Q1 2025 Core Laboratories Inc Earnings Call
Speaker Change: . . . . . . . . . . . .
Speaker Change: Today and welcome to the Core Laboratories first quarter 2025 earnings conference call. All participants will be in listen only mode.
Speaker Change: Following Chris Gordon will provide some comments on the companys outlook and guidance.
Chris Gordon: I'll then review course, 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.
Chris Gordon: We will open the phones for a Q&A session I'll now turn the call over to Gwen for remarks on forward looking statements.
Chris Gordon: Before we start the conference. This morning ill mention some of the statements. We make during this call may include projections estimates and other forward looking information.
Chris Gordon: Would include any discussion of the company's business outlook.
Chris Gordon: 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.
Chris Gordon: 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.
Chris Gordon: We undertake no obligation to publicly update or revise any forward looking statement.
Chris Gordon: Whether as a result of new information future events or otherwise.
Chris Gordon: 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 first quarter results.
Chris Gordon: Those non-GAAP measures can also be found on our website.
Larry: That said I'll pass the discussion back to Larry.
Chris Gordon: Thanks, Glenn movie.
Larry: Moving now to some high level comments about our first quarter 2025 results.
Larry: Core continued to execute its strategic plan of technology investments targeted to both solve client problems and capitalize on course technical and geographic opportunities.
Larry: First quarter 2025 revenue was down 4% compared to Q4 of 2024 with operating income and earnings per share also down sequentially.
In addition to the normal seasonality that commonly yields a decline in client activity from Q4 to Q1. There were also headwinds in Q1 due to the ongoing geopolitical conflicts in Russia, Ukraine and the Middle East. These were compounded by expanded sanctions that were introduced in early January these expanded sanctions impac.
Larry: As both reservoir description and production enhancement and create a temporary operational inefficiencies.
Larry: Looking at reservoir description in more detail revenue for the first quarter was down 7% compared to Q4 of 2024.
Larry: As mentioned this reflects both typical seasonal patterns and the impact of the enhanced sanctions that were announced in January the sanctions created uncertainty and volatility in commodity prices, which in turn impacted demand for the laboratory assay services. We provide that are tied to the maritime transportation and trade of crude oil.
Larry: Derived products, we did see demand for these services pick up late in the quarter.
Larry: For the first quarter ex items operating margins in reservoir description, where 10% down sequentially by 670 basis points. The loss of revenue tied to the geopolitical events created high Decrementals, but of course operational leadership quickly took steps to realign our cost structure, which helped mitigate the impact on the first.
Larry: <unk> and should also help improve margins in future quarters.
Larry: And production enhancement first quarter revenue was flat compared to Q4 of 2024 here again newly imposed sanctions created headwinds in Q1 as planned product sales and deliveries to certain entities in eastern Europe were derailed by these political decisions.
Larry: Ex items first quarter, 2025, operating margins and production enhancement or 8% expanding by 450 basis points sequentially.
Larry: The sequential improvement in margins was primarily driven by increased demand for high margin diagnostic services in the U S.
Larry: Diagnostic services saw greater demand in U S land applications as well completions are becoming more complex.
Larry: Segment also benefited from some catch up work in the Gulf of Mexico on well completions that were reschedule following hurricane related delays last summer.
Larry: In addition, operational operational efficiencies and reduced expenses and product manufacturing are also starting to improve financial performance.
Larry: In line with our stated financial strategy after funding our dividend core continued to strengthen its balance sheet. During the first quarter of course net debt was reduced by approximately $5 million and our leverage ratio remained at its lowest level in eight years.
Larry: In addition to paying our quarterly dividend core lab returned excess free cash to shareholders by repurchasing nearly 132000 shares of company stock during the first quarter a value of $2 million.
Larry: We will continue to focus on reducing debt and strengthening our balance sheet, while evaluating other opportunistic uses of free cash to improve shareholder value.
Larry: As we look ahead core will continue to execute on our 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 and returning excess free cash to shareholders.
Larry: Now to review core lab strategies and the financial tenants at the company has used to build shareholder value over our 29 year history as a publicly traded company.
