CLB - Earnings call transcript Q3 2021

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Operator

Good morning, and welcome to the Core Laboratories' Third Quarter 2021 Earnings Conference Call. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Larry Bruno, Chairman and CEO. Please go ahead.

Larry Bruno

Thanks Debbie. Americas. the in morning Good Good afternoon good Middle and and Europe, in Asia Africa, evening the Pacific. East, in We'd like quarter to most welcome all of our employees Core call. importantly, shareholders, to Laboratories earnings third XXXX our analysts and morning, Gwen Core's Investor and Relations. joined Financial Head President Schreffler, Chris Core's Senior Hill, This Chief I'm Officer; and Vice of by The be six into divided call segments. will Gwen will start by making remarks regarding forward-looking statements. QX some comments, of in Core's review including important high-level We'll performance. a opening then have factors

company employs In detailed financial the addition, additional we'll tenets Chris value. value. and Core's financial shareholder have a build three the to will review strategies and comments give shareholder regarding long-term that then overview

Chris, Following continued and remarks deployment Core's provide Core's review two the the as on operating open technologies of then segments, I'll phone Core worldwide. successful as some company's introduction well over highlighting Lab call and progress to comments forward-looking the outlook now Gwen detailing major projects guidance. Q&A We'll discussing operations then for will for and on section. I'll our turn statements. some a the of and Gwen

Gwen Schreffler

Larry. you, Thank

of undertake to the information, revise should results in respects other the This prove start new discussion risks the forward-looking or of include update Should make vary in estimates, mention may that that result forward-looking this any affect we statements any that Before this statements or outlook. future outcome. business these or we whether statements statements. projected or material XX industry, conditions, morning, as of one more or the filings during other events, rules. no forward-looking and business Act a projections, discussed would materialize call assumptions conference including may relating of company's These those a include other incorrect, of our our oil may obligation information. in types political and gas I'll some international and are of We any number to climate, to subject those actual uncertainties factors, of forward-looking risks publicly international the and uncertainties markets, from our

For foregoing as Factors the recent statements in of the reports a Form as us filed well and and AFM. see more most detailed discussion by annual registration SEC and uncertainties, of report Item XX-K please other some on XA-Risk our risks the with

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

Larry Bruno

Thanks Gwen.

that by remain to thoughts with global affected those continue the be pandemic. all Our

see case and fully countries service remains global activity. clients' counts network logistical And or saw expanded landscape Core ready and during field activities, needs. precautionary complications of product Despite a we services for COVID number countries client shipments. and hurdles, these our reenacted our quarter, in third commerce increasing across to hurdles the unevenly During global demand related hydrocarbons approach headwinds the to caseloads continue This and still Virus schedules pandemic. to issues global positive over continue and rise to decline, to continues complex, the highest inventories still Still, course of for signaling recorded causing unpredictable and for pose negatively and activity. oilfield trends our enacted, operating for QX. maintained, gradually activities. rose many oilfield A improving clients' levels measures global the impacted travel are future

both weeks. employees Coast the there our We the employees our and resulted company's Coast storm I'm along lasted temporary outages appreciate significantly the and Lab work spool and weeks. possible. physical During safe, happy several quickly disruptions operations as was of to are minor that in many related hard as to infrastructure. the weather closures of were for subsequent of damage along report only impact client along mitigate Gulf reducing Gulf in the of Multiple offices systems and by affected tropical the power third that Gulf quarter, Core all Mexico, for on activity

Looking company increased and cash operations in from the of saw Lab's third increased free at XXXX, cash quarter performance Core flow. the

margins some the quarter. description beginning return only now deal to progression quarter. international in project work operating both with expanded the work, by accommodations. greater to segments its strategic COVID addition, Reservoir sheet, already its execute due schedules continued uneven normal At exposure to In to ratio Core same debt continues financial and the the improving to as second during leverage clients committed objectives of its balance to strengthening on compared net time, XX reducing having are

and year the culture, review company. tenets served to and service. shareholders, traded used value solve Core dedicated our is build financial will Now history Core problems, to The plus over as resilient which always XX our publicly of clients customer well Lab that Lab's interests technology by and a leveraging on employees to be innovation, Core shareholder strategies relies

invested Core the return focused will and long cash standing to its Those shareholders. financial free flow, challenges, cash navigate return our we current remain excess maximize While through on capital, free long-term on being tenants. three maximize to

that in I want we and them Core's for unprecedented detailed also dedication, active management moment many our the for personal the want team navigate Before financial loyalty sacrifices for I as now for the to Chris during prepare to I'll have over employees of meeting past challenges market. it hard all work and and turn the thank XX we a endured their customers' of review. to on, for adaptability move the their months. needs and thank more

