Core Laboratories Inc (CLB) 2004 Q2 法說會逐字稿

Good morning. My name is Jodie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Core Labs' Second Quarter Earnings Release Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask to a question, during this time, simply press "*" then the number "1" on your telephone keypad. If you would like to withdraw your question, press the "#" key. Thank you.

Mr. Demshur, you may begin your conference.

Well, thank you, Jodie. Good morning, and I'd like to welcome all of you to our second-quarter 2004 earnings conference call; this would include our shareholders, analysts, and more importantly our employees.

As usual, I'm joined by Dick Bergmark, our Executive Vice President and CFO, for the call. This call will be broken into five segments. First, Dick will start by making remarks regarding forward-looking statements. Then, we'll come back and give a brief consolidated company overview of our operations.

And then, Dick will come back and follow up with a detailed financial overview. And then, we'll come back and go, in detail, over our three operating segments detailing our progress and actions we continue to take for improvement. And then, we'll wrap the call with a Q&A session.

I'll turn it over to Dick, now, for a statement on forward-looking statements.

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 relating to the oil and gas industry, business conditions, international markets, international political climates, and other factors including those discussed in our 34 Act filings that may affect our outcome.

These factors and other factors, mentioned on this call, could cause actual results to differ materially; and we undertake no obligation to update or revise any forward-looking statements, made in this discussion.

With that said, I'll pass the discussion back to Dave.

Thanks, Dick. Core had another excellent quarter. We recorded record second-quarter revenues, and this was our sixth quarter in a row that we'd have met or exceeded street estimates. The quarter yielded excellent earnings per diluted share from our continuing operations and records amount of cash generated from our operations that totaled over $16 million.

During the quarter, we also sold assets associated with our specialized geophysical and seismic services group that were not "core" to our business. This enabled us to do things: number one, we received over $18 million for a poorly performing business; and two, and more importantly, it allowed Core management to focus on our core businesses. This focus produced results including greater year-over-year revenues, greater year-over-year profitability, and a significant increase in our free cash flow.

If you look at our revenue growth and profitability, they were driven by: number one, increased demand for Core's proprietary and patented technologies, mostly related to optimizing reservoir performance; number two, the continuing introduction of new technologies; number three, the further market acceptance and penetration of these newly introduced technologies; and four, coupling of the newly introduced technologies with existing services, providing powerful information to optimize reservoir performance. We highlight these drivers in the detailed op section, which is to follow.

I'll now turn it back over to Dick for a detailed financial review.

Thanks, Dave. Before I begin and just like on last quarter's call, I'd like to point out that the numbers discussed today will be, for the most part, about our continuing operations. The financials in the earnings release are also formatted in typical discontinued operations presentation style.

The results of the discontinued business can be found at the bottom of the statement of operations or on the balance sheet, in line items, entitled "Assets or Liabilities Held for Sale." So for today, our numbers are all about continuing operation.

Just to be clear, all comparisons will be made against what would have been the results in prior periods for those same continuing operations. In other words, year-over-year and sequential comparisons are all on an apples-to-apples basis.

So in the P&L, revenues were $102.2 million in the second quarter versus $90.7 million in last year's second quarter. So revenues were up 12.7% year-over-year and, through the first half, revenues were up 15%, while the OSX members that have reported through yesterday had revenues in the first half up only 1.5% year-over-year.

Services for the quarter were $80.9 million, up 10.5% from $73.2 million in last year's second quarter. Sales were $21.3 million versus $17.4 million in last year's second quarter, up 22.4%. Cost of services for the quarter, 76%, an improvement when compared to 80% a year ago; and cost of sales improved in the second quarter, coming in at 83% versus 86% in the second quarter of last year and this also compares favorably to our cost of sales for all of 2003, which were at 85%.

G&A for the quarter $6.3 million, virtually the same as in the first quarter and about the same as last year's quarter on a percent of sales basis, both coming in at around 6%. We believe that G&A will run at levels of around $24 million to $25 million in 2004.

Depreciation and amortization for the quarter, $4.3 million, down slightly from $4.6 million in the prior year's second quarter; this is primarily as a result of CAPEX running lower than depreciation. For the year, depreciation expense is expected to be approximately $18 million to $19 million.

Performance-based stock compensation. Last quarter, we discussed the possibility of a charge to stock-based compensation, if it became probable in our view that we would continue to outperform the 15 members of the OSX on a relative basis.

