Core Laboratories (CLB) Q2 2023 Earnings Call Transcript

Core Laboratories (CLB -0.76%)
Q2 2023 Earnings Call
Jul 27, 2023, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Core Lab Q2 2023 earnings call. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Larry Bruno, chairman and CEO.

Please go ahead.

Larry Bruno -- Chairman and Chief Executive Officer

Thanks, Danielle. 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 second quarter 2023 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. When we'll 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 Q2 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 operations and major projects worldwide. Then we'll open the phone for calls and a Q&A session. I'll now turn the call over to Gwen for remarks on forward-looking statements.

Gwen Gresham -- Senior Vice President and Head of Investor Relations

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.

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 are also -- in our comments we also include non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures is included in the press release announcing our second quarter results. Those non-GAAP measures can also be found on our website.

With that said, I'll pass a discussion back to Larry.

Larry Bruno -- Chairman and Chief Executive Officer

Thanks, Gwen. Moving now to some high-level comments about the second quarter of 2023, Core continued to build on the operational momentum established over the past few quarters. While revenue was flat compared to Q1 at 128 million, we achieved sequential improvements in operating income, operating margins, net income, free cash flow, and earnings per share. At the same time, we continue to execute on our key financial strategies including reducing net debt and strengthening our balance sheet.

Year over year, the second quarter of 2023 showed a nearly 6% growth in revenue x items. Operating income for the second quarter was 15.6 million of 62% year over year and operating margins were 12% with a year over year incrementals exceeding 85%. Second quarter 2023 operating margins as well as year over year and sequential incremental margins were particularly strong in reservoir description where demand for reservoir rock and fluid analysis across our global client base continues to rise. These improvements were partially offset by declines in revenue and operating income due to a quarter over quarter reduction in bulk international product sales and lower than anticipated US land completion activity.

Still production enhancement margins x items, held at 10% in the second quarter. Lastly, for the full company x items, EPS was $0.21 per share, up from $0.19 in Q1 of 2023. As we look ahead, Core will continue 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, maintaining our commitment to delivering the company. Now to review Core Lab strategies and the financial tenets that Core is used to build shareholder value over our 27-plus year history as a publicly traded company.

The interests of our shareholders, clients, and employees will always be well served by Core Labs' resilient culture which relies on innovation, leveraging technology to solve problems, and dedicated customer services. I'll talk more about some of our latest innovations in the operational review section of this call. While we aggressively pursue growth opportunities, the company will remain focused on its three long-standing, long-term financial tenants, those being to maximize free cash flow, maximize return on invested capital, and returning excess free cash to our shareholders. Before moving on, I want to thank our employees for their dedication, loyalty, and adaptability in meeting all of our clients needs and for the commitment that many have shown as we prepare for a more active market.

I'll now turn it over to Chris for the detailed financial review.

Chris Hill -- Chief Financial Officer

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 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 second quarter of 2023 include; one, a tax benefit of approximately 11.6 million associated with the company's redo of the parent company from the Netherlands to the US; and two, a gain of approximately 2.9 million associated with proceeds received from the company-owned life insurance policies and a reversal of previously recognized stock compensation expense for certain performance share awards which are no longer expected to vest.

These items have also been excluded from our discussion of the financial results. So now looking at the income statement. Revenue was 127.9 million in the second quarter, flat compared to the prior quarter and up almost 6% year over year. Sequentially, international upstream projects continue to expand, however, this increase was offset by a decrease in product sales as the US onshore activity softened during the second quarter.

The year over year growth in revenue was primarily associated with improved activity on international upstream projects and also higher levels of activity in the US when compared to last year. Of this revenue, service revenue, which is more international was 93.3 million for the quarter, up over 2% sequentially and up over 9% from last year. International service revenue was up 4% sequentially and up over 7% year over year as activity on projects outside the US continues to build across multiple regions. Additionally, service revenue associated with crude assay work performed in our European operations also had some recovery from the decrease last year -- last quarter.

