflows stemming from travel, product delivery, as well as suspensions and delays in client projects. We have not experienced any significant disruptiondisruptions in our supply chain, and do not anticipate significant disruption in our supply chain. We have also implemented a continuity plan across our global organization to protect the health of employees while servicing our clients. In addition, results during the clients.first quarter of 2021 were impacted by costs associated with disruptions and damage to facilities caused by the North American mid-continent winter storm event in February 2021, which affected operations in the region.
Our major clients continue to focus on capital management, return on invested capital (“ROIC”), free cash flow, and returning capital to their shareholders, as opposed to a focus on production growth. The companies adopting value versus volume metrics tend to be the more technologically sophisticated operators and form the foundation of Core Lab’s worldwide client base. Considering a longer-term strategy, we expect to be well positioned as our clients continue their focus on employing higher technological solutions in their efforts to optimize production and estimated ultimate recovery in the most cost efficient and environmentally responsible manner.
We believe operators will continue to manage their capital spending within reduced budgets and maintain their focus on strengthening the balance sheet and generating free cash. This shift was apparent throughout 2020 and continued in the first quarter of 2021 with significant declines, year-over-year, in the U.S. onshore rig count, U.S. land completion activity, and international rig count. We believe U.S. onshore activity in the remainder of 2021 will continue to improve moderately, though any improvement will continue to be constrained by those factors indicated above.
Core Laboratories expects international field development spending will be negatively impacted by reduced operating budgets adversely impacted by COVID-19. We continue to work with clients and discuss the progression of longer-term international projects. Additionally, the reservoir fluids analysis performed on projects associated with current producing fields continues to be critical and will be less affected by lower commodity prices for crude oil. The adverse impact from COVID-19 has resulted in increased uncertainty associated with the activity levels and revenue opportunities from these international and offshore projects, however most of the larger projects, especially projects that have been commissioned and are in development, are focused on a longer-term forecast rather than a short- to mid-term assessment of crude oil commodity prices.
As part of our long-term growth strategy, we continue to expand our market presence by opening or expanding facilities in strategic areas and realizing synergies within our business lines subject toconsistent with client demand and market conditions. We
21
believe our market presence in strategic areas provides us a unique opportunity to serve our clients who have global operations, whether they are international oil companies, national oil companies, or independent oil companies.
Our major clients continue to focus on capital management return on invested capital (“ROIC”), free cash flow, and returning capital back to their shareholders, as opposed to a focus on production growth at any cost. The companies adopting value versus volume metrics tend to be the more technologically sophisticated operators and form the foundation of Core Lab’s worldwide client base. Considering a longer-term strategy, we expect to benefit from our clients’ shift in focus from strictly production growth to employing higher technological solutions in their efforts to maximize economic production growth and estimated ultimate recovery ("EUR").
We believe operators will continue to manage their capital spending within reduced budgets, and maintain their focus on strengthening their balance sheets with an effort to generate positive free cash flow. This shift was apparent during the first and second quarters of 2020 with the notable declines in the U.S. onshore rig count, U.S. land completion activity, international rig count and significant reductions by oil and gas operators to 2020 capital expenditures. As a result, we believe the U.S. onshore activity in the remainder of 2020 will remain at the current lower levels and continue to be constrained by these factors.
Core Laboratories expects international field development spending will be funded largely from reduced operating budgets which have also been adversely impacted by COVID-19. Reservoir Description continues to work with clients and discuss the progression of longer-term international projects. Longer-term international and offshore projects which are commonly announced through Final Investment Decisions (“FIDs”), and have been previously announced and initiated are not as susceptible or at-risk to delay or suspension due to shorter-term volatility in crude oil commodity price. Additionally, the reservoir fluids analysis that is performed on projects associated with current producing fields, continues to be critical and will be less affected by lower commodity prices for crude oil. The revenue opportunity for Reservoir Description occurs once the well has been drilled and core and fluid samples are recovered from the well and analyzed. The adverse impact from COVID-
23
19 and the depression of crude-oil prices has resulted in increased uncertainty associated with the activity levels and revenue opportunities from these international and offshore projects, however most of the larger projects, especially the projects that have already been commissioned and are underway, are focused on a longer term forecast versus a short to mid-term assessment of the crude oil commodity prices.
In response to market conditions, Core Lab’s Board of Supervisory Directors (the “Supervisory Board”) approved a plan to reduce the Company’s future quarterly dividends to $0.01 per share beginning with the second quarter of 2020 and to focus excess free cash flow towards the reduction of debt. In March 2020, the Company enacted cost control plans and expanded these initiatives in June of 2020, which include: (i) corporate and operating cost reductions; (ii) annual capital expenditures reduced to below the 2016 level of $11.411.9 million for 2020, and (iii) eliminating all non-essential costs. The corporate and operating cost reductions include reductionsThese initiatives continued in workforce and reductionthe first quarter of 2021. In January 2021, we issued $60 million of senior executivenotes (the “2021 Senior Notes”) in a private placement transaction. The proceeds from the 2021 Senior Notes were used exclusively to reduce outstanding debt and employee compensation. Although activities have declined inincrease liquidity under our Credit Facility as we work towards our long-term strategy of reducing debt. On December 17, 2020, we entered into an Equity Distribution Agreement with Wells Fargo Securities, LLC for the second quarterissuance and sale of 2020 dueup to $60 million of our common shares. Under the factors discussed above, this decline has been partially offset by the effectivenessterms of the Company’s cost control initiatives. Equity Distribution Agreement, sales of our common shares may be made by any method deemed to be an “at-the-market offering” as defined in Rule 415 under the Securities Act of 1933. During the three months ended March 31, 2021, we completed the program selling 1,658,012 of common shares at an average price of $36.19 per share, which generated aggregate proceeds of $59.1 million, net of commissions and other associated costs. Proceeds were used to reduce debt under the Credit Facility.
Specifically, the Company has reduced senior executives’ annual base salary by 20% for the foreseeable future. In addition, David Demshur, the prior CEO and Chairman of the Company, accelerated his retirement to the end of May 2020. Core Lab believes these immediate actions, as well as continued assessment of market conditions, will allow Core Lab, as it has for over 83 years, to navigate through these challenging times. Core Lab remains focused on preserving the quality of service for its clients and producing returns for its shareholders.
2422
Results of Operations
Our results of operations as a percentage of applicable revenue were as follows (in thousands):
|
| Three months ended June 30, |
|
| Change |
|
| Three Months Ended March 31, |
|
| Change |
| ||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||||||||||||||||||||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
| $ | 91,009 |
|
| 79% |
|
| $ | 117,874 |
|
| 70% |
|
| $ | (26,865 | ) |
| (23)% |
|
| $ | 83,982 |
|
| 77% |
|
| $ | 109,967 |
|
| 72% |
|
| $ | (25,985 | ) |
| (24)% |
| ||||||
Product sales |
|
| 24,727 |
|
| 21% |
|
|
| 51,164 |
|
| 30% |
|
|
| (26,437 | ) |
| (52)% |
|
|
| 24,401 |
|
| 23% |
|
|
| 42,433 |
|
| 28% |
|