Chris Hill

Thanks Larry.

of gave past quarter, specifically any FX impact the assumed the of financial the rate performance excluded calls gains and last on losses an XX%. effective or our tax Before and call we the we guidance review for

So accordingly, our current any discussion loss today and or foreign exchange gain the excludes prior periods. for

who for charge for quarter future reached compensation performance age. a non employees million third $X.X retirement the Additionally, the the certain stock XXXX have of results for of eligible associated cash their financial include with expense vesting of shares

and subjected age. retirement schedules metrics; vesting recognition continue Although, US the performance full these GAAP when they to attain company future employees required to share expenses for of eligible financial their by be performance shares, awards

from the continuing review the XX% up almost market This operations comparable Year-over-year in let's the up to by revenue grow. the is Revenue US quarter, $XXX.X income $XXX revenue. for in million continued year-over-year. million up to and third Geographically, XX%. offset was Now, quarter a international the in US the quarter and X% international prior was decrease is statement. sequential

challenges shipment As continued the and operations in to Larry of chains progression be with workflow our and impact have products. an international with disruptions continues projects also there pandemic on mentioned supply associated earlier, to of on international have

pandemic quarter quarter. quarter more disruptions this the the revenue, weather associated the this in delays $XX.X by with the quarter. severe regions quarter. US, in coming which sequentially, tied the equally which last US in adversely slightly the by Gulf $XX.X million Products by adversely $XX.X and also in strong off also international sales, primarily caused many revenue X% and but impacted in the of is Mexico. The for growth quarter, second impacted more were very million international the events million were the results outside The up Of decrease to Gulf the storms from the down activity is were was ongoing is for third revenue service service

Our perforating remain high energetic products and in demand.

by the was partially to in market However, decrease the third in a quarter US the offset international growth sales in sales. the

which and international from challenges some opportunities impede supply included for It's quarter large and lead US second both the international quarter and materials for some did the quarter The times capabilities worth also vary production quarter. limited materials raw orders, Longer our with the mentioning quarter. and the manufacturing short chains in can markets. to continue growth during for certain that during supply growth

service and of was fairly consistent XX% services, the of to on revenue, quarter. to for Moving cost quarter ex-items prior

our some previously to as earnings services second pandemic. call, cost during in put discussed the during are measures of temporary As place restore cost quarter we increase expected reduction

and below further XX% trend As services items improved quarter we recovery, with incremental on when of revenue, the fully quarter into restored, XX% towards from historical operational then of the and second in and x and progress our quarters. utilization activity norms. consecutive five improve was Sales Cost is margins our will last and laboratory just costs for are improving, last employee the

to manufacturing also efficiencies quarter last for continue and million $X.X of quarter improve. Year-to-date absorption the the of $XX sales million compared compared ex-items costs will fixed G&A grow, million. continue is last same year. for to product G&A were to As $X.X $XX period to million

last million and Amortization the of next million to and be slightly compensation restored a for progress compared million quarter XXXX which about few between quarter. and expense for G&A full have restore lower also of decrease employee the are $X.X for impact for quarter is EBIT quarters. levels the over to extent comparable the continued quarter our last G&A which from an EBIT XX at $XX XX% were $XX Depreciation year. we through million As margin representing ex-items ex-items XX%. of to year to to we and XXXX, $X.X timing was the expected to last million, could

GAAP $X.X XX% Interest the to expense Our last QX reduce cash $X.X a Income compensation a using quarter. of quarter, continue was GAAP comparable basis long-term the but On rate accelerated a expense $X.X third expense we million in quarter $X.X was XXXX million basis $X income the which operating was non million, from of tax for expense. approximately impacted debt. quarter. the on income for tax stock for recognition million to and as accounting ex-items was by was down tax effective the million

