Q2 2023Core Laboratories Inc Earnings Call
Other forward looking information. This would include any discussion of the company's business outlook. These types of forward looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from our forward looking statements. These risks and uncertainties are discussed in our most recent annual report.
<unk> on Form 10-K, as well as other reports and registration statements filed by us with the SEC, we undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Our comments are also in our comments. We also include non-GAAP financial measures reconciliation to the most directly comparable GAAP financial measures is included in the press release announcing our second quarter results. Those non-GAAP measures can also be found on our website with that said I'll pass the discussion back to Larry.
Thanks Glenn.
Moving now to some high level comments about the second quarter of 2023.
<unk> continued to build on the operational momentum established over the past few quarters, while revenue was flat compared to Q1 at $128 million. We achieved sequential improvements in operating income operating margins net income free cash flow and earnings per share at the same time, we continued to execute on our key financial strategies, including reduced.
Net debt and strengthening our balance sheet.
Year over year, the second quarter of 2023 showed a nearly 6% growth in revenue ex items operating income for the second quarter was $15 6 million up 62% year over year and operating margins were 12% with year over year incrementals exceeding 85%.
Second quarter, 2023, operating margins as well as year over year and sequential incremental margins were particularly strong in reservoir description, where demand for reservoir rock and fluid analysis across our global client base continues to rise.
These improvements were partially offset by declines in revenue and operating income due to a quarter over quarter reduction in both international product sales and lower than anticipated U S. Land completion activity still production enhancement margins ex items held at 10% in the second quarter.
Lastly for the full company X items EPS was <unk> 21 per share up from <unk> 19 in Q1 of 2023.
As we look ahead core will continue to execute on its key strategic objectives by one introducing new product and service offerings in key geographic markets to maintaining a lean and focused organization and three maintaining our commitment to delevering the company.
Now to review core lab strategies in the financial tenants at core has used to build shareholder value over our 27 plus year history as a publicly traded company.
Interest of our shareholders clients and employees will always be well served by core lab's resilient culture, which relies on innovation leveraging technology to solve problems and dedicated customer services.
I'll talk more about some of our latest innovations in the operational review section of this call.
While we aggressively pursue growth opportunities. The company will remain focused on its three long standing long term financial tenants those being to maximize free cash flow maximize return on invested capital and returning excess free cash to our shareholders.
Before moving on I want to thank our employees for their dedication loyalty and adaptability and meeting all of our clients' needs and for the commitment that many have shown as we prepare for a more active market I'll now turn it over to Chris for the detailed financial review.
Thanks, Larry before we review the financial performance for the quarter. The guidance, we gave on our last call and past calls specifically excluded the impact of any FX gains or losses and assumed an effective tax rate of 20%.
So accordingly, our discussion today excludes any foreign exchange gain or loss for current and prior periods.
Additionally, the financial results for the second quarter of 2023 include one a tax benefit of approximately $11 6 million associated with the company's re domestication of the parent company from the Netherlands to the U S and to a gain of approximately $2 9 million associated with proceeds received from the company.
On life insurance policies and a reversal of previously recognized stock compensation expense for certain performance share awards, which are no longer expected divest.
These items have also been excluded from our discussion of the financial results.
So now looking at the income statement revenue was $127 9 million in the second quarter flat compared to the prior quarter and up almost 6% year over year.
Sequentially International upstream projects continue to expand.
However, this increase was offset by a decrease in product sales as the U S onshore activity soften during the second quarter.
The year over year growth in revenue was primarily associated with improved activity on international upstream projects and also higher levels of activity in the U S when compared to last year.
Yes.
Of this revenue service revenue, which is more international was $93 3 million for the quarter up over 2% sequentially and up over 9% from last year.
International service revenue was up 4% sequentially and up over 7% year over year.
Activity on projects outside the U S continues to build across multiple regions.
Additionally service revenue associated with crude assay work performed in our European operations also had some recovery from the decrease last year last quarter.
