Good day and welcome to the Core Lab's Q1 2019 Earnings Call and Webcast. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. David Demshur. Thank you, and over to you, sir.

Okay. Thanks Zed. Good morning in North America, good afternoon in Europe, and good evening in Asia Pacific. I would like to welcome all of our shareholders, analysts and most importantly our employees to Core Laboratories first quarter 2019 earnings conference call. This morning I'm joined by Chris Hill, Core's CFO who will give a detailed financial review. Gwen Schreffler, Core's Head of IR who will make comments on what Core projects for Q2 2019 after reading the forward-looking statements; and Larry Bruno, Core's President who will present a detailed operational review. The call will be divided into five segments. Gwen will start by making remarks regarding forward-looking statements. We will then come back and give a review on the current macro environment updating industry trends pertaining to Core Lab's expected future performance, and then we will review Core's three financial tenets which the company employs to build long-term shareholder value. Chris will follow with a detailed financial overview and additional comments regarding building shareholder value followed by Gwen discussing Core's second quarter 2019 outlook, and a general industry outlook as it pertains to Core. Then Larry will go over Core's two operating segments detailing our progress and discussing the continued sequential introduction of new Core Lab technologies, and then highlighting some of Core's operations and major projects worldwide. Then we'll open up the phones for a Q&A session. I'll now turn it back to Gwen for remarks regarding forward-looking statements. Gwen?

Before we start of the conference call this morning, I'll mention that some of the statements that we make during the 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 filing 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 some of the foregoing risks and uncertainties, see Item 1A Risk Factors in our most recent Annual Report on Form 10-K, as well as other reports and registration statements filed by us with the SEC and the AFM. Our comments include non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures is included in the press release announcing our first 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. We've got some industry trends and comments on Core's three financial tenets. Core is encouraged that operating companies are buying into operating within free cash flow and emphasizing returns on invested capital as they are demanded by today's investors. This trend benefits Core whose clients tend to be technologically-sophisticated and are heavy users of technology over commodity-driven solutions offered by drillers, pressure pumpers and wireline providers. During the first quarter, Core continued to host several conference calls and industry sessions for various industry groups and analysts to discuss optimal well spacing, rightsizing, upsizing well positioning and parent-child well relationships. Upsizing is today's watchword. In 2019, our technologically sophisticated clients will drill fewer wells but better wells. Most importantly, their returns will increase. Core is uniquely positioned to provide technology driven data to determine optimal well spacing and upsizing to all but eliminate the deleterious effects of horizontal well interference. Detailed analysis of Core and fluid samples provide information to the operator on micro-lithologies, rock competence, rock mechanics, crude oil types and qualities all data necessary to determine optimal well spacing and well positioning. As horizontal wells are drilled, completed and stimulated, Core's SPECTRASTIM, SPECTRASCAN, and FLOWPROFILER EDS completing diagnostics technologies can verify that wells are not interfering with neighboring wells on the pad eliminating loss production and maximizing producible reserve. This becomes more critical as well pads will soon see 24 or more wells being drilled from a single pad location. The combination of Core Lab reservoir technology related to Reservoir Description and Production Enhancement maximizes our clients' free cash flow and their returns. Their investment goals and ensures Core Lab revenue growth will be greater than activity levels again in 2019. Related to this, the industry will continue to add perforating charge clusters to each stage yielding…

