Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion highlights the current operating environment and summarizes the financial position of Core Laboratories N.V. and its subsidiaries as of June 30, 2022 and should be read in conjunction with (i) the unaudited interim consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report") and (ii) the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Annual Report").
General
Core Laboratories N.V. is a limited liability company incorporated and domiciled in the Netherlands. It was established in 1936 and is one of the world's leading providers of proprietary and patented reservoir description and production enhancement services and products to the oil and gas industry. These services and products can enable our clients to improve reservoir performance and increase oil and gas recovery from new and existing fields. Core Laboratories N.V. has over 70 offices in more than 50 countries and employs approximately 3,600 people worldwide.
References to "Core Lab", "Core Laboratories", the "Company", "we", "our" and similar phrases are used throughout this Quarterly Report and relate collectively to Core Laboratories N.V. and its consolidated affiliates.
We operate our business in two reportable segments: Reservoir Description and Production Enhancement. These complementary segments provide different services and products and utilize different technologies for evaluating and improving reservoir performance and increasing oil and gas recovery from new and existing fields.
• Reservoir Description: Encompasses the characterization of petroleum reservoir rock, and reservoir fluids samples to increase production and improve recovery of crude oil and natural gas from our clients' reservoirs. We provide laboratory-based analytical and field services to characterize properties of crude oil and crude oil-derived products to the oil and gas industry. We also provide proprietary and joint industry studies based on these types of analyses and manufacture associated laboratory equipment.
• Production Enhancement: Includes services and manufactured products relating to reservoir well completions, perforations, stimulation, and production. We provide integrated diagnostic services to evaluate and monitor the effectiveness of well completions and to develop solutions aimed at increasing the effectiveness of enhanced oil recovery projects.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations section, including those under the headings "Outlook" and "Liquidity and Capital Resources", and in other parts of this Quarterly Report, are forward-looking. In addition, from time to time, we may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. Forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "believe", "expect", "anticipate", "estimate", "continue", or other similar words, including statements as to the intent, belief, or current expectations of our directors, officers, and management with respect to our future operations, performance, or positions or which contain other forward-looking information. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, no assurances can be given that the future results indicated, whether expressed or implied, will be achieved. While we believe that these statements are and will be accurate, our actual results and experience may differ materially from the anticipated results or other expectations expressed in our statements due to a variety of risks and uncertainties.
21
Return to Index
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see Part II, "Item 1A - Risk Factors" of this report and "Item 1A - Risk Factors" in our 2021 Annual Report and other reports filed by us with the Securities and Exchange Commission ("SEC").
Outlook
The events associated with the COVID-19 pandemic that began in 2020 continued in 2021 and 2022. Certain international countries continued mandated shut-downs, home sheltering and social distancing policies that initially caused uncertainty in the demand for crude oil and associated products, however demand for these products has recovered more quickly than global production causing crude-oil commodity prices to increase significantly. Although U.S. land drilling and completion activities continued to show improvement during 2021 and strengthened in the first and second quarters of 2022, activity still remains well below pre-pandemic levels. Additionally, international activity continued to be adversely impacted by increasing infection rates associated with new variant strains of the COVID-19 virus during 2021 and 2022, which has continued to cause business disruptions associated with government mandated shut-downs, travel restrictions, quarantine protocols and worksite closures in various international regions.
The geopolitical conflict between Russia and Ukraine that erupted in February 2022, has also resulted in current disruptions to traditional supply chains associated with the movement of crude oil, primarily reducing the level of crude oil sourced from Russia and being imported into various European ports. However, the supply chains associated with the movement of crude oil have begun and are expected to continue realigning to new logistical patterns, as we expect Europe will find new suppliers of crude oil to import into the region. These events have caused very elevated energy prices throughout Europe, and the current global demand for crude oil and natural gas has remained at a high level; thus, Core Lab expects supply lines to realign, and the Company's volume of associated laboratory services to increase commensurate with the trading and movement of crude-oil into Europe and across the globe. In March 2022, completion product sales delivered through our Production Enhancement segment into Ukraine were suspended and continue to be limited due to disruptions in freight transport services.
We are actively monitoring the situation in Ukraine and assessing its impact on our operations in the region, including our business partners and customers. We have not experienced any material interruptions in our infrastructure, supplies or networks needed to support our operations. However, the situation is rapidly evolving and the United States, the European Union, the United Kingdom and other countries may implement additional sanctions, export controls or other measures against Russia, Belarus and other countries, regions, officials, individuals or industries in the respective territories. We have no way to predict the progress or outcome of the conflict in Ukraine or its impacts in Ukraine, Russia or Belarus as the conflict, and any resulting government responses, are fluid and beyond our control.
Crude-oil commodity prices remain volatile and continued to increase significantly during the first and second quarters of 2022, as a result of the Russia-Ukraine conflict and the additional uncertainty in supply of crude oil and natural gas. The activities associated with the production of oil and gas are expected to increase for the remainder of 2022, however growth may be moderated by limitations in personnel, equipment, supply chain disruptions, as well as the allocation of capital resources by oil and gas producing companies. As a result, it is anticipated that crude-oil commodity prices for the near-term will remain elevated and supported by increasing demand with only moderate growth in production levels. If crude-oil commodity prices remain at current levels or increase, our clients' activities associated with the energy markets are also expected to increase for the remainder of 2022 depending on the outlook for the global economy, the pace of recovery from the COVID-19 pandemic and considerations associated with the Russia-Ukraine conflict.
Core Laboratories has continued to operate as an essential business with timely delivery of products and services to our clients during the COVID-19 pandemic. The disruptions described above have primarily been associated with operational workflows stemming from travel, product delivery, as well as suspensions and delays in client projects. The global supply chain challenges have resulted in certain disruptions to our workflow, however, the impact to our operations has been minimized by carrying higher levels of inventory, and currently, we do not anticipate significant disruption in our key supply chains for the
22
Return to Index
remainder of 2022. We also continue to follow an established continuity plan across our global organization to protect the health of employees while servicing our clients. In addition, the continuing inflationary impact that began in 2021 and worsened in the first and second quarters of 2022, which has resulted in increased costs of raw materials, transportation and shipping, and personnel which has negatively impacted profit margins on both product sales and service revenue.
