Core Laboratories Inc.
10/24/2024 | Press release | Distributed by Public on 10/24/2024 15:31
Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)
10-Q
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 September 30, 2024
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: 001-41695
CORE LABORATORIES INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
98-1164194 |
|
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
6316 Windfern Road |
||
|
Houston, TX |
77040 |
|
|
(Address of principal executive offices) |
(Zip Code) |
(713) 328-2673
(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 $0.01) |
CLB |
New York 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 ☐ |
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 shares of common stock of the registrant, par value $0.01 per share, outstanding at October 18, 2024 was 46,950,125.
CORE LABORATORIES INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2024
INDEX
PART I - FINANCIAL INFORMATION
|
Page |
||
|
Item 1. |
Financial Statements |
|
|
Consolidated Balance Sheets at September 30, 2024 (Unaudited) and December 31, 2023 |
3 |
|
|
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited) |
4 |
|
|
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited) |
6 |
|
|
Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited) |
7 |
|
|
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (Unaudited) |
9 |
|
|
Notes to the Interim Consolidated Financial Statements(Unaudited) |
10 |
|
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
21 |
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
35 |
|
Item 4. |
Controls and Procedures |
35 |
|
PART II - OTHER INFORMATION |
||
|
Item 1. |
Legal Proceedings |
35 |
|
Item 1A. |
Risk Factors |
35 |
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
36 |
|
Item 5. |
Other Information |
36 |
|
Item 6. |
Exhibits |
37 |
|
Signature |
38 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORE LABORATORIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
September 30, |
December 31, |
|||||||
|
(Unaudited) |
||||||||
|
ASSETS |
||||||||
|
CURRENT ASSETS: |
||||||||
|
Cash and cash equivalents |
$ |
21,474 |
$ |
15,120 |
||||
|
Accounts receivable, net of allowance for credit losses |
117,591 |
109,352 |
||||||
|
Inventories |
65,490 |
71,702 |
||||||
|
Prepaid expenses |
9,717 |
8,153 |
||||||
|
Income taxes receivable |
14,784 |
13,716 |
||||||
|
Other current assets |
6,171 |
5,093 |
||||||
|
TOTAL CURRENT ASSETS |
235,227 |
223,136 |
||||||
|
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation |
97,606 |
99,626 |
||||||
|
RIGHT OF USE ASSETS |
56,650 |
53,842 |
||||||
|
INTANGIBLES, net of accumulated amortization and impairment |
6,547 |
6,926 |
||||||
|
GOODWILL |
99,445 |
99,445 |
||||||
|
DEFERRED TAX ASSETS, net |
69,948 |
69,201 |
||||||
|
OTHER ASSETS |
35,043 |
34,219 |
||||||
|
TOTAL ASSETS |
$ |
600,466 |
$ |
586,395 |
||||
|
LIABILITIES AND EQUITY |
||||||||
|
CURRENT LIABILITIES: |
||||||||
|
Accounts payable |
$ |
33,627 |
$ |
33,506 |
||||
|
Accrued payroll and related costs |
22,281 |
18,791 |
||||||
|
Taxes other than payroll and income |
5,795 |
5,939 |
||||||
|
Unearned revenues |
7,208 |
4,755 |
||||||
|
Operating lease liabilities |
11,435 |
10,175 |
||||||
|
Income taxes payable |
5,459 |
7,280 |
||||||
|
Other current liabilities |
9,133 |
7,651 |
||||||
|
TOTAL CURRENT LIABILITIES |
94,938 |
88,097 |
||||||
|
LONG-TERM DEBT, net |
139,872 |
163,134 |
||||||
|
LONG-TERM OPERATING LEASE LIABILITIES |
43,727 |
42,076 |
||||||
|
DEFERRED COMPENSATION |
31,713 |
30,544 |
||||||
|
DEFERRED TAX LIABILITIES, net |
13,547 |
12,697 |
||||||
|
OTHER LONG-TERM LIABILITIES |
20,248 |
20,040 |
||||||
|
COMMITMENTS AND CONTINGENCIES |
||||||||
|
EQUITY: |
||||||||
|
Preference stock, 6,000,000shares authorized, $0.01par value; noneissued or outstanding |
- |
- |
||||||
|
Common stock, 200,000,000shares authorized, $0.01par value, 46,938,557issued and 46,927,391outstanding at 2024; 46,938,557issued and 46,856,536outstanding at 2023 |
469 |
469 |
||||||
|
Additional paid-in capital |
112,610 |
110,011 |
||||||
|
Retained earnings |
143,346 |
120,756 |
||||||
|
Accumulated other comprehensive income (loss) |
(5,446 |
) |
(4,972 |
) |
||||
|
Treasury stock (at cost), 11,166and 82,021shares at 2024 and 2023, respectively |
(237 |
) |
(1,449 |
) |
||||
|
Total Core Laboratories Inc. shareholders' equity |
250,742 |
224,815 |
||||||
|
Non-controlling interest |
5,679 |
4,992 |
||||||
|
TOTAL EQUITY |
256,421 |
229,807 |
||||||
|
TOTAL LIABILITIES AND EQUITY |
$ |
600,466 |
$ |
586,395 |
The accompanying notes are an integral part of these interim consolidated financial statements.
3
Return to Index
CORE LABORATORIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
Three Months Ended |
||||||||
|
September 30, |
||||||||
|
2024 |
2023 |
|||||||
|
(Unaudited) |
||||||||
|
REVENUE: |
||||||||
|
Services |
$ |
98,842 |
$ |
92,883 |
||||
|
Product sales |
35,555 |
32,460 |
||||||
|
Total revenue |
134,397 |
125,343 |
||||||
|
OPERATING EXPENSES: |
||||||||
|
Cost of services, exclusive of depreciation expense shown below |
75,503 |
68,976 |
||||||
|
Cost of product sales, exclusive of depreciation expense shown below |
31,302 |
27,641 |
||||||
|
General and administrative expense, exclusive of depreciation expense shown below |
8,642 |
9,452 |
||||||
|
Depreciation |
3,551 |
3,802 |
||||||
|
Amortization |
125 |
127 |
||||||
|
Other (income) expense, net |
(4,529 |
) |
673 |
|||||
|
OPERATING INCOME |
19,803 |
14,672 |
||||||
|
Interest expense |
3,108 |
3,147 |
||||||
|
Income before income taxes |
16,695 |
11,525 |
||||||
|
Income tax expense |
4,691 |
2,305 |
||||||
|
Net income |
12,004 |
9,220 |
||||||
|
Net income (loss) attributable to non-controlling interest |
259 |
(37 |
) |
|||||
|
Net income attributable to Core Laboratories Inc. |
$ |
11,745 |
$ |
9,257 |
||||
|
EARNINGS PER SHARE INFORMATION: |
||||||||
|
Basic earnings per share |
$ |
0.26 |
$ |
0.20 |
||||
|
Basic earnings per share attributable to Core Laboratories Inc. |
$ |
0.25 |
$ |
0.20 |
||||
|
Diluted earnings per share |
$ |
0.25 |
$ |
0.19 |
||||
|
Diluted earnings per share attributable to Core Laboratories Inc. |
$ |
0.25 |
$ |
0.19 |
||||
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
||||||||
|
Basic |
46,922 |
46,692 |
||||||
|
Diluted |
47,820 |
47,604 |
The accompanying notes are an integral part of these interim consolidated financial statements.
4
Return to Index
CORE LABORATORIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
Nine Months Ended |
||||||||
|
September 30, |
||||||||
|
2024 |
2023 |
|||||||
|
(Unaudited) |
||||||||
|
REVENUE: |
||||||||
|
Services |
$ |
291,674 |
$ |
277,224 |
||||
|
Product sales |
102,937 |
104,356 |
||||||
|
Total revenue |
394,611 |
381,580 |
||||||
|
OPERATING EXPENSES: |
||||||||
|
Cost of services, exclusive of depreciation expense shown below |
224,191 |
211,031 |
||||||
|
Cost of product sales, exclusive of depreciation expense shown below |
90,132 |
87,409 |
||||||
|
General and administrative expense, exclusive of depreciation expense shown below |
30,690 |
31,594 |
||||||
|
Depreciation |
10,909 |
11,548 |
||||||
|
Amortization |
380 |
362 |
||||||
|
Other (income) expense, net |
(6,073 |
) |
(423 |
) |
||||
|
OPERATING INCOME |
44,382 |
40,059 |
||||||
|
Interest expense |
9,740 |
9,812 |
||||||
|
Income before income taxes |
34,642 |
30,247 |
||||||
|
Income tax expense (benefit) |
9,958 |
(4,344 |
) |
|||||
|
Net income |
24,684 |
34,591 |
||||||
|
Net income attributable to non-controlling interest |
687 |
115 |
||||||
|
Net income attributable to Core Laboratories Inc. |
$ |
23,997 |
$ |
34,476 |
||||
|
EARNINGS PER SHARE INFORMATION: |
||||||||
|
Basic earnings per share |
$ |
0.53 |
$ |
0.74 |
||||
|
Basic earnings per share attributable to Core Laboratories Inc. |
$ |
0.51 |
$ |
0.74 |
||||
|
Diluted earnings per share |
$ |
0.52 |
$ |
0.73 |
||||
|
Diluted earnings per share attributable to Core Laboratories Inc. |
$ |
0.50 |
$ |
0.73 |
||||
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
||||||||
|
Basic |
46,897 |
46,667 |
||||||
|
Diluted |
47,690 |
47,536 |
The accompanying notes are an integral part of these interim consolidated financial statements.
5
Return to Index
CORE LABORATORIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
(Unaudited) |
||||||||||||||||
|
Net income |
$ |
12,004 |
$ |
9,220 |
$ |
24,684 |
$ |
34,591 |
||||||||
|
Other comprehensive income (loss): |
||||||||||||||||
|
Interest rate swaps: |
||||||||||||||||
|
Interest rate swap amount reclassified to net income |
(235 |
) |
(415 |
) |
(780 |
) |
(187 |
) |
||||||||
|
Income tax (expense) benefit on interest rate swaps |
50 |
87 |
164 |
39 |
||||||||||||
|
Total interest rate swaps |
(185 |
) |
(328 |
) |
(616 |
) |
(148 |
) |
||||||||
|
Pension and other postretirement benefit plans: |
||||||||||||||||
|
Amortization of actuarial gain (loss) reclassified to net income |
63 |
39 |
191 |
117 |
||||||||||||
|
Income tax (expense) benefit on pension and other postretirement benefit plans reclassified to net income |
(15 |
) |
(10 |
) |
(49 |
) |
(30 |
) |
||||||||
|
Total pension and other postretirement benefit plans |
48 |
29 |
142 |
87 |
||||||||||||
|
Total other comprehensive income (loss) |
(137 |
) |
(299 |
) |
(474 |
) |
(61 |
) |
||||||||
|
Comprehensive income |
11,867 |
8,921 |
24,210 |
34,530 |
||||||||||||
|
Comprehensive income (loss) attributable to non-controlling interest |
259 |
(37 |
) |
687 |
115 |
|||||||||||
|
Comprehensive income attributable to Core Laboratories Inc. |
$ |
11,608 |
$ |
8,958 |
$ |
23,523 |
$ |
34,415 |
The accompanying notes are an integral part of these interim consolidated financial statements.
