- COMPANY REVENUE OF $173 MILLION, UP 2.5% SEQUENTIALLY
- GAAP EPS OF $0.54; $0.50, EX-ITEMS, UP 9% SEQUENTIALLY
- CORE GENERATES FCF FOR 72ND CONSECUTIVE QUARTER
- RESERVOIR DESCRIPTION REVENUE HIGHEST SINCE Q4 2015
- RESERVOIR DESCRIPTION OPERATING MARGINS OF 18%, EX-ITEMS, UP 290 BPS YEAR-OVER-YEAR
- PRODUCTION ENHANCEMENT REVENUE UP SLIGHTLY SEQUENTIALLY; U.S. COMPLETIONS DOWN GREATER THAN 10%
- COMPANY POSTS OILFIELD SERVICE-LEADING ROIC OF 19.9%
AMSTERDAM, Oct. 23, 2019 /PRNewswire/ -- Core Laboratories N.V. (NYSE: "CLB US" and Euronext Amsterdam: "CLB NA") ("Core", "Core Lab", or the "Company") reported that continuing operations resulted in third quarter 2019 revenue of $173,200,000. Core's operating income was $31,200,000 with earnings per diluted share ("EPS") of $0.54, all in accordance with U.S. generally accepted accounting principles ("GAAP"); operating income, ex-items, a non-GAAP financial measure, was $31,800,000, yielding operating margins of 18% and EPS, ex-items, of $0.50. A full reconciliation of non-GAAP financial measures is included in the attached financial tables.
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, factors that have high correlation to maximizing total shareholder return. Core's asset-light business model and capital discipline promote capital efficiency designed to produce more predictable and superior long-term ROIC. Bloomberg's calculations using the latest comparable data available indicate that Core's ROIC of 19.9% is the highest of the oilfield service companies listed as Core's Comp Group by Bloomberg.
Core Laboratories reports results under two operating segments: Reservoir Description and Production Enhancement.
Reservoir Description revenue in the third quarter of 2019 was $109,300,000 – a four year high, up 3.5% sequentially and up 5.5% year-over-year, driven by international activity, which increased more than 9% year-over-year. Operating income on a GAAP basis was $18,800,000, while operating income, ex-items, was $19,200,000, up 5.5% sequentially and 26% year-over-year, yielding year-over-year incremental margins in excess of 65% and operating margins, ex-items, of 18%.
Reservoir Description operations are heavily exposed to international and offshore activity levels, with approximately 80% of its revenue sourced from outside the U.S., where core, reservoir fluid and derived product samples originate from international projects. Improvement in year-over-year and sequential financial performance in Reservoir Description is a result of increased international and offshore client activity. Core conducted services for both newly developed fields and brownfield extensions in offshore areas such as: Australia, Brazil, Guyana, the Gulf of Mexico, the Middle East and the North Sea. These analytical programs provide accurate, comprehensive datasets of rock and hydrocarbon properties that are critical for optimizing reservoir appraisal and development.
In the third quarter of 2019, Core Lab, under the direction of Santos Limited, continued its work on an extensive laboratory analytical program designed to evaluate both conventional core and reservoir fluids from the shallow-water Dorado discovery, located in the Bedout Sub-Basin, offshore Western Australia. More than 700 feet of conventional core were recovered from this high-quality sandstone reservoir. Core Lab utilized its proprietary, non-invasive, Digital Rock Characterization ("DRC") technology to determine lithological characteristics in the reservoir intervals of interest. In addition, the DRC work enabled Santos' and Core Lab's technical staff to quickly select representative samples for advanced geological and petrophysical testing. The ongoing physical measurements that are being conducted on these representative samples are crucial for accurate pay zone modeling, downhole log calibration and reserve calculations.
In addition to the reservoir rock characterization program, subsurface hydrocarbon samples were collected from multiple stratigraphic horizons within the reservoir. Core Lab's proprietary, mercury-free, Pressure-Volume-Temperature ("PVT") Cell was used to determine the phase behavior relationships of the hydrocarbons under varying conditions. Core Lab is pleased to be playing a role in evaluating one of the largest hydrocarbon discoveries offshore Western Australia.
