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

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 001-38441
ChampionX Corporation
(Exact name of registrant as specified in its charter)

Delaware
82-3066826
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
2445 Technology Forest Blvd,
Building 4, 12th Floor
 
The Woodlands,
Texas
77381
(Address of principal executive offices)
(Zip Code)
(281) 403-5772
(Registrant’s telephone number, including area code)
Apergy Corporation
(Former name, former address and former fiscal year, if changed since last report)

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The registrant had 199,808,901 shares of common stock, $0.01 par value, outstanding as of August 3, 2020.



CHAMPIONX CORPORATION

TABLE OF CONTENTS

Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, contained in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words “believe,” “anticipate,” “expect,” “may,” “intend,” “foresee,” “guidance,” “estimate,” “potential,” “outlook,” “plan,” “should,” “would,” “could,” “target,” “forecast” and similar expressions, including the negative thereof. The absence of these words, however, does not mean that the statements are not forward-looking statements. Forward-looking statements are based on our current expectations, beliefs and assumptions concerning future developments and business conditions and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate.

All of our forward-looking statements involve risks, uncertainties (some of which are significant or beyond our control) and assumptions that could cause actual results to materially differ from our historical experience and our present expectations or projections. Known material factors that could cause actual results to materially differ from those contemplated in the forward-looking statements are those set forth in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.

We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update, revise or correct any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except to the extent required under the federal securities laws.



PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except per share data)
2020
 
2019
 
2020
 
2019
Product revenue
$
248,871

 
$
269,670

 
$
473,316

 
$
535,622

Service revenue
36,846

 
24,063

 
61,770

 
47,874

Lease and other revenue
13,197

 
12,437

 
25,262

 
23,168

Total revenue
298,914

 
306,170

 
560,348

 
606,664

Cost of goods and services
266,684

 
197,410

 
445,779

 
394,893

Gross profit
32,230

 
108,760

 
114,569

 
211,771

Selling, general and administrative expense
130,657

 
66,687

 
208,800

 
130,816

Goodwill impairment

 

 
616,271

 

Long-lived asset impairment

 

 
40,980

 
1,746

Interest expense, net
11,262

 
10,109

 
20,301

 
20,636

Other (income) expense, net
312

 
2,676

 
(1,321
)
 
3,778

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

 
(770,462
)
 
54,795

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

 
(27,960
)
 
11,849

Net income (loss)
(109,047
)
 
23,008

 
(742,502
)
 
42,946

Net income attributable to noncontrolling interest
598

 
71

 
871

 
353

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

 
$
(743,373
)
 
$
42,593

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

 
$
(7.72
)
 
$
0.55

Diluted
$
(0.95
)
 
$
0.30

 
$
(7.72
)
 
$
0.55

Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
115,149

 
77,425

 
96,313

 
77,394

Diluted
115,149

 
77,632

 
96,313

 
77,636



The accompanying notes are an integral part of the condensed consolidated financial statements.

1


CHAMPIONX CORPORATION 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2020
 
2019
 
2020
 
2019
Net income (loss)
$
(109,047
)
 
$
23,008

 
$
(742,502
)
 
$
42,946

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments (1)
5,703

 
974

 
(5,349
)
 
2,064

Other activities, net (2)
752

 
68

 
851

 
167

Other comprehensive income (loss)
6,455

 
1,042

 
(4,498
)
 
2,231

Comprehensive income (loss)
(102,592
)
 
24,050

 
(747,000
)
 
45,177

Comprehensive income attributable to noncontrolling interest
598

 
71

 
871

 
353

Comprehensive income (loss) attributable to ChampionX
$
(103,190
)
 
$
23,979

 
$
(747,871
)
 
$
44,824

_______________________
(1) Net of income tax (expense) benefit of $0 for the three and six months ended June 30, 2020 and 2019.
(2) Net of income tax (expense) benefit of $(33) and $(24) for the three months ended June 30, 2020 and 2019, respectively, and $(66) and $(179) for the six months ended June 30, 2020 and 2019, respectively.


The accompanying notes are an integral part of the condensed consolidated financial statements.

