Core Laboratories Inc (CLB) 2007 Q4 法說會逐字稿

Good morning. My name is Chrystel and I will be your conference operator today. At this time I would like to welcome everyone to the Core Lab fourth quarter earnings 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 session. (OPERATOR INSTRUCTIONS). Thank you.

Mr. Demshur, you may begin your conference.

Thanks, Chrystel. Good morning in North America, good afternoon in Europe, and good evening in Asia Pacific. We'd like to welcome all of our shareholders, analysts, and most importantly our employees to Core Laboratories fourth quarter 2007 earnings conference call. This happens to mark a date, for our 76th anniversary of Core Lab's founding on Core street in downtown Dallas. As usual, I'm joined by Dick Bergmark, Core's Executive VP and CFO, and then also this morning, we are again joined by Core's COO Monty Davis, who will present the detailed operational review, as Monty has been the chief architect of Core's long-term operational successes. The call will be divided into five segments.

Dick will start by making remarks regarding, forward-looking statements, and then we'll give a brief consolidated overview of the company, touching on some financial and operational highlights. Dick will follow with a detailed financial overview, followed by Monty going over Core's three operating segments, detailing our progress and discussing the continued successful introduction of new Core Lab technologies and services, and then highlighting some of Core's operations and as Monty has just returned from an international trip, he'll be able to provide some recent color in looking at operations throughout the Middle East, and then we'll open up the call for Q and A session. Turn it back to Dick right now for remarks regarding forward-looking statements.

Thanks, David. Before we start the conference this morning, I'll mention some of the statements 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 climate and other factors including those discussed in our 34 Act filings that may affect our outcome. Should one or more of these risks or uncertainties materials, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For more detailed discussion on some of the foregoing risks and uncertainties see item 1A, risk factors, in our annual report on Form 10-K for the fiscal year ended December 31, 2006 , as well as other reports and registration statements filed by with us the SEC. With that said, I will pass the discussion back to

Thanks, Dick. I'd like to give a consolidated company overview.

If we look at Core's operations, once again, they posted the most profitable quarter in Core's 76-year history. It was an excellent quarter but our operations believe they can still do better, so stay tuned. During the fourth quarter, Core's operations under the tutelage of Monty Davis delivered all-time quarterly records for revenue, operating income, operating margins, net income and earnings per diluted share from our operations. The quarter marked the 11th consecutive quarter in which Core's operations posted record revenues, and the eighth consecutive quarter for posting all-time highs for net income, operating profit, and earnings per share. During those 11 quarters, Core has spent approximately $65 million for CapEx, during which time the company has generated almost $360 million of operating income from continuing operations. In addition, over that 11-quarter period, every dollar, every new dollar of CapEx, has generated approximately $3.50 of new revenue for the company. Core's leverage and scalability continues to produce superior results.

Core hired about 100 new net employees in 2006 and grew our revenue by over $90 million, or about 19%. During 2007, Core hired about 250 new net employees, increasing our employee count by 5%, while growing our 2000 revenue by another 17%. Most of these adds were in the Middle East where we expanded our operations in Qatar, Kuwait, and Saudi Arabia. Core's low CapEx needs, our CapEx usually equals or slightly higher than that on depreciation, plus the leverage and scalability of Core's worldwide operations has enabled the company to generate significant amounts of free cash flow. Yet once again in 2009, Core's CapEx will total less than 4% of Core's total annual revenue against an industry average of 12% of revenues for 2007. Core's CapEx equaled about $1 per share in 2007, and is projected to be a little bit more than $1 a share in 2008. This CapEx will he be invested to grow international operations in Europe, the Middle East, North Africa, and Asia Pacific which have been Core's most rapidly growing areas.

Over 70% of Core's revenue is sourced from international reservoirs, and we expect this percentage to grow even higher in future years. We believe with Core's current infrastructure, the company can generate annual revenues in the $900 million plus range. As always, we will update our internal revenue capacity number during the second quarter of this year on our 2008 second quarter earnings conference call. Core's future opportunities continue to be international and crude oil-related, although the development of non conventional natural gas reservoirs worldwide and oil sands in Canada will play an important role in the future growth of the company.

On the new technology front, we continue to be pleased with the increasing market acceptance and market penetration of Core's recently introduced technologies. In reservoir description, Core's reservoir fluids business recently received the highest technical and quality ratings from a major oil company that happens to be one of our biggest clients. Revenue generating from characterizing and inspecting crude oil and its derivatives, natural gases and formation waters now exceed 50% of Core's revenue. The pressure volume temperature or PVT studies of phased behavior relationships are critical components, along with measured petro physical rock data sets needed to optimize reservoir performance. Core's continued technological leadership in fluid phase behavior studies is unsurpassed by any other service company in the industry. As our fluids guy says, it's not just the rocks but knowing what's in the rocks is what makes the oil company successful.

