• REVENUE OF $170 MILLION, UP MORE THAN 8% YEAR-OVER-YEAR; FLAT SEQUENTIALLY
• OPERATING MARGINS OF 19%, UP 400 BPS YEAR-OVER-YEAR
• YEAR-OVER-YEAR INCREMENTAL OPERATING MARGINS OF 65%; 68% EX-ITEMS
• GAAP EPS OF $0.54; $0.57 EX-ITEMS, UP 39% YEAR-OVER-YEAR
• SEQUENTIALLY, PERFORATING SYSTEM SALES UP 19%; U.S. COMPLETIONS UP 9%
• COMPANY POSTS OILFIELD SERVICE-LEADING ROIC
• COMPANY INCLUSION INTO BLOOMBERG’S GENDER-EQUALITY INDEX
• CORE LAB INITIATES Q2 2018 EPS GUIDANCE $0.64 TO $0.66
AMSTERDAM (25 April 2018) - Core Laboratories N.V. (NYSE: "CLB US" and Euronext Amsterdam: "CLB NA") ("Core", "Core Lab", or the "Company") reported that continuing operations resulted in first quarter 2018 revenue of $170,000,000, up over 8% year-over-year, with operating income of $32,300,000, up almost 40% year-over-year, and earnings per diluted share (“EPS”) increased 32% to $0.54, all in accordance with U.S. generally accepted accounting principles ("GAAP"). EPS, ex-items, a non-GAAP financial measure, increased 39% year-over-year to $0.57. Reconciliations of non-GAAP financial measures are included in the attached financial tables.
Operating margins for the Company increased 400 basis points ("BPS") year-over-year to 19%, ex-items. Year-over-year incremental operating margins were 68%. The improving operating and incremental operating margins are the result of higher-technology services and products being requested by Core’s technologically sophisticated client base and increased utilization of our services and products.
In the first quarter of 2018, the Company committed to divest the business of our full range of permanent downhole monitoring systems and related services, which have been part of our Production Enhancement segment. The associated results of operations and cash flows from this discontinued business are separately reported as Discontinued Operations for all periods presented. As such, the results from continuing operations for the Company and segment highlights for Production Enhancement, exclude these discontinued operations.
Core’s Board of Supervisory Directors (“Board”) and the Company’s Executive Management continue to focus on strategies that maximize return on invested capital ("ROIC") and free cash flow ("FCF"), a non-GAAP financial measure defined as cash from operations less capital expenditures, while exercising capital discipline, factors which have high correlation with maximum total shareholder return. Core’s asset-lite business model promotes asset efficiency, designed to produce predictable, superior long-term, and sustainable ROIC. Bloomberg’s calculations using the latest comparable data available indicates that Core’s
ROIC is the highest of any member of the Philadelphia Stock Exchange Oil Service Sector Index (the "OSX") as well as any comparably-sized companies in oilfield services. Core also had the highest ratio of ROIC-to-Weighted Average Cost of Capital ("WACC") for all major oilfield service companies.
On 22 January 2018, Bloomberg announced that Core Lab would be one of the 104 companies out of over 5,000 publicly-traded companies from ten sectors, representing 24 countries and regions, to join the inaugural 2018 Bloomberg Gender-Equality Index ("BGEI"). The BGEI, with its focus on gender equality in the workplace, is yet another metric by which investors can gauge a company’s commitment to environmental, social and governance (“ESG”) factors across industries.
Segment Highlights
Reservoir Description
Reservoir Description operations, primarily focused on worldwide producing oil and gas fields, performed as guided on the Company's prior earnings call reflecting the traditional seasonal pattern that occurred in the first quarter. Revenue in the first quarter of 2018 was $100,800,000 with operating income on a GAAP basis of $14,800,000. Ex-items, operating income was $15,000,000, yielding operating margins of 15%.
While international activity remained relatively unchanged in the first quarter of 2018, the Company experienced increased demand for our highly-specialized core and reservoir fluids services in U.S. unconventional plays, Alaska and the Gulf of Mexico (“GOM”), in addition to a number of countries in the Middle East and Asia-Pacific regions.
As part of the continual growth in Core's Digital Rock Characterization services, high resolution Computed-Tomography (“CT”) scanners were recently installed in Anchorage and Kuwait. This accelerated the delivery of critical geological and petrophysical data derived from core samples. This aided Core’s clients by helping them to quickly assess the quality of their reservoirs and make time-sensitive decisions such as in designing well completions. The CT-based logs provide detailed and accurate information on properties such as lithology, porosity, density, rock strength and acoustic properties, along with full three-dimensional digital visualization of the core.