|
| (18,032 | ) |
| (42)% |
| ||||||
Total revenue |
|
| 115,736 |
|
| 100% |
|
|
| 169,038 |
|
| 100% |
|
|
| (53,302 | ) |
| (32)% |
|
|
| 108,383 |
|
| 100% |
|
|
| 152,400 |
|
| 100% |
|
|
| (44,017 | ) |
| (29)% |
| ||||||
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, exclusive of depreciation expense shown below* |
|
| 67,054 |
|
| 74% |
|
|
| 86,007 |
|
| 73% |
|
|
| (18,953 | ) |
| (22)% |
|
|
| 63,533 |
|
| 76% |
|
|
| 80,941 |
|
| 74% |
|
|
| (17,408 | ) |
| (22)% |
| ||||||
Cost of product sales, exclusive of depreciation expense and inventory write-down shown below* |
|
| 23,626 |
|
| 96% |
|
|
| 38,444 |
|
| 75% |
|
|
| (14,818 | ) |
| (39)% |
| |||||||||||||||||||||||||||
Cost of product sales, exclusive of depreciation expense and impairment and other charges shown below* |
|
| 20,617 |
|
| 84% |
|
|
| 34,190 |
|
| 81% |
|
|
| (13,573 | ) |
| (40)% |
| |||||||||||||||||||||||||||
Total cost of services and product sales |
|
| 90,680 |
|
| 78% |
|
|
| 124,451 |
|
| 74% |
|
|
| (33,771 | ) |
| (27)% |
|
|
| 84,150 |
|
| 78% |
|
|
| 115,131 |
|
| 76% |
|
|
| (30,981 | ) |
| (27)% |
| ||||||
General and administrative expense |
|
| 9,221 |
|
| 8% |
|
|
| 9,801 |
|
| 6% |
|
|
| (580 | ) |
| (6)% |
| |||||||||||||||||||||||||||
General and administrative expense, exclusive of depreciation expense shown below |
|
| 8,461 |
|
| 8% |
|
|
| 19,567 |
|
| 13% |
|
|
| (11,106 | ) |
| (57)% |
| |||||||||||||||||||||||||||
Depreciation and amortization |
|
| 5,425 |
|
| 5% |
|
|
| 5,786 |
|
| 3% |
|
|
| (361 | ) |
| (6)% |
|
|
| 4,871 |
|
| 4% |
|
|
| 5,441 |
|
| 4% |
|
|
| (570 | ) |
| (10)% |
| ||||||
Inventory write-down |
|
| 9,932 |
|
| 9% |
|
|
| — |
|
| —% |
|
|
| 9,932 |
|
| NM |
| |||||||||||||||||||||||||||
Impairments and other charges |
|
| — |
|
| —% |
|
|
| 122,204 |
|
| 80% |
|
|
| (122,204 | ) |
| NM |
| |||||||||||||||||||||||||||
Other (income) expense, net |
|
| 3,045 |
|
| 3% |
|
|
| 992 |
|
| 1% |
|
|
| 2,053 |
|
| 207% |
|
|
| (721 | ) |
| (1)% |
|
|
| (970 | ) |
| (1)% |
|
|
| 249 |
|
| (26)% |
| ||||||
Operating income (loss) |
|
| (2,567 | ) |
| (2)% |
|
|
| 28,008 |
|
| 17% |
|
|
| (30,575 | ) |
| NM |
|
|
| 11,622 |
|
| 11% |
|
|
| (108,973 | ) |
| (72)% |
|
|
| 120,595 |
|
| NM |
| ||||||
Interest expense |
|
| 3,369 |
|
| 3% |
|
|
| 3,714 |
|
| 2% |
|
|
| (345 | ) |
| (9)% |
|
|
| 1,363 |
|
| 1% |
|
|
| 3,411 |
|
| 2% |
|
|
| (2,048 | ) |
| (60)% |
| ||||||
Income (loss) before income tax expense |
|
| (5,936 | ) |
| (5)% |
|
|
| 24,294 |
|
| 14% |
|
|
| (30,230 | ) |
| NM |
| |||||||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense |
|
| 10,259 |
|
| 9% |
|
|
| (112,384 | ) |
| (74)% |
|
|
| 122,643 |
|
| NM |
| |||||||||||||||||||||||||||
Income tax expense (benefit) |
|
| (261 | ) |
| —% |
|
|
| 4,808 |
|
| 3% |
|
|
| (5,069 | ) |
| NM |
|
|
| 2,052 |
|
| 2% |
|
|
| (4,046 | ) |
| (3)% |
|
|
| 6,098 |
|
| NM |
| ||||||
Income (loss) from continuing operations |
|
| (5,675 | ) |
| (5)% |
|
|
| 19,486 |
|
| 12% |
|
|
| (25,161 | ) |
| NM |
|
|
| 8,207 |
|
| 8% |
|
|
| (108,338 | ) |
| (71)% |
|
|
| 116,545 |
|
| NM |
| ||||||
Income (loss) from discontinued operations, net of tax |
|
| — |
|
| —% |
|
|
| 7,971 |
|
| 5% |
|
|
| (7,971 | ) |
| NM |
| |||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of income taxes |
|
| — |
|
| —% |
|
|
| — |
|
| —% |
|
|
| — |
|
| NM |
| |||||||||||||||||||||||||||
Net income (loss) |
|
| (5,675 | ) |
| (5)% |
|
|
| 27,457 |
|
| 16% |
|
|
| (33,132 | ) |
| NM |
|
|
| 8,207 |
|
| 8% |
|
|
| (108,338 | ) |
| (71)% |
|
|
| 116,545 |
|
| NM |
| ||||||
Net income (loss) attributable to non-controlling interest |
|
| 41 |
|
| —% |
|
|
| 43 |
|
| —% |
|
|
| (2 | ) |
| NM |
|
|
| 102 |
|
| —% |
|
|
| 83 |
|
| —% |
|
|
| 19 |
|
| NM |
| ||||||
Net income (loss) attributable to Core Laboratories N.V. |
| $ | (5,716 | ) |
| (5)% |
|
| $ | 27,414 |
|
| 16% |
|
| $ | (33,130 | ) |
| NM |
|
| $ | 8,105 |
|
| 7% |
|
| $ | (108,421 | ) |
| (71)% |
|
| $ | 116,526 |
|
| NM |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio (1) |
| 1.93:1 |
|
|
|
|
|
| 1.80:1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2.17:1 |
|
|
|
|
|
| 2.03:1 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Debt to EBITDA ratio (2) |
| 2.82:1 |
|
|
|
|
|
| 2.17:1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2.37:1 |
|
|
|
|
|
| 2.35:1 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Debt to Adjusted EBITDA ratio (3) |
| 2.21:1 |
|
|
|
|
|
| 1.69:1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2.33:1 |
|
|
|
|
|
| 1.93:1 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
"NM" means not meaningful | "NM" means not meaningful |
| "NM" means not meaningful |
| ||||||||||||||||||||||||||||||||||||||||||||
*Percentage based on applicable revenue rather than total revenue | *Percentage based on applicable revenue rather than total revenue |
| *Percentage based on applicable revenue rather than total revenue |
| ||||||||||||||||||||||||||||||||||||||||||||
(1) Current ratio is calculated as follows: current assets divided by current liabilities. | (1) Current ratio is calculated as follows: current assets divided by current liabilities. |
| (1) Current ratio is calculated as follows: current assets divided by current liabilities. |
| ||||||||||||||||||||||||||||||||||||||||||||
(2) Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation and amortization. |
| |||||||||||||||||||||||||||||||||||||||||||||||
(2) Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization and certain non-cash adjustments. | (2) Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization and certain non-cash adjustments. |
| ||||||||||||||||||||||||||||||||||||||||||||||
(3) Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments. | (3) Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments. |
| (3) Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments. |
|
2523
|
| Three months ended |
|
| Change |
| ||||||||||||||||||
|
| June 30, 2020 |
|
| March 31, 2020 |
|
| $ |
|
| % |
| ||||||||||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
| $ | 91,009 |
|
| 79% |
|
| $ | 109,967 |
|
| 72% |
|
| $ | (18,958 | ) |
| (17)% |
| |||
Product sales |
|
| 24,727 |
|
| 21% |
|
|
| 42,433 |
|
| 28% |
|
|
| (17,706 | ) |
| (42)% |
| |||
Total revenue |
|
| 115,736 |
|
| 100% |
|
|
| 152,400 |
|
| 100% |
|
|
| (36,664 | ) |
| (24)% |
| |||
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, exclusive of depreciation expense shown below* |
|
| 67,054 |
|
| 74% |
|
|
| 80,941 |
|
| 74% |
|
|
| (13,887 | ) |
| (17)% |
| |||
Cost of product sales, exclusive of depreciation expense and inventory write-down shown below* |
|
| 23,626 |
|
| 96% |
|
|
| 34,190 |
|
| 81% |
|
|
| (10,564 | ) |
| (31)% |
| |||
Total cost of services and product sales |
|
| 90,680 |
|
| 78% |
|
|
| 115,131 |
|
| 76% |
|
|
| (24,451 | ) |
| (21)% |
| |||
General and administrative expense |
|
| 9,221 |
|
| 8% |
|
|
| 19,567 |
|
| 13% |
|
|
| (10,346 | ) |
| (53)% |
| |||
Depreciation and amortization |
|
| 5,425 |
|
| 5% |
|
|
| 5,441 |
|
| 4% |
|
|
| (16 | ) |
| (0)% |
| |||
Impairments and other charges |
|
| — |
|
| —% |
|
|
| 122,204 |
|
| 80% |
|
|
| (122,204 | ) |
| NM |
| |||
Inventory write-down |
|
| 9,932 |
|
| 9% |
|
|
| — |
|
| —% |
|
|
| 9,932 |
|
| NM |
| |||
Other (income) expense, net |
|
| 3,045 |
|
| 3% |
|
|
| (970 | ) |
| (1)% |
|
|
| 4,015 |
|
| NM |
| |||
Operating income (loss) |
|
| (2,567 | ) |
| (2)% |
|
|
| (108,973 | ) |
| (72)% |
|
|
| 106,406 |
|
| (98)% |
| |||
Interest expense |
|
| 3,369 |
|
| 3% |
|
|
| 3,411 |
|
| 2% |
|
|
| (42 | ) |
| (1)% |
| |||
Income (loss) before income tax expense |
|
| (5,936 | ) |
| (5)% |
|
|
| (112,384 | ) |
| (74)% |
|
|
| 106,448 |
|
| (95)% |
| |||
Income tax expense (benefit) |
|
| (261 | ) |
| —% |
|
|
| (4,046 | ) |
| (3)% |
|
|
| 3,785 |
|
| (94)% |
| |||
Income (loss) from continuing operations |
|
| (5,675 | ) |
| (5)% |
|
|
| (108,338 | ) |
| (71)% |
|
|
| 102,663 |
|
| (95)% |
| |||
Income (loss) from discontinued operations, net of tax |
|
| — |
|
| —% |
|
|
| — |
|
| —% |
|
|
| — |
|
| NM |
| |||
Net income (loss) |
|
| (5,675 | ) |
| (5)% |
|
|
| (108,338 | ) |
| (71)% |
|
|
| 102,663 |
|
| (95)% |
| |||
Net income (loss) attributable to non-controlling interest |
|
| 41 |
|
| —% |
|
|
| 83 |
|
| —% |
|
|
| (42 | ) |
| NM |
| |||
Net income (loss) attributable to Core Laboratories N.V. |
| $ | (5,716 | ) |
| (5)% |
|
| $ | (108,421 | ) |
| (71)% |
|
| $ | 102,705 |
|
| (95)% |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio (1) |
| 1.93:1 |
|
|
|
|
|
| 2.03:1 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Debt to EBITDA ratio (2) |
| 2.82:1 |
|
|
|
|
|
| 2.35:1 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Debt to Adjusted EBITDA ratio (3) |
| 2.21:1 |
|
|
|
|
|
| 1.93:1 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
"NM" means not meaningful |
| |||||||||||||||||||||||
*Percentage based on applicable revenue rather than total revenue |
| |||||||||||||||||||||||
