# Core Laboratories Inc. /DE/ (CLB) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Core Laboratories Inc. /DE/'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1958086/000095017024015483/clb-20231231.htm
Accession: 0000950170-24-015483
Filing date: 2024-02-15
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CLB/
All MD&A years: /company/CLB/mda/
Next year: /company/CLB/mda/fy2024/ (FY 2024)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Core Laboratories Inc. is a Delaware corporation. We were established in 1936 and are 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, primarily through client relationships with many of the world’s major, national and independent oil companies.

On May 1, 2023, Core Laboratories N.V. completed its previously announced redomestication transaction (the “Redomestication Transaction”), which included (i) the merger (the “Merger”) of Core Laboratories N.V. with and into Core Laboratories Luxembourg S.A., a public limited liability company incorporated under the laws of Luxembourg, with Core Laboratories Luxembourg S.A. surviving, and (ii) following the completion of the Merger, the migration of Core Laboratories Luxembourg S.A. out of Luxembourg and its domestication as Core Laboratories Inc., a Delaware corporation. As a result of the Redomestication Transaction, all common shares in Core Laboratories N.V. were canceled and exchanged for common stock in Core Laboratories Luxembourg S.A. on a one-for-one basis. Former holders of Core Laboratories N.V. common shares now hold one share of common stock of Core Laboratories Inc. (formerly Core Laboratories Luxembourg S.A.) for each Core Laboratories N.V. common share owned immediately prior to the consummation of the Redomestication Transaction, and the business, assets, liabilities, directors and officers of Core Laboratories Inc. became the same as the business, assets, liabilities, directors and officers of Core Laboratories N.V. immediately prior to the Redomestication Transaction. See Note 2 - Summary of Significant Accounting Policies, Note 9 - Income Taxes, Note 11 - Long-Term Debt, net, Note 12 - Pension And Other Postretirement Benefit Plans, Note 14 - Equity, and Note 20 - Earnings Per Share of the Notes to the Consolidated Financial Statements for additional information regarding the Redomestication Transaction.

We operate our business in two segments. These complementary operating 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. Services associated with these fluids include determining the quality and measuring the quantity of the reservoir fluids and their derived products, such as gasoline, diesel and biofuels. We also provide proprietary and joint industry studies based on these types of analyses and manufacture associated laboratory equipment. In addition, we provide reservoir description capabilities that support various activities associated with energy transition projects, including services that support carbon capture, utilization and storage, geothermal projects, and the evaluation and appraisal of mining activities around lithium and other elements necessary for energy storage.

•
Production Enhancement: Includes services and manufactured products associated with reservoir well completions, perforations, stimulation, production and well abandonment. 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.

General Overview

We provide services as well as design and produce products which enable our clients to evaluate and improve reservoir performance and increase oil and gas recovery from new and existing fields. These services and products are generally in higher demand when our clients are investing capital in their field development programs that are designed to increase productivity from existing fields or when exploring for, appraising and developing new fields. Our clients’ investment in capital expenditure programs tends to correlate over the longer term to oil and natural gas commodity prices. During periods of higher, stable prices, our clients generally invest more in capital expenditures and, during periods of lower or volatile commodity prices, they tend to invest less. Consequently, the level of capital expenditures by our clients impacts the demand for our services and products.

The following table summarizes the annual average and year-end worldwide and U.S. rig counts for the years ended December 31, 2023, 2022 and 2021, as well as the annual average and year-end spot price of a barrel of WTI crude, Europe Brent crude and a MMBtu of natural gas:

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[[GREPCENT_TABLE]]
[["","","2023","","","2022","","","2021"],["Baker Hughes Worldwide Average Rig Count (1)","","","1,814","","","","1,747","","","","1,362"],["Baker Hughes U.S. Average Rig Count (1)","","","689","","","","721","","","","475"],["Baker Hughes U.S. Land-based Average Rig Count (1)","","","670","","","","706","","","","461"],["Baker Hughes Worldwide Year-End Rig Count (2)","","","1,739","","","","1,835","","","","1,563"],["Baker Hughes U.S. Year-End Rig Count (2)","","","623","","","","780","","","","579"],["Baker Hughes U.S. Land-based Year-End Rig Count (2)","","","603","","","","763","","","","565"],["Average Crude Oil Price per Barrel WTI (3)","","$","77.58","","","$","94.90","","","$","68.14"],["Average Crude Oil Price per Barrel Brent (4)","","$","82.49","","","$","100.93","","","$","70.86"],["Average Natural Gas Price per MMBtu (5)","","$","2.52","","","$","6.45","","","$","3.89"],["Year-end Crude Oil Price per Barrel WTI (3)","","$","71.89","","","$","80.16","","","$","75.33"],["Year-end Crude Oil Price per Barrel Brent (4)","","$","77.69","","","$","82.82","","","$","77.24"],["Year-end Natural Gas Price per MMBtu (5)","","$","2.58","","","$","3.52","","","$","3.82"],["(1) Twelve month average rig count as reported by Baker Hughes - Worldwide Rig Count."],["(2) Year-end rig count as reported by Baker Hughes - Worldwide Rig Count."],["(3) Average daily and year-end West Texas Intermediate (\"WTI\") crude spot price as reported by the U.S. Energy Information Administration (\"EIA\")."],["(4) Average daily and year-end Europe Brent crude spot price as reported by the EIA."],["(5) Average daily and year-end Henry Hub natural gas spot price as reported by the EIA."]]
[[/GREPCENT_TABLE]]

In general, activities associated with the exploration of oil and gas in the U.S. onshore market are more sensitive to changes in the crude-oil commodity prices, as opposed to larger international and offshore projects which take multiple years to plan and develop, and once announced and started, will continue through completion, despite changes in the current price of crude oil. In 2021, crude-oil prices recovered from the previous year with more significant improvement during the second half of 2021, as growth in production was not keeping pace with the resurgence in consumer demand. Subsequently, the geopolitical conflict between Russia and Ukraine that erupted in February 2022, caused disruptions to traditional maritime supply chains associated with the movement of crude oil, initially reducing the level of crude oil sourced from Russia and being imported into various European ports. The disruptions to traditional maritime supply chains of crude oil and derived products, such as diesel fuel, and associated sanctions imposed on maritime exports of these products out of Russia caused significant volatility in both the prices and trading patterns of these products during 2022 and into 2023. As a result, average crude-oil prices were elevated during 2022, but have since decreased and moderated in 2023. The maritime supply chains associated with the movement of crude oil have continued to realign and stabilize throughout 2023, which has reduced some of the volatility in crude-oil prices.

