Core Laboratories Inc (CLB) 2008 Q2 法說會逐字稿

Good morning. My name is Chris and I will be your conference operator today. At this time I would like to welcome everyone to the Core Labs Quarter Two 2008 Earnings conference call. (Operator Instructions)

Thank you. Mr. Demshur, you may begin your conference.

Thanks Chris. I'd like to say good morning to all of the folks in North America, good afternoon to those in Europe, and good evening to those in Asia Pacific. We'd like to welcome all of our shareholders, analysts, and most importantly, our employees to Core Laboratories second quarter 2008 earnings conference call.

As usual, I am joined by Dick Bergmark, Core's Executive Vice President and CFO.

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. Then we'll come back and give a brief consolidated company overview, touching on some financial and operational highlights. Then we'll go back to Dick, who will give a detailed financial overview. And then we'll turn it over to Monty, who will go 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 then we'll open the call for Q&A.

I'll turn it back over to Dick for remarks regarding forward-looking statements.

Dick?

Thank you, David.

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 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 materialize 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 a 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, 2007, as well as our other reports and registration statements filed by with us the SEC.

Now with that said, I'll pass the discussion back to David.

Good. Thanks Dick. I'd like to look at a consolidated company overview. Core's operations once again posted our most profitable quarter in the Company's 72-year history. It was an excellent quarter, but our operations believe they can still do better, so stay tuned.

During the second quarter, Core's operations under the direction of Monty Davis delivered all-time quarterly records for revenue, operating income, and operating margins. The quarter marked the 13th consecutive quarter in which Core's operations posted record revenues and the 10th consecutive quarter for posting all-time highs for operating income from operations.

During those 13 quarters, Core has spent approximately $79 million for capital expenditures, during which time the company has generated over $461 million of operating income from continuing operations. In addition, over that 13-quarter period, every new dollar of CapEx has helped Core generate approximately $3.50 of new revenue for the Company. Core's low CapEx needs, our 2008 CapEx will be slightly higher than our annual depreciation, plus the leverage and scalability of Core's worldwide operations has enabled the company to generate significant amounts of free cash flow. And actually during the second quarter of 2008, we generated record levels of free cash flow.

Yet, once again in 2008, Core's CapEx will be approximately 3% of our total annual revenues against the industry average of 12% to 15% of their 2008 revenues. Core's CapEx equaled about $1 a share last year. And it's projected to equal a little more than $1 a share in 2008.

This CapEx will be invested to grow our international operations, build out the Canadian Center for Unconventional Oil and Natural Gas Evaluations, and construct a large laboratory facility to consolidate operations in the Gulf Coast of the United States.

We believe with Core's current infrastructure, the company can generate annual revenues in the $1 billion range, up from $900 million range that we suggested for last year.

Core's future opportunities continue to be international and crude oil-related as the Company realized almost 50% revenue growth from the Middle East and 26% revenue growth year over year from the Russian Caspian region. The Catoni Persa acquisition that we talked about a couple of weeks ago will help strengthen our growth prospects in the Caspian region. Incidentally, the company has just received commitments for getting thousands of feet of core -- carbonate cores from a couple of Iraqi fields -- that will now undergo evaluation for the expansion in their productive capacities. Also the development of non-conventional natural gas reservoirs worldwide and the oil sands in Canada will play an important role in our future growth as indicated by our new Canadian Center. Year-over-year revenue growth in Canada was 26% while US growth was 16%. 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 received the highest technical and quality ratings from a major oil company that is one of Core's biggest clients. Revenue generated from characterizing and inspecting crude oil and its derivatives, natural gas, and formation waters now exceeds 50% of all company revenue.

The pressure, volume, and temperature or PVT and phased behavior-related data sets are critical components, along with measured petro-physical or rock data sets needed to optimize reservoir performance. This is especially the case for deepwater reservoirs, where pressures can exceed 20,000 psi and temperatures can exceed 400 degrees Fahrenheit. Core's continued technical leadership in deepwater fluid phase behavior studies and reservoir rock studies is unsurpassed by any other oil field service company.

In Production Enhancement, the effectiveness of Core's SuperHERO, ZeroWash, SpectraScan, and SpectraChem technologies being used in these multistage, simultaneous hydraulic frac stimulations in which up to four adjacent horizontal wells in these gas shale reservoirs such as the Barnett are leading to higher initial production rates and higher ultimate recovery rates.