(1) Current ratio is calculated as follows: current assets divided by current liabilities. |
| |||||||||||||||||||||||
(2) Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation and amortization. |
| |||||||||||||||||||||||
(3) Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments. |
|
26
|
| Six months ended June 30, |
|
| Change |
|
| Three Months Ended |
|
| Change |
| ||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| March 31, 2021 |
|
| December 31, 2020 |
|
| $ |
|
| % |
| ||||||||||||||||||||||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
| $ | 200,976 |
|
| 75% |
|
| $ | 238,212 |
|
| 70% |
|
| $ | (37,236 | ) |
| (16)% |
|
| $ | 83,982 |
|
| 77% |
|
| $ | 89,195 |
|
| 78% |
|
| $ | (5,213 | ) |
| (6)% |
| ||||||
Product sales |
|
| 67,160 |
|
| 25% |
|
|
| 100,020 |
|
| 30% |
|
|
| (32,860 | ) |
| (33)% |
|
|
| 24,401 |
|
| 23% |
|
|
| 24,554 |
|
| 22% |
|
|
| (153 | ) |
| (1)% |
| ||||||
Total revenue |
|
| 268,136 |
|
| 100% |
|
|
| 338,232 |
|
| 100% |
|
|
| (70,096 | ) |
| (21)% |
|
|
| 108,383 |
|
| 100% |
|
|
| 113,749 |
|
| 100% |
|
|
| (5,366 | ) |
| (5)% |
| ||||||
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, exclusive of depreciation expense shown below* |
|
| 147,995 |
|
| 74% |
|
|
| 176,373 |
|
| 74% |
|
|
| (28,378 | ) |
| (16)% |
|
|
| 63,533 |
|
| 76% |
|
|
| 67,484 |
|
| 76% |
|
|
| (3,951 | ) |
| (6)% |
| ||||||
Cost of product sales, exclusive of depreciation expense and inventory write-down shown below* |
|
| 57,816 |
|
| 86% |
|
|
| 75,461 |
|
| 75% |
|
|
| (17,645 | ) |
| (23)% |
|
|
| 20,617 |
|
| 84% |
|
|
| 20,434 |
|
| 83% |
|
|
| 183 |
|
| 1% |
| ||||||
Total cost of services and product sales |
|
| 205,811 |
|
| 77% |
|
|
| 251,834 |
|
| 74% |
|
|
| (46,023 | ) |
| (18)% |
|
|
| 84,150 |
|
| 78% |
|
|
| 87,918 |
|
| 77% |
|
|
| (3,768 | ) |
| (4)% |
| ||||||
General and administrative expense |
|
| 28,788 |
|
| 11% |
|
|
| 27,238 |
|
| 8% |
|
|
| 1,550 |
|
| 6% |
| |||||||||||||||||||||||||||
General and administrative expense, exclusive of depreciation expense shown below |
|
| 8,461 |
|
| 8% |
|
|
| (3,692 | ) |
| (3)% |
|
|
| 12,153 |
|
| NM |
| |||||||||||||||||||||||||||
Depreciation and amortization |
|
| 10,866 |
|
| 4% |
|
|
| 11,373 |
|
| 3% |
|
|
| (507 | ) |
| (4)% |
|
|
| 4,871 |
|
| 4% |
|
|
| 4,837 |
|
| 4% |
|
|
| 34 |
|
| 1% |
| ||||||
Impairments and other charges |
|
| 122,204 |
|
| 46% |
|
|
| — |
|
| —% |
|
|
| 122,204 |
|
| NM |
| |||||||||||||||||||||||||||
Inventory write-down |
|
| 9,932 |
|
| 4% |
|
|
| — |
|
| —% |
|
|
| 9,932 |
|
| NM |
|
|
| — |
|
| —% |
|
|
| 443 |
|
| —% |
|
|
| (443 | ) |
| NM |
| ||||||
Other (income) expense, net |
|
| 2,075 |
|
| 1% |
|
|
| 3,365 |
|
| 1% |
|
|
| (1,290 | ) |
| (38)% |
|
|
| (721 | ) |
| (1)% |
|
|
| 839 |
|
| 1% |
|
|
| (1,560 | ) |
| NM |
| ||||||
Operating income (loss) |
|
| (111,540 | ) |
| (42)% |
|
|
| 44,422 |
|
| 13% |
|
|
| (155,962 | ) |
| NM |
|
|
| 11,622 |
|
| 11% |
|
|
| 23,404 |
|
| 21% |
|
|
| (11,782 | ) |
| (50)% |
| ||||||
Interest expense |
|
| 6,780 |
|
| 3% |
|
|
| 7,440 |
|
| 2% |
|
|
| (660 | ) |
| (9)% |
|
|
| 1,363 |
|
| 1% |
|
|
| 2,920 |
|
| 3% |
|
|
| (1,557 | ) |
| (53)% |
| ||||||
Income (loss) before income tax expense |
|
| (118,320 | ) |
| (44)% |
|
|
| 36,982 |
|
| 11% |
|
|
| (155,302 | ) |
| NM |
| |||||||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense |
|
| 10,259 |
|
| 9% |
|
|
| 20,484 |
|
| 18% |
|
|
| (10,225 | ) |
| (50)% |
| |||||||||||||||||||||||||||
Income tax expense (benefit) |
|
| (4,307 | ) |
| (2)% |
|
|
| (22,802 | ) |
| (7)% |
|
|
| 18,495 |
|
| (81)% |
|
|
| 2,052 |
|
| 2% |
|
|
| 6,540 |
|
| 6% |
|
|
| (4,488 | ) |
| (69)% |
| ||||||
Income (loss) from continuing operations |
|
| (114,013 | ) |
| (43)% |
|
|
| 59,784 |
|
| 18% |
|
|
| (173,797 | ) |
| NM |
|
|
| 8,207 |
|
| 8% |
|
|
| 13,944 |
|
| 12% |
|
|
| (5,737 | ) |
| (41)% |
| ||||||
Income (loss) from discontinued operations, net of tax |
|
| — |
|
| —% |
|
|
| 8,230 |
|
| 2% |
|
|
| (8,230 | ) |
| NM |
| |||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of income taxes |
|
| — |
|
| —% |
|
|
| (424 | ) |
| —% |
|
|
| 424 |
|
| NM |
| |||||||||||||||||||||||||||
Net income (loss) |
|
| (114,013 | ) |
| (43)% |
|
|
| 68,014 |
|
| 20% |
|
|
| (182,027 | ) |
| NM |
|
|
| 8,207 |
|
| 8% |
|
|
| 13,520 |
|
| 12% |
|
|
| (5,313 | ) |
| (39)% |
| ||||||
Net income (loss) attributable to non-controlling interest |
|
| 124 |
|
| —% |
|
|
| 90 |
|
| —% |
|
|
| 34 |
|
| NM |
|
|
| 102 |
|
| —% |
|
|
| (17 | ) |
| —% |
|
|
| 119 |
|
| NM |
| ||||||
Net income (loss) attributable to Core Laboratories N.V. |
| $ | (114,137 | ) |
| (43)% |
|
| $ | 67,924 |
|
| 20% |
|
| $ | (182,061 | ) |
| NM |
|
| $ | 8,105 |
|
| 7% |
|
| $ | 13,537 |
|
| 12% |
|
| $ | (5,432 | ) |
| (40)% |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio (1) |
| 1.93:1 |
|
|
|
|
|
| 1.80:1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2.17:1 |
|
|
|
|
|
| 1.85:1 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Debt to EBITDA ratio (2) |
| 2.82:1 |
|
|
|
|
|
| 2.17:1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2.37:1 |
|
|
|
|
|
| 3.08:1 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Debt to Adjusted EBITDA ratio (3) |
| 2.21:1 |
|
|
|
|
|
| 1.69:1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2.33:1 |
|
|
|
|
|
| 2.82:1 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
"NM" means not meaningful | "NM" means not meaningful |
| "NM" means not meaningful |
| ||||||||||||||||||||||||||||||||||||||||||||
*Percentage based on applicable revenue rather than total revenue | *Percentage based on applicable revenue rather than total revenue |
| *Percentage based on applicable revenue rather than total revenue |
| ||||||||||||||||||||||||||||||||||||||||||||
(1) Current ratio is calculated as follows: current assets divided by current liabilities. | (1) Current ratio is calculated as follows: current assets divided by current liabilities. |
| (1) Current ratio is calculated as follows: current assets divided by current liabilities. |
| ||||||||||||||||||||||||||||||||||||||||||||
(2) Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation and amortization. |
| |||||||||||||||||||||||||||||||||||||||||||||||
(2) Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation and amortization and certain non-cash adjustments. | (2) Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation and amortization and certain non-cash adjustments. |
| ||||||||||||||||||||||||||||||||||||||||||||||
(3) Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments. | (3) Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments. |
| (3) Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments. |
|
Operating Results for the Three Months Ended June 30, 2020March 31, 2021 Compared to the Three Months Ended June 30, 2019 and March 31, 2020 and for the Six Months Ended June 30,December 31, 2020 compared to the Six Months Ended June 30, 2019
Services Revenue
Services revenue is primarily tied to activities associated with the exploration and production of oil, gas and gasderived products outside the U.S. For the three months ended June 30, 2020,March 31, 2021, services revenue of $91.0$84.0 million decreased year-over-year from $117.9 million for the three months ended June 30, 2019 and decreased sequentially fromcompared to $110.0 million for the three months ended March 31, 2020. Crude-oil prices partially rebounded in the second quarter of 2020 from the end of the first quarter of 2020, however, the average pricesand $89.2 million for the three months ended June 30, 2020 were approximately 40% lower than the three months ended MarchDecember 31, 2020. The events occurring duringDuring the first and second quartersquarter of 2020 associated with2021, the negative impact on the industry, caused by the COVID-19 pandemic, and globalcontinued. Global government mandated shut-downs, home sheltering and social distancing policies have caused a significant decline in the
2724
demand for crude oil and associated products. Thisproducts, which has also resulted in decreased spending and disrupted activity by our clients and disruptions to our revenue generating operational activities leading to a sharp decrease in serviceclients. Lower levels of activity have impacted services revenue in both the U.S. and international markets. Additionally, a severe winter storm in North America onshore market, with some disruptions to the markets outside the U.S. onshore during the first quarter of 2021 negatively impacted our operations and second quartersour clients, during the first quarter of 2020. These events caused services revenue to continue to decline in the three months ended June 30, 2020 when compared to the three months ended March 31, 2020. The COVID-19 pandemic has resulted in a delay of work performed for projects within the offshore and international markets. The decline in the demand for crude oil resulted in a more severe decrease of activity in the U.S. onshore market, which is expected to be depressed for a longer term.2021.