In production enhancement, the effectiveness of Core's SuperHERO, Zero Wash, SpectraScan and SpectraChem technologies continue to be spectacular in multistage simultaneous hydraulic frac stimulations of two or more adjacent gas shale reservoirs, such as the Barnett Shale, this is leading to significantly higher initial production rates and higher ultimate recovery rates. In the past, Core touched the Barnett reservoir once or twice, analyzing core samples and gases. With these new bundled services, Core can touch the Barnett now up to seven times. A $30,000 job now has the potential to be a $300,000 job.

In reservoir management, Core's gas shale consortium now includes every technologically sophisticated client exploiting these reservoirs in North America and soon to be in the international theater as well. When it it comes to gas shale plays, simply put, Core's clients recognize that Core Laboratories helps them maximize his their cash flow from non conventional natural gas reservoirs. Monty will give a more technical update on Core's new promising technologies, such as the SuperHERO technology, which has generated its first revenues just three quarters ago. Our new product pipeline for new reservoir optimizing technologies and services remains strong, which indicates a bright future for Core. I will now turn it back over to Dick for a detailed financial review.

Thanks again, Dave. Before we begin going through the operational results, I would like to mention a couple of fourth quarter items that we will exclude from our discussions. First, we completed the sale of a building in Moscow and have relocated our administrative and operating personnel to a facility which is better suited for its current operating activities in Russia. The sale of the building generated a pretax gain of approximately $10.2 million in the fourth quarter. Secondly, as a result of continued discussions with various tax authorities to resolve pending tax settlements, we have recorded additional tax expense during the quarter. These additional reserves and other tax adjustments resulted in an increase in our anticipated fourth quarter effective tax rate from 31% to 39.4%. We have adjusted our fourth quarter results to reflect a 31% effective tax rate to remove the effect of these items. Remember from the last call that we specifically mentioned that our Q4 guidance would be based on EBIT falling within the range of 47.4 and $48.8 million, along with a tax rate of 31%, creating an EPS guidance range of $1.30 to $1.34 for Q4.

Let's now move to the fourth quarter and 2007 yearly results. Revenues were $176.4 million in the fourth quarter versus $152.8 million in the fourth quarter last year, and $170.1 million last quarter. So revenues were up 15.4% year-over-year, and up 3.7% sequentially. For the full year, revenues were $670.5 million, up $94.8 million or 16.5% over the prior year of $575.7 million. Later on, we will describe how our continued efforts to focus on higher margin services have had a positive impact from earnings. Of these revenues, product sales for the quarter were $42.5 million, up 11.6% when compared to $38.1 million in last year's fourth quarter. For the full year, product sales were $162.5 million compared to $145.6 million in the prior year, also up 11.6%. These significant increases in sales were achieved against a backdrop of a soft North America market, so it's really a testament to the acceptance by our clients of our newer technologies.

Services for the quarter, $133.8 million, up when compared to $114.7 million last year, increase of $19.1 million or 16.7%. For the full year in 2007, they were up 18.1% to $508 million, up from $430.1 million in the prior year. Now moving on to cost of sales, we continue to see improvement in incremental margins earned on our newer technology products, along with continued improvement in manufacturing efficiencies and inventory management. So in the fourth quarter, our cost of sales improved by decreasing to 68% of revenues versus 71% last quarter. So there was 70% for all of 2007, and that compares to 73% for all of 2006. Cost of services for the quarter, 65%, consistent with the last quarter, and for the year they were 66%, down from 70% for the full year 2006. These improvements for the year were primarily driven by the continued growth of our incremental margins as a result of additional revenues running through our relatively fixed cost structure.

G&A for the quarter, $9 million versus $7.6 million in last year's fourth quarter, for 2007 full year, G&A was $33.8 million, consistent with $33.1 million in the prior year. Although the company continues to expand, revenues have grown over 16% this year. Our G&A costs have remained relatively flat and continue to decrease as a percentage of revenue, now down to 5%. For 2008, expect G&A to come in around 34 to $35 million. Depreciation and amortization for the quarter, $5 million, up from $4.5 million incurred last year in the fourth quarter, which reflects increased levels of capital expenditures during 2006 and 2007, along with amortization of intangible assets associated with the acquisition completed in September of 2007.