Larry: Most of our shareholders clients and employees will always be well served by core labs, a resilient culture, which relies on innovation leveraging technology to solve problems and dedicated customer service.
Larry: Talk more about some of our latest innovations in the operational review section of this call.
Larry: While we continue to 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 I'll now turn it over to Chris for the detailed financial review. Thanks.
Speaker Change: 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 25%.
Speaker Change: So accordingly, our discussion today excludes any foreign exchange gain or loss for current and prior periods.
Speaker Change: Additionally, the financial results for the first quarter of 2025 includes a charge of $3 5 million for noncash stock compensation expense associated with future vesting of performance shares for certain employees, who have reached eligible retirement age.
Speaker Change: We also recorded a cost of $3 4 million associated with employee severance and additional costs to exit certain facilities, because we continue to optimize our global footprint.
Speaker Change: These items have also been excluded from the discussion of our financial results.
Speaker Change: So looking at the income statement.
Speaker Change: Revenue was $123 6 million in the first quarter down 4% compared to the prior quarter and down 5% year over year.
Speaker Change: Core lab will typically experience a seasonal decline in revenue from the fourth quarter to the first quarter of each year.
Speaker Change: As Larry mentioned, the first quarter of 2025 was also negatively impacted by the expanded sanctions announced in January.
Speaker Change: Which I will discuss further in our overview of service revenue.
Speaker Change: However, the sequential decline in revenue was somewhat offset by growth in reservoir rock and fluid analytical programs in certain international regions and our completion diagnostic services also had strong growth in both the U S and international markets.
Speaker Change: Of this revenue service revenue, which is more international was $95 1 million for the quarter down 1% sequentially and year over year.
Speaker Change: Our service revenue associated with crude assay services in some international regions continues to be impacted and disrupted due to the ongoing geopolitical conflicts and the associated sanctions that were expanded.
Speaker Change: Once the expanded sanctions were announced in January we saw a decrease in demand for crude assay services, which continued throughout February but then improve somewhat as we exited the quarter.
Speaker Change: Strong growth in the U S and certain international regions for well completion diagnostic services helped offset some of the seasonal decline we normally see in the first quarter and the negative impact caused by the expanded sanctions.
Speaker Change: Product sales, which are more equally tied to North America and international activity were $28 5 million for the quarter down, 13% sequentially and down 14% year over year.
Speaker Change: Our international product sales are typically larger bulk orders and can vary from one quarter to another.
Speaker Change: Product sales were also impacted by the expanded sanctions as one large international order for $1 1 million scheduled for delivery in February had to be suspended.
Speaker Change: Additionally, we had some large laboratory instrumentation sales that were originally scheduled to be delivered in the first quarter, but were delayed into the second quarter.
Speaker Change: Sequentially, the lower international product sales were partially offset by higher level of product sales in the U S land market.
Speaker Change: Moving on to cost of services ex items for the quarter was approximately 77% of service revenue up slightly from 76% in the prior quarter and flat compared to last year.
Speaker Change: The sequential increase is primarily due to absorption of fixed costs on lower revenue in the first quarter of 2025 compared to last quarter.
Speaker Change: For the remainder of 2025, we anticipate service revenue to grow with growth primarily coming from certain international markets.
Speaker Change: Cost of sales ex items in the first quarter was 91% of revenue up slightly compared to 90% last quarter and 93% last year.
Speaker Change: The sequential increase was due to higher absorption of fixed costs on lower revenue in the quarter, partially offset by reductions to our cost structure and improved manufacturing efficiencies.
Speaker Change: We anticipate improvement in the manufacturing absorption rate in future quarters in line with projected growth in product sales.
Speaker Change: G&A ex items for the quarter was $10 1 million, a slight increase from $9 9 million in the prior quarter.
Speaker Change: For 2025, we expect G&A ex items to be approximately $40 million to $42 million.
Speaker Change: Depreciation and amortization for the quarter was $3 7 million flat compared to the last quarter.
Speaker Change: EBIT ex items for the quarter was $11 $8 million, which decreased compared to $15 7 million last quarter, and yielding an EBIT margin of approximately 10%.