Service revenue in the US market was flat sequentially but up over 13% year over year, primarily due to high use of our diagnostic services in the US land market. Product sales which is more equally tied to North America and international activity. We're 34.6 million for the quarter, down 7% sequentially and down 2% from last year. Product sales in the US decreased 3% sequentially as activity in the US land market peaked in April and softened in May and June.

Our international product sales, which are typically larger bulk orders and can vary from one quarter to another, were also down slightly this quarter compared to last quarter. Moving on to cost of services, x items for the quarter was approximately 76% of service revenue and improvement from 78% in the prior quarter and 80% compared to the prior year. We continue to see improvements in absorption of costs and utilization of our global laboratory network and anticipate additional improvement with growth in service revenue. Cost of sales x items in the second quarter was 84% of revenue, compared to 82% last quarter.

The increase this quarter is a combination of reduced manufacturing efficiencies associated with lower activity in the US land market and lower international sales. We anticipate improvement in the manufacturing absorption rate in future quarters in line with our projected growth and product sales. G&A x items for the quarter was 8.7 million, a decrease from prior quarter which was 9.8 million. For 2023 we expect G&A x items to be approximately 39 to 40 million.

Depreciation and amortization for the quarter was 3.9 million, relatively flat compared to 4 million last quarter. EBIT x items for the quarter was 15.6 million, an increase of 1.1 million over last quarter, yielding an EBIT margin of 12.2%, which expanded 90 basis points sequentially and 420 basis points from last year. Our operating income for the quarter on a GAAP basis was 18.9 million which includes the 2.9 million gain mentioned earlier. Interest expense of 3.2 million decrease from 3.4 million last quarter.

Income tax expense and an effective tax rate of 20% and x items was 3.2 million for the quarter. On a GAAP basis, we recorded a tax benefit of 7.3 million for the quarter, which includes the $11.6 million tax benefit associated with the company's redomestication transaction that was completed on May 1st. The 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%.

Net income x items for the quarter was 9.8 million, up from 8.8 million last quarter and 5.4 million from last year. On a GAAP basis, we recorded net income of 22.8 million for the quarter. Earnings per diluted share x items was $0.21 for the quarter, up from $0.19 last quarter. And compared to last year, a significant improvement over the $0.12 in the second quarter of 2022.

On a GAAP basis, earnings per diluted share was $0.48 for the quarter, up from $0.05 in the prior quarter. Turning to the balance sheet, receivables was 106.8 million and decreased approximately 3.9 million from the prior quarter. Our DSO is for the second quarter improved slightly to 72 days from 73 days in last quarter. We anticipate that our DSO will continue improving as we work back toward a level of 70 days or lower in future quarters.

Inventory at June 30th was 71.7 million, up approximately 4.3 million from last quarter end. Inventory turns for the quarter decreased to 1.7 from 1.9 last quarter. The increase in the quarter is a combined effect of a slowing US land market and also building stock in certain international locations to service some long term international contracts. On the liability side of the balance sheet, our long term debt was $185 million at June 30th and considering cash of 22 -- 26.2 million, net debt was 158.8 million or down 7.9 million from last quarter.

The decrease in net debt this quarter was primarily driven by free cash flow generated from operations. Our leverage ratio improved to 1.85 at June 30th compared to 2.18 last quarter, and we anticipate the leverage ratio will continue to decrease during the remainder of 2023. As mentioned during our last call, the company issued 50 million of new senior notes which funded on June 28th of 2023. The new notes were split into two tranches, 25 million in each tranche which have a five year and seven year maturity.

The proceeds from the notes were used to reduce the outstanding balance on our revolving credit facility. Therefore, at June 30th, our debt is currently comprised of our senior notes at 185 million with no outstanding balance under our bank revolving credit facility which has a borrowing capacity of 135 million. The company will continue applying free cash toward reducing debt until the company reaches its target leverage ratio of 1.5 times or lower. Additionally, as we previously announced on July 17th, 2023, the company terminated the ATM program that we launched in June of 2022.

