Good morning, and welcome to the Core Laboratories Q4, 2017 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Demshur, Chairman, and Chief Executive Officer. Please go ahead.

Thanks, Brandon. I'd like to say 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 2017 Earnings Conference Call. This is our 90th quarterly earnings release. This morning, I am joined by Dick Bergmark, Core's Executive Vice President and CFO; Core's COO, Monty Davis, who will present the detailed operational review; Chris Hill, Core's Chief Accounting Officer; and Gwen Schreffler, Core's Head of IR. The call will be divided into five segments: Gwen will start by making remarks regarding forward-looking comments. Then we'll come back and review the announcements regarding personnel moves at Core and comment on the current macro environment, updating industry trends that should be beneficial to Core. We will then review Core's three financial tenets, which the Company employs to build long-term shareholder value. And Chris will follow with a detailed financial overview and additional comments regarding building shareholder value, followed by Gwen commenting on Core's first quarter 2018 outlook and a general industry outlook as it pertains to Core's prospects. Then Monty will come and give a detailed review of Core's two operating segments, detailing our progress and discussing the continued successful introduction of new Core Lab technologies, and then highlighting some of Core's operations and major projects worldwide. We will then open the lines to a Q&A session. I'll now turn it back to Gwen for remarks regarding forward-looking statements. Gwen?

Before we start the conference call 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 market, 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 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, 2017, as well as other reports and registration statements filed by us with the SEC and the ASM. Our comments include non-GAAP financial measures, reconciliation to the most directly comparable GAAP financial measures included in the press release announcing our fourth quarter results. Those non-GAAP measures can also be found on our website. With that said, I'll pass the discussion back to Dave.

Thanks, Gwen. First some comments on personnel moves at Core. We continue to expand and strengthen our executive management team. Gives us great pleasure to announce the promotion of Larry Bruneau to President of Core Lab. Larry, a 20-year veteran at Core has been instrumental in creating the waves of new technologies and services that Core has rolled out over the past decade plus. Larry, who many of you have met at energy conference and sponsor of our Houston facility tours will work beside Monty Davis in guiding worldwide operations. Larry and Gwen will also take more of a leading role in future energy conferences and industry interactions. It also gives us great pleasure to announce that Chris Hill will become Core's Chief Financial Officer in May 2018 succeeding Dick Bergmark. Many of you also know Chris through investor interactions and energy conferences, and he is well regarded by analysts and investors worldwide. Chris has held various global roles for Core in both finance and accounting, including a three-year stint in Amsterdam and he is a welcome addition to Core's executive team. Dick Bergmark, the architect of Core's three financial tenets will continue to serve as an Executive Vice President until his retirement at the end of 2018. Under Dick's tutelage Core has grown from $38 million management buyout to a company with a market cap now exceeding $5 billion creating shareholder value every step of the way. As has been stated on numerous occasions, Dick is the best wingman a CEO could ever be blessed with. He has made everybody on the executive management team of Core, especially, me, better at their jobs. Dick is not getting away that quick though, as you will continue to see him at energy conferences and investor gatherings throughout the rest of 2018.…

Thanks, David. Before I provide the financial update, I would like to say that I feel very honored to assume the CFO role for Core Lab as Dick’s successor. It has been a privilege working with Dick and I'm grateful for the development and support from Dick, David Demshur, Monty Davis and the Company over the last 10-plus years. As Dave mentioned in my Investor Relations role, I have met or spoken with many of you participating on the call through investor conferences or visits and tours at our facility, and I look forward to continuing those relationships in the future. Now looking at the income statement. Revenue was $172 million in the fourth quarter, up almost 15% from the fourth quarter last year and up 3.4% sequentially. Both Production Enhancement and Reservoir Description contributed nicely to the improvements this quarter. For the full year, revenue was $660 million, so up about 11% over 2016. Of this revenue, service revenue, which is more international was $126 million, for the quarter up 9% year-over-year and up 7% sequentially. The growth in this quarter is primarily attributable to the continued strengthening of our well completion diagnostic services in the U.S. market. Product sales, which are more tied to North American activity were $46 million for the quarter and up 34% year-over-year. Our product sales in the U.S. grew over 60% compared to 2016 and at a faster pace than the 49% growth in 2017 for completion activity as published by the EIA. Moving on to cost of services for the quarter, our 69% of service revenue and improvement from the third quarter and in line with earlier quarters. For the full year, cost of services averaged 69%, a slight improvement over 2016 as our service operating margins continue to be some of…

