ChampionX Reports Fourth Quarter and Full Year 2020 Results

By Benzinga5 days ago

  • Revenue of $706.1 million in Q4'20
  • Net income attributable to ChampionX of $7.4 million in Q4'20; adjusted net income of $14.3 million
  • Adjusted EBITDA of $108.6 million in Q4'20
  • Cash from operating activities of $120.6 million and free cash flow of $107.6 million (15% of revenue) in Q4'20; free cash flow of $115.5 million (16% of revenue) excluding acquisition-related expenses
  • Repaid $79.8 million of debt in Q4'20

THE WOODLANDS, Texas, Feb. 23, 2021 (GLOBE NEWSWIRE) -- ChampionX Corporation (“ChampionX“) (NASDAQ:CHX) (“the Company“) today announced fourth quarter of 2020 results, our second full quarter following the June 3, 2020 combination of the Company with the legacy ChampionX business, and our full year 2020 results.

For the fourth quarter of 2020, revenue was $706.1 million, net income attributable to ChampionX was $7.4 million, and adjusted EBITDA was $108.6 million. Income before income taxes margin was 2.7%, and adjusted EBITDA margin was 15.4%. Cash provided by operating activities was $120.6 million, an increase of $9.2 million sequentially, and free cash flow was $107.6 million.

Results on a pro forma basis for ChampionX for prior periods are provided supplementary to the actual results of the Company and represent results on a full-year basis as if legacy ChampionX was combined with the Company for the entire period. For additional information on the pro forma results see the tables included in this release.i

CEO Commentary

“We are proud of how remarkably well our organization performed in the fourth quarter and during the course of 2020 as we completed our successful transformational merger with ChampionX and demonstrated the resiliency of our portfolio against the backdrop of the global pandemic and one of the most challenging periods in the history of the energy industry. I am grateful to all of our employees for their dedication and commitment to improving the lives of our customers and communities, and we remain committed to taking all necessary steps to protect the health and safety of our employees,“ ChampionX's President and Chief Executive Officer Sivasankaran “Soma“ Somasundaram said.

“During the fourth quarter, which marked just our second full quarter as a new company, we delivered adjusted EBITDA of $109 million, which represented a sequential increase of 25%. Benefiting both from the recovery of the 2020 downturn and seasonal tailwinds, we generated fourth quarter revenue of $706 million, which increased 11% sequentially, with both our North American and international revenues posting double-digit sequential growth during the period.

“We once again demonstrated the strong positive free cash flow profile of our Company as we generated free cash flow of $108 million in the fourth quarter and we further strengthened our balance sheet by repaying $80 million of debt during the quarter. We ended the quarter with $551 million of liquidity, including $201 million of cash and $350 million of available capacity on our revolver. We remain focused on our free cash flow generation and we intend to continue paying down debt this year.

“Our team continues to execute well on our merger integration plans and we still anticipate fully capturing our increased targeted cost synergies of $125 million within 24 months of the merger closing.

“As we look to the first quarter, we expect seasonal declines in our international operations, partially offset by anticipated continued positive momentum in our shorter-cycle North American land-oriented businesses. We anticipate some near-term cost pressures as oilfield activity levels normalize versus the pandemic-induced trough levels of last year, but we expect year-over-year margin improvement as we exit 2021. We are currently assessing the first quarter impact of the severe winter storms in major oil producing basins, so our guidance does not include the impact of extreme weather challenges experienced in February. Excluding winter storm impacts, on a consolidated basis, in the first quarter we expect revenue to be between $650 million and $700 million, and we expect adjusted EBITDA of $90 million to $100 million.

“We are excited about the prospects for our Company as this year unfolds and we believe that our disciplined operating model, differentiated products and technology, robust free cash flow, and production-oriented portfolio, combined with our strong and motivated team, will enable us to be a long-term winner in the energy transition.“