Thanks David. The guidance we gave on our last call and past calls specifically excluded the impact of any FX gains or losses and assumes an effective tax rate of 15%. So accordingly our discussion today excludes any foreign exchange gain or loss for current and prior periods. Additionally we have excluded $10.4 million of noncash charges recognized in the first quarter for stock compensation expense and other employee-related charges recognized in the first quarter of 2019. Although these performance share awards continue to be subject to future vesting schedules and company financial performance metrics, recognition of this expense is required by FASB AAC 718 for employees when they're attaining their eligible retirement age. Now looking at the income statement. Revenues from continuing operations was $169.2 million in the first quarter comparable to the same quarter in 2018, and slightly above the guidance we gave during this quarter's earnings call. Of this revenue service revenue which is more international was $120.3 million for the quarter up just slightly year-over-year. Activity from international source project is anticipated to increase throughout 2019. However this activity is impacted from typical seasonal patterns in the first quarter. Product sales which are more tied to North American activity were $48.9 million for the quarter down 3% year-over-year and are in line with well completion activity for the U.S. on shore market. Moving on to cost of services for the quarter are 77% of service revenue up from 70% in the first quarter of last year. The increase from prior year is primarily associated with increased personnel-related costs and also some loss revenue opportunities as a result of the transitory closures in the Houston Ship Channel. Cost of sales in the first quarter was 72% of revenue equivalent to the same quarter of last year and…

Thank you, Chris. During the first quarter of 2019, the worldwide crude oil market shifted into a supply correction which increased crude oil prices more than 30% sequentially. Additionally global crude oil inventories exited the first quarter of 2019 at approximately 39 days of consumption consistent with a multiyear trend of declining global crude oil inventories relative to demand. The international agencies most recent estimated worldwide demand projections for 2019 remained strong with demand anticipated to increase $1.4 million barrels of oil per day. The recent rebound in the crude oil prices is underpinned by the rebalancing of crude oil supply and demand and continues to support a broad-based international oil field recovery. The emergence of this trend is reflected in the actions taken by operators who have announced the final investment decisions in 2017. These projects are in the beginning phase of development as indicated by the increase in rigs and other heavy oilfield equipment now coming under contract particularly in the Middle East, Asia Pacific, the North Sea and Russia regions. Additionally, the international rig count continues to improve since bottoming in the fourth quarter of 2016 and showing sluggish behavior during 2017 and 2018. Core believes that 2019 international growth is expected to reach mid-to high single digits levels. As has been the case in past industry recoveries of worldwide operating activities, Core's worldwide revenue growth and margin expansion is not immediately correlated to increasing rig counts but to subsequent completion and stimulation events and large-scale reservoir rock and reservoir fluid characterization project. Wells need to be drilled, rocked and reservoir fluids samples and wells completed before Core realizes a revenue opportunity. The company projects the average second quarter 2019 U.S. rig count to be down but U.S. completion activity is expected to be flat sequentially. Capital conservatism by operators may limit growth activity in the second quarter of 2019. Therefore we expect consolidated second quarter 2019 revenue of approximately $172 million to $175 million and operating income of approximately $28.5 million to $30 million yielding operating margins of 17% with incremental margins ex-items exceeding 50%. Using a comparable sequential effective tax rate of 15%, EPS for the second quarter 2019 is expected to be approximately $0.47 to $0.50. The company's second quarter 2019 guidance is based on projections for the underlying operations and excludes gains and losses and foreign exchange. Now, I'll hand it over to Larry for an operational review.

Thanks Gwen. First I'd like to thank our global team of employees for providing innovative solutions, integrity and superior service to our clients. The team's collective dedication to servicing our clients is the foundation of Core Lab's success. Turning first to Reservoir Description. One year ago during Core Lab's 2018 Q1 earnings release, Core announced that it had expanded laboratory capabilities at its Anchorage office to include Dual Energy Computed Tomography or CT scanning, as well as other proprietary laboratory technologies. In Q1 of 2019, the North Slope region of Alaska was again very active for Reservoir Description. Extensive reservoir rock and reservoir fluids studies were undertaken on multiple wells from conventional reservoirs. The dated arrived from these studies are key components of the operator's efforts to refine this demographic models, obtain rock properties data for downhaul log calibration, determine permeability parameters that are critical to predicting reservoir performance, and understand the in situ phase behavior characteristics of the hydrocarbons. In house CT capabilities and Anchorage allow Core's clients to assess the recovered whole Core intervals within just a few days of the Core's arrival at the laboratory. Moreover, Core can provide its clients with parameters such as porosity, lithology and rock strength that are based on models validated by Core's proprietary worldwide database of physically measured rock properties. Following the CT and other initial lab work, the rock and reservoir fluid samples are now moving through the traditional laboratory program where direct physical measurements will be used to define pay zones, build reserve estimates, and predict reservoir performance. PVT testing and compositional analysis of the hydrocarbons are vital inputs in determining other crude oil and natural gas properties will change throughout the life of the field. During most years, drilling activity in Alaska largely comes to an end at…

[Operator Instructions] First question is from Byron Pope from Tudor, Pickering, Holt. Please go ahead.