2


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 of accumulated depreciation of $463,962 in 2020 and $426,722 in 2019
944,745

 
248,181

Operating lease right-of-use assets
124,289

 
24,289

Goodwill
644,381

 
911,113

Intangible assets, net
485,988

 
238,707

Other non-current assets
62,883

 
7,095

Total assets
$
3,520,833

 
$
1,922,825

Liabilities and Equity
 
 
 
Current portion of long-term debt

$
31,656

 
$
4,845

Accounts payable
274,964

 
120,291

Accrued compensation and employee benefits
48,044

 
38,470

Current portion of operating lease liabilities
34,771

 
7,620

Accrued distributor fees
47,044

 

Accrued expenses and other current liabilities
121,870

 
28,455

Total current liabilities
558,349

 
199,681

Long-term debt
1,071,727

 
559,821

Deferred income taxes
156,622

 
84,060

Operating lease liabilities
85,668

 
19,419

Other long-term liabilities
63,871

 
23,630

Total liabilities
1,936,237

 
886,611

Stockholders’ equity:
 

 
 
Common stock (2.5 billion shares authorized, $0.01 par value)
199.8 million shares and 77.5 million shares issued and outstanding in 2020 and 2019, respectively
1,998

 
775

Capital in excess of par value of common stock
2,283,096

 
969,174

Retained earnings (accumulated deficit)
(637,861
)
 
107,048

Accumulated other comprehensive loss
(48,535
)
 
(44,037
)
Total stockholders’ equity
1,598,698

 
1,032,960

Noncontrolling interest
(14,102
)
 
3,254

Total equity
1,584,596

 
1,036,214

Total liabilities and equity
$
3,520,833

 
$
1,922,825


The accompanying notes are an integral part of the condensed consolidated financial statements.

3


CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

 
Common Stock
 
 
 
 
 
 
 
 
(in thousands)
Shares
 
Par
Value
 
Capital in Excess of Par Value
 
Retained Earnings
 
Accum.
Other
Comp.
Loss
 
Non-controlling Interest
 
Total
December 31, 2018
77,353

 
$
774

 
$
960,773

 
$
54,884

 
$
(42,906
)
 
$
2,458

 
$
975,983

Net income

 

 

 
19,656

 

 
282

 
19,938

Other comprehensive income

 

 

 

 
1,189

 

 
1,189

Stock-based compensation
39

 

 
2,285

 

 

 

 
2,285

Taxes withheld on issuance of stock-based awards

 

 
(719
)
 

 

 

 
(719
)
Other

 

 

 

 

 
14

 
14

March 31, 2019
77,392

 
$
774

 
$
962,339

 
$
74,540

 
$
(41,717
)
 
$
2,754

 
$
998,690

Net income

 

 

 
22,937

 

 
71

 
23,008

Other comprehensive income

 

 

 

 
1,042

 

 
1,042

Stock-based compensation
67

 
1

 
2,735

 

 

 

 
2,736

Taxes withheld on issuance of stock-based awards

 

 
(1,080
)
 

 

 

 
(1,080
)
Other

 

 

 

 

 
(14
)
 
(14
)
June 30, 2019
77,459

 
775

 
963,994

 
97,477

 
(40,675
)
 
2,811

 
1,024,382



4


 
Common stock
 
 
 
 
 
 
 
 
(in thousands)
Shares
 
Par
Value
 
Capital in Excess of Par Value
 
Retained Earnings (Accum. Deficit)
 
Accum.
Other
Comp.
Loss
 
Non-controlling Interest
 
Total
December 31, 2019
77,460

 
$
775

 
$
969,174

 
$
107,048

 
$
(44,037
)
 
$
3,254

 
$
1,036,214

Cumulative effect of accounting changes, net of tax (Note 3)

 

 

 
(1,573
)
 

 

 
(1,573
)
Net income (loss)

 

 

 
(633,728
)
 

 
273

 
(633,455
)
Other comprehensive loss

 

 

 

 
(10,953
)
 

 
(10,953
)
Stock-based compensation
44

 

 
2,429

 

 



 
2,429

Taxes withheld on issuance of stock-based awards

 

 
(368
)
 

 

 

 
(368
)
March 31, 2020
77,504

 
$
775

 
$
971,235

 
$
(528,253
)
 
$
(54,990
)
 
$
3,527

 
$
392,294

Issuance of common stock related to the Merger
122,237

 
1,223

 
1,262,708

 

 

 

 
1,263,931

Issuance of replacement awards related to the Merger

 

 
43,964

 

 

 

 
43,964

Non-controlling interest acquired in the Merger

 

 

 

 

 
(16,015
)
 
(16,015
)
Net income (loss)

 

 

 
(109,645
)
 

 
598

 
(109,047
)
Other comprehensive income

 

 

 

 
6,455

 

 
6,455

Stock-based compensation
67

 

 
5,433

 

 

 

 
5,433

Taxes withheld on issuance of stock-based awards

 

 
(244
)
 

 

 

 
(244
)
Distributions to noncontrolling interest

 

 

 

 

 
(2,200
)
 
(2,200
)
Other

 

 

 
37

 

 
(12
)
 
25

June 30, 2020
199,808

 
1,998

 
2,283,096

 
(637,861
)
 
(48,535
)
 
(14,102
)
 
1,584,596


The accompanying notes are an integral part of the condensed consolidated financial statements.