No shares of the company stocks companies, common stock was sold under the program. Looking at cash flow for the second quarter of 2023, cash flow from operating activities was approximately 8.8 million and after paying for 2.2 million of capex during the quarter, our free cash flow for the quarter was 6.6 million. We expect capex to modestly modestly expand in the second half of 2023, but will continue to be aligned with activity levels. For the full year of 2023, We expect capital expenditures to be in the range of 11 to 13 million.

Or will continue its strict capital discipline and asset light business model with capital expenditures primarily targeted at growth opportunities and initiatives. Core Labs operational leverage continues to provide the ability to grow revenue and profitability with minimal capital requirements. Capital expenditures have historically ranged from 2 to 4% of revenue, even during periods of significant growth. That same level of laboratory infrastructure, intellectual property and leverage exists in the business today.

We believe evaluating a company's ability to generate free cash flow and free cash flow yield as an important metric for shareholders when comparing company's financial results, particularly for those shareholders who utilize discounted cash flow models to assess valuations. We'll now turn it over to Gwen for an update on our guidance and outlook.

Gwen Gresham -- Senior Vice President and Head of Investor Relations

Thank you, Chris. Based on conversations with the company's global client base, we maintain our constructive outlook on international upstream spending for the second half of 2023 and beyond as a higher level of investment will be required to maintain and grow hydrocarbon production. The company anticipates spending to expand toward long cycle upstream projects in both onshore and offshore environments. In the near term, the global crude oil market may remain volatile due to global recession fears and uncertainty about the extent and timing of China's economic recovery.

The recent Opec plus production cuts being implemented to support the current market are not expected to be maintained or required long term. Additionally, production growth in areas outside of Opec plus continue to face constraints due to prolong underinvestment as well as the loss of production due to natural declines from existing fields. We continue to anticipate a multi-year international recovery supported by increased spending on exploration in many regions around the world and expanded development of existing fields to fortify crude oil and natural gas reserves. This underlies Core's outlook for continued improvement in international onshore and offshore activity with ongoing projects across the globe, most notably in the Middle East, South Atlantic margin, and West Africa.

Turning to the US. Land activity for the first half of 2023 was lower than expected as reflected by the declining US rig and frac spread counts throughout the second quarter. We see US land completion activity for the second half of 2023 to be slightly down compared to the first half of the year. As a result, Core projects reservoir descriptions third quarter 2023 revenue to be up sequentially by low single digits.

While we expect our international revenue to increase sequentially, the segments revenue will be slightly softened by a projected decrease in US activity. Client commitments on international projects have improved nicely year over year. However, the cadence at which these long-term projects are executed by Core's clients may vary from quarter to quarter as activity begins to accelerate. Additionally, the Russia-Ukraine conflict continues to create uncertainties with respect to trading patterns of crude oil and associated crude oil assay services, which may impact reservoir descriptions operations in Russia, Ukraine, and Europe.

Now turning to production enhancement, third quarter revenue is estimated to be flat to down by low single digit sequentially. Growth in production enhancements international sales may offset the projected decline in US revenue. In summary, Core projects third quarter 2023 revenue to range from 128 million to 132 million and operating income of 15.2 million to 17.5 million, yielding operating margins of approximately 13%. EPS for the third quarter is expected to range from $0.21 to $0.25.

The company's third quarter 2023 guidance is based on projections for underlying operations and excludes gains and losses in foreign exchange. Third quarter guidance also assumes an effective tax rate of 20%. And now I will turn the call back over to Larry.

Larry Bruno -- Chairman and Chief Executive Officer

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 is the foundation of collab success. In July, the IEA updated its forecast for crude oil demand for 2023 to average a record high 102.1 million barrels per day.

That's up approximately 2 million barrels per day from 2022 Even after assessing current global financial forecasts. This continues to bode well for growing demand for the reservoir description services that will be required to grow production and replace the natural decline of existing producing fields. As we look ahead and see the growing international rig count over the past year as a harbinger of an improving landscape for reservoir description, a trend that we project will play out for the next several quarters, particularly in the Middle East, North and South America, as well as most other regions. Early movers in the oil field service sector that are more exposed to wealth construction have already felt the impact of this cycle shift.