The stock this rate third for is each effective The the purposes, to somewhat that earnings third recognition rate earlier, for mentioned purposes. effective was in to of discrete of the quarter compensation continue the the the items expense be not recognized globe As geographic includes increases sensitive that mix a and to accounting non-cash of the million $X.X quarter. also impact tax across will tax quarter. tax expense of quarter for deductible and

rate continuing approximately from fourth from quarter ops quarter for ex-items million project tax expense share last However, earnings slightly for $X.XX core. the per ex-items $X.X diluted XX%. million be for continue quarter to the continuing company's from the the the operations of for to million GAAP includes last million compensation GAAP $X.X the and income operations the from were diluted down for third from $X.X continuing per was continuing Income of $X.XX effective XXXX, quarter. earlier. quarter were $X mentioned share operations stock was comparable we quarter. the Earnings

sheet; approximately from receivables Moving on million balance the increased and prior were quarter. to $XX.X $X million

quarter. days, DSOs last compared Inventory quarter. Our from turns over third days last quarter quarter quarter. Inventory $X X.X were a were at $XX.X the up ended for $XX.X XX the million X.X the little up million, XX from for last in million to the quarter

last longer company The experience in raw highlighted material the the the quarter supply in short supplies, increase chain, is increase the previously continues of quarter, times As an some supply of with challenges and and larger inventory an in quantities help associated carrying to in of to cost supply. chain. in raw in effort this the lead materials mitigate materials majority instances

Additionally, some this were at larger shipments to with challenges delayed the international quarter ship anticipated sales international continued. of product some

the On at of considering of million XX. was the reduced million, net side, from liability XXXX. cash And of of third million $X.X June our $XXX $XX long-term to or the quarter decrease was debt $XXX debt million end

notes were cash company. from as now which million $XX combination were settled million matured the continues At to of drawn retired. year our down using $XX to $XX issued private back X.X notes hand were from was These placement from a ratio as in on XX we work leverage facility. quarter X.XX and and of September and million credit XX, September XX, XXXX improve which last delever is Our of

comprised and Our million our in credit on of $XXX notes, debt facility. is $XX million outstanding senior now

in available with million borrowing capacity. Our credit remains fully facility $XXX over

the quarter. $X.X aligned our while we flow remain debt be at long-term And levels with levels our expect our company from share growth. of third will cash after build reduce associated for from for Looking and was quarter was expenditures CapEx incentive is free beyond. $X.X cash for for Excess and and in the a with long-term and of rest modestly $XX.X flow operating $X.X which million, million used the million to but flow second the free based continue to million of growth to repurchasing the primarily shares activity also line increase cash opportunities. levels year XXXX, quarter, paying for activity programs. continues was in to would capital in up period million, CapEx XXXX anticipate with The in activities will historical $X.X cash of

financial ability results, the for Gwen flow update those free of We and also and generated cash it $XX beyond. metrics targeted XXXX flow outlook. primarily opportunities this are assess free its when another cash important at we of marks $XX company's evaluating business expenditures we free remainder to to turn strict over to a to in positive particularly million. will flow to For discounted the cash range ahead where capital light now projecting as initiatives. year, and to cash utilize guidance a for shareholders capital year million free full believe and I discipline capital expenditures grow This cash who Core to expect with quarter growth continue be model and will on and yield comparing Core company's value generate models we Lab for an look valuations. shareholders are asset our