5


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 (loss)
$
(742,502
)
 
$
42,946

Adjustments to reconcile net income to net cash provided (required) by operating activities:
 
 
 
Depreciation
58,139

 
34,190

Amortization
26,274

 
25,873

Stock-based compensation
7,862

 
5,021

Loss on disposal of fixed assets
4,040

 
65

Loss on goodwill and long-lived asset impairment
657,251

 
1,746

Loss on sale of business

 
2,475

Provision for losses on accounts receivable
3,498

 
(307
)
Provision for inventory obsolescence and write-downs
8,354

 

Amortization of deferred loan costs and accretion of discount
1,999

 
1,295

Deferred income taxes
(24,682
)
 
(5,300
)
Employee benefit plan expense
859

 
1,135

Other
(264
)
 
(418
)
Changes in operating assets and liabilities (net of effects of foreign exchange):
 
 
 
Receivables
77,777

 
(5,161
)
Inventories
24,794

 
1,029

Prepaid expenses and other current assets
22,088

 
(2,311
)
Accounts payable
(30,331
)
 
(3,088
)
Accrued compensation and employee benefits
(13,846
)
 
(7,989
)
Accrued expenses and other liabilities
4,717

 
(3,126
)
Leased assets
(9,311
)
 
(29,421
)
Other
1,317

 
647

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

Payment on sale of business

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

 
(22,407
)
 
 
 
 
Cash provided by (used for) financing activities:
 

 
 

Proceeds from long-term debt, net of discounts
125,000

 
4,000

Payment of debt issue costs
(4,356
)
 

Repayment of long-term debt
(125,000
)
 
(54,000
)
Distribution to noncontrolling interest
(2,200
)
 

Payment of finance lease obligations
(2,802
)
 
(2,690
)
Payments related to taxes withheld on stock-based compensation
(612
)
 
(1,799
)
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

The accompanying notes are an integral part of the condensed consolidated financial statements.

6


CHAMPIONX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1—BASIS OF PRESENTATION

ChampionX 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.

Unless the context requires otherwise, references in this report to “we,” “us,” “our,” “the Company,” or “ChampionX” mean ChampionX Corporation, together with our subsidiaries where the context requires.

On June 3, 2020, the Company and Ecolab Inc. (“Ecolab”) completed a Reverse Morris Trust transaction in which Ecolab transferred their upstream energy business to Champion X Holding, Inc. (“legacy ChampionX”) and, thereafter, distributed all of the shares of legacy ChampionX common stock to certain Ecolab stockholders (“the Distribution”). Immediately following the Distribution, a wholly owned subsidiary of the Company merged with and into legacy ChampionX, with legacy ChampionX continuing as the surviving company in the Merger and as a wholly owned subsidiary of the Company (“the Merger”). In association with the completion of the Merger, the Company has changed its name from Apergy Corporation (“Apergy”) to ChampionX Corporation, and common shares began trading on the New York Stock Exchange under the symbol "CHX".

As a result of the Merger, the results of operations of legacy ChampionX have been reflected in our accompanying condensed consolidated financial statements from the closing date of the Merger through June 30, 2020. Results for the periods prior to June 3, 2020 reflect the financial and operating results of Apergy and do not include the financial and operating results of legacy ChampionX. See Note 2—Merger Transaction for additional information on the Merger.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of ChampionX have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial information. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the audited consolidated financial statements, and notes thereto, which are included in our Annual Report on Form 10-K for the year ended December 31, 2019.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions that we may undertake in the future, actual results may differ from our estimates. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments unless otherwise specified) necessary for a fair statement of our financial condition and results of operations as of and for the periods presented. Revenue, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these financial statements may not be representative of the results that may be expected for the year ending December 31, 2020.

Change in Accounting Estimate

During the quarter, we entered into new commercial agreements, which changed the economics of the leased asset program of our Electrical Submersible Pump (“ESP”) subsidiary in our Production & Automation Technologies segment. As such, we re-evaluated the estimated useful life and salvage value of our assets based on the combination of new commercial contracts and historical operating trends related to the aging of our lease fleet, including functioning assets beyond original expected life. Based on our analysis, effective April 1, 2020, we changed our estimate of useful life and salvage values for certain equipment to better reflect the useful life and estimated values of these assets at the end of their useful life. The estimated useful life, previously estimated at 12 months, was increased to 18 months. The estimated salvage value of the equipment, previously estimated at 50%, was decreased to 0%. The effect of the changes in estimate for the three months ended June 30, 2020, was an increase in depreciation expense of $17.6 million, a decrease in net income of $15.4 million, and a decrease in basic and diluted earnings per share of $0.13 per share.