For the full year 2007, depreciation and amortization expense was $19.5 million, and expect depreciation in '08 to total approximately 21 to $22 million. Other income this quarter is in the amount of $13 million, which includes a $10.2 million gain from the sale of the building in Moscow. So if you exclude that gain, fourth quarter is comparable to the $2.4 million gain last year's fourth quarter so no change there. For the year, other was a gain of $15.8 million, and that compares to $5.3 million in the prior year, and the gain on the sale of the building was by far the largest item in that other income category for full year 2007, but also if we exclude that sale for the full year, other income was virtually the same as last year.

Adjusted EBIT for the quarter was $49.1 million which excludes the gain on the sale of the building. This compares favorably to the fourth quarter EBIT guidance we gave last quarter of 47.4 to $48.8 million. Our fourth quarter earnings are up $12.3 million or 33.4% compared to $36.8 million earned in the fourth quarter last year. This quarter's EBIT is also up from $46 million last quarter, or about 7% sequentially. Our fourth quarter adjusted EBIT represents operating margins of 27.8%, up 370 basis points compared to margins of 24.1% in last year's fourth quarter. On a year-over-year basis, and again excluding a gain on the sale of the building, our incremental margins grew 52.2%. And by segment they were reservoir description 48.2, production enhancement 38.3, reservoir management 88.1%. But on a full-year basis, our incremental margins grew to 52.8%. And by segment, reservoir description 53.2, production enhancement 52.4, and reservoir management 45.8%. So all three segments for the full year all virtually the same.

Our continued improvement in margins has been driven by the continued introduction of new technologies and services as well as through our focus on obtaining commercial contracts that deliver higher product and service margins, thereby creating higher levels of incremental margins earned on those revenues, and combine this with better utilization of our cost structure, the results are clearly demonstrated in our expanding margins. So it's all about creating greater value from each dollar of revenue. Interest expense was $670,000 for the quarter compared to $1 million in last year's fourth quarter. We expect interest expense in 2008 to be approximately $2.7 million compared to $2.6 million in '07. Income tax expense, excluding the gain on the sale of the building and using a tax rate of 31% was 15 million. This adjusted amount of $15 million is an increase over the prior year's fourth quarter expense of 10.6 million, primarily due to higher taxable earnings in the quarter, including the fourth quarter items mentioned above, our tax expense for the quarter was $23.1 million, caused by our incurred fourth quarter tax rate of 39.4% on our higher earnings. Full year annual effective tax rate was 33.2%. We expect our effective tax rate in '08 to be in the 31 to 32% range.

Net income, excluding the items mentioned for the quarter was $33.4 million compared to $31.5 million in the last quarter, and last year's fourth quarter's income of $25.2 million on a comparable basis. On that same basis, net income for the fourth quarter was up almost 6% sequentially and up 32.6% on a year-over-year basis. Income for the full year was up almost 44%, at $119 million, compared to $82.6 million in '06. Again, the 2007 numbers have been adjusted to remove the gain on sale tax adjustments that we spoke of earlier, to place these comparisons on a more operational basis. But using the actual reported net income for 2007, it would indicate that our year-over-year improvement in the fourth quarter was over 41% and the full-year net income was up almost 47%.

Earnings per share, again, excluding the items mentioned for the quarter, was $1.36 per share compared to $1.35 reported as First Call's mean street estimate. This also compared to the $0.98 earned on that comparable basis from operations in Q4 last year. So earnings are up 38.8% year-over-year. Sequentially, EPS is up $0.07, or about 5.4%. Earnings per share including the adjustments were $1.45. Now, if we go over to the balance sheet, cash was down by $28.6 million to $25.6 million compared to the prior year-end balance of $54.2 million. Cash decreased simply as a result of our share repurchase program. Receivables stood at $137.2 million, up from $112.1 million at prior year end due to our increased revenues for the year.

For the full year, DSOs in the quarter were 70 days, the same as for the prior full year. Inventory down slightly year-over-year while product sales were up about 11.6%, and that reflects a 10% improvement in inventory turns compared to the prior year. Other current assets were 28.5 million, down slightly from $29.1 million at last year end. We had a general increase of $5.3 million in PP&E due to additions from our CapEx program, and intangibles, goodwill, and other long-term assets increased $3.1 million, which is primarily related to two small acquisitions.