6
Return to Index
CORE LABORATORIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share data)
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
(Unaudited) |
||||||||||||||||
|
Common Stock |
||||||||||||||||
|
Balance at Beginning of Period |
$ |
469 |
$ |
467 |
$ |
469 |
$ |
1,194 |
||||||||
|
New share issuance |
- |
- |
- |
- |
||||||||||||
|
Change in par value |
- |
- |
- |
(727 |
) |
|||||||||||
|
Balance at End of Period |
$ |
469 |
$ |
467 |
$ |
469 |
$ |
467 |
||||||||
|
Additional Paid-In Capital |
||||||||||||||||
|
Balance at Beginning of Period |
$ |
113,479 |
$ |
108,030 |
$ |
110,011 |
$ |
102,254 |
||||||||
|
New share issuance |
- |
- |
- |
- |
||||||||||||
|
Change in par value and equity related transactions |
- |
(404 |
) |
- |
(3,839 |
) |
||||||||||
|
Stock-based compensation |
(869 |
) |
1,477 |
2,599 |
10,688 |
|||||||||||
|
Balance at End of Period |
$ |
112,610 |
$ |
109,103 |
$ |
112,610 |
$ |
109,103 |
||||||||
|
Retained Earnings |
||||||||||||||||
|
Balance at Beginning of Period |
$ |
132,070 |
$ |
110,234 |
$ |
120,756 |
$ |
85,949 |
||||||||
|
Dividends paid |
(469 |
) |
(467 |
) |
(1,407 |
) |
(1,401 |
) |
||||||||
|
Net income attributable to Core Laboratories Inc. |
11,745 |
9,257 |
23,997 |
34,476 |
||||||||||||
|
Balance at End of Period |
$ |
143,346 |
$ |
119,024 |
$ |
143,346 |
$ |
119,024 |
||||||||
|
Accumulated Other Comprehensive Income (Loss) |
||||||||||||||||
|
Balance at Beginning of Period |
$ |
(5,309 |
) |
$ |
(3,539 |
) |
$ |
(4,972 |
) |
$ |
(3,777 |
) |
||||
|
Interest rate swaps, net of income taxes |
(185 |
) |
(328 |
) |
(616 |
) |
(148 |
) |
||||||||
|
Pension and other postretirement benefit plans, net of income taxes |
48 |
29 |
142 |
87 |
||||||||||||
|
Balance at End of Period |
$ |
(5,446 |
) |
$ |
(3,838 |
) |
$ |
(5,446 |
) |
$ |
(3,838 |
) |
||||
|
Treasury Stock |
||||||||||||||||
|
Balance at Beginning of Period |
$ |
(435 |
) |
$ |
(436 |
) |
$ |
(1,449 |
) |
$ |
(1,362 |
) |
||||
|
Stock-based compensation |
394 |
592 |
1,614 |
1,718 |
||||||||||||
|
Repurchase of common stock |
(196 |
) |
(218 |
) |
(402 |
) |
(418 |
) |
||||||||
|
Balance at End of Period |
$ |
(237 |
) |
$ |
(62 |
) |
$ |
(237 |
) |
$ |
(62 |
) |
||||
|
Non-Controlling Interest |
||||||||||||||||
|
Balance at Beginning of Period |
$ |
5,420 |
$ |
4,848 |
$ |
4,992 |
$ |
4,696 |
||||||||
|
Non-controlling interest dividends |
- |
$ |
(55 |
) |
- |
$ |
(55 |
) |
||||||||
|
Net income (loss) attributable to non-controlling interest |
259 |
(37 |
) |
687 |
115 |
|||||||||||
|
Balance at End of Period |
$ |
5,679 |
$ |
4,756 |
$ |
5,679 |
$ |
4,756 |
||||||||
|
Total Equity |
||||||||||||||||
|
Balance at Beginning of Period |
$ |
245,694 |
$ |
219,604 |
$ |
229,807 |
$ |
188,954 |
||||||||
|
New share issuance |
- |
- |
- |
- |
||||||||||||
|
Change in par value and equity related transactions |
- |
(404 |
) |
- |
(4,566 |
) |
||||||||||
|
Stock-based compensation |
(475 |
) |
2,069 |
4,213 |
12,406 |
|||||||||||
|
Dividends paid |
(469 |
) |
(467 |
) |
(1,407 |
) |
(1,401 |
) |
||||||||
|
Non-controlling interest dividends |
- |
(55 |
) |
- |
(55 |
) |
||||||||||
|
Net income |
12,004 |
9,220 |
24,684 |
34,591 |
||||||||||||
|
Interest rate swaps, net of income taxes |
(185 |
) |
(328 |
) |
(616 |
) |
(148 |
) |
||||||||
|
Pension and other postretirement benefit plans, net of income taxes |
48 |
29 |
142 |
87 |
||||||||||||
|
Repurchase of common stock |
(196 |
) |
(218 |
) |
(402 |
) |
(418 |
) |
||||||||
|
Balance at End of Period |
$ |
256,421 |
$ |
229,450 |
$ |
256,421 |
$ |
229,450 |
||||||||
|
Cash Dividends per Share |
$ |
0.01 |
$ |
0.01 |
$ |
0.03 |
$ |
0.03 |
The accompanying notes are an integral part of these interim consolidated financial statements.
7
Return to Index
CORE LABORATORIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
(In thousands, except share and per share data)
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
(Unaudited) |
||||||||||||||||
|
Common Stock - Number of shares issued |
||||||||||||||||
|
Balance at Beginning of Period |
46,938,557 |
46,701,102 |
46,938,557 |
46,699,102 |
||||||||||||
|
New share issuance |
- |
- |
- |
2,000 |
||||||||||||
|
Balance at End of Period |
46,938,557 |
46,701,102 |
46,938,557 |
46,701,102 |
||||||||||||
|
Treasury Stock - Number of shares |
||||||||||||||||
|
Balance at Beginning of Period |
(25,862 |
) |
(20,693 |
) |
(82,021 |
) |
(67,168 |
) |
||||||||
|
Stock-based compensation |
23,242 |
26,127 |
92,313 |
81,672 |
||||||||||||
|
Repurchase of common stock |
(8,546 |
) |
(7,971 |
) |
(21,458 |
) |
(17,041 |
) |
||||||||
|
Balance at End of Period |
(11,166 |
) |
(2,537 |
) |
(11,166 |
) |
(2,537 |
) |
||||||||
|
Common Stock - Number of shares outstanding |
||||||||||||||||
|
Balance at Beginning of Period |
46,912,695 |
46,680,409 |
46,856,536 |
46,631,934 |
||||||||||||
|
New share issuance |
- |
- |
- |
2,000 |
||||||||||||
|
Stock-based compensation |
23,242 |
26,127 |
92,313 |
81,672 |
||||||||||||
|
Repurchase of common stock |
(8,546 |
) |
(7,971 |
) |
(21,458 |
) |
(17,041 |
) |
||||||||
|
Balance at End of Period |
46,927,391 |
46,698,565 |
46,927,391 |
46,698,565 |
The accompanying notes are an integral part of these interim consolidated financial statements.
8
Return to Index
CORE LABORATORIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
Nine Months Ended |
||||||||
|
September 30, |
||||||||
|
2024 |
2023 |
|||||||
|
(Unaudited) |
||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
|
Net income |
$ |
24,684 |
$ |
34,591 |
||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
|
Stock-based compensation |
4,213 |
12,406 |
||||||
|
Depreciation and amortization |
11,289 |
11,910 |
||||||
|
Assets write-down |
1,110 |
1,143 |
||||||
|
Changes in value of life insurance policies |
(3,188 |
) |
(3,221 |
) |
||||
|
Deferred income taxes |
102 |
(14,757 |
) |
|||||
|
Gain on insurance recovery for damage to property, plant and equipment |
(2,102 |
) |
- |
|||||
|
Other non-cash items |
1,478 |
300 |
||||||
|
Changes in assets and liabilities: |
||||||||
|
Accounts receivable |
(9,461 |
) |
2,872 |
|||||
|
Inventories |
6,212 |
(14,614 |
) |
|||||
|
Prepaid expenses and other current assets |
(4,357 |
) |
(3,902 |
) |
||||
|
Other assets |
(205 |
) |
1,711 |
|||||
|
Accounts payable |
(373 |
) |
(13,101 |
) |
||||
|
Accrued expenses |
2,392 |
(3,924 |
) |
|||||
|
Unearned revenues |
2,453 |
(1,306 |
) |
|||||
|
Other liabilities |
1,526 |
(4,748 |
) |
|||||
|
Net cash provided by operating activities |
35,773 |
5,360 |
||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
|
Capital expenditures |
(8,647 |
) |
(7,843 |
) |
||||
|
Patents and other intangibles |
- |
(158 |
) |
|||||
|
Proceeds from sale of assets |
934 |
420 |
||||||
|
Net proceeds from insurance recovery |
2,102 |
- |
||||||
|
Net proceeds on life insurance policies |
2,776 |
3,375 |
||||||
|
Net cash used in investing activities |
(2,835 |
) |
(4,206 |
) |
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
|
Repayment of long-term debt |
(62,000 |
) |
(184,000 |
) |
||||
|
Proceeds from long-term debt |
38,000 |
190,000 |
||||||
|
Debt issuance costs |
- |
(1,251 |
) |
|||||
|
Dividends paid |
(1,407 |
) |
(1,401 |
) |
||||
|
Repurchase of common stock |
(402 |
) |
(418 |
) |
||||
|
Equity related transaction costs |
(756 |
) |
(2,842 |
) |
||||
|
Other financing activities |
(19 |
) |
(54 |
) |
||||
|
Net cash provided by (used in) financing activities |
(26,584 |
) |
34 |
|||||
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
6,354 |
1,188 |
||||||
|
CASH AND CASH EQUIVALENTS, beginning of period |
15,120 |
15,428 |
||||||
|
CASH AND CASH EQUIVALENTS, end of period |
$ |
21,474 |
$ |
16,616 |
||||
|
Supplemental disclosures of cash flow information: |
||||||||
|
Cash payments for interest |
$ |
8,741 |
$ |
8,341 |
||||
|
Cash payments for income taxes |
$ |
11,892 |
$ |
16,013 |
||||
|
Non-cash investing and financing activities: |
||||||||
|
Capital expenditures incurred but not paid for as of the end of the period |
$ |
1,591 |
$ |
1,039 |
||||
|
Equity related transaction costs incurred but not paid for as of the end of the period |
$ |
- |
$ |
1,724 |
The accompanying notes are an integral part of these interim consolidated financial statements.
9
Return to Index
CORE LABORATORIES INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS
References to "Core Lab", "Core Laboratories", the "Company", "we", "our" and similar phrases are used throughout this Quarterly Report on Form 10-Q ("Quarterly Report") and relate collectively to Core Laboratories Inc. and its consolidated subsidiaries.
We operate our business in twosegments: (1) Reservoir Description and (2) Production Enhancement. These complementary operating segments provide different services and products and utilize different technologies for evaluating and improving reservoir performance and increasing oil and gas recovery from new and existing fields. For a description of the types of services and products offered by these operating segments, see Note 16 - Segment Reporting.
2. SIGNIFICANT ACCOUNTING POLICIES UPDATE
Basis of Presentation and Principles of Consolidation
On May 1, 2023, Core Laboratories N.V. completed its previously announced redomestication transaction (the "Redomestication Transaction") which through a series of steps, resulted in the merger of Core Laboratories N.V., a holding company in the Netherlands, with and into Core Laboratories Luxembourg S.A., a public limited liability company incorporated under the laws of Luxembourg, with Core Laboratories Luxembourg S.A. surviving, and subsequently the migration of Core Laboratories Luxembourg S.A. out of Luxembourg and its domestication as Core Laboratories Inc., a Delaware corporation. The Redomestication Transaction has been accounted for as a transaction between entities under common control. There is no difference between the combined separate entities prior to the Redomestication Transaction and the combined separate entities after the Redomestication Transaction, therefore, comparative information reported in these financial statements do not differ from amounts previously reported under Core Laboratories N.V.'s consolidated financial statements. These financial statements should be read in conjunction with Core Laboratories N.V.'s Quarterly Report on Form 10-Q for the three months ended March 31, 2023 and Core Laboratories N.V.'s Annual Report on Form 10-K for the year ended December 31, 2022, including Note 2 - Summary of Significant Accounting Policies.