Core Lab expects crude-oil supply lines to remain more stable, although the recent conflict that erupted in the Middle East has resulted in additional disruptions in the movement and trading of crude oil which still continue. The Company's volume of associated laboratory services is expected to be commensurate with the trading and movement of crude-oil into Europe, the Middle East, Asia and across the globe. However, 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 these events, and any resulting government responses are fluid and beyond our control. According to the latest International Energy Agency’s report, the current global demand for crude oil and natural gas remains at a high level though the growth momentum is expected to slow down in 2024 due to further weakening of the macroeconomic climate, as Gross Domestic Product (GDP) growth stays below trend in major economies, including China.

Coming out of the COVID-19 pandemic, U.S. land drilling and completion activities improved during 2021 and strengthened throughout 2022, however, activity decreased during 2023. Since April 2023, the U.S. land-based rig count has continuously declined resulting in a 21% reduction at the end of 2023 compared to 2022, as some drilling operators cut back new drilling projects.

Information published by the EIA, shows that the inventory of wells drilled but uncompleted (a “DUC” well) in the U.S., was 5,099 as of December 31, 2021, and declined to 4,577 and 4,374 at end of 2022 and 2023, respectively. This data indicates that during the period of higher activity, operators were drilling wells but not completing them as the DUC inventory grew. As activity levels began to decline, operators began to drill fewer new wells and were completing some of the wells that had been previously drilled but not completed. As drilling and completion activity levels began to recover in the second half of 2021, which continued in 2022 and 2023, the number of wells completed continued to outpace the number of new wells drilled during these periods.

In the U.S., the average land-based rig count increased approximately 53% from 2021 to 2022 as drilling activity accelerated due to the recovery from the disruptions caused by the COVID-19 pandemic. However, in 2023, U.S. land drilling activity decreased as natural gas prices declined significantly and efficiencies gains in drilling and completing wells allowed operators

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to complete their 2023 drilling programs ahead of schedule. This resulted in the U.S. land-based rig count decreasing approximately 21% at the end of 2023 from the end of 2022, as discussed above. Demand for product sales and associated services will typically change in tandem with the changes in the rig count and associated drilling and completion activity.

Outside of the U.S., activities associated with the exploration for, and production of, oil also showed an increase in 2022 and 2023 as international markets recovered from the global pandemic as reflected by an increase of 16% and 10%, respectively, in the average number of active rigs outside the United States. Long-term international and offshore projects which are commonly announced through Final Investment Decisions and subsequently initiated are not as susceptible or at-risk to delay or suspension due to short-term volatility in crude-oil commodity prices. The Company has maintained its annual capital expenditures between $10.0 million and $13.5 million during the years 2021, 2022 and 2023, which is significantly reduced from average annual capital expenditures in years prior to the pandemic.

Results of Operations

Operating Results for the Year Ended December 31, 2023 Compared to the Years Ended December 31, 2022 and 2021

We evaluate our operating results by analyzing revenue, operating income and operating income margin (defined as operating income divided by total revenue). Since we have a relatively fixed cost structure, decreases in revenue generally translate into lower operating income results. Results for the years ended December 31, 2023, 2022 and 2021 are summarized in the following chart.

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Results of operations as a percentage of applicable revenue for the years ended December 31, 2023, 2022 and 2021 are as follows (in thousands, except for per share information):

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","","","","","","","2023 / 2022","","","2022 / 2021"],["","","2023","","","2022","","","2021","","","% Change"],["REVENUE:"],["Services","","$","371,914","","","73.0","%","","$","346,974","","","70.8","%","","$","344,342","","","73.2","%","","","7.2","%","","","0.8","%"],["Product sales","","","137,876","","","27.0","%","","","142,761","","","29.2","%","","","125,910","","","26.8","%","","","(3.4",")%","","","13.4","%"],["Total revenue","","","509,790","","","100.0","%","","","489,735","","","100.0","%","","","470,252","","","100.0","%","","","4.1","%","","","4.1","%"],["OPERATING EXPENSES:"],["Cost of services* (1)","","","282,135","","","75.9","%","","","274,297","","","79.1","%","","","267,641","","","77.7","%","","","2.9","%","","","2.5","%"],["Cost of product sales* (1)","","","117,822","","","85.5","%","","","119,358","","","83.6","%","","","100,255","","","79.6","%","","","(1.3",")%","","","19.1","%"],["Total cost of services and product sales","","","399,957","","","78.5","%","","","393,655","","","80.4","%","","","367,896","","","78.2","%","","","1.6","%","","","7.0","%"],["General and administrative expense (1)","","","40,259","","","7.9","%","","","38,117","","","7.8","%","","","44,173","","","9.4","%","","","5.6","%","","","(13.7",")%"],["Depreciation and amortization","","","15,784","","","3.1","%","","","17,161","","","3.5","%","","","18,516","","","3.9","%","","","(8.0",")%","","","(7.3",")%"],["Other (income) expense, net","","","(850",")","","(0.2",")%","","","(722",")","","(0.1",")%","","","(5,595",")","","(1.2",")%","","NM","","","NM"],["OPERATING INCOME","","","54,640","","","10.7","%","","","41,524","","","8.5","%","","","45,262","","","9.6","%","","","31.6","%","","","(8.3",")%"],["Interest expense","","","13,430","","","2.6","%","","","11,570","","","2.4","%","","","9,152","","","1.9","%","","","16.1","%","","","26.4","%"],["Income before income taxes","","","41,210","","","8.1","%","","","29,954","","","6.1","%","","","36,110","","","7.7","%","","","37.6","%","","","(17.0",")%"],["Income tax expense","","","4,185","","","0.8","%","","","10,296","","","2.1","%","","","15,891","","","3.4","%","","","(59.4",")%","","","(35.2",")%"],["Net income","","","37,025","","","7.3","%","","","19,658","","","4.0","%","","","20,219","","","4.3","%","","","88.3","%","","","(2.8",")%"],["Net income attributable to non-controlling interest","","","350","","","0.1","%","","","205","","","\u2014","","","","492","","","0.1","%","","NM","","","NM"],["Net income attributable to Core Laboratories Inc.","","$","36,675","","","7.2","%","","$","19,453","","","4.0","%","","$","19,727","","","4.2","%","","","88.5","%","","","(1.4",")%"],["Diluted earnings per share","","$","0.78","","","","","$","0.42","","","","","$","0.43","","","","","","85.7","%","","","(2.3",")%"],["Diluted earnings per share attributable to Core Laboratories Inc.","","$","0.77","","","","","$","0.42","","","","","$","0.42","","","","","","83.3","%","","","0.0","%"],["Diluted weighted average common shares outstanding","","","47,523","","","","","","46,813","","","","","","46,690"],["Other Data:"],["Current ratio (2)","","2.53:1","","","","","2.05:1","","","","","2.08:1"],["Debt to EBITDA ratio (3)","","2.11:1","","","","","2.68:1","","","","","2.70:1"],["Debt to Adjusted EBITDA ratio (4)","","1.76:1","","","","","2.29:1","","","","","2.08:1"],["* Percentage based on applicable revenue rather than total revenue."],["\"NM\" means not meaningful."],["(1) Excludes depreciation."],["(2) Current ratio is calculated as follows: current assets divided by current liabilities."],["(3) 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."],["(4) Debt to Adjusted EBITDA ratio is calculated as follows: debt less cash divided by the sum of consolidated net income plus interest, taxes, depreciation, amortization, severance, and certain non-cash adjustments."]]
[[/GREPCENT_TABLE]]