Our major clients continue to focus on capital management, return on invested capital, free cash flow, and returning capital to their shareholders, as opposed to a focus on production growth. The companies adopting value versus volume metrics tend to be the more technologically sophisticated operators and form the foundation of Core Lab’s worldwide client base. As oil and gas commodity prices are expected to remain elevated in the near to mid-term, the Company expects our clients activities associated with increasing oil and gas reserves and production levels will continue to increase in the coming years. Additionally, some of our major clients have begun investing and developing other sources of energy, including renewables, and focusing on emission reduction initiatives. Some of these initiatives include deployment of technologies associated with hydrogen or lithium-based batteries, and carbon capturing and sequestration. Considering a longer-term strategy, we expect to be well positioned as our clients continue their focus on employing higher technological solutions in their efforts to optimize production and estimated ultimate recovery in the most cost efficient and environmentally responsible manner.
We believe some oil and gas operators will continue to manage their capital spending within free cash flow and maintain their focus on improving and maintaining a stronger balance sheet, which could constrain future growth in activities associated with the production of oil and gas.
As part of our long-term growth strategy, we continue to expand our market presence by opening or expanding facilities in strategic areas and realizing synergies within our business lines consistent with client demand and market conditions. More recently, we have expanded our laboratory capabilities in Qatar, Saudi Arabia and Brazil. We believe our market presence in strategic areas provides us a unique opportunity to serve our clients who have global operations, whether they are international oil companies, national oil companies, or independent oil companies.
23
Return to Index
Results of Operations
Our results of operations as a percentage of applicable revenue are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Change |
|
|
2022 |
|
2021 |
|
$ |
|
|
% |
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
85,422 |
|
|
71% |
|
$ |
86,263 |
|
|
73% |
|
$ |
(841 |
) |
|
(1)% |
Product sales |
|
|
35,476 |
|
|
29% |
|
|
32,482 |
|
|
27% |
|
|
2,994 |
|
|
9% |
Total revenue |
|
|
120,898 |
|
|
100% |
|
|
118,745 |
|
|
100% |
|
|
2,153 |
|
|
2% |
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, exclusive of depreciation expense shown below* |
|
|
68,166 |
|
|
80% |
|
|
67,098 |
|
|
78% |
|
|
1,068 |
|
|
2% |
Cost of product sales, exclusive of depreciation expense shown below* |
|
|
29,791 |
|
|
84% |
|
|
26,743 |
|
|
82% |
|
|
3,048 |
|
|
11% |
Total cost of services and product sales |
|
|
97,957 |
|
|
81% |
|
|
93,841 |
|
|
79% |
|
|
4,116 |
|
|
4% |
General and administrative expense, exclusive of depreciation expense shown below |
|
|
6,847 |
|
|
6% |
|
|
9,670 |
|
|
8% |
|
|
(2,823 |
) |
|
(29)% |
Depreciation and amortization |
|
|
4,360 |
|
|
4% |
|
|
4,751 |
|
|
4% |
|
|
(391 |
) |
|
(8)% |
Other (income) expense, net |
|
|
82 |
|
|
—% |
|
|
(2,317 |
) |
|
(2)% |
|
|
2,399 |
|
|
NM |
Operating income (loss) |
|
|
11,652 |
|
|
10% |
|
|
12,800 |
|
|
11% |
|
|
(1,148 |
) |
|
(9)% |
Interest expense |
|
|
2,707 |
|
|
2% |
|
|
2,530 |
|
|
2% |
|
|
177 |
|
|
7% |
Income (loss) from continuing operations before income taxes |
|
|
8,945 |
|
|
7% |
|
|
10,270 |
|
|
9% |
|
|
(1,325 |
) |
|
(13)% |
Income tax expense (benefit) |
|
|
1,789 |
|
|
1% |
|
|
2,053 |
|
|
2% |
|
|
(264 |
) |
|
(13)% |
Income (loss) from continuing operations |
|
|
7,156 |
|
|
6% |
|
|
8,217 |
|
|
7% |
|
|
(1,061 |
) |
|
(13)% |
Net income (loss) |
|
|
7,156 |
|
|
6% |
|
|
8,217 |
|
|
7% |
|
|
(1,061 |
) |
|
(13)% |
Net income (loss) attributable to non-controlling interest |
|
|
90 |
|
|
—% |
|
|
157 |
|
|
—% |
|
|
(67 |
) |
|
NM |
Net income (loss) attributable to Core Laboratories N.V. |
|
$ |
7,066 |
|
|
6% |
|
$ |
8,060 |
|
|
7% |
|
$ |
(994 |
) |
|
(12)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio (1) |
|
2.08:1 |
|
|
|
|
2.21:1 |
|
|
|
|
|
|
|
|
Debt to EBITDA ratio (2) |
|
3.23:1 |
|
|
|
|
2.24:1 |
|
|
|
|
|
|
|
|
Debt to Adjusted EBITDA ratio (3) |
|
2.47:1 |
|
|
|
|
2.18:1 |
|
|
|
|
|
|
|
|
"NM" means not meaningful
*Percentage based on applicable revenue rather than total revenue
(1)Current ratio is calculated as follows: current assets divided by current liabilities.
(2)Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization and certain non-cash adjustments.
(3)Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments.
