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spk03: Good morning, and welcome to the CoreLab Q1 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference to Larry Bruno, Chairman and CEO Please go ahead.
spk04: Thanks, Anthony. 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' first quarter 2022 earnings call. This morning, I'm 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 Q1 performance. In addition, we'll 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 Labs technologies, as well as highlighting some of CORE's operations and major projects worldwide. Then we'll open the phones for Q&A session. I'll now turn the call over to Gwen for remarks on forward-looking statements.
spk00: Before we start the conference this morning, I'll mention that some of the 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 risks and uncertainties that could cause actual results to materially differ from our forward-looking statements. These risks 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 and the AFM. 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 first quarter results. Non-GAAP measures can also be found on our website. With that said, I'll pass the discussion back to Larry.
spk04: Thanks, Gwen. As 2022 began, the global pandemic continued to impact our business landscape. During the first quarter, global caseloads rose very sharply as the Omicron variant spread across all regions. This impacted both our clients and internal CoreLab operations. More than 15% of Coralab's global staff tested positive for COVID-19 in Q1, a more than 400% increase in cases among our employees compared to Q4 in 2021. In addition, other Coralab staff had to quarantine because of either direct exposure to individuals that had tested positive or because of government-imposed shutdowns. On average, infected employees missed between 5 and 10 days of work. Being a business that runs on people more than, say, equipment rental day rates and mechanical horsepower, the high number of Q1 COVID-19 cases had a meaningful impact on our business. The sharp rise in COVID-19 cases and the associated quarantine requirements among CoreLab staff increased operating costs as overtime expenses among uninfected staff were incurred to meet project timelines. Fortunately, the recent COVID-19 illnesses experienced by our staff have largely been mild and of short duration, with no deaths or hospitalizations reported in Q1. Cases peaked in January and February and declined throughout March. The surge in COVID-19 cases also negatively impacted our clients and continued to pose headwinds to project advancement. Still, global demand for hydrocarbons continues to rise, signaling positive trends for future oil field activity over at least the next several years. Compounding the Q1 challenges caused by the sharp rise in COVID-19 cases, the military conflict in Ukraine impacted both of CoreLab's business segments. In reservoir description, cyberattacks against client facilities in Europe that preceded direct military engagement disrupted demand for crude assay laboratory work in Western Europe, as well as in Ukraine and other parts of Eastern Europe. After military actions commenced, Sanctions and other crude oil supply disruptions further impacted demand for ambient condition laboratory crude oil analysis. In Ukraine, CoreLab suspended operations out of concern for our employees' safety. The suspension of operations is ongoing. The realignment of traditional crude oil logistical patterns is still impacting demand for analytical services in several countries, particularly in Europe. Because global crude oil demand has not been fundamentally altered, We anticipate the return of client demand for these services as supply patterns realign. In production enhancement, direct product sales for Q1 into Ukraine were halted. Currently, forecasting when or if these sales and previously committed future product orders might be completed is impractical. Despite these challenges, Core remains ready to fully service our clients' needs. Core continues to execute on its key strategic objectives by, one, introducing new product and service offerings in key geographic markets, two, maintaining a lean and focused organization, and three, continuing to delever the company. For the first quarter of 2022, Core Labs' year-over-year revenue increased by 6%. For the remainder of 2022, we expect continued improvement in both business segments in both the U.S. and most international arenas, although the conflict in Ukraine and the collateral impacts on Core's European and Russian operations now pose headwinds to year-over-year growth expectations in those areas. Now to review CoreLab's strategies and the financial tenets that Core has used to build shareholder value over our 26-plus year history as a publicly traded company. The interest of our shareholders, clients, and employees will always be well served by CoreLab's resilient culture, which relies on innovation, leveraging technology to solve problems, and dedicated customer service. I'll talk more about one of our latest innovations in the operational review section of this call. While we navigate through the current challenges and pursue growth opportunities, CORE will remain focused on its three longstanding long-term financial tenets, those being to maximize free cash flow, maximize return on invested capital, and returning excess free cash to our shareholders. Before we move on, I want to thank CORE's management team and employees for their hard work during the unprecedented challenges of the past two years. Q1 of 2022 required great agility and responsiveness to continue to serve our clients' needs. I also want to thank them for the dedication, loyalty, and adaptability in meeting all of our clients' needs and for the personal sacrifices that many have endured as we navigate the moment and prepare for a more active market.