We continue to focus on large-scale core analyses and reservoir fluids characterization studies in the Eagle Ford, the Permian Basin and the Gulf of Mexico, along with Guyana, Suriname, Malaysia and other international locations such as offshore South America, Australia, and the Middle East, including Kuwait and the United Arab Emirates. Analysis of crude oil derived products also occurs in every major producing region of the world.
Product Sales Revenue
Product sales revenue is tied more to the completion of wells in North America, with the U.S. onshore market being the largest market for these products. For the three months ended June 30, 2020,March 31, 2021, product sales revenue, of $24.7$24.4 million decreased 52% year-over-year42% from $51.2$42.4 million in the three months ended June 30, 2019March 31, 2020 and decreased 42% from $42.4 million forwas relatively flat compared to the three months ended MarchDecember 31, 2020. For the six months ended June 30, 2020, product sales revenue, of $67.2 million decreased 33% year-over-year from $100.0 million in the six months ended June 30, 2019. Rig count is one indicator of activity levels associated with the exploration and production of oil and gas. The average rig count for North America decreased from the three months ended June 30, 2019 to the three months ended June 30, 2020 by over 60%, and decreased over 57% from45% for the three months ended March 31, 2020. The average rig count for2021 when compared to the same period last year. Although activity levels in the U.S. onshore decreased over 60% from last year and 50% fromland market have continued to strengthen in 2021 overall, the three months ended March 31, 2020.severe winter storm that impacted North America in February 2021 significantly disrupted activity levels.
Cost of Services, excluding depreciation
Cost of services was $67.1$63.5 million for the three months ended June 30, 2020,March 31, 2021, a 22% decrease compared to $86.0$80.9 million in the three months ended June 30, 2019March 31, 2020 and a 17%6% decrease compared to $80.9$67.5 million for the three months ended MarchDecember 31, 2020. Cost of services expressed as a percentage of services revenue increased to 74%76% for the three months ended June 30, 2020,March 31, 2021, compared to 73% for the three months ended June 30, 2019 and 74% for the three months ended March 31, 2020. Cost of services decreased to $148.0 million in2020 and remained flat from the sixthree months ended June 30, 2020 compared to $176.4 million in the six months ended June 30, 2019. Cost of services expressed as a percentage of services revenue remained flat at 74% for the six months ended June 30, 2020 and 2019.December 31, 2020. The decrease in cost of services in these periods is associated with and in line with the decrease in revenues during the three and six months ended June 30, 2020 was primarily due to compensationMarch 31, 2021 and related charges as the result from cost reduction initiatives. comparison periods.
Cost of Product Sales, excluding depreciation
Cost of product sales of $23.6$20.6 million for the three months ended June 30, 2020March 31, 2021 decreased when compared to $38.4 million for the three months ended June 30, 2019 and $34.2 million for the three months ended March 30, 2020. Cost of product sales of $57.831, 2020 and remained relatively flat compared to $20.4 million infor the sixthree months ended June 30, 2020 decreased when compared to $75.5 million in the six months ended June 30, 2019.December 31, 2020. Given product sales are primarily associated with our Production Enhancement segment and the North American market, cost of sales areis impacted by decreased activities associated with clients operating in these segments and geographic markets. Cost of product sales expressed as a percentage of product sales revenue was 84% for the three months ended June 30, 2020 was 96% comparedMarch 31, 2021, comparable to 75% for the three months ended June 30, 2019December 31, 2020 and to 81% for the three months ended March 31, 2020. CostThe changes in cost of product sales expressed as a percentage of product sales revenue was 86% for the six months ended June 30, 2020, compared to 75% for the six months ended June 30, 2019. Higher cost of product sales as a percentage of products sales revenue in the three and six months ended June 30, 2020 wasis primarily due to absorbing fixed costs against a decreasedchanges in revenue base.base in each quarter.
28
General and Administrative Expense, excluding depreciation
General and administrative ("G&A") expense includes corporate management and centralized administrative services that benefit our operations. G&A expense for the three months ended June 30, 2020March 31, 2021 was $9.2$8.4 million compared to $9.8$19.6 million and $19.6$(3.7) million for the three months ended June 30, 2019March 31, 2020 and MarchDecember 31, 2020, respectively. The variances are primarily due to changes in stock-based compensation expense during those periods, including additional stock compensation expense of $6.8 million recorded in the three months ended March 31, 2020 for retirement eligible employees.periods.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended June 30, 2020March 31, 2021 was $5.4$4.9 million compared to $5.8$5.4 million and $5.4$4.8 million for the three months ended June 30, 2019March 31, 2020 and MarchDecember 31, 2020, respectively.
25
Impairments, inventory write-down and other charges
During the three months ended June 30, 2020, as a result of the recentThe events associated with the global spread of COVID-19, and the resulting sharp decrease in the price of crude oil, which caused a sharp decrease in the consumption and demand for crude oil, we recorded a charge of $9.9 million associated with inventory obsolescence and a valuation write-down. During the six months ended June 30, 2020, as a result ofled to a triggering event in March 2020,2020. In response to the triggering event, the Company updated its analysis associated with future cash flows and the valuation of assets and potential impairment of goodwill and intangible assets. Our updated analysis resulted in the Company recording a charge of $114.0 million for impairment of goodwill and $8.2 million for impairmentimpairments to intangible assets in March 2020. These2020 in our Production Enhancement segment. In December 2020, we recorded a charge of $0.4 million associated with inventory obsolescence and loss on impairments area valuation write-down related to our Production Enhancement segment.
During the three months ended June 30, 2020,March 31, 2021, we determined that there arewere no triggering events which require the Company to perform further impairment assessment for any of its reporting units.units or asset groups.