Production Enhancement operations, largely focused on complex completions in unconventional tight-oil reservoirs in the U.S. and conventional offshore development projects, posted third quarter 2019 revenue of $63,900,000; up slightly sequentially. Operating income on a GAAP basis was $11,500,000, while operating income, ex-items, was $11,600,000, which yielded operating margins, ex-items, of 18%. Production Enhancement's sequential performance was underpinned by high-end energetic sales and continued GoGunTM market penetration, offsetting the more than 10% decline, according to Rystad data, in U.S. well completions. In addition, sequential improvement in demand for diagnostic tracers supported improved financial performance for the segment.
Core Lab continues to be the technological leader in the design of more efficient and effective energetics, now employing the recently announced cutting-edge, Reservoir Optimized Completions Lab ("ROC LabTM") in Godley, Texas. The ROC LabTM is designed to determine the best Fit-For-ReservoirTM ("FFR") energetic solutions for specific stratigraphic targets. This more focused approach allows operators to optimize completion strategies for each producing formation in a basin, tuning energetic performance to the specific geologic properties of reservoir zones. Core will use its extensive worldwide petrophysical and reservoir fluids database, including its proprietary Rock Catalog, combined with its cutting edge ROC LabTM, to customize FFR energetics. This will enable Core's clients to optimize initial production rates and maximize their Estimated Ultimate Recoveries and ROICs. Core is uniquely capable of bringing together its ballistics expertise, vast geological and flow studies knowledge, laboratory-instrumentation manufacturing and digital imaging technologies to provide this industry-leading service.
During the third quarter of 2019, Core Lab increased penetration of the U.S. energetic systems market with the pre-assembled GoGunTM. Core's approach to the integrated perforating gun system market continues to focus on technologically sophisticated clients. Core's line-up of energetic systems is led by technological solutions focused on ultra-high performance energetic products, versus commodity products, resulting in both greater reservoir performance and improved wellsite efficiency. Core Lab continues its investments in Production Enhancement to expand and advance its energetic systems capabilities, and make improvements through capital investment in automation and other efficiency programs. Core Lab remains committed to its plan to increase production of GoGunTM systems and production capabilities in 2020 to satisfy client demand.
Also in the third quarter of 2019, Core Lab continued its work on a comprehensive completion diagnostic program for LLOG Exploration Company, L.L.C. on their deepwater Buckskin Project in the Gulf of Mexico. Core's diagnostic technologies were used to evaluate sand control for the operator's deepwater completion strategy. The operator's reservoir, having multiple pay zones, required separate completions across each reservoir horizon. Given the multiple pay zones and varying rock properties, the operator elected to utilize an alternative completion approach. Core utilized SpectraStimTM, SpectraScan®, PackScan®, and FLOWPROFILERTM diagnostic services to provide direct measurements of the completion quality, completion fluid recovery, and oil contribution from each of the completed stages.
Core's diagnostic services guided LLOG Exploration's decision to frac pack the well using a single-stage/multi-trip strategy, as opposed to the more typical multi-stage/single-trip strategy. This approach allowed for more proppant to be placed in each target zone, while minimizing operational risks. Core's diagnostic services confirmed effective frac pack placement across all five completed stages, providing the operator with confidence to flow the well aggressively and achieve higher than normal drawdowns with no degradation of the flow capacities. The diagnostic data utilized by the operator resulted in a material increase in production compared to the original forecast.
Free Cash Flow, Dividends and Share Repurchases
During the third quarter of 2019, Core continued to generate FCF, with cash from operations of $26,000,000 and capital expenditures of $5,300,000, yielding FCF of $20,700,000. The sequential improvement in operating results also generated higher levels of FCF for the third quarter, approaching 90% of net income. As Core continues to expand its offerings of products like the GoGunTM and Select Fire Switch (SFS) TM, investments in working capital are required.