Speaker Change: Our EBIT for the quarter on a GAAP basis was $4 4 million.
Speaker Change: Interest expense of $2 6 million remained relatively flat compared to the prior quarter, but has decreased from $3 4 million last year due to lower borrowings on the credit facility.
Speaker Change: Income tax expense at an effective tax rate of 25% and ex items was $2 3 million for the quarter.
Speaker Change: On a GAAP basis, we recorded a tax expense of $1 7 million for the quarter.
Speaker Change: The first quarter tax expense includes approximately $1 4 million of discrete items, primarily associated with changes in estimates as we finalize the return for certain tax jurisdictions.
Speaker Change: 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. We continue to project the company's effective tax rate to be approximately 25%.
Speaker Change: Net income ex items for the quarter was $6 7 million a decrease from $10 4 million in the prior quarter and from $8 9 million in the first quarter of last year.
Speaker Change: On a GAAP basis, we had a net loss of 200000 for the quarter.
Speaker Change: Earnings per diluted share ex items was <unk> 14 for the quarter a decrease from 22 in the prior quarter and 19 from last year.
Speaker Change: On a GAAP basis, we had a slight loss, which rounds to zero on a per share basis.
Speaker Change: Turning to the balance sheet receivables were $117 million in increased approximately $5 3 million from prior quarter.
Speaker Change: Our dsos for the first quarter were at 79 days up from 76 days last quarter the.
Speaker Change: The increase was primarily driven by the timing of billings during the quarter, which started out slow and finished strong.
Speaker Change: We anticipate that our DSO will improve in future quarters.
Speaker Change: Inventory at March 31, 2025 was $59 million slightly down from last quarter end and down approximately $11 7 million year over year.
Speaker Change: Inventory turns for the quarter were at one eight and with continued focus we anticipate inventory turns will gradually improve and inventory levels will continue to decline as we progress through the remainder of 2025.
Speaker Change: And now to the liability side of the balance sheet. Our long term debt was $126 million at the end of the first quarter and considering cash of $22 1 million net debt was $103 9 million.
Speaker Change: Which decreased $4 9 million from last quarter.
Speaker Change: Our leverage ratio remained at $1 three one unchanged from last quarter end.
Speaker Change: The company will remain focused on executing our strategic business initiatives, while also further reducing its leverage ratio.
Speaker Change: Our debt is currently comprised of our senior notes at $110 million and $16 million outstanding under our bank credit facility.
Speaker Change: Our credit facility has a borrowing capacity of 135 million of which approximately $108 million was still available as of March 31 2025.
Speaker Change: Looking at cash flow for the first quarter of 2025 cash flow from operating activities was approximately $6 7 million and after paying $2 8 million of Capex, our free cash flow for the quarter was $3 9 million.
Speaker Change: Cash from operations was impacted by an increase in working capital as accounts receivable grew by $5 $3 million during the quarter.
Speaker Change: Both in accounts receivable occurred in March, reflecting a higher level of sales as we exited the quarter.
Speaker Change: In February 2020 for fire damaged one building on the campus of the company's advanced Technology Center in Aberdeen, Scotland.
Speaker Change: Losses and damages damages caused by the fire are covered by core lab's insurance programs.
Speaker Change: The insurance proceeds in the capital expenditures associated with replacing the equipment and restoring the building are disclosed separately in the investing section of the cash flow statement.
Speaker Change: These items are not included in the calculation of free cash flow.
Speaker Change: As we indicated in our last call, we expect capex to modestly expand in 2025 compared to 2024, and we will continue to manage investment in working capital. Additionally.
Speaker Change: We expect capex to remain aligned with activity levels and for the full year 2025, we expect capital expenditures to be in the range of $14 million to $16 million.
Speaker Change: The forecast for capital expenditures excludes the capex associated with rebuilding and replacing of the UK facility and equipment that was mentioned earlier as these will be covered by the company's insurance program.
Speaker Change: Core will continue its strict capital discipline and asset light business model with capital expenditures, primarily targeted at growth opportunities.
Core lab's operational leverage continues to provide the ability to grow revenue and profitability with minimal capital requirements.
