# Core Laboratories Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Core Laboratories Inc.](/companies/clb.md) (CIK 1958086)
- Form: 10-Q
- Filed: 2024-04-25
- Accepted by EDGAR: Apr 25, 2024, 20:38 ET
- Period: 2024-03-31
- Accession: 0000950170-24-048414
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1958086/000095017024048414/clb-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1958086/000095017024048414/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $129.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $8.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $3.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $3.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 47,703,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $5.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $3.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $468.0k | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $44.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $14.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $229.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $588.0m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $85.5m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-03-31 | $160.4m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-03-31 | $232.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,596 characters.

On May 1, 2023, Core Laboratories N.V. completed its previously announced redomestication transaction (the “Redomestication Transaction”), which, through a series of steps, resulted in the merger of Core Laboratories N.V., a holding company in the Netherlands, with and into Core Laboratories Luxembourg S.A., a public limited liability company incorporated under the laws of Luxembourg, with Core Laboratories Luxembourg S.A. surviving, and subsequently the migration of Core Laboratories Luxembourg S.A. out of Luxembourg and its domestication as Core Laboratories Inc., a Delaware corporation. The Redomestication Transaction has been accounted for as a transaction between entities under common control. There is no difference between the combined separate entities prior to the Redomestication Transaction and the combined separate entities after the Redomestication Transaction, therefore, comparative information reported below does not differ from amounts previously reported under Core Laboratories N.V.’s consolidated financial statements. The following discussion should be read in conjunction with Core Laboratories Inc.’s Annual Report on Form 10-K for the year ended December 31, 2023, Core Laboratories N.V.’s Quarterly Report on Form 10-Q for the three months ended March 31, 2023 and Core Laboratories N.V.’s Annual Report on Form 10-K for the year ended December 31, 2022, including Note 2 - *Summary of Significant Accounting Policies.*

The following discussion highlights the current operating environment and summarizes the financial position of Core Laboratories Inc. and its subsidiaries as of March 31, 2024, and should be read in conjunction with the unaudited interim consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”).

### General

Core Laboratories Inc. is a Delaware corporation. It was established in 1936 and is one of the world's leading providers of proprietary and patented reservoir description and production enhancement services and products to the oil and gas industry. These services and products can enable our clients to evaluate and improve reservoir performance and increase oil and gas recovery from new and existing fields. We make measurements on reservoir rocks, reservoir fluids (crude oil, natural gas and water) and their derived products. In addition, we assist clients in evaluating subsurface targets associated with carbon capture and sequestration projects or initiatives. Core Laboratories Inc. has over 70 offices in more than 50 countries and employs approximately 3,500 people worldwide.

References to “Core Lab”, “Core Laboratories”, the “Company”, “we”, “our” and similar phrases are used throughout this Quarterly Report and relate collectively to Core Laboratories Inc. and its consolidated affiliates.

We operate our business in two segments. These complementary operating segments provide different services and products and utilize different technologies for evaluating and improving reservoir performance and increasing oil and gas recovery from new and existing fields.

- *Reservoir Description:* Encompasses the characterization of petroleum reservoir rock and reservoir fluids samples to increase production and improve recovery of crude oil and natural gas from our clients' reservoirs. We provide laboratory-based analytical and field services to characterize properties of crude oil and crude oil-derived products to the oil and gas industry. Services associated with these fluids include determining the quality and measuring the quantity of the reservoir fluids and their derived products, such as gasoline, diesel and biofuels. We also provide proprietary and joint industry studies based on these types of analyses and manufacture associated laboratory equipment. In addition, we provide reservoir description capabilities that support various activities associated with energy transition projects, including services that support carbon capture, utilization and storage, geothermal projects, and the evaluation and appraisal of mining activities around lithium and other elements necessary for energy storage.
- *Production Enhancement:* Includes services and manufactured products associated with reservoir well completions, perforations, stimulation, production and well abandonment. We provide integrated diagnostic services to evaluate and monitor the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.

### Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations section, including those under the headings “Outlook” and “Liquidity and Capital Resources”, and in other parts of this Quarterly Report, are forward-looking. In addition, from time to time, we may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. Forward-looking statements can be identified by the use of forward-looking terminology such as “may”, “will”, “believe”, “expect”, “anticipate”, “estimate”, “continue”, or other similar words, including statements as to the intent, belief, or current expectations of our directors, officers, and management with respect to our future operations, performance, or positions or which contain other forward-looking information. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, no assurances can be given that the future results indicated, whether expressed or implied, will be achieved. While we believe that these statements are and will be accurate, our actual results and experience may differ materially from the anticipated results or other expectations expressed in our statements due to a variety of risks and uncertainties.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see Part II, “Item 1A - Risk Factors” of this Quarterly Report and “Item 1A - Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed by us with the SEC.

### Outlook

Currently, global oil inventories are low relative to historical levels, and with continued supply restrictions from the Organization of the Petroleum Exporting Countries (“OPEC+”), global supply is expected to remain tight relative to forecasted growth in oil demand for the next few years. During the last couple of years, OPEC+ and its key member, Saudi Arabia, announced several mandatory and voluntary reductions in production that continue to remain in place and are aimed at supporting the stability of the oil market.

The current global demand for crude oil and natural gas remains at a high level and according to the latest International Energy Agency’s report, global demand is expected to increase in 2024 and 2025. As a result, it is anticipated that crude-oil commodity prices for the near-term will remain at current levels or increase if projections for demand remain accurate. In 2022 and 2023, capital spending towards the exploration of crude oil and natural gas reached their highest level in over a decade with modest growth expected in 2024 and 2025. Therefore, our clients' activities associated with the appraisal, development and production of crude oil and natural gas are also expected to remain at current levels or increase for the remainder of 2024. Outside the U.S., international oil and gas projects continue to build and are expected to grow and accelerate into the next several years. U.S. onshore drilling and completion activities are expected to remain at current levels with some typical seasonal decrease towards the end of the year.

The ongoing geopolitical conflicts between Russia and Ukraine and in the Middle East continue to cause disruptions to traditional maritime supply chains and the trading of crude oil and derived products, such as diesel fuel. The maritime supply chains associated with the movement of crude oil have continued to realign and stabilize throughout 2023 and in 2024, which has reduced some of the volatility in crude-oil prices and disruptions to our operations. Core Lab expects crude-oil supply lines to remain more stable, and the Company's volume of associated laboratory services to be commensurate with the trading and movement of crude-oil into Europe, the Middle East, Asia and across the globe. The United States, the European Union, the United Kingdom and other countries continue to expand sanctions, export controls and other measures against Russia, Belarus and other countries, regions, officials, individuals or industries in the respective territories, which may have further impact on the trading and movement of crude oil and derived products. We have no way to predict the progress or outcome of these events, and any resulting government responses are fluid and beyond our control.

We continue to focus on large-scale core analyses and reservoir fluids characterization studies in most oil-producing regions across the globe, which include both newly developed fields and brownfield extensions in many offshore developments in both the U.S. and internationally. In the U.S. we are involved in projects in many of the onshore unconventional basins and offshore projects in the Gulf of Mexico. Outside the U.S. we continue to work on many smaller and large-scale projects analyzing crude oil and derived products in every major producing region of the world. Notable larger projects are in locations such as Guyana and Suriname located offshore South America, Australia, Southern Namibia and the Middle East. Analysis and measurement of crude oil derived products also occurs in every major producing region of the world. Additionally, some of our major clients have increased their investment in projects to capture and sequester CO2. The Company’s activities on these projects have expanded and are expected to continue expanding in 2024 and beyond.

Additionally, on March 6, 2024, the SEC finalized rules to require certain climate-related disclosures in filings for public companies, beginning for fiscal year 2025 for large accelerated filers. However, the rule has been subject to consolidated legal challenges in the U.S. Court of Appeals for the Eighth Circuit and the SEC has announced that it will not implement the rule while litigation is pending. While we are still assessing the rule’s potential impact on us, if the rule takes effect, we will be required to comply.

