Q4 2024 Core Laboratories Inc Earnings Call
I will then review Core's, two operating segments detailing our progress and discussing the continued successful introduction and deployment of core lab technologies as well as highlighting some of Core's operations and major projects worldwide.
Then we'll open the phones for a Q&A session I'll now turn the call over to Gwen for remarks on forward looking statements.
Before we start the conference. This morning, I'll mention that some of the statements. We make during this call may include projections estimates and other forward looking information.
This would include any discussion of the Companys 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 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 also include non-GAAP financial measures reconciliation to the most directly comparable GAAP financial measures is included in the press release announcing our fourth quarter results.
non-GAAP measures can also be found on our website with that I'll pass the discussion back to Larry.
Larry: Thanks Glenn.
Larry: Moving now to some high level comments about our fourth quarter and full year 2024 results core.
Larry: We will continue to execute our strategic plan of technology investments targeted to both solve client problems and capitalize of course technical and geographic opportunities.
Larry: Fourth quarter revenue was down just under 4% compared to Q3 of 2024. However, full year revenue saw an increase of 3%. In addition, while operating income and earnings per share were down sequentially for full year 2020 for the Companys operating income was up 7% and earnings per share was up 9% compared to.
Larry: <unk> 2023.
Larry: In reservoir description revenue for the fourth quarter was down 2% compared to Q3 of 2024, but up 3% from Q4 of last year, reflecting the continued market demand for global for our global rock and fluid Laboratory services. This year over year improvement occurred despite the ongoing trade.
Larry: <unk> and geopolitical conflicts in Russia, Ukraine, and the Middle East that continued to negatively impact demand for laboratory services that are specifically tied to the assay of crude oil and derived products. These geopolitical factors and sanctions are still producing headwinds to both revenue growth and operating margins for reservoir description.
Larry: Despite these hurdles for the fourth quarter ex items operating margins in reservoir description, we're still strong at 16% down sequentially by 110 basis points, but up year over year by 170 basis points as we continue to focus on operational efficiencies.
Larry: And production enhancement fourth quarter revenue was down 7% sequentially compared to Q3 of 2024 and roughly flat for the full year 2024 versus 2023.
Larry: Ex items fourth quarter 2020 for operating margins in production enhancement or 4%.
Larry: In 2024, the company did experience a higher level of international product sales compared to 2023. However, these were offset by a decline in U S product sales, reflecting lower levels of onshore completion activity in 2024 compared to 2023.
Larry: Completion diagnostic services that were scheduled for 2020 for the Gulf of Mexico, and we are delayed by multiple hurricanes have now been rescheduled by our clients to early 2025, despite lower U S. Onshore completion activity for the full year demand for completion diagnostics were up nicely.
Larry: In line with our stated financial strategy after funding our dividend core continued to dedicate the majority of its free cash to pay down debt during the fourth quarter core net debt was reduced by nearly $12 million.
Larry: This reduction in our outstanding net debt also decreased cores leverage ratio to 131 down from 147 last quarter, eliminating approximately 10% of the company's outstanding debt compared to the end of Q3.
Larry: This is the lowest cost leverage ratio has been in the last eight years marketing another significant step in our pledge to strengthen our balance sheet and Delever the company.
Larry: In addition to paying our quarterly dividend core lab returned excess free cash to our shareholders by repurchasing nearly 265000 shares of company stock during the fourth quarter, we will continue to focus free cash and reducing debt and strengthening our balance sheet, while evaluating other opportunistic uses of free cash to improve shareholder value.
Larry: <unk>.
Larry: Lastly for the full company ex items for the full year 2024, EPS was <unk> 87 per share representing a year over year growth in earnings of 9%.
Larry: As we look ahead core will continue to execute as key strategic objectives by one introducing new product and service offerings in key geographic markets to maintaining a lean focused organization and three maintaining our commitment to delevering the company and returning excess free cash to shareholders.
Larry: Now to review core lab strategies and the financial tenants. The company has used to build shareholder value over our 29 year history as a publicly traded company.
Larry: The 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 service.
Larry: I'll talk more about some of our latest innovations and the operational review section of this call.
Larry: While we continue to pursue 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 I'll now turn it over to Chris for the detailed financial review.
