Core Laboratories N.V. Q2 FY2025 earnings call

• Core continued to execute its strategic plan of technology investments. Second quarter 2025 revenue was up 5% compared to Q1, with sequential improvement in operating income, margins, free cash flow and EPS. - Reservoir Description saw 7% Q2 revenue growth, driven by demand for rock and fluid analysis and lab instrumentation sales, with some rebound in assay services despite geopolitical uncertainties. - Production Enhancement had 3% Q2 revenue growth, with sequential margin improvement due to demand for diagnostic services and completion product sales. - Operational highlights: Reservoir Description engaged in projects in Colombia for energy sustainability, including EOR and CCS. Production Enhancement secured a project in Canada with its HERO PerFRAC system and expanded geothermal energy project deployments in North America.

Reservoir Description: Second quarter revenue was $86.3 million, up 7% compared to Q1. Ex-items operating margins were 13%, up from 10% in Q1. Production Enhancement: Second quarter revenue was $43.9 million, up 3% compared to Q1. Ex-items operating margins were 9%, up from 8% in Q1.

• Reservoir Description's third quarter revenue projected to range from $84 million to $88 million, operating income $10.6 million to $12.4 million. - Production Enhancement's third quarter revenue estimated to range from $43.5 million to $46.5 million, operating income $2.9 million to $3.7 million. - Core's third quarter 2025 revenue projected to range from $127.5 million to $134.5 million, operating income $13.6 million to $16.2 million, EPS $0.18 to $0.22.

• Geopolitical conflicts, evolving trade and tariff dynamics, and volatile commodity prices create uncertainty in demand for lab services tied to crude oil trade. - U.S. onshore activity levels tied to small-scale short-cycle crude oil development projects are more sensitive to crude oil price volatility. - Certain raw materials imported for Production Enhancement's U.S. manufacturing attract import tariffs.

Q: Any additional color around the kind of new proppant design that you've kind of partnered with the West Texas operator in the quarter. Is that really above and beyond? Is that really a new proppant design? Or is that a frac design? Or can you talk a little bit more about that?

A: Yes. So our engagement on that was less about the design of the proppant in this particular case, although we do engage in those types of analyses through our Stim-Lab operation. Our engagement was about them trying different designs of the proppant sort of particle size and the sorting, if you will, or the uniformity of the particles and then putting tracers into alternating zones, testing the sort of their existing proppant configuration versus the new one they were trialing. And with the tracer flowback, we were able to confirm that the new design was producing better results from those intervals that deployed the revised design of the proppant particle size and sorting.

Q: Okay. That's helpful. That's good color. And then anything else on the new product or kind of service offering side, I know you guys are constantly coming up with new ideas that you're super excited about maybe over the next kind of 12 to 18 months, in particular, in the Middle East.

A: Yes. I mean the -- one of the things going back on that -- to the proppant deal. I think it's an important thing to understand about our diagnostic services. As people try new technology, they -- and just conceptualize this, think about a well with a 3-mile lateral. You're 15,000 feet from the surface, you're trying to figure out in a hole 10-inches around or less. Did I execute the completion of the way I wanted, or as I change and modify completions and by getting the desired results? And the diagnostic tracers really unravel that. So we've got a number of technologies on both sides of the business. I'd say one that we're really focused on is formation damage. We've made quite an initiative into looking at ways of laboratory testing formation damage as people are introducing various different completion fluids into the well, how is that reacting with the rock and with the fluids. So that would be something that we've made investments in the Middle East in particular. Another one in large scale that we did, and Gwen and I were over earlier in the second quarter, we opened up our unconventional laboratory in Dammam, Saudi Arabia. So we do see that there are, I'd say, growing opportunities into a game that's in the early innings of unconventional resource development throughout the region. And so we've taken a lot of the proprietary technologies that we've developed for dealing with the unconventional reservoirs in North America, and we've now replicated that equipment and those techniques and technologies. And we brought that into Saudi Arabia. We've always had a great partnership with Saudi Aramco. And we think that we can service them and others in the region as unconventionals grow in the -- along the Arabian Peninsula.