24
Return to Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Change |
|
|
June 30, 2022 |
|
March 31, 2022 |
|
$ |
|
|
% |
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
85,422 |
|
|
71% |
|
$ |
84,723 |
|
|
73% |
|
$ |
699 |
|
|
1% |
Product sales |
|
|
35,476 |
|
|
29% |
|
|
30,577 |
|
|
27% |
|
|
4,899 |
|
|
16% |
Total revenue |
|
|
120,898 |
|
|
100% |
|
|
115,300 |
|
|
100% |
|
|
5,598 |
|
|
5% |
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, exclusive of depreciation expense shown below* |
|
|
68,166 |
|
|
80% |
|
|
68,857 |
|
|
81% |
|
|
(691 |
) |
|
(1)% |
Cost of product sales, exclusive of depreciation expense shown below* |
|
|
29,791 |
|
|
84% |
|
|
28,095 |
|
|
92% |
|
|
1,696 |
|
|
6% |
Total cost of services and product sales |
|
|
97,957 |
|
|
81% |
|
|
96,952 |
|
|
84% |
|
|
1,005 |
|
|
1% |
General and administrative expense, exclusive of depreciation expense shown below |
|
|
6,847 |
|
|
6% |
|
|
12,545 |
|
|
11% |
|
|
(5,698 |
) |
|
(45)% |
Depreciation and amortization |
|
|
4,360 |
|
|
4% |
|
|
4,557 |
|
|
4% |
|
|
(197 |
) |
|
(4)% |
Other (income) expense, net |
|
|
82 |
|
|
—% |
|
|
1,637 |
|
|
1% |
|
|
(1,555 |
) |
|
(95)% |
Operating income (loss) |
|
|
11,652 |
|
|
10% |
|
|
(391 |
) |
|
—% |
|
|
12,043 |
|
|
NM |
Interest expense |
|
|
2,707 |
|
|
2% |
|
|
2,644 |
|
|
2% |
|
|
63 |
|
|
2% |
Income (loss) from continuing operations before income taxes |
|
|
8,945 |
|
|
7% |
|
|
(3,035 |
) |
|
(3)% |
|
|
11,980 |
|
|
NM |
Income tax expense (benefit) |
|
|
1,789 |
|
|
1% |
|
|
(1,196 |
) |
|
(1)% |
|
|
2,985 |
|
|
NM |
Income (loss) from continuing operations |
|
|
7,156 |
|
|
6% |
|
|
(1,839 |
) |
|
(2)% |
|
|
8,995 |
|
|
NM |
Net income (loss) |
|
|
7,156 |
|
|
6% |
|
|
(1,839 |
) |
|
(2)% |
|
|
8,995 |
|
|
NM |
Net income (loss) attributable to non-controlling interest |
|
|
90 |
|
|
—% |
|
|
49 |
|
|
—% |
|
|
41 |
|
|
NM |
Net income (loss) attributable to Core Laboratories N.V. |
|
$ |
7,066 |
|
|
6% |
|
$ |
(1,888 |
) |
|
(2)% |
|
$ |
8,954 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio (1) |
|
2.08:1 |
|
|
|
|
2.03:1 |
|
|
|
|
|
|
|
|
Debt to EBITDA ratio (2) |
|
3.23:1 |
|
|
|
|
3.08:1 |
|
|
|
|
|
|
|
|
Debt to Adjusted EBITDA ratio (3) |
|
2.47:1 |
|
|
|
|
2.23:1 |
|
|
|
|
|
|
|
|
"NM" means not meaningful
*Percentage based on applicable revenue rather than total revenue
(1)Current ratio is calculated as follows: current assets divided by current liabilities.
(2)Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation and amortization and certain non-cash adjustments.
(3)Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments.
25
Return to Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
Change |
|
|
2022 |
|
2021 |
|
$ |
|
|
% |
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
$ |
170,145 |
|
|
72% |
|
$ |
170,245 |
|
|
75% |
|
$ |
(100 |
) |
|
(0)% |
Product sales |
|
|
66,053 |
|
|
28% |
|
|
56,883 |
|
|
25% |
|
|
9,170 |
|
|
16% |
Total revenue |
|
|
236,198 |
|
|
100% |
|
|
227,128 |
|
|
100% |
|
|
9,070 |
|
|
4% |
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services, exclusive of depreciation expense shown below* |
|
|
137,023 |
|
|
81% |
|
|
130,631 |
|
|
77% |
|
|
6,392 |
|
|
5% |
Cost of product sales, exclusive of depreciation expense shown below* |
|
|
57,886 |
|
|
88% |
|
|
47,360 |
|
|
83% |
|
|
10,526 |
|
|
22% |
Total cost of services and product sales |
|
|
194,909 |
|
|
83% |
|
|
177,991 |
|
|
78% |
|
|
16,918 |
|
|
10% |
General and administrative expense, exclusive of depreciation expense shown below |
|
|
19,392 |
|
|
8% |
|
|
18,131 |
|
|
8% |
|
|
1,261 |
|
|
7% |
Depreciation and amortization |
|
|
8,917 |
|
|
4% |
|
|
9,622 |
|
|
4% |
|
|
(705 |
) |
|
(7)% |
Other (income) expense, net |
|
|
1,719 |
|
|
1% |
|
|
(3,038 |
) |
|
(1)% |
|
|
4,757 |
|
|
NM |
Operating income (loss) |
|
|
11,261 |
|
|
5% |
|
|
24,422 |
|
|
11% |
|
|
(13,161 |
) |
|
(54)% |
Interest expense |
|
|
5,351 |
|
|
2% |
|
|
3,893 |
|
|
2% |
|
|
1,458 |
|
|
37% |
Income (loss) from continuing operations before income taxes |
|
|
5,910 |
|
|
3% |
|
|
20,529 |
|
|
9% |
|
|
(14,619 |
) |
|
(71)% |
Income tax expense (benefit) |
|
|
593 |
|
|
—% |
|
|
4,105 |
|
|
2% |
|
|
(3,512 |
) |
|
(86)% |
Income (loss) from continuing operations |
|
|
5,317 |
|
|
2% |
|
|
16,424 |
|
|
7% |
|
|
(11,107 |
) |
|
(68)% |
Net income (loss) |
|
|
5,317 |
|
|
2% |
|
|
16,424 |
|
|
7% |
|
|
(11,107 |
) |
|
(68)% |
Net income (loss) attributable to non-controlling interest |
|
|
139 |
|
|
—% |
|
|
259 |
|
|
—% |
|
|
(120 |
) |
|
NM |
Net income (loss) attributable to Core Laboratories N.V. |
|
$ |
5,178 |
|
|
2% |
|
$ |
16,165 |
|
|
7% |
|
$ |
(10,987 |
) |
|
(68)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio (1) |
|
2.08:1 |
|
|
|
|
2.21:1 |
|
|
|
|
|
|
|
|
Debt to EBITDA ratio (2) |
|
3.23:1 |
|
|
|
|
2.24:1 |
|
|
|
|
|
|
|
|
Debt to Adjusted EBITDA ratio (3) |
|
2.47:1 |
|
|
|
|
2.18:1 |
|
|
|
|
|
|
|
|
"NM" means not meaningful
*Percentage based on applicable revenue rather than total revenue
(1)Current ratio is calculated as follows: current assets divided by current liabilities.
(2)Debt to EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation and amortization and certain non-cash adjustments.
(3)Debt to Adjusted EBITDA ratio (as defined in our Credit Facility) is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, impairments, severance and certain non-cash adjustments.