Given that we'd continue to outperform the OSX members during this three-year measurement period, higher than the 75th percentile, it causes us to believe that it is probable that we will continue, on a relative basis, to outperform the OSX members for the full three-year measurement period. Accordingly, we have recorded $2.9 million expense to performance-based stock compensation to reflect a likely issuance of the full award of the first charge of 125,000 shares at year-end.

Remember from the last call that the performance shares award plan design is to closely align management incentives to the rewards they enable our shareholders to enjoy. Rather than an incentive based on a particularly current year's result, this plan is a longer-term plan in nature and calls for a measurement period that lasts three years.

The measurement is based on how well our stock performs in terms of total return by the end of that three-year measurement period, when compared to how well the OSX's 15-member stocks perform by the end of that same period. We must outperform the 50th percentile return to begin investing any of the shares; and at that level, only 20% of the shares would be awarded. And in the event we outperform and are at or above the 75th percentile of the OSX members, then all of the shares would be awarded.

To date, three tranches under the plan have been made: one in 2002, 2003 and 2004 -- each having their own separate three-year measurement period. In each of the three tranches, return to shareholders by Core Lab over each of the respective time period places as higher than the 75th percentile of the returns generated by the members of the OSX.

To date, Core Lab's stock price appreciation places it above the 75th percentile for the 2002 tranche and above all of OSX companies stock price appreciations for the 2003 and 2004 tranche.

Therefore, at the measurement date or at the end of the second quarter, rather than the respected yearend for each tranche, the charge to stock based compensation expenses for all three tranches would have been around $8 million. But given our view at this time that the only profitable tranche to invest is the first tranche, only $2.9 million was expensed in the second quarter.

As discussed on the last call, all of our financial targets that we have mentioned have excluded any expense that may be recorded as a result of these strictly performance-based incentives. Now, other expense this quarter is in the amount of $552,000 as opposed to a gain of $665,000 year ago.

The expense this quarter was primarily due to foreign exchange losses spread generally across the board, Canadian dollars for $176,000, sterlings for $63,000, pesos for $45,000 and then a host of smaller losses reflecting the general weakness of the U.S. dollar.

EBIT from continuing operations, excluding the performance-based stock compensation, was $11.6 million in the second quarter, providing margins of 141%, which compares very favorably to the prior year second quarter when EBIT was $8.1 million, reflecting margins of 8.9%. So, year-over-year EBIT increased 43% and margins improved 220 basis points.

Well, our margins this quarter were still slightly lower than the OSX group. As is usually the case early in the year, our weighted margin expansions far exceed that as a group.

Year-over-year our margins improved by almost 25%, while the group only improved 11%. We would expect that the crossover will occur in the next quarter when our margins will exceed that as a group. Our improvement in this area has driven for the most part by our incremental margins.

On a year-over-year basis our incremental margins this quarter were 24%; and by segment, in Reservoir Description they were 30%, Production Enhancement they were 36% and Reservoir Management they were 85%. Sequentially, EBIT was up 2.1 million or 22% from the 9.5 million occurred in the first quarter. This represents virtually 100% incremental margins are -- and our revenues were up about $2 million generating incremental earnings of about $2 million.

Just to note, incremental margins in Reservoir Description did improve nicely in the quarter, remaining in most parts to increasing international revenues spread over our existing international fixed cost structure.

Interest expense was $2 million for the quarter, the same as last quarter, but up from the prior year quarter of $1.8 million. The increase was due for the most part at higher debt outstanding, $119.4 million this quarter versus $100.4 million in the prior year. Income tax expense from continuing operations was $1.9 million for the quarter versus $1.7 in the prior year's second quarter. And we expect the annual rate to be 27.5% for the full year 2004, up slightly from the 27% given on the prior call due to a shifting of mix of jurisdictions where earnings are derived.

Income from continuing operations, excluding the performance-based stock compensation for the quarter, was $6.9 million, compared to last year's second quarter gain of $4.7 million, so up 50%. After considering the discontinuing operations, our net income was $4.5 million compared to $4.6 million in the prior year.

Sequentially, net income from continuing operations was up $1.5 million or 28% from the $5.4 million earned in the first quarter. Earnings per share from continuing operations excluding the performance based stock compensation for the quarter was 24 cents, a penny above FirstCall's Main Street estimate 23 cents and 9 cents or 60% greater than the 15 cents per share earned in the second quarter of last year.