Service revenue in the U S market was flat sequentially.
Got up over 13% year over year.
Primarily due to high use of our diagnostic services in the U S land market.
Product sales, which is more equally tied to North America and international activity.
Were $34 6 million for the quarter down, 7% sequentially and down 2% from last year.
Product sales in the U S decreased 3% sequentially as activity in the U S land market peaked in April and softened in May and June .
Our international product sales, which are typically larger bulk orders and can vary from one quarter to another were also down slightly this quarter compared to last quarter.
Moving on to cost of services ex items for the quarter was approximately 76% of service revenue an improvement from 78% in the prior quarter and 80% compared to the prior year.
We continue to see improvements in absorption of costs and utilization of our global Laboratory network and anticipate additional improvement with growth in service revenue.
Cost of sales ex items in the second quarter was 84% of revenue compared to 82% last quarter.
The increase this quarter is a combination of reduced manufacturing efficiencies associated with lower activity in the U S land market and lower international sales we.
We anticipate improvement in the manufacturing absorption rate in future quarters in line with our projected growth in product sales.
G&A ex items for the quarter was $8 7 million a decrease from prior quarter, which was $9 8 million.
For 2023, we expect G&A ex items to be approximately $39 million to $40 million.
Depreciation and amortization for the quarter was $3 9 million relatively flat compared to $4 million last quarter.
EBIT ex items for the quarter was $15 6 million, an increase of $1 1 million over last quarter, yielding an EBIT margin of 12, 2%, which expanded 90 basis points sequentially and 420 basis points from last year.
Our operating income for the quarter on a GAAP basis was $18 9 million, which includes the $2 9 million gain mentioned earlier.
Interest expense of $3 2 million decrease from $3 4 million last quarter.
Income tax expense and an effective tax rate of 20% and ex items was $3 2 million for the quarter.
On a GAAP basis, we recorded a tax benefit of $7 3 million for the quarter, which includes the $11 $6 million tax benefit associated with the company's re domestication transaction that was completed on May one.
The effective tax rate will continue to be somewhat sensitive to the geographic mix of earnings across the globe and the impact of items discrete to each quarter. However, we continue to project the company's effective tax rate to be approximately 20%.
Net income ex items for the quarter was $9 8 million up from $8 8 million last quarter and $5 4 million from last year.
On a GAAP basis, we recorded net income of $22 8 million for the quarter.
Earnings per diluted share ex items was 21 for the quarter up from 19 last quarter and compared to last year, a significant improvement over the 12 in the second quarter of 2022.
On a GAAP basis earnings per diluted share was <unk> 48 for the quarter up from five in the prior quarter.
Turning to the balance sheet receivables was $106 8 million and decreased approximately $3 9 million from the prior quarter.
Our dsos for the second quarter improved slightly to 72 days from 73 days in last quarter.
We anticipate that our DSO will continue improving as we work back towards the level of 70 days or lower in future quarters.
Inventory at June 30 was $71 7 million up approximately $4 3 million from last quarter end.
Inventory turns for the quarter decreased to $1 seven from $1 nine last quarter.
The increase in the quarter as a combined effect of a slowing U S land market and also building stock in certain international locations to service some long term international contracts.
On the liability side of the balance sheet. Our long term debt was 185 million at June 30, and considering cash of 20 to $26 2 million net debt was $158 8 million or down $7 9 million from last quarter.
The decrease in net debt this quarter was primarily driven by free cash flow generated from operations.
Our leverage ratio improved to 185 at June 30, compared to $2, one eight last quarter.
And we anticipate the leverage ratio will continue to increase during the remainder of 2023.
As mentioned during our last call the company issued $50 million of New senior notes, which funded on June 28 2023.
The new notes were split into two tranches $25 million in each tranche, which have a five year and seven year maturity.
The proceeds from the notes were used to reduce the outstanding balance on our revolving credit facility.