Thank you, Chris. We believe first quarter 2018 international E&P activity levels will be flat from the preceding fourth quarter levels with most ongoing international development projects to be funded largely from the operating budgets. We expect the average first quarter 2018 U.S. rig counts to be similar to the fourth quarter of 2017 levels with completion activity to continue at the current improving pace. Therefore, we do not see a change in our typical seasonal pattern of Q1 revenue in earnings being sequentially flat to slightly lower than the preceding Q4 level, as has been the case in five of the last seven years and similar to Q1 guidance recently provided by other major international oilfield service company. As a result of this typical seasonal pattern, we project first quarter 2018 revenue of approximately $168 million to $172 million and operating income of approximately $32 million to $32,700,000 yielding operating margins of approximately 19%. EPS for the first quarter 2018 is expected to be approximately $0.56 to $0.58. The first quarter midpoint guidance represents a year-over-year improvement in revenue by 8%, operating income by 33% and EPS by 36%. This initial first quarter 2018 guidance includes gains and losses in foreign exchange and assumes an effective tax rate of 15%. First quarter 2018 free cash flow is expected to exceed net income and we expect we will continue to return all excess capital to our shareholders during the quarter via dividends and continuing our share repurchases. Several consecutive years of significant international underinvestment will lead to steepening legacy declines in non-North American, non-Middle East and non-former Soviet Union crude oil production levels. So we have an optimistic view for 2018’s industry activity and the company's financial performance for the following reason. Crude oil industry fundamentals continue to improve with…

Thanks, Gwen. Core Lab employees around the world have made great strides in 2017 to help our clients reach their goals through a new Core Lab technologies and an excellent service. We thank all of our employees for their contributions to innovative solutions, integrity and superior services. Reservoir Description continued expansion of Core Lab's Digital Rock Characterization, DRC services in Q4 with comprehensive offerings now available to clients in Kuwait and Alaska. After a successful introduction of these services was made with enthusiastic client acceptance in the U.S., South America, Asia Pacific, Canada and Abu Dhabi, the addition of this widely beneficial technology in these two new markets will boost clients’ confidence in reservoir quality assessment and completion designs. Computed tomography, CT scans generate millimeter scale image and petrophysical logs on Core intervals by calibrating CT information against vast amounts of measured Core data available in Core Lab's proprietary database of physical measurements. The CT log provides extremely detailed and accurate information on properties, such as lithology, porosity, density and rock stream, along the full 3-dimensional visualization of the Core. The relevance and benefits of Core's proprietary CT technology have been proven in both conventional and unconventional reservoirs. This quick delivery of 3-dimensional image-based Reservoir Description will help clients in the Alaska region with critical time-sensitive decisions by allowing them to quickly select representative and mechanically competent samples or advanced rock properties testing on their high-quality sandstone reservoirs. On complex reservoirs in Kuwait, this technology will help Core's clients with conventional Core analysis programs, along with digitally-based hydrocarbon volumetric estimation and flow characterization when combined with Core’s micro tomography analysis. These new service offerings also create opportunities for Core's clients to re-examine achieved cores with this high-resolution digital technology and compare observations and interpretations through production data from existing wells.…

Thank you. We’ll now being the question-and-answer session. [Operator Instructions] Our first question comes from Sean Meakim with JPMorgan. Please go ahead.

Thanks, good morning.

Good morning, Sean.

And Dick, congrats on the retirement. Honestly, well-deserved.

Thanks, Sean. It's been a great place to hang out for the last 30 years.

Sean, he’s not getting away that quick. He’ll be here for another whole month.