I just wanted to start with international. I appreciate the color on the mid- to high single-digits expected international revenue growth. And I realized that geographies where the core and fluid samples have been taken down always match up with where the labs where the analysis is done. But could you just provide some color on which international countries or regions are most likely to drive your international top line growth this year?

Yes, Byron. I think the Middle East stands out as one area that is I would say kind of ahead of the pack in international recovery. Of course, we're going to continue to see robust activity offshore in the northern part of South America for quite some time. So that's already kind of running at a high cliff. But I think the Middle East is when you compare sort of year-over-year or from the bottom of the cycle to where we are today, I think the Middle East is ahead of the curve in recovery. And I think looking a little further down the line, I think Brazil is posing some new opportunities for us.

And then I was really struck by the potential size of the preassembled perf systems market the way you framed it Dave. And I realized you said it's a fairly small market today. But anyway just a ballpark, how do you think about the size of that market today versus that $300 million market you expected to be within the next three years?

Yes. Probably somewhere in the order of $50 million to $60 million size market today. We see that rapidly expanding because more and more of the clients that we talk with, they're interested in this preassembled gun but very interested to the preassembled gun using our energetics. So we think we're going to have some rapid market share gains in that area. And the expense is going to be the conventional perforating where I think naturally this will take market share from the conventional into the preassembled.

The next question is from the line of Chase Mulvehill from Bank of America. Please go ahead.

So I guess just a follow-up on Byron's question here. A lot of positive commentary on the international and offshore side. So maybe if you could just kind of lay out the road map about the reservoir description given this positive backdrop. Maybe when we think about sequential growth throughout the year, when we think about 2019 are you comfortable kind of being in the mid-single digits? I'm not sure kind of be more in the high single-digit for Reservoir Description?

I think we should track along with the improvements with 80% of Reservoir Description's business being in the international market. We auto track along with that plus a bit more historically. Core Lab will do a little bit better. Than the overall trend. So the high single-digits maybe with a little bit added on top of that for Reservoir Description.

And I know you guys have kind of been under absorbed in reservoir description. So what about incremental's just as we step through each quarter. What kind of sequential incremental's should we think about as revenue continued to show positive progression in 2019?

Yes. I think we see that as exceeding 50%.

Last one. Just any updates that you have on unconventional EORs and the adoption rate that you're seeing from the customers?

Yes. So it continues to be a very nice story. Some companies are becoming more vocal about their participation and their progress in the field with this. And one that has publicly talked about this is OSX. I'll refer you to the good folks and OSX there and their great IR team and management team for details of what they're finding. But they’ve expressed some of the optimism that they see this is moving into the commercial practice. I would say in the near term. A lot of upside there for a lot of clients.

The next question is from the line of Stephen Gengaro from Stifel. Please go ahead.

Dave a couple of things. I just wanted to hit on back to the integrated perf consistent I'm just curious about how you're thinking about the market. And I think you mentioned the market like $50 million going to $300 million. And I'm just trying to figure out what are you including kind of in that market and do you think the data that the overall perf market right now is kind of in the $1.3 billion range and the integrated gun portion, is that a small piece right now. I'm just struggling to sort of triangulate what I've heard with those data points?

Yes we'll stick by our data points. We're mainly looking at the part that – or the elements that we want to control. And that's going to be the hardware the energetics and the debt core. And so we're comfortable with where we see that market today and where it's going to in three years or less.