Therefore at June 30, our debt is currently comprised of our senior notes at $185 million with no outstanding balance under our bank revolving credit facility, which has a borrowing capacity of $135 million.
The company will continue applying free cash towards reducing debt until the company reaches its target leverage ratio of one five times or lower.
Additionally, as we previously announced on July 17, 2023, the company terminated the ATM program that we launched in June of 2022.
No shares of the company stocks.
Company's common stock was sold into the program.
Looking at cash flow for the second quarter of 2023 cash flow from operating activities was approximately $8 8 million and after paying for $2 2 million of Capex during the quarter, our free cash flow for the quarter was $6 6 million.
We accept we expect capex to modestly modestly expand in the second half of 2023, but we will continue to be aligned with activity levels.
For the full year of 2023, we expect capital expenditures to be in the range of $11 million to $13 million.
We will continue its strict capital discipline and asset light business model with capital expenditures, primarily targeted at growth opportunities and initiatives.
Yes.
Core lab's operational leverage continues to provide the ability to grow revenue and profitability with minimal capital requirements.
<unk> expenditures of extort historically range from 2% to 4% of revenue even during periods of significant growth.
That same level of laboratory infrastructure intellectual property and leverage exists in the business today.
We believe evaluating our company's ability to generate free cash flow and free cash flow yield is an important metric for shareholders when comparing companies' financial results, particularly for those shareholders, who utilize discounted cash flow models to assess valuations.
I will now turn it over to Gwen for an update on our guidance and outlook.
Thank you Chris.
Just on conversations with the company's global client base, we maintain our constructive outlook on international upstream spending for the second half of 2023 and beyond is a higher level of investment will be required to maintain and grow hydrocarbon production the.
The company anticipates spending to expand toward long cycle upstream projects in both onshore and offshore environment.
In the near term the global crude oil market may remain volatile data global recession fears and uncertainty about the extent and timing of China's economic recovery.
The recent OPEC plus production cuts being implemented to support the current market are not expected to be maintained or required long term. Additionally.
Additionally, production growth in areas outside of OPEC, plus continue to face constraints due to prolonged under investment as well as the loss of production due to natural declines from existing fields.
We continue to anticipate a multiyear international recovery supported by increased spending on exploration in many regions around the world and expanded development in existing fields to fortify crude oil and natural gas reserves.
This underlies cores outlay for continued improvement in international onshore and offshore activity with ongoing projects across the globe most notably.
In the Middle East, South Atlantic margin and West Africa.
Turning to the U S land activity for the first half of 2023.
It was lower than expected as reflected by the declining U S rig and frac spread count throughout the second quarter.
We see U S land completion activity for the second half of 2023 to be slightly down compared to the first half of the year.
As a result core projects reservoir descriptions third quarter 2023 revenue to be up sequentially by low single digit.
We expect our international revenue to increase sequentially. This segment's revenue will be slightly softened by a projected decrease in U S activity.
Client commitments on international projects have improved nicely year over year. However, the cadence at which these long term projects are executed by Core's clients may vary from quarter to quarter as activity begins to accelerate.
Additionally, the Russia, Ukraine conflict continues to create uncertainties with respect to trading patterns of crude oil and associated crude oil assay services, which may impact reservoir descriptions operations in Russia, Ukraine and Europe .
Now turning to production enhancement.
Third quarter revenue is estimated to be flat to down by low single digit sequentially.
Growth in production enhancement international sales may offset the projected decline in U S revenue.
In summary.
Core projects third quarter 2023 revenue to range from $128 million to 132 million and operating income of $15 2 million to $17 5 million.
Yielding operating margins of approximately 13%.
For the third quarter is expected to range from 'twenty, one to 'twenty five.
The company's third quarter 2023 guidance is based on projections for underlying operations and excludes gains and losses and foreign exchange third quarter guidance also assumes an effective tax rate of 20% and now I will turn the call back over to Larry.
Thanks Glenn.