### Results of Operations

Our results of operations as a percentage of applicable revenue are as follows (in thousands):

| REVENUE: | Three Months Ended March 31, 2024 |  | 2023 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $96,495 | 74% | $91,076 | 71% | $5,419 | 6% |
| Product sales | 33,142 | 26% | 37,280 | 29% | (4,138) | (11)% |
| Total revenue | 129,637 | 100% | 128,356 | 100% | 1,281 | 1% |
| OPERATING EXPENSES: |  |  |  |  |  |  |
| Cost of services, exclusive of depreciation expense shown below\* | 73,865 | 77% | 70,934 | 78% | 2,931 | 4% |
| Cost of product sales, exclusive of depreciation expense shown below\* | 30,723 | 93% | 30,594 | 82% | 129 | 0% |
| Total cost of services and product sales | 104,588 | 81% | 101,528 | 79% | 3,060 | 3% |
| General and administrative expense, exclusive of depreciation expense shown below | 11,789 | 9% | 16,331 | 13% | (4,542) | (28)% |
| Depreciation and amortization | 3,843 | 3% | 4,044 | 3% | (201) | (5)% |
| Other (income) expense, net | 846 | 1% | (28) | —% | 874 | NM |
| OPERATING INCOME | 8,571 | 7% | 6,481 | 5% | 2,090 | 32% |
| Interest expense | 3,423 | 3% | 3,429 | 3% | (6) | (0)% |
| Income before income taxes | 5,148 | 4% | 3,052 | 2% | 2,096 | 69% |
| Income tax expense (benefit) | 1,658 | 1% | 610 | —% | 1,048 | 172% |
| Net income | 3,490 | 3% | 2,442 | 2% | 1,048 | 43% |
| Net income attributable to non-controlling interest | 270 | —% | 69 | —% | 201 | NM |
| Net income attributable to Core Laboratories Inc. | $3,220 | 2% | $2,373 | 2% | $847 | 36% |
| **Other Data:** |  |  |  |  |  |  |
| Current ratio (1) | 2.68:1 |  | 2.38:1 |  |  |  |
| Debt to EBITDA ratio (2) | 1.99:1 |  | 2.52:1 |  |  |  |
| Debt to Adjusted EBITDA ratio (3) | 1.76:1 |  | 2.18:1 |  |  |  |

“NM” means not meaningful

\*Percentage based on applicable revenue rather than total revenue

*(1) Current ratio is calculated as follows: current assets divided by current liabilities.*

*(2) Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization and certain non-cash adjustments.*

*(3) Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments.*

| REVENUE: | Three Months Ended March 31, 2024 |  | December 31, 2023 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $96,495 | 74% | $94,690 | 74% | $1,805 | 2% |
| Product sales | 33,142 | 26% | 33,520 | 26% | (378) | (1)% |
| Total revenue | 129,637 | 100% | 128,210 | 100% | 1,427 | 1% |
| OPERATING EXPENSES: |  |  |  |  |  |  |
| Cost of services, exclusive of depreciation expense shown below\* | 73,865 | 77% | 71,104 | 75% | 2,761 | 4% |
| Cost of product sales, exclusive of depreciation expense shown below\* | 30,723 | 93% | 30,413 | 91% | 310 | 1% |
| Total cost of services and product sales | 104,588 | 81% | 101,517 | 79% | 3,071 | 3% |
| General and administrative expense, exclusive of depreciation expense shown below | 11,789 | 9% | 8,665 | 7% | 3,124 | 36% |
| Depreciation and amortization | 3,843 | 3% | 3,874 | 3% | (31) | (1)% |
| Other (income) expense, net | 846 | 1% | (427) | —% | 1,273 | NM |
| OPERATING INCOME | 8,571 | 7% | 14,581 | 11% | (6,010) | (41)% |
| Interest expense | 3,423 | 3% | 3,618 | 3% | (195) | (5)% |
| Income before income taxes | 5,148 | 4% | 10,963 | 9% | (5,815) | (53)% |
| Income tax expense (benefit) | 1,658 | 1% | 8,529 | 7% | (6,871) | (81)% |
| Net income | 3,490 | 3% | 2,434 | 2% | 1,056 | 43% |
| Net income attributable to non-controlling interest | 270 | —% | 235 | —% | 35 | NM |
| Net income attributable to Core Laboratories Inc. | $3,220 | 2% | $2,199 | 2% | $1,021 | 46% |
| **Other Data:** |  |  |  |  |  |  |
| Current ratio (1) | 2.68:1 |  | 2.53:1 |  |  |  |
| Debt to EBITDA ratio (2) | 1.99:1 |  | 2.11:1 |  |  |  |
| Debt to Adjusted EBITDA ratio (3) | 1.76:1 |  | 1.76:1 |  |  |  |

