# Core Laboratories Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Core Laboratories Inc.](/companies/clb.md) (CIK 1958086)
- Form: 10-Q
- Filed: 2024-07-25
- Accepted by EDGAR: Jul 25, 2024, 21:03 ET
- Period: 2024-06-30
- Accession: 0000950170-24-086610
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1958086/000095017024086610/clb-20240630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1958086/000095017024086610/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $130.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $260.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | $16.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | $24.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $3.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2024-01-01 to 2024-06-30 | $6.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $3.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | $5.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | $9.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | $12.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.19 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | $0.26 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.19 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | $0.26 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 47,743,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 47,662,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | $22.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $5.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2024-01-01 to 2024-06-30 | $938.0k | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2024-01-01 to 2024-06-30 | $206.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-06-30 | $17.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $233.5m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $597.8m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $97.6m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-06-30 | $147.6m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2024-06-30 | $240.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,107 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 June 30, 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 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 June 30, 2024 |  | 2023 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $96,337 | 74% | $93,265 | 73% | $3,072 | 3% |
| Product sales | 34,240 | 26% | 34,616 | 27% | (376) | (1)% |
| Total revenue | 130,577 | 100% | 127,881 | 100% | 2,696 | 2% |
| OPERATING EXPENSES: |  |  |  |  |  |  |
| Cost of services, exclusive of depreciation expense shown below\* | 74,823 | 78% | 71,121 | 76% | 3,702 | 5% |
| Cost of product sales, exclusive of depreciation expense shown below\* | 28,107 | 82% | 29,174 | 84% | (1,067) | (4)% |
| Total cost of services and product sales | 102,930 | 79% | 100,295 | 78% | 2,635 | 3% |
| General and administrative expense, exclusive of depreciation expense shown below | 10,259 | 8% | 5,811 | 5% | 4,448 | 77% |
| Depreciation and amortization | 3,770 | 3% | 3,937 | 3% | (167) | (4)% |
| Other (income) expense, net | (2,390) | (2)% | (1,068) | (1)% | (1,322) | 124% |
| OPERATING INCOME | 16,008 | 12% | 18,906 | 15% | (2,898) | (15)% |
| Interest expense | 3,209 | 2% | 3,236 | 3% | (27) | (1)% |
| Income before income taxes | 12,799 | 10% | 15,670 | 12% | (2,871) | (18)% |
| Income tax expense (benefit) | 3,609 | 3% | (7,259) | (6)% | 10,868 | NM |
| Net income | 9,190 | 7% | 22,929 | 18% | (13,739) | (60)% |
| Net income attributable to non-controlling interest | 158 | —% | 83 | —% | 75 | NM |
| Net income attributable to Core Laboratories Inc. | $9,032 | 7% | $22,846 | 18% | $(13,814) | (60)% |
| **Other Data:** |  |  |  |  |  |  |
| Current ratio (1) | 2.39:1 |  | 2.45:1 |  |  |  |
| Debt to EBITDA ratio (2) | 1.86:1 |  | 2.18:1 |  |  |  |
| Debt to Adjusted EBITDA ratio (3) | 1.66:1 |  | 1.85:1 |  |  |  |

“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 June 30, 2024 |  | March 31, 2024 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $96,337 | 74% | $96,495 | 74% | $(158) | (0)% |
| Product sales | 34,240 | 26% | 33,142 | 26% | 1,098 | 3% |
| Total revenue | 130,577 | 100% | 129,637 | 100% | 940 | 1% |
| OPERATING EXPENSES: |  |  |  |  |  |  |
| Cost of services, exclusive of depreciation expense shown below\* | 74,823 | 78% | 73,865 | 77% | 958 | 1% |
| Cost of product sales, exclusive of depreciation expense shown below\* | 28,107 | 82% | 30,723 | 93% | (2,616) | (9)% |
| Total cost of services and product sales | 102,930 | 79% | 104,588 | 81% | (1,658) | (2)% |
| General and administrative expense, exclusive of depreciation expense shown below | 10,259 | 8% | 11,789 | 9% | (1,530) | (13)% |
| Depreciation and amortization | 3,770 | 3% | 3,843 | 3% | (73) | (2)% |
| Other (income) expense, net | (2,390) | (2)% | 846 | 1% | (3,236) | NM |
| OPERATING INCOME | 16,008 | 12% | 8,571 | 7% | 7,437 | 87% |
| Interest expense | 3,209 | 2% | 3,423 | 3% | (214) | (6)% |
| Income before income taxes | 12,799 | 10% | 5,148 | 4% | 7,651 | 149% |
| Income tax expense (benefit) | 3,609 | 3% | 1,658 | 1% | 1,951 | 118% |
| Net income | 9,190 | 7% | 3,490 | 3% | 5,700 | 163% |
| Net income attributable to non-controlling interest | 158 | —% | 270 | —% | (112) | NM |
| Net income attributable to Core Laboratories Inc. | $9,032 | 7% | $3,220 | 2% | $5,812 | 180% |
| **Other Data:** |  |  |  |  |  |  |
| Current ratio (1) | 2.39:1 |  | 2.68:1 |  |  |  |
| Debt to EBITDA ratio (2) | 1.86:1 |  | 1.99:1 |  |  |  |
| Debt to Adjusted EBITDA ratio (3) | 1.66:1 |  | 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.*

