Revenue of $939.8 million, decreased 8% year-over-year and increased 1% sequentiallyNet income attributable to ChampionX of $77.7 million, increased 237% year-over-yearAdjusted net income of $80.9 million, increased 19% year-over-yearAdjusted EBITDA of $189.5 million, increased 14% year-over-yearIncome before income taxes margin of 11.7%, increased 802 basis points year-over-yearAdjusted EBITDA margin of 20.2%, increased 391 basis points year-over-yearCash from operating activities of $163.0 million and free cash flow of $114.6 millionRepurchased $68.1 million of common stockReturned 52% of cash from operating activities and 74% of free cash flow to shareholders
THE WOODLANDS, Texas, Oct. 24, 2023 (GLOBE NEWSWIRE) — ChampionX Corporation (NASDAQ: CHX) (“ChampionX” or the “Company”) today announced third quarter of 2023 results. Revenue was $939.8 million, net income attributable to ChampionX was $77.7 million, and adjusted EBITDA was $189.5 million. Income before income taxes margin was 11.7% and adjusted EBITDA margin was 20.2%. Cash from operating activities was $163.0 million and free cash flow was $114.6 million.
CEO Commentary
“We delivered adjusted EBITDA growth and robust free cash flow generation during the third quarter and once again demonstrated our commitment to return excess cash to our shareholders through our regular cash dividend and share repurchases. Our ongoing focus on price realization and productivity contributed to strong year-over-year profitability improvement. We remain focused on shareholder value creation and our disciplined framework of capital allocation. I am grateful to our employees around the world for their tireless dedication to serving our customers and communities well,” ChampionX’s President and Chief Executive Officer Sivasankaran “Soma” Somasundaram said.
“During the third quarter of 2023, we generated revenue of $940 million, which decreased 8% year-over-year, and increased 1% sequentially. Both North America and international revenue increased sequentially, led by our Production Chemical Technologies business. Strong sequential growth in international and offshore markets was largely offset by lower than expected drilling and completions activity in U.S. land, which impacted Production & Automation Technologies and Drilling Technologies revenues during the period. We generated net income attributable to ChampionX of $78 million, which increased 237% year-over-year and decreased 19% sequentially, and adjusted EBITDA of $190 million, which increased 14% year-over-year and 2% sequentially and included approximately $7 million of foreign exchange loss related to the devaluation of our peso exposure in Argentina during the period. Our income before income taxes margin improved by approximately 802 basis points year-over-year and was flat sequentially, and our adjusted EBITDA margin expanded by approximately 391 basis points year-over-year and 7 basis points sequentially in the third quarter.
“Cash flow from operating activities was $163 million during the third quarter, which represented 210% of net income attributable to ChampionX, and we generated strong free cash flow of $115 million during the period, which represented 60% of our adjusted EBITDA for the period. Through our regular cash dividend of $17 million and $68 million of ChampionX share repurchases, we returned 52% of cash from operating activities and 74% of our free cash flow in the third quarter to our shareholders. Our balance sheet and financial position remain strong, ending the third quarter with $954 million of liquidity, including $285 million of cash and $669 million of available capacity on our revolving credit facility.
“As we look to the fourth quarter, we expect continued positive momentum in our international and offshore businesses, offset by seasonal declines in our North American businesses into the year-end holidays. We expect our Drilling Technologies business to experience a sequential revenue decline similar to the fourth quarter of 2022 as some of our customers act to manage their working capital into year end. On a consolidated basis, in the fourth quarter, we expect revenue to be between $930 million and $970 million. We expect adjusted EBITDA of $187 million to $197 million. Our cash generation remains strong, and for the full year, we still expect to convert at least 50% of our adjusted EBITDA to free cash flow, and we remain committed to returning at least 60% of our free cash flow to our shareholders for the year.
“As we look into 2024 and beyond, we remain excited about the constructive market fundamentals as the oil and gas industry is benefiting from a multi-year growth cycle. As the leading provider of production optimization solutions for the industry, we are well positioned to benefit from this trend as the growth cycle unfolds. We expect continued revenue and adjusted EBITDA growth, margin expansion, and strong capital returns consistent with our capital allocation framework.”
Production Chemical Technologies
Production Chemical Technologies revenue in the third quarter of 2023 was $604.3 million, an increase of $30.0 million, or 5%, sequentially, due to higher demand both in North America and internationally.
Segment operating profit was $94.6 million and adjusted segment EBITDA was $125.1 million. Segment operating profit margin was 15.6%, an increase of 47 basis points, sequentially, and adjusted segment EBITDA margin was 20.7%, an increase of 37 basis points, sequentially. The increase in segment operating profit margin and adjusted segment EBITDA margin reflects higher sales volumes, offset by $7.2 million of foreign exchange loss related to the devaluation of our peso exposure in Argentina during the period.