Now for some operational highlights from the second quarter. Turning first to reservoir description, for the second quarter of 2023, revenue came in at 83.4 million, up 4% compared to Q1 and up 10 % year over year. Operating income for reservoir description x items was 13.3 million and operating margins were over 13%. Margins x items expanded approximately 370 basis points sequentially and 680 basis points year over year.

Sequential incremental margins for reservoir description exceeded 100%, once again highlighting the operational leverage that exists in our reservoir description business model. The segments financial performance in the second quarter was underpinned by improving international client activity as well as indications that demand for crude oil and derived product assay work are continuing to stabilize as trading patterns realigned in response to sanctions. With that being said, uncertainties and potential risks associated with the Russia-Ukraine conflict and sanctions still remain. Now for some operational highlights.

In the second quarter of 2023, industry adoption of course proprietary, web-enabled data management system named Rapid continue to increase. Core Labs, Rapid data management platform was adopted by a US-based international operating company conducting exploration and production operations in the Mexican waters of the Gulf of Mexico. Rapid provides this operator with centralized, consistent and easily accessible data in a secure format. Rapid enables a client to quickly and efficiently organize, retrieve, archive, and analyze large quantities of geological, petrophysical, reservoir engineering, and reservoir fluids data and will serve as the primary repository.

for this information. The Rapid platform also allows for sophisticated database queries from a user friendly interface. When coupled with other Core Lab digital solutions, such as the company's worldwide rock catalog, relative permeability toolkit, and other proprietary data tools, Rapid can be used to search for reservoir analogs, predict petrophysical and engineering parameters, and also to integrate newly acquired laboratory data. Core Lab continues its leadership role in the digitization of the oil field connecting data analytical tools, data lakes, and data mesh technologies.

As the industry's pioneering database for subsurface reservoir data, Rapid has evolved and expanded over decades of commercial application and has become the primary data platform for a suite of independent, national, and international operating companies. Also in the second quarter of 2023, Core Lab collaborated with a prominent Middle East national oil company to implement Core's cutting edge, advanced rock typing technology branded as art. The objective of this technology is to maximize the value of drill cuttings which are small rock fragments recovered during the drilling process. Drill cuttings are typically not size or shape suitable for most of the traditional physical measurements that occur in the laboratory and are needed for detailed reservoir characterization.

However, when conventional core is not available, unraveling rock properties from drill cuttings can greatly improve reservoir evaluation programs. As one of course latest and most advanced digital artificial intelligence offerings, art was employed to create a basin and specific information specific proprietary artificial intelligence model from existing geological and engineering data sets. The model is then used to predict petrophysical properties from drill cutting samples where conventional core is not available. The generation of the art model represents a significant advancement enabling the national oil company to create an extensive data set that contributes to a more comprehensive understanding of reservoir variability.

Now moving to production enhancement where Core Labs technologies continue to help our clients optimize their well completions and improve production. Revenue for production enhancement came in at 44.5 million, down approximately 8% sequentially and flat year over year. Operating income x items was 5.5 million. Operating margins were 10 % for the second quarter of 2023, down 270 basis points from Q1.

Q2 results were negatively impacted by a sequential decrease in bulk international orders along with lower than expected US land activity. Year over year operating margins expanded approximately 120 basis points. Now for some operational highlights. In the second quarter, Core Lab continued to gain market acceptance for the company's proprietary Helios plug abandonment system with a North Sea operator.

The Helios system uses an innovative, energetic technology. It was designed in conjunction with the operator and a wireline service company specifically to help increase efficiencies with offshore plug and abandonment operations. North Sea abandonment regulations require new cement to be placed in the annular space of an existing well to fully isolate producing zones prior to abandonment. Legacy technologies often struggle to accomplish this goal.