| REVENUE: | Six Months Ended June 30, 2024 |  | 2023 |  | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Services | $192,832 | 74% | $184,341 | 72% | $8,491 | 5% |
| Product sales | 67,382 | 26% | 71,896 | 28% | (4,514) | (6)% |
| Total revenue | 260,214 | 100% | 256,237 | 100% | 3,977 | 2% |
| OPERATING EXPENSES: |  |  |  |  |  |  |
| Cost of services, exclusive of depreciation expense shown below\* | 148,688 | 77% | 142,055 | 77% | 6,633 | 5% |
| Cost of product sales, exclusive of depreciation expense shown below\* | 58,830 | 87% | 59,768 | 83% | (938) | (2)% |
| Total cost of services and product sales | 207,518 | 80% | 201,823 | 79% | 5,695 | 3% |
| General and administrative expense, exclusive of depreciation expense shown below | 22,048 | 8% | 22,142 | 9% | (94) | (0)% |
| Depreciation and amortization | 7,613 | 3% | 7,981 | 3% | (368) | (5)% |
| Other (income) expense, net | (1,544) | (1)% | (1,096) | —% | (448) | 41% |
| OPERATING INCOME | 24,579 | 9% | 25,387 | 10% | (808) | (3)% |
| Interest expense | 6,632 | 3% | 6,665 | 3% | (33) | (0)% |
| Income before income taxes | 17,947 | 7% | 18,722 | 7% | (775) | (4)% |
| Income tax expense (benefit) | 5,267 | 2% | (6,649) | (3)% | 11,916 | NM |
| Net income | 12,680 | 5% | 25,371 | 10% | (12,691) | (50)% |
| Net income attributable to non-controlling interest | 428 | —% | 152 | —% | 276 | NM |
| Net income attributable to Core Laboratories Inc. | $12,252 | 5% | $25,219 | 10% | $(12,967) | (51)% |
| **Other Data:** |  |  |  |  |  |  |
| Current ratio (1) | 2.39:1 |  | 2.45:1 |  |  |  |
| Debt to EBITDA ratio (2) | 1.86:1 |  | 2.18:1 |  |  |  |
| Debt to Adjusted EBITDA ratio (3) | 1.66:1 |  | 1.85:1 |  |  |  |

“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 June 30, 2024 compared to the Three Months Ended June 30, 2023 and March 31, 2024 and for the Six Months Ended June 30, 2024 compared to the Six Months Ended June 30, 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 June 30, 2024, service revenue was $96.3 million, an increase of 3% year-over-year and relatively flat 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 continues to expand and reservoir fluid analysis services in the European region showed improvement when compared to the prior year. Additionally, well completion diagnostic services in the U.S. market show a strong growth in 2024 when compared to the same period in 2023.

Sequentially, service revenue was relatively flat, which reflects a slightly lower level of well diagnostic services in the U.S., offset by growth in international reservoir rocks and fluids projects.

For the six months ended June 30, 2024, service revenue was $192.8 million, an increase of 5% compared to the same period in the prior year, driven by increases in both international and U.S. activity 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 June 30, 2024, product sales revenue of $34.2 million remained relatively flat year-over-year and increased 3% sequentially. The average U.S. land rig count for the three months ended June 30, 2024 is 17% lower when compared to the same period in 2023, however product sales in the U.S. increased year-over-year. The year-over-year growth in product sales in the U.S. onshore market was offset by a lower level of international product sales during the three months ended June 30, 2024.