Other (Income) Expense, Net
The components of other (income) expense, net, were as follows (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||
Gain on sale of assets |
| $ | (354 | ) |
| $ | (61 | ) |
| $ | (350 | ) |
| $ | (307 | ) | ||||||||
(Gain) loss on sale of assets |
| $ | (72 | ) |
| $ | 4 |
| ||||||||||||||||
Results of non-consolidated subsidiaries |
|
| (183 | ) |
|
| (24 | ) |
|
| (209 | ) |
|
| (97 | ) |
|
| 33 |
|
|
| (26 | ) |
Foreign exchange |
|
| (98 | ) |
|
| (218 | ) |
|
| (674 | ) |
|
| (181 | ) | ||||||||
Foreign exchange (gain) loss, net |
|
| (408 | ) |
|
| (576 | ) | ||||||||||||||||
Rents and royalties |
|
| (107 | ) |
|
| (487 | ) |
|
| (242 | ) |
|
| (593 | ) |
|
| (128 | ) |
|
| (135 | ) |
Employment related charges |
|
| — |
|
|
| (334 | ) |
|
| — |
|
|
| 2,866 |
| ||||||||
Return on pension assets and other pension costs |
|
| (154 | ) |
|
| (240 | ) |
|
| (307 | ) |
|
| (482 | ) |
|
| (78 | ) |
|
| 168 |
|
Gain on sale of business |
|
| — |
|
|
| (1,154 | ) |
|
| — |
|
|
| (1,154 | ) | ||||||||
Curtailment |
|
| — |
|
|
| — |
|
|
| (1,034 | ) |
|
| — |
|
|
| — |
|
|
| (1,187 | ) |
Cost reduction and other charges |
|
| 2,789 |
|
|
| 2,977 |
|
|
| 3,943 |
|
|
| 2,977 |
|
|
| — |
|
|
| 1,154 |
|
Loss on lease abandonment |
|
| 626 |
|
|
| — |
|
|
| 626 |
|
|
| — |
| ||||||||
Other, net |
|
| 526 |
|
|
| 533 |
|
|
| 322 |
|
|
| 336 |
|
|
| (68 | ) |
|
| (372 | ) |
Total other (income) expense, net |
| $ | 3,045 |
|
| $ | 992 |
|
| $ | 2,075 |
|
| $ | 3,365 |
|
| $ | (721 | ) |
| $ | (970 | ) |
29
We recorded cost reduction and other charges associated with severance expense for reductions in our workforce of $2.8 million and $3.9 million for the three and six months ended June 30, 2020, and $3.0 million for the three and six months ended June 30, 2019.
Foreign exchange (gain) loss, net by currency is summarized in the following table (in thousands):
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
(Gains) losses by currency |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||
British Pound |
| $ | 100 |
|
| $ | 165 |
|
| $ | 12 |
|
| $ | 178 |
|
| $ | 86 |
|
| $ | (88 | ) |
Canadian Dollar |
|
| (419 | ) |
|
| 29 |
|
|
| 304 |
|
|
| 88 |
|
|
| 1 |
|
|
| 723 |
|
Euro |
|
| (90 | ) |
|
| 92 |
|
|
| (88 | ) |
|
| 2 |
|
|
| (353 | ) |
|
| 2 |
|
Other currencies, net |
|
| 311 |
|
|
| (504 | ) |
|
| (902 | ) |
|
| (449 | ) |
|
| (142 | ) |
|
| (1,213 | ) |
Total (gain) loss, net |
| $ | (98 | ) |
| $ | (218 | ) |
| $ | (674 | ) |
| $ | (181 | ) | ||||||||
Foreign exchange (gain) loss, net |
| $ | (408 | ) |
| $ | (576 | ) |
Interest Expense
Interest expense for the three months ended June 30, 2020March 31, 2021 was $3.4$1.4 million compared to $3.7$3.4 million and $3.4$2.9 million for the three months ended June 30, 2019 and March 31, 2020 respectively. Interest expense for the six months ended June 30,and December 31, 2020, was $6.8 million compared to $7.4 million for the six months ended June 30, 2019.respectively. The variances are primarily due to changes in the interest rate associated with aggregated variable rate debt in the respective quarters.quarters, and the effect of settlement and restructuring of our interest rate swap agreements during the three months ended March 31, 2021. See Note 15, Derivative Instruments and Hedging Activities for additional information.
Income Tax Expense (Benefit)
The Company recorded an income tax benefitexpense of $0.3 million and $4.3$2.1 million for the three and six months ended June 30, 2020March 31, 2021 compared to income tax expense of $4.8 million and an income tax benefit of $22.8$4 million for the three and six months ended June 30, 2019.March 31, 2020. The effective tax rate for the three and six months ended June 30, 2020 were 4.4% and 3.6%March 31, 2021 was 20%. The effective tax rate for the three and six months ended June 30, 2019 were 19.8% and (61.7%)March 31, 2020 was 3.6%. The income tax benefit for the three and six months ended JuneMarch 30, 2020 was primarilylargely impacted by thean impairment of goodwill, intangible assets and other charges recorded during these periods,this period which were largely not deductible for tax purposes. The income tax benefit recorded for the six months ended June 30, 2019 was the result of a corporate restructuring which resulted in a net deferred tax benefit of $58.5 million, reduced by tax expense of $26.7 million related
26
Discontinued Operations
In 2018, in a continuing effort to streamline our business and align our business strategy for further integration of services and products, the Company committed to divest our full range of permanent downhole monitoring systems and related services, which havehad been part of our Production Enhancement segment. We entered intocompleted the definitivedivestment in 2019 and concluded the final adjustments to the purchase agreement on June 7, 2019 for the divestiture of this business during the second quarter of 2019.in 2020.
See Note 18,17, Discontinued Operations for additional information.
Segment Analysis
We operate our business in two reportable segments. These complementary segments provide different services and products and utilize different technologies for optimizingimproving reservoir performance and improvingincreasing the recovery of oil and gas from new and existing fields. The following tables summarize our results by segment (in thousands):
|
| Three Months Ended March 31, |
|
| 2021/2020 |
|
| Three Months Ended December 31, |
|
| Q1 / Q4 |
| ||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ Change |
|
| % Change |
|
| 2020 |
|
| $ Change |
|
| % Change |
| |||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reservoir Description |
| $ | 76,486 |
|
| $ | 102,702 |
|
| $ | (26,216 | ) |
| (26)% |
|
| $ | 83,838 |
|
| $ | (7,352 | ) |
| (9)% |
| ||
Production Enhancement |
|
| 31,897 |
|
|
| 49,698 |
|
|
| (17,801 | ) |
| (36)% |
|
|
| 29,911 |
|
|
| 1,986 |
|
| 7% |
| ||
Consolidated |
| $ | 108,383 |
|
| $ | 152,400 |
|
| $ | (44,017 | ) |
| (29)% |
|
| $ | 113,749 |
|
| $ | (5,366 | ) |
| (5)% |
| ||
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reservoir Description |
| $ | 10,051 |
|
| $ | 11,062 |
|
| $ | (1,011 | ) |
| (9)% |
|
| $ | 19,426 |
|
| $ | (9,375 | ) |
| (48)% |
| ||
Production Enhancement |
|
| 1,560 |
|
|
| (121,299 | ) |
|
| 122,859 |
|
| NM |
|
|
| 4,495 |
|
|
| (2,935 | ) |
| (65)% |
| ||
Corporate and Other1 |
|
| 11 |
|
|
| 1,264 |
|
|
| (1,253 | ) |
| NM |
|
|
| (517 | ) |
|
| 528 |
|
| NM |
| ||
Consolidated |
| $ | 11,622 |
|
| $ | (108,973 | ) |
| $ | 120,595 |
|
| NM |
|
| $ | 23,404 |
|
| $ | (11,782 | ) |
| NM |
| ||
(1) "Corporate and Other" represents those items that are not directly related to a particular segment. "NM" means not meaningful |
|
3027
|
| Three months ended June 30, |
|
| 2020/2019 |
|
| Three months ended March 31, |
|
| Q2 / Q1 |
| ||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ Change |
|
| % Change |
|
| 2020 |
|
| $ Change |
|
| % Change |
| |||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reservoir Description |
| $ | 88,442 |
|
| $ | 105,649 |
|
| $ | (17,207 | ) |
| (16)% |
|
| $ | 102,702 |
|
| $ | (14,260 | ) |
| (14)% |
| ||
Production Enhancement |
|
| 27,294 |
|
|
| 63,389 |
|
|
| (36,095 | ) |
| (57)% |
|
|
| 49,698 |
|
|
| (22,404 | ) |
| (45)% |
| ||
Consolidated |
| $ | 115,736 |
|
| $ | 169,038 |
|
| $ | (53,302 | ) |
| (32)% |
|
| $ | 152,400 |
|
| $ | (36,664 | ) |
| (24)% |
| ||
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reservoir Description |
| $ | 13,534 |
|
| $ | 15,878 |
|
| $ | (2,344 | ) |
| (15)% |
|
| $ | 11,062 |
|
| $ | 2,472 |
|
| 22% |
| ||
Production Enhancement |
|
| (16,324 | ) |
|
| 10,424 |
|
|
| (26,748 | ) |
| NM |
|
|
| (121,299 | ) |
|
| 104,975 |
|
| (87)% |
| ||
Corporate and Other1 |
|
| 223 |
|
|
| 1,706 |
|
|
| (1,483 | ) |
| (87)% |
|
|
| 1,264 |
|
|
| (1,041 | ) |
| (82)% |
| ||
Consolidated |
| $ | (2,567 | ) |
| $ | 28,008 |
|
| $ | (30,575 | ) |
| NM |
|
| $ | (108,973 | ) |
| $ | 106,406 |
|
| (98)% |
| ||
(1) "Corporate and Other" represents those items that are not directly related to a particular segment. "NM" means not meaningful |
|
|
| Six months ended June 30, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reservoir Description |
| $ | 191,144 |
|
| $ | 208,941 |
|
| $ | (17,797 | ) |
| (9)% |
| |
Production Enhancement |
|
| 76,992 |
|
|
| 129,291 |
|
|
| (52,299 | ) |
| (41)% |
| |
Consolidated |
| $ | 268,136 |
|
| $ | 338,232 |
|
| $ | (70,096 | ) |
| (21)% |
| |
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reservoir Description |
| $ | 24,596 |
|
| $ | 22,057 |
|
| $ | 2,539 |
|
| 12% |
| |
Production Enhancement |
|
| (137,623 | ) |
|
| 20,336 |
|
|
| (157,959 | ) |
| NM |
| |
Corporate and Other1 |
|
| 1,487 |
|
|
| 2,029 |
|
|
| (542 | ) |
| (27)% |
| |
Consolidated |
| $ | (111,540 | ) |
| $ | 44,422 |
|
| $ | (155,962 | ) |
| NM |
| |
(1) "Corporate and Other" represents those items that are not directly related to a particular segment. "NM" means not meaningful |
|
Reservoir Description