In the first quarter of 2018, Core conducted a large geological and petrophysical evaluation of a potential unconventional reservoir target for a national oil company in the Middle East. This project included detailed geologic descriptions of shale cores, measurement of petrophysical properties using proprietary Core Lab technologies and log analysis. As a complement to the newly acquired information, data analytics were extensively employed. These analytics compared the observed rock and petrophysical properties of this potential Middle East target with analogs of producing unconventional reservoir plays contained within Core Lab’s worldwide proprietary database. This unique perspective on unconventional reservoirs allowed Core to generate attribute maps, calculate potential reserves, identify optimal completion practices, and delineate optimal locations for the client across a broad geographic area. Based upon the results presented to the client, this project has expanded in scope and will continue into subsequent quarters.
The analysis of reservoir fluids (crude oil and natural gas) continues to be an important driver of Reservoir Description results, representing approximately 60% of total revenue for the segment. Pressure-Volume-Temperature (“PVT”) data sets are used to determine the phase behavior of hydrocarbons at reservoir conditions. In turn, these physical properties are key inputs for estimating hydrocarbon reserves and predicting reservoir performance over time.
During the first quarter of 2018, Core provided its clients with onsite sample collection services and PVT laboratory measurements that allowed clients to calculate the economic value of their reservoirs under primary production. Furthermore, these data form the criteria necessary to determine when secondary, and possibly tertiary, recovery techniques should be applied to optimize the estimated ultimate recovery (“EUR”)
from these reservoirs. New fluid phase behavior projects were initiated in the Eagle Ford, the Permian Basin and the GOM, along with Guyana, Malaysia and other international locations. In addition to these PVT services, Core Lab performed customized reservoir condition Enhanced Oil Recovery (“EOR”) studies. These include the determination of minimum miscibility pressures, physical measurements of crude oil properties following gas injection and thermodynamic testing for reservoir simulation models. These test results allow Core’s clients to calculate the economic viability of miscible tertiary recovery processes, which could extend reservoir life and improve incremental hydrocarbon production.
Production Enhancement
Production Enhancement operations, largely focused on complex completions in unconventional tight-oil reservoirs and conventional offshore development projects, posted first quarter 2018 revenue of $69,200,000, up 34% year-over-year and 6% sequentially. Operating income, on a GAAP basis, was $17,700,000, up 128% year-over-year. Operating income, ex-items, was $17,800,000, up 135% year-over-year, while operating margins expanded 1,110 BPS year-over-year to 26%. Sequential incremental operating margins were 64% as a result of Core's client demand for technological solutions using enhanced completion techniques.
Sales of Core's perforating systems increased 19% sequentially during the first quarter of 2018, while the Energy Information Agency reported that U.S. completions were up 9% sequentially. Therefore, Core continues to gain market share in the technologically advanced perforating markets.
Core's clients continue to seek technological perforating charge solutions for increasing daily production and EURs. This is demonstrated by the continued revenue and margin growth for Production Enhancement, which was bolstered by increased demand for Core’s HERO®PerFRAC perforating charge systems. Client acceptance of HERO®PerFRAC technology is among the highest of all new product lines introduced by Core over the past five-plus years. HERO®PerFrac product sales were up nearly four-fold year-over-year. The rapid market acceptance is evidence of the Company’s technological advantage in shale plays.
By eliminating uncertainty created by perforation entry hole-size heterogeneity, clients gain operational efficiencies. These come in the form of reduced surface horsepower required to break down the formation, more effective proppant placement during fracture operations, and increased hydrocarbon flow across all stimulated zones. Client acceptance of Core’s HERO®PerFRAC technology, during the most recent downturn, confirms the value-added nature of the Company's technologies services which increase incremental recovery rates and EURs.
In the first quarter of 2018, Core saw broadening acceptance of FlowProfilerTM EDS, a proprietary technology, which is an engineered delivery system (“EDS”). The break-through EDS technology delivers time-released diagnostics for evaluating the crude oil flow from each stage of a hydraulically fractured completion. Crude oil production by stage is determined by using this Core Lab-developed technology that enables the diagnostic tracer to be absorbed and chemically-bonded to durable, proppant-size particles that accompany the frac sand. The tracer will release from the engineered particles once they contact the reservoir’s crude oil, enabling Core to assess which stages are contributing to crude oil production.
Free Cash Flow and Dividends
During the first quarter of 2018, Core continued to generate FCF, with cash from operations of $23,100,000 and capital expenditures of $4,400,000, yielding FCF of $18,700,000. As revenue and business activities increase, as they have over the past year, investment in working capital and capital expenditures are also expected to increase. Core's free cash will continue to be returned to its shareholders via the Company’s regular quarterly dividend and share repurchases. The Company repurchased 30,298 shares during the first quarter of 2018 at an average share price of $109.26.
On 16 January 2018, the Board announced a quarterly cash dividend of $0.55 per share of common stock, which was paid on 16 February 2018 to shareholders of record on 26 January 2018. Dutch withholding tax was deducted from the dividend at a rate of 15%.
On 17 April 2018, the Board announced a quarterly cash dividend of $0.55 per share of common stock, payable in the second quarter of 2018. The quarterly cash dividend will be payable on 22 May 2018 to shareholders of record on 27 April 2018. Dutch withholding tax will be deducted from the dividend at a rate of 15%.

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