Service Revenue

Service revenue is primarily tied to activities associated with the exploration, production, movement and refinement of oil, gas and derived products outside the U.S. Service revenue for the year ended December 31, 2023, was $371.9 million, an increase of 7% compared to 2022. The increase was due to growth in activity levels in both U.S. and international markets. Over 70% of service revenue is generated from international markets. In 2023, growth occurred in several international markets including the recovery of services in the European region. The Russia-Ukraine geopolitical conflict that began in February 2022, initially disrupted supply chains and logistic patterns of maritime transportation of crude oil and derived products, which realigned and stabilized in 2023. The increase in U.S. operations benefited from growing client activity for our reservoir core and reservoir fluids analysis services on projects from across the globe that are often conducted in our advanced technology center located in Houston, Texas, as well as a growing demand for CCS projects. Service revenue for the year ended December 31, 2022, was $347.0 million, relatively flat compared to 2021. Disruptions resulting from the COVID-19 pandemic started to ease, and demand for crude oil progressively increased during 2022, however, the growth was offset by the disruptions caused by the Russia-Ukraine geopolitical conflict. Additionally, as indicated above, over 70% of service revenue is generated from international markets, though our customer contracts are primarily denominated in U.S. Dollars, there are certain customer contracts denominated in foreign currencies. Therefore, the devaluation of most major currencies against the U.S. Dollar, mainly the Euro and British Pound, adversely impacted the growth of service revenue during the year ended December 31, 2022.

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Product Sales Revenue

Product sales revenue, which is equally tied to the completion of onshore wells in the U.S. and international activities, for the year ended December 31, 2023, was $137.9 million, a decrease of 3% compared to 2022. The decline in our product sales revenue is primarily associated with the activity decline in the U.S. onshore market, where the U.S. land rig count decreased 21% at the end of 2023 from the end of 2022. Additionally, one large international product sale in 2022, did not repeat in 2023. Product sales to international markets are typically shipped and delivered in bulk and the timing of delivery can vary from one period to another. Product sales revenue for the year ended December 31, 2022, was $142.8 million, an increase of 13% compared to 2021. The increase in product sales, which primarily include differentiated well completion products and specialized laboratory instrumentation, was attributable to growth in both the U.S. and international markets.

Cost of Services, excluding depreciation

Cost of services for the year ended December 31, 2023 was $282.1 million, an increase of 3% compared to 2022, which corresponded to the change in service revenue. Cost of services for the year ended December 31, 2022 was $274.3 million, an increase of 2% compared to 2021, which corresponded with the change in service revenue. Additionally, during 2022 the restoration of substantially all employee compensation and benefit costs resulted in a higher employee compensation cost. Cost of services expressed as a percentage of service revenue improved to 76% in 2023 from 79% in 2022. Improvement in cost of services as a percentage of service revenue in 2023, was primarily associated with improved utilization of our global laboratory network on higher revenue. Cost of services expressed as a percentage of service revenue increased to approximately 79% in 2022 from 78% in 2021, primarily due to the effect of restoration of employee compensation costs as discussed above.

Cost of Product Sales, excluding depreciation

Cost of product sales for the year ended December 31, 2023 was $117.8 million, a decrease of 1% compared to 2022, which corresponded to the decrease in product sales revenue. Cost of product sales for the year ended December 31, 2022 was $119.4 million, an increase of 19% compared to 2021, which increased slightly higher than the change in revenue. The increase of costs in 2022, is associated with the restoration of substantially all employee compensation and benefit costs during the year, as discussed above. In addition, inflation and global supply chain challenges resulted in higher cost of raw materials and shipping increasing the costs of product sales in 2023 and 2022. Cost of product sales expressed as a percentage of product sales revenue increased to approximately 86% in 2023 from 84% in 2022, was primarily due to inflation in material costs throughout 2023 and higher absorption of fixed costs on a lower revenue base. Cost of product sales expressed as a percentage of product sales revenue increased to approximately 84% in 2022 from 80% in 2021, as a result of elevated inflation and increased employee compensation as discussed above.

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 was $40.3 million in 2023, an increase of 6% or $2.1 million, was primarily due to 1) the recognition of additional stock compensation expense of $6.5 million in 2023, compared to $3.9 million in 2022, which was associated with the accelerated stock compensation expense for retirement eligible employees; and 2) the reversal of stock compensation expense previously recognized as the performance conditions associated with the performance share awards were determined to be unachievable in the amount of $1.1 million in 2023 compared to $3.3 million in 2022. These increases were partially offset by: 1) a net gain of $2.0 million from the company owned life insurance policies associated with death benefit proceeds in 2023; and 2) investment gains on company owned life insurance policies in 2023 compared to losses in 2022. G&A expense was $38.1 million in 2022, decreased 14% or $6.1 million compared to 2021. The decrease is primarily due to changes in compensation expense during the period and includes accelerated stock compensation expense recorded for retirement eligible employees of $3.9 million in 2022 compared to $7.2 million in 2021. Additionally, in 2022, an adjustment was recorded to reverse $3.3 million of previously recognized compensation expense as discussed above. The reduction in stock compensation expense was partially offset by the restoration of employee compensation and benefit costs during 2022. See Note 17 - Stock-Based Compensation of the Notes to the Consolidated Financial Statements for further details.