Revenue from the Reservoir Description segment of $88.4$76.5 million for the three months ended June 30, 2020March 31, 2021 decreased from $105.6$102.7 million and $102.7$83.8 million for the three months ended June 30, 2019 and the three months ended March 31, 2020 respectively. Revenue fromand the Reservoir Description segment of $191.1 million for the sixthree months ended June 30,December 31, 2020, decreased 9% from $208.9 million for the six months ended June 30, 2019.respectively. Reservoir Description operations are heavily exposed to international and offshore activity levels, including the existing producing fields across the globe, with approximately 80% of its revenue sourced from producing fields and development projects outside the U.S. Year-over-year financial performance in this segment is a result of delayed investment inprogress on international and offshore projects by clients due to disruptions associated with the COVID-19 pandemic and a lower crude-oil price market.that began in March of 2020. The average pricesresults for the three monthsperiod ended June 30, 2020March 31, 2021 were approximately 40% lower thanalso negatively impacted by the winter storm in North America. During the three months ended March 31, 2020.2021, crude oil prices were less volatile and averaged between $58 - $61 per barrel as compared to the previous quarter average between $40 - 43 per barrel. However, due to the seasonal patterns, which historically slow client activity in some regions, and the impact of the winter storm event described above that affected lab operations from Canada to the U.S. Gulf coast, resulted in lower than expected activity levels for the three months ended March 31, 2021. We continue to focus on large-scale core analysesanalysis and reservoir fluids characterization studies in the Asia-Pacific areas,region, offshore Europe and Africa, offshore South America, North America, and the Middle East as well as both newly developed fields and brownfield extensions in offshore areas such as Australia, Brazil, Guyana, the Gulf of Mexico, the Middle East and the North Sea. Analysis of crude oil derived products also occurs in every major producing region of the world. In particular, we anticipate increased demand for our proprietary laboratory technological services in the Middle East as a result of several factors, including Core Lab’s completion of a comprehensive reservoir fluid laboratory in Doha, Qatar earlier this year,in 2020, resumption of production from the Wafra oilfield located within the onshore Partitioned Neutral Zone in the southern part of Kuwait, as well as the expansion of the North gas fieldGas Field in Qatar.
Operating income of $13.5$10.1 million for the three months ended June 30, 2020March 31, 2021 decreased 15%9% year-over-year compared to $15.9 million for the three months ended June 30, 2019, and increased 22% sequentially compared to $11.1 million for the three months ended March 31, 2020. The increase in operating income2020, and decreased 48% sequentially compared to $19.4 million for the three months ended June 30, 2020
December 31,
2020. The decrease in operating income year-over year was primarily due to lower activity levels as delays in international and offshore projects due to continued disruptions associated with the COVID-19 and additional costs associated with disruptions and damage to facilities caused by the February 2021 winter storm in North America. These negative impacts to first quarter of 2021 results were partially offset by lower compensation expense recorded for accelerated stock compensation related to retirement eligible employees. Operatingexpenses resulting from cost reduction plan implemented in 2020. The decrease in operating income for the six months ended June 30, 2020 of $24.6 million increased 12% compared to $22.1 million for the six months ended June 30, 2019 andsequentially was primarily due to cost reductionseasonal patterns and employment-related chargesthe inclement weather event as described above, in addition to $7.4 million of $9.5 million recorded instock compensation expense, previously recognized for certain employees’ long-term stock-based performance share award program (“PSAP”) awards, which was reversed during the sixthree months ended June 30, 2019,December 31, 2020, as compared to $7.2 million in the six months ended June 30, 2020.performance targets were not fully achieved.
Operating margins were 15%13% for the three months ended June 30, 2020, relatively flat year-over-year compared to the three months ended June 30, 2019, and up sequentiallyMarch 31, 2021, which increased from 11% duringfor the three months ended March 31, 2020. This increaseThe higher margin was primarily as a result ofdue to lower compensation expenses resulting from cost reduction initiatives implemented in 2020 despite lower activity levels. Operating margins were 23% for the chargesthree months ended December 31, 2020, which is significantly higher compared to the three months ended March 31, 2021, and was primarily due to the stock compensation expense that was reversed during the three months ended December 31, 2020, as described above.
Production Enhancement
Revenue from the Production Enhancement segment, was $27.3$31.9 million for the three months ended June 30, 2020,March 31, 2021, a decrease of 57%36% year-over-year from $63.4 million for the three months ended June 30, 2019 and decreased 45% sequentially compared to $49.7 million for the three months ended March 31, 2020. Revenue from the Production Enhancement segment was $77.02020 and increased 7% sequentially compared to $29.9 million for the sixthree months ended June 30, 2020, a decrease of 41% year-over-year from $129.3 million for the six months ended June 30, 2019.December 31, 2020. Production Enhancement operations are largely focused on complex completions in unconventional, tight-oil reservoirs in the U.S. as well as conventional projects across the globe. The significantDrilling and completion activity levels began to significantly decrease starting March of 2020 and bottomed at a historically low level in May of 2020. Activity levels accelerated in the pricesecond half of and demand2020. Activity levels for crude oil which began in March 2020, associated with the events caused by the COVID-19 pandemic, resulted in a further decrease of drilling and well completion activity in the U.S. onshore market. The rig count formarket continued to strengthen in 2021, but were negatively impacted by the winter storm that hit North America decreased 60% year-over-yearin February. Although activity levels for the U.S. onshore market have recovered from the threehistoric lows, and were at comparable levels for the last six months, ended June 30, 2019, and 57% sequentially fromthey are still significantly decreased as compared to the three months endedquarter ending March 31, 2020. These recent events and disruptions toNotwithstanding the global supply chain of air freight and other supporting vendors also resulted in some delay of shipments ofindustry downturn, our product to some international markets. Our clients continue to seek and useremain focused on using technological solutions for their projects in an effort to optimize and improve daily production and EURestimated ultimate recovery from their reservoirs. We continue to develop new
28
technologies and benefit from our clients' acceptance of new services and products, which were led by the HERO®TM PerFRAC, GoGunTM, FLOWPROFILER EDSTM and ReFRAC technologies.
Operating lossincome of $16.3$1.6 million for the three months ended June 30, 2020 includes a charge of $9.9 million for inventory obsolescence and valuation write-down, and $1.3 million charge of severance expense associated with cost reduction initiatives, asMarch 31, 2021 compared to operating income of $10.4 million for the three months ended June 30, 2019. The operating loss of $121.3 million for the three months ended March 31, 2020, includeswas primarily impacted by a charge of $122.2 million for impairment of goodwill and intangible assets acceleratedrecorded during the three months ended March 31, 2020. The decrease in operating income compared to the $4.5 million for the three months ended December 31, 2020, was primarily due to the reversal of previously recognized stock compensation expense of $2.3 million, for retirement eligible employees and a charge of $1.3 million associated with cost reduction initiatives. Operating loss for the six months ended June 30, 2020certain employee’s PSAP awards of $137.6 million, was primarily impacted by the impairments and other charges described above, as compared to year-over-year operating income of $20.3 million for the six months ended June 30, 2019.$3.6 million.
Operating margins for the three months ended June 30, 2020March 31, 2021 were (60%)5%, as compared to 16% in the three months ended June 30, 2019, and (244%)negative margin in the three months ended March 31, 2020. The negative operating margins in the first and second quarter of 2020, were primarily due to the chargesimpairment charge recorded, as described above. Operating margins for the three months ended December 31, 2020 were 15%, which included the effect of reversing $3.6 million of stock compensation expense, as described above.
Liquidity and Capital Resources
General
We have historically financed our activities through cash on hand, cash flows from operations, bank credit facilities, equity financing and the issuance of debt. Cash flows from operating activities provides the primary source of funds to finance operating needs, capital expenditures, our dividend and share repurchase program. Our ability to maintain and grow our operating income and cash flow depends, to a large extent, on continued investing activities. We believe our future cash flows from operations, supplemented by our borrowing capacity and the ability to issue additional equity and debt, should be sufficient to fund our debt requirements, capital expenditures, working capital, dividend payments and future acquisitions. The Company will continue to monitor and evaluate the availability of debt and equity markets. The events associated with COVID-19 pandemic have also disrupted these markets.