ChampionX Actual Results

Three Months EndedVariance
(dollars in thousands, except per share amounts)
Dec 31,
2020
Sep 30,
2020
Dec 31,
2019
SequentialYear-over-year
Revenue$706,122$633,526$247,74811%N/M
Net income (loss) attributable to ChampionX$7,357$(7,914)$(1,823)N/MN/M
Diluted earnings (loss) per share attributable to ChampionX$0.04$(0.04)$(0.02)N/MN/M
Adjusted net income (loss) attributable to ChampionX$14,329$5,451$10,287N/M39%
Adjusted diluted earnings (loss) per share attributable to ChampionX$0.07$0.03$0.13N/M(46)%
Income (loss) before income taxes$19,007$(11,294)$(10,622)N/MN/M
Income (loss) before income taxes margin2.7%(1.8)%(4.3)%N/MN/M
Adjusted EBITDA$108,645$86,822$44,64325%N/M
Adjusted EBITDA margin15.4%13.7%18.0%170 bps(260) bps
Net cash provided by operating activities$120,608$111,399$32,509$9,209$88,099
Capital expenditures$12,994$12,847$8,191$147$4,803
N/M - not meaningful

ChampionX consolidated actual results in the fourth quarter and third quarter of 2020 include results of operations of the legacy Apergy businesses and results from legacy ChampionX for the entire period. Fourth quarter 2019 results represent results of operations of the legacy Apergy businesses.

In the fourth quarter of 2020, consolidated revenue increased $72.6 million, or 11%, sequentially, due to the continued recovery from the pandemic-induced downturn, as well as seasonal improvements internationally. Sequentially, international revenue increased 12% and North America revenue increased 11%. Fourth quarter 2020 consolidated revenue includes $46.2 million of chemical sales to Ecolab Inc. as compared to $49.5 million in the third quarter. 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 three years from the merger date. Revenue associated with these sales is reported in Corporate and Other within our financial statements.

In the fourth quarter of 2020, consolidated net income attributable to ChampionX was $7.4 million, and adjusted net income was $14.3 million. Consolidated adjusted EBITDA was $108.6 million, which increased $21.8 million, sequentially, or 25%, due to higher volumes.

Production Chemical Technologies - Actual Results

Three Months EndedVariance
(dollars in thousands)
Dec 31,
2020
Sep 30,
2020
Sequential
Revenue$446,652$410,1519%
Operating profit$49,200$35,17240%
Operating profit margin11.0%8.6%240 bps
Adjusted segment EBITDA$77,872$71,5059%
Adjusted segment EBITDA margin17.4%17.4%— bps

In the fourth quarter of 2020, Production Chemical Technologies revenue increased $36.5 million, or 9%, sequentially, due to strong Latin America orders, continued recovery in our North America business, and higher seasonal international volumes. Sequentially, international revenue increased 12% and North America revenue increased 5%.

In the fourth quarter of 2020, segment operating profit was $49.2 million. Segment adjusted EBITDA was $77.9 million, which increased $6.4 million, sequentially, or 9%, primarily due to higher volume.

Production & Automation Technologies - Actual Results

Three Months EndedVariance
(dollars in thousands)
Dec 31,
2020
Sep 30,
2020
Dec 31,
2019
SequentialYear-over-year
Revenue$158,777$136,921$203,62516%(22)%
Operating profit (loss)$(4,724)$(7,454)$2,175(37)%N/M
Operating profit (loss) margin(3.0)%(5.4)%1.1%240 bps(410) bps
Adjusted segment EBITDA$29,345$24,995$35,66817%(18)%
Adjusted segment EBITDA margin18.5%18.3%17.5%20 bps100 bps
N/M - not meaningful

In the fourth quarter of 2020, Production & Automation Technologies revenue increased $21.9 million, or 16%, sequentially, due to higher volumes as E&P capital spending continued to recover from the rapid reduction experienced earlier in 2020. Sequentially, North America revenue increased 21% and international revenue decreased 3%. Production & Automation Technologies revenue decreased $44.8 million, or 22%, year-over-year, due to lower volumes driven by the decline in worldwide E&P capital spending.

Revenue from digital products was $21.8 million in the fourth quarter of 2020, an increase of $3.0 million, or 16%, compared to $18.9 million in the third quarter of 2020.

In the fourth quarter of 2020, segment operating loss was $4.7 million. Segment adjusted EBITDA was $29.3 million, which increased $4.4 million sequentially, or 17%, primarily due to higher volume. Segment adjusted EBITDA decreased $6.3 million, or 18%, year-over-year, due to lower volumes, partially offset by cost reduction actions.

