Document
false0001723089 0001723089 2020-08-05 2020-08-05


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

August 5, 2020
Date of Report (Date of earliest event reported)

ChampionX Corporation
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
001-38441
 
82-3066826
 
 
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)
 
2445 Technology Forest Blvd
Building 4, 12th Floor
The Woodlands, Texas 77381
(Address of principal executive offices and zip code)
(281) 403-5772
(Registrant’s telephone number, including area code)
Apergy Corporation
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.01 par value
CHX
New York Stock Exchange
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  





Item 2.02    Results of Operations and Financial Condition.

On August 5, 2020, ChampionX Corporation issued a news release announcing its preliminary financial results for the fiscal quarter ended June 30, 2020. A copy of the news release is furnished as Exhibit 99.1 hereto and incorporated herein by reference.

The information furnished pursuant to this Item 2.02 (including Exhibit 99.1) shall not be deemed to be “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, (“Exchange Act”) or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing made by ChampionX Corporation under the Exchange Act or the Securities Act of 1933, as amended, regardless of any general incorporation language in any such filing, except as shall be expressly set forth by specific reference in such filing.


Item 9.01    Financial Statements and Exhibits.

(d) Exhibits
Exhibit
No.
  
Description
 
 
 
99.1
  
News Release issued by ChampionX Corporation dated August 5, 2020





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
ChampionX Corporation
 
 
 
 
 
 
Date: August 5, 2020
 
By:
/s/ JAY A. NUTT
 
 
 
 
Jay A. Nutt
 
 
 
 
Senior Vice President and Chief Financial Officer
 





EXHIBIT INDEX

Exhibit
No.
  
Description
 
 
  


Exhibit


Exhibit 99.1

https://cdn.kscope.io/d39c2bf9fb59c30392fb6d4029c6cc5c-championxlogo.jpg


ChampionX Reports Second Quarter 2020 Results


Revenue of $298.9 million in Q2-20
Net loss attributable to ChampionX of $109.6 million in Q2-20
Adjusted EBITDA of $34.5 million in Q2-20
Cash from operating activities of $48.8 million and free cash flow of $37.0 million, or 12% of revenue in Q2-20; free cash flow of $72.0 million excluding $35.1 million of cash payments for transaction expenses
Integration of legacy Apergy and legacy ChampionX on track, expect annualized run-rate synergies towards the high-end of the previously announced $25 to $35 million exiting 2020
Liquidity of $501 million including cash and unused revolver capacity after repaying in full $125 million of borrowings on our revolving credit facility

THE WOODLANDS, TX, August 5, 2020 - ChampionX Corporation (“ChampionX”) (NYSE: CHX) (“the Company”) today announced second quarter of 2020 results. On June 3, 2020, the Company completed the combination of its business with the legacy ChampionX business. Actual results in the second quarter of 2020 include the results of operations of the legacy Apergy businesses for the entire period, and results from legacy ChampionX for the month of June 2020.

For the second quarter of 2020, revenue was $298.9 million, net loss attributable to ChampionX was $109.6 million, and adjusted EBITDA was $34.5 million. Loss before income taxes margin was (36.8)%, and adjusted EBITDA margin was 11.5%. Cash provided by operating activities was $48.8 million, an increase of $19.6 million sequentially, and free cash flow was $37.0 million. Cash flow figures include payment of $35.1 million in transaction-related expenses in the quarter.

Results on a pro forma basis for ChampionX are provided supplementary to the actual results of the Company and represent results as if legacy ChampionX was combined with the Company for the entire period.

For the second quarter of 2020, pro forma revenue was $614.7 million, pro forma net loss was $60.1 million attributable to ChampionX, and pro forma adjusted EBITDA was $62.8 million, including $6 million of estimated cost avoidance synergies. Pro forma results are presented in the section titled “ChampionX Pro Forma Results.” For additional information on the pro forma results see note titled “Results on a Pro Forma Basis” below and the tables included in this release.i

Reportable Segments

ChampionX reports its results under the following segments as well as Corporate and Other:

Production Chemical Technologies - manufactures, supplies, and services a comprehensive suite of innovative production chemical products to oil and natural gas producers and midstream operators, including solutions to manage and control corrosion, oil and water separation, flow assurance, sour gas treatment and a host of water-related issues. Production Chemical Technologies represents the Oilfield Performance segment of legacy ChampionX.

Production & Automation Technologies - designs, manufactures, markets and services a full range of artificial lift equipment, end-to-end digital automation solutions, as well as other production equipment. Production & Automation Technologies segment reporting is unchanged from legacy Apergy.

Drilling Technologies - designs, manufactures, and markets polycrystalline diamond cutters and bearings for use in oil and gas drilling. Drilling Technologies segment reporting is unchanged from legacy Apergy.


1



Reservoir Chemical Technologies - manufactures, supplies, and services a broad range of drilling and completion chemical products that support well stimulation, acidizing, cementing, and remediation needs in the oil and natural gas industry. Reservoir Chemical Technologies represents the Specialty Performance segment of legacy ChampionX.

Business activities that do not meet the criteria of an operating segment have been combined into Corporate and Other. Corporate and Other includes (i) corporate and overhead expenses, and (ii) revenue and costs for activities that are not operating segments.

CEO Commentary

“As we continue to operate in the midst of a global pandemic, the health and safety of our employees remains our highest priority, and we are committed to taking all necessary steps to protect them,” ChampionX’s President and Chief Executive Officer Sivasankaran “Soma” Somasundaram said. “I want to thank all our employees for their continued dedication through this challenging period. They continue to demonstrate outstanding adaptability and flexibility during these uncertain times. It is a privilege for me to lead such a high-performing team.

“The second quarter saw an important and transformative milestone in our Company’s history. With the closing of our merger with legacy ChampionX we became a new company with a strengthened portfolio and expanded global scale.  We believe that the execution of our merger with ChampionX was well timed and positions the new company for stronger performance and enhanced stability in the face of difficult near-term market conditions, and positions us strongly for long-term success as the global energy transition evolves. We believe the more resilient performance of our Production Chemical Technologies segment, which experienced a 15% sequential decline in pro forma revenue, demonstrates the advantages of our strategy of focusing on relatively more stable production-related businesses. In addition, with the merger we have increased our international revenues by more than eight times on a pro forma basis, increased our exposure to larger and more stable customers, particularly national and international oil companies, and on a pro forma basis immediately reduced the leverage on our balance sheet. 