Sequentially, additional market penetration of our completion products into the U.S. onshore market provided strong growth, however this growth was partially offset by lower levels of product sales into the Canadian market as a result of typical seasonal declines in activity caused by the spring break-up.

For the six months ended June 30, 2024, product sales revenue was $67.4 million, and decreased 6% compared to the same period in the prior year, primarily due to decreased sales in both the U.S. and international markets. Additionally, we had lower sales of laboratory equipment when compared to the same quarter in the prior year.

### Cost of Services, excluding depreciation

Cost of services was $74.8 million for the three months ended June 30, 2024, an increase of 5% year-over-year and 1% sequentially. Cost of services expressed as a percentage of service revenue was 78% for the three months ended June 30, 2024, compared to 76% for the same period in the prior year, and 77% compared to the prior quarter. Year-over-year, the increase in cost of services as a percentage of service revenue was primarily associated with higher employee compensation and operating costs.

Sequentially, the increase in cost of services as a percentage of services revenue was primarily due to a slightly different mix of services provided in the three months ended June 30, 2024, versus the prior quarter.

For the six months ended June 30, 2024, cost of services was $148.7 million, an increase of 5% compared to the same period in the prior year. Cost of services expressed as a percentage of service revenue remained flat compared to the same period in the prior year. Although utilization of our global laboratory network has improved with higher revenue, these efficiency gains have been offset by the impact of inflation on our employee compensation and operating costs.

### Cost of Product Sales, excluding depreciation

Cost of product sales was $28.1 million for the three months ended June 30, 2024, a decrease of 4% year-over-year and 9% sequentially. Cost of product sales expressed as a percentage of product sales revenue was 82% for the three months ended June 30, 2024, compared to 84% year-over-year and 93% sequentially. The year-over-year improvement in cost of product sales as a percentage of product sales was primarily driven by cost reduction initiatives and manufacturing efficiencies initially implemented in March 2024.

Sequentially, the improvement in cost of product sales as a percentage of product sales was primarily due to cost reduction initiatives and manufacturing efficiencies initially implemented in March 2024.

For the six months ended June 30, 2024, cost of product sales was $58.8 million, a decrease of 2% compared to the same period in the prior year. Cost of product sales expressed as a percentage of product sales revenue was 87% for the six months ended June 30, 2024, compared to 83% from the same period in the prior year. The increase in cost of product sales as a percentage of product sales revenue was primarily due to lower levels of product sales in the U.S., which resulted in higher absorption of fixed costs on a lower revenue base.

### 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 June 30, 2024, was $10.3 million, which increased $4.4 million when compared to $5.8 million for the three months ended June 30, 2023. The year-over-year increase of $4.4 million in G&A expense was primarily associated with:

- The G&A expense for the three months ended June 30, 2023, includes a $2.0 million net benefit on proceeds received from a death benefit under company owned life insurance policies. Additionally, there was a benefit of $0.9 million associated with the reversal of previously recognized stock compensation expense as performance targets associated with performance share awards were determined to be unachievable.
- The G&A expense for the three months ended June 30, 2024, increased by $0.9 million associated with implementation costs of a global human capital management system and a third-party assessment of the Company’s IT cybersecurity environment.

G&A expense for the three months ended June 30, 2024, of $10.3 million decreased $1.5 million when compared to the $11.8 million for the three months ended March 31, 2023. The sequential decrease of $1.5 million in G&A expense was primarily associated with:

- The G&A expense for the three months ended March 31, 2024, includes a charge of $3.5 million associated with stock compensation expense that was accelerated for employees who are eligible for retirement.
- The G&A expense for the three months ended June 30, 2024, includes additional expenses of approximately $0.9 million associated with the implementation of a new global human capital management system and a third-party assessment of the Company’s IT cybersecurity environment. The G&A expense in this quarter was also $1.0 million higher due to changes in the value of company owned life insurance instruments, which was a loss in the three months ended June 30, 2024, compared to a gain in the three months ended March 31, 2024

G&A expense for the six months ended June 30, 2024, was $22.0 million compared to $22.1 million for the six months ended June 30, 2023. The six months ended June 30, 2024, included $3.5 million of stock compensation accelerated for employees that have reached their eligible retirement age, compared to $6.5 million included in the six months ended June 30, 2023. The decrease in stock compensation expense was substantially offset by higher levels of expense for system implementation costs, IT cybersecurity assessment, net changes in the value of insurance investment instruments and employee compensation costs as discussed above.