Right. Well, thanks for taking my question. Just, first from a little bit higher level thinking about your customers, it seems service costs moved higher in shale last year, that's going to happen again this year. And breakeven offshore is continuing to decline, some of the majors you’ve talked about you’ve some pretty attractive, at least may be half cycle economics on some of the projects particularly within kind of an infrastructure. Just when you think about where even long way the Brent has gone recently, just you – how do you anticipate any shift in customer behavior? We haven't seen much in the way of incremental additions to CapEx budgets for the majors, but perhaps changing the ranking of their capital budgets given similar shifts and relative cost in shale versus offshore?

Yes, like the comments that we've made, Sean, we believe that our client base, which is more technologically sophisticated are planning to drill fewer wells, but better wells. And we found the uptakes on the new technology that we've been offering, HERO PerFRAC is the good example of that. It is the most rapid uptake in the new technology that the company has offered over the last decade or so. We think that will continue. So their wells actually will become more expensive. But the uptake on the amount of production and reserve base will far outweigh what the incremental costs are to employ some of this new technology. With respect to offshore, you are correct. The cost curve continues to go down and they continue to drill better and more high-profile wells, a great example of that is the Shell discovery in Alaminos Canyon, the Whale prospect, cutting over 1,600 feet of net pay. So we think that positions Core well from a introduction of new technology front that will be utilized by people that are more – that are going to pay more attention to returns, free cash flow and returning some of that back as well as the operators looking for a balanced portfolio and going back and looking at some of the offshore and offshore deepwater plays. So we like that balance and how it's going to work out going into 2018 and then into 2019.

Thank you for that. And then thinking about how the rest of year going forward taking into consideration your guidance, the seasonality, I think, is well appreciated for the first quarter, but then looking up to the rest of the year, I think, that when we were spending time together in the fall, we talked about $50 to $55 oil would be enough to see FIDs continue to improve year-over-year with current spot rates – spot prices well above that. How that – how do you think about the flex to the upside as we move through the year with respect to FIDs, and ultimately, how that will start to eventually redeploy into your P&L?

Hi, Sean. We had 20 FIDs in 2017. And recently, a report that came out from Wood Mackenzie is projecting another 25 in 2018. So we're very hopeful about the progress and investments in these types of developments offshore and deepwater. And the long-term potential impact that that will have in the second half of 2018 to our financials.

Okay, fair enough. Well, thanks, and again, congrats, Dick.

Thank you, Sean.

Our next question comes from Byron Pope with Tudor, Pickering, Holt. Please go ahead.

Good morning.

Good morning, Byron.

Just have one question that relates to Production Enhancement, and I’ll preface it by saying that, I think there’s some truth to saying that amortization is the most sincere form of flattery because it seems like there have been a couple of M&A transactions with folks trying to get into the tracers and perforating systems businesses and where you guys are established market leaders. But as I think about the 50% top line growth of Production Enhancement did in 2017, would it be fair to think that Owen and ProTechnics drove that growth? And then how should we think about the cadence of top line growth for that business in 2018 or you still got some decidedly strong tailwinds behind you?

Yes, Byron, good question on that. We continue to expand our product lines both in tracer process technology, where we are actually evaluating some new technology right now, that we think it can have a significant impact throughout 2018, more on that in upcoming conference calls. And then the continued expansion of the acceptance of the new perforating or energetic systems that being led by the HERO PerFRAC, we think we've got additional gains to make there from a technological standpoint. So we still like the strong gain in revenue potential there, expanding incrementals and growing margins. I'd like to say thanks for the use of the wash, rinse and repeat. I thought that was a very clever line that you'll note this morning.

It’s well deserved. Thanks guys.

Okay, Byron.

Our next question comes from Chase Mulvehill with Wolfe Research. Please go ahead.

Dick, you'll be missed. I know you have the rest of the year, you will be there, but definitely you'll be missed. And congrats Chris and Larry on the promotions.

Thank you.

Thanks, Chase.

All right. I guess, first, I want to hit on own Reservoir Description margins. It became a little bit light in the fourth quarter. So I guess, maybe talk to if there’s kind of any one-offs in the fourth quarter that impacted? And then maybe talk about the past quarter for Reservoir Description margins in 1Q. I know you typically have some seasonality there, and then once we get through 1Q 2018 with potentially FIDs growing throughout 2018.