“In the second quarter our team demonstrated exceptional execution. During the quarter, we reacted swiftly as market conditions deteriorated and proactively implemented our comprehensive cost reduction plans to support positive adjusted EBITDA and cash flow generation. For the legacy Apergy companies, we exceeded our cost saving objectives for the second quarter with some additional temporary cost savings actions, including furloughs and salary reductions. At legacy ChampionX, cost reduction actions were implemented prior to the merger, and combined with incremental actions we are now taking, we expect to deliver approximately $50 million of annualized savings within legacy ChampionX. These actions are distinct from our plan to capture the synergies provided by the merger.

“Even in the depths of the current downturn, we continue to maintain a strong balance sheet and generate positive free cash flow. Excluding $35 million of cash transaction expenses, we generated free cash flow of $72 million in the second quarter. We also repaid in full the $125 million we borrowed in April under our revolving credit facility. We ended the quarter with $501 million of liquidity, including $142 million of cash on the balance sheet and $359 million of available capacity on our revolver. In addition, we remain focused on our free cash flow generation and we fully intend to start repaying our debt as early as third quarter of 2020.

“Additionally, our merger integration is on-track and we are implementing our plans to capture the $75 million in cost synergies within 24 months of closing, as well as drive additional revenue growth opportunities. We expect to be at the higher end of the previously announced $25 to $35 million of run rate cost synergies exiting 2020.

“While visibility remains challenging due to the uncertainty caused by the COVID pandemic, we are encouraged by the stabilization in the price of oil. In the third quarter, within our production-focused segments of Production Chemical Technologies and Production & Automation Technologies, we expect to see a modest sequential increase in our revenue due to operators bringing production back on-line. Drilling Technologies revenue is expected to decrease sequentially, driven by continued low drilling activity in the third quarter. On a consolidated basis, in the third quarter we expect a modest sequential increase in our revenue and adjusted EBITDA, driven by our production-focused segments. As we move into the fourth quarter, the seasonal impacts of holidays and E&P capital budget exhaustion are unclear at this time.


2



“We are excited about the completion of the merger and the possibilities for our combined company. Our disciplined operating model, differentiated products and technology, strong free cash flow, and enhanced production-focused portfolio will enable us to be a long-term winner in the evolving global oil & gas industry.”

ChampionX Actual Results
 
 
Three Months Ended
 
Variance
(dollars in thousands, except per share amounts)
 
Jun. 30, 2020
 
Mar. 31, 2020
 
Jun. 30, 2019
 
Sequential
 
Year-over-year
Revenue
 
$
298,914

 
$
261,434

 
$
306,170

 
14%
 
(2)%
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to ChampionX
 
$
(109,645
)
 
$
(633,728
)
 
$
22,937

 
N/M
 
N/M
Diluted earnings (loss) per share attributable to ChampionX
 
$
(0.95
)
 
$
(8.18
)
 
$
0.30

 
N/M
 
N/M
 
 
 
 
 
 
 
 
 
 
 
Adjusted net income (loss) attributable to ChampionX
 
$
(49,234
)
 
$
1,998

 
$
25,958

 
N/M
 
N/M
Adjusted diluted earnings (loss) per share attributable to ChampionX
 
$
(0.43
)
 
$
0.03

 
$
0.33

 
N/M
 
N/M
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
$
(110,001
)
 
$
(660,461
)
 
$
29,288

 
N/M
 
N/M
Income (loss) before income taxes margin
 
(36.8
)%
 
(252.6
)%
 
9.6
%
 
N/M
 
N/M
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
34,461

 
$
53,258

 
$
73,507

 
(35)%
 
(53)%
Adjusted EBITDA margin
 
11.5
 %
 
20.4
 %
 
24.0
%
 
(890) bps
 
(1250) bps
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
48,811

 
$
29,222

 
$
39,391

 
$19,589
 
$9,420
Capital expenditures
 
$
11,855

 
$
7,467

 
$
12,970

 
$4,388
 
$(1,115)
N/M - not meaningful


ChampionX Consolidated actual results in the second quarter of 2020 include the results of operations of the legacy Apergy businesses for the entire period, and results from legacy ChampionX for June 2020.

Second quarter 2020 consolidated revenue includes $17.9 million of chemical sales to Ecolab for the month of June. As part of the Merger, the Company entered into a Cross Supply and Product Transfer Agreement with Ecolab in which certain products will be manufactured by one party for the other and sold at cost over a period of no longer than 3 years from the merger date. Revenue associated with these sales is reported in Corporate and Other within our financial statements.

Production Chemical Technologies - Actual Results
 
 
Three Months Ended
(dollars in thousands)
 
Jun. 30, 2020
Revenue
 
$
136,002

Operating profit
 
$
9,922

Operating profit margin
 
7.3
%
Adjusted segment EBITDA
 
$
22,431

Adjusted segment EBITDA margin
 
16.5
%

Actual results for Production Chemical Technologies for the second quarter of 2020 only includes the month of June.

3




Production & Automation Technologies - Actual Results

 
 
Three Months Ended
 
Variance
(dollars in thousands)
 
Jun. 30, 2020
 
Mar. 31, 2020
 
Jun. 30, 2019
 
Sequential
 
Year-over-year
Revenue
 
$
114,741

 
$
205,479

 
$
235,819

 
(44)%
 
(51)%
Operating profit (loss)
 
$
(37,168
)
 
$
(648,591
)
 
$
19,868

 
N/M
 
N/M
Operating profit (loss) margin
 
(32.4
)%
 
(315.6
)%
 
8.4
%
 
N/M
 
N/M
Adjusted segment EBITDA
 
$
14,492

 
$
40,031

 
$
50,700

 
(64)%
 
(71)%
Adjusted segment EBITDA margin
 
12.6
 %
 
19.5
 %
 
21.5
%
 
(690) bps
 
(890) bps
N/M - not meaningful


In the second quarter of 2020, Production & Automation Technologies revenue decreased $90.7 million, or 44%, sequentially, due to lower volumes driven by the rapid reduction in worldwide E&P capital spending. Sequentially, North America revenue declined 48% and international revenue declined 27%. On a year-over-year basis, Production & Automation Technologies revenue decreased $121.1 million, or 51%, driven by the same factors as the sequential change, with North America revenue declining 55% and international revenue declining 33%.

Revenue from digital products was $23.1 million in the second quarter of 2020, a decrease of $10.8 million, or 32%, compared to $33.9 million in the first quarter of 2020, and a decrease of $11.2 million, or 33%, compared to $34.3 million in the second quarter of 2019. The sequential and year-over-year decline in digital revenue was driven by reduced hardware sales due to reductions in E&P capital budgets. We expect that sales of digital hardware equipment will continue to be impacted by reduced E&P capital spending.

In the second quarter of 2020, segment operating loss was $37.2 million. Adjusted segment EBITDA was $14.5 million, which decreased $25.5 million sequentially, or 64%, due to the significantly lower volume, partially offset by the benefits of cost reduction actions. On a year-over-year basis, adjusted segment EBITDA decreased $36.2 million, or 71%, due to the lower volume and product mix, partially offset by cost reduction actions.