For communication with the annulus base during the removal of the original cement results in increased operation time and creates challenges in obtaining a high-quality final cement barrier. The Helios system with its unique perforating design has proven to provide increased efficiencies in the removal of the original annular cement, which when combined with more efficient placement of the final cement barrier yields, a superior well abandonment operation in much less time. Also in the second quarter of 2023, an Oklahoma operator called upon Core expertise in completion diagnostics to help them understand the causes behind the production variability from two landing intervals in a well with stacked horizontal targets. One of the two landing intervals was significantly harder to drill than the other Core's technical advisors recommended the incorporation of Core spectra stem prop and tracers and spectra scan gamma ray logging technologies along with flow profiler water and gas tracers to evaluate multi-stage completion efficiencies, well spacing, and intra well communication.

The spectra scan logs revealed effective completion efficiencies, but also demonstrated the need to improve isolation between stages. Flowback water and gas diagnostic tracer results indicated no significant differences in production between the two landing zones. However, it was noted that significant internal communication had occurred. Course engineering staff advised the operator that the operator could drill and stimulate the less problematic landing zone with no compromise in overall well performance in the process.

The operator could save five to seven days of drilling time at a cost savings of more than $1 million per well. In addition, based on the extent of cross wellbore communication that was observed with the diagnostic tracers, the operator was able to optimize their completion program by widening their well spacing without reducing hydrocarbon production. That concludes our operational review. We appreciate your participation, and Danielle will now open the call for questions.

Questions & Answers:

Operator

We will now begin the question-and answer-session. [Operator instructions] The first question comes from Stephen Gengaro from Stifel. Please go ahead.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Thanks, and good morning everybody. Two things to me. The first, just from a bigger picture perspective. When we think about the multiyear growth, you're expecting, I think others are expecting internationally, how should we think about the RD growth relative to activity and what does that mean for incremental margins?

Larry Bruno -- Chairman and Chief Executive Officer

Yes, I think, Stephen, first is, it's a really good question and I think it's a lot of focus in our -- within our company on that too. The first thing I think that we want to get across here is as much as I said this last quarter. I think as much as we'd like it to be, it's not Y equals MX plus B, yet the linearity that we would all like to see is just not there yet. The client pacing on projects from the time we're awarded or even throughout the projects is not quite up to what we've historically come to expect, but it's picking up in a nice term here.

I think what we see is that we can get on a path to getting into call it high teens margins over the next year, year and a half. And I think the growth there is going to accelerate pretty quickly once we get more projects sort of shingled in at the same time. Right now if a project slips and we just had a project in for example for Q3 that we incorporated into our  guidance thinking we had a project, a multi well core project, offshore South Atlantic margin. And it just pushed the client just informed us and push from Q3 to Q4.

If we had more projects going at one time, you probably wouldn't see that in the results. But right now, that's still affects the performance for the quarter. So I think we're a nice path of growth there. I don't know that I'd get wed to 100% incremental margins every quarter.

But I do think that what we just accomplished and what we accomplished in the previous few quarters seeing high incremental margins, it just shows the operational leverage in that group will achieve that. And I think we can see segment incremental segment margins, EBIT margins getting into the mid to high teens within the next year, year and a half.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Great. Thanks. That's good color. And then the other question.

If you look at Core Labs historically, right, the returns on capital and the free cash flow generation were extremely good and over the last several years it's been less so. But I think and I was kind of looking for validation and thoughts on this, but I think a lot of that has to do with the RD business internationally being a real big driver of free cash flow. Am I thinking about that right? And so should we start to see the free cash flow profile change if does what we think it's going to do?

Larry Bruno -- Chairman and Chief Executive Officer

Yes, I think that's right. I mean the margins in that group and that and our business model in that group are going to put cash down very nicely. The cost of doing that business, we don't need any more roof line. We've got some expansion that we're doing.

I talked about it in release. We're introducing some new services in the Middle East. But yes, I think that's going to be the bulwark of driving free cash. And, Chris, anything you wanted to add to that?