First I'd like to thank our global team of employees for providing innovative solutions integrity and superior service to our clients. The team's collective dedication to servicing our clients is the foundation of core lab's success.
In July .
<unk> updated its forecast for crude oil demand for 2023 to average a record high $102 1 million barrels per day.
It's up approximately 2 million barrels per day from 2022, even after assessing current global financial forecasts.
This continues to bode well for growing demand for the reservoir description services that will be required to grow production and replace the natural decline of existing producing fields.
As we look ahead and see the growing international rig count over the past year as a harbinger of an improving landscape for reservoir description a trend that we project will play out for the next several quarters, particularly in the middle East North or South America as well as most other regions.
Early movers in the oilfield service sector that are more exposed to well construction have already felt the impact of this cycle shift now.
Now for some operational highlights from the second quarter, turning first to reservoir description of the second quarter of 2023 revenue came in at $83 4 million up 4% compared to Q1 and up 10% year over year.
Operating income for reservoir description ex items was $13 3 million and operating margins were over 13%.
Margins ex items expanded approximately 370 basis points sequentially, and 680 basis points year over year.
Sequential incremental margins for reservoir description exceeded a 100% once again highlighting the operational leverage that exists in our reservoir description business model.
The segment's financial performance in the second quarter was underpinned by improving international client activity as well as indications that demand for crude oil and derived product assay work are continuing to stabilize as trading patterns realign in response to sanctions.
But that being said uncertainties and potential risks associated with the Russia, Ukraine conflict and sanctions still remains.
Now for some operational highlights in the second quarter of 2023 industry adoption of Core's proprietary web enabled data management system named rapid continued to increase core labs rapid data management platform was adopted but a U S based international operating company conducting exploration and production.
<unk> and the Mexican waters of the Gulf of Mexico.
Rapid provides this operator with centralized consistent and easily accessible data in a secure format.
<unk> enables our clients to quickly and efficiently organize retrieve archive.
And analyze large quantities of geological Petro physical reservoir engineering and reservoir fluids data and will serve as the primary repository for this information.
The rapid platform also allows for sophisticated database queries from a user friendly interface.
When coupled with other core lab digital solutions, such as the company's worldwide rock catalog relative permeability toolkit and other proprietary data tools rapid can be used to search for reservoir analogs predict Petro physical and engineering parameters and also to integrate newly acquired laboratory data.
<unk> continues its leadership role in the Digitization of the oilfield connecting data analytical tools data lakes and data mesh technologies.
As the industry's pioneering database for subsurface reservoir data rapid has evolved and expanded over decades of commercial application and has become the primary data platform for our suite of independent National and international operating companies.
Also in the second quarter of 2023 core lab collaborated with a prominent middle East National oil company to implement cost cutting edge advanced rock typing technology branded as art.
The objective of this technology is to maximize the value of drill cuttings, which are small rock fragments recovered during the drilling process.
Drill cuttings are typically not size or shape suitable for most of the traditional physical measurements that occur in the laboratory and are needed for detailed reservoir characterization.
However, when conventional core is not available unraveling rock properties from drill cuttings and greatly improve reservoir evaluation programs.
As one of Core's latest and most advanced digital artificial intelligence offerings.
Art was employed to create a basin and specific and formation specific proprietary artificial intelligence model from existing geological and engineering data sets.
The model is then used to predict petro physical properties from drill cutting samples where conventional core was not available to.
The generation of the art model represents a significant advancement, enabling the national oil company and to create an extensive dataset that contributes to a more comprehensive understanding of reservoir variability.
Now moving to production enhancement or core lab technologies continued to help our clients optimize their well completions and improved production revenue.
Revenue for production enhancement came in at $44 5 million down approximately 8% sequentially and flat year over year.
Operating income ex items was $5 5 million.
Operating margins were 10% for the second quarter of 2023 down 270 basis points from Q1.
Q2 results were negatively impacted by a sequential decrease in bulk international orders, along with lower than expected U S land activity.