Speaker Change: Capital expenditures have historically ranged from two 5% to 4% of revenue even during periods of significant growth.
Speaker Change: That same level of laboratory infrastructure intellectual property and leverage exists in the business today.
Speaker Change: 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 in projecting companies' financial results, particularly for those shareholders, who utilize discounted cash flow models to assess valuations.
Speaker Change: I will now turn it over to Gwen for an update on our guidance and outlook.
Speaker Change: Thank you, Chris turning to our outlook recent tariffs announced by the U S. Along with Opec's decision to increase oil production have resulted in a decline in crude oil prices.
Speaker Change: Certainty of demand for crude oil caused by ongoing trade negotiations.
Speaker Change: Bind with the OPEC plus announcement of increased production quite it has raised the likelihood of crude oil inventory levels will rise.
Speaker Change: We maintain our constructive long term outlook on international upstream projects for the remainder of 2025 and beyond.
Speaker Change: The IEA EIA and OPEC plus continue to forecast growth in crude oil demand to be between 700001 3 million barrels per day.
Speaker Change: Demand is mainly driven by non OECD countries in Asia.
Speaker Change: Emerging markets in the Middle East and Africa.
Speaker Change: Outside the U S large scale international oil and gas projects are expected to be more resilient to the near term volatility of crude oil prices.
Speaker Change: We see international project activity to be steady with committed long term upstream projects from the South Atlantic margin, North and West Africa.
Speaker Change: <unk> way, Italy, and certain areas of Asia Pacific The company believes that activity levels associated with smaller scale short cycle crude oil development projects will be more sensitive to the decrease <unk> continued volatility of crude oil prices.
Speaker Change: Such changes in crude oil prices are anticipated to have greater impact on drilling and completion activity level in the U S onshore market.
Speaker Change: Turning to the recent tariff announcements.
Speaker Change: We believe the proposed tariffs will not apply to the vast majority of service revenue and product sales provided by the company.
Speaker Change: Services account for over 75% of the company's total revenue and are currently not subject to tariffs.
Speaker Change: Forest product sales have been less than 25% of total revenue and are primarily manufactured in the U S.
Speaker Change: Import tariffs would not apply to approximately 50% of these products as they are consumed in the U S drilling and completion market.
Speaker Change: Products manufactured in the U S and deliver international clients may attract tariff depending on the outcome of international trade negotiation and last certain raw materials imported and used in the company's U S manufacturing of products may attract import tariffs.
Speaker Change: Applied by the U S.
Speaker Change: The company is currently taking steps to mitigate the impact of potential tariffs.
Speaker Change: Now to our second quarter, 2025 segment and company guidance.
Speaker Change: Reservoir description second quarter revenue is projected to range from $85 million to 89 million, representing a nice improvement of 5% to 10% growth in operating income of 11 million to $13 million.
Speaker Change: Production enhancement second quarter revenue is estimated to range from $43 million to $45 million and this represents low to mid single digit growth with operating income of 2 million to $2 6 million.
Speaker Change: In summary, our second quarter 2025 revenue is projected to range from $128 million to $134 million with operating income of $13 1 million to $15 7 million, yielding operating margins of approximately 11%.
Speaker Change: For the second quarter of 2025 is expected to range from 17.
Speaker Change: To 'twenty one.
Speaker Change: The company's second quarter 2020 guidance is based on projections for underlying operations and excludes gains and losses and foreign exchange.
Speaker Change: Although the first quarter of 2025 includes discrete items, which decreased the effective tax rate.
Speaker Change: Company projects, the effective tax rate to be approximately 25% for 2025, our second quarter guidance also assumes an effective tax rate of 25% with that I'll turn it back over to Larry.
Larry: Thanks Glenn.
Speaker Change: First I'd like to thank our global and 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.
Speaker Change: Looking at the macro even after assessing current and near term economic conditions.
Speaker Change: EIA and OPEC, all projected that there will be growth in global crude oil demand in 2025.
Speaker Change: The current estimates show growth in demand of between <unk>, seven and $1 3 million barrels per day for 2025 with similar additional growth projected for 2026.