So, Chase, with regard to the fourth quarter and the 17% margin, that really has to do with timing and completion of projects, so primarily about service mix. And then related to our Q1 guidance, the assumptions in the Q1 guidance are related to weather in parts of Europe. And then the oil companies finalizing their capital spending budgets for the year. So that typically finishes in Q1 and then they go about spending those budgets in the rest of the year.

And if you look at the way that internally we're looking at Reservoir Description, we believe, that we do indeed exit 2018 with two in front of their margins, owing to revenue sources from FIDs and additional deepwater projects, that are really kind of do some of those margins.

Okay. Thanks, Dave, that’s very helpful. If we kind of go to the top line for Reservoir Description and we think about kind of 2018, overall, I don't know if you have enough visibility yet to may be frame, kind of how we should be thinking about top line growth for Reservoir Description for 2018?

Yes, the crystal ball still little cloudy, but right now applying our 200 to 400 basis points on our performance, it probably gets you into the mid to higher single digits, that the way we're looking at that right now.

Okay. And that’s the Reservoir Description, correct?

Correct.

Okay, awesome. I’ll turn it back over. Thanks, Dave. Thanks, Gwen.

Thanks Chase.

Our next question comes from Stephen Gengaro with Loop Capital Markets. Please go ahead.

Thanks, good morning.

Good morning, Stephen.

So, two things, I’ll just start with, if you look at the guidance that you gave for 1Q, if my math is right, it suggests about 65% companywide incrementals on a year-over-year basis. Is that a level you think is sustainable throughout 2018?

Correct. You just look back Stephen, as we talked about. If you look at company performance in 2010, 2011, or 2012 and 2013, just look at the history of those incrementals and you'll see that incrementals of the six in front of it, last well into the recovery. And from a U.S. standpoint, yes, okay, we're well under the recovery. International, probably not just yet. Outside the Middle East, we're not seeing a lot of project gains in Q1, some in Q2, but really getting a much higher level of input from those projects in 2H 2018.

Okay, thank you. And then as we think about the Production Enhancement business going forward, any sort of think about, and someone mentioned earlier, some of the competitors out there. Is there anything in the competitive landscape that alters your revenue growth assumptions for that business going forward?

Not it is certainly a technology race. And certainly, our engineers on the ballistic side are the most skilled in the industry, which gives us great comfort, that will be putting out new technologies later this year, adding to their HERO PerFRAC. And the same thing, when you look at our diagnostics business, you guys invented and have advanced that business. They are the best in the business. And they're looking at some very clever uses of that technology and different forms of that technologies right now. So no reason why we should have any impairment for the continued growth of Production Enhancement.

Great thank you.

Okay, Stephen.

Our next question comes from Marc Bianchi with Cowen. Please go ahead.

Thank you. I guess, first on the succession planning. And first, Dick, and Dave congrats on everything you have accomplished, the story has been truly remarkable to watch over the years.

Thanks, Marc.

Yes, sure thing. Dave, what’s your timeline here, with this change here with this change here you're taking step in that direction. Is the thought maybe get to 100 quarterly reports and that's the time or just maybe set some expectations for us, if you could?

I would say, several more years, that would not be a bad goal to do 100 quarterly reports. So the way I would answer that Marc is you guys are going to have to put up with me for several more years.

Looking forward to it. I guess then, if we think about the Reservoir Description commentary that you just offered in terms of the high single-digit growth. If I think of the offshore component of that business and all these FIDs opportunities, is it really everything else in the business stays flat and the increment the growth is coming from those FIDs, is that a fair way to think about or there is some other considerations we should have?

No that’s the way I would think about it, because the incremental is going to come from that. May be outside of the Middle East, because we are seeing a lot of interest in the middle east for them to be able to maintain or expand production. So outside the Middle East, the incrementals will come from the FIDs that Gwen has talked about and those that are in the queue that are going to be announced early in 2018.

Sure, great. Well, thanks, I’ll turn it back.

Okay Marc.