### Depreciation and Amortization Expense

Depreciation and amortization expense for the three months ended June 30, 2024, was $3.8 million, a decrease of 4% year-over-year and 5% sequentially. Depreciation and amortization expense for the six months ended June 30, 2023, was $7.6 million, a decrease of 2% year-over-year. The decrease in depreciation and amortization expense compared to the prior year periods and sequentially is primarily due to assets which became fully depreciated and lower levels of capital expenditures.

### Other (Income) Expense, Net

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

|  | Three Months Ended June 30, 2024 | 2023 | Six Months Ended June 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| (Gain) loss on sale of assets | $(217) | $(129) | $(754) | $(33) |
| Results of non-consolidated subsidiaries | (68) | (62) | (99) | (199) |
| Foreign exchange (gain) loss, net | 388 | (386) | 674 | (530) |
| Rents and royalties | (795) | (110) | (801) | (255) |
| Return on pension assets and other pension costs | (287) | (330) | (577) | (656) |
| Loss on lease abandonment and other exit costs | — | — | 699 | 641 |
| Assets write-down | — | — | 1,110 | 1,015 |
| Insurance and other settlements | (1,319) | — | (2,330) | (604) |
| Severance and other charges | — | — | 824 | — |
| Other, net | (92) | (51) | (290) | (475) |
| Total other (income) expense, net | $(2,390) | $(1,068) | $(1,544) | $(1,096) |

During the six months ended June 30, 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 during the six months ended June 30, 2024 and 2023, respectively.

During the six months ended June 30, 2024, we had a fire incident at one of our U.K. facilities and have recorded partial insurance settlements of $2.3 million, including $1.3 million recorded in the three months ended June 30, 2024, associated with costs incurred and loss of income from business interruption. During the six months ended June 30, 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 June 30, 2024 | 2023 | Six Months Ended June 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| British Pound | $39 | $70 | $70 | $(181) |
| Canadian Dollar | 34 | (64) | 73 | (6) |
| Colombian Peso | (23) | 79 | (30) | 132 |
| Euro | 47 | (101) | 65 | (17) |
| Indonesian Rupiah | 145 | 37 | 225 | (33) |
| Russian Ruble | 18 | (90) | 14 | (341) |
| Turkish Lira | 4 | (443) | 25 | (448) |
| Other currencies, net | 124 | 126 | 232 | 364 |
| Foreign exchange (gain) loss, net | $388 | $(386) | $674 | $(530) |

### Interest Expense

Interest expense for the three months ended June 30, 2024 was $3.2 million relatively flat year-over-year and down slightly compared to $3.4 million in the prior quarter. The Company retired $75.0 million of senior notes on September 30, 2023, which carried a fixed interest rate of 4.11%. These senior notes were partially refinanced with $60 million of new senior notes which carry fixed interest rates of 7.25% and 7.50%. Although the total debt of the Company has been reduced, the current debt carries a higher blended interest rate. Sequentially, the decrease was primarily due to lower average borrowings on our bank revolving credit facility during the three months ended June 30, 2024. Interest expense for the six months ended June 30, 2024 was $6.6 million compared to $6.7 million for the six months ended June 30, 2023, primarily due to the changes in borrowings and the associated interest rates, as discussed above.

### Income Tax Expense (Benefit)

The Company recorded an income tax expense of $3.6 million and $5.3 million for the three and six months ended June 30, 2024, respectively, compared to an income tax benefit of $7.3 million and $6.6 million for the three and six months ended June 30, 2023, respectively. The effective tax rate for the three and six months ended June 30, 2024 was 28.2% and 29.3%, respectively. The effective tax rate for the three and six months ended June 30, 2023 was (46.3%) and (35.5%), respectively. The tax rate for the six months ended June 30, 2024 was largely impacted by the earnings mix of jurisdictions subject to tax for the period and items discrete to the quarter. The tax rate for the three and six months ended June 30, 2023 was largely impacted by the reversal of net deferred tax liabilities attributable to Core Laboratories N.V., which were not realized following the Redomestication Transaction on May 1, 2023.