The accompanying unaudited interim consolidated financial statements include the accounts of Core Laboratories Inc. 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 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. Core Laboratories Inc.'s balance sheet information for the year ended December 31, 2023, was derived from the 2023 audited consolidated financial statements. 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 Core Laboratories Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023, including Note 2 - Summary of Significant Accounting Policies. There have been no changes to the accounting policies of the combined entities during the nine months ended September 30, 2024.
Core Laboratories Inc. uses the equity method of accounting for investments in which it has less than a majority interest and does not exercise control but does exert significant influence. Non-controlling interests have been recorded to reflect outside ownership attributable to consolidated subsidiaries that are less than 100% owned. All inter-company transactions and balances have been eliminated in consolidation.
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 nine months ended September 30, 2024, may not necessarily be indicative of the results that may be expected for the year ending December 31, 2024.
10
Return to Index
Certain reclassifications were made to prior period amounts in order to conform to the current period presentations. These reclassifications had no impact on the reported net income or cash flows for the three and nine months ended September 30, 2023.
Property, Plant and Equipment
We review our long-lived assets ("LLA") for impairment when events or changes in circumstances indicate that their net book value may not be recovered over their remaining service lives. Indicators of possible impairment may include significant declines in activity levels in regions where specific assets or groups of assets are located, extended periods of idle use, declining revenue or cash flow or overall changes in general market conditions.
The geopolitical conflict between Russia and Ukraine, which began in February 2022 and has continued through September 30, 2024, has resulted in disruptions to our operations in Russia and Ukraine. As of September 30, 2024, all laboratory facilities, offices, and locations in Russia and Ukraine continued to operate with no significant impact to local business operations. Therefore, we determined there was no triggering event for LLA in Russia and Ukraine, and no impairment assessments have been performed as of September 30, 2024.
Recent Accounting Pronouncements
Issued But Not Yet Effective
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2023- 07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an annual and interim basis. The amendment is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendment should be applied retrospectively to all prior periods presented in the financial statements. Upon adoption, our disclosures regarding segment reporting will be expanded accordingly.
In December 2023, FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures to improve transparency of income tax disclosures, primarily by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendment is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendment should be applied prospectively; however, retrospective application is permitted. Upon adoption, our disclosures regarding income taxes will be expanded accordingly.
3. ACQUISITIONS AND DIVESTURES
We had nosignificant business acquisitions or divestures during the three and nine months ended September 30, 2024 and 2023.
4. CONTRACT ASSETS AND LIABILITIES
The balance of contract assets and liabilities consisted of the following (in thousands):
|
September 30, |
December 31, |
|||||||
|
Contract assets: |
||||||||
|
Current |
$ |
585 |
$ |
1,293 |
||||
|
$ |
585 |
$ |
1,293 |
|||||
|
Contract liabilities: |
||||||||
|
Current |
$ |
295 |
$ |
299 |
||||
|
$ |
295 |
$ |
299 |
11
Return to Index
|
September 30, |
||||
|
Estimate of when contract liabilities will be recognized as revenue: |
||||
|
Within 12months |
$ |
295 |
The current portion of contract assets are included in our accounts receivable. The current portion of contract liabilities is included in unearned revenues.
We did not recognize any impairment losses on our contract assets during the three and nine months ended September 30, 2024 and 2023.
5. INVENTORIES
Inventories consist of the following (in thousands):
|
September 30, |
December 31, |
|||||||
|
Finished goods |
$ |
29,407 |
$ |
30,508 |
||||
|
Parts and materials |
31,875 |
37,670 |
||||||
|
Work in progress |
4,208 |
3,524 |
||||||
|
Total inventories |
$ |
65,490 |
$ |
71,702 |
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.
6. LEASES
We have operating leases primarily consisting of office and lab space, machinery and equipment and vehicles. We entered into a sublease agreement that commenced on July 1, 2023, for existing office and lab space in Calgary, Alberta, Canada. See Note 13 - Other (income) and expense, net regarding lease abandonments during the nine months ended September 30, 2024 and 2023.
The components of lease expense and other information are as follows (in thousands):
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Consolidated Statements of Operations: |
||||||||||||||||
|
Operating lease expense |
$ |
4,296 |
$ |
4,612 |
$ |
12,942 |
$ |
13,282 |
||||||||
|
Short-term lease expense |
393 |
463 |
1,230 |
1,354 |
||||||||||||
|
Variable lease expense |
212 |
408 |
1,032 |
1,449 |
||||||||||||
|
Sublease income |
(56 |
) |
(57 |
) |
(169 |
) |
(57 |
) |
||||||||
|
Total lease expense |
$ |
4,845 |
$ |
5,426 |
$ |
15,035 |
$ |
16,028 |
||||||||
|
Consolidated Statements of Cash Flows: |
||||||||||||||||
|
Operating cash flows - operating leases payments |
$ |
3,882 |
$ |
3,961 |
$ |
12,791 |
$ |
12,711 |
||||||||
|
Right of use assets obtained in exchange for operating lease obligations |
$ |
3,647 |
$ |
2,054 |
$ |
10,606 |
$ |
12,459 |
||||||||
|
Other information: |
||||||||||||||||
|
Weighted-average remaining lease term - operating leases |
8.4years |
8.2years |
8.4years |
8.2years |
||||||||||||
|
Weighted-average discount rate - operating leases |
5.41 |
% |
5.29 |
% |
5.41 |
% |
5.29 |
% |
12
Return to Index
Scheduled undiscounted lease payments for non-cancellable operating leases consist of the following (in thousands):
|
September 30, 2024 |
||||||||
|
Operating Leases |
Operating Subleases |
|||||||
|
Remainder of 2024 |
$ |
3,798 |
$ |
(57 |
) |
|||
|
2025 |
12,985 |
(231 |
) |
|||||
|
2026 |
10,178 |
(236 |
) |
|||||
|
2027 |
8,082 |
(241 |
) |
|||||
|
2028 |
6,420 |
(163 |
) |
|||||
|
Thereafter |
27,485 |
- |
||||||
|
Total undiscounted lease payments |
68,948 |
$ |
(928 |
) |
||||
|
Less: Imputed interest |
(13,786 |
) |
||||||
|
Total operating lease liabilities |
$ |
55,162 |
7. LONG-TERM DEBT, NET
Wehave nofinance lease obligations. Debt is summarized in the following table (in thousands):
|
Interest Rate |
Maturity Date |
September 30, |
December 31, |
||||||||
|
2021 Senior Notes Series A (1) |
4.09% |
January 12, 2026 |
$ |
45,000 |
$ |
45,000 |
|||||
|
2021 Senior Notes Series B (1) |
4.38% |
January 12, 2028 |
15,000 |
15,000 |
|||||||
|
2023 Senior Notes Series A (2) |
7.25% |
June 28, 2028 |
25,000 |
25,000 |
|||||||
|
2023 Senior Notes Series B (2) |
7.50% |
June 28, 2030 |
25,000 |
25,000 |
|||||||
|
Credit Facility |
32,000 |
56,000 |
|||||||||
|
Total long-term debt |
142,000 |
166,000 |
|||||||||
|
Less: Debt issuance costs |
(2,128 |
) |
(2,866 |
) |
|||||||
|
Long-term debt, net |
$ |
139,872 |
$ |
163,134 |
(1)Interest is payable semi-annually on June 30 and December 30.
(2) Interest is payable semi-annually on March 28 and September 28.
We, along with our wholly owned subsidiary Core Laboratories (U.S.) Interests Holdings, Inc. ("CLIH") as issuer, have senior notes outstanding that were issued through private placement transactions. Series A and Series B of the 2021 Senior Notes were issued in 2021 (the "2021 Senior Notes"). Series A and Series B of the 2023 Senior Notes were issued in 2023 (the "2023 Senior Notes"). The 2021 Senior Notes and the 2023 Senior Notes are collectively the "Senior Notes".
We, along with CLIH, have a credit facility, the Eighth Amended and Restated Credit Agreement (as amended, the "Credit Facility") for an aggregate borrowing commitment of $135.0million with a $50.0million "accordion" feature.
The Credit Facility is secured by first priority interests in (1) substantially all of the tangible and intangible personal property, and equity interest of CLIH and certain of the Company's U.S. and foreign subsidiary companies; and (2) instruments evidencing intercompany indebtedness owing to the Company, CLIH and certain of the Company's U.S. and foreign subsidiary companies. Under the Credit Facility, the Secured Overnight Financing Rate ("SOFR") plus 2.00% to SOFR plus 3.00% will be applied to outstanding borrowings. Any outstanding balance under the Credit Facility is due at maturity on July 25, 2026, subject to springing maturity on July 12, 2025, if any portion of the Company's 2021 Senior Notes Series A due January 12, 2026, in the aggregate principal amount of $45.0million, remain outstanding on July 12, 2025, unless the Company's liquidity equals or exceeds the principal amount of the 2021 Senior Notes Series A outstanding on such date. The available capacity at any point in time is reduced by outstanding borrowings and outstanding letters of credit which totaled approximately $10.9million at September 30, 2024, resulting in an available borrowing capacity under the Credit Facility of approximately $92.1million. In addition to indebtedness under the Credit Facility, we had approximately $7.6million of outstanding letters of credit and performance guarantees and bonds from other sources as of September 30, 2024.
13
Return to Index
The Credit Facility and Senior Notes include a cross-default provision, whereby a default under one agreement may trigger a default in the other agreements.
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 has more restrictive covenants with a minimum interest coverage ratio of 3.00to 1.00 and permits a maximum leverage ratio of 2.50to 1.00. The Credit Facility 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 covenant of the Credit Facility. In accordance with the terms of the Credit Facility, our leverage ratio is 1.47, and our interest coverage ratio is 6.13, each for the period ended September 30, 2024. We are in compliance with all covenants contained in our Credit Facility and Senior Notes as of September 30, 2024. Certain of our material, wholly owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes.
See Note 11 - Derivative Instruments and Hedging Activitiesfor additional information regarding interest rate swap agreements we have entered to fix the underlying risk-free rate on our Credit Facility and Senior Notes.
The estimated fair value of total debt at September 30, 2024, and December 31, 2023, 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 maturity date.
8. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Prior to January 2020, one of our subsidiaries provided a noncontributory defined benefit pension plan covering substantially all of our Dutch employees ("Dutch Plan") who were hired prior to 2000. This pension benefit was based on years of service and final pay or career average pay, depending on when the employee began participating. The Dutch Plan was curtailed prior to January 2020, and 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.
The following table summarizes the components of net periodic pension cost under the Dutch Plan (in thousands):
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Interest cost |
$ |
352 |
$ |
374 |
$ |
1,054 |
$ |
1,113 |
||||||||
|
Expected return on plan assets |
(314 |
) |
(336 |
) |
(891 |
) |
(992 |
) |
||||||||
|
Net periodic pension cost |
$ |
38 |
$ |
38 |
$ |
163 |
$ |
121 |
During the nine months ended September 30, 2023, we made additional contributions to the Dutch Plan of approximately $1.8million for the indexation.
9. 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 or 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 7 - Long-term Debt, netfor amounts committed under letters of credit and performance guarantees and bonds.
14
Return to Index
10. EQUITY
Treasury Stock
During the three and nine months ended September 30, 2024, we distributed 23,242and 92,313shares of treasury stock, respectively, upon vesting of stock-based awards. During the three and nine months ended September 30, 2024, we repurchased 8,546and 21,458shares of our common stock, respectively, for $0.2million and $0.4million, respectively, which were surrendered to us pursuant to the terms of a stock-based compensation plan in consideration of the participants' tax burdens resulting from the issuance of common stock under that plan. Such shares of common stock, unless canceled, may be reissued for a variety of purposes such as future acquisitions, non-employee director stock awards or employee stock awards.