Chris: 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.
Chris: Additionally, during the fourth quarter of 2024, the company recorded an adjustment of $4 1 million for the write down of certain assets and discontinued inventory items as well as costs associated with further consolidation of operational facilities.
Chris: Fourth quarter also includes a gain of $3 3 million on insurance proceeds received and the reversal of stock compensation expense for certain performance share awards, which did not vest.
Chris: The comparison periods for the third quarter of 2024 and fourth quarter of 2023 also include items that were discussed in those calls and highlighted in our earnings release for those periods. These.
Chris: These items have also been excluded from our discussion of the financial results today.
Chris: Can find a summary of those items in the tables attached to our press release for the fourth quarter and full year of 2024.
Chris: So now looking at the income statement revenue was $129 2 million in the fourth quarter down 4% compared to the prior quarter and up slightly year over year.
Chris: The sequential decline was primarily associated with a decrease in U S. Onshore activity. Additionally, our laboratory services associated with crude assay analysis have been adversely impacted in certain regions due to the ongoing conflicts in Ukraine, Russia and the middle East.
Chris: For the full year 2024 revenue was $523 8 million up 3% year over year, which was driven by growth in our service revenue and partially offset by a lower level of product sales.
Chris: Of this revenue service revenue, which is more international was $96 5 million for the quarter down 2% sequentially and up 2% from last year.
Chris: The decline in U S land activity continued throughout the fourth quarter and into the first quarter of 2025.
Chris: However, this was partially offset by improved activity on completion diagnostic projects in the Gulf of Mexico, which were negatively impacted by storms in the third quarter.
Chris: Although the ongoing geopolitical conflicts continue to negatively impact crude assay laboratory services in certain international regions. We continue to see growth for both our reservoir rock and fluid analysis as well as completion diagnostic services in several international regions.
Chris: For the full year of 2024 service revenue of $388 2 million was up over 4% compared to $371 9 million in 2023.
Chris: Product sales, which is equally tied to U S and international activity was $32 7 million for the quarter down 8% sequentially and down 2% from the fourth quarter of 2023.
Chris: The sequential and year over year decrease in product sales was primarily due to a decline in the U S onshore activity, while product sales to international markets were flat sequentially, but increased 8% year over year.
Chris: For the full year of 2024 products sales of $135 6 million were down 2% from $137 9 million in 2023.
Is primarily associated with the activity decline in the U S onshore market.
Chris: Moving on to cost of services ex items for the quarter was slightly below 76% of service revenue.
Chris: Comparable to the prior quarter and the same quarter in 2023.
Chris: We will continue to see improvements in absorption of cost and utilization of our global Laboratory network with growth in these services.
Chris: However, the service side of our business has been more impacted by the geopolitical conflicts and associated sanctions the.
Chris: The volatility in crude oil prices and more recently expanded sanctions continue to cause disruptions to the trading and maritime movement of crude oil and derived products and the associated crude assay laboratory services that we provide.
Chris: The company will continue to manage its cost structure as effectively as we can through these temporary disruptions in certain regions.
Chris: For full year 2020 for cost of services ex items was below 77% of service revenue, which compared to 76% in 2023.
Chris: Cost of sales ex items in the fourth quarter was 90% of sales revenue compared to 88% in the prior quarter and 91% in the same quarter in 2023.
Chris: The increase this quarter is primarily due to reduced manufacturing efficiencies associated with lower U S onshore sales.
Chris: The company anticipates the U S onshore activity levels will begin to improve as the first quarter of 2025 unfolds and reached similar levels compared to 2024.
Chris: The company will continue to manage the business as efficiently as possible through this volatility in the U S market.
Chris: For the full year 2020 for cost of sales ex items was approximately 88% of sales revenue, which compares to 85% in 2023.
Chris: G&A ex items for the quarter was $9 $9 million down slightly compared to the prior quarter.
Chris: Full year 2020 for G&A ex items was $38 4 million compared to $36 6 million in the full year of 2023.
Chris: For 2025, we expect G&A to be approximately 40% to $44 million.
Chris: It is also important to note that 100% of our corporate G&A expenses are allocated and absorbed into the financial performance of the reported segments.