Gwen Schreffler

count operators Thank tighten and crude in crude the development prices. accelerated as higher increases oilfield offshore rig double projects of and to fields, their should fields spending extensions. IOCs, international maintenance approaches for noticeable crude for projects. by and positioned XXXX is increase levels, oil Core in continues oil oil for field fundamentals more America, more to commodity activity, well segments anticipate of expand reflected the oil business you, XX% crude investment for NOCs coming North as in in opportunity demand With and Core international this Chris. of active oil beyond. presence remain crude pre capital independent The our contract Lab more resulting than to in XXXX. gradual and cycle We capitalize support market the digits revenue growth development to of strengthens level in pace equipment are These technologies. global a exposed on market increase international commodity and COVID global or prices also under investments oil in international Current crude XX% existing on the XX% and given having both its with proprietary international new

developments reservoir the field participate more and description before to need wells rock fluid additional As samples fully drilled cycle. reservoir emerge, in and be

the Middle growth Latin from and abate, As particular of pandemic provides into expansion on both Atlantic margin, disruptions America for the XXXX and South development opportunities with beyond, a segments the East. focus international the

for international up Chris mentioned, third was the As revenue year-over-year X% quarter.

Core expects growth For international the and fourth quarter year-over-year XXXX, continued revenue.

activity from projected projects $XX comes million XX%. quarter approximately margins is million moderately to XXXX growth operating US income of a $XX.X operating to and million Additionally, in $XXX $XXX progress close. fourth Core revenue of to range million to yielding to

temporarily back. historical discussed financial as cents fourth introducing will $X.XX restored, previously prior remains to technologies reduction reducing expands. to Core's return for to free $X.XX. impacted margins cost of measures in are as plan EPS on new announced Core costs and these calls, net committed XXXX on rolled client expanding capital. while margin by to in be focused performance performance As earnings strategic be maximizing the market return remains Once its incremental its activity targeting invested expects market continue expected approximately In quarter opportunities. some Core new fully generating flow is be cash penetration and of to debt Core and XXXX summary, incremental

effective targeted in that on client focus, remains capitalize company to As rate XXXX The clients also guidance opportunity. meet exchange. underlying in and excludes company's needs its to solve tax and assumes XX%. the gains is growth to for an aim problems projections quarter foreign both and continue of cycle fourth well on losses unfolds. driven strategic will of XXXX as part the invest positioned the guidance Fourth XXXX of The energy company based Core's quarter technologies Core's operations, industry

Now Larry. back over turn it to I'll

Larry Bruno

Gwen. Thanks

during employees First, and very Lab has of integrity, for success. I'd the challenges, the collective visible foundation The thank service and our innovative our to like been our to of clients. Core to current clients team global solutions, team's dedication providing superior it's servicing

reservoir to first Turning description.

up million, and Income occurred Coast description's sequentially business third global By to by Gulf performance margins revenue $X.X segment Operating has caused came the lagged ex-items XX%. The XX% changes client the ex-items activity. pandemic. million, despite quarter, operating at the in storms For was disruptions sequentially. nature reservoir up improvements in $XX the of and historically slightly improved directional

activity industry As recovers, companies description respond slowly reservoir more oilfield spending. with and will to cycle client than direct service exposure say early construction other well

of XXXX throughout count a see reservoir landscape we will rig ahead, international for harbinger out play look improving we description. we and is trend As the A that beyond. an project growing

to Now operational highlights. some

client Core's System the a and Center from the of geochemistry, Automated to of algorithms material. and proprietary accelerate brought captures the a Brazil's which incorporates and of Center also recovered machine measurement in reservoir areas, and conjunction both Evaluation as Core's included and of profiling These mud, compositional of in appraisal to physical make Sea the demand same integrated the on operating XXXX, were Quick Northeastern data launched clients for initial Once Advanced gas third selection as seal other to measurement rock CT resolution Fluid Imaging core delivered NITRO, the of study of properties oil United the includes data with Core's Conventional point. via depo was international of Technology Single ratio core study analytical subsurface, The viscosity, sets The arrival fluids logging. computed client including CT an from of high fully offshore Core's Core's density, reached Core's in honored Core's and analyses during traditional using clients compounds, resulting utilized technologies known Core quarter offering dual analytical stabilized high as two time Laboratory week the core results a levels spectral the proprietary quickly system turnaround client basin. of Upon program targeted the stratigraphy, Core's drilling detailed retained enabled Brazilian scanned system of Core's contamination Lab an on intelligence within refine well pay management Technology on Advanced for hydrocarbons, strata non-invasive de that optimization determination include information critical the for range base. provide dual quarter the delineation. available analyses During ensured sidetrack samples petrophysical sandstone now NITRO RAPID management and Rio data from wells. and resolution learning reservoir subsurface expanded core and Analysis core. handling the decisions fluid projects, are physical the program. images Sea. RAPID. normally testing. rock Core's sample are proprietary technologies The pore the the rock to Kingdom multiclient speciation Core recovery North offerings and at for - interval. proprietary provided proprietary and geology, reservoir the many in testing from recently This were across high a reservoir bubble technologies utilized proprietary and lithologic upon with web clients the rig global fabric These the Rock they including floor supporting gamma images natural being testing were laboratory, Digital offshore and capabilities, including datasets that parameters being techniques in using in wide In was the tomography that These third Janeiro as energy to energy, allowed well deliverables timely is patented and range several Technologies, branded throughout Core's expanded in NITRO centers. a robotically were receiving upcoming are are photographic fluid analysis phase North artificial sulfur transportation.