The sequential decrease in adjusted segment EBITDA of $25.5 million was 28% of the sequential decrease in revenue of $90.7 million, demonstrating the effectiveness of our cost reduction actions.

Drilling Technologies - Actual Results

 
 
Three Months Ended
 
Variance
(dollars in thousands)
 
Jun. 30, 2020
 
March 31, 2020
 
June 30, 2019
 
Sequential
 
Year-over-year
Revenue
 
$
20,948

 
$
55,955

 
$
70,351

 
(63)%
 
(70)%
Operating profit (loss)
 
$
(3,811
)
 
$
11,359

 
$
24,251

 
N/M
 
N/M
Operating profit (loss) margin
 
(18.2
)%
 
20.3
%
 
34.5
%
 
N/M
 
N/M
Adjusted segment EBITDA
 
$
1,800

 
$
15,770

 
$
26,577

 
(89)%
 
(93)%
Adjusted segment EBITDA margin
 
8.6
 %
 
28.2
%
 
37.8
%
 
(1960) bps
 
(2920) bps
N/M - not meaningful


In the second quarter of 2020, Drilling Technologies revenue decreased by $35.0 million, or 63%, sequentially, driven by the significant decline of worldwide drilling activity, customer destocking of polycrystalline diamond cutter inventories, a product shift mix toward lower price diamond cutters, and lower diamond bearings revenue. On a year-over-year basis, Drilling Technologies revenue decreased $49.4 million, or 70%, driven by the same factors as the sequential change.

Diamond bearings revenue in the second quarter of 2020 was $2.3 million, down $3.8 million, or 62%, sequentially, and down $8.9 million, or 80%, year over year.

4




In the second quarter of 2020, segment operating loss was $3.8 million, and adjusted segment EBITDA was $1.8 million. Sequentially adjusted segment EBITDA decreased by $14.0 million, or 89%, due to the lower volumes and shift in product mix, partially offset by the benefits of cost reduction actions. Year-over-year, adjusted segment EBITDA decreased by $24.8 million, or 93%, as a result of the lower volumes and shift in product mix, partially offset by cost reduction actions.

The sequential decrease in adjusted segment EBITDA of $14.0 million was 40% of the sequential decrease in revenue of $35.0 million, demonstrating the effectiveness of our cost reduction actions.

Sequentially, the average worldwide and U.S. rig counts declined 39% and 50%, respectively. On a year-over-year basis, the average worldwide and U.S. rig counts declined 43% and 60%, respectively.
 

Reservoir Chemical Technologies - Actual Results

 
 
Three Months Ended
(dollars in thousands)
 
Jun. 30, 2020
Revenue
 
$
9,306

Operating loss
 
$
(2,811
)
Operating loss margin
 
(30.2
)%
Adjusted segment EBITDA
 
$
(314
)
Adjusted segment EBITDA margin
 
(3.4
)%

Actual results for Reservoir Chemical Technologies for the second quarter of 2020 only includes the month of June.

ChampionX Pro Forma Results

Results on a pro forma basis for ChampionX are provided supplementary to the actual results of the Company and represent results as if legacy ChampionX was combined with the Company for the entire period.
 
 
 
Three Months Ended
 
Variance
(dollars in thousands, except per share amounts)
 
Jun. 30, 2020
 
Mar. 31, 2020
 
Jun. 30, 2019
 
Sequential
 
Year-over-year
Pro forma revenue
 
$
614,684

 
$
820,695

 
$
891,001

 
(25)%
 
(31)%
 
 
 
 
 
 
 
 
 
 
 
Pro forma net income (loss) attributable to ChampionX
 
$
(60,100
)
 
$
(734,425
)
 
$
57,078

 
N/M
 
N/M
 
 
 
 
 
 
 
 
 
 
 
Pro forma income (loss) before income taxes
 
$
(45,089
)
 
$
(741,383
)
 
$
75,930

 
N/M
 
N/M
Pro forma Income (loss) before income taxes margin
 
(7.3
)%
 
(90.3
)%
 
8.5
%
 
N/M
 
N/M
 
 
 
 
 
 
 
 
 
 
 
Pro forma adjusted EBITDA
 
$
62,754

 
$
146,217

 
$
163,006

 
(57)%
 
(62)%
Pro forma adjusted EBITDA margin
 
10.2
 %
 
17.8
 %
 
18.3
%
 
(760) bps
 
(810) bps
N/M - not meaningful

Second quarter of 2020 consolidated pro forma revenue includes $17.9 million of chemical sales to Ecolab for the month of June under the Cross Supply and Product Transfer Agreement with Ecolab.


5



Pro forma revenue for the full second quarter of 2020 was $614.7 million, representing a sequential decrease of $206.0 million. Pro forma loss before income taxes for the full second quarter was $45.1 million. Pro forma adjusted EBITDA was $62.8 million, representing an $83.5 million sequential decrease.

The sequential decrease in pro forma adjusted EBITDA of $83.5 million was 41% of the sequential decrease in pro forma revenue of $206.0 million. Excluding the $17.9 million of revenue and cost associated with sales to Ecolab as part of the Cross Supply and Product Transfer Agreement, the sequential decrease in pro forma adjusted EBITDA was $83.5 million, or 37% of the decrease in pro forma revenue of $223.9 million.

Production Chemical Technologies - Pro Forma Results

 
 
Three Months Ended
 
Variance
(dollars in thousands)
 
Jun. 30, 2020
 
Mar. 31, 2020
 
June 30, 2019
 
Sequential
 
Year-over-year
Revenue
 
$
433,128

 
$
510,244

 
$
502,307

 
(15)%
 
(14)%
Operating profit
 
$
37,154

 
$
70,415

 
$
53,726

 
(47)%
 
(31)%
Operating profit margin
 
8.6
%
 
13.8
%
 
10.7
%
 
(520) bps
 
(210) bps
Adjusted segment EBITDA
 
$
58,466

 
$
92,786

 
$
75,142

 
(37)%
 
(22)%
Adjusted segment EBITDA margin
 
13.5
%
 
18.2
%
 
15.0
%
 
(470) bps
 
(150) bps

Results on a pro forma basis for the Production Chemical Technologies segment are provided supplementary to the results of the segment included in the actual results for the Company. See note titled “Results on a Pro Forma Basis” below and the tables included in this release.

Production Chemical Technologies pro forma revenue for the full second quarter of 2020 decreased $77.1 million, or 15%, sequentially, due to lower volumes driven by the significant curtailment of global oil production and pricing concessions. Sequentially, North America pro forma revenue declined 29% and international pro forma revenue was approximately unchanged. Compared to the prior year, Production Chemical Technologies pro forma revenue decreased $69.2 million, or 14%, driven by the same factors as the sequential change, with North America pro forma revenue declining 26% and international pro forma revenue declining 1%.