Dividend Policy
In March, May and August 2024, we paid a quarterly cash dividend of $0.01per share of common stock. In addition, on October 23, 2024, we declared a quarterly dividend of $0.01per share of common stock for shareholders of record on November 4, 2024, and payable on November 25, 2024.
Accumulated Other Comprehensive Income (Loss)
Amounts recognized, net of income tax, in accumulated other comprehensive income (loss) consist of the following (in thousands):
|
September 30, |
December 31, |
|||||||
|
Pension and other post-retirement benefit plans - unrecognized prior service costs and net actuarial loss |
$ |
(5,772 |
) |
$ |
(5,914 |
) |
||
|
Interest rate swaps - net gain (loss) on fair value |
326 |
942 |
||||||
|
Total accumulated other comprehensive income (loss) |
$ |
(5,446 |
) |
$ |
(4,972 |
) |
11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to market risks related to fluctuations in interest rates. To mitigate these risks, we may utilize derivative instruments in the form of interest rate swaps. We do not enter into derivative transactions for speculative purposes.
Under the Company's Credit Facility, the SOFRplus 2.00% to SOFRplus 3.00% will be applied to outstanding borrowings. See Note 7 -Long-term Debt, net for additional information. The Company has elected to apply the optional expedient for hedging relationships affected by reference rate reform. Accordingly, no outstanding balance on the Credit Facility with a SOFR rate will preclude cash flow hedging with existing London Inter-Bank Offer Rate ("LIBOR") hedging instruments.
In August 2014, we entered into a swap agreement, that expired on August 29, 2024, with a notional amount of $25million ("2014 Variable-to-Fixed Swap"), and the LIBOR portion of the interest rate was fixed at 2.5%. In February 2020, we entered into a second swap agreement with a notional amount of $25million ("2020 Variable-to-Fixed Swap"), and the LIBOR portion of the interest rate was fixed at 1.3% through February 28, 2025. These interest rate swap agreements were terminated, dedesignated and settled in March 2021. The hedging relationship is highly effective; therefore, gains and losses on these swaps will be reclassified into interest expense in accordance with the forecasted transactions or the scheduled interest payments on the Credit Facility. At September 30, 2023, the outstanding balance on our Credit Facility had been reduced to zero, and approximately $0.2million of losses were reclassified to interest expense associated with the ineffective period of the hedging relationship, as it became probable that certain of the forecasted transactions would not occur within the originally specified time period. Remaining net losses on these swaps included in accumulated other comprehensive income (loss) as of September 30, 2024, are $17thousand all of which is expected to be reclassified into earnings within the next 12 months as interest payments are made on the Company's Credit Facility.
15
Return to Index
In March 2021, we entered into a new forward interest rate swap agreement and carried the fair value of the terminated 2014 and 2020 Variable-to-Fixed Swaps 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. The forward interest rate swap would hedge the risk-free rate on forecasted long-term debt for a maximum of 11years through March 2033. Risk associated with future changes in the 10-yearLIBOR interest rates have been fixed up to a notional amount of $60million with this instrument. The interest rate swap qualifies as a cash flow hedging instrument. This forward interest rate swap agreement was terminated and settled in April 2022. The hedging relationship is highly effective, therefore, the gain on the termination of the forward interest rate swap was included in accumulated other comprehensive income (loss). On June 28, 2023, the Company issued the 2023 Senior Notes in the aggregate principal amount of $50million at fixed interest rates of 7.25% and 7.50%. The Company has elected to apply the optional expedient for hedging relationships affected by reference rate reform. Accordingly, no outstanding balance on the 2023 Senior Notes will preclude cash flow hedging with the existing LIBOR hedging instrument. The Company recognized a gain of $0.4million in earnings for the $10million over hedged portion of the interest rate swap in 2023. A net gain of $0.3million is included in accumulated other comprehensive income (loss) at September 30, 2024. The unamortized balance on this swap will be amortized into interest expense in accordance with the forecasted transactions or the scheduled interest payments on the 2023 Senior Notes and any future debt through March 2033.
As of September 30, 2024, the aggregated gains and losses on these interest swaps that are included in accumulated other comprehensive income (loss) are a net gain of $0.3million.
At September 30, 2024, we had fixed rate long-term debt aggregating $110million and variable rate long-term debt aggregating $32million.
The effect of the interest rate swaps on the consolidated statements of operations is as follows (in thousands):
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
Income Statement |
||||||||||||||
|
Derivatives designated as hedges: |
||||||||||||||||||
|
5 year interest rate swap |
$ |
5 |
$ |
- |
$ |
67 |
$ |
211 |
Increase (decrease) to interest expense |
|||||||||
|
10 year interest rate swap |
(240 |
) |
(415 |
) |
(847 |
) |
(398 |
) |
Increase (decrease) to interest expense |
|||||||||
|
$ |
(235 |
) |
$ |
(415 |
) |
$ |
(780 |
) |
$ |
(187 |
) |
12. 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. We use the market approach to determine the fair value of these assets and liabilities using significant other observable inputs (Level 2) with the assistance of third-party specialists. 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 financial assets and liabilities are recorded in general and administrative expense in the consolidated statements of operations.
16
Return to Index
The following table summarizes the fair value balances (in thousands):
|
Fair Value Measurement at |
||||||||||||||||
|
September 30, 2024 |
||||||||||||||||
|
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
|
Assets: |
||||||||||||||||
|
Company owned life insurance policies (1) |
$ |
25,821 |
$ |
- |
$ |
25,821 |
$ |
- |
||||||||
|
$ |
25,821 |
$ |
- |
$ |
25,821 |
$ |
- |
|||||||||
|
Liabilities: |
||||||||||||||||
|
Deferred compensation liabilities |
$ |
20,108 |
$ |
- |
$ |
20,108 |
$ |
- |
||||||||
|
$ |
20,108 |
$ |
- |
$ |
20,108 |
$ |
- |
|
Fair Value Measurement at |
||||||||||||||||
|
December 31, 2023 |
||||||||||||||||
|
Total |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||
|
Assets: |
||||||||||||||||
|
Company owned life insurance policies (1) |
$ |
25,397 |
$ |
- |
$ |
25,397 |
$ |
- |
||||||||
|
$ |
25,397 |
$ |
- |
$ |
25,397 |
$ |
- |
|||||||||
|
Liabilities: |
||||||||||||||||
|
Deferred compensation liabilities |
$ |
17,299 |
$ |
- |
$ |
17,299 |
$ |
- |
||||||||
|
$ |
17,299 |
$ |
- |
$ |
17,299 |
$ |
- |
(1) Company owned life insurance policies have cash surrender value and are intended to assist in funding deferred compensation liabilities and other benefit plans.
13. OTHER (INCOME) EXPENSE, NET
The components of other (income) expense, net, are as follows (in thousands):
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
(Gain) loss on sale of assets |
$ |
364 |
$ |
(76 |
) |
$ |
(390 |
) |
$ |
(109 |
) |
|||||
|
Results of non-consolidated subsidiaries |
(108 |
) |
(135 |
) |
(207 |
) |
(334 |
) |
||||||||
|
Foreign exchange (gain) loss, net |
(239 |
) |
238 |
435 |
(292 |
) |
||||||||||
|
Rents and royalties |
(882 |
) |
(205 |
) |
(1,683 |
) |
(460 |
) |
||||||||
|
Return on pension assets and other pension costs |
(314 |
) |
(336 |
) |
(891 |
) |
(992 |
) |
||||||||
|
Loss on lease abandonment and other exit costs |
- |
505 |
699 |
1,146 |
||||||||||||
|
Assets write-down |
- |
128 |
1,110 |
1,143 |
||||||||||||
|
Insurance and other settlements |
(3,225 |
) |
- |
(5,555 |
) |
(604 |
) |
|||||||||
|
ATM termination costs |
- |
455 |
- |
455 |
||||||||||||
|
Severance and other charges |
- |
- |
824 |
- |
||||||||||||
|
Other, net |
(125 |
) |
99 |
(415 |
) |
(376 |
) |
|||||||||
|
Total other (income) expense, net |
$ |
(4,529 |
) |
$ |
673 |
$ |
(6,073 |
) |
$ |
(423 |
) |
During the nine months ended September 30, 2024and 2023, we abandoned certain leases in the U.S. and Canada and incurred lease abandonment and other exit costs of $0.7million and $1.1million, respectively. As a result of consolidating and exiting these facilities, the associated leasehold improvements, right of use assets and other assets of $1.1million and $1.1million were abandoned and expensed during the nine months ended September 30, 2024and 2023, respectively. Amounts incurred during the three months ended September 30, 2023, were $0.5million for lease abandonment and other exit costs and $0.1million for assets write-down.
In February 2024, we had a fire incident at one of our U.K. facilities and we have recorded partial insurance settlements of $3.2million and $5.6million during the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2024, amounts associated with costs incurred and loss of income from business interruption were $1.1million and $3.5million, respectively, and amounts associated with damage to property, plant and equipment were $2.1million and $2.1million, respectively.
17
Return to Index
During the nine months ended September 30, 2023, the State of Louisiana expropriated the access road to one of our facilities and paid us a settlement of $0.6million.
During the three and nine months ended September 30, 2023, we wrote off previously deferred costs of $0.5million upon termination of a 2022 "at-the-market offering" program ("ATM").
Foreign exchange (gain) loss, net by currency is summarized in the following table (in thousands):
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
British Pound |
$ |
(64 |
) |
$ |
(30 |
) |
$ |
6 |
$ |
(211 |
) |
|||||
|
Canadian Dollar |
(13 |
) |
98 |
60 |
92 |
|||||||||||
|
Colombian Peso |
44 |
(12 |
) |
13 |
120 |
|||||||||||
|
Euro |
201 |
13 |
266 |
(4 |
) |
|||||||||||
|
Indonesian Rupiah |
(332 |
) |
71 |
(107 |
) |
37 |
||||||||||
|
Russian Ruble |
(4 |
) |
15 |
10 |
(326 |
) |
||||||||||
|
Turkish Lira |
9 |
(24 |
) |
34 |
(472 |
) |
||||||||||
|
Other currencies, net |
(80 |
) |
107 |
153 |
472 |
|||||||||||
|
Foreign exchange (gain) loss, net |
$ |
(239 |
) |
$ |
238 |
$ |
435 |
$ |
(292 |
) |
14. INCOME TAX EXPENSE (BENEFIT)
The Company recorded an income tax expense of $4.7million and $10.0million for the three and nine months ended September 30, 2024, respectively, compared to an income tax expense of $2.3million and an income tax benefit of $4.3million for the three months and nine months ended September 30, 2023, respectively. The effective tax rate for the three and nine months ended September 30, 2024, was 28.1% and 28.8%, respectively. The effective tax rate for the three and nine months ended September 30, 2023was 20.0% and (14.4%), respectively. The tax rate for the three and nine months ended September 30, 2024was impacted by the earnings mix of jurisdictions subject to tax for the period and items discrete to the quarter. The tax rate for the nine months ended September 30, 2023 was largely impacted by the reversal of net deferred tax liabilities attributable to Core Laboratories N.V., which were not realized following the Redomestication Transaction on May 1, 2023.
15. EARNINGS PER SHARE
We compute basic earnings per share by dividing net income attributable to Core Laboratories Inc. by the number of weighted average common shares outstanding during the period. Diluted earnings per share includes the incremental effect of contingently issuable shares from performance and restricted stock awards, as determined using the treasury stock method. The Redomestication Transaction had no effect on earnings per share for the periods presented.