Our next question comes from Scott Gruber with Citigroup. Please go ahead.

Yes, good morning.

Good morning, Scott.

First Dick, it has been a pleasure working with you and I’m sure I’ll see you at some point but all the best in the future. And Larry and Chris again congrats on the promos.

Thank you.

Thank you.

Dave, I want to turn back to the impact of the majors sanctioning projects here, that is more bigger and some impressive recent offshore finds. We've discussed in the past, I think, it would be helpful if you touch on, again, the opportunity for Core with regard to the majors scaling back some of their capabilities within Core and fluid analysis during the downturn and how that impacts the growth potential in the Reservoir Description?

Yes, interesting question Scott. I like that you’ve gone there. We have had less competition over the last several years because we have found that the downsizing of the facilities with our major competitors, those being the major oil companies. We've actually had Kanako drop their technical support center. So we've hired personnel from there, and so that is one less competitor that is out there. We think more of their business accretes to us across the board. And with the downsizing of other facilities, we think the outsourcing only gets better.

In there partially underlies your confidence to continue to grow couple 100 basis points above the market growth rate?

Yes, correct. And than the addition of new services as well, hold that on top and you get a couple of 400 basis points of additional growth.

Got it. And maybe if you could, is there an update on the EOR field test within shale and whether you're seeing good containment of the cycled gas within the reservoirs you're testing?

We do have Larry Bruneau that happens to be in the room. And he is our architect of the EOR in unconventionals and he can give you an update. We have not gone to a field test of yet, but he can give you an update on what we're seeing in the behavior of these in the laboratory. Larry?

Yeah, thanks Dave. And Scott we’ve continued as we have for the last number of quarters. To engage many of our clients in laboratory testing of the rocks and fluids in question in these unconventional reservoirs. And so over the course of doing these types of tests, we've start out with an understanding that we'll see these reservoirs produce, on average, 8%, 9%, 10% of the oil in place. And in laboratory, we've been able to demonstrate through a understanding of the fluids and the behavior in the rocks, that we can get that into the middle teens. So, there is a nice incremental uplift on what they can accomplish in the laboratory. Now they will take that to the field and applications and some are in the early stages of doing that. They'll apply what we've identified in the laboratory as the optimum recipe of gases and they'll go through an injection process and see if they can get the returns in the field.

But you are right Scott, you make a good point on the containment of these absorbing gases is going to be critical to the success of the field test.

Gotcha, and just to be clear are there field studies on the calendar for 2018.

Yes we expect our clients to be expanding their activities and applying these in the field during 2018.

Got it thank you.

Our next question comes from Igor Levi with Morgan Stanley. Please go ahead.

Good mornings guys.

Good morning Igor.

So, historically you have talked about this 20% market share number for Core analysis. And now with FIDs coming back, you just mentioned that some of your competitors are downsizing facilities, I mean, has that figure increased to the mid-20s or 30% range or what’s the expectation?

I would say Igor, probably mid-20’s. All in, all we have been fortunate to get to gain some big projects that are normally run in house. The Exxon Liza is a great example of that. Deepwater discoveries off of Guyana. In looking at the other competitors downsizing, yes, we would say that from the IOCs, which are our major competitors, were probably somewhere – probably in the low 20s from market share because they still do lot of their work in-house.

Great, that’s very helpful. And last time, we spoke, I remember, you're making proposals for joint industry project in the Wolfcamp, has there been any traction there?

Yes, we've got in front of our clients. We've got some verbal commitments on that and you will be hearing more about that in the coming quarters.

Great, thank you for that. I’ll turn it back.

Thanks Igor.

Our next question comes from Kurt Hallead with RBC. Please go ahead.

Hey, good morning.

Good morning, Kurt.

I want to echo everybody else's comments on all the changes here internally and congrats again on yet a very consistent performance. So well done, well done to the team.

Thanks Kurt.

Thanks Kurt.