Production Chemical Technologies pro forma operating profit for the full second quarter of 2020 was $37.2 million. Pro forma adjusted segment EBITDA for the full quarter was $58.5 million, which decreased $34.3 million sequentially, or 37%, due to the lower volume and pricing concessions. On a year-over-year basis, pro forma adjusted segment EBITDA for the full quarter decreased $16.7 million, or 22%, due to the lower volume and pricing concessions.

The sequential decrease in pro forma adjusted segment EBITDA of $34.3 million was 45% of the sequential decrease in pro forma revenue of $77.1 million. The elevated percentage was due to pricing concessions, volume related absorption, and unfavorable product mix. We expect the cost reduction actions we are taking and higher volumes to improve the sequential change in adjusted segment EBITDA as a percentage of the sequential change in revenue in the third quarter of 2020.
 














6



Reservoir Chemical Technologies - Pro Forma Results

 
 
Three Months Ended
 
Variance
(dollars in thousands)
 
Jun. 30, 2020
 
Mar. 31, 2020
 
June 30, 2019
 
Sequential
 
Year-over-year
Revenue
 
$
27,950

 
$
49,017

 
$
82,450

 
(43)%
 
(66)%
Operating profit
 
$
(16,072
)
 
$
(155,464
)
 
$
4,653

 
N/M
 
N/M
Operating profit margin
 
(57.5
)%
 
(317.2
)%
 
5.6
%
 
N/M
 
N/M
Adjusted segment EBITDA
 
$
(9,573
)
 
$
(2,142
)
 
$
11,178

 
N/M
 
N/M
Adjusted segment EBITDA margin
 
(34.3
)%
 
(4.4
)%
 
13.6
%
 
N/M
 
N/M

Note: Pro forma operating profit for the three months ended March 31, 2020 includes a goodwill impairment charge of $147.8 million.

N/M - not meaningful

Results on a pro forma basis for the Reservoir Chemical Technologies segment are provided supplementary to the results of the segment included in the actual results for the Company. See note titled “Results on a Pro Forma Basis” below and the tables included in this release.

Reservoir Chemical Technologies pro forma revenue for the full second quarter for 2020 decreased by $21.1 million, or 43%, sequentially, driven by the significant decline of worldwide drilling and completion activity. Compared to the prior year period, Reservoir Chemical Technologies pro forma revenue decreased $54.5 million, or 66%, driven by the same factor as the sequential change.

For the full second quarter of 2020, pro forma segment operating loss was $16.1 million, and pro forma adjusted segment EBITDA was a negative $9.6 million, decreasing sequentially by $7.4 million, and on a year-over-year basis by $20.8 million, as a result of the lower activity.

2020 Capital Expenditure Guidance

For the second half of 2020, we expect our capital expenditures combined with investment in leased assets in the net cash from operating activities section of our consolidated statement of cash flows to be between $30 to $35 million.

Other Business Highlights

Secured a commitment from one of the International Oil Companies (IOCs) to install our XSPOC production optimization software on multiple artificial lift systems on all new global unconventional applications displacing a large competitor.
Artificial lift operations team in Australia received a Quality Recognition Award from one of the IOCs.
Conducted on-line training sessions with over 1,500 customer engineers and field personnel in our Artificial Lift Academy.
After commercial evaluation process, renewed Production Chemical Technologies chemicals contract with one of the IOCs in the Gulf of Mexico. ChampionX remains the sole supplier for production chemical for this customer in the Gulf of Mexico.
Reservoir Chemical Technologies successfully commercialized new value-adding cementing technologies for offshore applications, reducing cost of operations while increasing ease of logistical deployment.
Completed the first predictive failure artificial intelligence model under our joint technology development agreement with DCP Midstream. Continue to move toward product commercialization.
Drilling Technologies continues to test diamond sciences technology in pumps, motors, and hydrokinetic applications with promising results.
Seven patents were issued to Drilling Technologies in the second quarter of 2020.




7



Conference Call Details

ChampionX Corporation will host a conference call on Thursday, August 6, 2020, to discuss its second quarter 2020 financial results. The call will begin at 10:00 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 9818 224.

A replay of the conference call will be available on ChampionX’s website or at https://onlinexperiences.com/Launch/QReg/ShowUUID=958877E0-E8A5-49B7-B430-8F9099702DA6&LangLocaleID=1033. Enter passcode 49819730.



###


Results on a Pro Forma Basis

On June 3, 2020, Apergy Corporation closed on the acquisition of ChampionX Holding, Inc. (“the Transaction”) and assumed the name ChampionX Corporation (“ChampionX”). Actual results reflect the respective contributions from each company based on the close of the Transaction. For comparative purposes, management has also presented herein certain unaudited pro forma financial information as if the Transaction was completed on January 1, 2019, including results on a pro forma basis for revenue, income before income taxes, income before income taxes margin, adjusted EBITDA, adjusted EBITDA margin, segment revenue, segment operating profit (loss), adjusted segment EBITDA, adjusted segment EBITDA margin for the quarterly periods ended June 30, 2020, March 31, 2020, and June 30, 2019. The financial results on a pro forma basis are provided to assist investors in assessing ChampionX’s performance on a basis that includes the combined results of operations of both Apergy Corporation and ChampionX Holding, Inc. for the full reporting period. ChampionX management believes this unaudited pro forma historical financial information helps investors understand the long-term profitability trends of its newly combined business giving effect to the Transaction and facilitates comparisons of our profitability to prior and future periods and to our peers. The historical financial results on a pro forma basis herein may not be comparable to similarly titled measures reported by other companies.

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 segment EBITDA, adjusted segment EBITDA margin, adjusted net income attributable to ChampionX, adjusted diluted earnings per share attributable to ChampionX, pro forma adjusted EBITDA, pro forma adjusted EBITDA margin, pro forma segment revenue, pro forma segment operating profit (loss), and pro forma adjusted segment EBITDA 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, while adjusted working capital provides a meaningful measure of operational results by showing changes caused by revenue or our operational initiatives. 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.