Depreciation and Amortization

Depreciation and amortization expense for the year ended December 31, 2023 was $15.8 million, a decrease from $17.2 million and $18.5 million in 2022 and 2021, respectively, and are associated with lower capital expenditures in 2021 through 2023.

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Other (Income) Expense, net

The components of other (income) expense, net are as follows (in thousands):

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2023","","","2022","","","2021"],["Gain on sale of assets","","$","(200",")","","$","(1,068",")","","$","(427",")"],["Results of non-consolidated subsidiaries","","","(394",")","","","(294",")","","","(62",")"],["Foreign exchange (gain) loss, net","","","176","","","","229","","","","(228",")"],["Rents and royalties","","","(698",")","","","(709",")","","","(571",")"],["Return on pension assets and other pension costs","","","(1,365",")","","","(545",")","","","(306",")"],["Loss on lease abandonment and other exit costs","","","1,146","","","","\u2014","","","","\u2014"],["Assets write-down","","","1,143","","","","\u2014","","","","\u2014"],["ATM termination costs","","","455","","","","\u2014","","","","\u2014"],["Insurance and other settlements","","","(604",")","","","(669",")","","","(2,236",")"],["Severance and other charges","","","\u2014","","","","3,332","","","","\u2014"],["Gain on sale of business","","","\u2014","","","","\u2014","","","","(1,012",")"],["Other, net","","","(509",")","","","(998",")","","","(753",")"],["Total other (income) expense, net","","$","(850",")","","$","(722",")","","$","(5,595",")"]]
[[/GREPCENT_TABLE]]

In 2022, we sold our ownership interest in mineral rights of certain properties for a net gain of $0.7 million which is included in gain on sale of assets.

During the year ended December 31, 2023, we abandoned certain leases in the U.S. and Canada and incurred costs of $1.1 million. We integrated and relocated these facilities and wrote down related leasehold improvements and right of use assets of $1.1 million.

During the year ended December 31, 2023, we wrote off previously deferred costs of $0.5 million upon termination of our 2022 ATM Program. See Note 14 - Equity for additional information.

During the year ended December 31, 2023, the State of Louisiana expropriated the access road to one of our facilities and paid us a settlement of $0.6 million. The North America mid-continent winter storm in February 2021 caused business interruptions and property losses to certain facilities, and we received insurance settlements of $0.7 million and $1.6 million in 2022 and 2021, respectively. We incurred property and other losses in a fire incident that occurred in 2020 for which we received full and final insurance settlement of $0.6 million in 2021.

Foreign exchange (gain) loss, net is summarized in the following table (in thousands):

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2023","","","2022","","","2021"],["Angolan Kwanza","","$","188","","","$","(2",")","","$","(36",")"],["Australian Dollar","","","81","","","","9","","","","113"],["British Pound","","","(408",")","","","212","","","","86"],["Canadian Dollar","","","156","","","","238","","","","77"],["Colombian Peso","","","92","","","","(430",")","","","(281",")"],["Euro","","","438","","","","(382",")","","","(450",")"],["Indonesian Rupiah","","","82","","","","379","","","","123"],["Norwegian Krone","","","103","","","","(31",")","","","12"],["Russian Ruble","","","(375",")","","","35","","","","(16",")"],["Turkish Lira","","","(472",")","","","114","","","","47"],["Other currencies, net","","","291","","","","87","","","","97"],["Foreign exchange (gain) loss, net","","$","176","","","$","229","","","$","(228",")"]]
[[/GREPCENT_TABLE]]

Interest Expense

Interest expense for the year ended December 31, 2023 was $13.4 million compared to $11.6 million and $9.2 million in 2022 and 2021, respectively. Although the Company reduced its outstanding debt in 2023 when compared to 2022, interest expense was higher in 2023 primarily due to: 1) rising interest rates on our aggregated variable rate debt during these periods, and 2) replacement of the 2011 Senior Notes of $75 million with fixed rate of 4.11% that matured in September 2023, by the

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2023 Senior Notes of $50 million with higher fixed rates of 7.25% to 7.50%. See Note 11 - Long-term Debt, net of the Notes to the Consolidated Financial Statements for further detail. Interest expense was also affected by changes associated with our interest rate swap agreements, as described in Note 15 - Derivative Instruments and Hedging Activities of the Notes to the Consolidated Financial Statements.

Income Tax Expense

Income tax expense was $4.2 million in 2023 and resulted in an effective tax rate of 10.2%. The 2023 tax expense was primarily impacted by the reversal of deferred tax liabilities of $11.6 million associated with the Redomestication Transaction, partially offset by the geographic mix of earnings. Income tax expense was $10.3 million in 2022 and resulted in an effective tax rate of 34.4%. The 2022 tax expense was primarily impacted by taxable gains in local jurisdictions associated with foreign currency revaluation of U.S. dollar denominated receivables, primarily in the United Kingdom and Turkey, and certain non-deductible stock compensation expense in the United States.

See Note 9 - Income Taxes of the Notes to the Consolidated Financial Statements for further detail of income tax expense.

Segment Analysis

The following charts and tables summarize the annual revenue and operating results as a percentage of applicable revenue for our two complementary operating segments.

Segment Revenue

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","","","","","","","2023 / 2022","","","2022 / 2021"],["","","2023","","","2022","","","2021","","","% Change"],["REVENUE:"],["Reservoir Description","","$","333,345","","","65.4","%","","$","307,691","","","62.8","%","","$","313,609","","","66.7","%","","","8.3","%","","","(1.9",")%"],["Production Enhancement","","","176,445","","","34.6","%","","","182,044","","","37.2","%","","","156,643","","","33.3","%","","","(3.1",")%","","","16.2","%"],["Total revenue","","$","509,790","","","100.0","%","","$","489,735","","","100.0","%","","$","470,252","","","100.0","%","","","4.1","%","","","4.1","%"],["OPERATING INCOME:"],["Reservoir Description*","","$","41,039","","","12.3","%","","$","22,902","","","7.4","%","","$","28,958","","","9.2","%","","","79.2","%","","","(20.9",")%"],["Production Enhancement*","","","12,519","","","7.1","%","","","16,351","","","9.0","%","","","15,163","","","9.7","%","","","(23.4",")%","","","7.8","%"],["Corporate and other (1)","","","1,082","","","0.2","%","","","2,271","","","0.5","%","","","1,141","","","0.2","%","","NM","","","NM"],["OPERATING INCOME","","$","54,640","","","10.7","%","","$","41,524","","","8.5","%","","$","45,262","","","9.6","%","","","31.6","%","","","(8.3",")%"]]
[[/GREPCENT_TABLE]]

* Percentage, which represents operating margin, is based on operating income divided by applicable revenue rather than total revenue.