spk02: I'll now turn it over to Chris for the detailed financial review. 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. Additionally, the financial results for the first quarter of 2022 include a charge of $3.9 million for non-cash stock compensation expense associated with the future vesting of performance shares for certain employees who have reached their eligible retirement age. The financial results for the first quarter also include a charge of $3.3 million for severance and facility consolidation expense and a bad debt expense of $800,000 associated with receivables due from clients in Ukraine. The severance and facility consolidation expenses are associated with our ongoing efforts to gain operational efficiencies and optimize CORE's global network. These items have also been excluded from our discussion of the financial results. So now looking at the income statement, revenue from continuing operations was $115.3 million in the first quarter, down approximately 7.9% from $125.1 million in the prior quarter, but up 6.4% year over year. The sequential decrease is associated with typical seasonal decline that we experience in the first quarter of each year. Additionally, our international operations were disrupted more than expected due to a strong resurgence of COVID cases during the quarter. The Russia-Ukraine conflict also progressed into direct military action during the first quarter, which negatively impacted both product sales and services. However, the U.S. land market continues to show strength and although completion activity began the year at levels lower than last quarter, Activity improved and was up nicely as we exited the first quarter. Of this revenue, service revenue, which is more international, was $84.7 million for the quarter, down approximately 5% sequentially from $89.3 million last quarter. The decrease in service revenue is primarily associated with typical seasonal declines, but also continued COVID restrictions and disruptions in many regions. Our service revenue associated with crude oil assay work, particularly in Europe, was also negatively impacted by an elevated level of cyber attacks and the Russia-Ukraine conflict. Service revenue in the U.S. increased 8% sequentially, which helped partially offset the decline in international service revenue. Product sales, which is equally tied to U.S. and international activity, were $30.6 million for the quarter, down 14.7% sequentially, but up over 25% from last year. Our international product sales are typically larger bulk orders and can vary from one quarter to another. Last quarter, we delivered several large international orders, which did not repeat in the first quarter. As a result, international product sales were down 26.6% sequentially. The sequential decline also includes the suspension of product sales into Ukraine. Product sales in the U.S. increased over 4% sequentially and was led by sales of our energetic products, which increased over 7% sequentially. So for the quarter, the improvement in the U.S. product sales helped offset the sequential decrease in international product sales. Moving on to cost of services, X items for the quarter was approximately 81% of service revenue, up from 78% last quarter. Cost of services in the first quarter of 2022 increased as the company fully restored employee-based salaries. The company has restored most of the temporary cost reductions established during the pandemic. So as we progress through the remainder of the year, we would expect incremental margins to improve and trend toward historical levels. Cost of sales, X items in the first quarter, was 92% of revenue compared to 76% last quarter. The increase this quarter is a combination of disruptions to our manufacturing caused by the surge in COVID, reduced manufacturing efficiencies associated with a lower revenue base, and rising costs of raw materials, transportation, packaging, and labor costs. We anticipate improvement in the manufacturing absorption rate in future quarters in line with our projected growth in product sales. X items for the quarter was $8.7 million, a decrease of $2.2 million from last quarter of $10.9 million. X items is anticipated to be approximately $40 million for the full year of 2022. Depreciation and amortization for the quarter was $4.6 million, and pretty flat compared to $4.4 million last quarter. X items for the quarter was $7.2 million, down from $14.2 million last quarter, yielding an EBIT margin of over 6%. On a GAAP basis, we recorded an operating loss for the quarter of $400,000. Interest expense was $2.6 million, relatively flat from last quarter. Income tax expense, X items, was $9 million for the quarter, and on a GAAP basis, we recorded a tax benefit of $1.2 million for the quarter. The tax benefit recorded in the quarter includes the release of withholding tax related to un-repatriated earnings of our Russian subsidiaries, which are not expected to be distributed in the foreseeable future. Effective tax rate will continue to be somewhat sensitive to the geographic mix of earnings across the globe and the impact of items discrete to each quarter. However, we continue to project the company's effective tax rate to be approximately 20%. Income from continuing operations, X items for the quarter, was $3.6 million, down from $9.3 million last quarter. On a GAAP basis, we recorded a $1.8 million loss from continuing operations for the quarter. Earnings per diluted share from continuing operations, X items, was $0.08 for the quarter, and the GAAP loss per diluted share from continuing operations was $0.04 for the quarter. Turning to the balance sheet, receivables were $98.9 million and increased approximately $2 million from the prior quarter. Our DSOs for the first quarter were 