Good day and welcome to the Core Lab Q3 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that today’s event is being recorded. I would now like to turn the conference over to Chairman and CEO Larry Bruno. Please go ahead.

Thanks, Danielle. Good morning in the Americas. Good afternoon in Europe, Africa and the Middle East and good evening in Asia-Pacific. We’d like to welcome all of our shareholders, analysts and most importantly, our employees to Core Laboratories third quarter 2024 earnings call. This morning, I am joined by Chris Hill, Core’s Chief Financial Officer; and Gwen Gresham, Core’s Senior Vice President and Head of Investor Relations. The call will be divided into six segments. Gwen will start by making remarks regarding forward-looking statements. We’ll then have some opening comments, including a high-level review of important factors in Core’s Q3 performance. In addition, we will review Core’s strategies and the three financial tenets that the company employs to build long-term shareholder value. Chris will then give a detailed financial overview and have additional comments regarding shareholder value. Following Chris, Gwen will provide some comments on the company’s outlook and guidance. I’ll then review Core’s two operating segments, detailing our progress and discussing the continued successful introduction and deployment of Core Lab’s technologies, as well as highlighting some of Core’s operations and major projects worldwide. Then we’ll open the phones for a Q&A session. I’ll now turn the call over to Gwen for remarks on forward-looking statements.

Before we start the conference this morning, I’ll mention that some of our statements that we make during this call may include projections, estimates and other forward-looking information. This would include any discussion of the company’s business outlook. These types of forward-looking statements are subject to a number of risk and uncertainties that could cause actual results to materially differ from our forward-looking statements. These risk and uncertainties are discussed in our most recent annual report on Form 10-K, as well as other reports and registration statements filed by us with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our comments also include non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures is included in the press release announcing our third quarter results. Those non-GAAP measures can also be found on our website. With that, I’ll pass the discussion back to Larry.

Thanks, Gwen. Moving now to some high level comments about the third quarter of 2024. Core continued to build on the operational momentum established over the past several quarters. Revenue was up 3%, compared to Q2 of 2024 and more than 7%, compared to Q3 of 2023. The company saw solid sequential improvement in operating income, operating and earnings per share. In Reservoir Description revenue for the third quarter was up 3%, compared to Q2 reflecting the continued improvement in market demand for our global rock and fluid laboratory services. This improvement occurred despite the ongoing geopolitical conflicts that continued to negatively impact demand for laboratory services that are specifically tied to the assay of crude oil and derived products. These geopolitical conflicts are still producing headwinds to both revenue growth and operating margins. In addition weather events in the Gulf of Mexico in the third quarter also negatively impacted revenue and operating margins. Despite these hurdles, for the third quarter, operating margins for Reservoir Description were 17%, up very nicely from 14% in Q2. In production enhancement, revenue also grew by approximately 3%, compared to Q2, largely reflecting a higher level of international product sales. These gains in international sales were offset by two factors. First, multiple hurricanes in the Gulf of Mexico resulted in rig evacuations and suspended operations. Completion diagnostic services that were scheduled for Q3 in the Gulf have now been rescheduled by our clients into Q1 of 2025. Second, there was a sequential decline in domestic product sales as US land completion activity declined quarter-over-quarter. In line with our stated financial strategy, after funding our dividend, Core continued to dedicate free cash to paying down debt. During the third quarter, Core’s net debt was reduced by nearly $12 million or 9%. This reduction in our…

Thanks, Larry. Before we review the financial performance for the quarter, the guidance we gave on our last call and past calls, specifically excluded the impact of any FX gains or losses and assumed an effective tax rate of 20%. So accordingly, our discussion today, excludes any foreign exchange gain or loss for current and prior periods. During the third quarter of 2024, the company recorded an adjustment of $1.4 million to stock compensation expense for certain performance share awards which are no longer expected to vest. The comparison periods for the second quarter of 2024 and third quarter of 2023 also include items that were discussed in those calls and highlighted in our earnings release for those periods. These items have also been excluded from our discussion of the financial results today. You can find a summary of those items in the tables attached to our press release for the third quarter of 2024. So now looking at the income statement. Revenue $134.4 million in the third quarter, an increase of 3% from $130.6 million in the prior quarter and up over 7% from $125.3 million in the prior year’s third quarter. The revenue growth, both sequentially and year-over-year is associated with increased demand and certain international regions for Reservoir Rock and Fluid analytical programs, as well as a higher level of both product shipments into international markets. These increases were partially offset by delayed projects caused by the storms in the Gulf of Mexico and a lower level of completion product sales in the US land markets. Of this revenue, service revenue, which is more international was $98.8 million for the quarter, up 3% sequentially and up over 6% from last year. Demand for our laboratory-based Reservoir Rock and fluid analytical programs continues to improve and is expected…