Chris: Depreciation and amortization for the quarter was $3 7 million and flat compared to the last quarter, but down compared to $3 9 million in the same quarter last year.
Chris: EBIT ex items for the quarter was $15 7 million down $2 5 million from last quarter, yielding an EBIT margin of over 12%.
Chris: Year over year EBIT ex items for the fourth quarter was up slightly from last year.
Chris: Our operating income for the quarter on a GAAP basis was $14 2 million.
Chris: Full year 2020 for EBIT ex items was $65 3 million up 7% from $61 2 million in 2023 and.
And on a GAAP basis, EBIT was $58 6 million for 2024 compared to $54 6 million in 2023.
Chris: Interest expense of $2 $6 million decreased over 15% compared to $3 1 million in the prior quarter and decreased 27% compared to $3 6 million in the fourth quarter of last year.
Chris: The decrease in interest expense is a direct result of the Companys continued effort to reduce debt.
Chris: Income tax expense at an effective tax rate of 20% and ex items was $2 6 million for the quarter on.
Chris: On a GAAP basis tax expense was $4 1 million for the quarter and for the full year of 2020 for income tax expense on a GAAP basis was $14 million compared to $4 2 million and $2 22023.
Chris: And the lower tax expense in 2023 is primarily due to the tax benefit of $11 6 million associated with the re domestication transaction that was executed in 2023.
Chris: Additionally, the company continues to evaluate and finalize tax planning associated with the new tax structure. After re domesticating the parent company from the Netherlands to the to the U S.
Chris: For 2025, we project the company's effective tax rate to be approximately 25%.
Chris: However, the effective tax rate will continue to be somewhat sensitive to the geographic mix of earnings across the globe and items that are discrete to each quarter.
Chris: Net income ex items for the quarter was $10 4 million down from $11 8 million in the prior quarter, but up from $8 9 million in the same quarter last year.
Chris: On a GAAP basis, we recorded net income of $7 4 million for the quarter.
Chris: For the full year 2024, net income ex items was $41 6 million up 10% from $37 8 million in 2023.
Chris: GAAP net income for the full year of 2024 was $31 4 million.
Chris: Earnings per diluted share ex items was <unk> 22 for the quarter down from 25 in the prior quarter, but up from 19.
Chris: In the same quarter last year.
Chris: On a GAAP basis earnings per diluted share was <unk> 15 for the quarter and for the full year 2024 earnings per diluted share ex items was <unk> 87.
Chris: Up 9% from 2023.
Chris: And on a GAAP basis full year 2024.
Chris: EPS was <unk> 66.
Chris: Turning to the balance sheet receivables were $111 8 million, which decreased approximately $5 8 million from the prior quarter.
Chris: Our dsos for the fourth quarter were at 76 days compared to 74 days in the prior quarter.
Chris: Inventory was $59 4 million as of December 31, a decrease of approximately $6 1 million from last quarter end and down $12 3 million from the end of last year.
Chris: Inventory.
Chris: <unk> for the quarter improved to $2, one from $1 9 million last quarter and have continued to improve over the last few quarters.
Chris: Despite a challenging U S onshore market this quarter our team did a nice job remaining focused on our inventory management and we will remain focused on these efforts as we continue to look for improvement in 2025.
Chris: Now to the liability side of the balance sheet. Our long term debt was $128 million at December 31, 2024, a reduction of $14 million this quarter.
Chris: Considering cash of $19 2 million net debt was $108 8 million a decrease of $11 7 million from $125 million at the end of the prior quarter.
Chris: For 2024, net debt was reduced by $42 million or 28% from the end of last year.
Chris: Additionally, our leverage ratio continued to improve throughout 2024 and decreased from 176 last year end to 131 at December 31 2024.
Chris: As Larry mentioned earlier this is the lowest our leverage ratio has been in over eight years.
Chris: Our debt is currently comprised of our senior notes at $110 million and $18 million outstanding under our bank credit facility.
Chris: Our credit facility has a borrowing capacity of $135 million of which approximately.
Chris: <unk> $106 1 million, what's still available as of December 31, 2024.
Chris: Since announcing the company's commitment and focus on reducing debt in the fourth quarter of 2019.
Chris: We have reduced net debt by 63%.