72 days, up from 67 days achieved last year. We anticipate that our DSO will improve and return to a level of 70 days or lower in future quarters. Inventory at March 31st, 2022 was $48.2 million, up approximately $3 million from last quarter end. Inventory turns for the quarter remain consistent at 2.4, which is comparable to last quarter. As previously highlighted, the company continues to experience an increase in costs of raw materials, labor, packaging, and transportation, which are increasing the cost of inventory. Additionally, challenges in the supply chain persist, which will continue to require carrying a larger amount of inventory to help mitigate disruptions. Suspension of product sales into Ukraine for orders that were already processed also accounts for some of the increase this quarter. We continue to anticipate inventory turns will improve as we progress through 2022, in line with improved activity levels for both the U.S. land and international markets. And now the liability side of the balance sheet. Our long-term debt was $191 million at the end of the first quarter, and considering cash of $22 million, net debt was reduced to $169 million, or a decrease of $3 million from last quarter. Our leverage ratio was approximately 2.2 compared to 2.1 last quarter. And our debt is currently comprised of our senior notes at 135 million, as well as 56 million outstanding under our bank revolving credit facility. Since the COVID pandemic started in 2020, CoreLab has reduced net debt seven out of the last eight quarters, maintaining our focus and our stated commitment in reducing the company's leverage ratio. We will continue with our longer term strategy to deliver the company. Looking at cash flow for the first quarter of 2022, cash flow from operating activities was $5.3 million, and after paying for $2.3 million of CapEx for the quarter, our free cash flow was $3 million. We will continue managing capital expenditures to be aligned with activity levels for the remainder of 2022. For the full year, we expect capital expenditures to be in the range of $13 to $15 million. Core will continue its strict capital discipline and asset-light business model with capital expenditures primarily targeted at growth opportunities and initiatives. This also marks another quarter where CoreLab generated positive free cash flow, and we are projecting to continue generating positive free cash as we look ahead to the remainder of 2022 and beyond. We believe evaluating a company's ability to generate free cash flow and free cash flow yield is an important metric for shareholders when comparing companies' financial results particularly for those shareholders who utilize discounted cash flow models to assess valuations. I will now turn it over to Gwen for an update on our guidance and outlook.
spk00: Thank you, Chris. As the Russia-Ukraine geopolitical conflict continues and the sanctions on Russia have expanded, the global crude oil market continues to tighten, with demand for crude oil approaching pre-COVID-19 levels, resulting in higher crude oil commodity prices. With consistent elevated crude oil commodity prices and the tightening of crude oil supply, the industry is preparing for an increase in activity driven by demand resulting in a multi-year cycle. These crude oil market fundamentals are reflected in the gradual increase in the international rig count with more oil field equipment coming under contract and expanded capital spending plans for 2000-2022. CORE sees these as leading indicators of a growing international market. With CORE Lab having more than 70% of its revenues exposed to international activity, both business segments remain active on international projects. As additional field development projects emerge, wells need to be drilled and reservoir rock and fluid sampled before reservoir description participates in the cycle. The expansion of international development both short and long cycle projects, provides growth opportunities for both segments into 2020-22 and beyond, with a particular focus on South Atlantic margins, Latin America, and the Middle East. Core North America revenue is correlated to completion and stimulation events with large-scale reservoir rock and reservoir fluid characterization studies. rather than with immediate changes in rig count. Wells need to be drilled and subsequently completed, stimulated and cored, or have fluid samples collected before we can realize a revenue event. Core projects to continue benefiting from increased onshore activity, albeit led by private operators and somewhat moderated by capital discipline for larger publicly traded operators. For the second quarter of 2020-22, CORE projects our business to improve primarily from increasing activity levels in the U.S. and moderate improvement in international, offshore, and deepwater markets, potentially offset by uncertainties associated with the Russia-Ukraine conflict. CORE projects second quarter 2020-22 revenue to range from $119 million to $125 million and operating income of $9.4 million to $11.8 million, yielding operating margins of approximately 9%. EPS for the second quarter of 2022 is expected to be $0.12 to $0.16. The company's second quarter 2022 guidance is based on projections for underlying operations and excludes gains and losses in foreign exchange. The second quarter guidance also assumes an effective tax rate of 20%. Looking forward, CORE's outlook for the remainder of 2020-22 remains positive with sequential improvement expected in the second quarter, followed by further acceleration during the second half of the year. Furthermore, we continue to anticipate a multi-year international cycle unfolding supported by crude oil market fundamentals. With that, I'll turn it back over to Larry.
