ChampionX(CHX) - 2025 Q1 - Quarterly Report

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section warns readers about the inherent uncertainties and risks associated with forward-looking statements in the report - This section warns readers that forward-looking statements in the report, identified by words like "believe," "anticipate," and "expect," are based on current expectations and assumptions about future events, revenues, earnings, and cash flows[6] - Actual results may differ materially from projections due to various risks, uncertainties, and assumptions, some of which are significant or beyond the company's control, as detailed in the "Risk Factors" sections of the Annual Report on Form 10-K and this Quarterly Report[7] - Known material factors that could cause actual results to differ include the impact of the pending Merger Agreement with SLB, fluctuations in crude oil and natural gas prices affecting demand and profitability, cost inflation, global economic conditions, supply chain disruptions, and changes in governmental policies[7] - The company explicitly states it undertakes no obligation to publicly update, revise, or correct any forward-looking statements after their initial publication date, except as required by federal securities laws[8] PART I — FINANCIAL INFORMATION This part presents ChampionX Corporation's unaudited condensed consolidated financial statements and related disclosures ITEM 1. FINANCIAL STATEMENTS (unaudited) This section presents ChampionX Corporation's unaudited condensed consolidated financial statements and detailed notes Condensed Consolidated Statements of Income This statement details ChampionX's revenues, expenses, and net income for the reporting period (in thousands, except per share data) | (in thousands, except per share data) | 2025 | 2024 | | :---------------------------------- | :--- | :--- | | Revenue: | | | | Product revenue | $731,086 | $807,827 | | Service revenue | $101,653 | $87,179 | | Lease and other revenue | $31,725 | $27,135 | | Total revenue | $864,464 | $922,141 | | Cost of goods and services | $572,938 | $622,937 | | Gross profit | $291,526 | $299,204 | | Selling, general and administrative expense | $177,045 | $172,414 | | (Gain) loss on sale-leaseback transaction and disposal group | — | $(29,883) | | Interest expense, net | $13,196 | $13,935 | | Foreign currency transaction losses, net | $1,504 | $55 | | Other (income) expense, net | $(4,631) | $2,927 | | Income before income taxes | $104,412 | $139,756 | | Provision for income taxes | $15,384 | $26,596 | | Net income | $89,028 | $113,160 | | Net income attributable to noncontrolling interest | $3,231 | $237 | | Net income attributable to ChampionX | $85,797 | $112,923 | | Earnings per share attributable to ChampionX: | | | | Basic | $0.45 | $0.59 | | Diluted | $0.44 | $0.58 | | Weighted-average shares outstanding: | | | | Basic | 191,143 | 190,803 | | Diluted | 193,709 | 193,964 | - Total revenue decreased by $57.677 million (6.25%) from $922.141 million in Q1 2024 to $864.464 million in Q1 2025[11] - Net income attributable to ChampionX decreased by $27.126 million (24.02%) from $112.923 million in Q1 2024 to $85.797 million in Q1 2025[11] - Diluted Earnings Per Share (EPS) decreased by $0.14 (24.14%) from $0.58 in Q1 2024 to $0.44 in Q1 2025[11] Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents ChampionX's net income and other comprehensive income (loss) components (in thousands) | (in thousands) | 2025 | 2024 | | :------------- | :--- | :--- | | Net income | $89,028 | $113,160 | | Other comprehensive income (loss), net of tax: | | | | Foreign currency translation adjustments | $9,914 | $(10,078) | | Cash flow hedges | $(2,178) | $3,130 | | Defined pension and other post-retirement benefits adjustments, net | $175 | $(37) | | Other comprehensive income (loss) | $7,911 | $(6,985) | | Comprehensive income | $96,939 | $106,175 | | Less: Comprehensive income attributable to noncontrolling interest | $3,231 | $237 | | Comprehensive income attributable to ChampionX | $93,708 | $105,938 | - Comprehensive income attributable to ChampionX decreased by $12.23 million (11.54%) from $105.938 million in Q1 2024 to $93.708 million in Q1 2025[13] - Foreign currency translation adjustments shifted from a loss of $10.078 million in Q1 2024 to an income of $9.914 million in Q1 2025[13] Condensed Consolidated Balance Sheets This statement provides a snapshot of ChampionX's assets, liabilities, and equity at specific dates (in thousands, except share data) | (in thousands, except share data) | March 31, 2025 | December 31, 2024 | | :-------------------------------- | :------------- | :---------------- | | ASSETS | | | | Cash and cash equivalents | $526,559 | $507,681 | | Receivables, net | $417,639 | $466,782 | | Inventories, net | $497,183 | $496,831 | | Assets held for sale | $241,791 | $14,001 | | Prepaid expenses and other current assets | $85,617 | $78,602 | | Total current assets | $1,768,789 | $1,563,897 | | Property, plant, and equipment, net | $729,931 | $755,422 | | Goodwill | $619,505 | $718,944 | | Intangible assets, net | $247,907 | $258,614 | | Operating lease right-of-use assets | $60,995 | $100,427 | | Other non-current assets | $73,263 | $72,948 | | Total assets | $3,500,390 | $3,470,252 | | LIABILITIES AND EQUITY | | | | Current portion of long-term debt | $6,203 | $6,203 | | Accounts payable | $498,335 | $455,531 | | Accrued compensation and