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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, 2021
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)
Delaware82-3066826
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2445 Technology Forest Blvd,Building 4, 12th Floor
The Woodlands,Texas77381
(Address of principal executive offices)(Zip Code)
(281) 403-5772
(Registrant’s telephone number, including area code)

(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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueCHXThe Nasdaq Stock Market LLC

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 filerAccelerated filer
Non-accelerated filerSmaller 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 201,802,181 shares of common stock, $0.01 par value, outstanding as of July 23, 2021.



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 I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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)2021202020212020
Product revenue$649,399 $248,871 $1,234,756 $473,316 
Service revenue81,223 36,846 161,849 61,770 
Lease and other revenue18,550 13,197 37,455 25,262 
Total revenue749,172 298,914 1,434,060 560,348 
Cost of goods and services569,167 266,684 1,091,723 445,779 
Gross profit180,005 32,230 342,337 114,569 
Selling, general and administrative expense152,341 130,657 295,819 208,800 
Goodwill impairment   616,271 
Long-lived asset impairment   40,980 
Interest expense, net14,064 11,262 28,035 20,301 
Other (income) expense, net2,251 312 315 (1,321)
Income (loss) before income taxes11,349 (110,001)18,168 (770,462)
Provision for (benefit from) income taxes3,563 (954)6,345 (27,960)
Net income (loss)7,786 (109,047)11,823 (742,502)
Less: Net income (loss) attributable to noncontrolling interest536 598 (1,199)871 
Net income (loss) attributable to ChampionX$7,250 $(109,645)$13,022 $(743,373)
Earnings (losses) per share attributable to ChampionX: *
Basic$0.04 $(0.95)$0.06 $(7.72)
Diluted$0.03 $(0.95)$0.06 $(7.72)
Weighted-average shares outstanding: *
Basic201,467 115,149 201,063 96,313 
Diluted208,541 115,149 207,939 96,313 
_______________________
* See Note 11—Earnings Per Share

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)2021202020212020
Net income (loss)$7,786 $(109,047)$11,823 $(742,502)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments8,332 5,703 11,545 (5,349)
Cash flow hedges(277)653 136 653 
Defined pension and other post-retirement benefits adjustments, net6,373 99 6,540 198 
Other comprehensive income (loss)14,428 6,455 18,221 (4,498)
Comprehensive income (loss)22,214 (102,592)30,044 (747,000)
Comprehensive income (loss) attributable to noncontrolling interest536 598 (1,199)871 
Comprehensive income (loss) attributable to ChampionX$21,678 $(103,190)$31,243 $(747,871)


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, 2021December 31, 2020
ASSETS
Cash and cash equivalents$238,995 $201,421 
Receivables, net576,090 559,545 
Inventories, net467,594 430,112 
Prepaid expenses and other current assets67,360 74,767 
Total current assets1,350,039 1,265,845 
Property, plant and equipment, net of accumulated depreciation of $541,796 in 2021 and $494,490 in 2020
818,928 854,536 
Operating lease right-of-use assets118,898 122,481 
Goodwill690,134 680,594 
Intangible assets, net436,027 479,009 
Other non-current assets71,984 73,311 
Total assets$3,486,010 $3,475,776 
LIABILITIES AND EQUITY
Current portion of long-term debt$26,850 $26,850 
Accounts payable391,213 299,666 
Accrued compensation and employee benefits69,315 70,303 
Current portion of operating lease liabilities35,471 33,234 
Accrued distributor fees28,813 37,465 
Accrued expenses and other current liabilities134,916 155,042 
Total current liabilities686,578 622,560 
Long-term debt838,826 905,764 
Deferred income taxes144,418 156,283 
Operating lease liabilities77,344 83,553 
Other long-term liabilities79,887 95,041 
Total liabilities1,827,053 1,863,201 
Stockholders’ equity: 
Common stock (2.5 billion shares authorized, $0.01 par value)
201.7 million shares and 200.4 million shares issued and outstanding in 2021 and 2020, respectively
2,017 2,004 
Capital in excess of par value of common stock2,310,267 2,293,179 
Accumulated deficit(625,435)(638,457)
Accumulated other comprehensive loss(12,534)(30,755)
ChampionX stockholders’ equity1,674,315 1,625,971 
Noncontrolling interest(15,358)(13,396)
Total equity1,658,957 1,612,575 
Total liabilities and equity$3,486,010 $3,475,776 