Chris: Company will remain focused on executing our strategic business initiatives, while continuing to apply free cash towards reducing debt and lowering the leverage ratio.
Chris: Looking at cash flow for the fourth quarter of 2024 cash flow from operating activities was $20 6 million and after paying for $4 4 million of Capex during the quarter, our free cash flow was $16 2 million.
Chris: For the full year 2024 cash flow from operating activities was $56 4 million and capital expenditures totaled a little over $13 million.
Chris: From this the company generated free cash flow of $43 4 million a significant improvement from $14 2 million in 2023.
Chris: Looking ahead to 2025, we will continue to manage investment in working capital during a period of growth and continue our capital discipline with capital expenditures, primarily targeted at growth opportunities.
Chris: Over our capital expenditures are expected to be elevated as the rebuilding of our Aberdeen facility that was damaged by a fire in February of 2024 is planned for 2025.
Chris: Capital expenditures associated with restoring this facility is estimated to be between 10 and $12 million.
Chris: However, these investments are covered by insurance proceeds either received in 2024 or to be received in 2025.
Chris: The company will report the cap that capex associated with rebuilding the Aberdeen facility separately.
Chris: So excluding the Aberdeen facility, we expect capital expenditures in 2025 to be in the range of $15 million to $17 million.
Chris: Core Lab's Global Laboratory network and intellectual property continues to provide operational leverage and the ability to grow revenue and profitability with minimal capital requirements.
Chris: Additionally, we continue to improve the efficiencies in our global laboratory infrastructure through some consolidate consolidation of.
Chris: Operations and investments in automation.
Chris: Capital expenditures have historically range from two 5% to 4% of revenue even during periods of significant growth.
Chris: 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 and projected companies' financial results, particularly for those shareholders, who utilize discounted cash flow models to assess valuations.
Chris: I will now turn it over to Gwen for an update on our guidance and outlook.
Gwen: Thank you Chris two.
Gwen: <unk> 2025 unfold core will continue to execute its strategic plan technology investments targeted to both soft client problems and capitalize on <unk> growth opportunity.
Gwen: A cautious near term approach was adopted by operators in the back half of 2024, driven by concerns over a potential imbalance between crude oil supply and demand. However, we maintain our constructive long term outlook on international upstream projects for.
Gwen: 2025 and beyond.
Gwen: The IEA, the EIA and OPEC plus continue to forecast growth in crude oil demand of approximately one one to one 4 million barrels per day for 2025, which is in addition to the natural decline of production from existing fields.
Gwen: As such continued investment in the development of onshore and offshore crude oil fields will be required to meet demand.
Gwen: In the near term, we expect that crude oil markets will remain volatile due to the global economic uncertainties and geopolitical risk in.
Gwen: In January of 2025.
Gwen: <unk> sanction impacted.
Gwen: These men and training of crude oil and derived products along with the demand of necessary laboratory assay work and prohibited product sales and services to a broader group of entities.
Gwen: In alignment with this outlet core will remain well engaged on long cycle international projects.
Gwen: Looking ahead as international project activity is expected to be steady.
Gwen: <unk> long term upstream project from the South Atlantic margin.
Gwen: <unk> West Africa, Norway.
Gwen: Italy, and certain areas of Asia Pacific support mid single digit growth year over year and demand for core lab services and products.
Gwen: In the U S onshore activity is projected to be flat to slightly down compared to 2024.
Gwen: In addition to the to the geopolitical risks and recently expanded sanctions, we expect typical sequential seasonal industry patterns will cause activity in the first quarter of 2025 to decline in some region.
Gwen: Severe weather in the U S and the Mediterranean resulted in suspended client activity and facility closures.
Gwen: Core projects reservoir description.
Speaker Change: Excuse me first quarter revenue to range from $82 million to 85 million with operating income of 9 million to $10 7 million.
Speaker Change: The first quarter 2025 onshore U S drilling and completion activity was adversely impacted by freezing conditions and continued to decline throughout January however activity is expected to improve as the quarter unfolds.
Speaker Change: Consequently production enhancement first quarter revenue is expected to range from 39 million to 42 million with operating income of $1 1 million.
The company's first quarter revenue is projected to range from $121 million to 127 million with operating income of $10 2 million to $12 8 million, yielding operating margins of approximately 9%.