Production & Automation Technologies
Production & Automation Technologies revenue in the third quarter of 2023 was $256.1 million, an increase of $2.0 million, or 1%, sequentially, due to higher demand in our businesses internationally.
Revenue from digital products was $58.0 million in the third quarter of 2023, down 4% sequentially, and up 17% year-over-year.
Segment operating profit was $28.3 million and adjusted segment EBITDA was $59.3 million. Segment operating profit margin was 11.0%, a decrease of 202 basis points, sequentially, and adjusted segment EBITDA margin was 23.2%, a decrease of 73 basis points, sequentially. The decrease in segment operating profit margin and adjusted segment EBITDA margin was driven by product mix.
Drilling Technologies
Drilling Technologies revenue in the third quarter of 2023 was $54.9 million, a decrease of $2.5 million, or 4%, sequentially, driven by lower U.S. rig count and customer activity.
Segment operating profit was $12.3 million and adjusted segment EBITDA was $13.8 million. Segment operating profit margin was 22.3%, an increase of 25 basis points, sequentially, and adjusted segment EBITDA margin was 25.1%, an increase of 5 basis points, sequentially, in each case due to improved processing costs.
Reservoir Chemical Technologies
Reservoir Chemical Technologies revenue in the third quarter 2023 was $25.1 million, an increase of $1.2 million, or 5%, sequentially, driven by higher sales volumes.
Segment operating profit was $2.5 million and adjusted segment EBITDA was $4.2 million. Segment operating profit margin was 9.8%, an increase of 64 bps basis points, sequentially, and adjusted segment EBITDA margin was 16.6%, a decrease of 110 basis points, sequentially. The decrease in adjusted segment EBITDA margin was driven by product mix.
Q3 2023 Other Business Highlights
Chemical Technologies
Secured a multi-year performance-based contract extension with an Oil Major in U.S. land.Won a two-year contract extension with an independent E&P operator in Colombia.Secured a multi-year contract extension with a global energy company in Australia, which affords opportunities for additional business growth in the next several years.Received safety performance and supplier quality recognition from multiple customers in the Middle East and North Africa region.Deployed its first nano-particle technology squeeze in Europe.Converted production enhancement chemical treatment to continual application for a customer in the UK North Sea.Gained a substantial win of a competitively held midstream account in the Permian Basin, due to deep knowledge of the customer’s operations and excellent technical capability and service.Awarded the chemicals supply contract for a large independent E&P operator’s second frac water reuse facility in the Permian Basin as the customer expands its footprint and investment in the area.Experienced a successful competitive gain of a scale squeeze in the U.S. Gulf of Mexico, utilizing its XR portfolio of products.
Production & Automation Technologies
Achieved a net promoter score of 51% (versus industry average of 41%) and garnered top-tier marks in every category in the most recent Artificial Lift Market Survey by Kimberlite International Oilfield Research.Won a large PurePower Pro™ order for harmonic filters with a large independent producer in the Permian Basin. This technology significantly reduces distortion, significantly reducing power-generation costs and fees.Awarded a contract by an Integrated Oil Company in Latin America to monitor 400 wells with our XSPOC™ production optimization software, with the potential for an additional 600 wells.Awarded a project for an Oil Major in the Permian Basin to install 150 full chemical injection skid solutions (including pumps and automation technology) on newly drilled unconventional wells.Secured a customer commitment in Australia for our newly commercialized ultra-quiet progressing cavity pumping (PCP) system drivehead, which addresses noise pollution concerns of land holders.Received the Shell Quality Recognition Award from Shell’s QGC business, one of the top natural gas producers in Australia.
Drilling Technologies
43% of third quarter revenue was generated from products that were less than three years old.
Other
ChampionX is honored to be nominated eight times across four categories for the ALLY Energy GRIT Awards for making a positive impact on energy, sustainability, and the climate.ChampionX published its second annual Sustainability Report highlighting our initiatives that align with our purpose of Improving Lives and the work we are doing to further our customers’ carbon-reduction efforts.ChampionX opened our newest technology center in Chennai, India. The new ChampionX Global Technology Center – India represents a further extension of our focus on developing and delivering a wide range of cross-industry technology solutions and expertise.