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)SharesPar
Value
Capital in Excess of Par ValueAccum. DeficitAccum.
Other
Comp.
Loss
Non-controlling InterestTotal
December 31, 2020200,380 $2,004 $2,293,179 $(638,457)$(30,755)$(13,396)$1,612,575 
Net income (loss)— — — 5,772 — (1,735)4,037 
Other comprehensive income— — — — 3,793 — 3,793 
Stock-based compensation64 — 6,442 — — — 6,442 
Stock options exercised577 6 3,341 — — — 3,347 
Taxes withheld on issuance of stock-based awards— — (556)— — — (556)
Cumulative translation adjustments— — — — — 268 268 
Distributions to noncontrolling interest— — — — — (800)(800)
March 31, 2021201,021 $2,010 $2,302,406 $(632,685)$(26,962)$(15,663)$1,629,106 
Net income (loss)— — — 7,250 — 536 7,786 
Other comprehensive income— — — — 14,428 — 14,428 
Stock-based compensation101 — 5,914 — — — 5,914 
Stock options exercised578 7 3,155 — — — 3,162 
Taxes withheld on issuance of stock-based awards— — (1,208)— — — (1,208)
Cumulative translation adjustments— — — — — (231)(231)
June 30, 2021201,700 $2,017 $2,310,267 $(625,435)$(12,534)$(15,358)$1,658,957 

4




Common Stock
(in thousands)SharesPar
Value
Capital in Excess of Par ValueRetained Earnings (Accum. Deficit)Accum.
Other
Comp.
Loss
Non-controlling InterestTotal
December 31, 201977,460 $775 $969,174 $107,048 $(44,037)$3,254 $1,036,214 
Cumulative effect of accounting changes— — — (1,573)— — (1,573)
Net income (loss)— — — (633,728)— 273 (633,455)
Other comprehensive loss— — — — (10,953)— (10,953)
Stock-based compensation44 — 2,429 — — — 2,429 
Taxes withheld on issuance of stock-based awards— — (368)— — — (368)
March 31, 202077,504 $775 $971,235 $(528,253)$(54,990)$3,527 $392,294 
Issuance of common stock related to the Merger122,237 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 compensation67 — 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, 2020199,808 $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)20212020
Cash flows from operating activities:  
Net income (loss)$11,823 $(742,502)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation76,648 58,139 
Amortization43,739 26,274 
Stock-based compensation12,356 7,862 
Loss on disposal of fixed assets3,176 4,040 
Loss on goodwill and long-lived asset impairment 657,251 
Loss on debt extinguishment3,305  
Provision for bad debt86 3,498 
Provision for inventory obsolescence and write-downs 6,200 8,354 
Amortization of deferred loan costs and accretion of discount1,628 1,999 
Deferred income taxes(1,757)(24,682)
Employee benefit plan expense1,250 859 
Other167 (264)
Changes in operating assets and liabilities (net of effects of foreign exchange):
Receivables(18,706)77,777 
Inventories(41,586)24,794 
Prepaid expenses and other current assets9,215 22,088 
Accounts payable92,997 (30,331)
Accrued compensation and employee benefits(2,444)(13,846)
Accrued expenses and other liabilities(46,447)4,717 
Leased assets(1,609)(9,311)
Other1,097 1,317 
Net cash provided by operating activities151,138 78,033 
Cash flows from investing activities:  
Capital expenditures(45,680)(19,322)
Acquisitions, net of cash acquired 57,588 
Proceeds from sale of fixed assets2,482 1,066 
Net cash (used for) provided by investing activities(43,198)39,332 
Cash flows from financing activities:  
Proceeds from long-term debt 125,000 
Payment of debt issue costs (4,356)
Repayment of long-term debt(71,113)(125,000)
Distributions to noncontrolling interest(800)(2,200)
Payment of finance lease obligations(2,575)(2,802)
Proceeds from exercise of stock options6,509  
Payments related to taxes withheld on stock-based compensation(1,764)(612)
Net cash used for financing activities(69,743)(9,970)
Effect of exchange rate changes on cash and cash equivalents(623)(790)
Net increase (decrease) in cash and cash equivalents37,574 106,605 
Cash and cash equivalents at beginning of period201,421 35,290 
Cash and cash equivalents at end of period$238,995 $141,895 
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 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of the Business

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. Our products provide efficient functioning throughout the lifecycle of a well with a focus on the production phase of wells.