And so when you define the integrated gun you're talking about those components of it or are you talking about the overall revenue opportunity when you sell an integrated system all the pieces that go with that into the hole for the energetics and that in cores in the switchers? That overall market is only $50 million or $60 million right now?

For the clients that we're going to address that is correct.

How do you see on the Production Enhancement side how do you see the revenue playing out there as we go forward? And kind of what are you thinking about just from an overall U.S. land completion market growth over the next several quarters and how do you think your Production Enhancement division reacts within that framework?

So Stephen we thought completions were up about 4% year-over-year while our energetics sales were up about 9% year-over-year. We think moving into Q2 completions while they may be flat and potentially slightly up. We think the intensity of those completions is going to be greater. So greater penetration into our customer base and then additional penetration with this preassembled guns into that market. So we see that…

Sorry go ahead?

Well, we continue to see that to ramp as the year continues to play out.

And then as far as the incremental margins and I think your reference like 50% plus sequential incrementals in RD in response I think to Chase's question. How does that look on the Production Enhancement side?

About the same.

Next question is from the line of Sean Meakim from JPMorgan. Please go ahead.

So just to come back to the growth rate for international and reservoir description so, for thinking about 2019 high single-digit growth year-on-year. If you're generating lower single-digit growth in the first half does that – that seems to require a steeper second half 2019 ramp year-on-year to achieve the overall. Is double-digit year-over-year growth in the back half plausible do you have visibility on projects ramping with that type of cadence?

It's a little, we don’t want to get ahead and we're not ready to give full year guidance or quarterly guidance for Q3 and Q4 right now. But we do see the trend improving and I do think you're right. We will see it build through the year and will stick with our overall assessment mid to high single digits improvement and with our typical expectation that Core Lab will do a little bit better than the overall trend.

And I guess thinking about the margin progression that goes along with that. One is just to clarify the 100 basis point ding that you had in the first quarter. Is that basically factored back in added back into the second quarter? And just thinking about what's the plausible expectation for RD margin to exit the year nearly represent, what's the margin potential for that business near term without the return of deepwater core work?

Yes. I think we had towards high teens for an exit margin on reservoir description. I think that's attainable. The 100 bps impairment that we saw in the first quarter tied to the ship channel interruption. That's less than 1% of revenue for Reservoir Description on the quarter but 100% detrimentals. So as that comes back online and there's a little bit of seasonality in that business as well. As that gets back online we think that comes back and supports sequential growth over what you saw in Q1.

Yes Sean, if you look at the coring programs laid out by our clients here over the last couple of quarters gives us confidence in getting those margins back in the mid to high teens on exit for the year.

And just one last point of clarification on that same piece, what would you say is the split today in your offshore business for RD between shallow water and deepwater?

We tend to slice it a bit just onshore and offshore.

I would say still the majority would be deepwater offshore if you're looking to split shallow water and deepwater.

Among the Marine activity yeah I would say since the projects are so much more lucrative and high caloric for us on the deepwater. I think our revenue opportunity would lean towards the bulk of the revenue opportunity being more on the deepwater side.

Yes if I had to venture a guess just on the back of the envelope I would say today just on looking at maintenance operations deepwater probably 70% of our offshore revenue is deep and 30% shallow.

And that would be more fluids-driven you're indicating is that correct?

And then that is correct right now. Yeah that of course it will shift as the year progresses and some of the coring programs kick in.

The next question is from the line of [indiscernible] Scotia Howard Weil. Please go ahead.

I guess can you just help us with some magnitude of revenues you on exploration well versus a production well? And how different is it if you can expand on that for the shallow water versus deepwater?

Yes. I think Zev there is no one size fits all answer to a deepwater project. It really comes down to the complexity of the reservoir. Unfortunately for our clients the easy reservoirs have largely been tapped. The most complex reservoirs – what’s having to be addressed going forward and that's good for Core Lab. The more complicated they are the more data that they'll need to unraveled the performance of the project. Overall historically deepwater projects tend to be of greater value or greater opportunity for Core Lab because the risks are so high for the operator in making a mistake. They make an error of ferocity unit or two and their reservoir model has huge implications for the overall economic viability of the field. So they'll take much more intense much more densely packed data sets on the deepwater projects. And so we see very optimistic as those start to filter back onto Core Lab's Reservoir Description portfolio. Those are pretty nice projects for us.