Chris Hill -- Chief Financial Officer

No, I think that's exactly right. High incremental margins turns into free cash because there's not much capex required to grow from where we're at. So it just the last several years we've been at this sort of base level where we've got a similar footprint than what we had before we have reduced staff. But again, we're kind of at a low level and it's going to -- free cash will grow significantly from there driven by reservoir description.

Larry Bruno -- Chairman and Chief Executive Officer

And on the production enhancement side, the service side of that business also can yield nice incrementals and nice and generate nice free cash out of that as well. And then as we see demand internationally growing for more projects, we think absorption in our product manufacturing will also generate higher margins, right?

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Good. Thank you for the details.

Larry Bruno -- Chairman and Chief Executive Officer

Sure, you bet. You're welcome.

Operator

[Operator instructions] The next question comes from John Daniel of Daniel Energy Partners. Please go ahead.

John Daniel -- Daniel Energy Partners -- Analyst

Hey, guys, good morning. Quick question on the x span technology you referenced in your release, you know that it was used with an Australian operator. I'm just curious how often you see that used in the lower 48?

Larry Bruno -- Chairman and Chief Executive Officer

Yes, we see it used over the global sort of field of play here, and it's got a lot of applications for whatever people have sort of split casing or they're trying to isolate a zone or they've got corrosion problems like the case that we talked about in the example from Australia, we'll see x-band deployed, and it uses an energetic trigger to place that patch. And it's a material science expertise in the company too that creates that bond between the pipe and the patch. So I think if we look out over any place where there's older fields or where there's highly corrosive production, either very high salinity poor fluids or h two s that could lead to the corrosion of tubular things, there's expand opportunities.

John Daniel -- Daniel Energy Partners -- Analyst

OK. And when you look at some of the -- I don't know, the economics of expand and all the numbers behind it, but is there a certain category of wells where it doesn't make sense because the production is so low? I'm just trying to get a feel for like old stripper wells and opportunity sets longer term.

Larry Bruno -- Chairman and Chief Executive Officer

Yes, I think with older stripper wells, you get to a point here where remediation just doesn't make sense at all. And it's just simpler to think about plugging abandonment. Yes, I'd say probably the biggest field of play for us is on a higher dollar, more complex wells, right, So offshore.

Chris Hill -- Chief Financial Officer

But it's definitely a less expensive alternative to replacing casing or doing other forms of remediation. So it could be an opportunity.

John Daniel -- Daniel Energy Partners -- Analyst

OK. Got it. And then one just big picture is you look across what looks to be in a much improving international market. Are there any markets set to this point have disappointed you and when would you expect them to kick in?

Larry Bruno -- Chairman and Chief Executive Officer

So a couple of thoughts on that, John, a good question here. So you know we've talked about obviously the Middle East, South Atlantic margin being real bulwarks for us, offshore West Africa, we talked about in Namibia projects and a few others. I think all those look good. We did see some recent announcement about discoveries in Malaysia, and so I'd say that's been an area that had been lagging.

But it's nice to see some discoveries being announced because that as we've talked about for for Core Lab, we're not really an exploration exposed company that much when things get into development -- I'm sorry, appraisal development and production, that's really the wheelhouse for our two business segments. So I think Asiapac is hopefully starting to get back into play here after a pretty long prolonged period of being quiet. I would also point out the -- we didn't really highlight it in this release, but our carbon capture and storage business continues to grow very nicely. Saudi Aramco has joined our consortium project, and so between the consortium and a number of proprietary projects we've got going on, that's bringing some nice play both in the US and from an international perspective as that sort of emerging project.

Spending on carbon capture and storage is attracting reservoir rock and fluid evaluation.

John Daniel -- Daniel Energy Partners -- Analyst

OK. Thank you for letting me ask some questions.

Larry Bruno -- Chairman and Chief Executive Officer

Sure. Appreciate it, John.

Operator

John, The next question comes from Don Crist of Johnson Rice. Please go ahead.

Gwen Gresham -- Senior Vice President and Head of Investor Relations

Good morning, Don.

Don Crist -- Johnson Rice and Company -- Analyst

Morning, guys. How are you all this morning?