“NM” means not meaningful

\*Percentage based on applicable revenue rather than total revenue

*(1) Current ratio is calculated as follows: current assets divided by current liabilities.*

*(2) Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation and amortization and certain non-cash adjustments.*

*(3) Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments.*

### Operating Results for the Three Months Ended March 31, 2024 compared to the Three Months Ended March 31, 2023 and December 31, 2023

### Service Revenue

Service revenue is primarily tied to activities associated with the exploration, appraisal, development, and production of oil, gas and derived products outside the U.S. For the three months ended March 31, 2024, service revenue was $96.5 million, an increase of 6% year-over-year and 2% sequentially. Year-over-year, the increase was due to growth in activity levels in both international and U.S. markets. Activity on reservoir rock and fluid projects in the Middle East has continued to expand and reservoir fluid analysis services in the European and Asian regions showed improvement from the disruptions last year caused by the on-going conflict between Russia-Ukraine. This growth was partially offset by typical seasonal decline, lower revenue in Russia and delayed project revenue of approximately $0.7 million due to a fire incident that occurred at one of our facilities in the United Kingdom. Sequentially, the growth was primarily driven by increased activity on reservoir rock and fluids projects in the Middle East and well completion diagnostic services in the U.S., partially offset by a loss of revenue due to the fire incident in the United Kingdom and lower revenue in Russia, as discussed above.

### Product Sales Revenue

Product sales are primarily tied to supporting the U.S. onshore drilling and completion operations and bulk product sales to international markets. Product sales to international markets are typically shipped and delivered in bulk and the timing of delivery can vary from one quarter to another. For the three months ended March 31, 2024, product sales revenue of $33.1 million decreased 11% year-over-year and remained relatively flat sequentially. Year-over-year the decline in our product sales revenue is primarily due to lower U.S. onshore activity, where the average U.S. land rig count decreased 19% over the same period in the prior year. Additionally, we had lower sales of manufactured laboratory equipment when compared to the same quarter in the prior year. Sequentially, product sales increased in North America but were offset by fewer international bulk sales during the three months ended March 31, 2024.

### Cost of Services, excluding depreciation

Cost of services was $73.9 million for the three months ended March 31, 2024, an increase of 4% year-over-year and sequentially. Cost of services expressed as a percentage of service revenue was 77% for the three months ended March 31, 2024, compared to 78% for the same period in the prior year, and 75% compared to the prior quarter. Year-over-year, improvement in cost of services as a percentage of service revenue primarily was associated with improved utilization of our global laboratory network on higher revenue, although it was partially offset by higher employee compensation costs and continuing inflation. Sequentially, the increase in cost of services as a percentage of services revenue was primarily due to higher employee compensation and inflation as discussed above.

### Cost of Product Sales, excluding depreciation

Cost of product sales was $30.7 million for the three months ended March 31, 2024, relatively flat year-over-year and sequentially. Cost of product sales expressed as a percentage of product sales revenue was 93% for the three months ended March 31, 2024, compared to 82% year-over-year and 91% sequentially. The year-over-year increase in cost of product sales as a percentage of product sales was primarily due to higher absorption of fixed costs on a lower revenue base and inflation in material, personnel, and logistical costs. Sequentially, the increase in cost of product sales as a percentage of product sales was primarily due to a lower level of international bulk product sales, which have a higher gross margin.