Drilling Technologies - Actual Results

Three Months EndedVariance
(dollars in thousands)
Dec 31,
2020
Sep 30,
2020
Dec 31,
2019
SequentialYear-over-year
Revenue$23,568$15,715$44,12350%(47)%
Operating profit (loss)$153$(5,127)$8,644N/M(98)%
Operating profit (loss) margin0.6%(32.6)%19.6%3320 bps(1900) bps
Adjusted segment EBITDA$2,525$(2,782)$11,412N/M(78)%
Adjusted segment EBITDA margin10.7%(17.7)%25.9%2840 bps(1520) bps
N/M - not meaningful

In the fourth quarter of 2020, Drilling Technologies revenue increased by $7.9 million, or 50%, sequentially, driven primarily by the increase in U.S. land drilling activity and customer restocking of polycrystalline diamond cutter inventories. Drilling Technologies revenue decreased $20.6 million, or 47%, year-over-year, driven by the significant decline in worldwide drilling activity and customer destocking of polycrystalline diamond cutter inventories.

Diamond bearings revenue in the fourth quarter of 2020 was $2.2 million, up $0.2 million, or 10%, sequentially.

In the fourth quarter of 2020, segment operating profit was $0.2 million, and segment adjusted EBITDA was $2.5 million. Sequentially, segment adjusted EBITDA increased by $5.3 million, due to higher volumes. Year-over-year, segment adjusted EBITDA decreased by $8.9 million, or 78%, as a result of lower volumes, partially offset by cost reduction actions.

Sequentially, the average worldwide and U.S. rig counts increased 3% and 22%, respectively. On a year-over-year basis, the average worldwide and U.S. rig counts declined 49% and 62%, respectively.

Reservoir Chemical Technologies - Actual Results

Three Months EndedVariance
(dollars in thousands)
Dec 31,
2020
Sep 30,
2020
Sequential
Revenue$30,937$21,26445%
Operating profit (loss)$432$(3,819)N/M
Operating profit (loss) margin1.4%(18.0)%1940 bps
Adjusted segment EBITDA$2,204$(1,432)N/M
Adjusted segment EBITDA margin7.1%(6.7)%1380 bps

In the fourth quarter of 2020, Reservoir Chemical Technologies revenue increased by $9.7 million, or 45%, sequentially, driven by the increase in global land well construction and completion activity.

In the fourth quarter of 2020, segment operating profit was $0.4 million, and segment adjusted EBITDA was $2.2 million. Sequentially, segment adjusted EBITDA increased by $3.6 million, due to higher volumes.

Other Business Highlights

  • ChampionX improved lives in 2020, as we achieved our best safety performance ever in both number of injuries (50% reduction) and severity (30% reduction in lost time injury rate).
  • In our recently concluded global employee engagement survey, ChampionX had a 71% global participation rate from our employees.
  • Production Chemical Technologies was awarded two significant contracts in West Africa with two different global energy companies.
  • Production & Automation Technologies experienced increased customer adoption of our PowerFit motors for ESP applications.
  • Within our Production & Automation Technologies segment, we are seeing early momentum and revenue uplift from Better Together joint sales efforts, including recent wins in the Permian and Latin America regions.
  • Our Digital team signed a global software agreement with an integrated energy company for the use of our XSPOC artificial lift optimization software.
  • During the fourth quarter of 2020, more than 70% of Drilling Technologies revenue was generated from products that were less than three years old.
  • Reservoir Chemical Technologies won incremental work with leading U.S. E&P operators, advancing our direct sales model.
  • ChampionX is on plan to complete remediation of 2019 material weaknesses in internal controls as of December 31, 2020.
  • In developing its Environmental, Social and Governance (ESG) framework and roadmap, ChampionX initiated an ESG priorities assessment project.

Conference Call Details

ChampionX will host a conference call on Wednesday, February 24, 2021, to discuss its fourth 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 9069100.

A replay of the conference call will be available on ChampionX's website or at Enter passcode 50078440.

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 (loss) before income taxes, income (loss) before income taxes margin, adjusted EBITDA, adjusted EBITDA margin, segment revenue, segment operating profit (loss), adjusted segment EBITDA, and adjusted segment EBITDA margin for the quarterly periods ended December 31, 2020, September 30, 2020, and December 31, 2019, and for the full year periods ended December 31, 2020 and December 31, 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.