7


Reclassifications

Certain prior period amounts have been reclassified to conform to the presentation of the current period financial statements. Long-lived asset impairment for the six months ended June 30, 2019 has been reclassified from selling, general, and administrative expense to conform with our current period presentation of long-lived asset impairment on the condensed consolidated statements of income (loss). These reclassifications had no effect on the previously reported net loss.

Revisions

We revised our previously issued financial statements for the three and six months ended June 30, 2019, for the correction of immaterial errors related to: (i) the assessing and recording of liabilities for state sales tax and associated penalties and interest, primarily resulting in an understatement of our selling, general, and administrative expense and interest expense for the three and six months ended June 30, 2019; and (ii) previously recorded amounts including, but not limited to, the write-off of inventory and leased assets, timing of revenue recognition, and revenue classification, that the Company concluded were immaterial to our previously filed condensed consolidated financial statements. See the following table for the impact of the corrections on our condensed consolidated financial statements:

Condensed Consolidated Statement of Income
 
Three Months Ended June 30, 2019
(in thousands, except per share data)
As Reported
 
Adjustments
 
As Revised
Product revenue
$
270,273

 
$
(603
)
 
$
269,670

Service revenue
24,071

 
(8
)
 
24,063

Lease and other revenue
11,710

 
727

 
12,437

Total revenue
306,054

 
116

 
306,170

Cost of goods and services
196,285

 
1,125

 
197,410

Gross profit
109,769

 
(1,009
)
 
108,760

Selling, general and administrative expense
66,642

 
45

 
66,687

Interest expense, net
10,057

 
52

 
10,109

Other expense, net
2,676

 

 
2,676

Income before income taxes
30,394

 
(1,106
)
 
29,288

Provision for income taxes
6,544

 
(264
)
 
6,280

Net income
23,850

 
(842
)
 
23,008

Net income attributable to noncontrolling interest
71

 

 
71

Net income attributable to ChampionX
$
23,779

 
$
(842
)
 
$
22,937

 
 
 
 
 
 
Earnings per share attributable to ChampionX:
 
 
 
 
 
Basic
$
0.31

 
$
(0.01
)
 
$
0.30

Diluted
$
0.31

 
$
(0.01
)
 
$
0.30

 
 
 
 
 
 
Comprehensive income
$
24,892

 
$
(842
)
 
$
24,050

Comprehensive income attributable to ChampionX
$
24,821

 
$
(842
)
 
$
23,979




8


 
Six Months Ended June 30, 2019
(in thousands, except per share data)
As Reported
 
Adjustments
 
As Revised
Product revenue
$
536,417

 
$
(795
)
 
$
535,622

Service revenue
47,978

 
(104
)
 
47,874

Lease and other revenue
23,350

 
(182
)
 
23,168

Total revenue
607,745

 
(1,081
)
 
606,664

Cost of goods and services
392,427

 
2,466

 
394,893

Gross profit
215,318

 
(3,547
)
 
211,771

Selling, general and administrative expense
130,231

 
585

 
130,816

Long-lived asset impairment (1)
1,746

 

 
1,746

Interest expense, net
20,531

 
105

 
20,636

Other expense, net
3,778

 

 
3,778

Income before income taxes
59,032

 
(4,237
)
 
54,795

Provision for income taxes
12,613

 
(764
)
 
11,849

Net income
46,419

 
(3,473
)
 
42,946

Net income attributable to noncontrolling interest
353

 

 
353

Net income attributable to ChampionX
$
46,066

 
$
(3,473
)
 
$
42,593

 
 
 
 
 
 
Earnings per share attributable to ChampionX:
 
 
 
 
 
Basic
$
0.60

 
$
(0.05
)
 
$
0.55

Diluted
$
0.59

 
$
(0.04
)
 
$
0.55

 
 
 
 
 
 
Comprehensive income
48,650

 
(3,473
)
 
45,177

Comprehensive income attributable to ChampionX
48,297

 
(3,473
)
 
44,824



(1) Long-lived asset impairment has been reclassified from selling, general, and administrative expense to conform with our current period presentation of long-lived asset impairment on the condensed consolidated statements of income (loss).
Condensed Consolidated Statement of Changes in Stockholders’ Equity
 
June 30, 2019
(in thousands)
As Reported
 
Adjustments