spk04: 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 has been very visible during the current challenges and is the foundation of CoreLab's success. Turning first to reservoir description, For the first quarter, revenue came in at $74.8 million, down 7% sequentially. Operating income, X items, was $3.9 million, and operating margins were 5%. Restoration of employee costs, along with the COVID-related costs and inefficiencies, as well as the disruptions tied to the Russia-Ukraine conflict, impacted margins during the quarter. The sharp increase in COVID-19 cases in Q1 slowed in the early part of Q2 across many regions, although parts of Europe and Asia Pacific are still experiencing relatively high caseloads. As previously mentioned, core lab operations in Ukraine have been suspended and demand for some services in Europe and Russia are being impacted by the military conflict and the associated sanctions. As we look ahead, while still well below pre-COVID levels, we see the growing international rig count as a harbinger of an improving landscape for reservoir description, a trend that we project will play out throughout 2022 and beyond, particularly in the Middle East and North and South America regions. During the first quarter of 2022, CORE conducted a large core and reservoir data analysis workshop for the Kuwait Oil Company. This comprehensive week-long workshop was the culmination of a multi-year, multi-well analytical program that included proprietary CoreLab technologies and interpretation techniques. The focus was on hydrocarbon potential and pay recognition in prospective unconventional and tight conventional reservoir targets. CoreLab leveraged its proprietary, Oracle-based, web-enabled rapid database platform to organize well, geological, and petrophysical data. Fracture analysis and interpretation was conducted utilizing CORE's proprietary dual-energy CT scanner services, which allowed for 3D visualization of conventional COREs and calibration of third-party borehole image logs. CoreLab developed advanced petrophysical log models that included fluid flow prediction as well as an assessment of well productivity. KOC stated that the workshop was a great success and that their technical teams were incorporating and building upon the recently concluded work. An expansion of the study is currently being planned to include other KOC fields and also to address additional reservoir challenges. CoreLab is pleased to be assisting KOC's technical experts on these evaluation programs. In other first quarter news, CoreLab is expanding its penetration of carbon capture and sequestration opportunities on multiple fronts. During the first quarter, Core announced the initiation of a joint industry carbon capture and sequestration consortium to analyze geologic risks and challenges associated with subsurface carbon sequestration. This multi-company project, in collaboration with Dr. Beryl Dendurek of the University of Houston, will leverage CORE's global expertise in subsurface characterization with a focus on reservoir capacity, injectivity, and containment integrity, as well as rock fluid and fluid-fluid compatibility. In addition, during the first quarter, CORE was also pleased to publicly announce a strategic alliance with Talos Energy Incorporated to provide technical evaluation and assurance for carbon capture and sequestration opportunities. Along with these recent announcements on carbon capture and sequestration opportunities, during the first quarter of 2022, CORE, under the direction of the Carbon Net Project, commenced the next phase of advanced laboratory testing on conventional CORE extracted from the Goulart appraisal well located in the Gippsland Basin, offshore southeast Australia. If successful, the CarbonNet project would bring together multiple carbon capture projects in Victoria's Latrobe Valley, transporting CO2 via a shared pipeline and injecting it into deep underground offshore storage sites in the Bass Straits. A substantial risk in any CO2 sequestration project is failing to properly assess the complexities of the targeted geological subsurface formation and the in-situ pore fluids. CoreLab's 80-plus years of expertise in evaluating subsurface geology and fluid flow through natural porous media is essential for assessing these types of CO2 sequestration projects. Now moving to production enhancement, where CoreLab's strengths in both energetic systems and completion diagnostics help customers optimize their well completions. Revenue for production enhancement came in at $40.5 million, down 10% sequentially, but up 27% year-over-year. Operating income, X