“NM” means not meaningful.

(1) “Corporate and other” represents those items that are not directly relating to a particular operating segment.

Reservoir Description

Reservoir Description operations are closely correlated with trends in international and offshore activity levels, with approximately 80% of its revenue sourced from producing fields, development projects and movement of crude oil and derived products outside the U.S. The Company continues to see improvement in international projects across several international

30

regions; however, increases in project activity were partially offset by disruptions in the maritime movement and logistical trading patterns for crude oil and derived products, caused by the Russia-Ukraine and Middle East geopolitical conflicts.

Revenue from the Reservoir Description operating segment for the year ended December 31, 2023 was $333.3 million, an increase of 8% compared to 2022. The increased revenue in 2023 is primarily due to growing client activity for our reservoir core and reservoir fluids analysis services on projects in several regions across the globe, as well a growing demand for CCS projects. Additionally, crude assay services associated with the maritime movement of crude oil and derived products improved in 2023, which were impacted by the Russia-Ukraine conflict, as discussed above. Revenue from the Reservoir Description operating segment was $307.7 million in 2022, down slightly when compared to $313.6 million in 2021. Revenue associated with certain customer contracts denominated in foreign currencies was adversely impacted by the devaluation of most major currencies against the U.S. Dollar, mainly the Euro and British Pound. Additionally, 2022 revenue was adversely impacted by disruptions caused by the Russia-Ukraine geopolitical conflict in February 2022, as discussed above.

Operating income for the year ended December 31, 2023 was $41.0 million, an increase of 79% compared to 2022. Operating margins increased to 12.3% in 2023 from 7.4% in 2022. The increase in operating income and operating margins in 2023 is primarily due to the incremental revenue of $25.7 million in 2023 and the improved utilization of our global laboratory network. Operating income in 2022 was $22.9 million, a decrease of 21% compared to 2021. Operating margins decreased to 7.4% in 2022 compared to 9.2% in 2021. The decrease in operating income and operating margin in 2022, correlates to the decrease in revenue and the decrease in operating margins reflect the increase in costs during 2022, associated with the Company restoring employee compensation costs and benefits and disruption in services and operational inefficiencies caused by the Russia-Ukraine conflict, as previously discussed.

Production Enhancement

Production Enhancement’s operations are largely focused on complex completions in unconventional, tight-oil reservoirs in the U.S. as well as conventional projects across the globe. During the year 2022, U.S. onshore drilling and completion activities continued to increase through mid-November, and subsequently had a typical seasonal decline at the end of the year. As 2023 began, U.S. onshore drilling and completion activities began to increase but peaked in April of 2023, and have since declined through the end of 2023. The decline in drilling and completion activity is due to the weakening of natural gas commodity prices in 2023, and some consolidation transactions of oil and gas operating companies. Additionally, operating companies reduced activity later in the year as they were ahead of schedule in their annual drilling programs due to efficiencies gained in drilling and completing wells. Operators have remained disciplined with their annual plans and remain focused on return of investment versus growing production. As a result, rig count in the U.S. land market at the end of 2023 declined by 21% compared to 2022.

Revenue from the Production Enhancement operating segment for the year ended December 31, 2023 was $176.4 million, a decrease of 3% compared to 2022, primarily due to the decrease in drilling and completion activities in the U.S. land market as discussed above. Revenue from the Production Enhancement operating segment was $182.0 million in 2022, an increase of 16% compared to 2021. In 2022, the increase was driven by both an increase in the drilling and completion of onshore wells in the U.S. and improved activity in international markets. International sales continue to be impacted by challenges in the global supply chains and logistical challenges that caused delays in delivery of our products to certain international locations.

Operating income for the year ended December 31, 2023 was $12.5 million, a decrease of 23%. Operating margins decreased to 7.1% in 2023 from 9.0% in 2022. The decrease in operating income and operating margin in 2023, correlates to the decrease in revenue and higher absorption of fixed costs on a lower revenue base, as well as continued inflationary impact on materials and shipping costs. Operating income was $16.4 million in 2022 compared to $15.2 million in 2021. The increase in operating income correlates to the increase in revenue, however, operating costs in 2022 increased due to the restoration of employee compensation and benefit costs and the inflationary impact on our raw materials and shipping costs. Operating margin of 9.0% in 2022 decreased from 9.7% in 2021 primarily due to the increase in costs as discussed above.

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 provide the primary source of funds to finance our operating needs, capital expenditures, dividends 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

31

fund our debt requirements, working capital, capital expenditures, dividends, share repurchase program and future acquisitions. The Company will continue to monitor and evaluate the availability of debt and equity markets.

We were a holding company incorporated in the Netherlands, and after the Redomestication Transaction completed in May 2023, we are a holding company incorporated in Delaware. 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 and on the terms and conditions of our existing and future credit arrangements. 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 December 31, 2023, substantially all of our $15.1 million of cash was held by our foreign subsidiaries.

The Company continues to maintain a quarterly dividend of $0.01 per share.

Cash Flows

The following table summarizes cash flows (in thousands):

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["","","2023","","","2022","","","2021"],["Cash provided by (used in):"],["Operating activities","","$","24,789","","","$","24,956","","","$","36,579"],["Investing activities","","","(6,652",")","","","(3,856",")","","","(10,223",")"],["Financing activities","","","(18,445",")","","","(23,375",")","","","(22,459",")"],["Net change in cash and cash equivalents","","$","(308",")","","$","(2,275",")","","$","3,897"]]
[[/GREPCENT_TABLE]]

Comparing the year ended December 31, 2023 to the year ended December 31, 2022, net income increased $17.4 million, however, cash provided by operating activities was relatively flat between these periods. Net income for the year ended December 31, 2023 includes a non-cash tax benefit of approximately $11.6 million associated with the Company’s Redomestication Transaction, partially offset by a decrease of $3.3 million in net deferred tax assets, and non-cash investment gains of $5.0 million in 2023 compared to non-cash losses of $5.1 million and a decrease in other non-cash items of $0.5 million in 2022.