32
In response to market conditions, Core Lab’s Supervisory Board approved a plan to reduce the Company’s future quarterly dividends to $0.01 per share beginning with the second quarter of 2020 and to focus excess free cash flow on debt reduction. In March 2020, the Company enacted cost control plans and expanded these initiatives in June of 2020, which include: (i) corporate and operating cost reductions; (ii) annual capital expenditures reduced to below the 2016 level of $11.4$11.9 million for 2020, and (iii) eliminating all non-essential costs. The corporate and operating cost reductions include reductions in workforce and reduction of senior executive and employee compensation. Although activities have declinedThese initiatives continued in the secondfirst quarter of 2020 due2021. On January 12, 2021, the Company issued the 2021 Senior Notes with aggregate principal amount of $60 million in a private placement. The net proceeds from the 2021 Senior Notes were used exclusively to the factors discussed above, this decline has been partially offset by the effectiveness ofreduce outstanding debt under the Company’s cost control initiatives. On June 22, 2020, also in responseCredit Facility, which increased the available borrowing capacity and liquidity for Core Lab. We intend to market conditions, we entered into Amendment No. 1 (the “Amendment”) to the Seventh Amended and Restated Credit Agreement, dated as of June 19, 2018 (as amended, the “Credit Facility”). The Amendment provides, among other things, an increase to the maximum leverage ratio permittedmaintain sufficient borrowing capacity under the Credit Facility to both retire maturing debt obligations in September 2021, and provide additional liquidity, should the company require it for certain periods.other purposes. See Note 6, Long-Term Debt, Net for additional information.
AsOn December 17, 2020, we entered into an Equity Distribution Agreement with Wells Fargo Securities, LLC for the issuance and sale of up to $60.0 million of our common shares. Under terms of the Equity Distribution Agreement, the sales of our common shares may be made by any method deemed to be an “at-the-market offering” as defined in Rule 415 under the Securities Act of 1933. During the three months ended March 31, 2021, we completed the program selling 1,658,012 common shares at an average price of $36.19 per share, which generated aggregate proceeds of $59.1 million, net of commission and other associated cost. Proceeds were used to reduce debt on the Company’s Credit Facility.
We are a Netherlands holding company, and therefore we conduct substantially all of our operations through our subsidiaries. Our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us. There are no restrictions preventing any of our subsidiaries from repatriating earnings, and there are no restrictions or income taxes associated with distributing cash to the parent company through loans or advances. As of June 30, 2020, $13.9March 31, 2021, $20.1 million of our $21.0$27.8 million of cash was held by our foreign subsidiaries.
Cash Flows
29
The following table summarizes cash flows (in thousands):
|
| Six months ended June 30, |
|
| 2020/2019 |
|
| Three Months Ended March 31, |
|
| 2021/2020 |
| ||||||||||||
|
| 2020 |
|
| 2019 |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| % Change |
| ||||||
Cash flows provided by/(used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
| $ | 49,021 |
|
| $ | 42,236 |
|
| 16% |
|
| $ | 7,987 |
|
| $ | 22,025 |
|
| (64)% |
| ||
Investing activities |
|
| (7,156 | ) |
|
| 7,054 |
|
| NM |
|
|
| (1,070 | ) |
|
| (3,884 | ) |
| NM |
| ||
Financing activities |
|
| (31,999 | ) |
|
| (49,860 | ) |
| 36% |
|
|
| 7,083 |
|
|
| (15,343 | ) |
| NM |
| ||
Net change in cash and cash equivalents |
| $ | 9,866 |
|
| $ | (570 | ) |
| NM |
|
| $ | 14,000 |
|
| $ | 2,798 |
|
| 400% |
|
Cash flows provided by operating activities for the sixthree months ended June 30, 2020March 31, 2021 decreased by approximately $14 million when compared to the same period in 2019 increased primarily attributable to2020. The quarter ended March 31, 2020 included non-cash charges of $122 million for impairments of goodwill and intangible assets as well as $6.1 million of additional non-cash stock compensation expense and when excluding these non-cash expenses operating profits and net income were approximately $12 million higher in 2020. Additionally, cash generated from lower levelsoperating activities in 2020 benefited approximately $2.5 million from a reduction in working capital while working capital required an investment of working capital.$1.3 million for the same period in 2021.
The decrease in cash flows used in investing activities during the sixthree months ended June 30, 2020March 31, 2021 compared to the same period in 20192020 was primarily due to proceeds from the sale of businesses in 2019, offset by the lower capital expenditureexpenditures of $6.4$2.8 million as compared to $12.2$3.3 million and additional premiums on life insurance policies of $2.0 million in 2020.
Cash flows provided by financing activities of $7.1 million for the sixthree months ended June 30, 2019.
CashMarch 31, 2021, compared to cash flows used in financing activities of $15.3 million for the six months ended June 30, 2020 decreased compared to the same period in 2019. Cash2020. Financing activities for the three months ended March 31, 2020 primarily includes the $0.25 per share dividend for which $11.1 million was paid in the quarter, additionally, cash was used to reduce debt by $19.0$3 million. Financing activities for the quarter ended March 31, 2021 include the dividend payment of $0.5 million, duringwhich had been reduced to $0.01 per share. Additionally, financing activities in 2021 included $59.1 million of cash raised by selling shares through the six months ended June 30,ATM program and $58.9 million net cash raised through the issuance of the 2020 as comparedSenior Notes. The proceeds from the 2020 Senior Notes and the ATM program were used to no changes inreduce debt duringon the same period in 2019.Company’s Credit Facility by $111 million.
During the three and six months ended June 30, 2020,March 31, 2021, we repurchased 13,759 and 47,5004,781 of our common shares for an aggregate purchase price of $0.2 million and $1.4 million, respectively.million.
During the sixthree months ended June 30, 2020,March 31, 2021, we used $11.6$0.4 million to pay dividends, as compared to the $24.4$11.1 million dividend paid for the same period in 2019.2020.
We utilize the non-GAAP financial measure of free cash flow to evaluate our cash flows and results of operations. Free cash flow is defined as net cash provided by operating activities (which is the most directly comparable GAAP measure) less cash paid for capital expenditures. Management believes that free cash flow provides useful information to investors regarding the cash available in the period that was in excess of our needs to fund our capital expenditures and operating activities. Free cash flow is not a measure of operating performance under GAAP and should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. Free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure. Moreover, since free cash flow is not a
33
measure determined in accordance with GAAP and thus is susceptible to varying interpretations and calculations, free cash flow as presented, may not be comparable to similarly titled measures presented by other companies. The following table reconciles this non-GAAP financial measure to the most directly comparable measure calculated and presented in accordance with GAAP (in thousands):
30
|
| Six months ended June 30, |
|
| 2020/2019 |
|
| Three Months Ended March 31, |
|
| 2021/2020 |
| ||||||||||||
|
| 2020 |
|
| 2019 |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| % Change |
| ||||||
Free cash flow calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
| $ | 49,021 |
|
| $ | 42,236 |
|
| 16% |
|
| $ | 7,987 |
|
| $ | 22,025 |
|
| (64)% |
| ||
Less: cash paid for capital expenditures |
|
| (6,406 | ) |
|
| (12,230 | ) |
| (48)% |
|
|
| (2,772 | ) |
|
| (3,340 | ) |
| (17)% |
| ||
Free cash flow |
|
| 42,615 |
|
|
| 30,006 |
|
| 42% |
|
| $ | 5,215 |
|
| $ | 18,685 |
|
| (72)% |
|
Revenue and earnings have decreased significantly in 2021 as compared to 2020, when excluding the significant non-cash charges recorded in the quarter ending March 31, 2020. The increasequarter ended March 31, 2020 included non-cash charges of $122 million for impairments of goodwill and intangible assets as well as $6.1 million of additional non-cash stock compensation expense, and when excluding these non-cash expenses, operating profits and net income were approximately $12 million higher in free2020. Additionally, cash from operating activities in 2020 benefited approximately $2.5 million from a reduction in working capital while working capital required an investment of $1.3 million for the same period in 2021. Free cash flow has decreased for the sixthree months ended June 30, 2020March 31, 2021 compared to the same period in 2019 was primarily attributable to2020 in line with the decrease in cash generated from reduced working capital and loweroperations as capital expenditures were comparable, although slightly lower in 2020.2021.
Notes, Credit Facilities and Available Future Liquidity
We have twofour series of senior notes outstanding with an aggregate principal amount of $150$210 million that were issued through private placement transactions.
Two series of the senior notes were issued in 2011 ("2011 Senior Notes") issued in a private placement transaction.. Series A consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.01% and are due in full on September 30, 2021. Series B consists of $75 million in aggregate principal amount of notes that bear interest at a fixed rate of 4.11% and are due in full on September 30, 2023. Interest on each series of the Senior Notes is payable semi-annually on March 30 and September 30.
On October 16, 2020, we, along with Core Laboratories (U.S.) Interests Holdings, Inc. as issuer, entered into two new series of senior notes with aggregate principal amount of $60 million in a private placement transaction (“2021 Senior Notes”). The 2021 Senior Notes were issued and funded on January 12, 2021. Series A of the 2020 Senior Notes consists of $45 million in aggregate principal amount that bear interest at a fixed rate of 4.09% and are due in full on January 12, 2026. Series B of the 2021 Senior Notes consists of $15 million in aggregate principal amount that bear interest at a fixed rate of 4.38% and are due in full on January 12, 2028. Interest on each series of the 2021 Senior Notes is payable semi-annually on June 30 and December 30, commencing on June 30, 2021.