Yes Zev and less than 15% of our revenue generated out of Reservoir Description is exploration-related. So we tend to be there on appraisal and development wells. They see the operators see the risk too high to take core samples in that first or second exploration well.

And can you help us just think about if I think about international revenues for you specifically for offshore – Reservoir Description is it all offshore or is there is some onshore split as well?

It's onshore as well.

Yes, if you look at Reservoir Description about 30% of all oil is produced offshore. 40% of our revenue mostly reservoir description is from the offshore. That tends to have higher margins for what Larry said and so 60% onshore around the globe.

And last question from me, can you help us just reconcile so you think the activity or U.S. completions would be flat sequentially into 2Q. But the other companies who are focused on may call it pressure pumping all completions have talk about higher completions activity. Is there a way we can help us reconcile the two comps - the difference comps?

Yes Zev if you look at as Gwen said we project rig count to be down slightly here in the near term. Completions to be flat owing to my comments on our technologically sophisticated clients will drill less wells. So that subset will have less completions on the intensity side where we're going to have more perf clusters per stage and less stages will offset that. So our total revenue opportunity probably will be up, even if completions as we see with our eyes for our technologically sophisticated companies will be flat. The intensity of those completions will be up, giving us a revenue opportunity. You've already seen some of our best clients dropping plan to drop rigs like Pioneer and so this is not going to be a surprise to us.

The next question is from the line of Connor Lynagh from Morgan Stanley. Please go ahead.

I'm wondering if we could go back to the integrated gun opportunities, the $300 million potential. It sounds like some of that is gaining share from non-integrated solutions but I guess I'm wondering if we could talk to the broader energetics market just what sort of growth you see with the cluster increases.

Yes. With the increase in the number of clusters first stage, certainly we see continued growth over what the market would suggest, because we're just backing more complex systems into that. So as we go now, we're seeing the number of clusters per stage from five to six. We had them 20-plus. So again we see further growth in for not the number of stages but the complexity per stage.

And any sort of magnitude you could give us on where if the market averages that five to six, I think you said. How much growth in that market can you see above and beyond this stage count?

Yes. Sequentially as Gwen had mentioned.

We would see that energetic sales would be up, because of that intensity. And I think overall what has typically happened is we kept pace or outpace the completion on activity.

Yes. I appreciate that. I guess any more longer-term, was there a potential opportunity here, is everybody going to go to this extremely high intensity or what do you feel the ultimate growth potential is?

Well certainly that's a bifurcation of clients. Those that are looking to increase returns and maximize production and recovery will do that. So what we refer to as our technologically sophisticated clients because they have to spend more money. There will be operators that we choose not to do that. And hence the returns are going to be substandard as they are today. They choose not to use Core Lab. So it's hard giving you a number and knowing that we're just dealing with a subset of companies that are out there.

The next question is from the line of Scott Gruber from Citigroup. Please go ahead.

I wanted to stay on the topic of the day the preloaded guns. If you could provide some color on how you think about how much of the $100 million opportunity for Core is incremental? So if we keep the frac market to be flat for the next three years and you see that market share pickup for the preloaded systems, you realize $100 million, how much benefit do we see on your production enhancement revenue run rate?

It would be the incremental margins associated with that switch from a conventional gun system to a preassembled system because that is going to be a more expensive system. So your incrementals would be very high on those sales. And so you might not see significant shift in us picking up $100 million in revenue in the third year of that development. But the amount of revenue we do pickup will have be very high incremental margins. So that's what I thank you need to watch there.