About ChampionX

ChampionX (formerly known as Apergy Corporation) 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. Our Production Chemical Technologies segment provides chemistry solutions to maximize production from flowing oil and gas wells, and our Reservoir Chemical Technologies segment provides

8



chemistry solutions used in drilling and completion activities. ChampionX’s Production & Automation Technologies offerings consist of artificial lift equipment and solutions, including rod pumping systems, electric submersible pump systems, progressive cavity pumps and drive systems and plunger lifts, as well as a full automation and digital offering consisting of equipment and software for Industrial Internet of Things (“IIoT”) solutions for downhole monitoring, wellsite productivity enhancement, and asset integrity management. ChampionX’s Drilling Technologies offering provides market leading polycrystalline diamond cutters and bearings that result in cost effective and efficient drilling. 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, (1) demand for our products and services, which is affected by the price and demand for crude oil and natural gas, (2) our ability to successfully compete in our industry, (3) our ability to develop and implement new products and technologies, and protect and maintain critical intellectual property assets, (4) cost inflation and availability of raw materials, (5) evolving legal, regulatory, tax and tariff policies and regimes, (6) potential liabilities arising out of the installation and use of our products, (7) continuing consolidation within our customers’ industry, (8) a failure of our information technology infrastructure or any significant breach of cyber security, (9) risks relating to our international operations and expansion into new geographic markets, including disruptions in the political, regulatory, economic and social conditions of those countries, (10) failure to attract, retain and develop key management, (11) credit risks, including bankruptcies among our customer base or the loss of significant customers, (12) dependence on joint venture and other local partners, (13) deterioration in future expected profitability or cash flows and its effect on our goodwill, (14) risks relating to improper conduct by any of our employees, agents or business partners, (15) fluctuations in currency markets, (16) the impact of natural disasters and pandemics, (17) changes in industry-specific conditions, including changes in production by OPEC, (18) the level of our indebtedness, (19) our ability to remediate the material weaknesses in internal control over financial reporting, (20) our ability to realize the anticipated cost synergies and growth opportunities from the Merger, (21) challenges in integrating the businesses of legacy Apergy and legacy ChampionX, (22) tax liabilities that could arise as a result of the Merger, (23) our ability to successfully replace the corporate services and financial strength legacy ChampionX received from Ecolab, (24) limitations on our ability to engage in certain transactions and certain activities competitive with Ecolab, and (25) other risk factors detailed from time to time in ChampionX’s reports filed with the Securities and Exchange Commission. 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: David Skipper
david.skipper@apergy.com
713-230-8031

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

                                                     
i Adjusted net income attributable to ChampionX, adjusted EBITDA, adjusted EBITDA margin, adjusted segment EBITDA, adjusted segment EBITDA margin, pro forma revenue, pro forma adjusted EBITDA, pro forma adjusted EBITDA margin, pro forma adjusted segment EBITDA pro forma adjusted segment EBITDA margin, free cash flow, and free cash flow to revenue, are non-GAAP measures. See section titled “About Non-GAAP Measures” below for details on the non-GAAP measures used in this release.




9



CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
Three Months Ended
 
Six Months Ended June 30,
 
June 30,
 
March 31,
 
June 30,
 
(in thousands, except per share amounts)
2020
 
2020
 
2019
 
2020
 
2019
Revenue
$
298,914

 
$
261,434

 
$
306,170

 
$
560,348

 
$
606,664

Cost of goods and services
266,684

 
179,095

 
197,410

 
445,779

 
394,893

Gross profit
32,230

 
82,339


108,760


114,569


211,771

Selling, general and administrative expense
130,657

 
78,143

 
66,687

 
208,800

 
130,816

Goodwill and long-lived asset impairment

 
657,251

 

 
657,251

 
1,746

Interest expense, net
11,262

 
9,039

 
10,109

 
20,301

 
20,636

Other (income) expense, net
312

 
(1,633
)
 
2,676

 
(1,321
)
 
3,778

Income (loss) before income taxes
(110,001
)
 
(660,461
)
 
29,288

 
(770,462
)
 
54,795

Provision for (benefit from) income taxes
(954
)
 
(27,006
)
 
6,280

 
(27,960
)
 
11,849

Net income (loss)
(109,047
)
 
(633,455
)
 
23,008

 
(742,502
)
 
42,946

Net income attributable to noncontrolling interest
598

 
273

 
71

 
871

 
353

Net income (loss) attributable to ChampionX
$
(109,645
)
 
$
(633,728
)
 
$
22,937

 
$
(743,373
)
 
$
42,593

 
 
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to ChampionX:
 
 
 
 
 
 
 
 
 
Basic
$
(0.95
)
 
$
(8.18
)
 
$
0.30

 
$
(7.72
)
 
$
0.55

Diluted
$
(0.95
)
 
$
(8.18
)
 
$
0.30

 
$
(7.72
)
 
$
0.55

 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
115,149

 
77,477

 
77,425

 
96,313

 
77,394

Diluted
115,149

 
77,477

 
77,632

 
96,313

 
77,636




10



CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(in thousands)
June 30, 2020
 
December 31, 2019
Assets
 
 
 
Cash and cash equivalents
$
141,895

 
$
35,290

Receivables, net
517,110

 
219,874

Inventories, net
527,642

 
211,342

Prepaid expenses and other current assets
71,900

 
26,934

Total current assets
1,258,547

 
493,440

 
 
 
 
Property, plant and equipment, net
944,745

 
248,181

Goodwill
644,381

 
911,113

Intangible assets, net
485,988

 
238,707

Other non-current assets
221,868

 
31,384

Total assets
$
3,555,529

 
$
1,922,825

 
 
 
 
Liabilities
 
 
 
Current portion of long-term debt
$
31,656

 
$
4,845

Accounts payable
274,964

 
120,291

Other current liabilities
251,729

 
74,545

Total current liabilities
558,349

 
199,681

 
 
 
 
Long-term debt
1,071,727

 
559,821

Other long-term liabilities
340,857

 
127,109

Equity
 
 
 
Stockholders’ equity
1,598,698

 
1,032,960

Noncontrolling interest
(14,102
)
 
3,254

Total liabilities and equity
$
3,555,529

 
$
1,922,825




11



CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 
Six Months Ended June 30,
(in thousands)
2020
 
2019
Cash provided by (used for) operating activities:
 
 
 
Net income
$
(742,502
)
 
$
42,946

Depreciation
58,139

 
34,190

Amortization
26,274

 
25,873

Goodwill and long-lived asset impairment
657,251

 
1,746

Receivables
75,808

 
(5,161
)
Inventories
24,794

 
1,029

Accounts payable
(28,362
)
 
(3,088
)
Leased assets
(9,311
)
 
(29,421
)
Other
15,942

 
(8,813
)
Net cash provided by operating activities
78,033

 
59,301

 
 
 
 
Cash provided by (used for) investing activities:
 

 
 

Capital expenditures
(19,322
)
 
(22,688
)
Acquisitions, net of cash acquired
57,588

 

Proceeds from sale of fixed assets
1,066

 
2,475

Payments on sale of business

 
(2,194
)
Net cash provided by (used for) investing activities
39,332

 
(22,407
)
 
 
 