### General and Administrative Expense, excluding depreciation

General and administrative (“G&A”) expense includes corporate management and centralized administrative services that benefit our operations. G&A expense for the three months ended March 31, 2024, was $11.8 million, a decrease of $4.5 million year-over-year and an increase of $3.1 million sequentially. Year-over-year, the three months ended March 31, 2024, included the acceleration of stock compensation expense for retirement eligible executives of $3.5 million, compared to $6.5 million included in the three months ended March 31, 2023. The remainder of the decrease was primarily associated with changes in market value of company owned life insurance investment instruments which fund certain employee retirement plans. Sequentially, the three months ended December 31, 2023, did not include any accelerated stock compensation expense for retirement eligible executives.

### Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended March 31, 2024, was $3.8 million, a decrease of 5% year-over-year and relatively flat sequentially. The decrease in depreciation and amortization expense compared to the prior year is primarily due to assets which became fully depreciated.

### Other (Income) Expense, Net

The components of other (income) expense, net, are as follows (in thousands):

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| (Gain) loss on sale of assets | $(537) | $96 |
| Results of non-consolidated subsidiaries | (31) | (137) |
| Foreign exchange (gain) loss, net | 285 | (144) |
| Rents and royalties | (6) | (145) |
| Return on pension assets and other pension costs | (290) | (326) |
| Loss on lease abandonment and other exit costs | 699 | 641 |
| Assets write-down | 1,110 | 1,015 |
| Insurance and other settlements | (1,011) | (604) |
| Severance and other charges | 824 | — |
| Other, net | (197) | (424) |
| Total other (income) expense, net | $846 | $(28) |

During the three months ended March 31, 2024 and 2023, we abandoned certain leases in the U.S. and Canada, respectively, and incurred lease abandonment and other exit costs of $0.7 million and $0.6 million, respectively. As a result of consolidating and exiting these facilities, the associated leasehold improvements, right of use assets and other assets of $1.1 million and $1.0 million were abandoned and expensed, respectively.

During the three months ended March 31, 2024, we had a fire incident at one of our U.K. facilities and have recorded partial insurance settlements of $1.0 million associated with costs incurred and loss of income from business interruption. During the three months ended March 31, 2023, the State of Louisiana expropriated the access road to one of our facilities and paid us a settlement of $0.6 million.

Foreign exchange (gain) loss, net by currency is summarized in the following table (in thousands):

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| British Pound | $31 | $(251) |
| Canadian Dollar | 39 | 58 |
| Colombian Peso | (7) | 53 |
| Euro | 18 | 84 |
| Indonesian Rupiah | 80 | (71) |
| Russian Ruble | (3) | (251) |
| Turkish Lira | 21 | (5) |
| Other currencies, net | 106 | 239 |
| Foreign exchange (gain) loss, net | $285 | $(144) |

### Interest Expense

Interest expense for the three months ended March 31, 2024 was $3.4 million, relatively flat year-over-year. The Company’s average outstanding debt for the three-month period ending March 31, 2024, is lower when compared to the same period in the prior year; however, the Company’s blended average interest rate has increased. Sequentially, interest expense was $3.6 million in the prior quarter, and the decrease was primarily due to lower average borrowings during the three months ended March 31, 2024.

### Income Tax Expense (Benefit)

The Company recorded income tax expense of $1.7 million and $0.6 million for the three months ended March 31, 2024 and 2023, respectively. The effective tax rate for the three months ended March 31, 2024, was 32.2% recorded on income before income tax of $5.1 million. The effective tax rate for the three months ended March 31, 2023, was 20% recorded on income before income taxes of $3.1 million. The tax rate for the three months ended March 31, 2024, was largely impacted by the earnings mix of jurisdictions subject to tax for that period and items discrete to the quarter.

### Segment Analysis

We operate our business in two segments. These complementary operating segments provide different services and products and utilize different technologies for evaluating and improving reservoir performance and increasing oil and gas recovery from new and existing fields. The following tables summarize our results by operating segment (in thousands):

