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ChampionX Reports Second Quarter 2021 Results

07/28/2021
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  • Revenue of $749.2 million increased 9% sequentially
  • Net income attributable to ChampionX of $7.3 million; adjusted net income of $23.5 million
  • Adjusted EBITDA of $105.4 million
  • Cash from operating activities of $60.9 million and free cash flow of $40.8 million

THE WOODLANDS, Texas, July 28, 2021 (GLOBE NEWSWIRE) -- ChampionX Corporation (NASDAQ: CHX) (“ChampionX” or the “Company”) today announced second quarter of 2021 results. Revenue was $749.2 million, net income attributable to ChampionX was $7.3 million, and adjusted EBITDA was $105.4 million. Income before income taxes margin was 1.5%, and adjusted EBITDA margin was 14.1%. Cash provided by operating activities was $60.9 million, and free cash flow was $40.8 million.

CEO Commentary

“We recently marked the one-year anniversary of our transformational merger and we are proud of how remarkably well our organization has performed and adapted to the dynamic and evolving energy market environment of the past year. I especially want to thank all our worldwide employees for their continued dedication and commitment to serving our customers and communities well,” ChampionX’s President and Chief Executive Officer Sivasankaran “Soma” Somasundaram said.

“During the second quarter of 2021, we delivered solid results driven by our strong topline growth across our portfolio. We generated revenue of $749 million, which increased 9% sequentially, driven by robust demand growth in both our North American and international markets. We delivered adjusted EBITDA of $105 million, which represented a sequential increase of 12%. Our teams executed well navigating the raw material and logistics inflation challenges to deliver strong results in the second quarter.

“We once again demonstrated our strong free cash flow profile as we generated free cash flow of $41 million and we further strengthened our balance sheet by repaying $62 million of debt during the quarter. We ended the second quarter with $592 million of liquidity, including $239 million of cash and $353 million of available capacity on our revolving credit facility.

“Our team continues to execute well on merger integration. We exited the second quarter at a $103 million run rate and we are well positioned to deliver the full targeted cost synergies of $125 million within 24 months of the merger closing.

“As we look to the third quarter, we expect our topline momentum to continue, driven by demand growth in both our international operations and our shorter-cycle North American businesses. We fully expect to deliver healthy margin improvement in the second half as continued volume improvements, price increase realization and cost synergy delivery offset raw material cost inflation. We remain highly confident to exit this year with a higher margin rate than our 2020 exit rate. On a consolidated basis, in the third quarter we expect revenue to be between $765 million and $805 million, with each of our businesses contributing to the sequential growth. We expect adjusted EBITDA of $119 million to $125 million.

“We are pleased by the positive demand momentum in our businesses in the second half of this year and beyond, and we remain committed to our strategic priorities, disciplined operating model and rigorous capital allocation approach. We are excited about the progress we are making in building our emissions management portfolio. ChampionX is well positioned to be a long-term winner in the evolving energy industry, and it is a privilege for me to lead such a strong and motivated team.”

Production Chemical Technologies

Production Chemical Technologies revenue in the second quarter of 2021 was $447.0 million, an increase of $34.7 million, or 8%, sequentially, due to higher international volumes and continued sales increases in our North America business.

Segment operating profit was $33.9 million and adjusted segment EBITDA was $61.7 million. Segment operating profit margin was 7.6%. Adjusted segment EBITDA margin was 13.8%, an increase of 20 basis points, sequentially, due to the aforementioned higher sales volumes, partially offset by certain raw materials inflation.

Production & Automation Technologies

Production & Automation Technologies revenue in the second quarter of 2021 was $188.2 million, an increase of $21.3 million, or 13%, sequentially, due to continued positive demand momentum for our shorter-cycle North American land-oriented product lines.

Revenue from digital products was $32.4 million in the second quarter of 2021, an increase of $3.4 million, or 12%, compared to $29.0 million in the first quarter of 2021.

Segment operating profit was $12.3 million, and adjusted segment EBITDA was $37.9 million. Segment operating profit margin was 6.5%. Adjusted segment EBITDA margin was 20.1%, a decrease of 120 basis points, sequentially, due to certain raw materials inflation and unfavorable product mix.

Drilling Technologies

Drilling Technologies revenue in the second quarter of 2021 was $37.6 million, an increase of $2.6 million, or 7%, sequentially, due to the continued increase in U.S. land drilling activity.