around management on collaborating data the globe With efficiently are the accessing and teams RAPID multidisciplinary located analytical data results. system,

production both strengths driven XXXX, sequentially; X% the plus events over Core by for in Mexico. diagnostics, Moving completions. completion supply at operations systems rig the third suspension in hurdles enhancement sequentially. to some That sales for up $XX.X to came down lower operating compared points now Operating optimize quarter, $X production to the Lab clients weather was enhancement million, change sequentially. of Revenue in their help second or energetic well international or up tied of XXX XX% million, was income ex-items quarter margins basis XX% Gulf and was the and of

Oriented highly suboptimal US perforating highlights, alignment is correlated acceptance widespread to Now is images well that require to as method accuracy. results shows optimize manual operators stimulation. for gun land the operational preferred frac that perforating guns Perforating the systems Testing of shown performance from gaining some Technology Moreover, gun downhole have in string. among alignment

plug enhancement Core's quarter, Basin system Core's team manual the of system deploy next guns, operator Oriented associated pending production was provides inaccuracies that third gun as engaged play the offerings. with other GoGun. innovative patent by design the Permian to and alignment generation is During a with required a This removes

GoGun eliminates Gun time. The both from Oriented results stage. need stage for assembly highest externally from accuracy GoGun In orientation greatly design the Oriented gun to degree in innovative among and gun Oriented alignment of sub-assemblies, lowering offerings, to System addition, the the

horizontal a It's containment, often wells. unconventional new uniform maintain cementing can quarter these the adopted to XXXX, wells has their upon all the pipe. Also operator resulting superior to drilling move a channels non channels to Frac and Core's third system behind Diagnostic string called well client Permian assembly, gun pad. in expedited in for Services As the the alignment placement along approach in of a difficult by cement fluid were Completion and result operations between stage multi Basin of their for occurred, intervals. targeted migrate assess when

rotation adjacent evaluate its cementing during compared was consequence, SPECTRASCAN casing was pipe. behind in intervals in in being wanted utilizes the would while and sub That which had if under channels well rotation which can to the compare fluid in The eliminate client a targeted a of rotation degree pipe to wells, result employed Core casing cementing channels to rotation SPECTRASTIM been As proprietary stimulated. behind horizontal then technologies Diagnostics oil cement more was between production employed. engineers deployed. containment uniform better were rotated the and confirm pipe and Core's the well, fluid when pipe wells client to In of able performed, increase barrels comparing first the Completion days pipe frac in placement of of rotation per production just feet XXX of the well, been observed had from which well. an casing rotated well, frac oil of no logging operation. XXXX XX treated containment pipe tracers, no the in

With rotation invaluable operators these your and results, subsequent of call open assisting We for elected their operator Completion Core's now Debbie favorable our will are the questions. the appreciate in concludes for techniques. operational Technologies That operations. and implement participation, review. cementing to pipe Diagnostic tool innovations completion an in assessment

Operator

The comes Sandler. Ian Macpherson with first question Instructions] [Operator from Piper