On June 22, 2020, we entered into the Amendment to the Seventh Amended and Restated Credit Agreement, dated as of June 19, 2018. The Amendment increases the maximum leverage ratio permitted under the Credit Facility for certain periods. Pursuant to the terms of the Amendment, the maximum leverage ratio permitted under the Credit Facility is equal to (a) 3.00 to 1.00 from the fiscal quarter ending June 30, 2020 through and including the fiscal quarter ending June 30, 2021; (b) 2.75 to 1.00 for the fiscal quarter ending September 30, 2021; and (c) 2.50 to 1.00 for the fiscal quarter ending December 31, 2021 and thereafter. as follows:
Quarter ending | Maximum leverage ratio permitted | |||
June 30, 2020 up to and including June 30, 2021 | 3.00 | |||
September 30, 2021 | 2.75 | |||
December 31, 2021 and thereafter | 2.50 |
Moreover, the Amendment modified the range of variable interest rates that the Credit Facility may bear to be a range from LIBOR plus 1.500% to LIBOR plus 2.875%, and included the addition of a LIBOR floor of 0.50%0.500%. In addition, pursuant to theThe Amendment, also reduced the aggregate borrowing commitmentcapacity under the Credit Facility was reduced to $225 million and the amount by which we may elect to increase the facility size, was reduced from $100 millionknown as the “accordion” feature, to $50 million, subject to the satisfaction of certain conditions. Any outstanding balance under the Credit Facility is due on maturity on June 19, 2023. Our available capacity at any point in time is reduced by outstanding borrowings and outstanding letters of credit which totaled $14.2$11.1 million at June 30, 2020,March 31, 2021, resulting in an available borrowing capacity under the Credit Facility of $72.8$213.9 million. In addition to indebtedness under the Credit Facility, we had $5.8$6.0 million of outstanding letters of credit and performance guarantees and bonds from other sources as of June 30,at March 31, 2020.
31
The Credit Facility remainsis unsecured, and contains customary representations, warranties, terms and conditions for similar types of facilities.
During the three months ended June 30, 2020, in connection with our entry into the Amendment, we recorded an additional expense of $0.3 million associated with unamortized debt issuance cost.
The terms of the Credit Facility and Senior Notes require us to meet certain covenants, including, but not limited to, an interest coverage ratio (calculated as consolidated EBITDA divided by interest expense) and a leverage ratio (calculated as consolidated net indebtedness divided by consolidated EBITDA), where consolidated EBITDA (as defined in each agreement) and interest expense are calculated using the most recent four fiscal quarters. The Credit Facility and Senior Notes include a cross-default provision, which means thatwhereby a default under one agreement may resulttrigger a default in the default of the other agreement. The Credit Facility has more restrictive covenants with a minimum interest coverage ratio of 3.0 to 1.0 and permitspermit a maximum leverage ratio as described above. The Credit Facility agreement allows non-cash charges such as impairment of assets, stock compensation and other non-cash charges to be added back in the calculation of consolidated EBITDA. The terms of our Credit Facility also allow us to negotiate in good faith to amend any ratio or requirement to preserve the original intent of the agreement if any change in accounting principles would affect the computation of any financial ratio or requirementcovenant of the Credit Facility.
34
Pursuant to In accordance with the terms of ourthe Credit Facility, our leverage ratio is 2.21,2.33, and our interest coverage ratio is 6.745.58, each for the period ended June 30, 2020. March 31, 2021.
We believe that we are in compliance with all covenants contained in our credit agreements.Credit Facility and Senior Notes. Certain of our material, wholly-owned subsidiaries, are guarantors or co-borrowers under the Credit Facility and Senior Notes.
We entered into two interest rate swap agreements for a total notional amount of $50 million, to hedge changes inincluding one of which was entered during 2020. These two interest rate swap agreements were terminated and settled during the variablethree-month period ending March 31, 2021. We entered into two forward interest rate swap agreements for a total notional amount of $35 million during 2020. These two forward interest expense on $50 million of our existing or replacement LIBOR-priced debt. Underrate swap agreements were terminated and settled during the firstthree months ended March 31, 2021. During the three months ended March 31, 2021, we entered into a new forward interest rate swap agreement for a notional amount of $25 million, we have fixed the LIBOR portion of the interest rate at 2.5% through August 29, 2024, and under the second swap agreement of $25 million, we have fixed the LIBOR portion of the interest rate at 1.30% through February 28, 2025.$60 million. See Note 16, - Derivative Instruments and Hedging Activities. for additional information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk from the information provided in Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" in our 20192020 Annual Report.
Item 4. Controls and Procedures
A complete discussion of our controls and procedures is included in our 20192020 Annual Report.
Disclosure Controls and Procedures
Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2020March 31, 2021 at the reasonable assurance level.
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. Further, the design of disclosure controls and internal control over financial reporting must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
32
Changes in Internal Control Over Financial Reporting
There have been no changes in our system of internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended June 30, 2020,March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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CORE LABORATORIES N.V.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8, Commitments and Contingenciesto our Interim Consolidated Interim Financial Statements in Part I, Item 1 of this Quarterly Report.
Item 1A. Risk Factors
Our business faces many risks. Any of the risks discussed in this Quarterly Report or our other SEC filings could have a material impact on our business, financial position or results of operations.
As of June 2020, the vast and accelerated spread of the COVID-19 virus has resulted in significant disruptions to the global economy. The retraction and, in some instances shutting-down of certain countries or regions has and will continue to have a very significant impact to both international and domestic organizations. Core Laboratories is considered an essential business associated with the energy industry, and thus operations have continued throughout the pandemic mitigation actions across the globe. The recent events and impact to the global economy associated with COVID-19 have resulted in an elevated level of risk for several of the topics described in the “Item 1A - Risk Factors" in our 2019 Annual Report.
Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. For a detailed discussion of the risk factors that should be understood by any investor contemplating investment in our securities, please refer to "Item 1A - Risk Factors" in our 20192020 Annual Report and “Item 8.01 – Other Events” in the Current Report on Form 8-K filed on June 23, 2020.Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Issuer Repurchases of Equity Securities
The following table provides information about purchases of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of a Publicly Announced Program |
|
| Maximum Number of Shares That May Yet be Purchased Under the Program (2)(3) |
| ||||
April 1 - 30, 2020 (1) |
|
| 5,304 |
|
| $ | 9.49 |
|
|
| — |
|
|
| 4,140,090 |
|
May 1 - 31, 2020 (1) |
|
| 8,455 |
|
| $ | 17.51 |
|
|
| — |
|
|
| 4,160,640 |
|
June 1 - 30, 2020 (1) |
|
| — |
|
| $ | — |
|
|
| — |
|
|
| 4,160,640 |
|
Total |
|
| 13,759 |
|
| $ | 14.42 |
|
|
| — |
|
|
|
|
|
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of a Publicly Announced Program |
|
| Maximum Number of Shares That May Yet be Purchased Under the Program (2)(3) |
| ||||
January 1 - 31, 2021 (1) |
|
| — |
|
| $ | - |
|
|
| — |
|
|
| 4,256,174 |
|
February 1 - 28, 2021 (1) |
|
| 549 |
|
| $ | 31.44 |
|
|
| — |
|
|
| 4,256,995 |
|
March 1 - 31, 2021 |
|
| 4,232 |
|
| $ | 36.39 |
|
|
| — |
|
|
| 4,265,842 |
|
Total |
|
| 4,781 |
|
| $ | 35.82 |
|
|
| — |
|
|
|
|
|
(1) | During the |
(2) | In connection with our initial public offering in September 1995, our shareholders authorized our Management Board to repurchase up to 10% of our issued share capital for a period of 18 months. This authorization was renewed at subsequent annual or special shareholder meetings. The repurchase of shares in the open market is at the discretion of management pursuant to this shareholder authorization. |
(3) | We distributed |
3634
Item 6. Exhibits
Exhibit No. |
| Exhibit Title |
| Incorporated by reference from the following documents |
|
|
| ||
31.1 | - |
| Filed herewith | |
31.2 | - |
| Filed herewith | |
32.1 | - |
| Furnished herewith | |
32.2 | - |
| Furnished herewith | |
101.INS | - | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| Filed herewith |
101.SCH | - | Inline XBRL Schema Document |
| Filed herewith |
101.CAL | - | Inline XBRL Calculation Linkbase Document |
| Filed herewith |
101.LAB | - | Inline XBRL Label Linkbase Document |
| Filed herewith |
101.PRE | - | Inline XBRL Presentation Linkbase Document |
| Filed herewith |
101.DEF | - | Inline XBRL Definition Linkbase Document |
| Filed herewith |
104 | - | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| Filed herewith |
3735
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, Core Laboratories N.V., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| ||
| CORE LABORATORIES N.V. | ||
|
|
| |
Date: |
| By: | /s/ Christopher S. Hill |
|
| Christopher S. Hill | |
|
| Chief Financial Officer | |
|
| (Duly Authorized Officer and | |
|
| Principal Financial Officer) |
3836