Core Laboratories (ticker: CLB), a global leader in reservoir description, production enhancement and reservoir management services, set a first-quarter record with $72.7 million in free cash flow (defined as cash from operations less capital expenditures) in its Q1’15 earnings release on April 22, 2015. CLB reported revenues of $213.6 million and net income of $31.4 million ($0.72 per share), representing respective declines of 23% and 53% compared to Q4’14, and 18% and 49% compared to Q1’14.
A conference call covering the results is scheduled for Thursday at 8:30am EST.
The revenue reductions are the result of decreased activity, primarily in North America, according to the release. Core addressed the changing commodity market in its Q4’14 results, saying it expects the rig count declines to continue into Q2’15, echoing Halliburton’s sentiment in its Q1’15 conference call that rig count swoons usually go “from peak to trough” over a three-month period. The company expects a “V-shaped recovery” to begin in Q1’16 – a slight change from February, when David Demshur, Chief Executive Officer, said a recovery was expected by the end of 2015.
Revenue for Q2’15 is projected at $192 to $202 million, down slightly from Q1’15 numbers. Free cash flow is expected to be greater than $60 million.
Segment Breakdown
Core’s reservoir description department fared the best of its three segments in the quarter, with revenue declining only 7% and 3% compared to Q4’14 and Q1’14, respectively. The company says revenue would have actually increased on a quarter-over-quarter basis if not for exchange rate devaluations based on the strong U.S. dollar. Reservoir description was also resilient in the 2009 downturn, CLB said, and is expected to remain the backbone of the company. The department historically accounts for about half of all operating revenues.
Its production enhancement and reservoir management divisions declined much more sharply than the reservoir description segments due to their direct involvement with activity and production. In the release, CLB said the rapid decline in rig count and the increasing number of drilled but uncompleted wells are a direct effect of the lower revenues in the divisions. Refracturing existing unconventional wells began to pick up in Q2’15, and CLB was utilizing its latest technology to maximize returns for its customers.
Investors in Mind
CLB’s capital efficiency and attention to shareholders is reinforced by its metrics and consistent stock buybacks. In EnerCom’s OilService Weekly Benchmarking report, the company’s Return on Equity (396%), Return on Invested Capital (55%) and Price/Cash Flow per Share (28.6x) metrics were tops among its 44 oilservice peers. Its Operating Profit Percentage of 32% ranked second. The class-leading ranks are the result of an internal performance metric that monitors CLB’s standing among its fellow service providers. The company reported that 34% of revenues was converted into free cash in Q1’15 – the highest amount for any first quarter in company history and the highest conversion rate among its peers.
In the latest quarter, CLB used the cash and borrowings under its credit facility to pay $23.9 million in dividends and bought back 683,000 shares at a price of approximately $72.9 million. Overall, more than $96.8 million ($2.25 per share) was returned to shareholders in Q1’15. The returns are a continuation of CLB’s Shareholder Capital Return Program, which has returned more than $2.1 billion ($48 per share) to shareholders since it began 12 years ago. Overall, the company has reduced its diluted share count by approximately 40.6 million shares, including the buyback of more than 1.6 million shares in 2014. Its share count as of today is the lowest in 17 years and its $0.55 dividend has been affirmed for Q2’15.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