Operating Results for the Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021 and March 31, 2022 and for the Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021
Services Revenue
Services revenue is primarily tied to activities associated with the exploration and production of oil, gas and derived products outside the U.S. For the three months ended June 30, 2022, services revenue was $85.4 million, relatively flat year-over-year and sequentially. Year-over-year, the moderate increase in activity levels in the U.S. market was substantially offset by the decline in activity levels in international markets impacted by the Russia-Ukraine geopolitical conflict and business disruptions associated with elevated levels of COVID cases, as discussed above. Sequentially, activity levels in both the U.S. market and the international markets remained relatively flat. For the six months ended June 30, 2022, service revenue of $170.1 million remained flat compared to $170.2 million for the six months ended June 30, 2021.
26
Return to Index
We continue to focus on large-scale core analyses and reservoir fluids characterization studies in the Eagle Ford, the Permian Basin and the Gulf of Mexico, along with Guyana, Suriname, Malaysia and other international locations such as offshore South America, Australia, and the Middle East, including Kuwait and the United Arab Emirates. Analysis of crude oil derived products also occurs in every major producing region of the world.
Product Sales Revenue
For the three months ended June 30, 2022, product sales revenue of $35.5 million increased 9% year-over-year and 16% sequentially. Rig count is one indicator of activity levels associated with the exploration and production of oil and gas. The average rig count for U.S. land increased year-over-year and sequentially by approximately 60% and 13%, respectively. The average rig count for international markets increased 11% year-over-year and remained flat sequentially. Year-over-year, despite significant increases in the average rig count in both the U.S. land and international markets, our sales revenue increased moderately primarily due to the suspension of our products sales into Ukraine, as a result of the Russia-Ukraine conflict, and delays in freight transport services in delivery of our products. Sequentially, our sales revenue in the international market increased by 26% and was due primarily to large bulk orders of product sales delivered during the quarter which did not occur in the prior quarter. Product sales revenue in the U.S. market increased approximately 5%, which was in-line with estimated well completion activity. For the six months ended June 30, 2022, product sales revenue of $66.1 million increased compared to $56.9 million from the six months ended June 30, 2021. The increase was due primarily to higher activity levels in both U.S. land and international markets as discussed above.
Cost of Services, excluding depreciation
Cost of services was $68.2 million for the three months ended June 30, 2022, an increase of 2% year-over-year and remained flat sequentially. Cost of services expressed as a percentage of services revenue increased to 80% for the three months ended June 30, 2022, compared to 78% for the same period in the prior year, and relatively flat from the prior quarter. The year-over-year increase in cost of services as a percentage of service revenue for the three months ended June 30, 2022 were associated with restoring employees’ compensation and benefit plans in 2022. Cost of services increased to $137.0 million for the six months ended June 30, 2022 compared to $130.6 million for the six months ended June 30, 2021. Cost of services expressed as a percentage of services increased to 81% for the six months ended June 30, 2022, compared to 77% for the six months ended June 30, 2021. The increase in cost of services during the six months ended June 30, 2022, was due primarily to the restoration of employees' compensation as discussed above.
Cost of Product Sales, excluding depreciation
Cost of product sales was $29.8 million for the three months ended June 30, 2022, an increase of 11% year-over-year and 6% sequentially. Cost of product sales expressed as a percentage of product sales revenue was 84% for the three months ended June 30, 2022, compared to 82% for the same period in the prior year, and 92% for the prior quarter. Year-over-year, higher cost of sales as a percentage of product sales revenue was partially due to restoration of employees' compensation and benefit plans in 2022. Furthermore, continued supply chain challenges and elevated inflation has increased our shipping and raw materials costs. Sequentially, lower cost of sales as a percentage of products sales revenue was primarily due to changes in manufacturing productivity and efficiency in absorption of fixed costs on a higher revenue base. Cost of product sales of $57.9 million for the six months ended June 30, 2022 increased when compared to $47.4 million for the six months ended June 30, 2021. Cost of product sales expressed as a percentage of product sales revenue was 88% for the six months ended June 30, 2022, compared to 83% for the six months ended June 30, 2021. Higher cost of product sales as a percentage of products sales revenue in the six months ended June 30, 2022 was primarily due to the increased employees' compensation costs and higher costs of materials and shipping costs caused by inflation, as discussed above.
27
Return to Index
General and Administrative Expense, excluding depreciation
General and administrative ("G&A") expense includes corporate management and centralized administrative services that benefit our operations. G&A expense for the three months ended June 30, 2022, was $6.8 million, a decrease of 29% year-over-year and 45% sequentially. The variances across these three quarters are primarily due to adjustments in the recognition of stock-based compensation expense during those periods. During the three months ending June 30, 2022, the decrease is primarily due to a reversal of $3.3 million in stock compensation expense previously recognized associated with unvested performance share awards which are scheduled to vest on December 31, 2022, as the associated performance conditions were determined to be unachievable. During the three months ending March 31, 2022, the recognition of stock compensation expense was elevated by $3.9 million, as the full award is immediately recognized for performance shares initially granted to employees eligible for retirement. G&A expense of $19.4 million for the six months ended June 30, 2022 compared to $18.1 million for the six months ended June 30, 2021. The increase was primarily due to changes in compensation expense during those periods, including acceleration of stock compensation expense of $3.9 million for the six months ended June 30, 2022 compared to $0.8 million recorded for the six months ended June 30, 2021, for retirement eligible employees, fully restoring employees' compensation cost in 2022, partially offset by the reversal of stock compensation expense, as discussed above.
Depreciation and Amortization Expense
Depreciation and amortization expense for the three months ended June 30, 2022 was $4.4 million a decrease of 8% year-over-year and 4% sequentially. Depreciation and amortization expense for the six months ended June 30, 2022 was $8.9 million compared to $9.6 million for the six months ended June 30, 2021. The decrease in depreciation and amortization expense was primarily due to a lower level of capital expenditures over the last two years.