| REVENUE: | Three Months Ended March 31, 2024 |  | March 31, 2023 |  | December 31, 2023 |  | Year-over-year % Change | Sequential % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Reservoir Description | $84,236 | 65% | $80,188 | 62% | $84,628 | 66% | 5% | —% |
| Production Enhancement | 45,401 | 35% | 48,168 | 38% | 43,582 | 34% | (6)% | 4% |
| Total revenue | $129,637 | 100% | $128,356 | 100% | $128,210 | 100% | 1% | 1% |
| **OPERATING INCOME:** |  |  |  |  |  |  |  |  |
| Reservoir Description \* | $6,892 | 8% | $2,471 | 3% | $12,259 | 14% | 179% | (44)% |
| Production Enhancement \* | 1,576 | 3% | 3,281 | 7% | 2,195 | 5% | (52)% | (28)% |
| Corporate and Other (1) | 103 | —% | 729 | 1% | 127 | —% | NM | NM |
| Total operating income | $8,571 | 7% | $6,481 | 5% | $14,581 | 11% | 32% | (41)% |
| \* Percentage, which represents operating margins, is based on operating income divided by applicable revenue rather than total revenue. "NM" means not meaningful (1) "Corporate and Other" represents those items that are not directly related to a particular operating segment. |  |  |  |  |  |  |  |  |

### Reservoir Description

Reservoir Description operations are closely correlated with trends in international and offshore activity levels, with approximately 80% of its revenue sourced from existing producing fields, development projects and movement of crude oil products outside the U.S.

Revenue from the Reservoir Description operating segment of $84.2 million for the three months ended March 31, 2024 increased 5% year-over-year and was flat sequentially. The year-over-year increase was primarily due to growth in activity levels in both international and U.S. markets. Growth in reservoir rock and fluid analysis in both international and U.S. markets offset typical seasonal decline and delayed project revenue caused by the fire in our United Kingdom facility. The Company holds insurance policies for both property damage and business interruption, which has minimized the loss to the Company associated with the fire. Sequentially, the increase in demand for our reservoir rock and fluid analysis services on international projects was offset by disruptions caused by the on-going geopolitical conflicts and lower revenue associated with the sale of manufactured laboratory equipment.

Operating income of $6.9 million for the three months ended March 31, 2024, increased $4.4 million, year-over-year and decreased $5.4 million sequentially. Operating margins were 8% for the three months ended March 31, 2024, compared to 3% year-over-year, and 14% sequentially. Year-over-year, the increase in operating income and margins was primarily attributable to incremental revenue and a lower amount of accelerated stock compensation expense for retirement eligible employees of $2.3 million in 2024 compared to a charge of $4.2 million in the same period of 2023. Sequentially, the decrease in operating margins is primarily due to the $2.3 million accelerated stock compensation expense discussed above and $1.6 million charge associated with the consolidation and exit of certain facilities during the three-month period ending March 31, 2024. There were no similar charges during the three months ended December 31,2023.

### Production Enhancement

Production Enhancement operations are largely focused on complex completions in unconventional oil and gas reservoirs in the U.S. as well as conventional projects across the globe. U.S. onshore drilling and completion activities typically experience a seasonal decline at end of the year with activity levels increasing at the beginning of the year. Average rig count in the U.S. land market for the three months ended March 31, 2024, was down by 19% year-over-year and remained flat sequentially. International drilling and completion activities continued to improve year-over-year, which increased by 5%, however remained flat sequentially.

Revenue from the Production Enhancement operating segment of $45.4 million for the three months ended March 31, 2024, decreased 6% year-over-year and increased 4% sequentially. Year-over-year, revenue decreased primarily due to lower product sales in the U.S. market as a result of lower U.S. onshore activity, however this was partially offset by strong growth in well completion diagnostic services. Sequentially, the increase was primarily driven by strong growth in well completion diagnostic services and product sales to the U.S. markets, partially offset by fewer bulk sales in the international market.

Operating income of $1.6 million for the three months ended March 31, 2024, decreased $1.7 million year-over-year, and $0.6 million sequentially. Operating margins for the three months ended March 31, 2024, was 3%, compared to operating margins of 7% year-over-year and 5% sequentially. Year-over-year, the decrease in operating income and margins was primarily due to decremental revenue and inflation on material, personnel and logistical costs. This was partially offset by a lower charge of $1.2 million associated with accelerated stock compensation expense for retirement eligible employees in 2024 compared to a charge of $2.3 million in the same period of 2023. Sequentially, the decrease in operating income and operating margins primarily was related to the charge of $1.2 million associated with accelerated stock compensation expense as discussed above. There was no similar accelerated stock compensation charge during the three months ended December 31,2023.