Year over year operating margins expanded approximately 120 basis points.
Now for some operational highlights in the second quarter core lab continued to gain market acceptance for the company's proprietary Helios plug and abandonment system with a north sea operator, the Helios system uses an innovative energetic technology.
It was designed in conjunction with the operator, and a wireline service company, specifically to help increase efficiencies with offshore plug and abandonment operations.
North Sea abandonment regulations require new cement to be placed in the annulus space of an existing well to fully isolate producing zones prior to abandonment.
Legacy technologies, often struggled to accomplish this goal.
Poor communication with the annulus base during the removal of the original cement results in increased operation time and creates challenges in obtaining a high quality final cement barrier the.
The Helios gun system with its unique perforating design has proven to provide increased efficiencies and the removal of the original annular cement, which when combined with more efficient placement of the final cement barrier yields of superior well abandonment operation in much less time.
Also in the second quarter of 2023, and Oklahoma, operator called upon Core's expertise and completion diagnostics to help them understand the causes behind the production variability from two links landing intervals, well with stacked horizontal targets.
One of the two landing intervals with significantly harder to drilled and the other.
Of course technical advisers recommended the incorporation of course spectra stim proppant tracers and spectra scan gamma Ray logging technologies, along with flow profiler water and gas tracers to evaluate multi stage completion efficiencies well spacing and inter well communication.
The spectra scan logs revealed effective completion efficiencies, but also demonstrated the need to improve isolation between stages.
Flowback water and gas diagnostic tracer results indicated no significant differences in production between the two landing zones. However, it was noted that significant inter well communication had occurred.
Of course engineering staff advise the operator that the operator could drill and stimulate the less problematic landing zone with no compromise in overall, well performance and the process. The operator could say five to seven days of drilling time and cost savings of more than a $1 million per well in.
In addition, based on the extent of cross Wellbore communication that was observed with the diagnostic tracers. The operator was able to optimize their completion program by widening their well spacing without reducing hydrocarbon production.
That concludes our operational review, we appreciate your participation and Danielle we will now open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
The first question comes from Stephen <unk> from Stifel. Please go ahead.
Thanks, and good morning, everybody.
Good morning.
Two things for me the first just from a bigger picture perspective, when we think about the multi year growth you're expecting I think others are expecting internationally.
How should we think about the R&D growth relative to activity and what does that mean for incremental margins.
Yes, I think Steve first is a really good question and I think it's a lot of focus and our.
Our company on that to the first thing I think that we want to get across here is as much as I said this last quarter I think as much as we'd like it to be it's not why equals <unk> X plus b yet the linearity.
That we would all like to see is just not there yet the client pacing on projects from.
From the time, we were awarded or even throughout the projects is not quite up to what we've historically come to expect but it's picking up.
And a nice term here I think what we see is that we can get on a path to getting into call. It high teens margins over the next year year and a half.
And I think the growth there is going to accelerate pretty quickly once we get more projects.
Sort of shingled and at the same time right now if a project slips and we just had a project in for example for Q3 that we incorporated into our into our guidance thinking we had a project a multi well.
Core project offshore South Atlantic margin and it just pushed the client just informed us that pushed from Q3 to Q4.
If we had more projects going at one time, you probably wouldn't see see that in the results, but right now that's still affects the performance for the quarter. So I think we're on it we're a nice path of growth there.
I don't know that I get with a 100% incremental margins every quarter, but I do think that what we.
We just accomplished and what we accomplish in the previous few quarters.
<unk> high incremental margins.
Just shows the operational leverage in that group will achieve that and I think we can see segment increment our segment margins EBIT margins getting into the mid to high teens.
And the next year to year and a half.
Great. Thanks, that's good color and then the other question.
Hi.
If you look at core lab store right.
The returns on capital and our free cash flow generation were extremely good and over the last several years, it's been less so, but I think and I would just kind of looking for validation and thoughts on this but I think a lot of that has to do with the with the R&D business internationally being a real.