I think it's important at the end of the day to come back to reinforcement as Dave said earlier. At the end of the day do preassembled guns are very nice technology that's been brought to the market. It derisk a lot of well site activities. But the driver ultimately is the quality of the energetics and how effectively efficiently and plainly they make preparations into the casing and into the formation. And that's where Core Lab has really had an advantage in large measure because of our deep understanding of the rocks and how these energetics interact with the rocks. We have some unique perspectives on that. There's was an early entrances into the preassembled guns system. They deserved some credit for seeing that path. But that move if you will has been pierced. And at the end of the day it's the quality of the energetics that are going to drive penetration into the market.

And maybe just a bit more color on the profitability. Because it sounds like it's going to be a margin enhancer for Production Enhancement. Can you either provide the potential margin on the integrated system or I know if you want to go there...

Just to say that the incrementals could be north of 60% and ultimately production enhancement at the end of those - at the end of that time period could see their margins back with a three in front of it. Peak margins there in 2014 were 36%. So we see ourselves working back towards that. We knew that this market was under development. And three years ago we tried to build our addressable Select Fire Switch. Our ballistic engineers turned out to be much more superior than our mechanical engineers. And so we went out and acquired Guardian Technologies after working with them for about a year and year and half.

And there’s still so much you know to do, how do we think about this opportunity manifests. How do we think about that $100 million kind of opportunity? What's the cadence that we just think about it literally, is going to be able to faster than leaner just kind of how do we think about that?

It won't be linear. It won't be linear. Because once you have some acceptance from the industry you get a hurting mentality where you have everybody wants that variety of gun system. So it will be, I don't want to say exponential but it will not be linear.

Do you think you'll hit that inflection on the S curve in the next 12 months?

Probably not. I would guess between 12 and 24.

The next question is from the line of Marc Bianchi from Cowen.

I wanted to ask about the Ship Channel disruption and I know it's a transitory thing. But I think it's important to kind of go through it as we think about normalized results beyond second quarter. If I do the math and give you the benefit of that not impacting the results in the first quarter, it seems like the second quarter guide kind of implies incremental's overall in the 30% range. If that's kind of the underlying and I think Larry you made a comment of sort of longer-term thinking about over 50%. What's the change in the business? Is there maybe more core description that's happening beyond second quarter, is there more pricing happening. Just curious if you could just comment on that progression?

Yes. Mark I think we see a lot more deepwater offshore work schedule for our 2H and that's what promise us to say we're comfortable with incrementals in the greater than 50% range and approaching 60% range.

Chris, just a point of clarification. You made a comment about the tax rate for the second quarter and I didn't quite catch what you were saying. I think you said, you expected to be towards 20% but you're guiding to 15%. Is that the right description or maybe you could just clear that?

Yes. We wanted to make sure it was clear when we try to compare operational performance from first quarter to the second quarter that you're not getting the tax rate mixed up with that. So we guided using a 15% tax rate so you can see what EPS did based on operational performance. But as we're working through this corporate restructuring event that we've had, where we are projecting a more normalized rate to kind of approach - approaching 20% as we move through the rest of the year. The benefit from that has to be recognized all in the first quarter. So that's what we're talking about.

So when we think about the business longer term is the implication that we should be thinking about something closer to 20%?

Yes.

And Mark that's why we offered of the range of what we felt the second quarter would be in operating income. You see it declines nicely from that which was performed in Q1.

The next question is from the line of Kurt Hallead from RBC.

Hey, sorry just a couple might take a follow up and opportunity that kind of Mark mentioned on the tax rate just to make sure that I'm clear on it. So when we do calculate our earnings per share estimates starting in the second quarter we should be using a tax rate that is close to 20% not a 15% tax rate. Is that the right way to look at it?

Yes that's correct.

So Dave or Larry, whoever wants to kind of take there. So talking about kind of the emerging growth opportunity in the preassembled perforating gun market. And I was just kind of curious there's been some market noise out there from some of the competition, some concerns on the investor base regarding that increase competition meaning Core Lab’s are going to lose market share potentially and maybe even the market may undergo some pricing pressure and margin degradation. So I was wondering if you could help us out and give us some insight as to what the competitive advantages for Core Lab’s and what the value proposition is that you're offering up to the E&P and maybe some of your competitors don't have or can offer?