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 we acquired the Chemical Technologies business (“the Merger”). In association with the completion of the Merger, the Company changed its name from Apergy Corporation (“Apergy”) to ChampionX Corporation.

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 fiscal year ended December 31, 2020.

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, 2021.

Significant Accounting Policies

Please refer to "Note 1Basis of Presentation and Summary of Significant Accounting Policies," to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for the discussion of our significant accounting policies.

New Accounting Standards

All new accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.
7


NOTE 2—MERGER TRANSACTION

On June 3, 2020 we completed the acquisition of the Chemical Technologies business. To complete the acquisition, we issued 122.2 million shares of common stock, at a share price of $10.34 per share, in exchange for 100% equity ownership of Chemical Technologies.

Purchase Price Allocation

The acquisition-date fair value of the consideration transferred consisted of the following:
(in thousands)
Equity consideration$1,263,931 
Replacement awards attributable to pre-combination services(1)
43,964 
Unfavorable supply agreement(2)
46,000 
Favorable supply agreement(2)
(59,000)
Fair value of consideration transferred$1,294,895 
_______________________
(1) Represents the fair value of the replacement equity awards to the extent services were provided by employees of Chemical Technologies prior to closing.
(2) As part of the Merger, the Company entered into a Cross Supply and Product Transfer Agreement with Ecolab in which over a period of approximately three years from the merger date, certain products will be manufactured by one party for the other. The cross selling prices in which each party will transfer their products, and include a take-or-pay element, have been set forth within this agreement and are not reflective of market terms. As a result, we recognized an intangible asset recorded at fair value for the favorable terms and a liability recorded at fair value for the unfavorable terms. The intangible asset will be amortized on a straight-line basis over a three-year period into cost of goods and services and the liability will be amortized as a component of product revenue.

The following table provides the final allocation of the purchase price as of the acquisition date.
(in thousands)
Cash and cash equivalents$57,588 
Receivables394,432 
Inventories340,000 
Prepaid expenses and other current assets63,576 
Property, plant, and equipment687,085 
Identifiable intangible assets(1)
290,000 
Other non-current assets156,427 
Total identifiable assets acquired1,989,108 
Accounts payable184,028 
Other current liabilities(1)
172,997 
Long-term debt (2)
537,000 
Deferred tax liabilities103,956 
Other liabilities(1)
98,970 
Total liabilities assumed1,096,951 
Net identifiable assets acquired892,157 
Add: Negative fair value of non-controlling interests16,052 
Goodwill386,686 
Total net assets acquired$1,294,895 
_______________________
(1) The fair value of the consideration transferred related to the favorable and unfavorable terms of the cross supply agreement has been excluded.
(2) In connection with the Merger, we assumed a term loan from Chemical Technologies, of which approximately $26.9 million has been classified as short-term representing the mandatory amortization payments due within the next twelve months. See Note 6—Debt for further information.

8


Pro forma financial information

The following unaudited pro forma results of operations have been prepared as though the Merger was completed on January 1, 2019. Pro forma amounts are based on the preliminary purchase price allocation of the acquisition and are not necessarily indicative of results that may be reported in the future. Non-recurring pro forma adjustments including acquisition-related costs directly attributable to the Merger are included within the reported pro forma revenue and net income (loss).
Three Months Ended June 30,Six Months Ended June 30,
(in thousands, except per share data)20202020
Revenues$614,684 $1,435,379 
Net income (loss) attributable to ChampionX(60,100)(794,525)

Included in the net income (loss) attributable to ChampionX on a pro forma basis were goodwill and long-lived asset impairment charges of $805.0 million during the six months ended June 30, 2020.

