e Laboratories (CLB) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue from continuing operations was $169 million in Q2 2019, comparable to the previous quarter but below the same quarter last year [18] - Service revenue was $117.9 million, down 2% sequentially, impacted by lower activity in North America [18] - Product sales were $51.2 million, up 5% from the previous quarter, led by a 18% increase in US energetic product sales [19] - Free cash flow for Q2 was $10.1 million, marking the 71st consecutive quarter of positive free cash flow [24] - GAAP income from continuing operations was $19.5 million, with earnings per diluted share at $0.43 [21] Business Line Data and Key Metrics Changes - The Reservoir Description segment is expected to benefit from increased client spending in international crude oil markets, with international revenue up 8% year-over-year [29][94] - The Production Enhancement segment saw a decline in discretionary services, which represent about a third of the segment [53] - The company anticipates that US onshore completion activity will be flat sequentially, while US energetic sales are expected to exceed the rate of completion activity [29] Market Data and Key Metrics Changes - The international offshore rig count increased by 26% year-over-year, while the overall international rig count increased by 14.5% year-over-year [27] - The decline curve is prevailing in mature crude oil fields, indicating a future supply gap [28] - The company remains bullish on crude oil, noting that non-US and non-OPEC production has fallen for seven consecutive years [14] Company Strategy and Development Direction - The company is focused on building long-term shareholder value through three financial tenets, including generating free cash flow and maintaining dividends [15] - Core Laboratories is expanding its technological capabilities, including the commissioning of the Reservoir Optimized Completions laboratory [37] - The company is reviewing divestment opportunities for non-core, low-margin businesses to streamline operations [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the international recovery and expects improved margins in the third quarter [48] - The company anticipates that free cash flow will improve in the second half of the year, driven by international activity and growth from the Reservoir Description group [72] - Management highlighted the importance of optimizing well completions to enhance field investment returns while managing capital budgets [29] Other Important Information - The company has no plans to cut its dividend, viewing it as important to its investor base [15] - The company is experiencing challenges in scaling up to meet gun demand, having turned down a $7 million order for over 13,000 guns [12] Q&A Session Summary Question: 3Q outlook for production enhancement - Management expects revenues for production enhancement to be somewhat flattish, with energetic sales outperforming due to penetration with existing and new customers [45] Question: Market share and differentiation of GoGun - Management indicated that it is still early in the introduction of GoGun, with the differentiator being the efficiency and effectiveness of the energetics [46] Question: Reservoir Description growth and EBIT margins - Management is cautious but sees potential for high-single digits growth in Reservoir Description, with EBIT margins potentially reaching 20% by year-end [48][50] Question: Discretionary services in production enhancement - Management noted a decline in discretionary services, which represent about a third of the production enhancement segment, but sees opportunities in offshore field development [53][55] Question: International growth prospects - Management ranks growth prospects with the Middle East as the top region, followed by Latin America and Asia-Pacific [58] Question: Free cash flow and dividend coverage - Management is confident that free cash flow will improve in the second half of the year, driven by international activity and growth from the Reservoir Description group [72] Question: Domestic frac market trends - Management noted that while the total number of wells might be down, revenue opportunities from increased energetic utilization in completions should remain flattish [78]