Conference Call Details
ChampionX Corporation will host a conference call on Wednesday, October 25, 2023, to discuss its third quarter 2023 financial results and outlook. The call will begin at 9:00 a.m. Eastern Time. Presentation materials that supplement the conference call will be 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 1-888-259-6580 in the United States or 1-416-764-8624 for international calls. Please call approximately 15 minutes prior to the scheduled start time and reference ChampionX conference call number 11375578.
A replay of the conference call will be available for 30 days on ChampionX’s website.
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 and adjusted diluted earnings per share attributable to ChampionX, provide useful information to investors regarding the Company’s financial condition and results of operations because they reflect the core operating results of our businesses and help facilitate comparisons of operating performance across periods. In addition, free cash flow, free cash flow to adjusted EBITDA ratio, and free cash flow to revenue ratio provide useful information to investors because they reflect the core operating results of our businesses and help facilitate comparisons of operating performance across periods. In addition, these measures are used by management to measure our ability to generate positive cash flow for debt reduction and to support our strategic objectives. Although 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, 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 most directly comparable GAAP measures is included in the accompanying financial tables.
This press release contains certain forward-looking non-GAAP financial measures, including adjusted EBITDA. The Company has not provided projected net income attributable to ChampionX or a reconciliation of projected adjusted EBITDA. Management cannot predict with a reasonable degree of accuracy certain of the necessary components of net income attributable to ChampionX, such as depreciation and amortization expense. As such, a reconciliation of projected adjusted EBITDA to projected net income attributable to ChampionX is not available without unreasonable effort. The actual amount of depreciation and amortization, in particular, and other amounts excluded from adjusted EBITDA will have a significant impact on net income attributable to ChampionX.
About ChampionX
ChampionX is a global leader in chemistry solutions, artificial lift systems, and highly engineered equipment and technologies that help companies drill for and produce oil and gas safely, efficiently, and sustainably around the world. ChampionX’s expertise, innovative products, and digital technologies provide enhanced oil and gas production, transportation, and real-time emissions monitoring throughout the lifecycle of a well. To learn more about ChampionX, visit our website at www.championX.com.
Forward-Looking Statements
This news release contains statements relating to future actions and results, which are “forward-looking statements” within the meaning of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, ChampionX’s market position and growth opportunities. Forward-looking statements include statements related to ChampionX’s expectations regarding the performance of the business, financial results, liquidity and capital resources of ChampionX. Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from current expectations, including, but not limited to, changes in economic, competitive, strategic, technological, tax, regulatory or other factors that affect the operations of ChampionX’s businesses. You are encouraged to refer to the documents that ChampionX files from time to time with the Securities and Exchange Commission (“SEC”), including the “Risk Factors” in ChampionX’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and in ChampionX’s other filings with the SEC. Readers are cautioned not to place undue reliance on ChampionX’s forward-looking statements. Forward-looking statements speak only as of the day they are made and ChampionX undertakes no obligation to update any forward-looking statement, except as required by applicable law.
Investor Contact: Byron Pope
byron.pope@championx.com
281-602-0094
Media Contact: John Breed
john.breed@championx.com
281-403-5751
CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30,(in thousands, except per share amounts) 2023 2023 2022 2023 2022Revenue$939,783 $926,600 $1,021,561 $2,814,730 $2,820,093Cost of goods and services 647,923 644,394 825,018 1,957,309 2,204,052Gross profit 291,860 282,206 196,543 857,421 616,041Costs and expenses: Selling, general and administrative expense 162,317 162,484 153,736 485,617 445,447Loss (gain) on disposal group — — (6,409) 12,965 16,515Interest expense, net 13,744 14,544 11,454 40,754 33,582Other expense (income), net 5,998 (3,104) 291 8,189 10,968Income before income taxes 109,801 108,282 37,471 309,896 109,529Provision for income taxes 29,009 11,656 14,246 69,334 19,235Net income 80,792 96,626 23,225 240,562 90,294Net income attributable to noncontrolling interest 3,081 829 157 3,522 3,182Net income attributable to ChampionX$77,711 $95,797 $23,068 $237,040 $87,112 Earnings per share attributable to ChampionX: Basic$0.40 $0.49 $0.11 $1.20 $0.43Diluted$0.39 $0.48 $0.11 $1.18 $0.42 Weighted-average shares outstanding: Basic 195,881 197,034 201,421 197,058 202,600Diluted 199,592 200,735 206,522 201,025 208,155
CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)September 30, 2023 December 31, 2022ASSETS Current Assets: Cash and cash equivalents$285,006 $250,187 Receivables, net 520,106 601,061 Inventories, net 588,800 542,543 Prepaid expenses and other current assets 91,784 104,790 Total current assets 1,485,696 1,498,581 Property, plant and equipment, net 763,559 734,810 Goodwill 666,108 679,488 Intangible assets, net 256,376 305,010 Other non-current assets 139,465 169,594 Total assets$3,311,204 $3,387,483 LIABILITIES AND EQUITY Current Liabilities: Current portion of long-term debt$6,250 $6,250 Accounts payable 500,021 469,566 Other current liabilities 287,605 383,160 Total current liabilities 793,876 858,976 Long-term debt 594,943 621,702 Other long-term liabilities 216,257 229,590 Stockholders’ equity: ChampionX stockholders’ equity 1,721,479 1,694,550 Noncontrolling interest (15,351) (17,335)Total liabilities and equity$3,311,204 $3,387,483
CHAMPIONX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,(in thousands) 2023 2022 Cash flows from operating activities: Net income$240,562 $90,294 Depreciation and amortization 177,226 177,761 Loss on disposal group 12,965 16,515 Deferred income taxes (15,380) (37,505)Gain on disposal of fixed assets (1,480) (4,428)Loss on debt extinguishment — 4,043 Receivables 85,181 (50,075)Inventories (50,011) (72,298)Leased assets (38,597) (20,947)Other assets 17,470 24,022 Accounts payable (7,018) 38,600 Other operating items, net (49,600) 52,285 Net cash flows provided by operating activities 371,318 218,267 Cash flows from investing activities: Capital expenditures (110,965) (74,752)Proceeds from sale of fixed assets 12,328 16,424 Acquisitions, net of cash acquired — (3,198)Net cash used for investing activities (98,637) (61,526) Cash flows from financing activities: Proceeds from long-term debt 15,500 995,038 Repayment of long-term debt (43,625) (1,071,386)Debt issuance costs (1,028) (8,008)Repurchases of common stock (159,730) (100,090)Dividends paid (48,309) (30,480)Other 644 (275)Net cash used for financing activities (236,548) (215,201) Effect of exchange rate changes on cash and cash equivalents (1,314) (5,746) Net increase (decrease) in cash and cash equivalents 34,819 (64,206)Cash and cash equivalents at beginning of period 250,187 255,178 Cash and cash equivalents at end of period$285,006 $190,972
CHAMPIONX CORPORATION
BUSINESS SEGMENT DATA
(UNAUDITED)
Three Months Ended September 30, June 30, September 30,(in thousands) 2023 2023 2022 Segment revenue: Production Chemical Technologies$604,254 $574,302 $643,604 Production & Automation Technologies 256,148 254,156 247,717 Drilling Technologies 54,869 57,324 60,965 Reservoir Chemical Technologies 25,093 23,853 35,485 Corporate and other (581) 16,965 33,790 Total revenue$939,783 $926,600 $1,021,561 Income before income taxes: Segment operating profit (loss): Production Chemical Technologies$94,560 $87,163 $86,649 Production & Automation Technologies 28,299 33,208 22,485 Drilling Technologies 12,255 12,660 14,856 Reservoir Chemical Technologies 2,461 2,186 (61,711)Total segment operating profit 137,575 135,217 62,279 Corporate and other 14,030 12,391 13,354 Interest expense, net 13,744 14,544 11,454 Income before income taxes$109,801 $108,282 $37,471 Operating profit margin / income before income taxes margin: Production Chemical Technologies 15.6% 15.2% 13.5%Production & Automation Technologies 11.0% 13.1% 9.1%Drilling Technologies 22.3% 22.1% 24.4%Reservoir Chemical Technologies 9.8% 9.2% (173.9)%ChampionX Consolidated 11.7% 11.7% 3.7% Adjusted EBITDA Production Chemical Technologies$125,095 $116,790 $102,848 Production & Automation Technologies 59,322 60,711 52,101 Drilling Technologies 13,786 14,376 16,526 Reservoir Chemical Technologies 4,157 4,213 2,635 Corporate and other (12,816) (9,848) (7,994)Adjusted EBITDA$189,544 $186,242 $166,116 Adjusted EBITDA margin Production Chemical Technologies 20.7% 20.3% 16.0%Production & Automation Technologies 23.2% 23.9% 21.0%Drilling Technologies 25.1% 25.1% 27.1%Reservoir Chemical Technologies 16.6% 17.7% 7.4%ChampionX Consolidated 20.2% 20.1% 16.3%
CHAMPIONX CORPORATION
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Three Months Ended September 30, June 30, September 30,(in thousands) 2023 2023 2022 Net income attributable to ChampionX$77,711 $95,797 $23,068 Pre-tax adjustments: Loss (gain) on disposal group(1) — — (6,409)Russia sanctions compliance and impacts(2) 95 433 (1,620)Restructuring and other related charges 1,228 5,353 67,533 Merger integration costs — — 652 Acquisition costs and related adjustments(3) — (2,341) (3,512)Intellectual property defense 220 687 15 Merger-related indemnification responsibility 722 — — Tulsa, Oklahoma storm damage 1,895 607 — Tax impact of adjustments (925) (1,478) (11,898)Adjusted net income attributable to ChampionX 80,946 99,058 67,829 Tax impact of adjustments 925 1,478 11,898 Net income attributable to noncontrolling interest 3,081 829 157 Depreciation and amortization 61,839 58,677 60,532 Provision for income taxes 29,009 11,656 14,246 Interest expense, net 13,744 14,544 11,454 Adjusted EBITDA$189,544 $186,242 $166,116
_______________________
(1) Amounts represent the loss recorded to properly adjust the carrying value of our Chemical Technologies operations in Russia to the lower of carrying value or fair value less costs to sell.