On that liability side of the balance sheet, our accounts payable were $39.9 million, up $2.4 million when compared to the prior year end balance, reflective of our growing business. Other current liabilities increased from the 2006 year end balance by about $6.7 million, primarily due to an increase of $2.3 million in unearned revenues, $1.4 million in income and other local taxes, and about $1 million in payroll accruals. Long-term debt remained the same at $300 million from the issuance in 2006 of our convertible notes. Other long-term liabilities ended at $44.6 million up from $40.5 million from the prior year end primarily due to an increase in compensation-related liabilities by $3.7 million. Shareholders equity ended the year at $62.1 million, down from the prior year end balance of 71.8 million. The reduction was caused in most part from our share repurchase program.

Using annualized net income for the fourth quarter, our return on equity for the year was approximately 215%, up about 54% from the prior year end. And this is certainly one of the highest returns earned in the industry. Capital expenditures for the quarter were $8.5 million, for the full year, they were $23.8 million, comparable with $24.4 million last year. And we expect CapEx in 2008 to be in the 25 to $28 million range. Looking at cash flow, cash flow from operating activities in the quarter was $37.9 million, and after paying for $8.5 million in CapEx, our free cash was $29.3 million. The annualized per share yield at year end on this quarterly cash flow was approximately 4%. For the full year, cash flow from operating activities was $125.7 million while free cash flow after paying for our CapEx program was about $101.9 million, up about 6.2% from the $95.9 million in free cash that we generated the prior year.

And now if we go to our stock buyback program, a little update, during the quarter we reduced our share count by an additional approximately 415,000 shares at a cost of $54 million. For the full year, we reduced our share count by approximately 1.8 million shares, at a cost of $181.8 million. From inception of the program, we have reduced our basic share count in the aggregate by approximately 15 million shares, at a cost of just over $590 million, or 45% of the shares outstanding at the time the program began in October 2002. This has been a very successful program for our shareholders. By year end it it had contributed to our shares increasing in value over 15 times. With our share price moving from $8.05 at the inception of the program to $124.72 at year end. The return to our share holders from inception has been over 1400%. Significantly higher than the OSX, which rose 310%, or the S & P 500, which rose 83%.

We all know that a stock buyback program alone cannot carry the day in creating shareholder value so let's look for a moment at the operational performance of the company over that same time period. So from 2002 through today. Our revenues in 2002 were $330 million, and now they have more than doubled, and perhaps may reach 770 to $780 million in 2008. And for the most part, that is all from organic internal growth. A real tribute to our international -- our internal technology development and acceptance by our clients of those technologies.

Our EPS back in 2002 was just $0.29 per share. Now we believe that in 2008 our earnings may range from $5.75 to 6 per share. Further, our free cash flow back in '02 was less than $27 million, and now we believe it will be up over four-fold in 2008. So what are our intentions about the continuation of creating shareholder value? We will continue with the very same growth strategies that we have employed since becoming a public company back in 1995. We will continue with internal technology development. We will utilize our global platform to deliver those newly developed technologies, and we will maintain proper fiscal management of the company, all designed to drive shareholder value.

Now finally let's go over our internal financial targets. In 2008 during our last quarter's call we gave our early views on how we thought 2008 might roll out. The basis for those views revolves around our discussions with our oil company clients about their spending expectations for 2008. And we're talking specifically about projects relating to production and production enhancement. We believe these early indications suggest that spending in North America will be relatively flat year-over-year while spending outside of North America may be up somewhere about 20% on a year-over-year basis.

Given that our revenues are sourced about 70% outside the U.S., our view on our clients' spending would suggest that our revenues would be up 15%- plus over 2007, which is reflective of our continuing secular growth. We believe we will grow at a rate 200 to 300 basis points faster than the growth in industry spend. Based on this revenue growth and the earnings impact these incremental revenues will create, we believe that revenues for '08 will increase to the range of $7.70 to 780 million. We believe our incremental margins in 2008 will be similar to those experienced in '06 and '07. Our targets are based on attaining incremental margins of more than 40% in 2008. And assume no material change in our tax rate and no further share repurchases, this would suggest earnings of $5.75 to $6 in earnings per diluted share.

What could cause these targets to change? Perhaps one or more of the risk factors mentioned in our public filings, or a change in tax rate as a result of FIN 48 or otherwise, or in the event share the count changes as a result of our convertible note or the company continues to be opportunistic witnesses share repurchase program. But with this secular revenue growth, and strong incremental margins, earnings in '08 are expected to be up over 21% versus '07. Now when looking more near term to the first quarter, we believe that our revenues will track normal seasonal transitional patterns as we move through and past year end in the typical flat business environment. So for the most part, we would normally expect to see flattish sequential revenues and earnings in Q1 versus the just completed fourth quarter.