Thank you, Chris. We continue to see a multi-year international recovery due to underinvestment increasing focus on energy security, and rising crude oil demand, all supporting continued activity growth into 2025. In alignment with this outlook, we will continue to execute our strategic plan of investing in technology and pursuing growth opportunities, while remaining well-engaged in long cycle international projects. The IEA EIA and OPEC+ continue to forecast growth in crude oil demand between 1 million and 1.6 million barrels per day for 2025, which is in addition to the natural decline of production from existing fields, As such, continued investments in the development of onshore and offshore crude oil fields will be required to meet the projected growth in demand. In the near term, we expect that crude oil markets will remain volatile due to global economic and geopolitical risk and uncertainties. Consequently, as international project activity continues to expand, committed long-term upstream projects from the Middle East, South Atlantic margins and certain areas of Asia-Pacific and West Africa support year-over-year growth in demand for the company's services and products. Shifting to the US. We anticipate US land activity to trend lower in the fourth quarter of 2024. However, return to similar activity levels, year-over-year in 2025. For the near-term, US land activity is currently negatively influenced by recent E&P consolidations in weak natural gas prices. Our fourth quarter guidance for both segments includes the impact of client project delays caused by weather events in the Gulf of Mexico. We project Reservoir Description’s fourth quarter 2024 revenue to be flat to up slightly. Turning to production enhancements. The US frac spread continues to trend lower, while we also anticipate the typical year end seasonal decline in US onshore completion activity. Reservoir Description’s fourth quarter 2024 revenue is projected to range from $87.5 million to $90.5 million with operating income of $13.4 million to $14.9 million. Core’s Production Enhancement segment’s fourth quarter revenue is estimated to range from $41 million to $45 million with operating income of $1.3 million to $2.7 million. In summary, the company's fourth quarter 2024 revenue is projected to range from $128.5 million to $135.5 million with operating income of $14.8 million to $17.7 million, yielding operating margins of 12%. EPS for the fourth quarter of 2024 is expected to range from $0.20 to $0.25. The company's fourth quarter 2024 guidance is based on projections for underlying operations and excludes gains and losses in foreign exchange. Our fourth quarter guidance also assumes an effective tax rate of 20%. With that, I will pass the call back to Larry

Thanks, Gwen. First. I'd like to thank our global team of employees for providing innovative solutions, integrity and superior service to our clients. The team's collective dedication to servicing our clients is the foundation of Core Lab’s success. Looking at the macro and picking up on some of the comments Gwen just made, after assessing current and near-term economic conditions, IEA, EIA and OPEC projections continue to forecast growth in crude oil demand of between 860 and 1.9 million barrels per day for 2024, compared to 2023. Furthermore, their forecasts are for an additional 1 to 1.6 million barrels per day in 2025. This projected growth in demand is in addition to the production that needs to be brought online to account for the natural decline from existing producing fields. Furthermore, the EIA is forecasting that US oil production is expected to only rise from 13.22 million barrels per day in 2024 to 13.54 million barrels per day in 2025. Excluding the COVID period, year-over-year growth of only 300,000 barrels per day would represent the smallest annual add to US tight oil production since 2018. US tight oil production has been by far the largest component of non-OPEC production growth since 2010. Continued growth in global oil demand, combined with slowing year-over-year US oil production growth supports the outlook that future crude oil demand will be largely met from international, conventional, offshore discoveries and developments trends that bode well for increasing demand for Reservoir Description, a pattern that we project will play out for the next several years. Production enhancement in addition to its exposure to the US land market also has expanding opportunities in international areas such as with unconventional plays in the Middle East and emerging onshore and offshore conventional plays in a number of regions. Furthermore, Core…

Thank you. [Operator Instructions] The first question comes from Sean Mitchell from Daniel Energy Partners. Please go ahead.