Speaker Change: <unk> effective tax rate is projected at approximately 25% for 2025.
Speaker Change: This change in the effective tax rate is projected to increase income tax expense for the first quarter of 2025 by approximately $500000.
Speaker Change: Such EPS for the first quarter is expected to range from 12.
Speaker Change: To 16.
Speaker Change: The company's first quarter 2025 guidance is based on projections for underlying operations and excludes gains and losses and foreign exchange I will now turn the call back to Larry.
Larry: Thanks Glenn.
Larry: 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.
Larry: Looking at the macro as Glenn mentioned after assessing current and near term economic conditions recent IEA EIA and OPEC projections are forecasting growth in global crude oil demand of between one one and $1 4 million barrels per day for 2025 compared to 2024.
Larry: This projected growth in demand is in addition to the production that needs to be brought online to account for the natural decline from existing producing fields.
Larry: Furthermore, the EAA is forecasting U S oil production to only rise from $13 2 million barrels per day in 2024 to $13 5 million barrels per day in 2025.
Larry: Excluding the Covid period year over year growth of only 300000 barrels per day would represent the smallest annual AD to U S oil production since 2018.
Larry: In addition, the.
Larry: The most recent EIA forecast projects that U S production growth will rise to only $13 6 million barrels per day in 2026, an increase of just 101000 barrels per day.
Larry: U S tight oil production has been by far the largest component of non OPEC production growth since 2010 <unk>.
Larry: Continued growth in global oil demand combined with slowing year over year U S. Oil production growth supports the thesis that future crude oil demand will be largely met from international conventional offshore discoveries and developments all trends that bode well for increasing demand for reservoir description services.
Larry: Pattern that we project will play out for the next several years.
Larry: Production enhancement in addition to its exposure to the U S. Land market also has expanding opportunities in international markets such as with unconventional plays in the middle East and emerging onshore and offshore conventional plays in a number of regions.
Larry: <unk> also continues to expand its portfolio of innovative offerings for perforating applications plug and abandonment operations and completion diagnostics. In addition in 2020 for core lab opened a completion diagnostics lab and the middle east to better serve the opportunities in that region.
Larry: Now, let's review the fourth quarter performance of our two business segments, turning first to reservoir description for the fourth quarter of 2024 revenue came in at 80 at $86 8 million down 2% compared to Q3 for.
Larry: For Q4 operating income for reservoir description ex items was $14 1 million down from $15 4 million in Q3, but operating margins were still strong at over 16% slightly below the 17% achieved in Q3 of 2024.
Larry: While demand for reservoir description lab services remains strong across our global network demand softened in the U S market in line with reduced U S land activity and headwinds persisted from international geopolitical conflicts and associated sanctions. These.
Larry: These gilles geopolitical conflicts and sanctions detracted from growth trends that are occurring across other regions.
Larry: Now for some operational highlights from reservoir description during.
Larry: During the fourth quarter of 2024.
Larry: A leading middle east offshore operator engaged core lab's formation damage team to address challenges related to the Reinjection of produced water from our mature field.
Larry: Cost effective and environmentally sound disposal of produced water often influence influences. The return on investment that operators can achieve from an oil and gas field of.
Larry: Of course team conducted advanced fluid compatibility and core flooding experiments in the laboratory. These analytical results provided critical data for both the design of cost effective water treatment facilities and the optimization of the operator's reinjection strategies.
Larry: Specifically these test determined the need for filtration and chemical treatment strategies and also identify the most favorable injection rates. In addition, the lab results determined if the injected water would react adversely with either of the institute formation water or the rocks.
Larry: This project nicely illustrates how core Lab's reservoir description services are required throughout the lifecycle of oil and gas fields.
Larry: Now to production enhancement, where core lab technologies continue to help our clients optimize their well completions and improved production.
Larry: Revenue for production enhancement for Q4 came in at $42 4 million down, 7% compared to Q3 and down 3% year over year.
Larry: Fourth quarter operating income for production enhancement ex items was $1 5 million, yielding operating margins of 4% for.
Larry: For the full year revenue was 178 million and operating income ex item.
Larry: $12 million down 16% compared to 2023.