That being said, we believe our revenues may be up slightly sequentially to $180 million, which is 16% greater than Q1 of last year. We also expect EPS to be in the range of $1.34 to $1.37, which is 30% higher than Q1 of last year. This would also suggest that we would have incremental margins of up to 50%. And now Monty Davis will provide a more in-depth operational review.

Thanks, Dick. It's a real pleasure to be in a position to discuss another record quarter and record year brought about by the outstanding work of our employees. I want to commend our employees on behalf of all of our shareholders.

Our reservoir description statement reached new record revenues by using Core Lab expertise and technologies to describe the reservoir system for our oil company clients. Intimate knowledge of the porous and permeable rock of the reservoir and the three fluids contained within the reservoir is critical to optimizing recovery. Quarterly revenues, record high of 100 million, a growth rate of 21% over the fourth quarter of 2006, and an annual growth rate of 18.8% for the full year of 2007 compared to 2006. Operating margins reached 25.3%, an improvement of 480 basis points over the fourth quarter of 2006. Our 2007 operating margin for this group was a record 23.9%, 550 basis points better than 2006.

Our reservoir description business in Canada is heavily involved in the oil sands reservoirs. In the fourth quarter we contracted most of our work for the 2008 season, and are expecting very good growth in this play based on our client's 2008 projections. We have expanded our capacity by 50% for the 2008 season and doubled the required freezer space. The reservoir description services that we provide are critical to optimizing recovery, transportation, and designing and upgrading facilities for exploiting the Canadian oil sands reserves. We expect to analyze over 60 miles of oil sands in 2008. In 2007 we experienced very good growth and margin improvement in the Middle East with expanded operations in Saudi Arabia and Qatar.

During my recent visit to Aramco they encouraged us to increase our capabilities in the kingdom. We were awarded a four-year contract in Kuwait and our Abu Dhabi -- we also had our best year ever in the Asia Pacific region with Malaysia, Indonesia and Australia labs each setting records, and a new lab opening in India. Our U.S. operations are setting record revenues and operating profits from international oil projects with advanced analysis requirements and from the unconventional reservoirs in the United States. Reservoir fluid and crude oil analysis and inspection in Europe and the U.S. also performed at record revenue and operating margin levels, analyzing oils from Europe, Africa, and the Middle East, and the deep water Gulf of Mexico. Our production enhancement unit generated all-time high revenues of 63.3 million in the quarter.

Revenue for the full year 2007 is up 9.8% over 2006. This growth was impacted by lower activity in Canada, where our production enhancement services are mainly directed towards conventional reservoirs instead of the oil sands. The downturn in the Canadian market has been more than offset by growth in the broad international and U.S. markets. Our stimulation diagnostics technology spectra scan and SpectraChem continued growth in the resource plays in the U.S. These technologies are used to help design and determine the effectiveness of hydraulic fractures, flow-back contribution, multistage frac fluid cleanup, and offset well communication. This knowledge is used by the oil and gas companies to maximize production from otherwise uneconomical reservoirs.

A major oil company in Alaska injected chemical tracer into 50 wells of a water flood project in 2007 and is monitoring 160 producing wells for the production of the tracers. They are gaining valuable information which they are using to design their polymer flood pilot test later this year. Revenue from our SuperHero perforating charges continues to grow at better than three times the rate of our overall growth of our conventional perforating charges. Clients are seeing the benefit of using these deep penetrating ultra low debris charges, particularly in reservoirs that are being hydraulically fractured. Customers tell us that frac jobs go easier after using these charges to perforate their wells. That translates into less horsepower and even the ability to fracture wells that could not be fractured otherwise. The performance of these charges is resulting in ncreased market share for Core Lab.

A customer in the Rocky Mountain region recently switched to using Core Lab's SuperHERO charges exclusively. They had been shooting a major perforating company's premium charges and were guaranteed 100% open perforation terms. As the customer stated, once we convinced them to try our SuperHERO charges, and I quote, they performed mysteriously well. That client is now benefiting from Core Lab perforating technology on all of their newly completed wells. In December we introduced a new 4.5-inch SuperHERO charge that surpassed 64 inches of penetration and API 19b testing which, to our knowledge, is the best in the industry. The reservoir management segment reported Q4 revenue of $13.3 million -- $13.1 million, and increase of 31.4% over Q4 2006. Growth for 2007 was 36.4% over 2006.