In the past, Core has touched these shale reservoirs once or twice, analyzing core samples and gases. With these new bundled services, Core can touch these unconventional reservoirs up to seven times. $30,000 jobs are now becoming $300,000 jobs.

Also Core's proprietary and patented tracer technology is playing a critical role in evaluating the effectiveness of these so-called zipper fracs. Zipper frac technology and Core's role will be detailed by Monty in the operational review.

In Reservoir Management, Core's gas shale joint industry projects now include every technologically sophisticated client exploiting these reservoirs in North America. When it comes to gas shale plays, simply put, clients recognize that Core Labs helps them maximize their cash flow from non-conventional natural gas reservoirs.

We believe at Core that gas shale plays are going to define and dominate activity growth in North America over the next several years. Monty will give a more technical update on Core's new promising technologies, such as the improvement in our SuperHERO and HERO technologies, both of which have been improved in their effectiveness of generating deeper perforating tunnels with low debris.

Our pipeline for new reservoir optimizing technologies and services remains strong, which indicates a bright future for Core.

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

Dick?

Thank you, David.

Revenues for the quarter, $197.7 million versus $168.4 million in the second quarter of last year and $179.4 million last quarter, so revenues were up 17.4% year over year and sequentially revenues were up 10.2%.

Of these revenues, product sales for the quarter were $43.7 million, up 3.5% when compared to $42.2 million in last year's second quarter. Importantly, however, product sales relating to our well completions and perforating system were up 13%, almost double the 7% year-over-year increase in US rig count.

Services for the quarter, $154 million, up when compared to $126.2 million last year, so an increase of $27.8 million or 22%.

Moving over to cost of sales, in the second quarter, our cost of sales were 71% of revenues, up slightly from 70% for all of 2007.

In cost of services for the quarter, they improved to 65% from 67% year over year. The improvements over prior year were primarily driven by the continued growth in our incremental margins as a result of additional revenues running through our relatively fixed cost structure.

G&A for the quarter, $7.2 million versus $9.7 million in last year's second quarter. Our G&A costs have decreased from last year, primarily due to a decrease in executive compensation in 2008. Our G&A costs continue to decrease as a percentage of revenue, now down to 3.6% for the quarter as compared to 5% for all of 2007. And for 2008, we expect G&A to come in around $32 million to $34 million.

Depreciation and amortization for the quarter was $5.3 million, up slightly from the $4.9 million incurred last year in the second quarter, which reflects increased levels of capital expenditures during 2007 and 2008. We expect depreciation in '08 to total approximately $21 million to $22 million.

Other income this quarter is in the amount of $676,000, primarily from gains from the sale of assets, interest income, and other miscellaneous items.

EBIT for the quarter was $55 million, which is up $13.1 million or 31.3% over prior-year second quarter and up 12.2% sequentially from the adjusted EBIT of $49 million we reported in the first quarter.

Our second quarter EBIT represents operating margins of 27.8%, up 290 basis points compared to margins of 24.9% in last year's second quarter.

On a year-over-year basis, our incremental margins in the quarter continued to excel and were approximately 45%.

Our continuing improvement in margins has been driven by the successful introduction of new technologies and services, further penetration into additional fields, 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 $5.08 million for the quarter, which includes a one-time, non-cash interest expense charge for the write-off of deferred financing costs associated with our $300 million convertible notes. In the second quarter, our share price exceeded $123.19 for an extended period, which enabled the note holders the option to convert the notes into Core Lab common shares. Although we do not expect the holders of these notes to convert early, US GAAP does require that we classify the notes as short term and also expense any associated deferred financing costs.

Income tax expense was $16.2 million, which is an increase over the prior year's second quarter expense of $12.5 million. And that's primarily due to higher taxable earnings in this quarter and a slightly higher tax rate.

We expect our effective tax rate in 2008 to be in the 32% to 33% range, perhaps 32.6% for the full year.

Net income for the quarter adjusted for the one-time, non-cash interest charge that was noted earlier was $36.9 million compared to adjusted $32.9 million reported in the last quarter and last year's second quarter income of $28.8 million. So on that basis, net income for the second quarter was up 28.1% year over year and 12.1% sequentially.

Earnings per share as adjusted was $1.51 compared to $1.49 reported as First Call's mean Street estimate. And this also compares to that $1.18 earned in the second quarter last year. So earnings are up 28% year over year.