Good morning, guys. Thanks for taking my question. I want to dig into the CCS opportunity you talked about if that's okay. You noted that multiple contracts were awarded during Q3. Is this specific project work which goes away once the project is complete? Or is there potential maintenance type or ongoing revenue opportunities with the CCS projects?

Yeah, good question. So, I think the unlike an oil field, hydrocarbon producing field, where Core Lab will stay engaged over the life of the field, I do think that the CCS projects will not have as long of a life engagement with Core Lab. Our involvement on these are largely focused on how the CO2 introduction is going to affect the rocks and the fluids in the rock. Once that's established, and validated that there's not a damage that can be - that's going to be created by introducing the CO2, which will inevitably raise the make the pore waters more acidic, it'll lower the PH. Once that's been established, that's probably going to be the end of our involvement. It's not going to be where we come back for EOR opportunities and things like that like we would in a hydrocarbon field.

Yeah, unless there is issues.

Okay.

But I will say that that, so just a little more color on this. So we've got our multi-company joint industry projects going on and we've got in addition to that, proprietary studies going on. Sometimes for people in the consortium sometimes for people that just want to work on a specific area. And and it's a very nice pickup for us. We've got a lot of experience understanding what happens when you put CO2 into the rocks. And we gained that experience through EOR studies over the years. Same type of testing, same type of technologies, same type of expertise, just with a different desired outcome. We are not trying to produce more hydrocarbon we are trying to put the CO2 in the rock.

Got it. And then maybe a follow-up really quick, can you elaborate a little bit on the longer term opportunity set on pulverizer technology? Any guess on the number of offshore wells, which could require P&A in the next three to five years. And then, what type of penetration pulverizer could have in the markets?

Yeah, I'm going to be vague here, but the number is big. So, in terms of the opportunities. So, I somewhat jokingly talk about P&A as an energy transition story. Because if we were to stop drilling oil and gas wells today we'd still be looking at 30, 40 years of Plug and Abandonment in front of us as those new fields would decline. So, we're just in the very early - I won’t call it the first inning, we'll call it the first couple of pitches here of the game as it relates to pulverizer. We've had a couple of successful applications, different parts of the world. We feel like we're ready to now take this on to stage and really start engaging with clients outside of sort of one-off projects. We're now going to start going on offense, as we bring that technology offering to a global client base. Every offshore field, which is where the big - we see the biggest application for this is a potential target for this. They all have to be P&Aed at some point and so, doing it cost-effectively are - is going to be huge. And one little thing here, I don't want to get too far out over our skis on this. We're also looking at variance of this that might be applicable for less complex onshore wells. But that's still a bit down the road.

Got it. That was going to be my follow-up. Can you do it onshore? But anyway, thanks guys for the time. Appreciate it.

Absolutely, Sean. Take care.

Thanks, Sean.

[Operator Instructions] The next question comes from Stephen Gengaro from Stifel. Please go ahead.

Thanks. Good morning, everybody.

Morning.

So two questions, I mean, I think Gwen talked a little bit about international growth rates next year and it looks like Reservoir Description is going to have, I think about the mid-single-digits growth this year. It had a nice growth last year. How do - how are you thinking about ‘25 international activity spend? It seems like people are centering around kind of mid-single-digits. How are you thinking about it? And kind of what does that mean for RD growth next year?

Yeah, so, I think, we'll be pretty durable and probably do as well or maybe a little better than the peer group on that just based on the where our engagement is building, where some folks have already gotten sort of the early activity pickups there. The other thing, Stephen is, is that, what we see here, the limiting factor that we can see on big offshore international projects specifically, which is where we see the next big cycle as we talked about is going to be rig availability and the ability to get after some of these projects given the rig constraints. And so, as that picks up, we'll follow along with that. And just to reinforce this and I don’t know we've talked about this with you over time, those projects because of the risk to the operators, those projects tend to be very lucrative for Core Lab, because the way they de-risk, their reservoir models is by building very robust data sets. So, those are very lucrative projects for us. High caloric projects is the way we describe them. And so, we think that as those pick up speed over the next several years that we're going to participate very well and that’s going to hit Reservoir Description with very high incremental margins.