Segment operating profit was $3.9 million, and adjusted segment EBITDA was $8.5 million. Segment operating profit margin was 10.3%. Adjusted segment EBITDA margin was 22.6%, an increase of 180 basis points, sequentially, due to higher volumes.

Reservoir Chemical Technologies

Reservoir Chemical Technologies revenue in the second quarter of 2021 was $33.2 million, an increase of $3.3 million, or 11%, sequentially, driven by higher U.S. well construction and completion activity.

Segment operating loss was $2.6 million, and adjusted segment EBITDA was $0.2 million. Segment operating loss margin was 7.8%. Adjusted segment EBITDA margin was 0.6%, an increase of 250 basis points, sequentially, due to higher volumes.

Other Business Highlights

  • Chemical Technologies saw positive signs of emerging activity in international markets, particularly in the Latin America and Middle East & North Africa regions.
  • Production Chemical Technologies delivered strong customer contract wins in the Canadian oil sands and in Sub-Saharan Africa, based on technical and service differentiation.
  • Production Chemical Technologies experienced U.S. land market strength, driven by digital and technical differentiation in midstream markets, continued innovation (e.g., our new paraffin-targeted chemistries which are driving operational improvements for E&P operators in West Texas), and market share gains.
  • UNBRIDLED ESP Systems delivered two new customer wins in the Permian Basin, one with an active major oil company and the other with a Permian-focused private operator for which we were awarded 50% of all new well ESP installations. These awards came subsequent to the customers visiting our Permian Basin Operations Center and experiencing our ChampionX Artificial Lift continuous improvement culture and programs.
  • ChampionX’s UNBRIDLED ESP Systems launches its SMARTEN PurePower Pro in August, which is a cost-effective solution which dramatically reduces the harmonic distortion that ESP operations have on local power grids. The technology is especially well suited for unconventional operations where rapidly declining production rates result in lower power load on equipment over time because it automatically adjusts as the power load changes and reduces power requirements by as much as 7% for fields produced with ESPs. The equipment can be remotely monitored and optimized, thus reducing operating costs and HSE exposure.
  • Production & Automation Technologies was awarded 12 complete rod lift solutions packages, inclusive of long-stroke units, high-volume pumps, and automation for a major integrated oil and gas producer in the Vaca Muerta play in Argentina.
  • During the second quarter, 79% of Drilling Technologies revenue was generated from products that were less than three years old.
  • During the second quarter, ChampionX completed an investment in QLM Technology, which has developed a revolutionary quantum gas camera with a unique and cost-effective ability to detect, visualize and quantify emissions of methane. Coupled with our acquisition of Scientific Aviation, Inc., ChampionX is making progress on its strategic objective of evolving the portfolio for sustained growth and is helping organizations in the energy industry achieve their net zero emissions goals through mitigation of sources.
  • In July, ChampionX completed the acquisition of Scientific Aviation, Inc., which is an industry leader in developing methods and technologies for fast, accurate, and cost-effective solutions for methane leak detection, emissions quantification and air quality research, helping customers and other organizations to achieve their greenhouse gas emissions reduction goals.

Conference Call Details

ChampionX Corporation will host a conference call on Thursday, July 29, 2021, to discuss its second quarter 2021 financial results. The call will begin at 9:00 a.m. Eastern Time. Presentation materials that supplement the conference call are available on ChampionX’s website at investors.championx.com.

To listen to the call via a live webcast, please visit ChampionX’s website at investor.championx.com. The call will also be available by dialing 1-888-424-8151 in the United States and Canada or 1-847-585-4422 for international calls. Please call approximately 15 minutes prior to the scheduled start time and reference ChampionX conference call number 8113563.

A replay of the conference call will be available on ChampionX’s website or at ChampionXSecondQuarter2021CallReplay Enter passcode 50190035.

About Non-GAAP Measures

In addition to financial results determined in accordance with generally accepted accounting principles in the United States (“GAAP”), this news release presents non-GAAP financial measures. Management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income attributable to ChampionX and adjusted diluted earnings per share attributable to ChampionX, reflect the core operating results of our businesses and help facilitate comparisons of operating performance across periods. In addition, free cash flow and free cash flow to revenue ratio are used by management to measure our ability to generate positive cash flow for debt reduction and to support our strategic objectives. The foregoing non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the accompanying financial tables.

This press release also contains certain forward-looking non-GAAP financial measures, including adjusted EBITDA. Due to the forward-looking nature of the aforementioned non-GAAP financial measure, management cannot reliably or reasonably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures, such as net income. Accordingly, we are unable to present a quantitative reconciliation of such forward looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures. Amounts excluded from these non-GAAP measures in future periods could be significant. Management believes the aforementioned non-GAAP financial measures are good tools for internal use and the investment community in evaluating ChampionX’s overall financial performance.