Now if we look at the balance sheet, cash was up by $29 million to $54.6 million compared to the prior year-end balance of $25.6 million. Receivables stood at $149.1 million, up from $137.2 million at year-end. And this is due to higher business activity levels. Importantly, though, DSOs improved in the quarter and are now at 68 days, which is down from 74 days in 2007.

Inventory was up $2.3 million from year-end, but slightly lower than a year ago. Importantly, inventory turns improved to 3.9 or by 8% when compared to the same period in the prior year. And we expect this to improve throughout the year with the normal seasonal increase in product sales.

Our current assets were $42.6 million, up from $28.5 million at last year-end, primarily as a result of our setting aside $13 million in escrow for the acquisition, which was completed in July. Short-term debt with the early conversion option becoming available this quarter to the note holders, our $300 million convertible notes are now classified as short term rather than long term.

PP&E was up $2.3 million to $95.3 million due to our expansion and reinvestment in our capital assets. Other long-term assets were down $10.4 million from year-end with the primary change in the second quarter coming from the write-off of the deferred debt acquisition cost of $4.8 million. And there are no material changes in intangibles and goodwill.

And now if we look at the liability side of the balance sheet, our accounts payables were $38.7 million, down about $1.2 million, primarily due to the timing of vendor payments.

Other current liabilities down $6.6 million to $51.6 million due to a reduction in insurance premium payables of $2.3 million and a reduction of taxes of $2.5 million. Other long-term liabilities ended at $54.9 million and remained unchanged from last quarter-end.

Shareholders' equity ended the quarter at $109.3 million, up from the prior year-end balance of $62.1 million, and the increase is a result of net income generated during the year, primarily offset by our share repurchase program.

Using annualized adjusted net income for the second quarter, our return on equity for the year is approximately 135%. And this is certainly one of the highest returns earned in the industry so far announced this quarter.

Capital expenditures for the quarter were $8 million, up from $5.1 million in the prior year's second quarter. And we expect CapEx for 2008 to be in the $25 million to $30 million range as we continue to invest for growth, including our recently-announced Unconventional Oil and Natural Gas Evaluation Center in Canada and our new Gulf Coast petroleum testing facility, as David mentioned earlier.

Looking at cash flow, cash flow from operating activities in the quarter was $48 million. And after paying for the $8 million in CapEx in the quarter, our free cash flow was about $40 million.

The annualized per-share yield on that quarter-end quarterly cash flow was approximately 4.6%. This free cash will be used to pay the just-announced quarterly dividend of $0.10 per share, which in total amounts to approximately $2.3 million, and to pay the special dividend of $1 per share, which in total amounts to approximately $23 million.

The remainder of the quarter's free cash was used to fund a portion of the Catoni Persa acquisition. Since more than the full amount of the second quarter free cash was allotted to paying dividends and the funding of the acquisition, no company shares were repurchased during the quarter.

As a side note, at our recently held annual general meeting on May 28th, we did receive shareholder authorization to repurchase up to 10% of our outstanding shares until November 28, 2009. So with that authorization, we could repurchase up to approximately 2.3 million shares over the next 18 months.

We believe our ability to combine recently announced quarterly and special dividends with additional share repurchases provides even greater opportunity for us to maximize shareholder value.

Okay, now let's go over to our internal financial targets for 2008. On prior calls, we have discussed our views about spending by our oil company clients on projects relating to production and production enhancement. Earlier in the year, our belief, and that of most industry analysts, was that spending in North America would be relatively flat year over year while spending outside of North America may be up somewhere above 20% on a year-over-year basis.

And given that our revenues are sourced about 70% outside of the US, our view of our clients' spending would suggest that our revenues could be up 15% over 2007.

However, based on recent, encouraging announcements by our clients about increasing their spending in North America later in 2008, we believe the backdrop is now in place to suggest that industry activity will, in fact, increase in North America. The only question is when will it actually show up?

Remember that talk of increased activity has to turn into increased activity before we will get a revenue opportunity from it. So rig count this -- so far this year in the US is only up 7%. With that being said, we do expect our revenue to increase by about 18% in 2008 versus 2007.

So based on these spending expectations, we believe that our revenue growth and the earnings impact these incremental revenues will create should generate revenues in 2008 in the range of $785 million to $795 million, up from our prior guidance of $775 million to $785 million.