items, was $3.1 million, and operating margins were 8% for the first quarter of 2022. For more than 20 years, CORE's production enhancement team has been an industry-leading innovator in both energetic system products and diagnostic services, which aim to improve completions and better monitor well performance. Leveraging Core's combined expertise in these two fields, CoreLab is pleased to announce the introduction of its patent-pending GoTrace product solution. GoTrace is an innovative, organically developed technology that directly incorporates Core's diagnostic services into the company's energetic system products. The integration of Core's proprietary perforating products and diagnostic tracers into one system allows Coors clients to cost-effectively introduce unique diagnostic tracers into specific perf clusters and, for the first time, allows them to do this simultaneous with the perforating process. Furthermore, by providing diagnostic evaluation at the cluster level, GoTrace reveals significantly more granularity when evaluating a completion program as compared to the stage-level diagnostic treatment alternatives. Recently, TotalEnergy's utilized CORE's GoTrace technology in a recompletion project in the Barnett Shell. By deploying the GoTrace system, TotalEnergies was able to determine whether the new perforating clusters were effectively stimulated. CORE's diagnostic analysis of the re-stimulation treatment confirmed the clusters created with GoTrace were effectively stimulated, thus optimizing well performance. That concludes our operational review. We appreciate your participation, and Anthony will now open the call for questions.
spk03: Thank you. We will now begin the question and answer session. To ask a question, you may press the start and warning telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press start and 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from Stephen Gangaro with Stifel. You may now go ahead.
spk05: Thanks and good morning, everybody. Yeah, good morning. A couple of things for me, if you don't mind. And what I would start with is when we think about the macro and you sort of, you know, it seems like a lot of the large integrated oil service names are talking about mid-teens, international growth in the back half of 2022 and beyond. honestly, probably for the full year as well. How should we think about your RD business in the context of that?
spk04: Yeah, good question, Stephen. I think maybe let's go around the world here. So I think we're in line with those expectations, but I'll put an asterisk on that now. So as we look around the planet, so for North America, so outside the U.S., No change in our perspective, so in line with the ranges that I think are pretty broadly held around the industry. South America, no change, maybe a little upside there. Middle East, no change, maybe a little upside there. Asia Pacific, no change. The asterisk I would put on is our view of the international market as it relates to Russia, Ukraine, and Europe. We will have to soften those expectations from this point based on what we see today. So when we add it all up, I think double-digit growth for the segment now becomes more challenging and maybe unlikely.
spk05: And have you said or can you give us some color on kind of the amount of business you're doing or were doing in Russia and how you're handling that?
spk04: Yeah, so what we've said is in Russia and the near Russia region, that historically has been 5% to 8% of our business.
spk05: Okay, great.
spk04: Thank you. Stephen, just one other qualifier on that. So beyond the work directly in the region there, Russia and Ukraine and nearby areas, we see this realignment as Russian oil is not reaching – Europe because of sanctions. We think that has to realign with oil coming from other areas because the demand has not gone down. If anything, it's probably inching up. And so we think that has to realign. That could pose, call it a rebound in the demand for crude oil assay work into Europe that we saw drop off in the first quarter.
spk05: Okay, that's going to be one of my follow-ups with sort of what you're seeing to offset, but that's one of them. Okay. Yep. And the, the other, the other question just on the, on the incremental margin front or the margin front going forward, the, the, the headwinds you're seeing, you know, honestly it looked like in both segments in the first quarter, how do they sort of start to start to fade away as you get into the second and third quarters and you start to get more normal incrementals? Like what's, What's the visibility on that and what's sort of driving that?