About ChampionX

ChampionX is a global leader in chemistry solutions and highly engineered equipment and technologies that help companies drill for and produce oil and gas safely and efficiently around the world. ChampionX’s products provide efficient functioning throughout the lifecycle of a well with a focus on the production phase of wells. To learn more about ChampionX, visit our website at www.championX.com.

Forward-Looking Statements

This news release contains statements relating to future actions and results, which are "forward-looking statements" within the meaning of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, ChampionX's market position and growth opportunities.  Forward-looking statements include statements related to ChampionX’s expectations regarding the performance of the business, financial results, liquidity and capital resources of ChampionX. Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from current expectations, including, but not limited to, changes in economic, competitive, strategic, technological, tax, regulatory or other factors that affect the operations of ChampionX’s businesses. You are encouraged to refer to the documents that ChampionX files from time to time with the Securities and Exchange Commission (“SEC”), including the “Risk Factors” in ChampionX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and in ChampionX’s other filings with the SEC. Readers are cautioned not to place undue reliance on ChampionX’s forward-looking statements. Forward-looking statements speak only as of the day they are made and ChampionX undertakes no obligation to update any forward-looking statement, except as required by applicable law.

        
Investor Contact: Byron Pope
byron.pope@championx.com
281-602-0094

Media Contact: John Breed
john.breed@championx.com
281-403-5751


CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)

 Three Months Ended Six Months Ended
 June 30, March 31,  June 30, June 30,
(in thousands, except per share amounts)2021 2021 2020 2021 2020
Revenue$749,172  $684,888   $298,914   $1,434,060   $560,348  
Cost of goods and services569,167  522,556   266,684   1,091,723   445,779  
Gross profit180,005  162,332   32,230   342,337   114,569  
Selling, general and administrative expense152,341  143,478   130,657   295,819   208,800  
Goodwill and long-lived asset impairment—  —   —   —   657,251  
Interest expense, net14,064  13,971   11,262   28,035   20,301  
Other (income) expense, net2,251  (1,936)  312   315   (1,321) 
Income (loss) before income taxes11,349  6,819   (110,001)  18,168   (770,462) 
Provision for (benefit from) income taxes3,563  2,782   (954)  6,345   (27,960) 
Net income (loss)7,786  4,037   (109,047)  11,823   (742,502) 
Less: Net income (loss) attributable to noncontrolling interest536  (1,735)  598   (1,199)  871  
Net income (loss) attributable to ChampionX$7,250  $5,772   $(109,645)  $13,022   $(743,373) 
          
Earnings (loss) per share attributable to ChampionX:         
Basic$0.04  $0.03   $(0.95)  $0.06   $(7.72) 
Diluted$0.03  $0.03   $(0.95)  $0.06   $(7.72) 
          
Weighted-average shares outstanding:         
Basic201,467  200,580   115,149   201,063   96,313  
Diluted208,541  207,271   115,149   207,939   96,313  



CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(in thousands)June 30, 2021 December 31, 2020
ASSETS   
Cash and cash equivalents$238,995  $201,421 
Receivables, net576,090  559,545 
Inventories, net467,594  430,112 
Prepaid expenses and other current assets67,360  74,767 
Total current assets1,350,039  1,265,845 
    
Property, plant and equipment, net818,928  854,536 
Goodwill690,134  680,594 
Intangible assets, net436,027  479,009 
Other non-current assets190,882  195,792 
Total assets$3,486,010  $3,475,776 
    
LIABILITIES   
Current portion of long-term debt$26,850  $26,850 
Accounts payable391,213  299,666 
Other current liabilities268,515  296,044 
Total current liabilities686,578  622,560 
    
Long-term debt838,826  905,764 
Other long-term liabilities301,649  334,877 
EQUITY   
ChampionX stockholders’ equity1,674,315  1,625,971 
Noncontrolling interest(15,358) (13,396)
Total liabilities and equity$3,486,010  $3,475,776 



CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 Six Months Ended June 30,
(in thousands)2021 2020
Cash flows from operating activities:   
Net income (loss)$11,823  $(742,502)
Depreciation76,648  58,139 
Amortization43,739  26,274 
Goodwill and long-lived asset impairment—  657,251 
Receivables(18,706) 77,777 
Inventories(41,586) 24,794 
Accounts payable92,997  (30,331)
Leased assets(1,609) (9,311)
Other(12,168) 15,942 
Net cash provided by operating activities151,138  78,033 
    