Larry: Production enhancement did achieve both slightly higher levels of international product sales up one 1% as well as growth in demand for completion diagnostic services, which were up 15% largely reflecting improved market penetration of innovative technology offerings in the U S. However product sales in the U S did feel the impact.
Larry: <unk> of reduced U S land completion activity.
Larry: Now for operational highlights for production enhancement.
Larry: During the fourth quarter of 2020 for core lab continue to build on the success of its re frac energetic technologies for mechanical isolation re completions in unconventional reservoirs re completions allow operators to extend the productive life of their well inventory by implementing techniques that isolate previously produced edibles before.
Larry: For accessing untapped reservoir sections between the previously completed stages of a horizontal well.
Larry: Several north American operators approach core lab's ballistic engineers to design fit for purpose energetic solutions for re completions.
Larry: Conventional shaped charges would provide inferior performance, leading to lower frac efficiencies and reduced stimulated reservoir volumes in the new stages.
Larry: <unk> experts.
Larry: <unk> proprietary ballistics to overcome the completion challenges presented in these mechanical isolation re completions, which include the penetration of multiple downhole casing strings.
Larry: And re completions that used cores proprietary refract technology operators reported approximately 50% improved hydraulic fracturing efficiencies leading to significantly higher hydrocarbon recovery rates.
Larry: Also in the fourth quarter of course completion diagnostic technologies were used by a deepwater Gulf of Mexico, Operator, who saw course helped to confirm the competency of their Frac pack completion.
Larry: To do so core employed at spectra stand proppant tracing spectral <unk> gamma ray logging at <unk> technologies. The diagnostic data showed sufficient profit reserve above the top of the sand control screen, but a complete absence of proppant across the lower third of the screen <unk> engineering team was able to identify that.
Larry: Formation Science had entered the annulus space prior to the Frac pack.
Larry: The daily drilling reports revealed that numerous tubing movements had occurred while pumping the frac pack.
Speaker Change: Core's diagnostic experts in the operator's completions team agree that the excess tubing movements had drawn formation science into the annulus.
Speaker Change: Operator chose to set a plug in the tubing above the formation material and proceed with production operations, thus preventing an expensive completion failure.
Speaker Change: That concludes our operational review, we appreciate your participation and Dave will now open the call for questions.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: Youre using a speakerphone please pick up the handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two.
Stephen: Our first question comes from Stephen <unk> with Stifel. Please go ahead.
Speaker Change: Thanks, Good morning, everybody.
Steve: Thanks, Steve.
Steve: I'll, probably ask you this almost every quarter, but when we think about production enhancement in the U S market.
Steve: How do you think about the competitive dynamics and the pricing environment.
Steve: We had heard recently that the oriented perf guns, we're having a great deal of success in.
Steve: Enhancing production. So I'm just curious how you kind of what you see in that market and how you.
Steve: What you can do maybe get paid more for the value that we generate.
Steve: Yes, well look it's a crowded market, Steve we've talked about this with you in and across our conversations it's a crowded market with a lot of competition and you've got some.
Steve: Buyers that want to pay for technology, and you've got and performance and you've got some buyers that want <unk>.
Steve: Commodity products and so we.
Steve: We're going to always try to.
Steve: Aim ourselves at technology advantages that differentiate our projects. So I'd say, we've seen stable pricing in that market.
Steve: Yes.
Steve: Wish it was higher.
Steve: And we were getting rewarded more for that technology, but with so much capacity in that space I think that it's going to weigh on everybody that's playing in that market.
Steve: Okay, great. Thanks, and then.
Steve: Can you talk a little bit about the about the R&D business internationally.
Steve: Kind of.
Steve: What youre seeing on the.
Steve: On both I guess on the pricing side, but also when you think about 25% what do you think it will be the biggest drivers of that business.
Steve: Yes, so I think we maybe bifurcate a little bit of what we're seeing in Q1, and what we dialed into our into our forecast for Q1, a couple of things.
Steve: We very regularly I'll call. It typically see and expect a seasonal decline from Q4 Q1 and reservoir description operations some of Thats weather and we've had some activity severe weather originally that resulted in some closures along the Gulf coast that accentuated that a bit narrow.