Operating margins reached 34.3% for Q4, nearly doubling the 2006 Q4 operating margins. 2007 operating margin was 28.6%, an improvement of 630 basis points over 2006. Our reservoir characterization and production properties of gas shale study of North America has had three new members join in Q4, bringing the total to 55 consortium members. Through this study oil and natural gas companies learn the best completion methods for their shale assets, how to determine optimum recoverability of hydrocarbons from those reservoirs and methods for gas shale evaluations to select which shales are better investments for their companies. This allows them to obtain production from intervals that were previously thought to be uneconomical and conversely, to identify areas that will be -- will not be economical, thus reducing their risk. This is the largest consortium study we have taken and along with our tight gas sands of North America fracture stimulation optimization where 34 consortium members and tight gas sands reservoir characterization and fracture sometime youlization optimization Phase II international studies with eight initial sponsors make us the leader in the study of unconventional reservoirs worldwide.

These tight gas sands reservoirs have become a new play in several countries in the Middle East and our expertise in evaluating and designing completions for these reservoirs positions us very well to capitalize on these reservoirs and new interests to our client in the Middle East. We will now open the call to questions.

Thank you, sir. (OPERATOR INSTRUCTIONS). We will pause for a moment to compile the Q-and-A roster. Your first question comes from the line of James West with Lehman Brothers.

Good morning, guys.

Good morning, James.

Few let me be the first to congratulate you on another good quarter, and also by bucking the recent trend amongst the larger oil service companies, your competitors of, managing down expectations going forward. Very impressive. On the guidance, you raised revenue expectations yet it seems like you brought your incremental margin expectations down somewhat. I know it's going from up to 50% to more than 40%, so you didn't give exact numbers there, but is there a cost issue ongoing or are you just being conservative since we're in February?

When we look at these incremental margins continue running at 50% or greater as your underlying EBIT margin continually increases, you are going to at some point reach the asymptote. We don't know what that is, but our success in the past has been through additional work in new fields, and additional incremental revenues from the deliverability of new technologies. And if that continues, indeed, our incremental margins still can run at those high levels. But at this point, we got a much clearer one quarter look at revenue, and we felt more confident on guiding up the revenue, and just looking at the incrementals going forward, we felt it best to give the 40 to 50% guidance as opposed to the wording of up to 50%.

And, James, remember, that's exactly what we did last year. We're taking longer term view, so we're just tempering some of our recent incremental margins with some longer historical trends. And so it's blending of that. That's all it is.

Right. This year early in the year if everything continues to run as it it has the past several years, yes, indeed, they may be to that level.

Understood. Dick, on the share repurchase program, how many shares have you guys bought back year to date, and where did the share count exit the fourth quarter?

Share count exiting the fourth quarter was 24 -- if you want to say it maybe another way of putting it would be what should we look it at right now, 24.1 million shares diluted.

Great. And then question for Dave or for Monty, on the SuperHERO charges, I know with the HERO charges you first had a lot of traction in the U.S., then you expanded that product line to the international market. With the SuperHERO charges, is that the same, I guess, trend line? Do you have the same applicability for that technology outside of the U.S.?

Certainly, James, we do. The SuperHERO charge, the first ones were introduced specifically to attack the Barnett Shale market. They have performed extremely well. Their applicability in other rocks has become apparent to many of our customers. As I mentioned just one example from the Rocky Mountains, where we have a customer that switched over exclusively from someone else's charges to exclusively SuperHEROs. We've got a list of people. That's just one example. We will be -- we have already sold these charges into the international market. And as we develop more sizes of charge to use in the SuperHero technology, those will certainly become the premium charge for the international marketplace as well. We have a good international market presence, and we expect those charges to be a leader in that area as well.

Okay, excellent. Thanks, guys.

Okay, James.

Your next question comes from the line of Rob MacKenzie with FBR.

Good morning, guys.

Hello, Rob.

I guess my first question is for Monty. And it relates to some of the things you guys mentioned in the press release. First the acquisition you guys made of Entrada GeoSciences. You mentioned they had annual sales of $3 million. That's without the exposure to Core's extensive experience in the gas shale play. Where do you guys think you can take that leveraging it up with your gas shale study over the next year?

Rob, we certainly feel we can grow that. We wouldn't have bought it otherwise. It's a technology that we wanted to have in-house to handle the gas desorption. We want to develop that into adsorption technology which we can use throughout our gas shale study. At the end of the fourth quarter, we had 55 members in that. The work on that has just now started, but as we bring this technology in-house, and we move out, we haven't announced an international gas shale study, but we're getting demand for that, and this would apply in that marketplace as well. We're going to take this technology and grow it. I'm not ready to put any numbers on that, but we've got significant growth plans for that technology.