Speaker Change: As Glenn mentioned this growth is driven mainly by strong non OECD demand.
Speaker Change: In addition to the forecasted growth in demand new production will need to be brought online to account for the natural decline from existing producing fields.
Speaker Change: And bind these factors will require continued investment in the development of onshore and offshore crude oil fields.
Speaker Change: Furthermore.
Speaker Change: The EIA forecasts for U S oil production remains at $13 5 million barrels per day for 2025% up slightly from $13 2 million barrels per day in 2024.
Speaker Change: And that very little growth is forecast between 2025 and 2026.
Speaker Change: Excluding the Covid period, these forecasts for nominal year over year production growth would represent the smallest annual edge to U S oil production since 2018.
Speaker Change: U S tight oil production has been by far the largest component of non OPEC production growth since 2010.
Speaker Change: 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 the reservoir description services that we provide.
Speaker Change: Through our global Lab network, we projected international cycle will play out for the next several years and perhaps longer as growth in U S oil production peaks.
Speaker Change: Production enhancement in addition to its exposure to the U S. Land market also has expanding opportunities across international markets such as with unconventional plays in the middle East and emerging onshore and offshore conventional plays in a number of regions core lab also continues to expand its portfolio of innovative offerings for perforating.
Speaker Change: <unk> plug and abandonment operations and completion diagnostics for our growing global client base.
Speaker Change: Now, let's review the first quarter performance.
Speaker Change: Of our two business segments, turning first to reservoir description for the first quarter of 2025 revenue came in at $80 9 million down 7% compared to Q4 of 2024.
Speaker Change: For Q1 operating income for reservoir description ex items was $7 8 million down from $14 1 million in Q4, but still yielding operating margins of 10%.
Speaker Change: Continued demand for reservoir description lab services remained strong in several regions across our global network. The ongoing international geopolitical conflicts and recently expanded sanctions negatively impacted the demand for laboratory services tied to the trade and transportation of crude oil derived products.
Speaker Change: These political headwinds we're on top of the typical seasonal declines.
Speaker Change: Typically occur in.
Speaker Change: And client activity from Q4 to Q1.
Speaker Change: Now for some operational highlights from reservoir description of <unk>.
Speaker Change: <unk> emerging opportunities across Africa for its reservoir description laboratory services.
Speaker Change: These opportunities include project work on new onshore and offshore exploration targets as well as workover projects on mature fields. In addition, there are growth opportunities for laboratory assay work on crude oil derived products.
Speaker Change: Cross a region poised for significant growth in hydrocarbon demand.
Speaker Change: In Q1 core laboratories reinforces role as a key partner in Libya's upstream sector, demonstrating its commitment through strategic collaboration and innovation with.
Speaker Change: With political and operational stability emerging in Libya. The country is now ready to utilize its vast resources to meet its ambitious hydrocarbon production growth targets.
Speaker Change: In the first quarter of 2025 core lab specialists from both reservoir description and production enhancement hosted a technical topical workshop for the Libyan market. This event provided cross disciplinary insights and solutions to the geotechnical challenges faced by the Libyan operators.
Discussions with the Libyan National oil company, and Petroleum Research center as well as various operators highlighted core lab's ability to offer tailored solutions to support Libya production growth targets.
Speaker Change: Due to the numerous joint industry and proprietary projects that core lab has led over the years. The company has developed detailed knowledge of Libya is onshore and offshore sedimentary basins and hydrocarbon bearing formations core is well positioned to leverage this knowledge and engage with clients as new opportunities unfold.
Speaker Change: Reservoir description will help clients reduce subsurface uncertainty established critical parameters for reservoir models and assess formation damage.
Speaker Change: Production enhancement products and services will address operational challenges from legacy production in mature fields, optimizing future completion strategies and health in the development of.
Speaker Change: Of enhanced oil recovery and waterflood programs.
Speaker Change: Moving now to production enhancement or core lab technologies continue to continue to help our clients.
Optimize their well completions and improve production.
Speaker Change: Revenue for production enhancement for Q1 came in at $42 7 million flat compared to Q4 and down 6% year over year.