IanMacpherson

service saying, bit Larry, we if rates a when others for the spending not are to know the conservative, of about you're recover needs increase fold Good experiencing. what little which next the to morning, think in substantially are that everyone. growth more that upstream inflation that pricing contemplating year, pretty you're we

seem OFS And for think enough so increase leave need about markets left total spend requisite minus next activity in that year. to bank the it the dollars balance oil when you pricing, piggy doesn't we to

revenue Core with next opportunity think that inflationary recovery rates about Lab how curious this in So pricing for and growth those toward this should on year thoughts spinning you on your you context? translate how unfolds your talked

LarryBruno

Ian. okay. Good Yes, question,

come today our what we're seeing we for client with maybe about first think our going kind into where of and we're frame conversations next year outlook XXXX. So

grow a So the domestic international still grow rate double clients. going XX% occur our international And the we'd US. saying both we're conversations to XX%, digits. it's from see think that's going in today, side, activity to say reasonable But that and we likely to going we US comfortable to on on that's some what with then growth

think dial I one things for of I need so certainly, that And think in pricing. improvement a I across the the we'll think industry in, that

that'll come. think I

we we've proportionally. more the Lab substantial situations a headcount a our operational having unique automation our revenue the we without that grow of can is got system, of one think in lot into with with amount generate that organization, Core the leverage in to I put

it think start while well we've I as coming to our up, levels margins do So period it trend way structured back I positioned upheaval, has of the the firm company and of toward to think demand prices pick see us two happen out one quarters. won't XX% and the it we'll on and it call or see or XX% overnight, levels, happen product rise this will back the little that for it a call activity traditional incremental won't to in side. But to up more bit XX% description, call into start reservoir

IanMacpherson

That's Thanks really Larry. helpful.

Now that health your obviously is just total margins but - to market time road the you've normalize, - a and of respect the some from need demand growth of normalized. things

thinking M&A than the or more about respect for rather on So last year. for company positioned a strategically the to solid contraction? opportunities now for strategic you Core are other growth opportunities your sheet How that's in market than balance you've gotten footing Lab with

LarryBruno

how foundation our including an And a revolutionary It address for toward some of approach in we'll nuclear all, energetic a on systems. side, intriguing got physics attention of where then we've technology diagnostics both the technologies, sort number go our a Sure, I'd core analysis innovations say future. first always number of on is internal product to a and very development. for we pipeline of is drawn

opportunities the and our a M&A. we financial of looking to say side, So always always goes can that opportunities, there, of rather an we and have listening go first, technical on through investment opportunities have consequences the M&A I we're we to attention evaluation growth rigorous

the that act balance one It'll be out over now they that What we something is close know. acts I are of as called we into you look anything do M&A of about that? things, the terms you things look go, your well, we Core landscape see sticks Lab opportunity. get As say have on Lab's that think in Lab is at sense thing things flexibility won't you The an that would Core opportunities have us head of those Core the we, mentioned, to why on you scratching as look M&A things. to there, is wheelhouse know at we and that makes sheet adventurous

IanMacpherson

Great it answer. Hey, thanks Larry. I'll over. pass

LarryBruno

Okay, sure.

and to I markets with activity think no this the so since going US other summary, agenda leadership operational release beyond. companies questions we've XXXX earnings Core's we'll In international pretty improving both more a client company got the full are wrap for and continues up in there in levels here. morning position

cash our We their have evolving advanced, client address The oilfield on term, invested and technologies balance driven problem on dividends and remain by to use the capital, free new never quarterly most value needs. are focused reservoirs, focused will our service growth The sheet. introduction and generating its global cash both optimization the solving to their optimize been Core client to bring base, part addition better returns focused reservoir sector. remain technologically our near technologically and market operationally will shareholders. in help positioned will to In company We or company uniquely strengthen to to penetration. in opportunities the the of free continue

have give proud the cover that management appreciate our worldwide board their and analysts thank with these continuing associated Lab. our special Core of we shareholders Laboratories closing, a that team thanks and results We're of in all achievements. to Core employees the The and be executive So possible. to made

update. And our for to spending for Goodbye us. forward look we with time now. So thanks next

Operator

for you Thank today's concluded. now has attending conference presentation. The

may You now disconnect.

Core Laboratories (CLB) 28 Oct 212021 Q3 Earnings call transcript