And that actually ties in very close well my second question, either to you or to David. You did mention in the press release potential for an international gas shale study. A lot of interest in several different markets. It sounded in the press release like that was pretty much a done deal and that you probably already had people working on it. If so, when do you think we could start seeing an impact on that in the income statement?

First off, let me say the tight gas sand is the first study in that line. We have eight people signed up for that. That's going to grow substantially in '08. We expect to see our revenues from that starting in '08. I was recently in Oman on my trip to the Middle East in January and February, talking to a client about the core that they are going to contribute as part of their company's involvement in that international study, and the best ways to get that core, what kind of core we needed, all the parameters for that. So the gas -- the tight gas sands is committed. We've got the members on board. We will go out and market the gas shale study for international starting later this year, and that will be kicking off -- probably it will be '09 before we see revenues from that.

Okay, great. That's helpful. My next question was, production enhancement, it looks like the sequential growth is not as strong as it has been in some prior periods. Can you comment on any effect you may be seeing either on the pricing side due to kind of a soft U.S. market and or on the volume side, what are you seeing activity-wise there?

Good question there, Rob. On the pricing side, no effect. As has been our experience over the past decade, our technology rollouts are not subject to the sensitivity of prices that maybe other -- some capacity constrained technologies and or service offerings are suspect to -- subject to. With respect to activities, we are quite pleased with the acceptance of the rollout of the new technologies. We would like a more robust North American natural gas market. And with net gas at $8.50 this morning, and if that continues to hold up, we believe that we will see that. But, yes, Rob, in some of the softening of the growth rate of those businesses, no doubt are tied to the softening of the natural gas markets in Canada and the U.S., although we still believe we will see growth in those due to the new offerings and the takeup of the technologies, yes, it has been softer than what it has been in the past. So pricing, no effect, yes, we would like to see a more robust market.

Okay. And then secondarily to that, you mentioned several multiyear contracts in Mexico with Pemex. How much offset or how much contribution do you expect to have from those? When will they hit is kind of the real question there.

Again, three multiyear, multimillion dollar contracts. Again, this is at the behest of Pemex. Most of that work will be offshore with the target to try to decrease the accelerating decline curve rates of these critical fields to Mexico and their production, and the takeup of those contracts will start here in the second quarter, but again, I'd like to say that with anything else within Core, nothing is revolutionary. It will all be incremental adds to revenue, feeding to the incremental margins that we see in that business. So, again, just incremental adds to the revenue.

Okay. On the reservoir management side you mentioned in the third quarter call that results in the third quarter were depressed somewhat by delayed shipment of a permanent reservoir monitoring system. I presume that hit this quarter, correct?

That is correct. When you have a unit that's that small, with relatively large contracts, they can move easily quarter to quarter over a quarter, and the fourth quarter was a better quarter for that reason. And because we had several new members join studies.

Okay. So how should we think about the next quarter going forward, if the fourth quarter had a lumpy event in it, should we think of it sequentially lower or the growth in the study is going to more than offset that?

It could be lumpy, Rob. We haven't given any guidance for the specific three segments within Core, but certainly if we look at last year, put some reasonable growth on that, I think you will get a reasonable idea for your model on what you should put in there.

Okay, great. Thanks. I'll turn it back for now.

Okay, Rob.

Your next question comes from the line of Kevin Pollard with JPMorgan.

Thanks, good morning, guys.

Good morning, Kevin.

I had a couple questions on your new revenue guidance. You've raised it approximately $30 million from the last quarter, kind of midpoint to midpoint. I was wondering if there was one of your three segments that you see changing more -- that you're more positive on, or if that's more spread across all of your business line.

I'd say, Kevin, it would be spread over all three business lines. However, if you've seen over the last three-quarters the internal growth rate is still accelerating so I would look for the up side to occur there. If we do get a more robust North American natural gas market, I think will you get additional contribution from production enhancement, and I still see we see a nice 20% growth rate in reservoir management. But most of the concentration would be up in the reservoir description area as this tends to be our most international and most oily segment of Core's three reporting segments.

So if we kind of think about your total revenue growth forecast kind of in the plus 15, 16% range, and assume North America is kind of flat, then you could -- it it would be fair to say production enhancements a little bit below the overall growth rate, one of the other two segments above, is that a fairway to think about?

Yes.

Thanks. And then if I could switch over to your Canadian comments, I think you had said Canadian revenue would be up approximately 20% in '07, driven largely by the oil sands. Would you --

That comment referred to our revenue gains year-over-year in Canada for Q2.

I see. Okay.