Speaker Change: First quarter operating income for production enhancement ex items was $3 4 million, yielding operating margins of 8%.
Speaker Change: While product sales were negatively impacted by recently enhanced sanctions that prohibited transactions with certain designated entities in eastern Europe. There was increased demand for completion diagnostic services as complex U S. Land completion designs like triangle Fracs have become more common.
Speaker Change: Furthermore, Gulf of Mexico completion diagnostics on offshore projects that were delayed by Hurricanes last summer were conducted in Q1.
Speaker Change: Now for some operational highlights for production enhancement at the start of Q1 and International operating company approached core laboratories production enhancement team with an urgent request for assistance on a unique and very challenging well abandonment program.
Speaker Change: The program required the use of Core's proprietary hero hard rock perforating charges, the company's industry, leading deep penetration technology.
Speaker Change: On this project due to collapsed tubing, there were no options available to deploy a plug and abandonment strategy into the existing wellbore. The operator chosen method in which a parallel well had to be drilled in close proximity to the target well, allowing perforations from the new parallel well to penetrate through the intervening strata.
Speaker Change: And into the problematic target well.
Speaker Change: This approach needed to ensure that the perforating system could successfully create long reach perf tunnels from the new well into the casing and inner tubing of the target well.
Speaker Change: Utilizing core state of the art Roc lab test facility.
Speaker Change: Series of tests were designed to evaluate the selected perforating system under stimulated downhole stress conditions. This allowed the operator that allowed the customer to determine how closely the two well bores needed to be spaced in order to guarantee that the perforating system would penetrate through all of the pipe cement and rock barriers with sufficient whole sized to allow for <unk>.
Speaker Change: Cement placement.
Speaker Change: Under extremely tight time constraints. The production enhancement team was able to design and conduct the testing program mobilized all of the hardware to the international rig location and successful carryout the job in the first quarter of 2025.
Speaker Change: Positive feedback from the operator confirmed the abandonment program succeeded and met all of the operational and regulatory requirements.
Speaker Change: Also in production enhancement recently, the U S Bureau of safety and environmental enforcement officially endorsed core spectra stim tracers to identify top of cement and multiple casing strings as confirmed by logging while drilling technologies trace.
Speaker Change: Tracing the top of cement using spectrum tracers has significant advantages over other approved methods such as cement bond logging, including a cost savings of approximately $400000 per casing string.
Speaker Change: In the first quarter of 2025 top of cement was confirmed by cores spectra, <unk> tracers and a record six cemented casing strings on a Gulf of Mexico, well and the process, the operator saved over $2 million compared compared with the traditional cement bond log alternative.
Speaker Change: <unk> is working to expand the service and other offshore regions that concludes our operational review. We appreciate your participation and Andrea will now open the call for questions.
Andrea: We will now begin the question and answer session.
Andrea: You ask a question you May press Star then one on your telephone keypad.
Andrea: If you are using a speakerphone please pick up your handset before pressing the keys.
Andrea: To withdraw your question. Please press Star then two.
Speaker Change: Once again that with Star then one to ask a question at this time, we will pause momentarily to assemble the roster.
Steven Chin: And our first question will come from Steven Chin.
Steven Chin: Of Stifel. Please go ahead.
Speaker Change: Thanks, Good morning, good morning, good morning, Kevin.
Steven Chin: So thanks for all the details can we start with.
Production enhancement.
Steven Chin: <unk>.
Steven Chin: First quarter margin was pretty strong off the fourth quarter.
Steven Chin: Despite modest but seems to be modest revenue growth, you're guiding margins down two or 300 basis points can you just kind of talk about what's going on on the margin front with P.
Chris Gordon: Sure Stephen So this is Chris.
Chris Gordon: We had improvement in both segments and the margins coming off of Q4, but the product sales are down and the diagnostic services, which have a higher margin are up in Q1, and so I think you heard Larry and I, both mentioned that some of the projects in the Gulf of Mexico.
Chris Gordon: <unk> were impacted by the storms that came through there in Q3 last year those got postponed to Q1 and those came through and we're not forecasting that level of in the Gulf of Mexico for Q2, So diagnostic services are kind of coming down and product sales are increasing in Q2. So it's a different mix when you look.