Comparing the year ended December 31, 2022 to the year ended December 31, 2021, net income decreased $0.6 million while cash flows provided by operating activities decreased by $11.6 million. Cash taxes paid increased in 2022 by $5.0 million and we were building higher levels of inventory.

Cash used in investing activities for the year ended December 31, 2023 of $6.7 million was driven primarily by funding capital expenditures of $10.6 million offset by $3.4 million of net proceeds received on company owned life insurance policies and $0.5 million of proceeds from sales of assets. Cash used by investing activities for the year ended December 31, 2022 of $3.9 million was primarily due to funding capital expenditures of $10.2 million, offset by $2.1 million of proceeds received from sale of assets and net proceeds of $4.2 million received from insurance and company-owned life insurance policies. Cash used by investing activities for the year ended December 31, 2021 of $10.2 million was primarily due to capital expenditures of $13.5 million, offset by $1.6 million of proceeds received from sales of assets and $2.1 million net proceeds received from insurance and company-owned life insurance policies.

Cash used in financing activities in 2023 of $18.4 million was primarily due to: 1) a net reduction in debt of $9.0 million, 2) debt issuance costs of $1.3 million primarily associated with the issuance of the 2023 Senior Notes, 3) cash paid for costs incurred in the Redomestication Transaction of $4.1 million, 4) dividends paid of $1.9 million, and 5) repurchase of common stock of $2.2 million. Cash used in financing activities in 2022 of $23.4 million was primarily due to: 1) a net reduction in debt of $15.0 million, 2) debt issuance costs incurred of $2.2 million associated with renewing our credit facility in 2022, 3) dividends paid of $1.9 million, and 4) repurchase of common stock of $3.9 million. Cash used in financing activities in 2021 was as a result of: 1) a net reduction in debt of $71.0 million, which was partially paid by $59.1 million of net proceeds received from the issuance of common stock under the 2020 ATM Program, 2) dividends paid of $1.8 million, and 3) the repurchase of our common stock of $8.3 million.

During 2023, we repurchased 113,792 shares of our common stock for an aggregate amount of $2.2 million, or an average price of $19.35 per share. See Note 14 - Equity of the Notes to the Consolidated Financial Statements for additional information. We believe our share repurchase program has been beneficial to our shareholders over the longer term. Our share price has increased from $4.03 per share in 2002, when we began to repurchase shares, to $17.66 per share on December 31,

32

2023, an increase exceeding 300%. The 1% stock buyback excise tax may apply to the shares repurchased under our share purchase program. The amount subject to the excise tax generally is the fair market value of stock repurchased by us net of the fair market value of any stock issued by us during such taxable year.

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 U.S. 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 U.S. GAAP and should not be considered in isolation nor construed as an alternative to operating income, net income or cash flows from operating, investing or financing activities, each as determined in accordance with U.S. 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 U.S. 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 U.S. GAAP (in thousands):

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["Free Cash Flow Calculation","","2023","","","2022","","","2021"],["Net cash provided by operating activities","","$","24,789","","","$","24,956","","","$","36,579"],["Less: cash paid for capital expenditures","","","(10,579",")","","","(10,216",")","","","(13,539",")"],["Free cash flow","","$","14,210","","","$","14,740","","","$","23,040"]]
[[/GREPCENT_TABLE]]

Free cash flow decreased slightly by $0.5 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a slightly higher level of capital spending in 2023.

Senior Notes, Credit Facility and Available Future Liquidity

We, along with our wholly owned subsidiary Core Laboratories (U.S.) Interests Holdings, Inc. (“CLIH”) as issuer, have senior notes that were issued through private placement transactions. Additionally, we, along with CLIH, have a secured credit facility, the Eighth Amended and Restated Credit Agreement (as amended, the “Credit Facility”) for an aggregate borrowing commitment of $135.0 million with a $50.0 million “accordion” feature. As of December 31, 2023, the Credit Facility has an available borrowing capacity of approximately $69.1 million.

These debt instruments are summarized in the following table (in thousands):

[[GREPCENT_TABLE]]
[["","","","","","December 31,"],["","Interest Rate","","Maturity Date","","2023","","","2022"],["2011 Senior Notes Series B(1)","4.11%","","September 30, 2023","","$","\u2014","","","$","75,000"],["2021 Senior Notes Series A(2)","4.09%","","January 12, 2026","","","45,000","","","","45,000"],["2021 Senior Notes Series B(2)","4.38%","","January 12, 2028","","","15,000","","","","15,000"],["2023 Senior Notes Series A(3)","7.25%","","June 28, 2028","","","25,000","","","","\u2014"],["2023 Senior Notes Series B(3)","7.50%","","June 28, 2030","","","25,000","","","","\u2014"],["Credit Facility","","","","","","56,000","","","","40,000"],["Total long-term debt","","","","","","166,000","","","","175,000"],["Less: Debt issuance costs","","","","","","(2,866",")","","","(2,614",")"],["Long-term debt, net","","","","","$","163,134","","","$","172,386"]]
[[/GREPCENT_TABLE]]

On September 30, 2023, we retired our 2011 Senior Notes with aggregate principal amount of $75.0 million upon the maturity date with available capacity under our credit facility discussed below. In June 2023, we issued Series A and Series B of the 2023 Senior Notes with aggregate principal amount of $50.0 million through a private placement arrangement. As of December 31, 2023, we have two series of senior notes, the 2021 Senior Notes and the 2023 Senior Notes, outstanding with an aggregate principal amount of $110.0 million. The 2021 Senior Notes and the 2023 Senior Notes are collectively the “Senior Notes”.

In accordance with the terms of the Credit Facility, our leverage ratio is 1.76, and our interest coverage ratio is 6.37, each for the period ended December 31, 2023. 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

33

Notes. See Note 11 - Long-Term Debt, net of the Notes to the Consolidated Financial Statements for additional information regarding the terms and financial covenants of the Senior Notes and the Credit Facility.

See Note 15 - Derivative Instruments and Hedging Activities of the Notes to the Consolidated Financial Statements for additional information regarding interest rate swap agreements we have entered to fix the underlying risk-free rate on our Credit Facility and the 2023 Senior Notes.

