Core Laboratories N.V. (NYSE:CLB) stock rose 2.93% (As on September 27, 1:16:25 AM UTC-4, Source: Google Finance) after Morgan Stanley downgraded Core Laboratories to underweight from equal weight and has a $20 price target. Morgan Stanley said that Core appeared to have less upside for free cash flow than its peers and an outsized international exposure that could weigh on results.

Meanwhile, the company has reported second quarter 2022 revenue of $120,900,000. Sequential revenue growth was adversely impacted by approximately $2,000,000, due to the devaluation of the Euro and British Pound, as well as a decrease in revenue from operations based in Russia. Core’s operating income was $11,700,000, with earnings per diluted share of $0.15.

Moreover, Core Lab announced a $60,000,000 At-The-Market (“ATM”) equity offering program. As of 27 July 2022, the Company had not sold any shares under the ATM program. On 25 July 2022, the Company entered into an agreement to renew and extend its revolving credit facility (the “Credit Facility”). The Credit Facility was extended through 25 July 2026 with an aggregate borrowing commitment of $135,000,000, and includes a $50,000,000 accordion option. Additionally, the terms of the Credit Facility provide an increase to the maximum permitted leverage ratio to be equal to (a) 2.75:1.00 through the fiscal quarter ending 30 September 2022; and (b) 2.50:1.00 for the fiscal quarter ending 31 December 2022. Core Lab initially began to refocus the use of free cash towards reducing long-term debt in the first quarter of 2020. The Company maintains this focused effort and continues to apply free cash primarily towards reducing long-term debt. Long-term debt has been reduced from $295,900,000 as of 31 December 2019 to $171,900,000 as of 30 June 2022, or a cumulative debt reduction of $124,000,000 over the last 30 months. Core will continue applying free cash towards reducing debt until the Company reaches its target leverage ratio (calculated as total net debt divided by trailing twelve months adjusted EBITDA) of 1.5 times or lower. The following graph summarizes the progress towards reducing the leverage ratio during 2021 and the impact both the Russia-Ukraine conflict and significantly higher COVID-19 cases have had on the Company’s leverage ratio during the first half of 2022. For the second quarter of 2022, cash from operations was $600,000 and capital expenditures were $3,200,000, yielding FCF of $(2,600,000). Cash from operations declined sequentially in the second quarter of 2022.