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 (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.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 operation 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 Quarterly Report on Form 10-Q for the period ended June 30, 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

i Adjusted net income (loss) 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“ included herein for details on the non-GAAP measures used in this release.

CHAMPIONX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

Three Months EndedYears Ended
Dec 31,Sep 30,Dec 31,December 31,
(in thousands, except per share amounts)20202020201920202019
Revenue$706,122$633,526$247,748$1,899,996$1,131,251
Cost of goods and services539,979505,066175,1141,490,824754,147
Gross profit166,143128,46072,634409,172377,104
Selling, general and administrative expense132,811122,15675,047463,767274,268
Goodwill and long-lived asset impairment657,2511,746
Interest expense, net15,49515,9359,07551,73139,301
Other (income) expense, net(1,170)1,663(866)(828)2,603
Income (loss) before income taxes19,007(11,294)(10,622)(762,749)59,186
Provision for (benefit from) income taxes11,526(3,962)(9,048)(20,396)6,226
Net income (loss)7,481(7,332)(1,574)(742,353)52,960
Less: Net income attributable to noncontrolling interest1245822491,577796
Net income (loss) attributable to ChampionX$7,357$(7,914)$(1,823)$(743,930)$52,164
Earnings (loss) per share attributable to ChampionX:
Basic$0.04$(0.04)$(0.02)$(5.01)$0.67
Diluted$0.04$(0.04)$(0.02)$(5.01)$0.67
Weighted-average shares outstanding:
Basic199,913199,80977,460148,37077,427
Diluted204,825199,80977,460148,37077,624

CHAMPIONX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

December 31,
(in thousands)20202019
Assets
Cash and cash equivalents$201,421$35,290
Receivables, net559,545219,874
Inventories, net430,112211,342
Prepaid expenses and other current assets74,76726,934
Total current assets1,265,845493,440
Property, plant and equipment, net854,536248,181
Goodwill680,594911,113
Intangible assets, net479,009238,707
Other non-current assets195,79231,384
Total assets$3,475,776$1,922,825
Liabilities
Current portion of long-term debt$26,850$
Accounts payable299,666120,291
Other current liabilities296,04479,390
Total current liabilities622,560199,681
Long-term debt905,764555,291
Other long-term liabilities334,877131,639
Equity
ChampionX stockholders' equity1,625,9711,032,960
Noncontrolling interest(13,396)3,254
Total liabilities and equity$3,475,776$1,922,825

CHAMPIONX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Years Ended December 31,
(in thousands)20202019
Cash provided by (used for) operating activities:
Net income (loss)$(742,353)$52,960
Depreciation142,64768,557
Amortization71,71551,381
Goodwill and long-lived asset impairment657,2511,746
Receivables58,21025,948
Inventories85,89319,065
Accounts payable(18,389)(20,526)
Leased assets(4,606)(40,700)
Other59,672(2,532)
Net cash provided by operating activities310,040155,899
Cash provided by (used for) investing activities:
Capital expenditures(45,163)(39,780)
Acquisitions, net of cash acquired57,588(12,500)
Proceeds from sale of fixed assets9,7054,598
Payments on sale of business(2,194)
Net cash provided by (used for) investing activities22,130(49,876)
Cash used for financing activities:
Proceeds from long-term debt125,00036,500
Repayment of long-term debt(286,493)(141,500)
Debt issuance costs(4,356)
Other(9,517)(7,403)
Net cash used for financing activities(175,366)(112,403)
Effect of exchange rate changes on cash and cash equivalents9,327(162)
Net increase (decrease) in cash and cash equivalents166,131(6,542)
Cash and cash equivalents at beginning of period35,29041,832
Cash and cash equivalents at end of period$201,421$35,290

CHAMPIONX CORPORATION

BUSINESS SEGMENT DATA

(UNAUDITED)

Three Months EndedYears Ended
Dec 31,Sep 30,Dec 31,December 31,
(in thousands)20202020201920202019
Segment revenue:
Production Chemical Technologies$446,652$410,151$$992,805$
Production & Automation Technologies158,777136,921203,625615,918884,364
Drilling Technologies23,56815,71544,123116,186246,887
Reservoir Chemical Technologies30,93721,26461,507
Corporate and other46,18849,475113,580
Total revenue$706,122$633,526$247,748$

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