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ChampionX Corp (CHX)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 revenue was $893.3M, down 3% q/q and 4% y/y; diluted EPS was $0.27 and adjusted diluted EPS was $0.37; adjusted EBITDA was $183.2M with a 20.5% margin, as margin discipline offset revenue softness .
  • Mexico was the primary headwind: revenue declined ~$54M sequentially and ~$61M y/y; excluding Mexico, revenue rose 3% both q/q and y/y; management expects Mexico orders to resume toward year-end .
  • No quarterly guidance or earnings call due to the pending all-stock acquisition by SLB; closing anticipated in Q4 2024 or Q1 2025; dividend payments may continue per merger agreement .
  • Cash from operations was $67.6M and free cash flow was $38.3M despite seasonal Q2 headwinds; liquidity stood at ~$1.1B (cash $393M; undrawn revolver $672M) .
  • S&P Global consensus estimates for CHX were unavailable via our feed, so estimate comparisons are not provided (see Estimates Context).

What Went Well and What Went Wrong

  • What Went Well

    • Margin resilience: adjusted EBITDA margin held at 20.5% despite softer revenue, reflecting “operating discipline” and cost management .
    • Portfolio ex-Mexico grew: “revenue from all areas other than Mexico increased 3% sequentially and year-over-year,” with North America up 1% q/q and international ex-Mexico up 6% q/q .
    • FCF consistency and balance sheet strength: ninth consecutive quarter of positive FCF; ~$1.1B liquidity at quarter end; CEO: “unique…cash flow resiliency…capital-light portfolio” .
    • Strategic expansion: completed acquisition of RMSpumptools to strengthen PAT portfolio and international footprint (Middle East, LatAm, offshore) .

  • What Went Wrong

    • Mexico-driven top-line decline: -$54M q/q and -$61M y/y from Mexico suppressed total company revenue; international revenue down 11% q/q due to Mexico .
    • PAT softness in North America: PAT revenue -3% q/q on “slightly lower customer demand”; digital revenue down 5% q/q .
    • Drilling Tech normalization: segment operating margin fell to 22.4% from 80.4% in Q1 as the prior quarter included a $29.9M sale-leaseback gain; adjusted EBITDA margin also declined on lower volumes and absence of one-time benefits .

Financial Results

Overall financials (GAAP and non-GAAP)

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$943.6 $922.1 $893.3
Diluted EPS ($)$0.39 $0.58 $0.27
Adjusted Diluted EPS ($)$0.44 $0.50 $0.37
Adjusted EBITDA ($USD Millions)$198.1 $191.7 $183.2
Adjusted EBITDA Margin (%)21.0% 20.8% 20.5%
Income Before Income Taxes Margin (%)12.1% 15.2% 9.3%

Segment revenue

Segment Revenue ($USD Millions)Q4 2023Q1 2024Q2 2024
Production Chemical Technologies$634.1 $590.1 $569.6
Production & Automation Technologies$241.3 $252.6 $244.5
Drilling Technologies$46.8 $55.2 $52.9
Reservoir Chemical Technologies$21.4 $24.7 $27.1
Total Revenue$943.6 $922.1 $893.3

Segment adjusted EBITDA margins

Segment Adjusted EBITDA Margin (%)Q4 2023Q1 2024Q2 2024
Production Chemical Technologies21.9% 20.0% 20.6%
Production & Automation Technologies21.9% 23.9% 24.1%
Drilling Technologies22.1% 29.1% 24.9%
Reservoir Chemical Technologies25.7% 21.6% 22.0%
ChampionX Consolidated21.0% 20.8% 20.5%

KPIs and cash flow

KPIQ4 2023Q1 2024Q2 2024
Cash from Operating Activities ($M)$169.0 $173.5 $67.6
Free Cash Flow ($M)$139.8 $144.0 $38.3
FCF / Adjusted EBITDA (%)71% 75% 21%
Digital Revenue ($M)$52.7 $56.8 $54.1
Cash & Cash Equivalents ($M)$288.6 $386.0 $393.3

Notes:

