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CL

Core Laboratories Inc. /DE/ (CLB)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue was $123.6M, down 4% QoQ and 5% YoY; GAAP operating income was $4.4M and GAAP EPS was $0.00; ex-items operating income was $11.8M with a 10% margin and ex-items EPS of $0.14 .
  • International sanctions and pending tariffs disrupted crude assay demand and some international product sales; diagnostic services in the U.S. offset part of the seasonal decline, but margins compressed sequentially .
  • Q2 2025 guidance implies sequential recovery: revenue $128–$134M, operating income $13.1–$15.7M, and EPS $0.17–$0.21; tax rate assumption 25% .
  • Balance sheet improved: net debt fell by $4.9M to $103.9M, leverage ratio held at 1.31 (lowest in eight years); FCF was $3.9M; 131,598 shares repurchased for ~$2.0M; $0.01 dividend declared payable May 27, 2025 .
  • Potential stock reaction catalysts: sanctions/tariffs headwinds easing late in quarter, Q2 guidance recovery, structural cost actions, and Middle East/Africa growth engagements including a new unconventional core lab in Saudi Arabia .

What Went Well and What Went Wrong

What Went Well

  • Diagnostic services strength: sequential margin expansion in Production Enhancement (ex-items margins to 8%, +450 bps QoQ) driven by higher-margin diagnostics in U.S. land and catch-up work offshore Gulf of Mexico .
  • Strategic expansion and client engagement: new Middle East/Africa opportunities and face-to-face client meetings in Asia-Pacific to position for multi-year projects; opening of unconventional core analysis lab in Dammam, Saudi Arabia .
  • Capital discipline: net debt reduced by $4.9M, leverage ratio at 1.31 for the second quarter in a row; continued buybacks and dividend, maintaining asset-light model and strong ROIC focus (Q1 ROIC 8.3%) .

Management quotes:

  • “Core Lab’s team navigated a volatile market… expanded sanctions, and pending tariffs… These factors created temporary operational inefficiencies” .
  • “Q1 looks like it’s in the rearview mirror… We did see trading get back to normal and associated demand for assay services pick up late in the quarter” .
  • “We will continue to focus on reducing debt and strengthening our balance sheet while evaluating other opportunistic uses of free cash” .

What Went Wrong

  • Sanctions/tariffs/geopolitics compressed activity: expanded sanctions announced in January reduced crude assay demand and suspended a ~$1.1M international product order; pending tariffs created uncertainty and operational inefficiencies .
  • Margin pressure and earnings decline: ex-items operating income fell to $11.8M and ex-items EPS to $0.14 (down 25% and 35% QoQ, respectively); GAAP operating income fell to $4.4M; Reservoir Description ex-items margin fell to 10% .
  • Working capital drag: DSOs rose to 79 days (from 76), with AR up $5.3M, constraining operating cash flow despite late-quarter sales strength .

Financial Results

Consolidated performance vs prior periods

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$134.4 $129.2 $123.6
Operating Income - GAAP ($USD Millions)$19.8 $14.2 $4.4
Operating Margin - ex-items (%)14% 12% 10%
EPS - GAAP ($)$0.25 $0.15 $0.00
EPS - ex-items ($)$0.25 $0.22 $0.14

Segment breakdown (GAAP)

SegmentQ3 2024 Revenue ($M)Q4 2024 Revenue ($M)Q1 2025 Revenue ($M)Q3 2024 Op Inc ($M)Q4 2024 Op Inc ($M)Q1 2025 Op Inc ($M)
Reservoir Description$88.8 $86.8 $80.9 $16.5 $16.6 $2.3
Production Enhancement$45.6 $42.4 $42.7 $3.2 $(2.6) $1.5

Q1 2025 segment (ex-items detail)

SegmentOp Income ex-items ($M)Margin ex-items (%)
Reservoir Description$7.8 10%
Production Enhancement$3.4 8%

KPIs and balance sheet trends

KPIQ3 2024Q4 2024Q1 2025
Free Cash Flow ($M)$10.4 $16.2 $3.9
Net Debt ($M)$120.5 $108.8 $103.9
Leverage Ratio (Net Debt / TTM Adj. EBITDA)1.47 1.31 1.31
DSOs (days)N/A76 (reference) 79
Shares Repurchased (’000)N/A265 132
Dividend per share ($)$0.01 (declared Oct 23, 2024) $0.01 (paid Mar 3, 2025) $0.01 (payable May 27, 2025)

Q1 2025 vs S&P Global Wall Street consensus (estimates)

MetricConsensusActualResult
EPS ($)$0.15*$0.14 Miss*
Revenue ($M)$124.8*$123.6 Miss*

Values with asterisks retrieved from S&P Global.