 
Cash used for financing activities:
 

 
 

Proceeds from long-term debt
125,000

 
4,000

Repayment of long-term debt
(125,000
)
 
(54,000
)
Debt issuance costs
(4,356
)
 

Other
(5,614
)
 
(4,489
)
Net cash used for financing activities
(9,970
)
 
(54,489
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(790
)
 
99

 
 
 
 
Net increase (decrease) in cash and cash equivalents
106,605

 
(17,496
)
Cash and cash equivalents at beginning of period
35,290

 
41,832

Cash and cash equivalents at end of period
$
141,895

 
$
24,336




12



CHAMPIONX CORPORATION
BUSINESS SEGMENT DATA
(UNAUDITED)

 
Three Months Ended
 
Six Months Ended June 30,
 
June 30,
 
March 31,
 
June 30,
 
(in thousands)
2020
 
2020
 
2019
 
2020
 
2019
Segment revenue:
 
 
 
 
 
 
 
 
 
Production Chemical Technologies
$
136,002

 
$

 
$

 
$
136,002

 
$

Production & Automation Technologies
114,741

 
205,479

 
235,819

 
320,220

 
458,778

Drilling Technologies
20,948

 
55,955

 
70,351

 
76,903

 
147,886

Reservoir Chemical Technologies
9,306

 

 

 
9,306

 

Corporate
17,917

 

 

 
17,917

 

Total revenue
$
298,914

 
$
261,434

 
$
306,170

 
$
560,348

 
$
606,664

 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes:
 
 
 
 

 
 
 
 
Segment operating profit:
 

 
 
 
 

 
 
 
 
Production Chemical Technologies
$
9,922

 
$

 
$

 
$
9,922

 
$

Production & Automation Technologies
(37,168
)
 
(648,591
)
 
19,868

 
(685,759
)
 
32,932

Drilling Technologies
(3,811
)
 
11,359

 
24,251

 
7,548

 
51,057

Reservoir Chemical Technologies
(2,811
)
 

 

 
(2,811
)
 

Total segment operating profit (loss)
(33,868
)
 
(637,232
)
 
44,119

 
(671,100
)
 
83,989

Corporate expense and other
64,871

 
14,190

 
4,722

 
79,061

 
8,558

Interest expense, net
11,262

 
9,039

 
10,109

 
20,301

 
20,636

Income (loss) before income taxes
$
(110,001
)
 
$
(660,461
)
 
$
29,288

 
$
(770,462
)
 
$
54,795

 
 
 
 
 
 
 
 
 
 
Operating profit margin / income (loss) before income taxes margin:
 
 
 
 
 
 
 
 
 
Production Chemical Technologies
7.3
 %
 
 %
 
%
 
7.3
 %
 
%
Production & Automation Technologies
(32.4
)%
 
(315.6
)%
 
8.4
%
 
(214.2
)%
 
7.2
%
Drilling Technologies
(18.2
)%
 
20.3
 %
 
34.5
%
 
9.8
 %
 
34.5
%
Reservoir Chemical Technologies
(30.2
)%
 
 %
 
%
 
(30.2
)%
 
%
ChampionX Consolidated
(36.8
)%
 
(252.6
)%
 
9.6
%
 
(137.5
)%
 
9.0
%
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
Production Chemical Technologies
$
22,431

 
$

 
$

 
$
22,431

 
$

Production & Automation Technologies
14,492

 
40,031

 
50,700

 
54,524

 
93,690

Drilling Technologies
1,800

 
15,770

 
26,577

 
17,570

 
55,892

Reservoir Chemical Technologies
(314
)
 

 

 
(314
)
 

Corporate
(3,948
)
 
(2,543
)
 
(3,770
)
 
(6,492
)
 
(6,704
)
Adjusted EBITDA
$
34,461

 
$
53,258

 
$
73,507

 
$
87,719

 
$
142,878

 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA margin
 
 
 
 
 
 
 
 
 
Production Chemical Technologies
16.5
 %
 
 %
 
%
 
16.5
 %
 
%
Production & Automation Technologies
12.6
 %
 
19.5
 %
 
21.5
%
 
17.0
 %
 
20.4
%
Drilling Technologies
8.6
 %
 
28.2
 %
 
37.8
%
 
22.8
 %
 
37.8
%
Reservoir Chemical Technologies
(3.4
)%
 
 %
 
%
 
(3.4
)%
 
%
ChampionX Consolidated
11.5
 %
 
20.4
 %
 
24.0
%
 
15.7
 %
 
23.6
%


13



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


 
Three Months Ended
 
Six Months Ended June 30,
 
June 30,
 
March 31,
 
June 30,
 
(in thousands)
2020
 
2020
 
2019
 
2020
 
2019
Net income (loss) attributable to ChampionX
$
(109,645
)
 
$
(633,728
)
 
$
22,937

 
$
(743,373
)
 
$
42,593

Pre-tax adjustments:
 
 
 
 
 
 
 
 
 
Goodwill and long-lived asset impairment (1)

 
657,251

 

 
657,251

 
1,746

Separation and supplemental benefit costs (2)
(317
)
 
368

 
827

 
51

 
1,607

Restructuring and other related charges
12,128

 
2,766

 
3,135

 
14,894

 
4,031

Acquisition and integration related costs (3)
58,752

 
11,508

 

 
70,260

 

Acquisition-related inventory step-up (4)
5,831

 

 

 
5,831

 

Professional fees related to material weakness remediation and impairment analysis (5)
2,044

 
2,744

 

 
4,788

 

Intellectual property defense
181

 
211

 

 
392

 

Tax impact of adjustments (6)
(18,208
)
 
(39,122
)
 
(941
)
 
(57,330
)
 
(1,754
)
Adjusted net income (loss) attributable to ChampionX
(49,234
)
 
1,998

 
25,958

 
(47,236
)
 
48,223

Tax impact of adjustments (6)
18,208

 
39,122

 
941

 
57,330

 
1,754

Net income attributable to noncontrolling interest
598

 
273

 
71

 
871

 
353

Depreciation and amortization
54,581

 
29,832

 
30,148

 
84,413

 
60,063

Provision for (benefit from) income taxes
(954
)
 
(27,006
)
 
6,280

 
(27,960
)
 
11,849

Interest expense, net
11,262

 
9,039

 
10,109

 
20,301

 
20,636

Adjusted EBITDA
$
34,461

 
$
53,258

 
$
73,507

 
$
87,719

 
$
142,878

 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share attributable to ChampionX:
 
 
 
 
 
 
 
 
 
Reported
$
(0.95
)
 
$
(8.18
)
 
$
0.30

 
$
(7.72
)
 
$
0.55

Adjusted
$
(0.43
)
 