The third quarter of 2019 also marks the 72nd consecutive quarter that the Company generated positive FCF. Core's third quarter 2019 free cash was returned to Core's shareholders via the Company's regular quarterly dividend. Core will continue its commitment to invest for future growth of the Company, and will return generated FCF to shareholders via the Company's regular quarterly dividend and future opportunistic share repurchases.
On 12 July 2019, the Board announced a quarterly cash dividend of $0.55 per share of common stock, which was paid on 12 August 2019 to shareholders of record on 22 July 2019. Dutch withholding tax was deducted from the dividend at a rate of 15%.
On 8 October 2019, the Board announced a quarterly cash dividend of $0.55 per share of common stock, payable in the fourth quarter of 2019. The quarterly cash dividend will be payable on 19 November 2019 to shareholders of record on 18 October 2019. Dutch withholding tax will be deducted from the dividend at a rate of 15%.
Return On Invested Capital
Core Lab's ROIC of 19.9% is the highest of the peer group compiled and reported by Bloomberg. The Company's Board has established an internal performance metric of achieving a leading relative ROIC performance compared with the oilfield service companies listed as Core's Comp Group by Bloomberg. The Company and its Board believe that ROIC is a leading long-term performance metric used by shareholders to determine the relative investment value of publicly traded companies. Further, the Company and its Board believe that shareholders will benefit if Core consistently performs at high levels of ROIC relative to its Comp Group. Core Lab's commitment to capital stewardship is driven in part by the Company's continuing philosophy of having a low capital intensive business, averaging less than 4% of Company revenues.
According to the latest Comp Group financial information from Bloomberg, Core's ROIC is the highest of any comparably-sized oilfield service company (greater than $1.5 billion market capitalization). Comp Group companies listed by Bloomberg include: Halliburton, Schlumberger, National Oilwell Varco, Baker Hughes, TGS-NOPEC Geophysical Company, Wood (formerly known as "The Wood Group"), and Apergy, among others. Core Lab is one of only three of the 17 companies listed in the Comp Group posting ROIC that exceeded their Weighted Average Cost of Capital ("WACC"). Core's ratio of ROIC to WACC is the highest of any company in the Comp Group.
Fourth Quarter 2019 Revenue and EPS Guidance
The balance of supply and demand did not materially change during the third quarter 2019. As the balancing of global crude-oil supply and demand continues, this should support a stable and positive crude-oil price, which underpins the reinvestment and Final Investment Decisions in international crude-oil field projects. These international investments are critical, as the decline in production from mature fields continues and new field development is required to replace the current supply. Consequently, the outlook for activity on international projects remains positive for Core's Reservoir Description segment.
Operators continue to publicly indicate and confirm their focus on FCF and spending within the 2019 budgets are priorities. This was apparent during the third quarter 2019 with the notable decline in both the U.S. onshore rig count and completion activity. As a result, Core believes fourth quarter U.S. land activity will continue to decline, from which Core's Production Enhancement segment will be most affected. Core's Reservoir Description segment is also expected to be impacted by the decline in U.S. onshore activity, though to a lesser degree.
Therefore, considering the expected but uncertain level of decline in U.S. land activity, Core projects consolidated fourth quarter 2019 revenue of approximately $161,000,000 to $163,000,000 and operating income of approximately $28,000,000 to $29,000,000, yielding operating margins of approximately 18%. The Company's EPS for the fourth quarter of 2019, using an effective tax rate of 20%, is projected to be $0.44 to $0.45. Core Lab is executing cost control actions that were announced earlier this year. Further, the Company will continue to evaluate opportunities to efficiently align the business with market conditions.
Core Lab's fourth quarter 2019 guidance is based on projections for the underlying operations and excludes gains or losses in foreign exchange.
Earnings Call Scheduled
The Company has scheduled a conference call to discuss Core's third quarter 2019 earnings announcement. The call will begin at 7:30 a.m. CDT / 2:30 p.m. CEST on Thursday, 24 October 2019. To listen to the call, please go to Core's website at www.corelab.com