Chris Gordon: At Q1 versus Q2.
Speaker Change: Okay, great. Thanks, and then.
Chris Gordon: The other question.
Chris Gordon: Question, when you when you're sort of thinking about the back half of the year and I know that the.
Chris Gordon: Number of moving pieces is great. It's unusual but is there any way to think about sort of your expectations for margin progression in the back half of the year and if you would.
Chris Gordon: We thought about like environmental activity or the business was flattish from the second quarter or are there are there levers to pull on the margin side or would we be pretty stable from the <unk> levels without much growth.
Chris Gordon: Yes.
Chris Gordon: I think.
Steven Chin: I think it's fair to say Steven that Q1 looks like it's in the rearview mirror for us.
Steven Chin: With the weight of those sanctions that kind of has dropped on us in January and when that happens it kind of froze the trading activity and the demand for the assay work just sort of comes to a halt temporarily nobody wants to get caught on the wrong side of a trade there while there's so much volatility in the market.
Steven Chin: Mentioned earlier in this in the comments, we did see things start to open up in trading and get back to normal and the associated demand for for those assay services pick up late in the quarter. So I don't think there's we're going to see any retrenchment back to what we saw in Q1 and I think from Q2 forward I think there is.
Steven Chin: <unk> for growth and margins over what we're projecting for Q.
Steven Chin: Q2, so Q I think Q3 and Q4.
Steven Chin: Looking at the moment looking better for us than Q2, right and the only thing I would add there too is we have put some cost reduction plans in place, which we kind of recognize most of the costs for that in Q1. Some of those were implemented in Q1 some of those will take more.
Steven Chin: <unk> in Q2 and actually some additional ones are scheduled for Q3. So I think we'll see some margin improvement from that as well.
Steven Chin: Steven.
Steven Chin: Okay all right.
He was viewed it im sorry, one one.
Speaker Change: A follow up.
Speaker Change: Maybe not so quick.
Steven Chin: <unk>.
Steven Chin: The peers in the space are sort of centering around U S activity down 10% to 15% this year and maybe international flat to down modestly.
Steven Chin: Do you think that's a reasonable starting point.
Steven Chin: How do you think you perform relative to those expectations.
Steven Chin: So I think.
Steven Chin: As our view on U S land is flat.
Steven Chin: <unk>.
Steven Chin: Our soft compared to.
Steven Chin: Last year, but maybe up from what we saw in Q1 somewhat.
Steven Chin: I think.
Steven Chin: We're seeing some nice penetration on the diagnostic side with completions being as becoming as complicated as they are we.
Steven Chin: We also think that there is some room with the changes that we've been making on the product side.
Steven Chin: To see some better returns and improved product sales with higher margins on that so that's things are unfolding. There. So I think maybe we're a little more optimistic about how the back of the year plays out for us in terms of penetration into U S land than say pressure pumper and some of the other folks yeah, I think as far as <unk>.
Steven Chin: Activity goes, though it definitely softened at the end of last year, let's say the second half and as we're looking at it we think it's going to be kind of more in line with the second half of last year. So.
Steven Chin: Okay, great. Thanks, Paul.
Steven Chin: And then I think on our international.
Steven Chin: Got some opportunities on international side.
Steven Chin: And if you've got any sway with the people, let it drop and sanctions and tariffs.
Steven Chin: Those calls for Steven.
Steven Chin: Hopefully we have we have some hardware made in the box is ready to ship and all of a sudden told no can't go.
Speaker Change: Yes, it's tough environment, yes, okay. No. That's helpful color. Thank you.
Steven Chin: Thanks I appreciate it.
Steven Chin: The next question comes from Sean Mitchell of Daniel Energy Partners. Please go ahead.
Sean Mitchell: Good morning, guys. Thanks for taking the question.
Speaker Change: Im going to kind of stay on the same theme that Stephen was kind of digging into your crystal ball, a little bit last quarter you talked about.
Sean Mitchell: Mexico will be in a place that.