9


NOTE 3—SEGMENT INFORMATION

Our reporting segments are:

Production Chemical Technologies—provides oil and natural gas production and midstream markets with solutions to manage and control corrosion, oil and water separation, flow assurance, sour gas treatment and a host of water-related issues.

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 and asset monitoring technologies. Production & Automation Technologies’ products are sold under a collection of brands including Harbison-Fischer, Norris, Alberta Oil Tool, Oil Lift Technology, PCS Ferguson, Pro-Rod, Upco, Unbridled ESP, Norriseal-Wellmark, Quartzdyne, Spirit, Theta, Timberline and Windrock.

Drilling Technologies—designs, manufactures and markets polycrystalline diamond cutters and bearings for use in oil and gas drill bits under the US Synthetic brand.

Reservoir Chemical Technologies—manufactures specialty products that support well stimulation, construction (including drilling and cementing) and remediation needs in the oil and natural gas industry.

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.

Segment revenue and segment operating profit were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Segment revenue:  
Production Chemical Technologies$447,049 $136,002 $859,420 $136,002 
Production & Automation Technologies188,173 114,741 355,018 320,220 
Drilling Technologies37,589 20,948 72,583 76,903 
Reservoir Chemical Technologies33,222 9,306 63,113 9,306 
Corporate and other (1)
43,139 17,917 83,926 17,917 
Total revenue$749,172 $298,914 $1,434,060 $560,348 
Segment operating profit (loss):  
Production Chemical Technologies$33,871 $9,922 $64,228 $9,922 
Production & Automation Technologies12,292 (37,168)17,654 (685,759)
Drilling Technologies3,868 (3,811)10,254 7,548 
Reservoir Chemical Technologies(2,594)(2,811)(5,822)(2,811)
Total segment operating profit (loss)47,437 (33,868)86,314 (671,100)
Corporate and other (1)
22,024 64,871 40,111 79,061 
Interest expense, net14,064 11,262 28,035 20,301 
Income (loss) before income taxes$11,349 $(110,001)$18,168 $(770,462)
_______________________
(1)    Corporate and other includes costs not directly attributable or allocated to our reporting segments such as corporate executive management and other administrative functions, and the results attributable to our noncontrolling interest. Additionally, the sales and expenses related to the Cross Supply Agreement with Ecolab are included within Corporate and other. See Note 2—Merger Transaction for further information.



10


NOTE 4—REVENUE

Our revenue is generated primarily from product sales. Service revenue is generated from providing services to our customers. These services include installation, repair and maintenance, laboratory and logistics services, chemical management services, troubleshooting, reporting, water treatment services, technical advisory assistance, asset monitoring, and other field services. Lease revenue is derived from rental income of leased production equipment. These lease arrangements generally allow customers to rent equipment on a daily basis with no stated end date. Management accounts for these arrangements as a daily renewal option beginning on the lease commencement date, with the lease term determined as the period in which it is reasonably certain the option will be exercised. As our costs are shared across the various revenue categories, cost of goods sold is not tracked separately and is not discretely identifiable.

Revenue disaggregated by geography was as follows:
Three Months Ended June 30, 2021
(in thousands)Production Chemical TechnologiesProduction & Automation TechnologiesDrilling TechnologiesReservoir Chemical TechnologiesCorporateTotal
United States$156,852 $141,799 $30,392 $19,589 $30,225 $378,857 
Latin America93,389 4,530  3,587 1,261 102,767 
Middle East & Africa66,213 13,358 1,446 6,534 1,945 89,496 
Canada63,639 14,754 1,986 377 124 80,880 
Europe41,046 1,790 2,278 1,101 3,690 49,905 
Asia-Pacific10,562 2,743 853 1,393 5,894 21,445 
Australia5,994 9,182 13 30  15,219 
Other9,354 17 621 611  10,603 
Total revenue$447,049 $188,173 $37,589 $33,222 $43,139 $749,172 
Six Months Ended June 30, 2021
(in thousands)Production Chemical TechnologiesProduction & Automation TechnologiesDrilling TechnologiesReservoir Chemical TechnologiesCorporateTotal
United States$306,716 $267,712 $55,799 $35,198 $56,242 $721,667 
Latin America165,005 9,172