We also believe that our incremental margins in 2008 will be similar to those experienced in '06 and '07 and our targets are based on attaining incremental margins of more than 40% in 2008.

And assuming no material change in our tax rate and no further share repurchases, this would equate to $6.05 to $6.15 in earnings per share, which is higher than our initial guidance for the year of $5.75 to $6.

So we raised the lower end and also raised the top end. And it is about 26% higher than year-earlier totals.

Now what could cause these targets to change? Perhaps one or more of the risk factors mentioned in our public filings or a change in the tax rate as a result of FIN 48 or otherwise or in the event the share count changes as a result of our convertible note, among others.

With this secular revenue growth and strong incremental margins, earnings in '08 are expected to be up about $1.14 per share versus 2007.

When looking more near term to Q3, we believe our revenues will be up year over year in the range of an 18% to 24% increase to about $200 million to $210 million. We also expect EPS to be up 20% to 25% from the $1.29 reported in the third quarter of '07. So EPS next quarter may be in the range of $1.55 to $1.61. This suggests that we would have incremental margins exceeding 40% and also that our tax rate will be in the 32% range, along with a diluted share count of 24.4 million.

So now I'd like to pass the discussion over to Monty Davis, who will provide a little more in-depth operational review.

Thank you, Dick.

The second quarter of 2008 was a very solid performance for our operations, setting new records and for the first time all segments topping 25% operating margin. I congratulate and thank our employees for their success in meeting our clients' needs.

The Reservoir Description group reached a record $114 million revenue for the quarter. That's a 14% sequential growth over Q1 and 22% growth over Q2 2007. Margins improved to 25.3%, which is 250 basis points better than Q2 2007 and Q1 2008.

We completed the majority of evaluation on a record 55 miles of oil sand cores in Canada during Q2. These analyses are critical for optimizing oil sands, project recovery, transportation, and the upgrading facilities.

We expect significant growth for the 2009 oil sands activity and are once again increasing our capacity 40%.

We are steadily advancing the development of our new Canadian Center for Unconventional Oil and Gas Evaluation in Calgary, Alberta. This center will lead the way in evaluating gas shale cores that will be critical in developing the gas shale reservoirs in British Columbia and Quebec.

The Muskwa and Utica shale plays will be developed in the coming years and we believe this will be a very significant business opportunity for a long time. We'll talk more about this at the -- in the third quarter conference call.

In the Middle East, our Abu Dhabi operations completed a significant enhanced oil recovery study in June that was very important for our client to maximize a new refinery investment.

Saudi Aramco officials have requested additional sets of advanced rock properties evaluation equipment, especially proprietary Core Lab technology related to dynamic flow studies used to increase daily production in the field.

Our Production Enhancement team had another record quarter with 7% sequential growth over Q1, even though a long road ban period in Canada affected Q2 revenue. And we achieved 18% growth over Q2 2007.

Margins for this quarter were 560 basis points higher than Q2 2007 at 32% for the quarter.

Our fracture evaluation services are seeing record high demand, mostly in the US, where our ZeroWash and SpectraChem tracers and SpectraScan diagnostics are leading the way in enabling clients to optimize their fracture stimulations in many reservoir plays being exploited.

Deepwater clients around the world are relying on SpectraStim, SpectraScan, and PackScan for evaluating their frac packs. Utilizing SpectraScan and PackScan together, operators get two independent, corroborating evaluations of the frac pack effectiveness. This helps them determine if the down-hole production equipment is protected before starting production. They can now get immediate feedback as to whether they can produce their newly frac packed well or if the completion needs to be pulled and redone.

On a recent deepwater completion, the operator had to redo the frac pack multiple times in order to get the proper completion and protection on the down-hole production equipment. The cost of recompletion is high, but the alternative would've been losing the well. By using our technologies, the operator can produce the well with confidence.

Our SuperHERO charges are continually shown to outperform all others in the market. The performance of our charge systems greatly enhance the fracture stimulation of tight reservoirs. By using the SuperHERO perforating charges, our clients have consistently seen a lower breakdown pressure requirement for fracturing their reservoirs.

One customer in the Rocky Mountains reported that they had never been able to get off more than four fracs a day on their staged work. Now using our SuperHERO perforating charges, they are averaging six fracs each day. This results in a huge savings to our customers.