Historical context:

MetricQ3 2024Q4 2024Q1 2025
EPS Consensus vs Actual ($)$0.234* vs $0.25 $0.22* vs $0.22 $0.15* vs $0.14
Revenue Consensus vs Actual ($M)$134.0* vs $134.4 $133.3* vs $129.2 $124.8* vs $123.6

Values with asterisks retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Company Revenue ($M)Q2 2025N/A$128–$134 New
Company Operating Income ($M)Q2 2025N/A$13.1–$15.7 New
Company Operating Margin (%)Q2 2025N/A~11% New
Company EPS ($)Q2 2025N/A$0.17–$0.21 New
Effective Tax Rate (%)FY 2025~25% (Q1 guide) ~25% (reiterated) Maintained
Reservoir Description Revenue ($M)Q2 2025N/A$85–$89 New
Reservoir Description Op Income ($M)Q2 2025N/A$11–$13 New
Production Enhancement Revenue ($M)Q2 2025N/A$43–$45 New
Production Enhancement Op Income ($M)Q2 2025N/A$2.0–$2.6 New
G&A ex-items ($M)FY 2025N/A$40–$42 New
Dividend ($/share)Q2 2025$0.01 (Q1 paid) $0.01 (payable May 27, 2025) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
Sanctions/tariffs & macroGeopolitical conflicts impacting operations; CCS and Middle East projects expanding Expanded sanctions (Jan) anticipated to disrupt crude assay and product sales; near-term volatility expected Sanctions cut crude assay demand and suspended intl product order; pending tariffs; late-quarter demand improved Easing late in Q1; volatility persists
International project demandMiddle East/APAC engagements; Kuwait offshore fluid analysis; multi-year cycle Constructive long-term international outlook Middle East/Africa and APAC engagements; new Saudi lab; steady long-cycle projects Positive, building
U.S. land activitySoftness, delayed Gulf of Mexico diagnostics due to hurricanes U.S. onshore flat-to-down expected Diagnostics strength; frac spreads down ~10% but mix supported margins Stabilizing; diagnostics offset
Cost actions/efficiencyAsset-light model; leverage reduction to 1.47 Leverage reduced to 1.31; buybacks/dividends Cost reduction plans implemented in Q1; more in Q2/Q3; net debt down, leverage at 1.31 Ongoing improvement
Segment marginsRD margins strong ex-items in Q3; PE modest PE GAAP loss offset by ex-items profit RD and PE ex-items margins at 10% and 8%; mix shift impacts expected in Q2 Moderating, poised to recover
ROIC focusROIC 8.6% ROIC 10.3% ROIC 8.3% (TTM) Within target range

Management Commentary

  • Strategy and macro posture: “We project this international cycle will play out for the next several years… trends that bode well for increasing demand for the Reservoir Description services” .
  • Operational headwinds: “Expanded sanctions… impacted both Reservoir Description and Production Enhancement and created temporary operational inefficiencies” .
  • Margin outlook and cost plan: “Q3 and Q4… looking better for us than Q2… we have put some cost reduction plans in place… implemented in Q1… more effect in Q2… additional ones scheduled for Q3” .
  • Capital allocation: “We will continue to focus on reducing debt and strengthening our balance sheet while evaluating other opportunistic uses of free cash” .
  • New capacity: “Opening… Unconventional Core Analysis Laboratory in Dammam… equipped with… NMR and PRISM workflow” .

Q&A Highlights

  • PE margin mix dynamics: Q1 margins benefited from high-margin diagnostics and Gulf of Mexico work; Q2 mix shifts to more product sales imply 200–300 bps lower PE margins sequentially .
  • Back half margin trajectory: Management expects margin expansion in H2 as sanctions effects fade and cost actions ramp; Q3/Q4 seen “better… than Q2” .
  • U.S. land and international outlook: U.S. land activity flat-to-soft vs 2024 but diagnostics penetration improving; Middle East steady; Africa multi-year opportunity; Colombia cautious; Brazil gradual improvement .
  • Working capital and absorption: DSOs rose to 79 days; manufacturing absorption to improve with product sales growth in future quarters .

Estimates Context

  • Q1 2025 came modestly below consensus: EPS $0.15* vs actual $0.14 and revenue $124.8M* vs actual $123.6M .
  • Recent trend: Q3 2024 beat both EPS and revenue; Q4 2024 EPS in line but revenue below; Q2 2025 initial consensus sits near the midpoints of guidance (EPS $0.18*, revenue $128.7M*) .

Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

  • Q1 weakness was predominantly sanctions/tariff-driven and seasonal; late-quarter demand stabilized, and Q2 guidance points to sequential recovery in revenue, EPS, and operating income .
  • Diagnostics momentum and cost actions should underpin margin improvement into H2; expect mix normalization as international product sales resume and absorption improves .
  • Balance sheet de-risking continues (net debt down; leverage 1.31), enabling continued buybacks/dividends while funding growth initiatives like the new Saudi lab .
  • Watch sanctions/tariff developments: management believes most service revenue is not subject to proposed tariffs; product sales exposure mitigated by U.S. manufacturing and domestic consumption .
  • Segment setup: Reservoir Description levered to multi-year international cycle; Production Enhancement benefits from complex U.S. completions and resumption of offshore work, but near-term margins are mix-sensitive .
  • Near-term trading implication: Q2 beat potential if assay demand and delayed instrumentation sales materialize; monitor DSOs normalization and product sale timing .
  • Medium-term thesis: Asset-light ROIC discipline and global footprint position CLB to compound FCF through cycle, particularly as international conventional/offshore development fills supply needs .