Other (Income) Expense, Net
The components of other (income) expense, net, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
(Gain) loss on sale of assets |
|
$ |
(111 |
) |
|
$ |
(47 |
) |
|
$ |
(268 |
) |
|
$ |
(119 |
) |
Results of non-consolidated subsidiaries |
|
|
(21 |
) |
|
|
(3 |
) |
|
|
(114 |
) |
|
|
30 |
|
Foreign exchange (gain) loss, net |
|
|
1,258 |
|
|
|
352 |
|
|
|
841 |
|
|
|
(56 |
) |
Rents and royalties |
|
|
(126 |
) |
|
|
(153 |
) |
|
|
(297 |
) |
|
|
(281 |
) |
Return on pension assets and other pension costs |
|
|
(136 |
) |
|
|
(77 |
) |
|
|
(281 |
) |
|
|
(155 |
) |
Gain on sale of business |
|
|
— |
|
|
|
(1,012 |
) |
|
|
— |
|
|
|
(1,012 |
) |
Severance and other charges |
|
|
— |
|
|
|
— |
|
|
|
3,332 |
|
|
|
— |
|
Insurance and other settlements |
|
|
— |
|
|
|
(750 |
) |
|
|
(669 |
) |
|
|
(750 |
) |
Other, net |
|
|
(782 |
) |
|
|
(627 |
) |
|
|
(825 |
) |
|
|
(695 |
) |
Total other (income) expense, net |
|
$ |
82 |
|
|
$ |
(2,317 |
) |
|
$ |
1,719 |
|
|
$ |
(3,038 |
) |
Foreign exchange (gain) loss, net by currency is summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
British Pound |
|
$ |
28 |
|
|
$ |
(143 |
) |
|
$ |
(8 |
) |
|
$ |
(57 |
) |
Canadian Dollar |
|
|
(44 |
) |
|
|
(36 |
) |
|
|
29 |
|
|
|
(35 |
) |
Euro |
|
|
(357 |
) |
|
|
162 |
|
|
|
(455 |
) |
|
|
(191 |
) |
Russian Ruble |
|
|
1,707 |
|
|
|
119 |
|
|
|
1,105 |
|
|
|
41 |
|
Colombian Peso |
|
|
(187 |
) |
|
|
9 |
|
|
|
(89 |
) |
|
|
(183 |
) |
Other currencies, net |
|
|
111 |
|
|
|
241 |
|
|
|
259 |
|
|
|
369 |
|
Foreign exchange (gain) loss, net |
|
$ |
1,258 |
|
|
$ |
352 |
|
|
$ |
841 |
|
|
$ |
(56 |
) |
28
Return to Index
Interest Expense
Interest expense for the three months ended June 30, 2022 was $2.7 million compared to $2.5 million and $2.6 million for the three months ended June 30, 2021 and March 31, 2022, respectively. Interest expense for the six months ended June 30, 2022 was $5.4 million compared to $3.9 million for the six months ended June 30, 2021. The variances are primarily due to changes in the interest rate associated with aggregated variable rate debt and changes in aggregated fixed rate debt in the respective quarters, and the effect of settlement and restructuring of our interest rate swap agreements during the first quarter of 2021.
Income Tax Expense (Benefit)
The Company recorded income tax expense of $1.8 million and $0.6 million for the three and six months ended June 30, 2022, respectively, compared to an income tax expense of $2.1 million and $4.1 million for the three and six months ended June 30, 2021, respectively. The effective tax rate for the three and six months ended June 30, 2022 was 20% and 10%, respectively. The effective tax rate for the three and six months ended June 30, 2021 was 20% in these periods. The tax rate for the six months ended June 30, 2022 was largely impacted by the release of withholding tax of $0.6 million related to unrepatriated earnings of our Russian subsidiary amounting to $12.0 million, which are not expected to be distributed in the foreseeable future.
Segment Analysis
We operate our business in two reportable segments. These complementary segments provide different services and products and utilize different technologies for evaluating and improving reservoir performance and increasing the recovery of oil and gas from new and existing fields. The following tables summarize our results by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2022/2021 |
|
Three Months Ended March 31, |
|
|
Q2 / Q1 |
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
2022 |
|
|
$ Change |
|
|
% Change |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reservoir Description |
|
$ |
75,818 |
|
|
$ |
78,252 |
|
|
$ |
(2,434 |
) |
|
(3)% |
|
$ |
74,754 |
|
|
$ |
1,064 |
|
|
1% |
Production Enhancement |
|
|
45,080 |
|
|
|
40,493 |
|
|
|
4,587 |
|
|
11% |
|
|
40,546 |
|
|
|
4,534 |
|
|
11% |
Consolidated |
|
$ |
120,898 |
|
|
$ |
118,745 |
|
|
$ |
2,153 |
|
|
2% |
|
$ |
115,300 |
|
|
$ |
5,598 |
|
|
5% |
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reservoir Description |
|
$ |
5,925 |
|
|
$ |
7,265 |
|
|
$ |
(1,340 |
) |
|
(18)% |
|
$ |
361 |
|
|
$ |
5,564 |
|
|
1541% |
Production Enhancement |
|
|
4,949 |
|
|
|
3,831 |
|
|
|
1,118 |
|
|
29% |
|
|
(918 |
) |
|
|
5,867 |
|
|
NM |
Corporate and Other (1) |
|
|
778 |
|
|
|
1,704 |
|
|
|
(926 |
) |
|
NM |
|
|
166 |
|
|
|
612 |
|
|
NM |
Consolidated |
|
$ |
11,652 |
|
|
$ |
12,800 |
|
|
$ |
(1,148 |
) |
|
(9)% |
|
$ |
(391 |
) |
|
$ |
12,043 |
|
|
NM |
(1) "Corporate and Other" represents those items that are not directly related to a particular segment. "NM" means not meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Reservoir Description |
|
$ |
150,572 |
|
|
$ |
154,738 |
|
|
$ |
(4,166 |
) |
|
(3)% |
Production Enhancement |
|
|
85,626 |
|
|
|
72,390 |
|
|
|
13,236 |
|
|
18% |
Consolidated |
|
$ |
236,198 |
|
|
$ |
227,128 |
|
|
$ |
9,070 |
|
|
4% |
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
Reservoir Description |
|
$ |
6,287 |
|
|
$ |
17,317 |
|
|
$ |
(11,030 |
) |
|
(64)% |
Production Enhancement |
|
|
4,030 |
|
|
|
5,391 |
|
|
|
(1,361 |
) |
|
(25)% |
Corporate and Other (1) |
|
|
944 |
|
|
|
1,714 |
|
|
|
(770 |
) |
|
NM |
Consolidated |
|
$ |
11,261 |
|
|
$ |
24,422 |
|
|
$ |
(13,161 |
) |
|
(54)% |
(1) "Corporate and Other" represents those items that are not directly related to a particular segment. "NM" means not meaningful |
29
Return to Index
Reservoir Description
Reservoir Description operations rely heavily on international and offshore activity levels, including existing producing fields and transportation of crude oil across the globe, with approximately 80% of its revenue sourced from producing fields, development projects and movement of crude oil products outside the U.S. The COVID-19 global pandemic and surge in new cases during the six months ended June 30, 2022, continues to adversely impact project activity from our oil and gas clients, causing disruptions and delays to project workflows, slowing the progress on longer-term international and offshore projects. Additionally, the Russia-Ukraine geopolitical conflict that erupted in February 2022 caused interruptions in the movement and logistical patterns for crude oil supply, primarily in Ukraine, Russia and the European Union.