Cash flows from investing activities:   
Capital expenditures(45,680) (19,322)
Acquisitions, net of cash acquired—  57,588 
Proceeds from sale of fixed assets2,482  1,066 
Net cash (used for) provided by investing activities(43,198) 39,332 
    
Cash flows from financing activities:   
Proceeds from long-term debt—  125,000 
Repayment of long-term debt(71,113) (125,000)
Debt issuance costs—  (4,356)
Other1,370  (5,614)
Net cash used for financing activities(69,743) (9,970)
    
Effect of exchange rate changes on cash and cash equivalents(623) (790)
    
Net increase (decrease) in cash and cash equivalents37,574  106,605 
Cash and cash equivalents at beginning of period201,421  35,290 
Cash and cash equivalents at end of period$238,995  $141,895 


CHAMPIONX CORPORATION
BUSINESS SEGMENT DATA
(UNAUDITED)

 Three Months Ended Six Months Ended
 June 30, March 31,  June 30, June 30,
(in thousands)2021 2021 2020 2021 2020
Segment revenue:         
Production Chemical Technologies$447,049   $412,371   $136,002   $859,420   $136,002  
Production & Automation Technologies188,173   166,845   114,741   355,018   320,220  
Drilling Technologies37,589   34,994   20,948   72,583   76,903  
Reservoir Chemical Technologies33,222   29,891   9,306   63,113   9,306  
Corporate and other43,139   40,787   17,917   83,926   17,917  
Total revenue$749,172   $684,888   $298,914   $1,434,060   $560,348  
          
Income (loss) before income taxes:        
Segment operating profit (loss):         
Production Chemical Technologies$33,871   $30,357   $9,922   $64,228   $9,922  
Production & Automation Technologies12,292   5,362   (37,168)  17,654   (685,759) 
Drilling Technologies3,868   6,386   (3,811)  10,254   7,548  
Reservoir Chemical Technologies(2,594)  (3,228)  (2,811)  (5,822)  (2,811) 
Total segment operating profit (loss)47,437   38,877   (33,868)  86,314   (671,100) 
Corporate and other22,024   18,087   64,871   40,111   79,061  
Interest expense, net14,064   13,971   11,262   28,035   20,301  
Income (loss) before income taxes$11,349   $6,819   $(110,001)  $18,168   $(770,462) 
          
Operating profit margin / income (loss) before income taxes margin:         
Production Chemical Technologies7.6 % 7.4 % 7.3 % 7.5 % 7.3 %
Production & Automation Technologies6.5 % 3.2 % (32.4)% 5.0 % (214.2)%
Drilling Technologies10.3 % 18.2 % (18.2)% 14.1 % 9.8 %
Reservoir Chemical Technologies(7.8)% (10.8)% (30.2)% (9.2)% (30.2)%
ChampionX Consolidated1.5 % 1.0 % (36.8)% 1.3 % (137.5)%
          
Adjusted EBITDA         
Production Chemical Technologies$61,708   $56,025   $22,431   $117,733   $22,431  
Production & Automation Technologies37,903   35,512   14,492   73,415   54,524  
Drilling Technologies8,494   7,292   1,800   15,786   17,570  
Reservoir Chemical Technologies202   (558)  (314)  (356)  (314) 
Corporate and other(2,926)  (4,025)  (3,948)  (6,951)  (6,492) 
Adjusted EBITDA$105,381   $94,246   $34,461   $199,627   $87,719  
          
Adjusted EBITDA margin         
Production Chemical Technologies13.8 % 13.6 % 16.5 % 13.7 % 16.5 %
Production & Automation Technologies20.1 % 21.3 % 12.6 % 20.7 % 17.0 %
Drilling Technologies22.6 % 20.8 % 8.6 % 21.7 % 22.8 %
Reservoir Chemical Technologies0.6 % (1.9)% (3.4)% (0.6)% (3.4)%
ChampionX Consolidated14.1 % 13.8 % 11.5 % 13.9 % 15.7 %



CHAMPIONX CORPORATION
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
(UNAUDITED)