### Liquidity and Capital Resources

### General

We have historically financed our activities through cash on hand, cash flows from operations, bank credit facilities, equity financing and the issuance of debt. Cash flows from operating activities provide the primary source of funds to finance operating needs, capital expenditures, dividends and our share repurchase program. Our ability to maintain and grow our operating income and cash flow depends, to a large extent, on continued investing activities. We believe our future cash flows from operations, supplemented by our borrowing capacity and the ability to issue additional equity and debt, should be sufficient to fund our debt requirements, capital expenditures, working capital, dividends, share repurchase program and future acquisitions. The Company will continue to monitor and evaluate the availability of debt and equity markets.

We are a holding company incorporated in Delaware. Therefore, we conduct substantially all of our operations through our subsidiaries. Our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us and on the terms and conditions of our existing and future credit arrangements. There are no restrictions preventing any of our subsidiaries from repatriating earnings, except for the unrepatriated earnings of our Russian subsidiary which are not expected to be distributed in the foreseeable future, and there are no restrictions or income taxes associated with distributing cash to the parent company through loans or advances. As of March 31, 2024, $13.6 million of our $14.9 million of cash was held by our foreign subsidiaries.

The Company continues to maintain the quarterly dividend of $0.01 per share.

### Cash Flows

The following table summarizes cash flows (in thousands):

| Cash flows provided by (used in): | Three Months Ended March 31, 2024 | 2023 | % Change |
| --- | ---: | ---: | --- |
| Operating activities | $5,530 | $(3,169) | NM |
| Investing activities | (1,657) | (2,038) | (19)% |
| Financing activities | (4,080) | 6,064 | NM |
| Net change in cash and cash equivalents | $(207) | $857 | NM |

Comparing the three months ended March 31, 2024 to the same period in the prior year, cash flows provided by operating activities improved to $5.5 million in 2024 compared to cash used in operating activities of $3.2 million in the same period 2023. Net income was $1.0 million higher in 2024, and the Company improved its levels of working capital associated with inventory.

Cash flows used in investing activities for the three months ended March 31, 2024 of $1.7 million were driven primarily by funding capital expenditures of $3.1 million offset by proceeds on the sale of assets of $0.6 million and proceeds on company owned life insurance policies of $0.8 million. Cash flows used in investing activities for the three months ended March 31, 2023 of $2.0 million were driven primarily by funding capital expenditures of $2.2 million.

Cash flows used in financing activities for the three months ended March 31, 2024 of $4.1 million includes a $3.0 million net reduction in long-term debt, quarterly dividends of $0.5 million and $0.6 million associated with the Redomestication Transaction. Cash flows provided by financing activities for the three months ended March 31, 2023 of $6.1 million includes drawdowns on our Credit Facility of $8.0 million, offset by quarterly dividend payments of $0.5 million and $1.3 million associated with the Redomestication Transaction.

During the three months ended March 31, 2024, we repurchased 2,845 shares of our common stock to satisfy personal tax liabilities of participants in our stock-based compensation plan for an aggregate purchase price of $44 thousand.

We utilize the non-GAAP financial measure of free cash flow to evaluate our cash flows and results of operations. Free cash flow is defined as net cash provided by operating activities (which is the most directly comparable GAAP measure) less cash paid for capital expenditures. Management believes that free cash flow provides useful information to investors regarding the cash available in the period that was in excess of our needs to fund our capital expenditures and operating activities. Free cash flow is not a measure of operating performance under GAAP and should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. Free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure. Moreover, since free cash flow is not a measure determined in accordance with GAAP and thus is susceptible to varying interpretations and calculations, free cash flow as presented, may not be comparable to similarly titled measures presented by other companies. The following table reconciles this non-GAAP financial measure to the most directly comparable measure calculated and presented in accordance with GAAP (in thousands):

| Free cash flow calculation: | Three Months Ended March 31, 2024 | 2023 | % Change |
| --- | ---: | ---: | --- |
| Net cash provided by (used in) operating activities | $5,530 | $(3,169) | NM |
| Less: Cash paid for capital expenditures | (3,052) | (2,208) | 38% |
| Free cash flow | $2,478 | $(5,377) | NM |

Free cash flow for the three months ended March 31, 2024 was $2.5 million, compared to negative $5.4 million for the same period in 2023. The cash used in operating activities during the three months ended March 31, 2023 was primarily associated with an increase in inventory and lower net income. Additionally, capital expenditures were $0.8 million higher during the three months ended March 31, 2024.