Steve: Helps when you've got office closures tied to that but more importantly, there is a normal seasonal pattern that unfolds with our client activity that that pushes reservoir description down on top of that and rather significantly for us.
Steve: The sanctions that came out and were announced on January 10th.
Steve: Actually.
Steve: Hit both segments of our business.
Steve: And it affected product sales into eastern Europe, and it effects.
Steve: Reservoir description operations as they relate to laboratory work on the crude assay work.
Steve: That are required for trading and transportation of crude oil. So a bunch of ships were added to be excluded.
Steve: From the market and trading activity really kind of came to a halt for a little while and thus the demand for lab services, while people sort out the sanction so that influences the Q1 outlook.
Steve: For us as we look further throughout the year, we still think reservoir description will be up by mid single digits International activity is still strong forest project progression still looks good I think we're probably a bit more optimistic than some of the others have a forecast for.
Steve: For reservoir for international activity as it relates to reservoir description.
Steve: No.
Steve: No I'd say no.
Steve: Downside for us on pricing and in fact, I think year over year, we were seeing up.
Steve: By mid single digits for reservoir description.
Steve: Great. Thank you for the color.
Steve: Yes sure.
Steve: And the next question comes from Josh Jayne with Daniel Energy Partners. Please go ahead.
Steve: Hey, Josh.
Speaker Change: Thanks. Good morning first question I, just wanted to dig into that a little bit more going back to the mid single digit activity increase internationally, maybe you guys could give a bit more detail walk them through the world.
Speaker Change: Through your international markets, where youre seeing the most growth and where things may be more muted over the course of 2025.
Speaker Change: Yes so.
Speaker Change: I guess one thing Josh.
Speaker Change: About over time is.
Speaker Change: We tend to buy somewhat by design somewhat by just.
Speaker Change: How are projects unfold, we tend to not be.
Speaker Change: A leading indicator of what's happening in the in our sector in the industry, particularly in reservoir description, we tend to lag on the way up and lag on the way down and so some of the folks that are more involved in well construction.
Speaker Change: And early bump in activity and then things slow down for them.
Speaker Change: We're still I would call it in a very constructive face for us as it relates to formation evaluation in particular are pointed out the middle east on that projects in multiple countries that are in the early stages of execution for us and so we think those have some pretty nice legs on them.
Speaker Change: I think the south Atlantic margin still looks good.
Speaker Change: Although.
Speaker Change: In a few places like West Africa, and South Atlantic margin.
Speaker Change: We have seen some clients report some dry holes that will impact us over time.
Speaker Change: They didn't discover the sand that they were looking for or didn't finding hydrocarbons, so rock and fluid analysis.
Speaker Change: We'll kind of falloff on that but.
Speaker Change: I think there's still very constructive on the SaaS or the lending margin.
Speaker Change: For several years to come.
Speaker Change: Middle East Asia Pacific.
Speaker Change: I'd say, we are very <unk>.
Speaker Change: <unk> optimistic about Australia, and Indonesia, We see project work in the North Sea.
Speaker Change: Norway side of North Sea looks good for us.
Speaker Change: So I think that looks pretty strong for us I will point out one place, where we're not active and I think its going to pose a headwind for some others is Mexico.
Speaker Change: We got out of Mexico operationally, a while ago, we will still sell product to service into it but we will.
Speaker Change: If they want to come to us and have that done out of the U S. But we're out of operationally out of Mexico, and so I think that will be.
Speaker Change: At least for the near term that will prove out to be a good move by us to.
Speaker Change: Vacate that market.
Speaker Change: Thanks for all the detail I appreciate it.
Speaker Change: Second question is more of a shorter term I just wanted to get a bit of a grasp on it a little bit which is the Q1 weather could you just talk about where exactly you saw the largest impact how many days you were ultimately down I know you talked about Gulf Coast and office closures and then we felt some of it in Houston.
Speaker Change: But maybe you could just go into that a little bit more so the industry could have a better idea of where we stood over the course of Q1.
Speaker Change: Yeah sure so our main <unk>.
Speaker Change: Product manufacturing facility.
Speaker Change: Is up in Godley, Texas, we had.
Speaker Change: Two plus days to five days or so of freeze related closures there.