In addition to our repayment commitments under our Credit Facility and our Senior Notes, we have non-cancellable operating lease arrangements under which we lease office and lab space, machinery, equipment and vehicles. We also have employer contribution commitments related to our Dutch pension plan with amounts payable in the future based upon workforce factors that cannot be estimated beyond one year. These material future contractual obligations are discussed in Note 7 - Leases, Note 11 - Long-term Debt, net and Note 12 - Pension and Other Postretirement Benefit Plans of the Notes to the Consolidated Financial Statements. We have no significant purchase commitments or similar obligations outstanding at December 31, 2023.

We also have uncertain tax positions of $3.5 million that we have accrued for at December 31, 2023; the amounts and timing of payment, if any, are uncertain. See Note 9 - Income Taxes of the Notes to the Consolidated Financial Statements for further detail of this amount.

At December 31, 2023, we had tax net operating loss carry-forwards in various jurisdictions of $32.8 million. Although we cannot be certain that these net operating loss carry-forwards will be utilized, we anticipate that we will have sufficient taxable income in future years to allow us to fully utilize the carry-forwards that are not subject to a valuation allowance as of December 31, 2023. If unused, those carry-forwards which are subject to expiration may expire during the years 2024 through 2037. During 2023, no material net operating loss carry-forwards, which carried a full valuation allowance, expired unused.

We expect our investment in capital expenditures to track with client demand for our services and products. Given the uncertain trend in industry activity levels, we have not determined, at this time, the level of investment that will be made in 2024. We will, however, continue to invest in the purchase or replacement of obsolete or worn-out instrumentation, tools and equipment, to consolidate certain facilities to gain operational efficiencies, and to increase our presence where requested by our clients.

Outlook

Currently, global oil inventories are low relative to historical levels, and supply from the Organization of the Petroleum Exporting Countries and other oil producing nations (“OPEC+”) is not expected to be sufficient to meet forecasted oil demand growth for the next few years. On April 2, 2023, OPEC+ announced continued reductions in production of around 1.66 million barrels (“bbls”) per day. In addition to the two earlier reductions, Saudi Arabia, a key member of OPEC+, initiated a third voluntary reduction of 1.0 million bbls in July that continued through the end of 2023.

According to the latest International Energy Agency’s report, the current global demand for crude oil and natural gas remains at a high level though the growth momentum is expected to slow down in 2024 due to further weakening of the macroeconomic climate, as Gross Domestic Product growth is expected to stay below trend in major economies, including China. As a result, it is anticipated that crude-oil commodity prices for the near-term will remain at current levels or increase if projections for demand remain accurate. In 2022, capital spending towards the exploration of crude oil and natural gas reached their highest level in over a decade. However, in 2023 drilling and completion activities onshore in the U.S. slowed after it peaked in April 2023. U.S. onshore drilling and completion activities are expected to maintain at current levels with some typical seasonal decrease towards the end of 2024. Outside the U.S., international oil and gas projects continue to build and are expected to grow and accelerate into the next several years. Therefore, our clients’ activities associated with the appraisal, development and production of crude oil and natural gas are also expected to remain at current levels or increase in 2024.

The geopolitical conflict between Russia and Ukraine that erupted in February 2022, caused disruptions to traditional maritime supply chains associated with the movement of crude oil, initially reducing the level of crude oil sourced from Russia and being imported into various European ports. The disruptions to traditional maritime supply chains of crude oil and derived products, such as diesel fuel, and associated sanctions imposed on maritime exports of these products out of Russia caused significant volatility in both the prices and trading patterns of these products during 2022 and into 2023. As a result, average crude-oil prices were elevated during 2022, but have since decreased and moderated in 2023. The maritime supply chains associated with the movement of crude oil have continued to realign and stabilize throughout 2023, which has reduced some of the volatility in crude-oil prices. Core Lab expects crude-oil supply lines to remain more stable, although the recent conflict that erupted in the Middle East resulted in some disruptions in the movement and trading of crude oil which has continued into early 2024. The Company’s volume of associated laboratory services is expected to be commensurate with the trading and movement

34

of crude-oil into Europe, the Middle East, Asia and across the globe. However, 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 these events, and any resulting government responses are fluid and beyond our control.

We continue to focus on large-scale core analyses and reservoir fluids characterization studies in most oil-producing regions across the globe, which include both newly developed fields and brownfield extensions in many offshore developments in both the U.S. and internationally. In the U.S. we are involved in projects in many of the onshore unconventional basins and offshore projects in the Gulf of Mexico. Outside the U.S. we continue to work on many smaller and large-scale projects analyzing crude oil and derived products in every major producing region of the world. Notable larger projects are in locations such as Guyana and Suriname located offshore South America, Australia, Southern Namibia and the Middle East, including Qatar, Saudi Arabia, Kuwait and the United Arab Emirates. Analysis and measurement of crude oil derived products also occurs in every major producing region of the world. Additionally, some of our major clients have begun investing in projects to reduce the levels of CO2 in the atmosphere, including carbon capture and sequestration projects. The Company’s activities on these projects have expanded and are expected to continue expanding in 2024 and beyond.

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 have stabilized or are expected to increase 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.

Critical Accounting Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates on an ongoing basis and utilize our historical experience, as well as various other assumptions that we believe are reasonable in a given circumstance, in order to make these estimates. By nature, these judgments are subject to an inherent degree of uncertainty. We consider an accounting estimate to be critical if it is highly subjective and if changes in the estimate under different assumptions would result in a material impact on our financial condition and results of operations. The following transaction types require significant judgment and, therefore, are considered critical accounting policies as of December 31, 2023.

Income Taxes

Our income tax expense includes income taxes of the U.S. and other countries as well as local, state and provincial income taxes. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amount and the tax basis of assets and liabilities using enacted tax rates in effect for the years in which the asset is expected to be recovered or the liability is expected to be settled. We estimate the likelihood of the recoverability of our deferred tax assets (particularly, net operating loss carry-forwards). Any valuation allowance recorded is based on estimates and assumptions of taxable income into the future and a determination is made of the magnitude of deferred tax assets which are more likely than not to be realized. Valuation allowances of our net deferred tax assets aggregated to $8.3 million and $9.3 million at December 31, 2023 and 2022, respectively. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowance against our deferred tax assets and our effective tax rate may increase which could result in a material adverse impact on our financial position, results of operations and cash flows. We record a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in our tax return. We also recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Long-Lived Assets, Intangibles and Goodwill

Property, plant and equipment are carried at cost less accumulated depreciation. Major renewals and improvements are capitalized while maintenance and repair costs are charged to expense as incurred. They are depreciated using the straight-line method based on their individual estimated useful lives, except for leasehold improvements, which are depreciated over the remaining lease term, if shorter. We estimate the useful lives and salvage values of our assets based on historical data of similar assets. When long-lived assets are sold or retired, the remaining costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income. These capitalized long-lived assets could become impaired if our operating plans or business environment changes.