Revenue from the Reservoir Description segment of $75.8 million for the three months ended June 30, 2022 decreased 3% year-over-year and increased 1% sequentially. The year-over-year decrease in revenue is primarily due to the adverse impact of the Russia-Ukraine geopolitical conflict as discussed above. The sequential increase in revenue is primarily associated with the recovery of activity levels, subsequent to a typical seasonal decline in the first quarter of each year. However, the decline was larger than expected due to a surge in new COVID cases across the globe and the Russia-Ukraine conflict, as discussed above. Revenue from the Reservoir Description segment of $150.6 million for the six months ended June 30, 2022 decreased from $154.7 million for the six months ended June 30, 2021. The decrease in revenue in 2022 is primarily due to the adverse impact of the Russia-Ukraine geopolitical conflict and a higher level of COVID cases, as discussed above.
We continue to focus on large-scale core analysis and reservoir fluids characterization studies in the Asia-Pacific region, offshore Europe and Africa, offshore South America, North America, and the Middle East. We are also engaged in both newly developed fields and brownfield extensions in offshore areas such as Australia, Brazil, Guyana, the Gulf of Mexico, the Middle East and the North Sea. Analysis of crude oil derived products also occurs in every major producing region of the world. In particular, we anticipate increased demand for our proprietary laboratory technological services in the Middle East as a result of several factors, including Core Lab’s completion of a comprehensive reservoir fluid laboratory in Doha, Qatar, resumption of production from the Wafra oilfield located within the onshore Partitioned Neutral Zone in the southern part of Kuwait, as well as expansion of the North Gas Field in Qatar. Additionally, in 2022, Core Lab, under the direction of The CarbonNet Project commenced the second phase of advanced rock property analysis of conventional core extracted from the Gular-1 appraisal well, which is associated with the assessment of a large prospective geologic subsurface structure located in the Gippsland Basin offshore the southeast coast of Australia which could be used for carbon capture and sequestration.
Operating income of $5.9 million for the three months ended June 30, 2022 decreased $1.3 million, year-over-year and increased $5.6 million sequentially. Year-over-year, the decrease is primarily due to restoration of employees' compensation and certain benefit plans in 2022. Sequentially, the increase in operating income is primarily driven by an adjustment to reverse previously recognized in stock compensation expense of $2.1 million, as the performance conditions associated with the performance share awards were determined to be unachievable. Additionally, additional stock compensation expense of $2.5 million for retirement eligible employees and $1.5 million of additional severance charges were recorded during the three months ended March 31, 2022. Operating income of $6.3 million for the six months ended June 30, 2022 decreased 64% year-over-year compared to $17.3 million for the six months ended June 30, 2021. The decrease in operating income is primarily due to restoration of employee's compensation and certain benefit plans in 2022, and changes in stock compensation expense, as discussed above.
Operating margins were 8% for the three months ended June 30, 2022, compared to 9% year-over-year, and 0.5% sequentially. Year-over-year, the lower operating margin was primarily impacted by the restoration of employees' compensation and certain benefit plans in 2022. These additional costs were partially offset by the reversal in stock compensation expense, as discussed above. Sequentially, the increased operating margin was due primarily to the adjustment of stock compensation expense, as discussed above, and additional severance charges of $1.5 million recorded in the three months ending March 31, 2022. Operating margins were 4% for the six months ended June 30, 2022, which decreased from 11% for the six months ended June 30, 2021. The decrease in operating margin was primarily due to the restoration of employees' compensation and changes in stock compensation expense, as discussed above.
30
Return to Index
Production Enhancement
Production Enhancement operations are largely focused on complex completions in unconventional, tight-oil reservoirs in the U.S. as well as conventional projects across the globe. Drilling and completion activity levels continued to increase during 2021 and 2022 in both the U.S. onshore and international markets. However, the pace of growth in the U.S. onshore market has decreased during 2022 from the accelerated pace experienced in 2021.
Revenue from the Production Enhancement segment was $45.1 million for the three months ended June 30, 2022, an increase of 11% year-over-year and sequentially. Year-over-year and sequentially, the increase is primarily driven by a significant increase in the drilling and completion of wells in the U.S. onshore and improved activity in international markets. The effect of the increase in international markets is partially offset by the disruption of product sales into Ukraine, as a result of the Russia-Ukraine conflict. Revenue from the Production Enhancement segment of $85.6 million for the six months ended June 30, 2022 increased from $72.4 million for the six months ended June 30, 2021. The increase in revenue in 2022 is primarily driven by the factors as discussed above.
Our clients remain focused on using technological solutions for their projects to optimize and improve daily production and estimated ultimate recovery from their reservoirs. We continue to develop new technologies and benefit from our clients' acceptance of new services and products, led by HEROTM PerFRAC, GoGunTM, FLOWPROFILER EDSTM and ReFRAC technologies. Core Lab recently introduced GoTrace. GoTrace is a new innovative technology that incorporates our diagnostic services into the Company’s energetic system products, using Core Lab’s Kodiak propellant-assisted perforating system with Core Lab’s SpectraChem chemical diagnostic tracers.
Operating income of $4.9 million for the three months ended June 30, 2022, compared to $3.8 million for the same period in the prior year and an operating loss of $0.9 million in the prior quarter. The year-over-year increase in operating income was primarily due to improved manufacturing efficiencies due to absorption of fixed cost on a higher revenue base, which partially offset the impact of higher level of employees' compensation costs and increased cost of materials and shipping cost caused by elevated inflation. Sequentially, the increase in operating income was due primarily to:
•$1.2 million adjustment recorded in the three months ending June 30, 2022 to reverse stock compensation expense recognized in prior periods for unvested performance share awards, as the performance conditions were determined to be unachievable,
•the following adjustments all recorded in the three months ending March 31, 2022, additional stock compensation expense of $1.4 million recognized immediately for performance shares granted to retirement eligible employees, severance charges of $1.9 million, and bad debt expense of $0.8 million for accounts receivables due from Ukrainian clients, and
•improved manufacturing efficiencies due to absorption of fixed cost on a higher revenue base.