The following table summarizes the calculation of weighted average common shares outstanding used in the computation of basic and diluted earnings per share (in thousands):
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Weighted average common shares outstanding - basic |
46,922 |
46,692 |
46,897 |
46,667 |
||||||||||||
|
Effect of dilutive securities: |
||||||||||||||||
|
Restricted shares |
108 |
106 |
76 |
96 |
||||||||||||
|
Performance shares |
790 |
806 |
717 |
773 |
||||||||||||
|
Weighted average common shares outstanding - diluted |
47,820 |
47,604 |
47,690 |
47,536 |
18
Return to Index
16. SEGMENT REPORTING
We operate our business in twosegments. These complementary operating segments provide different services and products and utilize different technologies for evaluating and improving reservoir performance and increasing oil and gas recovery from new and existing fields.
•
Reservoir Description:Encompasses the characterization of petroleum reservoir rock and reservoir fluids samples to increase production and improve recovery of crude oil and natural gas from our clients' reservoirs. We provide laboratory-based analytical and field services to characterize properties of crude oil and crude oil-derived products to the oil and gas industry. Services associated with these fluids include determining the quality and measuring the quantity of the reservoir fluids and their derived products, such as gasoline, diesel and biofuels. We also provide proprietary and joint industry studies based on these types of analyses and manufacture associated laboratory equipment. In addition, we provide reservoir description capabilities that support various activities associated with energy transition projects, including services that support carbon capture, utilization and storage, geothermal projects, and the evaluation and appraisal of mining activities around lithium and other elements necessary for energy storage.
•
Production Enhancement:Includes services and manufactured products associated with reservoir well completions, perforations, stimulation, production and well abandonment. 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.
We use the same accounting policies to prepare our operating 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 operating segments. Summarized financial information of our operating segments is shown in the following table (in thousands):
19
Return to Index
|
Reservoir |
Production |
Corporate & |
Consolidated |
|||||||||||||
|
Three months ended September 30, 2024 |
||||||||||||||||
|
Revenue from unaffiliated clients |
$ |
88,840 |
$ |
45,557 |
$ |
- |
$ |
134,397 |
||||||||
|
Inter-segment revenue |
34 |
125 |
(159 |
) |
- |
|||||||||||
|
Segment operating income |
16,487 |
3,232 |
84 |
19,803 |
||||||||||||
|
Total assets |
322,001 |
154,995 |
123,470 |
600,466 |
||||||||||||
|
Capital expenditures |
2,273 |
427 |
29 |
2,729 |
||||||||||||
|
Depreciation and amortization |
2,537 |
1,014 |
125 |
3,676 |
||||||||||||
|
Three months ended September 30, 2023 |
||||||||||||||||
|
Revenue from unaffiliated clients |
$ |
85,145 |
$ |
40,198 |
$ |
- |
$ |
125,343 |
||||||||
|
Inter-segment revenue |
16 |
25 |
(41 |
) |
- |
|||||||||||
|
Segment operating income |
12,992 |
1,544 |
136 |
14,672 |
||||||||||||
|
Total assets |
302,769 |
163,395 |
126,250 |
592,414 |
||||||||||||
|
Capital expenditures |
2,840 |
237 |
384 |
3,461 |
||||||||||||
|
Depreciation and amortization |
2,712 |
1,049 |
168 |
3,929 |
||||||||||||
|
Nine months ended September 30, 2024 |
||||||||||||||||
|
Revenue from unaffiliated clients |
$ |
259,353 |
$ |
135,258 |
$ |
- |
$ |
394,611 |
||||||||
|
Inter-segment revenue |
71 |
187 |
(258 |
) |
- |
|||||||||||
|
Segment operating income |
34,823 |
9,209 |
350 |
44,382 |
||||||||||||
|
Total assets |
322,001 |
154,995 |
123,470 |
600,466 |
||||||||||||
|
Capital expenditures |
7,481 |
914 |
252 |
8,647 |
||||||||||||
|
Depreciation and amortization |
7,854 |
3,073 |
362 |
11,289 |
||||||||||||
|
Nine months ended September 30, 2023 |
||||||||||||||||
|
Revenue from unaffiliated clients |
$ |
248,717 |
$ |
132,863 |
$ |
- |
$ |
381,580 |
||||||||
|
Inter-segment revenue |
145 |
144 |
(289 |
) |
- |
|||||||||||
|
Segment operating income |
28,780 |
10,324 |
955 |
40,059 |
||||||||||||
|
Total assets |
302,769 |
163,395 |
126,250 |
592,414 |
||||||||||||
|
Capital expenditures |
5,879 |
1,237 |
727 |
7,843 |
||||||||||||
|
Depreciation and amortization |
8,374 |
3,034 |
502 |
11,910 |
(1) "Corporate & Other" represents those items that are not directly related to a particular operating segment and eliminations.
20
Return to Index
Item 2. Management's Discussion and Analysis ofFinancial Condition and Results of Operations
On May 1, 2023, Core Laboratories N.V. completed its previously announced redomestication transaction (the "Redomestication Transaction"), which, through a series of steps, resulted in the merger of Core Laboratories N.V., a holding company in the Netherlands, with and into Core Laboratories Luxembourg S.A., a public limited liability company incorporated under the laws of Luxembourg, with Core Laboratories Luxembourg S.A. surviving, and subsequently the migration of Core Laboratories Luxembourg S.A. out of Luxembourg and its domestication as Core Laboratories Inc., a Delaware corporation. The Redomestication Transaction has been accounted for as a transaction between entities under common control. There is no difference between the combined separate entities prior to the Redomestication Transaction and the combined separate entities after the Redomestication Transaction, therefore, comparative information reported below does not differ from amounts previously reported under Core Laboratories N.V.'s consolidated financial statements. The following discussion should be read in conjunction with Core Laboratories Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023, Core Laboratories N.V.'s Quarterly Report on Form 10-Q for the three months ended March 31, 2023 and Core Laboratories N.V.'s Annual Report on Form 10-K for the year ended December 31, 2022, including Note 2 - Summary of Significant Accounting Policies.
The following discussion highlights the current operating environment and summarizes the financial position of Core Laboratories Inc. and its subsidiaries as of September 30, 2024, and should be read in conjunction with the unaudited interim consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report").
General
Core Laboratories Inc. is a Delaware corporation. 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 evaluate and improve reservoir performance and increase oil and gas recovery from new and existing fields. We make measurements on reservoir rocks, reservoir fluids (crude oil, natural gas and water) and their derived products. In addition, we assist clients in evaluating subsurface targets associated with carbon capture and sequestration projects or initiatives. Core Laboratories Inc. has over 70 offices in more than 50 countries and employs approximately 3,500 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 Inc. and its consolidated affiliates.
We operate our business in two segments. These complementary operating segments provide different services and products and utilize different technologies for evaluating and improving reservoir performance and increasing oil and gas recovery from new and existing fields.
•
Reservoir Description:Encompasses the characterization of petroleum reservoir rock and reservoir fluids samples to increase production and improve recovery of crude oil and natural gas from our clients' reservoirs. We provide laboratory-based analytical and field services to characterize properties of crude oil and crude oil-derived products to the oil and gas industry. Services associated with these fluids include determining the quality and measuring the quantity of the reservoir fluids and their derived products, such as gasoline, diesel and biofuels. We also provide proprietary and joint industry studies based on these types of analyses and manufacture associated laboratory equipment. In addition, we provide reservoir description capabilities that support various activities associated with energy transition projects, including services that support carbon capture, utilization and storage, geothermal projects, and the evaluation and appraisal of mining activities around lithium and other elements necessary for energy storage.
21
Return to Index
•
Production Enhancement:Includes services and manufactured products associated with reservoir well completions, perforations, stimulation, production and well abandonment. 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.
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 ("Exchange Act"). 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.
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 Part II, "Item 1A - Risk Factors" of this Quarterly Report and "Item 1A - Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023, filed by us with the Securities and Exchange Commission ("SEC").
Outlook
Currently, global oil inventories are low relative to historical levels, and with continued supply restrictions from the Organization of the Petroleum Exporting Countries ("OPEC+"), global supply is expected to be managed and maintained at a level to meet forecasted growth in oil demand for the next few years. During the last couple of years, OPEC+ and its key member, Saudi Arabia, announced several mandatory and voluntary reductions in production that are expected to remain in place through November 2024, after which, the cuts will be phased out on a monthly basis as scheduled starting December 1, 2024, stretching to November 2025, with the flexibility to pause or reverse the adjustments as necessary.
The current global demand for crude oil and natural gas remains at a high level and according to the latest International Energy Agency's report, global demand is expected to continue increasing in 2024, 2025 and beyond. As a result, it is anticipated that crude-oil commodity prices for the near-term will remain at current levels or increase if projections for demand remain accurate or disruptions to supply occur. In 2023, capital spending towards the exploration of crude oil and natural gas reached its highest level in over a decade with modest growth in 2024 and additional growth expected in 2025. Therefore, our clients' activities associated with the appraisal, development and production of crude oil and natural gas are also expected to remain at current levels or increase for the remainder of 2024. Outside the U.S., international oil and gas projects continue to build and are expected to grow and accelerate into the next several years. U.S. onshore drilling and completion activities are expected to remain at current levels with some typical seasonal decrease towards the end of the year.
The ongoing geopolitical conflicts between Russia and Ukraine and in the Middle East continue to cause disruptions to traditional maritime supply chains and the trading of crude oil and derived products, such as diesel fuel. The maritime supply chains associated with the movement of crude oil have continued to realign and stabilize throughout 2023 and in 2024, which has reduced some of the volatility in crude-oil prices and disruptions to our operations. Core Lab expects crude-oil supply lines
22
Return to Index
to remain more stable, and the Company's volume of associated laboratory services to be commensurate with the trading and movement of crude-oil into Europe, the Middle East, Asia and across the globe. The United States, the European Union, the United Kingdom and other countries continue to expand sanctions, export controls and other measures against Russia, Belarus, Iran and other countries, officials, individuals or industries in the respective territories, which may have further impact on the trading and movement of crude oil and derived products. We have no way to predict the progress or outcome of these events, and any resulting government responses are fluid and beyond our control.
We continue to focus on large-scale core analyses and reservoir fluids characterization studies in most oil-producing regions across the globe, which include both newly developed fields and brownfield extensions in many offshore developments in both the U.S. and internationally. In the U.S. we are involved in projects with many of the onshore unconventional basins and offshore projects in the Gulf of Mexico. Outside the U.S. we continue to work on many smaller and large-scale projects analyzing crude oil and derived products in every major producing region of the world. Notable larger projects are in locations such as Guyana and Suriname, located offshore South America, Australia, Southern Namibia and the Middle East. Analysis and measurement of crude oil derived products also occurs in every major producing region of the world. Additionally, some of our major clients have increased their investment in projects to capture and sequester carbon dioxide ("CO2"). The Company's activities on these projects have expanded and are expected to continue expanding in 2024 and beyond.
Additionally, on March 6, 2024, the SEC finalized rules to require certain climate-related disclosures in filings for public companies, beginning for fiscal year 2025 for large accelerated filers. However, the rule has been subject to consolidated legal challenges in the U.S. Court of Appeals for the Eighth Circuit and the SEC has announced that it will not implement the rule while litigation is pending. While we are still assessing the rule's potential impact on us, if the rule takes effect, we will be required to comply.