Referring to the oil sand -- owing to the oil sand work that we contracted in the fourth quarter of 2006 that was done in the second quarter -- the first quarter and second quarter of 2007.

Okay. And so your capacity 5% up there for '08, is that incremental capacity essentially sold out since it sounds like you've backed most of your '08 work, or due have room for more?

The way that works, the way that market flows, we are currently getting cores, they're taking the cores now. The work is mostly done in the second and third quarters with analyzing and reporting, and in the fourth quarter, it's mainly in the contracting and getting ready for the next year. The best statement I can make on this is we told you we did a little over 40 miles through the third -- at the end of our third quarter call, which was really the end of the working season there. And I've just told you that we did expect, based on contracts and our customers' expectations to retrieve cores, over 60 miles this coming year. So we are pretty much at capacity, expecting to be, and that is pretty much all contracting.

All right, thanks, Monty. That's all I had, guys.

(OPERATOR INSTRUCTIONS). Your next question comes from the line of Tom Escott with Pritchard Capital.

Good morning, fellows.

Good morning, Tom.

Follow-up from one of the guys earlier questions about the production enhancement segment. You pointed out that potential revenue growth was slow in that segment for the reasons you stated. Revenue up $1.27 million in the quarter, but then operating income up $1.8 million. More than 100% incrementals there. Can we pretty much all attribute that to big penetration and outsized margins on the SuperHERO product, or can't you just tie it to the one thing necessarily?

Can't tie it to one, but I think you're on to something there, Tom. The SuperHERO product line, as Monty said, is beg expanded outside of applications of the gas shales is and we're seeing the uptake that we're very pleased with, so any incremental revenue gains there pretty much do all fall to the bottom line. So I would say a large part of that you are indeed correct.

Well, that's a sweet thing to have, isn't it?

Yeah, the SuperHERO is turning out to be a real winner he for us. We were very pleased with certainly our Hero technology, and with this latest 4.5-inch charge data that we are now starting to produce for our clients, absolutely fantastic.

And then my second question is, you spent a lot of time on this call, various people talking about how excited you are about your new products, new offerings that are gaining good acceptance from clients, good pricing power. Of the 670 million revenue this last year, is there any way to tell, percentagewise, what amount of that was from, let's say, new products, new offerings within the last year?

Within the last years it's difficult. But if we look over a three-year look-back, we would say as much as 30% of that.

Okay, thank you.

Your next question is a follow-up from Rob MacKenzie with FBR.

One quick follow-up, guys. I know you mentioned a little bit in your prepared commentary but I wanted to get some more detail on how some of your missable flood trials are going and when you might think we could see some real commercial penetration of that technology.

Good point, Rob, on the missable gas floods. Still main projects in the North Sea and the Middle East, large fields, actually looking for some applications in Kuwait for some of the heavier he oil deposits there that certainly mass missable gas technology we think will fit in very nicely for them. Again, right now, starting to roll out incremental gains on revenue. Maybe bigger impact later this year, so stay tuned to that, Rob. We're very pleased, especially in the Middle East where Monty mentioned the number of ER projects has increased significantly in our Abu Dhabi advanced technology center. So good news along the lines of missable floods. 2009 could be a good year for us there. We will try to keep you posted each quarter on the project of of the missable gas floods. The release this quarter was so long because he we had a lot of things that happened there that we didn't put a section in on missable gas floods. I think we'll return to that in our Q1 update.

Thanks.

Your next question comes from line of Thad Vayda with Stifel Nicolaus.

Quick bookkeeping question in reservoir description, third quarter margins were extraordinarily good. They've fallen off a little bit. I know that these tend to be lumpy. But is there anything we should think about going forward?

No. Go ahead, Dave.

Thad, that's typical seasonal patterns. That's not uncommon. We're not aware of anything that would change from our normal seasonal pattern.

Great. Thank you very much.

Okay, Chrystel, I think we're going to go ahead and take the last question, if we have one?

(OPERATOR INSTRUCTIONS). And there are no further questions.

Very good, Chrystel, thank you very much. In summary, Core posted our most profitable quarter in the company's 76-year history. We have never been better positioned technically to help our clients expand their existing production base. We remain uniquely focused, and are the most technologically advanced reservoir optimization company in the oil field services sector. This positions Core well for continued growth in 2008. So in closing, we would like to thank all of our shareholders, the analysts that follow Core, and especially all of our hard-working employees for spending our birthday morning with us, and we look forward to our next update at the end of the first quarter of 2008. Thanks and good-bye.

This concludes today's conference call. You may now disconnect.