Yes Kurt. I think I'll go back to what I said before. Remember that the preassembled gun is a delivery platform. The driver of any perforating hardware is how well it creates communication between the formation and the borehole. And you'll be hearing more from Core Lab over the next few quarters here about some advances we're making closely tying energetic performance to a wide range of rock properties. Think of this as geologic formation specific energetics. We can do that and we put a fair amount of intellectual horsepower behind this already working to tune the energetics to be effective in specific types of rocks. With our reservoir description knowledge and foundation we're really on a unique position to amplify on that expertise. And we think that's where the leverage comes in going forward. But another aspect of the preassembled gun, we’ve worked toward an open architecture design, which will allow people to buy if they should choose preassembled guns and use a wide range of energetics that we or potentially other people might provide. Others in this phase have gone to closed architecture, which means, you buy their preassembled gun and you get their energetics. One of the things that that does is, if you buy a certain configuration and get it out to the well site and then you decide it's not working the way I thought. You can't change on the fly. With our open architecture system, we can send out a different set of energetics and change the completion program and relatively quick work.

Yes Kurt. Think of it this way. This has always been the case. The money as always and the profitability has always been in the energetics. The gun is just the delivery system. Conventional guns we rarely make anymore. We can buy them cheaper than we can make them. And the preassembled gun given the pierce meant of that mode by us and no doubt others that come, you will see less emphasis put on the preassembled gun. And again, more and more emphasis on the formation-specific perforation charges that we are going to be developing here over the next year.

There was some industry conversations recently where and it's kind of hard to get hard numbers on this. But estimates that maybe 15% of the gun market in the U.S. were preassembled guns. Well that's an area that previously we hadn't been participating in. Today we are participating in a sort of an entry way but we'll be penetrating that market more going forward. So here we come.

And at the end of the day who makes the ultimate say purchase decision with respect to what you are offering? Is it the E&P company? Or is it kind of the wireline service company?

Well for us it's a lot of the E&P company. For instance we had a conference call on this a week and half ago. Our first call was from a technologically sophisticated client from West Texas from the Permian Basin area wanting to know what our offering was. So ultimately, because our charges tend to be the most expensive in the industry we're not going to let a wireline company to decide that. We're going to let the operating company or the E&P company decide to choose our charges.

And Kurt it's important to recognize that the wireline companies play a critical role in this. They have a license to possess these energetics just like we do. The operating companies do not. So we do and we will maintain great relationships to wireline companies because at the end of the day that's who we transfer our ownership of these energetics to.

And I may wrap up with this, so on a regional description I know Dave hasn’t highlighting the FID component and as you've mentioned its really you know, the revenue opportunity comes once the well has been drilled and fluids and rocks have been collected and then made their way to your lab, right? So looking at the bigger hues, international offshore rig count looks like it's up 28% in the first quarter of 2019 versus the first quarter of 2018…

We are excited about that.

Yes. You got to say. So now looks finely, right. There's some momentum building. You guys have good reference point. So in the context of the outlook for high single-digit percentage, can we expect that growth rate, given the rig count growth rate year-on-year that revenue momentum building throughout the course of the year and then maybe even being higher in 2020. I mean any general thoughts around that dynamic

Yes. If we could keep crude oil prices where they're at right now, we think we would see that.

Fair enough. Right, thank you.

All right Kurt. So we're going to go head and wrap up Zed. So in summary Core's operations to position the company for activity levels in the second quarter of 2019. And we know significant 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 focus and are the most technologically advanced reservoir optimization company and the oil field 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 that invested capital with capital being returned to our shareholders via dividends and future opportunistic share repurchases. So in closing, our 95th quarterly earnings release, we'd like to thank all of our shareholders and the analysts that follow Core, and as already noted by Larry Bruno, the Executive Management and Board of Core Laboratories gives a special thanks to 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 forward to our next update. Goodbye for now.

Thank you, sir. Ladies and gentlemen, the conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.