$
0.03

 
$
0.33

 
$
(0.49
)
 
$
0.62

_______________________
(1)
Includes charges for goodwill and long-lived asset impairments of $657.3 million in our Production & Automation Technologies segment during the three months ended March 31, 2020. During the six months ended June 30, 2019, we incurred an impairment loss of $1.7 million related to the classification of our pressure vessel manufacturing business as held for sale.
(2)
Separation and supplemental benefit costs primarily relates to separation costs, and to a lesser extent, enhanced or supplemental benefits provided to employees no longer participating in Dover Corporation benefit and compensation plans. Supplemental benefit costs are expected to be incurred through the end of 2020. During the three months ended June 30, 2020, we paid approximately $3.0 million related to a tax indemnification pursuant to the provisions of the tax matters agreement with Dover Corporation. The benefit for the period represents the true-up of our accrual pertaining to this matter, which was accrued for in September 2019.
(3)
Includes costs incurred in relation to business combinations, primarily related to the Merger of legacy ChampionX of $52.3 million and $7.9 million for the three months ended June 30, 2020 and March 31, 2020, respectively. Additionally, we incurred professional fees related to the planned integration of legacy ChampionX of $5.6 million and $3.3 million for the three months ended June 30, 2020 and March 31, 2020, respectively.
(4)
The purchase accounting entries associated with the Merger of legacy ChampionX require us to record inventory at its fair value, which is sometimes greater than the previous book value of the inventory.  Included in our GAAP presentation, the increase in inventory value is amortized to cost of sales over the period that the related product is sold.  
(5)
Includes professional fees related to the remediation of material weaknesses identified during 2019 as well as professional fees incurred in connection with the goodwill impairment charge recognized during the three months ended March 31, 2020.
(6) We generally tax effect adjustments using a combined federal and state statutory income tax rate of approximately 23 percent. The impairment loss for the three and six months ended June 30, 2020 includes non-taxable goodwill of $560.1 million.



14



 
Three Months Ended
 
Six Months Ended June 30,
 
June 30,
 
March 31,
 
June 30,
 
(in thousands)
2020
 
2020
 
2019
 
2020
 
2019
Diluted earnings (loss) per share attributable to ChampionX
$
(0.95
)
 
$
(8.18
)
 
$
0.30

 
$
(7.72
)
 
$
0.55

Per share adjustments:
 
 
 
 
 
 
 
 
 
Goodwill and long-lived asset impairment

 
8.49

 

 
6.83

 
0.02

Separation and supplemental benefit costs

 

 
0.01

 

 
0.02

Restructuring and other related charges
0.11

 
0.04

 
0.04

 
0.15

 
0.05

Acquisition and integration related costs
0.51

 
0.14

 

 
0.73

 

Acquisition-related inventory step-up
0.05

 

 

 
0.06

 

Professional fees related to material weakness remediation and impairment analysis
0.01

 
0.04

 

 
0.05

 

Tax impact of adjustments
(0.16
)
 
(0.50
)
 
(0.02
)
 
(0.59
)
 
(0.02
)
Adjusted diluted earnings (loss) per share attributable to ChampionX
(0.43
)
 
0.03

 
0.33

 
(0.49
)
 
0.62




15



Adjusted Working Capital
(in thousands)
June 30, 2020
 
December 31, 2019
Receivables, net
$
517,110

 
$
219,874

Inventories, net
527,642

 
211,342

Accounts payable
(274,964
)
 
(120,291
)
Adjusted working capital
$
769,788

 
$
310,925



Free Cash Flow

 
Three Months Ended
 
Six Months Ended June 30,
 
June 30,
 
March 31,
 
June 30,
 
(in thousands)
2020
 
2020
 
2019
 
2020
 
2019
Free Cash Flow
 
 
 
 
 
 
 
 
 
Cash provided by operating activities
$
48,811

 
$
29,222

 
$
39,391

 
$
78,033

 
$
59,301

Less: Capital expenditures
(11,855
)
 
(7,467
)
 
(12,970
)
 
(19,322
)
 
(22,688
)
Free cash flow
$
36,956

 
$
21,755

 
$
26,421

 
$
58,711

 
$
36,613

Cash transaction expenses
35,057

 
7,715

 

 
42,772

 

Adjusted free cash flow
$
72,013

 
$
29,470

 
$
26,421

 
$
101,483

 
$
36,613

 
 
 
 
 
 
 
 
 
 
Cash From Operating Activities to Revenue Ratio
 
 
 
 
 
 
Cash provided by operating activities
$
48,811

 
$
29,222

 
$
39,391

 
$
78,033

 
$
59,301

Revenue
$
298,914

 
$
261,434

 
$
306,170

 
$
560,348

 
$
606,664

 
 
 
 
 
 
 
 
 
 
Cash from operating activities to revenue ratio
16
%
 
11
%
 
13
%
 
14
%
 
10
%
 
 
 
 
 
 
 
 
 
 
Free Cash Flow to Revenue Ratio
 
 
 
 

 
 
 
 
Free cash flow
$
36,956

 
$
21,755

 
$
26,421

 
$
58,711

 
$
36,613

Revenue
$
298,914

 
$
261,434

 
$
306,170

 
$
560,348

 
$
606,664

 
 
 
 
 
 
 
 
 
 
Free cash flow to revenue ratio
12
%
 
8
%
 
9
%
 
10
%
 
6
%


16



ChampionX is providing the below unaudited supplemental historical financial information of the Company on a non-GAAP adjusted basis for the three month periods ended June 30, 2020, March 31, 2020 and June 30, 2019 and the six month periods ended June 30, 2020 and 2019 as if the Merger was completed on January 1, 2019, to assist investors in assessing ChampionX’s historical performance on a basis that includes the combined results of operations of both legacy Apergy Corporation and legacy ChampionX. The unaudited pro forma historical financial information has been prepared by ChampionX using assumptions that ChampionX believes provide a reasonable basis for presenting the combination of the historical financial information of legacy Apergy and legacy ChampionX. As legacy ChampionX historically was unable to allocate certain charges on a segment basis, we have determined an allocation methodology for historical pro forma information to provide additional comparability amongst the legacy ChampionX segments. ChampionX management believes this unaudited supplemental historical financial information helps investors understand the long-term profitability trends of its newly combined business giving effect to the Merger and facilitates comparisons of our profitability to prior and future periods and to our peers. The supplemental unaudited financial information herein may not be comparable to similarly titled measures reported by other companies. The supplemental unaudited pro forma combined financial information does not purport to represent what the actual results of operations or the financial position of the combined company would have been had the Transactions occurred on the dates assumed, nor are they indicative of future results of operations or financial position of the combined company.
 