You’re welcome. You’re welcome. So Dick, I want to get just a little color, and if I missed it a little bit earlier, I will apologize and bring up something on the call here. But with respect to the outlook on the rig count progression into the first quarter, the rig count already is running at the level that is in excess of the fourth quarter, which would effectively infer on the comments you guys provided that there's an expectation that the rig count is going to go lower from this point through the end of March. So I was hoping to just get a little bit more feel for how you guys are looking at rig related activity here in the U.S.?

Kurt, we were looking at averages rather than endpoint dates at the end of each quarter. So yes, I agree with you. It certainly has picked up. We do agree with you that has picked up in 2018. So our thought is given the average of fourth quarter, what we're seeing so far flat, maybe up a little bit.

Okay great. And then the follow-up commentary, obviously, your production enhancement business is driven more directly by frac and stage counts and completion activity, you guys provided some general comments on completion activity continuing at pace. Could you kind of benchmark that for us in terms of percentages? And what you think completion activity could be up based on your perspective in the first quarter?

And we're thinking completion activity will be up higher in 2018 owing to some of these ducts are going to be drawn down. We've talked to a number of operators and they plan on their drilling program, but they want to take out their backlogs from their ducts. So we're going to have some tailwinds due to increased duct completions. Right now, we've got about 7,300 out there. So we'll look for that duct population to also drop. So net-net higher completion levels, more stages, closer clusters, all that's good for us.

Any – you want to tease us with a percentage change do you think on year-on-year?

Gwen?

For completions?

Yes, please yes?

Well, completions were up 49% year-over-year 2017. So maybe it is slightly higher than that.

More equipment is available?

Yes, there will be more frac spreads out, so hard to pinpoint that Kurt, but probably some upside there.

Okay, that’s fantastic. That’s great color. Thanks a lot. Appreciate it.

And Brandon, we’ll take one additional question.

All right, thank you very much. Our last question comes from Gregory Lewis with Credit Suisse. Please go ahead.

Hey, everybody. Thanks for squeezing me in. Chris and Larry, congratulations and hey, Dick sad for you going man, but good luck and have fun.

Thanks.

I guess, on the production enhancement, is this mix specifically on products, I guess, I have two questions. One is, we've seen a shift, it looks like to customers willing to pay up for better products over the last couple quarters. Will that still be a tailwind as we think about tailwind margins, as we think about 2018 or if customers kind of already accepted the new technologies and were kind of on a steady run rate from here?

No, I still kind of rule them out. I would say that our market penetration is not satisfactory. Now our technologically sophisticated clients, they go forth right away. We've got the other clients that are more middle of the road, that once they see these proved statements coming out of their technologically sophisticated company. They usually join that march to using higher technology as well. So I still think we got some push on incrementals coming from just further uptake on technologies like HERO PerFRAC.

Okay. And then just sticking on this real quick, it seems like over the last couple months, I mean as quickly the stuff was being produced, that was flying off the shelves. Has there been any catch-up in terms of from what you're seeing from, at least, on the Core Lab side in those products or is it still something where with the kind of the markets overall, short on plug and perf solutions and we could still see some shortage which may be could drive some pricing?

Greg, this is Monty. We are well into a process I'll call it, because it's an ongoing process to increase production in the perforating arena. We have several initiatives underway there, and we do expect to increase our ability to supply that market.

Okay, okay.

It's going to be more apparent in the second half, but it's going to be significant.

Sounds good, everybody. Hey, thank you very much for squeezing me in at the end. Have a great day.

Okay, Greg.

So in summary, Core's operations continue to position the company for activity levels in the first quarter of 2018. And we know challenges await, however, we have never been better operationally or technologically positioned to help our clients to maintain and expand their existing production base. We remain uniquely focused and are the most technologically advanced reservoir optimization company in the oilfield services sector. This positions Core well for the challenges ahead. The company remains committed to industry-leading levels of free cash generation and returns on invested capital with its capital being returned to our shareholders via dividends and future opportunistic share repurchases. So in closing, our 90 quarterly earnings release, we wish to thank all of our shareholders, the analysts that follow Core, and especially, as already mentioned by Monty Davis, our worldwide employees that have made these results possible. We are proud to be associated with their continuing achievements. So thanks for spending time with us this morning. And we look back – we look forward to our next update. Goodbye for now.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.