(2) Includes charges incurred related to legal and professional fees to comply with, as well as additional foreign currency exchange losses associated with, the sanctions imposed in Russia.
(3) Includes revenue associated with the amortization of a liability established as part of the merger transaction with Ecolab Inc. to acquire the Chemical Technologies business, representing unfavorable terms under the Cross Supply Agreement, as well as costs incurred for the acquisition of businesses.
Three Months Ended September 30, June 30, September 30,(in thousands) 2023 2023 2022 Diluted earnings per share attributable to ChampionX$0.39 $0.48 $0.11 Per share adjustments: Loss (gain) on disposal group — — (0.03)Russia sanctions compliance and impacts — — (0.01)Restructuring and other related charges 0.01 0.03 0.34 Merger integration costs — — — Acquisition costs and related adjustments — (0.01) (0.02)Intellectual property defense — — — Merger-related indemnification responsibility 0.01 — — Tulsa, Oklahoma storm damage 0.01 — — Tax impact of adjustments (0.01) (0.01) (0.06)Adjusted diluted earnings per share attributable to ChampionX$0.41 $0.49 $0.33
CHAMPIONX CORPORATION
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES BY SEGMENT
(UNAUDITED)
Three Months Ended September 30, June 30, September 30,(in thousands) 2023 2023 2022 Production Chemical Technologies Segment operating profit$94,560 $87,163 $86,649 Non-GAAP adjustments 1,073 3,944 (4,551)Depreciation and amortization 29,462 25,683 20,750 Segment adjusted EBITDA$125,095 $116,790 $102,848 Production & Automation Technologies Segment operating profit$28,299 $33,208 $22,485 Non-GAAP adjustments 2,123 1,082 4,281 Depreciation and amortization 28,900 26,421 25,335 Segment adjusted EBITDA$59,322 $60,711 $52,101 Drilling Technologies Segment operating profit$12,255 $12,660 $14,856 Non-GAAP adjustments (8) 212 15 Depreciation and amortization 1,539 1,504 1,655 Segment adjusted EBITDA$13,786 $14,376 $16,526 Reservoir Chemical Technologies Segment operating profit$2,461 $2,186 $(61,711)Non-GAAP adjustments 31 428 60,756 Depreciation and amortization 1,665 1,599 3,590 Segment adjusted EBITDA$4,157 $4,213 $2,635 Corporate and other Segment operating profit$(27,774) $(26,935) $(24,808)Non-GAAP adjustments 941 (927) (3,842)Depreciation and amortization 273 3,470 9,202 Interest expense, net 13,744 14,544 11,454 Segment adjusted EBITDA$(12,816) $(9,848) $(7,994)
Free Cash Flow
Three Months Ended September 30, June 30, September 30,(in thousands) 2023 2023 2022 Free Cash Flow Cash flows from operating activities$163,030 $115,910 $187,152 Less: Capital expenditures, net of proceeds from sale of fixed assets (48,469) (27,143) (19,719)Free cash flow$114,561 $88,767 $167,433 Cash From Operating Activities to Revenue Ratio Cash flows from operating activities$163,030 $115,910 $187,152 Revenue$939,783 $926,600 $1,021,561 Cash from operating activities to revenue ratio 17% 13% 18% Free Cash Flow to Revenue Ratio Free cash flow$114,561 $88,767 $167,433 Revenue$939,783 $926,600 $1,021,561 Free cash flow to revenue ratio 12% 10% 16% Free Cash Flow to Adjusted EBITDA Ratio Free cash flow$114,561 $88,767 $167,433 Adjusted EBITDA$189,544 $186,242 $166,116 Free cash flow to adjusted EBITDA ratio 60% 48% 101%