17



CHAMPIONX CORPORATION
PRO FORMA BUSINESS SEGMENT DATA
(UNAUDITED)

 
Three Months Ended
 
Six Months Ended June 30,
 
June 30,
 
March 31,
 
June 30,
 
(in thousands)
2020
 
2020
 
2019
 
2020
 
2019
Segment revenue:
 
 
 
 
 
 
 
 
 
Production Chemical Technologies
$
433,128

 
$
510,244

 
$
502,307

 
$
943,372

 
$
979,354

Production & Automation Technologies
114,741

 
205,479

 
235,819

 
320,220

 
458,778

Drilling Technologies
20,948

 
55,955

 
70,351

 
76,903

 
147,886

Reservoir Chemical Technologies
27,950

 
49,017

 
82,450

 
76,967

 
181,376

Corporate
17,917

 

 
74

 
17,917

 
109

Total revenue
$
614,684

 
$
820,695

 
$
891,001

 
$
1,435,379

 
$
1,767,503

 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes:
 
 
 
 

 
 
 
 
Segment operating profit:
 

 
 
 
 

 
 
 
 
Production Chemical Technologies
$
37,154

 
$
70,415

 
$
53,726

 
$
107,569

 
$
96,850

Production & Automation Technologies
(37,142
)
 
(648,591
)
 
19,868

 
(685,733
)
 
32,932

Drilling Technologies
(3,811
)
 
11,359

 
24,251

 
7,548

 
51,057

Reservoir Chemical Technologies
(16,072
)
 
(155,464
)
 
4,653

 
(171,536
)
 
10,596

Total segment operating profit (loss)
(19,871
)
 
(722,281
)
 
102,498

 
(742,152
)
 
191,435

Corporate expense and other
8,692

 
1,624

 
6,606

 
10,316

 
3,504

Interest expense, net
16,526

 
17,478

 
19,962

 
34,004

 
40,406

Income (loss) before income taxes
$
(45,089
)
 
$
(741,383
)
 
$
75,930

 
$
(786,472
)
 
$
147,525

 
 
 
 
 
 
 
 
 
 
Operating profit margin / income (loss) before income taxes margin:
 
 
 
 
 
 
 
 
 
Production Chemical Technologies
8.6
 %
 
13.8
 %
 
10.7
%
 
11.4
 %
 
9.9
%
Production & Automation Technologies
(32.4
)%
 
(315.6
)%
 
8.4
%
 
(214.1
)%
 
7.2
%
Drilling Technologies
(18.2
)%
 
20.3
 %
 
34.5
%
 
9.8
 %
 
34.5
%
Reservoir Chemical Technologies
(57.5
)%
 
(317.2
)%
 
5.6
%
 
(222.9
)%
 
5.8
%
ChampionX Consolidated
(7.3
)%
 
(90.3
)%
 
8.5
%
 
(54.8
)%
 
8.3
%
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
Production Chemical Technologies
$
58,466

 
$
92,786

 
$
75,142

 
$
151,252

 
$
144,512

Production & Automation Technologies
14,493

 
40,031

 
50,700

 
54,524

 
93,690

Drilling Technologies
1,800

 
15,770

 
26,577

 
17,570

 
55,892

Reservoir Chemical Technologies
(9,573
)
 
(2,142
)
 
11,178

 
$
(11,715
)
 
24,452

Corporate
(2,432
)
 
(228
)
 
(591
)
 
(2,660
)
 
(383
)
Adjusted EBITDA
$
62,754

 
$
146,217

 
$
163,006

 
$
208,971

 
$
318,163

 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA margin
 
 
 
 
 
 
 
 
 
Production Chemical Technologies
13.5
 %
 
18.2
 %
 
15.0
%
 
16.0
 %
 
14.8
%
Production & Automation Technologies
12.6
 %
 
19.5
 %
 
21.5
%
 
17.0
 %
 
20.4
%
Drilling Technologies
8.6
 %
 
28.2
 %
 
37.8
%
 
22.8
 %
 
37.8
%
Reservoir Chemical Technologies
(34.3
)%
 
(4.4
)%
 
13.6
%
 
(15.2
)%
 
13.5
%
ChampionX Consolidated
10.2
 %
 
17.8
 %
 
18.3
%
 
14.6
 %
 
18.0
%

CHAMPIONX CORPORATION
PRO FORMA - RECONCILIATION GAAP TO NON-GAAP FINANCIAL MEASURES

18



(UNAUDITED)


 
Three Months Ended
 
Six Months Ended June 30,
 
June 30,
 
March 31,
 
June 30,
 
(in thousands)
2020
 
2020
 
2019
 
2020
 
2019
Net income (loss) attributable to ChampionX
$
(60,100
)
 
$
(734,425
)
 
$
57,078

 
$
(794,525
)
 
$
109,879

Pre-tax adjustments:
 
 
 
 
 
 
 
 
 
Goodwill and long-lived asset impairment

 
805,011

 

 
805,011

 
1,746

Separation and supplemental benefit costs
(317
)
 
368

 
827

 
51

 
1,607

Restructuring and other related charges
15,950

 
3,632

 
8,198

 
19,582

 
10,934

Acquisition and integration related costs
250

 
384

 

 
634

 

Professional fees related to material weakness remediation and impairment analysis
2,044

 
2,744

 

 
4,788

 

Intellectual property defense
181

 
211

 

 
392

 

Tax impact of adjustments
(4,145
)
 
(23,917
)
 
(2,076
)
 
(28,062
)
 
(3,286
)
Adjusted net income (loss) attributable to ChampionX
(46,137
)
 
54,008

 
64,027

 
7,871

 
120,880

Tax impact of adjustments
4,145

 
23,917

 
2,076

 
28,062

 
3,286

Net income attributable to noncontrolling interest
(535
)
 
2,727

 
144

 
2,192

 
2,445

Depreciation and amortization
73,209

 
57,772

 
58,089

 
130,981

 
115,945

Provision for (benefit from) income taxes
15,546

 
(9,685
)
 
18,708

 
5,861

 
35,201

Interest expense, net
16,526

 
17,478

 
19,962

 
34,004

 
40,406

Adjusted EBITDA
$
62,754

 
$
146,217

 
$
163,006

 
$
208,971

 
$
318,163




19



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

 
Three Months Ended June 30, 2020
(in thousands, except per share data)
As Reported
 
Adjustments (1)
 
Pro Forma
Revenue
$
298,914

 
$
315,770

 
$
614,684

 
 
 
 
 
 
Net income (loss) attributable to ChampionX
$
(109,645
)
 
$
49,545

 
$
(60,100
)
Pre-tax adjustments:
 
 
 
 
 
Separation and supplemental benefit costs
(317
)
 

 
(317
)
Restructuring and other related charges
12,128

 
3,822