### 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 June 30, 2024 |  | June 30, 2023 |  | March 31, 2024 |  | Year-over-year % Change | Sequential % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Reservoir Description | $86,277 | 66% | $83,384 | 65% | $84,236 | 65% | 3% | 2% |
| Production Enhancement | 44,300 | 34% | 44,497 | 35% | 45,401 | 35% | 0% | (2)% |
| Consolidated | $130,577 | 100% | $127,881 | 100% | $129,637 | 100% | 2% | 1% |
| **OPERATING INCOME:** |  |  |  |  |  |  |  |  |
| Reservoir Description \* | $11,443 | 13% | $13,316 | 16% | $6,892 | 8% | (14)% | 66% |
| Production Enhancement \* | 4,401 | 10% | 5,498 | 12% | 1,576 | 3% | (20)% | 179% |
| Corporate and Other (1) | 164 | 0% | 92 | 0% | 103 | 0% | NM | NM |
| Consolidated | $16,008 | 12% | $18,906 | 15% | $8,571 | 7% | (15)% | 87% |
| \* 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. |  |  |  |  |  |  |  |  |

| REVENUE: | Six Months Ended June 30, 2024 |  | 2023 |  | Year-over-year % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Reservoir Description | $170,513 | 66% | $163,572 | 64% | 4% |
| Production Enhancement | 89,701 | 34% | 92,665 | 36% | (3)% |
| Consolidated | $260,214 | 100% | $256,237 | 100% | 2% |
| **OPERATING INCOME:** |  |  |  |  |  |
| Reservoir Description \* | $18,336 | 11% | $15,787 | 10% | 16% |
| Production Enhancement \* | 5,977 | 7% | 8,779 | 9% | (32)% |
| Corporate and Other (1) | 266 | 0% | 821 | 0% | NM |
| Consolidated | $24,579 | 9% | $25,387 | 10% | (3)% |
| \* Percentage, which represents operating margin, 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 $86.3 million for the three months ended June 30, 2024 increased 3% year-over-year and 2% sequentially. The year-over-year increase was primarily due to growth in reservoir rock and fluid analysis in both international and U.S. markets. The growth was partially offset by a decline in crude-assay analysis services in certain regions impacted by the on-going geopolitical conflicts and delayed reservoir rock and fluids analysis projects caused by the fire in our Aberdeen, United Kingdom facility in February 2024. 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 revenue is associated with a slightly elevated level of activity in reservoir rock and fluid analysis for international projects, as well as increased revenue associated with the sale of laboratory equipment. The increase in revenue was partially offset by disruptions caused by the on-going geopolitical conflicts as discussed above.

Revenue from the Reservoir Description segment of $170.5 million for the six months ended June 30, 2024 increased 4% from the same period in 2023. The increase in revenue during 2024 is primarily due to growth in activity levels on international projects for reservoir rock and fluid analysis services, particularly the South America and Middle East, and improvement in the level of some crude-assay services in Europe. The growth in revenue was partially offset by delayed project revenue caused by the fire in our Aberdeen facility as discussed above.

Operating income of $11.4 million for the three months ended June 30, 2024, decreased $1.9 million, year-over-year and increased $4.6 million sequentially. Operating margins were 13% for the three months ended June 30, 2024, compared to 16% year-over-year, and 8% sequentially. Year-over-year, the decrease in operating income and operating margins was primarily attributable to higher employee compensation and operating expenses. Sequentially, the increase in operating income and operating margins was primarily due to 1) incremental revenue in the three months ended June 30, 2024; and 2) a lower level of Corporate G&A expenses absorbed in the segment. See discussion of General and Administrative Expenses, above. Operating income of $18.3 million for the six months ended June 30, 2024, increased $2.5 million year-over-year compared to the same period in 2023. The increase in operating income is primarily driven by incremental revenue of $6.9 million year-over-year.

### 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 June 30, 2024, was down by 17% year-over-year and 3% sequentially. International drilling and completion activities remained flat year-over-year and sequentially.

Revenue from the Production Enhancement operating segment of $44.3 million for the three months ended June 30, 2024, remained flat year-over-year and decreased 2% sequentially. Year-over-year, growth in well completion diagnostic services was substantially offset by a lower level of bulk sales in the international markets. Bulk sales to international markets may vary from one quarter to another quarter. Sequentially, product sales to the U.S onshore markets increased, however this was offset by lower product sales in Canada and bulk sales to international markets. Additionally, well diagnostic services to the U.S. onshore market decreased slightly during the three months ended June 30, 2024.