spk02: Well, and this is Chris, Stephen. And we do feel more confident going forward now that we've kind of restored employees' base compensation. They're still not fully restored. There's a little bit coming through. If you think about restoring the match on retirement plans, think of that as 401K plans. But that is, those are smaller adds back. We're also looking at whether or not we need to make sort of annual merit adjustments later this year as well. So we're evaluating that, I think, as the year progresses. But those are going to be some headwinds. But the big things that we've done getting employees back to full pay are kind of behind us. So as you start to see top line grow, we should start to see incremental margins not only improve, but start to trend back. I think we've talked some about inflation. That's real, not just here in the U.S., but around the globe. So costs are going up. It's probably impacted our production enhancement group and the inventory more than some of the services, but it's real. So that's some of the headwinds we have. But fundamentally, nothing's changed. The leverage is still there in our reservoir description group. And we would still expect manufacturing efficiencies and things to improve as you start to expand top line and production enhancement as well.
spk05: Thanks. Just one final quick one, just because you mentioned this. You said fundamentally nothing's changed. The competitive landscape internationally on the RD business and the way the world has evolved the last couple of years with COVID and all the issues we've dealt with, has anything changed sort of competitively or fundamentally in your in your international RD business?
spk04: Steve, it's all on activity levels from the clients. So, yeah, I think COVID's played on their activity pace. Projects that may have been on the drawing board got pushed to the right. We are seeing things pick up in places, but it's largely an activity level. The operational leverage is still there, particularly on the RD side of the business.
spk05: Great, thank you for taking the questions.
spk04: Sure, thanks, Stephen.
spk03: Again, if you have a question, please press start and one. Our next question will come from Taylor Zerker with Tudor Pickering and Holt. You may now go ahead.
spk00: Morning, Taylor.
spk01: Morning. Hey, good morning. Larry, Chris, and Gwen. First question, production enhancement. I'm really just curious about the sort of margin road path or glide path forward. So in the back half of last year, I mean, you were doing pretty solidly in the double digits from an operating income margin perspective. And obviously, there were some issues at play here in Q1. But in the background, you've got a really constructive U.S. plan, completions activity backdrop. So volume should be improving quite nicely over the back half of the year. And Chris, you highlighted some of the inflation dynamics at play. But I'm just curious, exiting this year, if we compare that to the second half 2021 or the 2021 exit, what that might look like for production enhancement this year on a year-over-year basis.
spk02: Yeah, I think just first off, and then others might have some stuff to add, but we're still kind of looking at production enhancement from sort of resetting in Q1. I would say margins, we would still expect margins to expand in that 25 to 30% on products, and they can be a little bit higher on the services side. So if you start to kind of dial that in, you can take a view on where we might be at the end of the year. But inflation, I would say, has been the biggest factor. We did have manufacturing disruptions in Q1, so there should be some improvement. Let's say those disruptions don't reoccur in Q2 and going forward, there should be some improvement there. But Hopefully, inflation sort of starts to stabilize, and we don't see that continuing.
spk04: Yeah, I'd add to that, to Chris's comments there. And then, Taylor, thanks for reinforcing how well our business did last year on the production enhancement side. Had a real strong year. I think outperformed the sector. Part of that is we had a very strong fourth quarter with international sales. we try to get across that point here that those can be a bit lumpy. So we did not have a repeat of that in Q1. We expect that in subsequent quarters this year. Plus we had product sales into Ukraine, which obviously, without a plan for the first quarter, obviously didn't happen. And so I think to echo Chris's points there, we're going to have, there's a little bit of natural lumpiness as international orders shift. we didn't have that Q1. We expect them in some of the upcoming quarters. So I think we'll see if you look at the trend, you'll see it improving performance there over the next several quarters.