Sequentially, the earnings were up 26% over the 19 cents posted last quarter. And after considering the discontinued operation, our net income was 9 cents per share compared to gain in the prior year, 15 cents.

Now if we look at the balance sheet, couple of items, cash, $19.7 million, up from $16.2 at year-end, as many of our quarter end working capital improvements generated additional cash at the end of the quarter.

Receivables stood at $90.7 million, up slightly from $89.2 million at yearend, reflecting greater business activities. Importantly, from the perspective of secondary liquidity management, our DSOs at the end of the quarter were 72 days down from 83 days at yearend.

Inventory was $32.6 million, down from the first quarter's balance of $33.4 million but up from the yearend balance of $31.3. We've increased production of certain products in response to higher sales caused by the increased oil field activity.

As in the case of receivables management, our data and inventory have improved again this quarter, given our higher level of sales into the North American markets. We have a separate line for discontinued operations where the assets of the discontinued business were recorded at year-end.

Generally the line items were incurred assets and another one in long-term assets and the value of those categories have been substantially reduced now that the majority of the assets have been sold. PP&E is down about by $5.4 million from the year-end balance to reflect the effect of CapEx running in lower rate than depreciation. And for the most part the other items on the balance sheet are unchanged from the yearend.

On the liability side, accounts payable somewhat lower than yearend balance but up by $2.8 million from last quarter. Other activity levels have continued to increase during the year. Current liabilities about the same as last quarter here in.

Liabilities of assets held for sale have come down as we wind up the process of exiting the discontinued business, the remaining $2.6 million represents common and reserve for bad debt and receivables due to be paid for the purchase here in the business.

Long-term debt was $119.4 million, down from $125.6 last quarter and $124.7 at year-end. So outstandings under our revolvers are down this quarter at $44 million, down from $50 million at year-end -- excuse me -- at the end of the first quarter and $49 million at year-end.

The balance sheet continues to be strong as our net debt to cap was 30% at quarter end, down from 32% at last quarter end. Other long-term liabilities are up 6.8 million, a largely single item being primarily due to the charge for the performance shares.

Shareholders equity end of the quarter at $187.5 million, down from $205.9 in the first quarter and $220.4 at year-end. Reduction in the balance is due to addition from earnings and reduction due to the loss stemming from the discontinued operations and repurchases of our shares to our stock buyback program.

Our return on equity for the quarter using EBIT was an annualized 25% compared to 18% if unannualized the first quarter's EBIT versus 15% return that we posted for all of 2003. Our return on equity this quarter is also significantly higher than what we have seen posted on average by the members of the OSX group which have reported so far this second quarter a return of only 14.3% versus our 24.7%.

Capital expenditures for continuing operations for the quarter were $2.3 million. We now expect our full year CapEx to be $13 million rather than our earlier estimate of $15 million. This compares to our expected full year depreciation of $18 or $19 million.

On cash flow, cash provided by continuing operation for the quarter was $16.2 million, with our first half cash flow coming in at $23.5 million. Free cash flow defined as cash from operations less the amount we spend on CapEx was $19.9 million for the first half versus $13.9 million last year, 43% increment in the generation of free cash flow. We use the free cash to pay down debt and repurchase our shares. We continue to be active with our stock buyback program.

During the quarter, we purchased an additional 1,049,200 shares at a cost of $23.2 million. In essence, reinvesting the proceeds from the sale of the discontinued business, along with the portion of the $13.9 million of free cash flow generated in the quarter. Through yesterday, we purchased a further 73,600 shares in the third quarter at a cost of $1.7 million.

From the inception of the program, we've purchased in the aggregate 7,250,000 shares at a cost of approximately $102.7 million. Our current shares outstanding now stand at 26.7 million and our diluted share count at quarter end was 28.9 million shares. The program continues to be quite successful. It has helped to contribute to our shares increasing a value over 180% since the inception of the program in October 2002, which is significantly higher than the performance of the OSX, which rose 44% over that time period or the S&P500, which rose 30%.

In all, our financial ratios are strong; the net debt to capital are in line with the industry range, along with the OSX leading returns on equity and invested capital, and industry leading returns to our shareholders in terms of stock price appreciation since the initiation of the program.