Our largest laboratory facility in the World in Houston was closed for a couple of days.
Speaker Change: And.
Speaker Change: We got the I guess, we got the light end of.
Speaker Change: All of it.
Speaker Change: On our on the reservoir description side laboratories in the.
Speaker Change: <unk>.
Speaker Change: The Texas, Louisiana border, So Beaumont Port Arthur area.
Speaker Change: And over into New Orleans areas, South, Louisiana, Broussard, all had closures of three days or so.
Speaker Change: And so we had multiple days in the early part of the quarter. We know those we were closed there some of the ports that.
Speaker Change: Handle the ships that drive our.
Speaker Change: Shipping.
Speaker Change: Related laboratory analytical work for crew.
Speaker Change: Crude assay work that.
Speaker Change: That had a they were closed so we werent operating I would say all told about $1 million of revenue with very high Incrementals, because we still have all the employees of staff.
Speaker Change: Came out of Q1, just from those closures along the Gulf Coast.
Speaker Change: And a little bit a little bit of interaction as well in the Mediterranean and we had a few closures there.
Speaker Change: Thank you very much I'll turn it back.
Speaker Change: Again, if you have a question. Please press star and then one.
Speaker Change: Our next question comes from David Smith, with Pickering Energy Partners. Please go ahead.
David Smith: Hey, Thanks for taking my question good.
Speaker Change: Good morning, Congratulations on the strong Q4 free cash flow and the balance sheet progress yes.
David Smith: Yes. Thank you.
Speaker Change: Following up on the commentary for the full year outlook.
Speaker Change: On reservoir description I guess first I did want to ask it.
Speaker Change: Fair to think that maybe.
Speaker Change: Maybe it's the geopolitical disruptions, having an outsized impact on the decremental margins for <unk>.
Reservoir description in Q1.
Speaker Change: No question about that Dave and I guess.
Speaker Change: We can all take our view of what's going to happen with the sanctions at I will say.
Speaker Change: We didn't see the expansion that was announced on January 10th.
Speaker Change: But it had an immediate.
Speaker Change: Immediate impact on both segments of our business.
Speaker Change: Product shipments into.
Speaker Change: Eastern Europe.
Speaker Change: That that will go through in Q1, we think it will come back if the sanctions are.
Speaker Change: Withdrawn or pullback.
Speaker Change: And then also on the crude assay work.
Speaker Change: It is a very quick effect on our profitability. So if those unwind and we think that.
Speaker Change: To keep the price of oil.
Speaker Change: Where people are comfortable with it we think they will unwind than there is opportunity for us to maybe claw some of that back later in the year, but right now as we look at the first quarter.
Speaker Change: Just wanted to be open about those those headwinds that emerged.
Speaker Change: Okay.
Speaker Change: I appreciate it.
Speaker Change: Reservoir description.
Speaker Change: Mid single digits in 'twenty five revenue was up.
Speaker Change: What do you think that the almost 60% incremental margins from 24.
Speaker Change: Good framework for 425 after after Q1 at least yes.
Speaker Change: Yes, I think so I mean, thats and Thats not just a 2024 number.
Speaker Change: That's a longstanding number and I think as activity increases.
Speaker Change: It could even be higher.
Speaker Change: Think about the fixed cost structure of our lab network, you put more rocks more fluids through that lab structure on reservoir description and the Incrementals.
Speaker Change: 60% is a good run rate, we talk about north of 50% being.
Speaker Change: I hate to say this easily achievable, but regularly achievable.
Speaker Change: Nearly 60% last year and if we're busier I think those can be that can be even a little bit higher.
Speaker Change: Great. Thank you very much.
Speaker Change: Okay. Okay.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Larry Bruno for any closing remarks.
Larry Bruno: Okay, we'll wrap up here in summary, Core's operational leadership continues to position the company for improving client activity levels in the coming quarters, 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 uniquely focused and are the most.
Larry Bruno: Technologically advanced client focus reservoir optimization company in the oilfield sector.
Larry Bruno: 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.
Larry Bruno: While always investing in growth opportunities and evaluating various methods to increase shareholder value, including returning excess free cash to our shareholders. 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.
Larry Bruno: 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.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Larry Bruno: Yes.
Larry Bruno: Okay.