Operating income of $4.0 million for the six months ended June 30, 2022, decreased 25% year-over-year compared to $5.4 million for the six months ended June 30, 2021. The decrease in operating income was primarily due to the impact of additional employees' compensation cost as discussed above.
Operating margins for the three months ended June 30, 2022, were 11%, compared to operating margins of 9% for the same period in the prior year and (2)% in the prior quarter. The higher margins in the three months ending June 30, 2022 when compared to the same period year-over year and sequentially, was primarily due to the improvement in manufacturing efficiencies and impact of various compensation costs and other charges recorded as described above. Operating margins were 5% for the six months ended June 30, 2022, which decreased from 7% for the six months ended June 30, 2021. The decrease in operating margins was primarily due to restoration of employees' compensation in 2022 and impact of various compensation costs, as discussed above.
31
Return to Index
Liquidity and Capital Resources
General
We have historically financed our activities through cash on hand, cash flows from operations, bank credit facilities, equity financing and the issuance of debt. Cash flows from operating activities provides the primary source of funds to finance operating needs, capital expenditures, our dividend and share repurchase program. Our ability to maintain and grow our operating income and cash flow depends, to a large extent, on continued investing activities. We believe our future cash flows from operations, supplemented by our borrowing capacity and the ability to issue additional equity and debt, should be sufficient to fund our debt requirements, capital expenditures, working capital, dividend payments and future acquisitions. The Company will continue to monitor and evaluate the availability of debt and equity markets.
Following increased activity levels during the second half of 2021, the Company has progressively reinstated certain employee costs into the Company’s cost structure, and in January 2022, these temporary salary reduction measures have been fully reinstated. Certain employee benefit plans have been partially reinstated in April 2022, and the Company will continue to evaluate the reinstatement of those benefits as the market for oilfield service companies continues to more fully recover and stabilize. Additionally, the Company has maintained its reduced dividend plan that was approved and implemented from second quarter of 2020, in order to focus excess free cash flow on debt reduction.
We are a Netherlands holding company, and therefore we conduct substantially all of our operations through our subsidiaries. Our cash availability is largely dependent upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us. There are no restrictions preventing any of our subsidiaries from repatriating earnings, except for the unrepatriated earnings of our Russian subsidiary, which are not expected to be distributed in the foreseeable future, and there are no restrictions or income taxes associated with distributing cash to the parent company through loans or advances. As of June 30, 2022, $10.9 million of our $16.1 million of cash was held by our foreign subsidiaries.
Cash Flows
The following table summarizes cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2022/2021 |
|
|
2022 |
|
|
2021 |
|
|
% Change |
Cash flows provided by/(used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
5,895 |
|
|
$ |
17,473 |
|
|
(66)% |
Investing activities |
|
|
(2,357 |
) |
|
|
(3,378 |
) |
|
(30)% |
Financing activities |
|
|
(5,093 |
) |
|
|
5,716 |
|
|
NM |
Net change in cash and cash equivalents |
|
$ |
(1,555 |
) |
|
$ |
19,811 |
|
|
NM |
Cash flows provided by operating activities for the six months ended June 30, 2022, decreased by approximately $11.6 million compared to the same period in 2021. The decrease in cash flow provided by operating activities is due primarily to a decrease in income generated from operating activities of $11.1 million and certain non-cash items during the six months ended June 30, 2022.
Cash flows used in investing activities for the six months ended June 30, 2022, decreased by approximately $1.0 million compared to the same period in 2021. Changes in investing activities were primarily due to $2.1 million net cash proceeds received in 2022 from company owned life insurance policies to fund distributions from our deferred compensation program and post-employment benefit plans, compared to $1.6 million for the same period in 2021. Additionally, during the six months ended June 30, 2022, we received proceeds from insurance recovery of $0.6 million associated with the winter storm in 2021.
32
Return to Index
Cash flows used in financing activities of $5.1 million for the six months ended June 30, 2022 compares to cash flows provided by financing activities of $5.7 million for the same period in 2021. Financing activities for the six months ended June 30, 2022, reflect higher repurchases of common shares of $1.1 million compared to the same period in 2021. Additionally, financing activities in 2021 included $59.1 million of net proceeds raised by issuing shares through the at-the-market (“ATM”) program, and $58.9 million net cash raised through the issuance of the 2021 Senior Notes. Proceeds from both the ATM program and the 2021 Senior Notes were used to reduce the Company's outstanding borrowings under the Credit Facility by $111.0 million, compared to a $2.0 million net repayment of the Company's borrowings under the Credit Facility in 2022.
During the six months ended June 30, 2022, we repurchased 83,995 of our common shares for an aggregate purchase price of $2.2 million.
We utilize the non-GAAP financial measure of free cash flow to evaluate our cash flows and results of operations. Free cash flow is defined as net cash provided by operating activities (which is the most directly comparable GAAP measure) less cash paid for capital expenditures. Management believes that free cash flow provides useful information to investors regarding the cash available in the period that was in excess of our needs to fund our capital expenditures and operating activities. Free cash flow is not a measure of operating performance under GAAP and should not be considered in isolation nor construed as an alternative to operating profit, net income (loss) or cash flows from operating, investing or financing activities, each as determined in accordance with GAAP. Free cash flow does not represent residual cash available for distribution because we may have other non-discretionary expenditures that are not deducted from the measure. Moreover, since free cash flow is not a measure determined in accordance with GAAP and thus is susceptible to varying interpretations and calculations, free cash flow as presented, may not be comparable to similarly titled measures presented by other companies. The following table reconciles this non-GAAP financial measure to the most directly comparable measure calculated and presented in accordance with GAAP (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2022/2021 |
|
|
2022 |
|
|
2021 |
|
|
% Change |
Free cash flow calculation: |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
5,895 |
|
|
$ |
17,473 |
|
|
(66)% |
Less: cash paid for capital expenditures |
|
|
(5,493 |
) |
|
|
(5,657 |
) |
|
(3)% |
Free cash flow |
|
$ |
402 |
|
|
$ |
11,816 |
|
|
(97)% |
The decrease in cash provided by operating activities for the six months ended June 30, 2022 compared to the same period in 2021 are discussed above. Free cash flow decreased for the six months ended June 30, 2022 compared to the same period in 2021 in line with the decrease in cash from operations.