The big driver of free cash flow.
Just thinking about that right and so should we start to see the free cash flow profile change if R&D does what we think it is going to do.
Yes, I think thats right I mean, the margins in that group and our business model in that group.
We're going to put cashed out very nicely.
Cost of doing that business, we don't need any more roofline.
We've got some expansion that we're doing I talked about it and release, we're introducing a new some new services in the middle East, but yes, I think thats going to be the bulwark of driving free cash and Kristy anything you wanted to add to that no I think thats exactly right high incremental margins turns into free cash because theres not much capex required to two.
Grow from where we're at so.
And just the last several years, we've been at this sort of base level, where we've got a similar footprint than what we had before we have reduced staff, but again, we're kind of at a low level and it's going to free cash will grow significantly from there driven by reservoir description and production enhancement side the service side of that.
Business also can yield.
Nice incrementals and nice and generate nice free cash out of that as well and then.
As we see demand internationally growing for more projects, we think absorption in our product manufacturing will also generate higher margins alright.
Alright, thank you for the detail.
Sure you bet and welcome everyone.
As a reminder, if you have a question please press star one.
The next question comes from John Daniel of Daniel Energy Partners. Please go ahead.
Hey, guys good morning.
Quick question on the X span technology you referenced in your release you noted it was used what's it in Australia and operator I'm just curious how often you see that used in the lower 48.
Yes, we see it used over the global.
<unk>.
Sort of field of play here and it's got a lot of applications for.
Where people have sort of split casing or theyre trying to isolate a zone, where they've got corrosion problems like the case that we talked about in.
And the example from Australia will see expand deployed and it uses an energetic trigger to in place that that.
That patch.
And it's a material science.
Expertise in the company to that creates that bond between the.
The pipe and the patch.
I think if we look out over any place where there is older fields or where there is highly corrosive production either very high solidity pore fluids or <unk> things that could lead to the corrosion of <unk>.
There is and expand opportunities.
Okay, and when you look at some of the.
Yes.
So I know the economics of expand and all the numbers behind it but is there a certain cat.
Category of wells, where it doesn't make sense because the production is so low I'm just trying to get a feel for like old stripper wells and opportunity sets longer term.
Yes, I think with older stripper wells you get to a point here, where remediation just doesn't it doesn't make sense at all and its just simpler think about plug and abandonment.
Yes, I would say probably the biggest field of play for us is on.
Higher dollar.
More complex wells, Bryan so offshore, but it's definitely a less expensive alternative to replace and casing or doing other forms of remediation. So it could be an opportunity.
Okay.
Got it and then one just big picture as you look across.
It looks to be in a much improving international market are there any markets that to this point have disappointed you and when would you expect them to kick in.
So a couple of thoughts on that Jon a good question here. So we've talked about obviously the middle East.
South Atlantic margin being real Bull workforce offshore West Africa, we've talked about Namibia projects and a few others.
I think all those look good we.
We did see some recent announcement about discoveries in Malaysia and.
And so I'd say, that's been an area that had been lagging, but it's nice to see some.
Discovery is being announced because that as we've talked about for for core lab, we're not really in exploration.
Exposed company that much when things get into development offshore appraisal development and production that's really the wheelhouse for our two business segments. So.
I think Asia Pac.
Is hopefully starting to get back into play here after a pretty long prolonged period of being quiet.
I would also point out the.
We didn't really highlight it in this release, but our carbon capture and storage business continues to grow very nicely, Saudi Aramco has joined our consortium.
Project and so between the consortium in a number of proprietary projects, we've got going on that's bringing some nice play.
Both in the U S and from an international perspective as that sort of emerging.
The project spending on carbon capture storage is attracting reservoir rock and fluid evaluation.
Okay. Thank you for letting me ask some questions sure I appreciate it John John .
The next question comes from Don Crist of Johnson Rice. Please go ahead.