And now, we'd like to go over our internal financial targets with you. Based on discussion with our clients, our view of the industry spinning in 2004 is unchanged from our thoughts, which we discussed on our last call. We still believe that activity levels in North America will continue at these healthy levels if one uses rig count as a proxy for the health of the cycle.

Further, we see international markets continuing to improve. We believe the majority of the improvements within our operations will come from increases in both the North American markets and the international market as well.

So, what does it mean for our internal financial target? Over the near term, we mentioned on the last call that we will expect to see the typical seasonal factors impacting operation in North America, causing a typical flattening of the rate of growth in Q2 over Q1 due to Canadian breakup.

Our second quarter revenue target was given in the $100 million to $105 million range, and we came right in the middle of that range at $102.3 million. We believe that we should see revenues in the third quarter of $105 million to $110 million.

EPS from continuing operations and without regard to any performance based stock compensation expense is expected to be around 25 to 28 cents, reflecting improvements in earnings from incremental margins on those potentially higher revenues. These revenues and earnings targets are, of course, related only to our continuing operations.

For the full year, on a continuing operations basis, we believe revenues will fall in the $425 million to $435 million range, representing a 14% growth rate over 2003 -- certainly higher than the spinning increases announced by our clients in some of the industry surveys.

While most were increasing their estimate for the year, with many coming in the 9% range, our higher growth rate suggests that we will continue to enjoy secular growth in a cyclical industry once again this year just as we have historically enjoyed.

We also expect that earnings will improve over the targets we discussed on our last call. We now believe based on the current improving activity levels that our full year continuing operations may earn 95 cents to $1 per share, excluding any cost associated with the performance-based stock compensation rather than the range that we provided on the last call of 89 to 93 cents per share.

That review being complete, I'll pass it back to Dave and he can talk about the operations.

Well, thanks Dick. I'd like to give a detailed review of our operations starting with reservoir description. This represents 60% of the revenues at Core Laboratories.

Just remember that this is an internationally crude oil-based technology focused for these operations. In Q2 they reported their highest quarterly revenues ever. Margins were up to 11%, and I believe in the last conference call, we talked about a concentration on improving margin within reservoir descriptions and -- sequentially we saw a nearly 400 basis point improvement over Q1 '04 margins. So this margin focus will continue.

We have high incremental margins in this business and that we must remember that our 1% margin improvement in reservoir description equals an incremental 1.5 cents to earnings, so we'll continue to focus on margin improvement in reservoir description.

Projects of note, three dimension, the first one being in Khazahkstan where we're involved in a large project to characterize both the reservoir rocks and reservoir fluids in the planning for a large gas flood project. We'll also be furnishing a mobile facility for sampling reservoir fluids as the field flood continues on and we'll continue to sample and characterize the fluids during the flood. So over the next several quarters, we'll be actively involved in this project in Khazahkstan.

Turning to the Middle East, in Saudi Arabia we are currently in discussions for the expansion of our facilities in Saudi Arabia to increase both our rocks -- reservoir rocks and reservoir fluid capabilities in Saudi Arabia. As we've discussed many times on our past calls, there's large concern now about the amount of water being produced from Saudi reservoirs, who are being a great example of that and I believe we are now seeing Saudi Aramco taking immediate action to mitigate further water production for some of these intervals.

The third project, the reservoir description that I'd like to mention is offshore deepwater Angola. You must remember that we've had over 9.5 billion barrels of oil discovered in the deepwater of Angola. This is only exceeded by about 14.5 billion barrels found off of Brazil and 11.5 billion barrels found in the deepwater in the Gulf of Mexico, so it's been exciting province.

We are characterizing reservoirs there in the very early stage looking at the rock and rock fluid interactions to maximize recovery from these deepwater fields. These are difficult reservoirs, they've got typical situations where you have semi-consolidated rocks and these sands at many times, you must be very careful that you don't have sand encouragement into the producing wellbore.

So offshore Angola as well as Nigeria, where there's been about 8.5 billion barrels of deepwater discoveries will be an exciting province for Core Lab as we go forward.

So our outlook for reservoir description because it is internationally based, and crude oil focused, is very bright and we see a good second half for that business.

In production enhancement this is 35% of Core's business. We must remember that this is a North America natural gas focused technologies. It had it's second highest quarterly revenue, ever second only to Q1 totals, owing to the Canadian breakout.