### Senior Notes, Credit Facility and Available Future Liquidity

We, along with our wholly owned subsidiary Core Laboratories (U.S.) Interests Holdings, Inc. (“CLIH”) as issuer, have senior notes outstanding that were issued through private placement transactions.

Additionally, we, along with CLIH, have a secured credit facility, the Eighth Amended and Restated Credit Agreement (as amended, the “Credit Facility”) for an aggregate borrowing commitment of $135.0 million with a $50.0 million “accordion” feature. As of March 31, 2024, the Credit Facility has an available borrowing capacity of approximately $72.2 million.

These debt instruments are summarized in the following table (in thousands):

|  | Interest Rate | Maturity Date | March 31, 2024 | December 31, 2023 |
| --- | ---: | --- | ---: | ---: |
| 2021 Senior Notes Series A (1) | 4.09% | January 12, 2026 | $45,000 | $45,000 |
| 2021 Senior Notes Series B (1) | 4.38% | January 12, 2028 | 15,000 | 15,000 |
| 2023 Senior Notes Series A (2) | 7.25% | June 28, 2028 | 25,000 | 25,000 |
| 2023 Senior Notes Series B (2) | 7.50% | June 28, 2030 | 25,000 | 25,000 |
| Credit Facility |  |  | 53,000 | 56,000 |
| Total long-term debt |  |  | 163,000 | 166,000 |
| Less: Debt issuance costs |  |  | (2,630) | (2,866) |
| Long-term debt, net |  |  | $160,370 | $163,134 |

#### (1) Interest is payable semi-annually on June 30 and December 30.

#### (2) Interest is payable semi-annually on March 28 and September 28.

In accordance with the terms of the Credit Facility, our leverage ratio is 1.76, and our interest coverage ratio is 6.27, each for the period ended March 31, 2024. We are in compliance with all covenants contained in our Credit Facility and Senior Notes as of March 31, 2024. Certain of our material, wholly owned subsidiaries are guarantors or co-borrowers under the Credit Facility and Senior Notes. See Note 7 - *Long-term Debt, net* of the Notes to the Interim Consolidated Financial Statements for additional information regarding the terms and financial covenants of the Senior Notes and the Credit Facility.

See Note 11 - *Derivative Instruments and Hedging Activities* of the Notes to the Interim Consolidated Financial Statements, for additional information regarding interest rate swap agreements we have entered to fix the underlying risk-free rate on our Credit Facility and the 2023 Senior Notes.

## Market risk

As filed, 246 characters.

There have been no material changes in market risk from the information provided in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” of Core Laboratories Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023.

## Controls and procedures

As filed, 2,264 characters.

A complete discussion of our controls and procedures is included in Core Laboratories Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023.

### Disclosure Controls and Procedures

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on such evaluation, our

Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2024, at the reasonable assurance level.

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. Further, the design of disclosure controls and internal control over financial reporting must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

### Changes in Internal Control Over Financial Reporting

There have been no changes in our system of internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### CORE LABORATORIES INC.

## Risk factors

As filed, 613 characters.

Our business faces many risks. Any of the risks discussed in this Quarterly Report or our other SEC filings could have a material impact on our business, financial position or results of operations.

Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. For a detailed discussion of the risk factors that should be understood by any investor contemplating investment in our securities, please refer to “Item 1A - Risk Factors” in Core Laboratories Inc.’s Annual Report on Form 10-K for the year ended December 31, 2023.

Filed Apr 25, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-048414. Last ingested by Listed: Oct 24, 2026, 15:16 ET. No prices; not investment advice.