Good morning, Good morning, guys. How are you all this morning, Alright, Dan good morning.
I wanted to ask about the middle East obviously, it sounds like you've got a lot of engagements across several different countries in the middle east, but how different is the drilling now.
Going into the kind of unconventional reservoirs versus what they've been doing in the past and kind of where are they in that transition from your opinion.
Yes so.
There.
Our capable all the NFC is very capable there.
But their attention over decades has been unconventional fields and that propel.
Proportionately that means a lot fewer wells in the past and theyre going to need to exploit unconventional resources.
So I'd say.
<unk>.
Quickly getting up to speed understanding what it's going to take to properly drill and complete stimulate.
Horizontal wells.
Multi stage horizontal wells.
Thinking about things about maximizing our optimizing well spacing.
That plays right into <unk>.
Our expertise in what we can bring to bear one of the things that within core lab within our reservoir description section as we've done these multi company unconventional reservoir studies at in every basin in the U S. In a number of international basins and so what we see some of these <unk> in the middle East doing as they are by.
We own that data from these consortiums, they're interested in acquiring some of that knowledge from us.
So they can rank hey, how does this compare to an eagle Ford or how does this compare to a marcellus or how does that compare to our barnett or one of the Permian basin targets. They want to know in rank what theyre getting there.
They are finding in their local resources compared to some proven unconventional fields and so tied to that is there.
Quite a bit of drilling in coring and fluid sampling going on with these unconventional reservoirs and Thats why we talked about in the release, we're bringing some of these technologies that were developed primarily for the U S market now we get a chance to move those into an emerging unconventional market.
I'll add one other thought to that Dan is I don't think outside of the middle East.
There's many places where unconventional <unk> are going to have.
<unk> a big.
Difficult things that have to come together you have to have the resource base you have to have an accommodative government, that's going to allow or landownership is going to allow for thousands and thousands of wells to be drilled and youre also going to need an incredible pipeline of people and material to support the high cadence that goes along with an unconventional project.
Operator in the Middle East can clearly get that done they've got the expertise the will and the sort of accommodative thoughts toward drilling the wells that'll work they've got the natural resource to do it a lot of other places on the planet be tough to replicate that model. That's worked in the U S.
Right I agree we saw that in the France basins right. So.
I'll turn it back to the Middle East.
Where are they in that process of evaluating the unconventional resource or are we still in the first or second innings of that or how far down the pipeline or that I think thats right. In the first few earnings on that I'd say not everybody's in the same spot maybe some people in the third or fourth inning. Some in the first or second inning of that.
We've had a long term call. It over the last couple of years, we've done a project for one of the Nlcs.
Evaluating the whole basin.
For them with multiple unconventional targets and I would say there they are a little closer to getting to.
Coal at the point of production.
I appreciate all the color. Thank you I'll turn it back sure Don Don.
So you have no further questions I would like to turn the conference back over to Mr. Bruno <unk> for closing remarks.
Okay, I think we've got a pretty active our earnings call day today, a lot of other calls going on.
And so I think we'll wrap up here.
In summary, Core's operational leadership continues to position the company for improving client activity levels in both the U S and international markets for 2023, and beyond we have never been better operationally or technologically positioned to help our global client base optimize their reservoirs and to address their evolving needs we remain.
<unk> focused and are the most technologically advanced client focused reservoir optimization company in the oilfield service sector. The.
The company will remain focused on maximizing free cash and returns on invested capital. In addition to our quarterly dividends will bring value to our shareholders via growth opportunities driven by both the introduction of problem solving technologies and new market penetration in the near term core will continue to use free cash to strengthen its balance sheet will always investing in growth.
Opportunities.
So in closing we thank and appreciate all of our shareholders and the analysts that cover core lab, the executive management team and the board of core laboratories give a special thanks to our worldwide employees that have made these results possible, we're proud to be associated with their continuing achievements. So thanks for spending time with us and we look forward to our next update goodbye for now.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.