I'd like to highlight the combination of some newly introduce technology or SpectraChem Technology with some of our existing services, as well as SpectraScan Technology and how they have aided operators in east Texas determine why a number of their hydrologic fracs were under performing the design for those stimulations.

Let's remember that SpectraChem is a patented and proprietary technology to Core that is used to quantitatively measure the wellbore clean up of frac gels used to emplace the profit (ph) into the hydraulic fractures that are out in the reservoir. SpectraScan determines the profit that has been in place into the potential producing formations.

What we found in many of these fracture stimulation events is that the gel clean up out of the fractures would suggest that we're leaving too much gel in the producing formation, therefore, impeding hydrocarbon flow to the wellbore. More over our SpectraScan results are showing that the frac height is more limited than it had been led to believe from the design of the frac.

So the combination of these two technologies, SpetraChem which will lead to better gel designs and breakers, and SpectraScan which will enable our client to achieve higher frac height will improve the profitability and production from these wells in east Texas.

This is a powerful tool to lead to better design of fractures stimulation events, which will lead to increase production and recoverability of natural gas for our clients as we go forward. So the combination of a new technology and existing service has made an impact for our production enhancement group.

Turning to reservoir management, although this has represent 5% a quarter, we enjoy talking about this now. Margins have reached 16%, remember this is an integrated engineering and geological projects, it also used multiple data sets from our reservoir description and production maintenance business.

Notable projects, we receive our first core samples from this deep-shelf reservoir study. This is the study that we're going to try characterize reservoirs below 15,000 feet all the way its try to predict reservoir quality down to 25,000 feet. Some of these wells may cost upwards of $70 million, so it's going to be for us a good project to characterize these reservoirs to maximize the possibility of these wells cutting good reservoirs. We have nine participating companies in that project as we speak.

Also our tight-gas sand study now have 15 companies, this has been extended in the Canada -- as we all know the emphasis on North American natural gas production, a lot of the reservoir that are being cut are tight-gas sand and this will enable our clients to better complete and fracture stimulate these wellbores as we go forward.

For all in all, a great quarter for Core Lab, we think that we'll see a bright second half and that's why we up guidance. What I'd like to do now, Jodie, is open the phones for the Q&A sessions.

At this time, I would like to remind everyone, if you would like to ask a question, please press "*" then the number "1" on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Rob MacKenzie from FBR.

Good morning guys. Good quarter.

Thanks Rob.

I had a question for you, production has been -- we saw some pretty significant margin deterioration this quarter. Presume most of that is related to decision of break up in Canada. But I was wondering is there was any cost in their associate with the introduction of your new technologies that may not recur in coming quarters?

No, it's a direct relation to the break up in Canada, Rob. We should see stronger margins returning to that business in the third quarter.

Good. On the Reservoir Management, finally quicken some good numbers there, 15% margin and plus, like you talked about given the extension as a studies, that you discussed previously, should we expect revenues and margins to extend gone forward in that business.

Yes, as we look for that business, I think the targets that we gave for the year were maybe as much as $20 million in revenue and EBIT margins of 15%. We would say that there might be a slight upside to that. But we are still comfortable with those levels.

OK. Fair enough. Next question has to do with your incentive -- your performance based on compensation plan. Could you refresh us what -- how many shares are associated with each of the '03 and '04 tranches?

In '03 the results were 125,000.

OK.

In '04, I think, about 120,000. So they're almost same.

And do you plan on discontinuing that again in '05 and beyond?

Its up to the compensation committee to decide, but they believe this is a good incentive plan, and they like the results they've seen. I don't why they wouldn't.

Fair enough. Next question comes -- relates to your stock buybacks, you know, it looks like the pace has slowed there some -- paying out some debt, should we expect that trend to continue given the current level of stock price, or do you think to continue to aggressively repurchase stock?

Probably no. We talk about there always -- released three alternatives at any point in time. I want to do is free cash flow and we continue to evaluate the best choice of those, and currently those three were pay down debt, acquired stock, or perhaps use the cash to acquire other technologies. And we always look at that, and we get that back in the quarter.

You know, we had interest payments to do on our senior notes and we had a variety of cash requirement internally. So, I wouldn't necessarily take this level as any indication about a longer-term view on our plan.

Yes. I think, Rob, if we look at the second quarter, our VLAB for the million plus shares was about $22 to $23. So, in this range it is still accretive to earning, and I don't think our outlook has changed on that at all.