Our SuperHERO charges in 3 1/8 inch, 3 3/8 inch, and 4 1/2 inch sizes are the deepest penetrating in the market, as well as generating ultra-low amounts of debris in the perforating tunnel.

Additionally, recent developments in our patented powdered metal lining technology are expected to increase penetration from our whole line of HERO and SuperHERO charges up to 15%.

Core's ZeroWash, SpectraScan, and SpectraChem fracture diagnostic technologies are helping to optimize the superior performance of multistage simultaneous fracs. In addition, these proprietary tracer technologies are being used to evaluate oblique stress fields that are created in the reservoir zone using alternating and diagonal, rather than offsetting, staged frac patterns.

The effectiveness of these so-called zipper fracs is currently being evaluated for multistage frac programs in the Barnett and several other prominent gas shale reservoirs. Frac sequences, that with as many as 10 to 15 stages, are proving to be very effective in reservoirs with certain geo-mechanical and petro-physical properties.

Core believes that the success of large scale, multistage, simultaneous, and zipper fraced programs will not be limited to gas shale reservoirs, but will be applicable also to silica-rich hard rock reservoirs around the world.

Our Reservoir Management group generated $12 million in revenue and 25% operating margin in Q2 2008. Revenues are on a par with Q1 but lower than 2007. This business is subject to larger variances quarter to quarter due to the size and nature of the business. In Q1 and Q2 of 2007, we delivered very large reservoir monitoring equipment orders to PDVSA in Venezuela and do not expect that level of business out of Venezuela in 2008.

We are expanding on our North America gas shale project with 60 customers and we are initiating another joint industry project focused on the prolific Haynesville and Bossier gas shale plays in East Texas and North Louisiana. This project currently has 12 participating companies that will benefit from Core's expertise in evaluating the geological, geochemical, petro-physical, and stimulation aspects of this gas shale so that our clients can complete these wells to optimize their reservoirs.

Core also now has 15 participants in its Marcellus shale project in the Appalachian region of the United States.

With that, we'll now open the call to questions.

(Operator Instructions.) Your first question comes from James West with Lehman Brothers.

Hey, good morning, guys.

Good morning, James.

David or Monty, this conversation you were having about zipper fracs I think is very interesting. And you've laid out a scenario I guess early in the call about your revenue potential from various shale wells being up to $300,000 I guess per well.

What does this, I guess this new type of frac, what does this add to the potential per well?

Unknown at this time, James, because I still think it's early days. But the more stages and the more complexity of the staged simul-fracs plays well to us because the more stages you need, the more perforating charges you're going to use and the more of our tracer technology that you're going to be using. So the demographics of that is working in our direction.

Monty?

James, I'd also add that it shows more importance, as I illustrated with the example I used on a client in the Rockies, to be able to get off more frac segments in a day or in a -- in one go -- and that's where the SuperHERO by allowing lower breakdown pressures allows that to happen. So I think the SuperHERO charge use will become even more important in those zipper fracs-type wells.

Yes, you guys have no doubt seen some of these locations that are just chock full of pressure pumping horsepower, fluids containers, and also profit containers, if you can just reduce that footprint let's say by half at the well site, the cost savings and just from a logistical standpoint are big, big winners. So even though you pay a premium for SuperHERO charges, at the end of they day, your return on your investment far outweighs that increase in cost.

Okay, that makes a lot of sense. A question on the Production Enhancement business, the margins, and I'm looking sequentially, were roughly flattish, but they were up pretty significantly year over year. And that's probably the better way to look at it anyways, that year-over-year improvement. Is that the type of improvement we could see going forward for the next several quarters?

Well, for one thing, the reason they're not up sequentially is because of the fact of the Canadian breakup. It's a seasonal effect every year, although this year it was a little worse than -- a little longer period than normal.

As far as if you're asking me do I think we're going to go from 32% to 38% next year, I think that's a - that'd be a pretty extreme case. I think we have room for improvement. We're going to continue to see margin improvement. We have indications from clients and big hope that the Canadian market is going to be accelerating through the rest of this year. And if our clients are able to actually do that, we should see benefit as we go forward through the rest of the year.