  • Q2 2024 adjusted results exclude merger transaction costs ($15.1M) and other items; see reconciliation .
  • Mexico was the major sequential and y/y drag on revenue; ex-Mexico, revenue grew 3% q/q and y/y .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Quarterly financial guidance2024Company historically guided quarterlyDiscontinued due to pending SLB acquisition; no Q2 call/webcastDiscontinued
Dividend policyOngoingRegular quarterly dividend increased to $0.095 in Feb-2024May continue paying regular quarterly dividends, subject to merger agreement limitations; $18M cash dividend paid in Q2Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 transcript, Q1’24 release)Current Period (Q2’24)Trend
International vs. North AmericaQ4: International +6% q/q; NA flat overall with PCT growth offset by PAT/DT seasonality . Q1: Seasonal international decline; NA shorter-cycle improved .International down 11% q/q due to Mexico; ex-Mexico, international +6% q/q; NA +1% q/q with PCT +6% offset by lower PAT/DT .Mixed: ex-Mexico strong; Mexico pause weighs on total .
Productivity and marginsFocus on productivity pipeline; 2023 adjusted EBITDA margin +430 bps; 50–60% FCF/EBITDA target .Adj. EBITDA margin 20.5% amid revenue pressure; PCT/PAT margins stable-to-up q/q; strong cost management .Margin discipline continues .
Digital & Emissions2023 digital +16% y/y; methane standards seen as tailwind for emissions tech .Digital revenue $54.1M (-5% q/q); emissions: 39% lease/subscription; SOOFIE installs +7% q/q, +21% y/y .Digital mixed near-term; structural emissions adoption growing .
Pricing/raw materials2024 outlook: pricing/raw expected stable; productivity main margin lever .Margin strength cited as operating discipline; no new pricing commentary beyond mix/volume .Stable pricing/raw; productivity-led .
Capital returns/liquidityQ4: $1.5B buyback authorization; dividend +12%; liquidity $959M; FCF conversion strong .Regular dividend paid ($18M); liquidity ~ $1.1B (cash $393M; revolver $672M) .Balance sheet/liquidity strengthen .
M&A / Strategic movesCapital allocation disciplined; tuck-ins; emissions growth focus .Closed RMSpumptools acquisition to bolster PAT and international reach .Targeted portfolio strengthening .
Mexico exposureNot a focus in Q4/Q1 commentary.Mexico -$54M q/q and -$61M y/y; orders expected to resume late 2024 .New transitory headwind .

Management Commentary

  • “We continued to demonstrate the unique nature of ChampionX’s cash flow resiliency…as we generated positive free cash flow for the ninth consecutive quarter.” — Sivasankaran “Soma” Somasundaram, President & CEO .
  • “Revenue from all areas other than Mexico increased 3% sequentially and year-over-year…We generated net income…of $53 million, and…adjusted EBITDA of $183 million, representing a 20.5% adjusted EBITDA margin.” — CEO .
  • “Earlier this month, we completed the acquisition of RMSpumptools…[which] will enhance ChampionX’s Production and Automation Technologies portfolio and…strengthen…presence…in the Middle East, Latin America, and global offshore developments.” — CEO .
  • “Cash flow from operating activities was $68 million…[and] free cash flow of $38 million…We…remain confident in achieving at least 50% adjusted EBITDA to free cash flow conversion for 2024…liquidity, including $393 million of cash and $672 million of available capacity on our revolving credit facility.” — CEO .

Q&A Highlights

Note: CHX did not host a Q2 2024 earnings call due to the pending SLB transaction . Highlights below are from the Q4 2023 call and remain relevant for trend context:

  • International vs. NA setup: Management expected robust international demand and steady NA OpEx-led growth; early 2024 activity improvement in NA noted .
  • Production Chemicals incrementals: 30% incrementals in PCT cited as reasonable marker .
  • EBITDA decrementals into Q1: Higher decrementals driven by freight cost inflation (REC situation), incremental digital/emissions investments, and seasonal lighter international mix; expected progressive margin improvement through 2024 from Q1 starting point .
  • Productivity pipeline: Lean initiatives, sourcing optimization, internal digitization, and yield/utilization improvements underpin continued earnings growth even in flattish revenue scenarios .
  • Pricing/raw materials: Expect stable price/raw in 2024; productivity and volume to drive margins rather than price .

Estimates Context

  • Wall Street consensus from S&P Global was unavailable via our data feed for CHX this quarter (mapping missing); therefore, we cannot provide comparisons versus consensus or quantify beats/misses. If you want us to refresh once the feed is updated, we can append an estimates comparison section.

Key Takeaways for Investors

  • Core margin engine intact: 20.5% adjusted EBITDA margin on -3% q/q revenue shows cost discipline and structural profitability, especially in PCT and PAT .
  • Mexico is the swing factor: ~$54M q/q and ~$61M y/y headwind concentrated in Mexico; management expects order activity to resume toward year-end, a potential H2/early-2025 revenue catalyst .
  • Digital/emissions: Near-term digital softness (-5% q/q) contrasts with growing emissions adoption (SOOFIE installs +7% q/q, +21% y/y; 39% subscription/lease mix), a medium-term secular tailwind .
  • Drilling Tech normalization: Expect margins to track volumes absent Q1’s one-time sale-leaseback gain; focus on bearings growth and productivity to stabilize profitability .
  • Liquidity supports optionality: ~$1.1B liquidity provides cushion during Mexico pause and flexibility under merger process; continued dividend payments per merger agreement parameters .
  • Strategic fit for PAT: RMSpumptools adds high-engineering capability in complex lift and broadens international exposure—positive for PAT mix and growth profile .
  • Merger timeline: SLB transaction expected to close in Q4 2024 or Q1 2025, which will likely dominate stock narrative near-term alongside Mexico order timing .