23
Return to Index
Results of Operations
Our results of operations as a percentage of applicable revenue are as follows (in thousands):
|
Three Months Ended September 30, |
||||||||||||||||||
|
2024 |
2023 |
$ Change |
% Change |
|||||||||||||||
|
REVENUE: |
||||||||||||||||||
|
Services |
$ |
98,842 |
74% |
$ |
92,883 |
74% |
$ |
5,959 |
6% |
|||||||||
|
Product sales |
35,555 |
26% |
32,460 |
26% |
3,095 |
10% |
||||||||||||
|
Total revenue |
134,397 |
100% |
125,343 |
100% |
9,054 |
7% |
||||||||||||
|
OPERATING EXPENSES: |
||||||||||||||||||
|
Cost of services, exclusive of depreciation expense shown below* |
75,503 |
76% |
68,976 |
74% |
6,527 |
9% |
||||||||||||
|
Cost of product sales, exclusive of depreciation expense shown below* |
31,302 |
88% |
27,641 |
85% |
3,661 |
13% |
||||||||||||
|
Total cost of services and product sales |
106,805 |
79% |
96,617 |
77% |
10,188 |
11% |
||||||||||||
|
General and administrative expense, exclusive of depreciation expense shown below |
8,642 |
6% |
9,452 |
8% |
(810 |
) |
(9)% |
|||||||||||
|
Depreciation and amortization |
3,676 |
3% |
3,929 |
3% |
(253 |
) |
(6)% |
|||||||||||
|
Other (income) expense, net |
(4,529 |
) |
(3)% |
673 |
1% |
(5,202 |
) |
NM |
||||||||||
|
OPERATING INCOME |
19,803 |
15% |
14,672 |
12% |
5,131 |
35% |
||||||||||||
|
Interest expense |
3,108 |
2% |
3,147 |
3% |
(39 |
) |
(1)% |
|||||||||||
|
Income before income taxes |
16,695 |
12% |
11,525 |
9% |
5,170 |
45% |
||||||||||||
|
Income tax expense |
4,691 |
3% |
2,305 |
2% |
2,386 |
104% |
||||||||||||
|
Net income |
12,004 |
9% |
9,220 |
7% |
2,784 |
30% |
||||||||||||
|
Net income (loss) attributable to non-controlling interest |
259 |
-% |
(37 |
) |
-% |
296 |
NM |
|||||||||||
|
Net income attributable to Core Laboratories Inc. |
$ |
11,745 |
9% |
$ |
9,257 |
7% |
$ |
2,488 |
27% |
|||||||||
|
Other Data: |
||||||||||||||||||
|
Current ratio (1) |
2.48:1 |
2.71:1 |
||||||||||||||||
|
Debt to EBITDA ratio (2) |
1.58:1 |
2.26:1 |
||||||||||||||||
|
Debt to Adjusted EBITDA ratio(3) |
1.47:1 |
1.92:1 |
"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, 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.
24
Return to Index
|
Three Months Ended |
||||||||||||||||||
|
September 30, 2024 |
June 30, 2024 |
$ Change |
% Change |
|||||||||||||||
|
REVENUE: |
||||||||||||||||||
|
Services |
$ |
98,842 |
74% |
$ |
96,337 |
74% |
$ |
2,505 |
3% |
|||||||||
|
Product sales |
35,555 |
26% |
34,240 |
26% |
1,315 |
4% |
||||||||||||
|
Total revenue |
134,397 |
100% |
130,577 |
100% |
3,820 |
3% |
||||||||||||
|
OPERATING EXPENSES: |
||||||||||||||||||
|
Cost of services, exclusive of depreciation expense shown below* |
75,503 |
76% |
74,823 |
78% |
680 |
1% |
||||||||||||
|
Cost of product sales, exclusive of depreciation expense shown below* |
31,302 |
88% |
28,107 |
82% |
3,195 |
11% |
||||||||||||
|
Total cost of services and product sales |
106,805 |
79% |
102,930 |
79% |
3,875 |
4% |
||||||||||||
|
General and administrative expense, exclusive of depreciation expense shown below |
8,642 |
6% |
10,259 |
8% |
(1,617 |
) |
(16)% |
|||||||||||
|
Depreciation and amortization |
3,676 |
3% |
3,770 |
3% |
(94 |
) |
(2)% |
|||||||||||
|
Other (income) expense, net |
(4,529 |
) |
(3)% |
(2,390 |
) |
(2)% |
(2,139 |
) |
89% |
|||||||||
|
OPERATING INCOME |
19,803 |
15% |
16,008 |
12% |
3,795 |
24% |
||||||||||||
|
Interest expense |
3,108 |
2% |
3,209 |
2% |
(101 |
) |
(3)% |
|||||||||||
|
Income before income taxes |
16,695 |
12% |
12,799 |
10% |
3,896 |
30% |
||||||||||||
|
Income tax expense |
4,691 |
3% |
3,609 |
3% |
1,082 |
30% |
||||||||||||
|
Net income |
12,004 |
9% |
9,190 |
7% |
2,814 |
31% |
||||||||||||
|
Net income attributable to non-controlling interest |
259 |
-% |
158 |
-% |
101 |
NM |
||||||||||||
|
Net income attributable to Core Laboratories Inc. |
$ |
11,745 |
9% |
$ |
9,032 |
7% |
$ |
2,713 |
30% |
|||||||||
|
Other Data: |
||||||||||||||||||
|
Current ratio (1) |
2.48:1 |
2.39:1 |
||||||||||||||||
|
Debt to EBITDA ratio (2) |
1.58:1 |
1.86:1 |
||||||||||||||||
|
Debt to Adjusted EBITDA ratio(3) |
1.47:1 |
1.66:1 |
"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 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.
25
Return to Index
|
Nine Months Ended September 30, |
||||||||||||||||||
|
2024 |
2023 |
$ Change |
% Change |
|||||||||||||||
|
REVENUE: |
||||||||||||||||||
|
Services |
$ |
291,674 |
74% |
$ |
277,224 |
73% |
$ |
14,450 |
5% |
|||||||||
|
Product sales |
102,937 |
26% |
104,356 |
27% |
(1,419 |
) |
(1)% |
|||||||||||
|
Total revenue |
394,611 |
100% |
381,580 |
100% |
13,031 |
3% |
||||||||||||
|
OPERATING EXPENSES: |
||||||||||||||||||
|
Cost of services, exclusive of depreciation expense shown below* |
224,191 |
77% |
211,031 |
76% |
13,160 |
6% |
||||||||||||
|
Cost of product sales, exclusive of depreciation expense shown below* |
90,132 |
88% |
87,409 |
84% |
2,723 |
3% |
||||||||||||
|
Total cost of services and product sales |
314,323 |
80% |
298,440 |
78% |
15,883 |
5% |
||||||||||||
|
General and administrative expense, exclusive of depreciation expense shown below |
30,690 |
8% |
31,594 |
8% |
(904 |
) |
(3)% |
|||||||||||
|
Depreciation and amortization |
11,289 |
3% |
11,910 |
3% |
(621 |
) |
(5)% |
|||||||||||
|
Other (income) expense, net |
(6,073 |
) |
(2)% |
(423 |
) |
-% |
(5,650 |
) |
1336% |
|||||||||
|
OPERATING INCOME |
44,382 |
11% |
40,059 |
10% |
4,323 |
11% |
||||||||||||
|
Interest expense |
9,740 |
2% |
9,812 |
3% |
(72 |
) |
(1)% |
|||||||||||
|
Income before income taxes |
34,642 |
9% |
30,247 |
8% |
4,395 |
15% |
||||||||||||
|
Income tax expense (benefit) |
9,958 |
3% |
(4,344 |
) |
(1)% |
14,302 |
NM |
|||||||||||
|
Net income |
24,684 |
6% |
34,591 |
9% |
(9,907 |
) |
(29)% |
|||||||||||
|
Net income attributable to non-controlling interest |
687 |
-% |
115 |
-% |
572 |
NM |
||||||||||||
|
Net income attributable to Core Laboratories Inc. |
$ |
23,997 |
6% |
$ |
34,476 |
9% |
$ |
(10,479 |
) |
(30)% |
||||||||
|
Other Data: |
||||||||||||||||||
|
Current ratio (1) |
2.48:1 |
2.71:1 |
||||||||||||||||
|
Debt to EBITDA ratio (2) |
1.58:1 |
2.26:1 |
||||||||||||||||
|
Debt to Adjusted EBITDA ratio (3) |
1.47:1 |
1.92:1 |
"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 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 September 30, 2024 compared to the Three Months Ended September 30, 2023 and June 30, 2024 and for the Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023
Service Revenue
Service revenue is primarily tied to activities associated with the exploration, appraisal, development, and production of oil, gas and derived products outside the U.S. For the three months ended September 30, 2024, service revenue was $98.8 million, an increase of 6% year-over-year and 3% sequentially. Year-over-year, the increase was due to growth in activity levels in both international and U.S. markets. Activity on reservoir rock and fluid projects continues to expand and reservoir fluid analysis services in several international regions showed improvement when compared to the prior year. Additionally, well completion diagnostic services in the U.S. market showed strong growth in 2024 when compared to the same period in 2023. The growth in revenue continues to be negatively impacted by the on-going geopolitical conflicts previously discussed and delays of well diagnostic projects in the Gulf of Mexico caused by multiple hurricanes during the three months ended September 30, 2024.
26
Return to Index
Sequentially, the increase in service revenue was primarily driven by growth in international reservoir rock projects and fluid analysis services, offset by delays in projects associated with well completion diagnostic services in the U.S. impacted by multiple hurricanes in the Gulf of Mexico during the current quarter.
For the nine months ended September 30, 2024, service revenue was $291.7 million, an increase of 5% compared to the same period in the prior year, driven by increases in both international and U.S. activity, as well as strong growth in well completion diagnostic services in the U.S., as discussed above.
Product Sales Revenue
Product sales are primarily tied to supporting the U.S. onshore drilling and completion activities and bulk product sales to international markets. Product sales to international markets are typically sold and shipped in bulk and revenue can vary from one quarter to another. The average U.S. land rig count for the three months ended September 30, 2024 was 10% lower when compared to the same period in 2023, U.S. onshore drilling and completion activities continue to decline during the three months ended September 30, 2024. For the three months ended September 30, 2024, product sales revenue of $35.6 million increased 10% year-over-year and 4% sequentially. The year-over-year growth in product sales was driven primarily by a larger volume of bulk shipments to international markets partially offset by lower level of product sales in the U.S. onshore market during the three months ended September 30, 2024.
Sequentially, the increase was due to a higher level of bulk shipments in the international market offset by a lower level of product sales in the U.S. onshore market.
For the nine months ended September 30, 2024, product sales revenue was $102.9 million, and decreased 1% compared to the same period in the prior year, primarily due to decreased sales in the U.S. onshore market as discussed above.
Cost of Services, excluding depreciation
Cost of services was $75.5 million for the three months ended September 30, 2024, an increase of 9% year-over-year and 1% sequentially. Cost of services expressed as a percentage of service revenue was 76% for the three months ended September 30, 2024, compared to 74% for the same period in the prior year, and 78% compared to the prior quarter. Year-over-year, the increase in cost of services as a percentage of service revenue was primarily associated with higher employee compensation and higher operating costs as a result of additional costs incurred due to the fire incident at one of our U.K. facilities. The additional costs and loss of income from business interruption were substantially covered by insurance proceeds recorded in Other (income) expense, net.
Sequentially, the improvement in cost of services as a percentage of services revenue was primarily due to the improved utilization of our global laboratory network with a higher revenue base and a slightly different mix of services provided in the three months ended September 30, 2024, versus the prior quarter.
For the nine months ended September 30, 2024, cost of services was $224.2 million, an increase of 6% compared to the same period in the prior year. Cost of services expressed as a percentage of service revenue remained relatively flat compared to the same period in the prior year. Although utilization of our global laboratory network has improved with higher revenue, these efficiency gains have been offset by the impact of higher employee compensation and operating costs as discussed above.
Cost of Product Sales, excluding depreciation
Cost of product sales was $31.3 million for the three months ended September 30, 2024, an increase of 13% year-over-year and 11% sequentially. Cost of product sales expressed as a percentage of product sales revenue was 88% for the three months ended September 30, 2024, compared to 85% year-over-year and 82% sequentially. The year-over-year increase in cost of product sales as a percentage of product sales was primarily due to a decrease in manufacturing efficiencies and absorption of fixed costs as product sales have decreased in the U.S. market.