Sean Mitchell: May not look so great on a go forward basis. So now we're actually seeing that from a lot of your peers in the oilfield service market Mexico.
Sean Mitchell: Everyone's taking guidance down there pretty hard.
Sean Mitchell: Is there any area in the international market I mean, we've already talked to U S.
Sean Mitchell: Are there any other areas in the international market you guys see maybe trouble in the future I mean, you talked a little bit about new client engagements in the middle East and Africa, maybe expand on that a little bit is that kind of back half of 'twenty five stop or would those new clients or is that kind of later in 'twenty six 'twenty seven.
Speaker Change: Yes, so so first thing on Mexico.
Sean Mitchell: Just to be clear.
Sean Mitchell: We got out.
Sean Mitchell: Yes.
Sean Mitchell: I'm not saying, we're we have any special omnipotence, there, but it just was a challenging market for us and.
Sean Mitchell: I think maybe it turns out we were the patterns that we saw maybe are starting to hit on some other folks and they're having to deal with some of that.
Sean Mitchell: And so.
Sean Mitchell: Thats Mexico.
Sean Mitchell: Doesn't necessarily apply to us.
Sean Mitchell: We will sell products and services into there, but we're going to have to do that.
Sean Mitchell: Come to us out of the U S.
Sean Mitchell: I think internationally.
Sean Mitchell: It looks pretty good for us in the Middle East I think Africa is a long term play for US I do think we will see some progress there in in the back half of 2025, but I think it's a multiyear growth cycle for us.
Sean Mitchell: On reservoir description and in particular, and then I think the production enhancement opportunities there, we will probably grow a little bit later.
Sean Mitchell: I think.
Sean Mitchell: One of the things we're hearing from our operational guys and so I went through the Asia Pac region.
Sean Mitchell: Early in the quarter earlier in the quarter mid quarter and got a lot of confirmation about project work that we're seeing I think that was mentioned in the release there.
Sean Mitchell: So Australia looks real good.
Sean Mitchell: Denise you looks good for us, Malaysia looks a little bit soft.
Sean Mitchell: One other area that I'd say, we're kind of keeping an eye on here is it seems a pretty inhospitable environment in Colombia right now.
Sean Mitchell: The again political decisions there are affecting our clients.
Sean Mitchell: Plans and behaviors and we're not going to be immune to the slowdown in activity. It looks like Ecuador may be moving in the right direction with the political.
Sean Mitchell: Decisions at the people down there are made.
Sean Mitchell: And so I think maybe there is a chance for some rebound there.
Sean Mitchell: And in the Middle East, we see it as strong for us still this year.
Sean Mitchell: Actually heading over the next week.
Sean Mitchell: Go through a middle east round in and meet with.
Sean Mitchell: With operators and <unk>.
Sean Mitchell: In a handful of countries.
Sean Mitchell: All conversations so far are full steam ahead and steady as we go on the projects that they've committed to us.
Sean Mitchell: And then last thank you yes.
Sean Mitchell: Just one other one were still optimistic about Brazil, I know theres going to be challenges there.
Sean Mitchell: This view, Brazil as sort of a.
Sean Mitchell: Not a straight line linear.
Sean Mitchell: Opportunity, but I think it's.
Sean Mitchell: It's going to be a place where we're going to see I'll call. It gradual improvement in our penetration of that market over time.
Speaker Change: Got it that's great. Thanks for the additional color I'll turn it back.
Sean Mitchell: Thanks, Sean.
Speaker Change: Okay, I think it's a pretty busy day for earnings calls. So if there are no other questions, we'll wrap up here.
Sean Mitchell: In summary.
Sean Mitchell: Operator, <unk> 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 technologically advanced client focused.
Sean Mitchell: Reservoir optimization company in the oilfield service sector.
Sean Mitchell: 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 while always.
Sean Mitchell: Investing in growth opportunities and evaluating various methods to increase shareholder value.
Sean Mitchell: 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 that have made these results possible, we're proud to be associated with their continuing achievements. So thanks for spending time.
Sean Mitchell: With us and we will look and we look forward to the next update goodbye for now.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Thanks.
Speaker Change: [music].