 Three Months Ended Six Months Ended
 June 30, March 31, June 30, June 30,
(in thousands)2021 2021 2020 2021 2020
Net income (loss) attributable to ChampionX$7,250   $5,772   $(109,645)  $13,022   $(743,373) 
Pre-tax adjustments:         
Merger integration costs12,665   12,190   5,705   24,855   9,110  
Restructuring and other related charges3,775   4,256   12,128   8,031   14,894  
Intellectual property defense2,790   (1,009)  181   1,781   392  
Acquisition-related adjustments (1)(3,512)  (3,512)  5,831   (7,024)  5,831  
Acquisition costs—   530   53,047   530   61,150  
Loss on extinguishment of debt3,305   —   —   3,305   —  
Separation and supplemental benefit costs1,559   —   (317)  1,559   51  
Professional fees related to material weakness remediation (2)—   —   2,044   —   4,788  
Goodwill and long-lived asset impairment (3)—   —   —   —   657,251  
Tax impact of adjustments(4,322)  (2,616)  (18,208)  (6,938)  (57,330) 
Adjusted net income (loss) attributable to ChampionX23,510   15,611   (49,234)  39,121   (47,236) 
Tax impact of adjustments4,322   2,616   18,208   6,938   57,330  
Net income (loss) attributable to noncontrolling interest536   (1,735)  598   (1,199)  871  
Depreciation and amortization59,386   61,001   54,581   120,387   84,413  
Provision for (benefit from) income taxes3,563   2,782   (954)  6,345   (27,960) 
Interest expense, net14,064   13,971   11,262   28,035   20,301  
Adjusted EBITDA$105,381   $94,246   $34,461   $199,627   $87,719  

_______________________

(1)  Includes revenue associated with the amortization of a liability established as part of the Merger, representing unfavorable terms under the Cross Supply Agreement. For the three months ended June 30, 2020, in association with the Merger of legacy ChampionX, we recorded an increase to the fair value of inventory which is subsequently amortized to cost of sales over the period that the related product is sold.
(2)  Includes professional fees related to the remediation of material weaknesses identified during 2019.
(3) Represents charges for goodwill and long-lived asset impairments in our Production & Automation Technologies segment.

 Three Months Ended Six Months Ended
 June 30, March 31, June 30, June 30,
(in thousands)2021 2021 2020 2021 2020
Diluted earnings (loss) per share attributable to ChampionX$0.03   $0.03   $(0.95)  $0.06   $(7.72) 
Per share adjustments:         
Merger integration costs0.06   0.06   0.05   0.12   0.10  
Restructuring and other related charges0.02   0.02   0.11   0.04   0.15  
Intellectual property defense0.01   (0.01)  —   0.01   —  
Acquisition-related adjustments(0.02)  (0.01)  0.05   (0.03)  0.06  
Acquisition costs—   —   0.46   —   0.63  
Loss on extinguishment of debt0.02   —   —   0.02   —  
Separation and supplemental benefit costs0.01   —   —   0.01   —  
Professional fees related to material weakness remediation and impairment analysis—   —   0.01   —   0.05  
Goodwill and long-lived asset impairment—   —   —   —   6.83  
Tax impact of adjustments(0.02)  (0.01)  (0.16)  (0.04)  (0.59) 
Adjusted diluted earnings (loss) per share attributable to ChampionX$0.11   $0.08   $(0.43)  0.19   (0.49) 

Free Cash Flow

 Three Months Ended Six Months Ended
 June 30, March 31, June 30, June 30,
(in thousands)2021 2021 2020 2021 2020
Free Cash Flow         
Cash provided by operating activities$60,924   $90,214   $48,811   $151,138   $78,033  
Less: Capital expenditures(20,101)  (25,579)  (11,855)  (45,680)  (19,322) 
Free cash flow$40,823   $64,635   $36,956   $105,458   $58,711  
          
Cash From Operating Activities to Revenue Ratio         
Cash provided by operating activities$60,924   $90,214   $48,811   $151,138   $78,033  
Revenue$749,172   $684,888   $298,914   $1,434,060   $560,348  
          
Cash from operating activities to revenue ratio8%  13%  16%  11%  14% 
          
Free Cash Flow to Revenue Ratio         
Free cash flow$40,823   $64,635   $36,956   $105,458   $58,711  
Revenue$749,172   $684,888   $298,914   $1,434,060   $560,348  
          
Free cash flow to revenue ratio5%  9%  12%  7%  10% 
          
Free Cash Flow to Adjusted EBITDA Ratio         
Free cash flow$40,823   $64,635   $36,956   $105,458   $58,711  
Adjusted EBITDA$105,381   $94,246   $34,461   $199,627   $87,719  
          
Free cash flow to adjusted EBITDA ratio39%  69%  107%  53%  67%