27
Return to Index
Sequentially, the increase in cost of product sales as a percentage of product sales was primarily due to the decrease in manufacturing efficiencies as discussed above.
For the nine months ended September 30, 2024, cost of product sales was $90.1 million, an increase of 3% compared to the same period in the prior year. Cost of product sales expressed as a percentage of product sales revenue was 88% for the nine months ended September 30, 2024, compared to 84% for the same period in the prior year. The increase in cost of product sales as a percentage of product sales revenue was primarily due to lower levels of product sales in the U.S., which resulted in higher absorption of fixed costs on a lower revenue base and other factors as discussed above.
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 September 30, 2024, was $8.6 million, which decreased $0.8 million compared to the same period in 2023. The year-over-year decrease was primarily due to a $1.9 million reversal of stock compensation expense previously recognized, as the performance targets levels were determined to be unachievable for certain awards vesting in 2024. The decrease in this compensation cost was partially offset by implementation costs of a global human capital management system and a third-party assessment of the Company's IT cybersecurity environment initiated in 2024.
G&A expense for the three months ended September 30, 2024, of $8.6 million decreased $1.6 million compared to the three months ended June 30, 2024. The sequential decrease of $1.6 million in G&A expense was primarily due to the reversal of stock compensation expense discussed above partially offset by changes in other employee compensation costs.
G&A expense for the nine months ended September 30, 2024, was $30.7 million and decreased $0.9 million compared to $31.6 million for the nine months ended September 30, 2023. The decrease was primarily due to lower stock compensation expense offset by higher levels of expense for system implementation costs and cybersecurity assessments in 2024 as discussed above.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended September 30, 2024, was $3.7 million, a decrease of 6% year-over-year and 2% sequentially. Depreciation and amortization expense for the nine months ended September 30, 2024, was $11.3 million, a decrease of 5% year-over-year. The decrease in depreciation and amortization expense compared to the prior year periods and sequentially is primarily due to assets which became fully depreciated and lower levels of capital expenditures.
28
Return to Index
Other (Income) Expense, Net
The components of other (income) expense, net, are as follows (in thousands):
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
(Gain) loss on sale of assets |
$ |
364 |
$ |
(76 |
) |
$ |
(390 |
) |
$ |
(109 |
) |
|||||
|
Results of non-consolidated subsidiaries |
(108 |
) |
(135 |
) |
(207 |
) |
(334 |
) |
||||||||
|
Foreign exchange (gain) loss, net |
(239 |
) |
238 |
435 |
(292 |
) |
||||||||||
|
Rents and royalties |
(882 |
) |
(205 |
) |
(1,683 |
) |
(460 |
) |
||||||||
|
Return on pension assets and other pension costs |
(314 |
) |
(336 |
) |
(891 |
) |
(992 |
) |
||||||||
|
Loss on lease abandonment and other exit costs |
- |
505 |
699 |
1,146 |
||||||||||||
|
Assets write-down |
- |
128 |
1,110 |
1,143 |
||||||||||||
|
Insurance and other settlements |
(3,225 |
) |
- |
(5,555 |
) |
(604 |
) |
|||||||||
|
ATM termination costs |
- |
455 |
- |
455 |
||||||||||||
|
Severance and other charges |
- |
- |
824 |
- |
||||||||||||
|
Other, net |
(125 |
) |
99 |
(415 |
) |
(376 |
) |
|||||||||
|
Total other (income) expense, net |
$ |
(4,529 |
) |
$ |
673 |
$ |
(6,073 |
) |
$ |
(423 |
) |
During the nine months ended September 30, 2024 and 2023, we abandoned certain leases in the U.S. and Canada and incurred lease abandonment and other exit costs of $0.7 million and $1.1 million, respectively. As a result of consolidating and exiting these facilities, the associated leasehold improvements, right of use assets and other assets of $1.1 million and $1.1 million were abandoned and expensed during the nine months ended September 30, 2024 and 2023, respectively. Amounts related to the three months ended September 30, 2023, were $0.5 million for lease abandonment and other exit costs and $0.1 million for assets write-down.
In February 2024, we had a fire incident at one of our U.K. facilities and have recorded partial insurance settlements of $3.2 million and $5.6 million during the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2024, amounts associated with costs incurred and loss of income from business interruption were $1.1 million and $3.5 million, respectively, and amounts associated with damage to property, plant and equipment were $2.1 million and $2.1 million, respectively.
During the nine months ended September 30, 2023, the State of Louisiana expropriated the access road to one of our facilities and paid us a settlement of $0.6 million.
During the three and nine months ended September 30, 2023, we wrote off previously deferred costs of $0.5 million upon termination of a 2022 "at-the-market offering" program ("ATM").
Foreign exchange (gain) loss, net by currency is summarized in the following table (in thousands):
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
British Pound |
$ |
(64 |
) |
$ |
(30 |
) |
$ |
6 |
$ |
(211 |
) |
|||||
|
Canadian Dollar |
(13 |
) |
98 |
60 |
92 |
|||||||||||
|
Colombian Peso |
44 |
(12 |
) |
13 |
120 |
|||||||||||
|
Euro |
201 |
13 |
266 |
(4 |
) |
|||||||||||
|
Indonesian Rupiah |
(332 |
) |
71 |
(107 |
) |
37 |
||||||||||
|
Russian Ruble |
(4 |
) |
15 |
10 |
(326 |
) |
||||||||||
|
Turkish Lira |
9 |
(24 |
) |
34 |
(472 |
) |
||||||||||
|
Other currencies, net |
(80 |
) |
107 |
153 |
472 |
|||||||||||
|
Foreign exchange (gain) loss, net |
$ |
(239 |
) |
$ |
238 |
$ |
435 |
$ |
(292 |
) |
29
Return to Index
Interest Expense
Interest expense for the three months ended September 30, 2024 was $3.1 million relatively flat year-over-year and down 3% compared to the prior quarter. The Company retired $75.0 million of senior notes on September 30, 2023, which carried a fixed interest rate of 4.11%. These senior notes were partially refinanced with $50 million of new senior notes which carry fixed interest rates of 7.25% and 7.50%. Although the total debt of the Company has been reduced, the current debt carries a higher blended interest rate. Sequentially, the decrease was primarily due to lower average borrowings on our bank revolving credit facility during the three months ended September 30, 2024. Interest expense for the nine months ended September 30, 2024 was $9.7 million compared to $9.8 million for the nine months ended September 30, 2023, primarily due to the changes in borrowings and the associated interest rates, as discussed above.
Income Tax Expense (Benefit)
The Company recorded an income tax expense of $4.7 million and $10.0 million for the three and nine months ended September 30, 2024, respectively, compared to an income tax expense of $2.3 million and an income tax benefit of $4.3 million for the three months and nine months ended September 30, 2023, respectively. The effective tax rate for the three and nine months ended September 30, 2024, was 28.1% and 28.8%, respectively. The effective tax rate for the three and nine months ended September 30, 2023 was 20.0% and (14.4%), respectively. The tax rate for the three and nine months ended September 30, 2024 was impacted by the earnings mix of jurisdictions subject to tax for the period and items discrete to the quarter. The tax rate for the nine months ended September 30, 2023 was largely impacted by the reversal of net deferred tax liabilities attributable to Core Laboratories N.V., which were not realized following the Redomestication Transaction on May 1, 2023.
Segment Analysis
We operate our business in two segments. These complementary operating segments provide different services and products and utilize different technologies for evaluating and improving reservoir performance and increasing oil and gas recovery from new and existing fields. The following tables summarize our results by operating segment (in thousands):
|
Three Months Ended |
Year-over-year |
Sequential |
||||||||||||||||||||
|
September 30, 2024 |
September 30, 2023 |
June 30,2024 |
% Change |
% Change |
||||||||||||||||||
|
REVENUE: |
||||||||||||||||||||||
|
Reservoir Description |
$ |
88,840 |
66% |
$ |
85,145 |
68% |
$ |
86,277 |
66% |
4% |
3% |
|||||||||||
|
Production Enhancement |
45,557 |
34% |
40,198 |
32% |
44,300 |
34% |
13% |
3% |
||||||||||||||
|
Consolidated |
$ |
134,397 |
100% |
$ |
125,343 |
100% |
$ |
130,577 |
100% |
7% |
3% |
|||||||||||
|
OPERATING INCOME: |
||||||||||||||||||||||
|
Reservoir Description * |
$ |
16,487 |
19% |
$ |
12,992 |
15% |
$ |
11,443 |
13% |
27% |
44% |
|||||||||||
|
Production Enhancement * |
3,232 |
7% |
1,544 |
4% |
4,401 |
10% |
109% |
(27)% |
||||||||||||||
|
Corporate and Other (1) |
84 |
0% |
136 |
0% |
164 |
0% |
NM |
NM |
||||||||||||||
|
Consolidated |
$ |
19,803 |
15% |
$ |
14,672 |
12% |
$ |
16,008 |
12% |
35% |
24% |
|||||||||||
|
* Percentage, which represents operating margins, is based on operating income divided by applicable revenue rather than total revenue. |
30
Return to Index
|
Nine Months Ended September 30, |
Year-over-year |
|||||||||||||
|
2024 |
2023 |
% Change |
||||||||||||
|
REVENUE: |
||||||||||||||
|
Reservoir Description |
$ |
259,353 |
66% |
$ |
248,717 |
65% |
4% |
|||||||
|
Production Enhancement |
135,258 |
34% |
132,863 |
35% |
2% |
|||||||||
|
Consolidated |
$ |
394,611 |
100% |
$ |
381,580 |
100% |
3% |
|||||||
|
OPERATING INCOME: |
||||||||||||||
|
Reservoir Description * |
$ |
34,823 |
13% |
$ |
28,780 |
12% |
21% |
|||||||
|
Production Enhancement * |
9,209 |
7% |
10,324 |
8% |
(11)% |
|||||||||
|
Corporate and Other (1) |
350 |
0% |
955 |
0% |
NM |
|||||||||
|
Consolidated |
$ |
44,382 |
11% |
$ |
40,059 |
10% |
11% |
|||||||
|
* Percentage, which represents operating margin, is based on operating income divided by applicable revenue rather than total revenue. |
Reservoir Description
Reservoir Description operations are closely correlated with trends in international and offshore activity levels, with approximately 80% of its revenue sourced from existing producing fields, development projects and movement of crude oil products outside the U.S.
Revenue from the Reservoir Description operating segment of $88.8 million for the three months ended September 30, 2024 increased 4% year-over-year and 3% sequentially. The year-over-year increase was primarily due to growth in reservoir rock and fluid analysis projects in the international market and higher demand for crude-assay analysis services in certain regions. These increases continue to be negatively impacted by the on-going geopolitical conflicts previously discussed and delays in fluids analysis projects caused by the hurricanes in the Gulf of Mexico during the current quarter.
Sequentially, the increase in revenue is associated with a slightly elevated level of activity in reservoir rock and fluid analysis for international projects, as well as increased revenue associated with crude-assay analysis services. These increases were partially offset by lower sales of laboratory equipment and delays in fluids analysis projects caused by the hurricanes in the Gulf of Mexico during the current quarter.
Revenue from the Reservoir Description segment of $259.4 million for the nine months ended September 30, 2024 increased 4% from the same period in 2023. The increase in revenue during 2024 is primarily due to growth in activity levels on international projects for reservoir rock and fluid analysis services, particularly the Middle East and Asia Pacific, and improvement in the level of some crude-assay analysis services in the Europe and Africa regions. The growth in revenue was partially offset by delayed project revenue caused by the fire incident at one of our U.K. facilities as discussed above. The Company holds insurance policies for both property damage and business interruption, which has minimized the loss to the Company associated with the fire.