Great. Okay. Thank you. That's, that's helpful. The other question I wanted to ask you a little bit about the US perforating business because some of the data we see indicates that oriented perf guns have gained traction and discuss some positive usage - usage data points we've seen. But on the other hand, the business and it's not clearly not specific to Core Lab, but the business just hasn't been very good, right? And we've seen it across the spectrum. You've heard one of your competitors trying to sell the business. Can you just give us kind of an update in a landscape of what's going on in that business and kind of what you think is needed either company-specific or a wider scale to kind of fix that business?

Yeah, I'll get started and then hand it over to Gwen. She go and follow those stats for us pretty well there. So, there's no doubt. It's a crowded dog park as I'd like to describe it. It's very competitive landscape there is a lot of capacity. Some people maybe try to seek an exit from it. But Core Lab's been a I'll call it an industry-leading player in perforating market globally. We're going to be there. It's one of the things we do very well. Our energetic offerings are still among the best in the world. So we're going to be here through ups and downs in the cycle there. I think, your question about oriented guns, I almost want to describe it as sort of a religious affinity. Some operators take great exception to it, some believe it in their hearts, without exception. And so, I think it's - there's, different philosophies in the companies in terms of the charge design, the gun design and how they want to go about doing their wells. We don't mind that many regards because in addition to our perforating offerings here, when people try different things, they want to know if it work and so that creates opportunities for us in the diagnostics. So we gained some insights as we move around with our diagnostic study and I'm not quite willing to share all of those about what might work best. And we'll let our clients pay us to determine that for them in their particular rocks, their particular stress fields in their in their basins. And then Gwen, maybe some comments about what we saw in terms of completion activity for the quarter?

Yeah, so, we continue to see completion activity decrease. We saw that in Q2 and we've seen it even further as Q3 completed and moving into Q4. And we also expect the typical seasonal decline that we start to see roughly around the Thanksgiving holiday and playing out through the end of December. And then typically, our clients get right back to it as Q1 starts to unfold. So we think activity levels as we move into completion activity levels as we move into 2025, would be similar to those as we compare it to 2024.

Okay, great. Thank you. That's helpful and maybe just squeeze one more in on the perf gun side and it's maybe getting into weasel, but you mentioned it's crowded dog park I think, and Is it crowded because of the four key players? Or is it crowded because of sort of the machine shops that have kind of created some of these - what I call kind of pseudo preassembled guns to compete or is it a combination of both?

Yeah, I think there's - I don't know, there might be 8, 10 different gun offerings out there now. And so, I think our success is driven by clients that want to use our energetics as part of our system. But we'll also sell components to folks that want to use someone else's gun, but want our charge proficiencies.

Great. Now that's good color. I appreciate. Thanks.

Okay. Thanks, Stephen.

This concludes our question and answer session. I would like to turn the conference back over to Larry Bruno for closing remarks.

Okay, we'll wrap up here. In summary, Core's operational leadership continues to position the company for improving client activity levels in the coming quarters. We have never been better operationally or technologically positioned to help our global client base to optimize their reservoirs and to address their evolving needs. We remain uniquely focused and are the most technologically advanced client-focused reservoir optimization company in the oilfield service sector. The company will remain focused on maximizing free cash and returns on invested capital. In addition to our quarterly dividends, we will bring value to our shareholders via growth opportunities driven by both the introduction of problem-solving technologies and new market penetration. In the near term, Core will continue to use free cash to reduce debt and strengthen its balance sheet, while always investing in growth opportunities and evaluating various opportunities to increase shareholder value. So in closing, we thank and appreciate all of our shareholders and the analysts that cover Core Lab. The executive management team and the Board of Core Laboratories give a special thanks to our worldwide employees that have made these results possible. We're proud to be associated with our continuing achievements. So thanks for spending time with us and we look forward to our next update. Good bye for now.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.