e Laboratories (US:CLB)2020-04-23 18:55Financial Data and Key Metrics Changes - In Q1 2020, Core Laboratories generated over $18.5 million in free cash flow, marking the 74th consecutive quarter of positive free cash flow [9] - The company produced an industry-leading return on invested capital (ROIC) exceeding 12% for the 42nd consecutive quarter [9] - Revenue from continuing operations was $152.4 million, down about 3% from $156.8 million in Q4 2019 [23] - Income from continuing operations, excluding items, was $13.7 million, down 20% sequentially from $17.1 million [34] Business Line Data and Key Metrics Changes - Service revenue was $110 million, down from $115.2 million, a decline of about 4.5% sequentially [24] - International revenue grew 1.5% sequentially, offset by a 9% decline in U.S. sourced revenue [25] - Product sales were $42.4 million, an increase of 2% from $41.6 million last quarter [26] - Cost of services for the quarter was 74% of service revenue, up from 72% last quarter [27] Market Data and Key Metrics Changes - Crude oil prices declined 55% in Q1 2020, leading to significant reductions in E&P companies' capital expenditure plans [45] - The average frac spread index fell by 12.5%, and completion activity declined by 24% [45] - International activity is anticipated to decrease, but not as sharply as the decline in U.S. onshore activity [48] Company Strategy and Development Direction - Core Laboratories is focusing on reducing debt with excess free cash flow and has implemented significant cost reduction plans [20][39] - The company anticipates that delays in project work and international shipments may improve during the second half of 2020 [49] - Core's reservoir description segment is expected to be more resilient due to its work not solely tied to drilling and completion activity [49] Management's Comments on Operating Environment and Future Outlook - Management expects crude oil prices to remain low in the near to mid-term due to decreased global demand [43] - The company is not in a position to provide quantitative guidance for the upcoming quarter but anticipates a modest improvement in activity as demand recovers [49] - Management highlighted that the fluid analysis business is less tied to rig count and will continue to be monitored closely [72] Other Important Information - The company reduced net debt by $6 million and maintained a leverage ratio of 1.93 as of March 31, 2020 [19] - General and administrative expenses increased to $13.1 million, primarily due to non-cash expenses associated with employee compensation plans [30] - The company expects capital expenditures to be around $11 million for 2020, down approximately 50% compared to 2019 [31] Q&A Session Summary Question: How is the dialogue progressing with international customers versus North American domestic customers? - Management indicated that international projects have not been canceled, and operations are expected to move forward once transportation issues are resolved [70] Question: How do shut-ins in the North American market impact the fluids business? - Shut-ins may initially impact fluids testing, but there could be a rebound as production resumes [72] Question: Is there a risk of revenue falling below the $100 million mark for reservoir description? - Management acknowledged that revenue could drop below $100 million due to production declines but did not provide specific guidance [75] Question: What is the company's medium-term leverage target for debt pay down? - Management indicated a target leverage ratio of around 1.5x but emphasized that the focus will remain on reducing debt for the foreseeable future [83] Question: How does the company plan to manage costs in the upcoming quarters? - Management confirmed that additional cost reduction initiatives are being formulated and will be implemented as necessary [80]