Senior Notes, Credit Facility and Available Future Liquidity
We have three series of senior notes outstanding with an aggregate principal amount of $135 million that were issued through private placement transactions. Series B of the senior notes was issued in 2011 ("2011 Senior Notes"). Series B consists of $75 million in aggregate principal amount and bears interest at a fixed rate of 4.11% and is due in full on September 30, 2023. Interest on Series B of the 2011 Senior Notes is payable semi-annually on March 30 and September 30.
Series A and Series B of the 2021 Senior Notes were issued and funded on January 12, 2021 (the "2021 Senior Notes" and together with the 2011 Senior Notes, the "Senior Notes"). Series A of the 2021 Senior Notes consists of $45 million in aggregate principal amount that bear interest at a fixed rate of 4.09% and is due in full on January 12, 2026. Series B of the 2021 Senior Notes consists of $15 million in aggregate principal amount that bears interest at a fixed rate of 4.38% and is due in full on January 12, 2028. Interest on each series of the 2021 Senior Notes is payable semi-annually on June 30 and December 30.
In 2020, we entered into Amendment No. 1 (the “Amendment”) to the Seventh Amended and Restated Credit Agreement, dated June 19, 2018 (as amended, the “Credit Facility”). Pursuant to the terms of the Amendment, the aggregate borrowing
33
Return to Index
commitment of the Credit Facility is $225 million and the amount by which we may elect to increase the facility size by $50 million, known as the “accordion” feature, to $275 million, subject to the satisfaction of certain conditions.
Under the Amendment, the London Interbank Offered Rate ("LIBOR") plus 1.500% to LIBOR plus 2.875% is applied to outstanding borrowings under the Credit Facility, with a 0.500% floor on LIBOR. Interest payment terms are variable depending upon the specific type of borrowing under the Credit Facility. Any outstanding balance under the Credit Facility is due on maturity on June 19, 2023. The available capacity at any point in time is reduced by outstanding borrowings and outstanding letters of credit which totaled $10.7 million at June 30, 2022, resulting in an available borrowing capacity under the Credit Facility of $161.3 million. In addition to indebtedness under the Credit Facility, we had $5.3 million of outstanding letters of credit and performance guarantees and bonds from other sources as of June 30, 2022.
The Credit Facility is unsecured, and contains customary representations, warranties, and terms and conditions for similar types of facilities.
The terms of the Credit Facility and Senior Notes require us to meet certain covenants, including, but not limited to, an interest coverage ratio (calculated as consolidated EBITDA divided by interest expense) and a leverage ratio (calculated as consolidated net indebtedness divided by consolidated EBITDA), where consolidated EBITDA (as defined in each agreement) and interest expense are calculated using the most recent four fiscal quarters. The Credit Facility and Senior Notes include a cross-default provision, whereby a default under one agreement may trigger a default in the other agreement. The Credit Facility has more restrictive covenants with a minimum interest coverage ratio of 3.00 to 1.00 and permits a maximum leverage ratio permitted of 2.50 to 1.00 up to the quarter ending March 31, 2022, and the maximum leverage ratio was revised for the subsequent quarters under the extended and amended Credit Facility as described below. The Credit Facility allows non-cash charges such as impairment of assets, stock compensation and other non-cash charges to be added back in the calculation of consolidated EBITDA. The terms of our Credit Facility also allow us to negotiate in good faith to amend any ratio or requirement to preserve the original intent of the agreement if any change in accounting principles would affect the computation of any financial ratio or covenant of the Credit Facility. In accordance with the terms of the Credit Facility, our leverage ratio is 2.47, and our interest coverage ratio is 6.55, each for the period ended June 30, 2022. We believe that we are in compliance with all covenants contained in our Credit Facility and Senior Notes. Certain of our material, wholly-owned subsidiaries, are guarantors or co-borrowers under the Credit Facility and Senior Notes.
On July 25, 2022, we, along with our wholly owned subsidiary Core Laboratories (U.S.) Interests Holdings, Inc. ("CLIH") entered into an Eighth Amended and Restated Credit Agreement (as amended, the "Amended Credit Facility") modifying and extending the existing Credit Facility for an aggregate borrowing commitment of $135 million with a $50 million "accordion" feature. The Amended Credit Facility is secured by first priority interests in (1) substantially all of the tangible and intangible personal property, and equity interests of CLIH and certain of the Company's U.S. and foreign subsidiary companies; and (2) instruments evidencing intercompany indebtedness owing to the Company, CLIH and certain of the Company's U.S. and certain foreign subsidiary companies. Under the Amended Credit Facility, the Secured Overnight Financing Rate ("SOFR") plus 2.00% to SOFR plus 3.00% will be applied to outstanding borrowings. Any outstanding balance under the Amended Credit Facility is due at maturity on July 25, 2026, subject to springing maturity on July 12, 2025 if any portion of the Company's 2021 Senior Notes Series A due January 12, 2026, in the aggregate principal amount of $45 million, remain outstanding on July 12, 2025, unless the Company's liquidity equals or exceeds the principal amount of the 2021 Senior Notes Series A outstanding on such date. The available capacity at any point in time is reduced by outstanding borrowing and outstanding letters of credit. The Amended Credit Facility does not substantially alter the calculation of the net leverage or interest coverage ratios. Pursuant to the terms of the Amended Credit Facility, the maximum leverage ratio permitted under the Credit Facility is as follows:
|
|
|
Quarter ending |
|
Maximum leverage ratio permitted |
June 30, 2022 and September 30, 2022 |
|
2.75 |
December 31, 2022 and thereafter |
|
2.50 |
34
Return to Index
In March 2021, we entered into a new forward interest rate swap agreement for a notional amount of $60 million and carried the fair value of the terminated 2014 and 2020 Variable-to-Fixed Swaps into the new agreement in a "blend and extend" structured transaction. The purpose of this forward interest rate swap agreement is to fix the underlying risk-free rate, that would be associated with the anticipated issuance of new long-term debt by the Company in future periods. On April 8, 2022, the forward interest rate swap agreement was terminated and settled for a net gain of $0.6 million and is recognized in accumulated other comprehensive income (loss). See Note 14, Derivative Instruments and Hedging Activities for additional information.