Operating income of $16.5 million for the three months ended September 30, 2024, increased $3.5 million, year-over-year and $5.0 million sequentially. Operating margins were 19% for the three months ended September 30, 2024, compared to 15% year-over-year, and 13% sequentially. Year-over-year, the increase in operating income and operating margins was primarily attributable to the improved utilization of our global laboratory network with higher revenue base, and some insurance proceeds received in the current quarter to recover losses previously absorbed from the fire in the Aberdeen facility. These improvements were partially offset by higher employee compensation and operating expenses. Sequentially, the increase in operating income and operating margins was primarily due to 1) incremental revenue in the three months ended September 30, 2024; 2) gain on insurance recovery of losses absorbed in previous quarters from the fire, and 3) a lower level of Corporate G&A expenses absorbed in the segment. See discussion ofGeneral and Administrative Expense, above. Operating income of $34.8 million for the nine months ended September 30, 2024, increased $6.0 million year-over-year compared to the same period in 2023. Operating margins were 13% for the nine months ended September 30, 2024, a slight increase compared to 12% in the same
31
Return to Index
period in prior year. The increase in operating income is primarily driven by incremental revenue of $10.6 million year-over-year.
Production Enhancement
Production Enhancement operations are largely focused on complex completions in unconventional oil and gas reservoirs in the U.S. as well as conventional projects across the globe. U.S. onshore drilling and completion activities typically experience a seasonal decline at end of the year with activity levels increasing at the beginning of the year. Average rig count in the U.S. land market for the three months ended September 30, 2024, was down by 10% year-over-year and 3% sequentially. International rig count remained flat year-over-year and decreased 3% sequentially.
Revenue from the Production Enhancement operating segment of $45.6 million for the three months ended September 30, 2024, increased 13% year-over-year and 3% sequentially. Year-over-year, there was strong growth in well completion diagnostic services coupled with a higher level of bulk sales in the international markets. Sequentially, increased product sales to international market substantially offset by a decline in the U.S land completion activity and delayed well completion diagnostic projects in the Gulf of Mexico caused by hurricanes during the three months ended September 30, 2024.
Revenue from the Production Enhancement segment of $135.3 million for the nine months ended September 30, 2024, increased 2% from the same period in 2023. The increased revenue in 2024 was primarily driven by strong growth in well completion diagnostic services in the U.S. markets substantially offset by lower activity and product sales into the U.S. onshore market.
Operating income of $3.2 million for the three months ended September 30, 2024, increased $1.7 million year-over-year, and decreased $1.2 million sequentially. Operating margins for the three months ended September 30, 2024, were 7%, compared to operating margins of 4% year-over-year and 10% sequentially. Year-over-year, the increase in operating income and margins was primarily driven by a higher level of service revenue that contributed to higher margins in 2024 compared to 2023, and a lower level of corporate G&A expenses absorbed by the segment. Sequentially, the decrease in operating income and margins was primarily due to delayed well diagnostic projects with high decremental margins caused by the hurricanes in the Gulf of Mexico during the three months ended September 30, 2024 although a lower level of corporate G&A expenses was absorbed by the segment.
Operating income of $9.2 million for the nine months ended September 30, 2024, decreased $1.1 million compared to the same period in the prior year. Operating margins were 7% for the nine months ended September 30, 2024, a slight decrease compared to 8% in 2023. The decrease in operating income and margin were primarily due to a decrease in product manufacturing efficiencies in the U.S. and other factors as discussed 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 provide the primary source of funds to finance operating needs, capital expenditures, dividends and our 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, dividends, share repurchase program and future acquisitions. The Company will continue to monitor and evaluate the availability of debt and equity markets.
We are a holding company incorporated in Delaware. 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 and on the terms and conditions of our existing and future credit arrangements. There are no
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restrictions preventing any of our subsidiaries from repatriating earnings, except for the unrepatriated earnings of our Russian subsidiary which are not expected to be distributed in the foreseeable future, and there are no restrictions or income taxes associated with distributing cash to the parent company through loans or advances. As of September 30, 2024, $20.0 million of our $21.5 million of cash was held by our foreign subsidiaries.
The Company continues to maintain the quarterly dividend of $0.01 per share.
Cash Flows
The following table summarizes cash flows (in thousands):
|
Nine Months Ended September 30, |
||||||||||
|
2024 |
2023 |
% Change |
||||||||
|
Cash flows provided by (used in): |
||||||||||
|
Operating activities |
$ |
35,773 |
$ |
5,360 |
567% |
|||||
|
Investing activities |
(2,835 |
) |
(4,206 |
) |
(33)% |
|||||
|
Financing activities |
(26,584 |
) |
34 |
NM |
||||||
|
Net change in cash and cash equivalents |
$ |
6,354 |
$ |
1,188 |
435% |
Comparing the nine months ended September 30, 2024 to the same period in the prior year, cash flows provided by operating activities improved to $35.8 million in 2024 compared to $5.4 million in the same period 2023. The Company improved its overall working capital primarily by lowering its level of inventory during the nine months ended September 30, 2024.
Cash flows used in investing activities for the nine months ended September 30, 2024 of $2.8 million were primarily driven by funding capital expenditures of $8.6 million offset by proceeds on the sale of assets of $0.9 million, net proceeds of $2.1 million from insurance recovery associated with the fire incident earlier in the year at one of the U.K. facilities and proceeds on company owned life insurance policies of $2.8 million. Cash flows used in investing activities for the nine months ended September 30, 2023 of $4.2 million were driven primarily by funding capital expenditures of $7.8 million offset by proceeds on company owned life insurance policies of $3.4 million.
Cash flows used in financing activities for the nine months ended September 30, 2024 of $26.6 million includes a $24.0 million net reduction in long-term debt, quarterly dividends of $1.4 million and $0.8 million costs associated with the Redomestication Transaction. Cash flows provided by financing activities for the nine months ended September 30, 2023 were nominal and primarily driven by a $6.0 million net increase in long-term debt, and $1.3 million of debt issuance costs associated with the new senior notes issued in July 2023. Additionally, we paid quarterly dividends of $1.4 million and incurred $2.8 million in costs associated with the Redomestication Transaction.
During the nine months ended September 30, 2024, we repurchased 21,458 shares of our common stock to satisfy personal tax liabilities of participants in our stock-based compensation plan for an aggregate purchase price of $0.4 million.
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 income, 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 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
33
Return to Index
reconciles this non-GAAP financial measure to the most directly comparable measure calculated and presented in accordance with GAAP (in thousands):
|
Nine Months Ended September 30, |
||||||||||
|
2024 |
2023 |
% Change |
||||||||
|
Free cash flow calculation: |
||||||||||
|
Net cash provided by operating activities |
$ |
35,773 |
$ |
5,360 |
567% |
|||||
|
Less: Cash paid for capital expenditures |
(8,647 |
) |
(7,843 |
) |
10% |
|||||
|
Free cash flow |
$ |
27,126 |
$ |
(2,483 |
) |
NM |
Free cash flow for the nine months ended September 30, 2024 increased $27.1 million, compared to a decrease of $2.5 million for the same period in 2023. The net cash provided by operating activities of $35.8 million during the nine months ended September 30, 2024, was primarily driven by improvement in overall working capital with a significant reduction in inventory levels during this nine-month period. Capital expenditures were $0.8 million higher during the nine months ended September 30, 2024 compared to the same period in the prior year.
Senior Notes, Credit Facility and Available Future Liquidity
We, along with our wholly owned subsidiary Core Laboratories (U.S.) Interests Holdings, Inc. ("CLIH") as issuer, have senior notes outstanding that were issued through private placement transactions.
Additionally, we, along with CLIH, have a secured credit facility, the Eighth Amended and Restated Credit Agreement (as amended, the "Credit Facility") for an aggregate borrowing commitment of $135.0 million with a $50.0 million "accordion" feature. As of September 30, 2024, the Credit Facility has an available borrowing capacity of approximately $92.1 million.
These debt instruments are summarized in the following table (in thousands):
|
Interest Rate |
Maturity Date |
September 30, |
December 31, |
||||||||
|
2021 Senior Notes Series A (1) |
4.09% |
January 12, 2026 |
$ |
45,000 |
$ |
45,000 |
|||||
|
2021 Senior Notes Series B (1) |
4.38% |
January 12, 2028 |
15,000 |
15,000 |
|||||||
|
2023 Senior Notes Series A (2) |
7.25% |
June 28, 2028 |
25,000 |
25,000 |
|||||||
|
2023 Senior Notes Series B (2) |
7.50% |
June 28, 2030 |
25,000 |
25,000 |
|||||||
|
Credit Facility |
32,000 |
56,000 |
|||||||||
|
Total long-term debt |
142,000 |
166,000 |
|||||||||
|
Less: Debt issuance costs |
(2,128 |
) |
(2,866 |
) |
|||||||
|
Long-term debt, net |
$ |
139,872 |
$ |
163,134 |
(1) Interest is payable semi-annually on June 30 and December 30.
(2) Interest is payable semi-annually on March 28 and September 28.
In accordance with the terms of the Credit Facility, our leverage ratio is 1.47, and our interest coverage ratio is 6.13, each for the period ended September 30, 2024. We are in compliance with all covenants contained in our Credit Facility and Senior Notes as of September 30, 2024. Certain of our material, wholly owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes. See Note 7 - Long-term Debt, netof the Notes to the Interim Consolidated Financial Statements for additional information regarding the terms and financial covenants of the Senior Notes and the Credit Facility.
See Note 11 - Derivative Instruments and Hedging Activitiesof the Notes to the Interim Consolidated Financial Statements, for additional information regarding interest rate swap agreements we have entered to fix the underlying risk-free rate on our Credit Facility and the 2023 Senior Notes.
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Return to Index
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" of Core Laboratories Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures
A complete discussion of our controls and procedures is included in Core Laboratories Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023.
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 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 September 30, 2024, 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.
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 September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
CORE LABORATORIES INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 9 - Commitments and Contingenciesof the Notes to the Interim Consolidated 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.
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 Core Laboratories Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
The following table provides information about our purchases of shares of our common stock, par value $0.01, that are registered by us pursuant to Section 12 of the Exchange Act during the three months ended September 30, 2024:
|
Period |
Total Number |
Average Price |
Total Number of Shares |
Maximum Number of |
||||||||||||
|
July 1 - 31, 2024(1) |
224 |
$ |
19.98 |
- |
- |
|||||||||||
|
August 1 - 31, 2024(1) |
7,638 |
$ |
23.24 |
- |
- |
|||||||||||
|
September 1 - 30, 2024 (1) |
684 |
$ |
19.56 |
- |
- |
|||||||||||
|
Total |
8,546 |
$ |
22.86 |
- |
(1)
Repurchased shares were surrendered to us by participants in a stock-based compensation plan to settle any personal tax liabilities which may result from the award.
Item 5. Other Information
During the three months ended September 30, 2024 no director or officer of the Company adopted, modifiedor terminatedany "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" within the meaning of Item 408(a) of Item 408 of Regulation S-K.
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Item 6. Exhibits
|
Exhibit No. |
Exhibit Title |
Incorporated by reference from the following documents |
||
|
31.1 |
- |
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Filed herewith |
|
|
31.2 |
- |
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Filed herewith |
|
|
32.1 |
- |
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
Furnished herewith |
|
|
32.2 |
- |
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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 |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, Core Laboratories Inc., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
CORE LABORATORIES INC. |
|||
|
Date: |
October 24, 2024 |
By: |
/s/ Christopher S. Hill |
|
Christopher S. Hill |
|||
|
Chief Financial Officer |
|||
|
(Duly Authorized Officer and |
|||
|
Principal Financial Officer) |
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