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Intangible assets, including patents, technology, and trademarks, are carried at cost less accumulated amortization and impairment for intangibles with a definite life. Intangibles with definite lives are amortized using the straight-line method based on the estimated useful life of the intangible. Intangibles with indefinite lives, which consist primarily of corporate trade names, are not amortized, but are tested for impairment annually or whenever events or changes in circumstances indicate that impairment is possible.

We review our long-lived assets (“LLA”), including definite-lived intangible and right-of-use assets, for impairment when events or changes in circumstances indicate that their net book value may not be recovered over their remaining service lives. Indicators of possible impairment may include significant declines in activity levels in regions where specific assets or groups of assets are located, extended periods of idle use, declining revenue or cash flow or overall changes in general market conditions.

Whenever possible impairment is indicated, we compare the carrying value of the assets or asset group to the sum of the estimated undiscounted future cash flows expected from use, plus salvage value, less the costs of the subsequent disposition of the assets. If impairment is still indicated, we compare the fair value of the assets to the carrying amount and recognize an impairment loss for the amount by which the carrying value exceeds the fair value.

We did not record any material impairment charges relating to our long-lived assets and intangible assets with definite lives during the years ended December 31, 2023, 2022 and 2021.

The geopolitical conflict between Russia and Ukraine, which began in February 2022 and has continued through December 31, 2023, has resulted in disruptions to our operations in Russia and Ukraine. The Company’s operation, assets and facilities in Ukraine are immaterial. As of December 31, 2023, all laboratory facilities, offices, and locations in Russia continued to operate with no significant impact to local business operations. The Company evaluated LLA in Russia and Ukraine as part of our assessment of our assets group. Based on our assessments, we did not identify any triggering events and determined there was no impairment for LLA in Russia and Ukraine as of December 31, 2023.

We record goodwill as the excess of the purchase price over the fair value of the net assets acquired in acquisitions accounted for under the purchase method of accounting. Goodwill is not subject to amortization and is tested for impairment annually or more frequently if events or changes in circumstances indicate goodwill is more likely than not impaired. Goodwill is tested at the reporting until level. Our reporting units are the same as our two operating segments.

We assess intangibles with indefinite lives and goodwill for impairment either by performing a qualitative assessment or a quantitative test. The qualitative assessment is to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value is less than its carrying amount. If it is concluded that it is more-likely-than not that an impairment exists, a quantitative test is required which compares the estimated fair value to its carrying value. If the estimated fair value is less than its carrying value, then there is an impairment loss limited to the carrying amount. Significant judgments and assumptions are inherent in our estimate of future cash flows used to determine the estimate of fair value which include assumptions regarding future revenue growth rates, discount rates and expected margins.

We completed our annual impairment assessment of intangibles with indefinite lives and goodwill as of December 31, 2023 and 2022, by performing a qualitative assessment, which indicated we did not meet the threshold of more likely than not that there was an impairment and therefore no quantitative test was required.

Any subsequent impairment loss could result in a material adverse effect upon our financial position and results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements such as securitization agreements, liquidity trust vehicles or special purpose entities. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such financing arrangements.

Forward-Looking Statements

This Form 10-K and the documents incorporated in this Form 10-K by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These “forward-looking statements” are based on an analysis of currently available competitive, financial and economic data and our operating plans. They are inherently uncertain and investors should recognize that events and actual results could turn out to be significantly different from our expectations. By way of illustration, when used in this document, words such as “anticipate”, “believe”,

36

“expect”, “intend”, “estimate”, “project”, “will”, “should”, “could”, “may”, “predict” and similar expressions are intended to identify forward-looking statements. You are cautioned that actual results could differ materially from those anticipated in forward-looking statements. Any forward-looking statements, including statements regarding the intent, belief or current expectations of us or our management, are not guarantees of future performance and involve risks, uncertainties and assumptions about us and the industry in which we operate, including, among other things:

•
our ability to continue to develop or acquire new and useful technology;

•
the realization of anticipated synergies from acquired businesses and future acquisitions;

•
our dependence on one industry, oil and gas, and the impact of commodity prices on the expenditure levels of our clients;

•
competition in the markets we serve;

•
the risks and uncertainties attendant to adverse industry, political, economic and financial market conditions, including stock prices, government regulations, interest rates and credit availability;

•
unsettled political conditions, war, civil unrest, currency controls and governmental actions in the numerous countries in which we operate;

•
changes in the price of oil and natural gas;

•
major outbreak of global pandemic and restricting mobilization of field personnel;

•
weather and seasonal factors;

•
integration of acquired businesses; and

•
the effects of industry consolidation.

Our business depends, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Therefore, a sustained increase or decrease in the oil and natural gas commodity prices, which could have a material impact on exploration, development and production activities, could also materially affect our financial position, results of operations and cash flows.

The above description of risks and uncertainties is by no means all-inclusive, but is designed to highlight what we believe are important factors to consider. For a more detailed description of risk factors, please see “Item 1A. Risk Factors” in this Form 10-K and our reports and registration statements filed from time to time with the SEC.

All forward-looking statements in this Form 10-K are based on information available to us on the date of this Form 10-K. We do not intend to update or revise any forward-looking statements that we may make in this Form 10-K or other documents, reports, filings or press releases, whether as a result of new information, future events or otherwise, unless required by law.

Recent Accounting Pronouncements

Issued But Not Yet Effective

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an annual and interim basis. The amendment is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendment should be applied retrospectively to all prior periods presented in the financial statements. Upon adoption, our disclosures regarding segment reporting will be expanded accordingly.

In December 2023, FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures to improve transparency of income tax disclosures primarily by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendment is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendment should be applied

37

prospectively; however, retrospective application is permitted. Upon adoption, our disclosures regarding income taxes will be expanded accordingly.