Revenue from the Production Enhancement segment of $89.7 million for the six months ended June 30, 2024, decreased 3% from the same period in 2023. The decrease in revenue in 2024 is primarily due to a decline of drilling and completion activity in the U.S. land market, partially offset by growth in well completion diagnostic services in the U.S. markets.

Operating income of $4.4 million for the three months ended June 30, 2024, decreased $1.1 million year-over-year, and increased $2.8 million sequentially. Operating margins for the three months ended June 30, 2024, was 10%, compared to operating margins of 12% year-over-year and 3% sequentially. Year-over-year, the decrease in operating income and margins was primarily due to lower product sales to the U.S. onshore market, resulting in lost manufacturing efficiencies increasing the cost of manufacturing products. Sequentially, the increase in operating income and margins was primarily driven by benefits from cost optimization initiatives on manufacturing efficiencies initially implemented in March 2024, and a lower level of corporate G&A expenses absorbed by the segment.

Operating income of $6.0 million for the six months ended June 30, 2024, decreased $2.8 million compared to the same period in the prior year. The decrease in operating income was primarily due to a lower level of revenue which resulted in a higher absorption of fixed cost and reduced manufacturing efficiencies as discussed above.

### 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 June 30, 2024, $15.7 million of our $17.7 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): | Six Months Ended June 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: |
| Operating activities | $22,676 | $5,572 | 307% |
| Investing activities | (2,344) | (818) | 187% |
| Financing activities | (17,757) | 6,022 | NM |
| Net change in cash and cash equivalents | $2,575 | $10,776 | (76)% |

Comparing the six months ended June 30, 2024 to the same period in the prior year, cash flows provided by operating activities improved to $22.7 million in 2024 compared to $5.6 million in the same period 2023. The Company improved its working capital by lowering its level of inventory and accounts payable during the six months ended June 30, 2024.

Cash flows used in investing activities for the six months ended June 30, 2024 of $2.3 million were driven primarily by funding capital expenditures of $5.9 million offset by proceeds on the sale of assets of $0.8 million and proceeds on company owned life insurance policies of $2.8 million. Cash flows used in investing activities for the six months ended June 30, 2023 of $0.8 million were driven primarily by funding capital expenditures of $4.4 million offset by proceeds on company owned life insurance policies of $3.4 million.

Cash flows used in financing activities for the six months ended June 30, 2024 of $17.8 million includes a $16.0 million net reduction in long-term debt, quarterly dividends of $0.9 million and $0.6 million associated with the Redomestication

Transaction. Cash flows provided by financing activities for the six months ended June 30, 2023 of $6.0 million includes borrowings on our Credit Facility of $10.0 million, offset by quarterly dividend payments of $0.9 million and $2.6 million associated with the Redomestication Transaction.

During the six months ended June 30, 2024, we repurchased 12,912 shares of our common stock to satisfy personal tax liabilities of participants in our stock-based compensation plan for an aggregate purchase price of $0.2 million.

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: | Six Months Ended June 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: |
| Net cash provided by (used in) operating activities | $22,676 | $5,572 | 307% |
| Less: Cash paid for capital expenditures | (5,918) | (4,382) | 35% |
| Free cash flow | $16,758 | $1,190 | 1308% |

Free cash flow for the six months ended June 30, 2024 was $16.8 million, compared to $1.2 million for the same period in 2023. The cash flows of $5.6 million provided by operating activities during the six months ended June 30, 2023, was largely impacted by an $11.2 million increase in inventory during this six-month period. Capital expenditures were $1.6 million higher during the six months ended June 30, 2024 compared to the same period in the prior year.

### 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 June 30, 2024, the Credit Facility has an available borrowing capacity of approximately $85.3 million.

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

|  | Interest Rate | Maturity Date | June 30, 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 |  |  | 40,000 | 56,000 |
| Total long-term debt |  |  | 150,000 | 166,000 |
| Less: Debt issuance costs |  |  | (2,379) | (2,866) |
| Long-term debt, net |  |  | $147,621 | $163,134 |

32

#### (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 1.66, and our interest coverage ratio is 5.94, each for the period ended June 30, 2024. We are in compliance with all covenants contained in our Credit Facility and Senior Notes as of June 30, 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, 2,235 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 June 30, 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 June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## 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 Jul 25, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-086610. Last ingested by Listed: Oct 24, 2026, 15:16 ET. No prices; not investment advice.