OK. Great. Last question, your full year revenue guidance 425 to 435 versus your third quarter to what you've reported today implies 12% sequential growth in the fourth quarter over the third quarter. I was wondering if you help us frame -- is most of that coming from reservoir description and/or production enhancement, and where do you see such strong growth coming from?

Yes. I would say it would come from all three business units. Seasonally, our strongest quarters are Q3 and Q4. So I think if we just look at it historically, especially, if you look at the continuing operation and Reservoir Management, I think you'll see contributions from all three units. Of course, more of the upside is probably from reservoir description because it is concentrated internationally.

OK. Great. I'll let someone else have a chance.

Thanks Rob.

Your next question comes from Neal McAtee from Morgan Keegan.

Richard, I had a question, do you have any insight or exposure to what's going on over there that might -- I mean, that you got a lot of operation over there that might hurt you in the third or fourth quarter?

I think you're referring to probably Yukos (ph) Neil. And if you just look at our exposure to Yukos, they are current in their payments to us. And I don't know this morning if you heard that actually the bail ups in Russia actually interpreted the tax law incorrectly. They were not allowed to sell physical properties, but Yukos was allowed to continue to sell crude oil.

And so, we tend to look at our client there as those producing oil fields as opposed to Yukos. So the work that we are doing there, whether its done by Yukos or a survivor or another entity that work will still needed to be done on those fields. But importantly, the balance that we have right now is current.

All right.

With that particular client.

That's good. On production enhancement, I know, you had the break-up, you know, you were talking about SpectraChem, East Texas, I mean, its how far and where - where on east Texas, could there also been maybe a little bit of business pushed out because of the weather?

Yes, we talked to our guys about that. There was some hindrance on that. We didn't think it was as significant, as maybe some other oil field service companies would have reported in the quarter. So maybe a little bit would have been pushed out in the third quarter. We didn't see it significant.

Dave, when you talk about a lot of industry statistics, out of curiosity, what - when you look at your group of competitors what margin are you using for you competitors?

The ones that are reported through last night, margins were 12.5%.

That's a EBIT margin?

Yes. I'm sorry - EBIT, that's right.

OK. And then, last question just on reservoir management, your year-to-year real high incremental margins, I mean, I know we're talking about low numbers, but is that just a reflection that you are at the, you know, sort of inflexion point where it has to break even and so smaller gains and revenue can fall to the bottom line pretty quickly?

Yes, I think that's right, Neil. We did have -- if you remember, we talked about this gem that was hidden with inside this geophysical and seismic based unit that always performed pretty well, but always overshadowed by whether now our units to be have sold. So Randy Miller and his group have done a great job there. They're expanding these projects.

We believe that the value add that they bring to E&P companies around the world in looking at and characterizing reservoirs, for reservoir optimization. And ultimately, the recovery of hydrocarbons for the real yield margins that are mid-teens or higher, so we can also still see some significant revenue gain here, along with as we had mentioned some upside on EBIT margins. All right.

Yes. You are now getting about a 100% incremental margin year-over-year, and I mean, you know, that's not going to continue, but if does, probably that's a indication that you're at the point where those guys really are getting some traction with the E&P companies?

Yes. And let's remember, in Q1, we talked about a couple of legacy studies that were actually hangovers that we were trying to finish up. And you saw a number of those did finish up in Q1, as we had mentioned. Actually, there are two small ones that continue on that should finish up in Q3. And then those guys will be free to concentrate on these higher margin studies.

All right. And just hangout, waiting for the appropriate time, right?

Yes, especially after we sold the unit on 22 April.

OK. I hear you. Good job guys. Thanks.

At this time, there are no further questions. I would now like to turn the call back over to Mr. Demshur for closing remarks.

Great, Jodie, thank you. In summary, Core posted an excellent quarter, as all of our operating segments contributed to our record revenues. And we continue to increase significantly in our profitability. With worldwide crude production nearing peak levels, our continued focus on reservoir optimization technology positions Core for a great year in 2004 and beyond.

At this time, we would like to thank all of our shareholders, the analysts that follow quarter especially, and all of our hardworking employees now totaled about 4,800 worldwide for spending part of their day with us. And we look forward to talk to you at our next quarter's conference call. Thank you very much.

Thank you. This concludes today's Core Lab Second Quarter Earnings Release Conference Call. You may now disconnect.