Larry Bruno -- Chairman and Chief Executive Officer

All right, Don.

Chris Hill -- Chief Financial Officer

Good morning.

Don Crist -- Johnson Rice and Company -- Analyst

I wanted to ask about the Middle East. Obviously, it sounds like you got a lot of engagements across several different countries in the Middle East. But how different is the drilling now going into the kind of unconventional type reservoirs versus what they've been doing in the past? And kind of where are they in that transition from your opinion?

Larry Bruno -- Chairman and Chief Executive Officer

Yes. So they're very capable. All the NOCs is very capable there, but their attention over decades has been on conventional fuels and that proportionately that means a lot fewer wells in the past and they're going to need to exploit unconventional resources. And so I'd say they're quickly getting up to speed, understanding what it's going to take to properly drill and complete, stimulate horizontal wells, multi-stage horizontal wells, thinking about things about maximizing or optimizing well spacing that plays right into our expertise and what we can bring to bear.

One of the things that within Core Lab within our reservoir description section is we've done these multi company unconventional reservoir studies in every basin in the US and a number of international basins. And so what we see some of these NOCs in the Middle East doing is they're buying -- we own that data from these consortiums. They're interested in acquiring some of that knowledge from us so they can rank, hey, how does this compare to an Eagle Ford or how does this compare to a Marcellus or how does it compare to to a Barnett or one of the Permian Basin targets They want to know and rank what they're getting, what they're finding in their local resources compared to some proven unconventional fields. And so tied to that is, is there's quite a bit of drilling and coring and fluid sampling going on with these unconventional reservoirs.

And that's why we talked about in the release we're bringing some of these technologies that were developed primarily for the US market. Now we get a chance to move those into an emerging unconventional market. I will add one other thought to that, Don, is I don't think outside of the Middle East, there's many places where unconventional us are going to have a big sort of upside. There's too many difficult things that have to come together.

You have to have the resource base, you have to have it accommodative government that's going to allow or land ownership that's going to allow for thousands and thousands of wells to be drilled. And you're also going to need an incredible pipeline of people and material to support the high cadence that goes along with an unconventional project. So the operators in the Middle East can clearly get that done. They've got the expertise, the will and the sort of accommodative thoughts toward drilling the wells.

That'll work. They've got the natural resource to do it. A lot of other places on the planet be tough to replicate that model. That's worked in the US.

Don Crist -- Johnson Rice and Company -- Analyst

Right, I agree, we saw that in the France basins, right? So but turning back to the Middle East, where are they in that process of evaluating the unconventional resource? Are we still in the first or second innings of that or how far down the pipeline are they?

Larry Bruno -- Chairman and Chief Executive Officer

I think that's right in the first few innings on that. I'd say not everybody's in the same spot, maybe some people in the third or fourth inning, some in the first or second inning of that. We've had a long term, call it over the last couple of years, we've done a project for one of the NOCs evaluating a whole basin for them with multiple unconventional targets. And I'd say they're a little closer to getting to, call it the point of production.

Don Crist -- Johnson Rice and Company -- Analyst

I appreciate all the color. Thank you. I'll turn it back.

Larry Bruno -- Chairman and Chief Executive Officer

Sure, Don.

Operator

Seeing that there are no further questions, I would like to turn the conference back over to Mr. Bruno for closing remarks.

Larry Bruno -- Chairman and Chief Executive Officer

OK. I think we've got a pretty active earnings call day today, a lot of other calls going on. And so I think we'll wrap up here. In summary, of course, operational leadership continues to position the company for improving client activity levels in both the US and international markets for 2023 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 oil field service sector. The company will remain focused on maximizing free cash and returns on invested capital. In addition to our quarterly dividends will 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 Lab, 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.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Larry Bruno -- Chairman and Chief Executive Officer

Gwen Gresham -- Senior Vice President and Head of Investor Relations

Chris Hill -- Chief Financial Officer

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

John Daniel -- Daniel Energy Partners -- Analyst

Don Crist -- Johnson Rice and Company -- Analyst

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