spk01: Understood. And my follow-ups on CCUS, you highlighted in the script some of the progress you made during Q1. And I've just got a simple question, which is, you know, what's next? You've made a lot of progress thus far. I imagine it's going to take time to to generate some meaningful revenues from all things CCUS moving forward, recognizing that you're already working on some projects as we speak. But I'm just curious what's next on CCUS and how that might look moving forward.
spk04: Yeah, I think it's execution time for this. Some of it, and just to maybe refresh the audience a little bit, is over the past 15 years or so, we've done – the occasional carbon capture storage evaluation program, core and fluid analysis. A couple of things have changed in the landscape. One is government regulations are driving many more of those projects than existed over the last, say, couple of decades. And the other thing that's changed is what had been, I'll call it non-traditional clients approaching us about those projects when they came up, is now our traditional oil and gas clients are dialing that into their portfolio of projects that they're going to be working on. So the inaugural six members of our CCS consortium study are all oil and gas companies that would not have had any carbon capture and storage dialed into their plans several years ago. I think across the oil industry and across the non-oil industry, the client base for the CCS projects is growing. Most of those are in the planning phase still. As those start to go into the assessment phase, that's when we hit our sort of our stride there when they're actually taking core and fluid samples. And now we're very well set up to do that with our strategic alliance with Talos, our I'll call it proprietary work that we're doing like the carbon net project that's been going on for several quarters. There's more of those in the queue. I would say that our target board for projects is probably 8 to 10 times what it was just 18 to 20 months ago.
spk01: Wow, that's encouraging. Thanks for that. One last question for me, if I can, which is on GoTrace. It might be early days, but I've never really heard much about that sort of technology out there in the market. So I'm just curious if you could highlight for us the sort of value add that that technology provides. You highlighted the work you're doing with Total, but I'm curious if there's any other anecdotes you can share as it relates to customer conversations you might be having with customers outside of Total. But it sounds like an intriguing technology and would love to hear a little bit more about it.
spk04: Yeah, so a lot to like about that. And, boy, talk about a CoreLab-like example of how we run our business and drive innovation. It really motivates a lot of the staff to brainstorm problems. And so one of the problems with completion diagnostics in the past, I don't call it a problem, one of the limitations is probably a better way to put it, is that you would pump in tracers at the stage level. And so you did not get the granularity as the number of clusters and stages have gone up. You didn't know whether you could tell if the stage was contributing, but you didn't know the individual clusters. So that prompted some look at how we might get that better granularity more at the cluster level. And so we had to figure out whether we could get our diagnostic tracers to survive that very energetic event when the gun is triggered and the energetic goes off so as to not destroy the tracers that we were trying to emplace at that same moment. And so, as I mentioned in the call here, for the first time in the industry, there's now an opportunity to perforate and destroy place the energetics into those perforations all at the same time, do that simultaneously. And so what the clients are seeing there is they're saving on rig time opportunity on this, and that we don't have to perforate and then come out of the well and then pump down tracers into the perforations to see if they're in communication. And so there's an advantage there. and the granularity that they're getting. And the reason you didn't hear about it was we were holding it pretty quiet and confidential. We're the only company that does both energetics and tracer diagnostics. So we feel like we've got a real competitive advantage there. We're just now getting in position where we've got, I'll call it the manufacturing capabilities and the analytical capabilities all lined up to service that client. So yes, early, I'll call it early hours, early minutes of the introduction in this, more to come on that. And we think it's got great promise. There's nothing like it in the industry.
spk01: Very interesting. Thanks for the answers.
spk04: Sure.
spk00: Thanks, Taylor.
spk04: Okay. I think we've got a pretty full slate of earnings calls this morning, so we don't have anything else on our call list. So we'll wrap up here. In summary, CORE's operational leadership continues to position the company for improving client well activity levels in both the U.S. and international markets in 2022 and beyond. We have never been better operationally or technologically positioned to help our global client base 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 generating free cash and returns on invested capital. In addition to our quarterly dividends, we'll 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 strengthen its balance sheet while always investing in growth opportunities. So, in closing, we thank and appreciate all of our shareholders and the analysts that cover CORE Labs. 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 their continuing achievements. So thanks for spending time with us, and we look forward to our next update. Goodbye for now.
spk03: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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