Okay, and then just the last question from me on the -- this North American recovery or acceleration that we're hearing a lot of talk about and we're seeing the capital budgets being raised pretty much across the board here -- you had mentioned that it's not quite showing up in the numbers at this point. If we think about the rig count that's up 7% and moving quickly higher in here, when should we expect to see the benefits in Core's numbers?

Yes, it depends on what play we're looking at, James. Of course, we can drill these wells in the Barnett a lot quicker than we can let's say in the Haynesville and the Marcellus. So if we're adding rigs to the Barnett, we would see that probably quicker revenue opportunity. As Dick mentioned, we've got to get the rig on site and we've got to get down hole. If you're adding rigs to the Haynesville/Bossier or the Marcellus, certainly our revenue opportunity will be later in the year, maybe fourth quarter or spilling into next year.

So we really don't see any big ramps that we're going to see in the third quarter, probably more fourth quarter going into the first part of next year.

Okay, great. Thanks, guys.

Your next question comes from Rob MacKenzie with FBR.

Good morning, guys.

Good morning, Rob.

Dave, I've got a question for you related to the Marcellus. One of the issues that's been talked about has been regulatory problems with drawing enough water, 1 million gallons or so, to frac some of those wells in the Susquehanna River Basin there. Is there anything you guys think you can do geomechanically to make the -- get the same outlook with a smaller frac?

At this point, probably not. One of the things that will limit the Marcellus and any stream in Pennsylvania, the -- you're only allowed to withdraw about 20,000 gallons a day of water, times that by 30, 600,000 gallons a month, and you're right, you're going to need 1 million gallons-plus for these fracs to take place. And so that will become one of the problems.

When looking at the ability to create a denser fracture field, although one has not been attempted in that area, zipper fracs might be an answer to that. And in these zipper fracs, what we're finding is as opposed to these rocks being simply fractured, these organic-rich shales we believe are splintering. And this splintering aspect is exposing a lot greater surface area of the shale so we can freely flow gas into the splinter and fracture network to the well bore.

So I think early days for the Marcellus and certainly the amount of water available, going to be a challenge.

Okay. And switching gears back to oil, which is still a big contributor, you bought Catoni Persa in Turkey. Can you give us a feel for what you think the potential growth out of that lab is in that region and what else you're seeing on the leading edge in the major oil markets?

Yes, I'll start by just saying I think that's just an expansion plan we have for that region because we are seeing opportunities in that region increase. We had mentioned our opportunity coming in Iraq with thousands of feet of carbonate core being promised to us. I don't think we look at these things as being revolutionary growth in any area, but evolutionary growth. And the Catoni Persa facility I think makes a nice footprint for possible expansion. And I'll see if Monty wants to add any more to that.

Well, I think it's really early days -- we just acquired that -- to project how much growth that'll bring to us. It certainly opens up the possibility of some good opportunities to increase the service base that they had using their footprint and their contacts in the market, their customer relationships. So hopefully -- that's our plan. But I think it's too early to put any numbers on that.

Okay, thanks. And going back to David, David, at one point in the past, you mentioned the possibility of splitting the shares, perhaps associated with a change in domicile. Can you update us on your thinking there?

Yes, I'll turn that over to Dick.

Yes, Rob, you know we had looked at a share split a few years back. And with the share price where it is now, the amount of float that we have, we're certainly looking at that again. It may make sense for us to do that. Just remember that it does take a shareholder vote. So if it came up, it would probably be on next year's proxy.

Okay, thanks. And final question, Dick, for you on the dividend program, how should we think about this special dividend you're going to pay coming up here shortly? Any possible recurrence of that? How should we model the cash flow statement?

Yes, I think in the earnings release, we were pretty clear about that special dividend being a one-off. And any future dividends of a special nature, we'd have to look at our current financial position, our earnings outlook, all of those things.

Okay. Thanks. So we shouldn't model any further special dividends then?

I think you can model in the quarterly dividend.

Fair enough. Thanks guys. I'll turn it back.

All right.

(Operator Instructions). At this time, you have no further questions. Mr. Demshur, do you have any closing remarks?

Yes, thanks, Chris.

In summary, Core's operations posted our most profitable quarter in the company's 72-year history. We have never been better technologically positioned 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 and this positions Core well for continued growth in 2008.

So in closing, we'd like to thank all of our shareholders, the analysts that follow Core, and especially all of our hardworking employees for spending their morning with us. And we look forward to our next update at the end of the third quarter of 2008.

Thank you and goodbye.

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