employee benefits | $64,351 | $113,907 | | Current portion of operating lease liabilities | $15,511 | $16,794 | | Liabilities held for sale | $61,415 | — | | Accrued expenses and other current liabilities | $139,081 | $193,437 | | Total current liabilities | $784,896 | $785,872 | | Long-term debt | $590,746 | $591,453 | | Deferred income taxes | $51,907 | $62,373 | | Operating lease liabilities | $42,424 | $81,340 | | Other long-term liabilities | $125,723 | $118,036 | | Total liabilities | $1,595,696 | $1,639,074 | | Total equity | $1,904,694 | $1,831,178 | | Total liabilities and equity | $3,500,390 | $3,470,252 | - Total assets increased by $30.138 million (0.87%) from $3,470.252 million at December 31, 2024, to $3,500.390 million at March 31, 2025[15] - Assets held for sale significantly increased from $14.001 million at December 31, 2024, to $241.791 million at March 31, 2025, primarily due to the reclassification of US Synthetic Corporation assets[15][43] - Total equity increased by $73.516 million (4.01%) from $1,831.178 million at December 31, 2024, to $1,904.694 million at March 31, 2025[15] Condensed Consolidated Statements of Changes in Stockholders' Equity This statement outlines changes in ChampionX's equity, including net income, dividends, and stock transactions (in thousands) | (in thousands) | Dec 31, 2024 | Net Income | Other Comp. Income | Stock-based Comp. | Stock Options Exercised | Taxes withheld on issuance of stock-based awards | Dividends Declared | Cumulative Translation Adjustments and Other | Mar 31, 2025 | | :------------- | :----------- | :--------- | :----------------- | :---------------- | :---------------------- | :--------------------------------------------- | :----------------- | :------------------------------------------- | :----------- | | Total | $1,831,178 | $89,028 | $7,911 | $6,721 | $345 | $(12,497) | $(18,330) | $338 | $1,904,694 | | (in thousands) | Dec 31, 2023 | Net Income | Other Comp. Loss | Stock-based Comp. | Stock Options Exercised | Taxes withheld on issuance of stock-based awards | Dividends Declared | Repurchase and Cancellation of Common Stock | Cumulative Translation Adjustments | Mar 31, 2024 | | :------------- | :----------- | :--------- | :----------------- | :---------------- | :---------------------- | :--------------------------------------------- | :----------------- | :------------------------------------------ | :--------------------------------- | :----------- | | Total | $1,661,031 | $113,160 | $(6,985) | $6,173 | $917 | $(11,821) | $(17,967) | $(49,399) | $65 | $1,695,174 | - Total equity increased by $73.516 million from December 31, 2024, to March 31, 2025, primarily driven by net income and other comprehensive income, partially offset by dividends and taxes withheld on stock-based awards[16] - In Q1 2024, the company repurchased and canceled $49.399 million of common stock, an activity not present in Q1 2025[16] Condensed Consolidated Statements of Cash Flows This statement summarizes ChampionX's cash inflows and outflows from operating, investing, and financing activities (in thousands) | (in thousands) | 2025 | 2024 | | :------------------------------------------ | :--- | :--- | | Cash flows from operating activities: | | | | Net cash flows provided by operating activities | $66,802 | $173,508 | | Cash flows from investing activities: | | | | Net cash used for investing activities | $(28,246) | $(10,794) | | Cash flows from financing activities: | | | | Net cash used for financing activities | $(20,149) | $(64,093) | | Effect of exchange rate changes on cash and cash equivalents | $471 | $(1,161) | | Net increase in cash and cash equivalents | $18,878 | $97,460 | | Cash and cash equivalents at beginning of period | $507,681 | $288,557 | | Cash and cash equivalents at end of period | $526,559 | $386,017 | - Net cash provided by operating activities significantly decreased from $173.508 million in Q1 2024 to $66.802 million in Q1 2025, primarily due to lower net income and increased use of cash for working capital[17][133] - Net cash used for investing activities increased from $10.794 million in Q1 2024 to $28.246 million in Q1 2025, mainly driven by capital expenditures[17][135] - Net cash used for financing activities decreased from $64.093 million in Q1 2024 to $20.149 million in Q1 2025, largely due to the absence of common stock repurchases in Q1 2025 compared to $49.4 million in Q1 2024[17][137][138] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE 1—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note describes ChampionX Corporation's business as a global leader in chemistry solutions, artificial lift systems, and engineered equipment for oil and gas production. It details the pending merger agreement with Schlumberger Limited (SLB), where ChampionX will become an indirect wholly-owned subsidiary of SLB, with ChampionX shareholders receiving 0.735 shares of SLB Common Stock per share. The note also outlines the basis of presentation for the unaudited financial statements, significant accounting policies, and recently issued accounting standards - ChampionX is a global leader in chemistry solutions, artificial lift systems, and highly engineered equipment and technologies that aid in safe, efficient, and sustainable oil and gas drilling and production worldwide[19] - On April 2, 2024, ChampionX entered into a Merger Agreement with Schlumberger Limited (SLB), under which ChampionX will merge into SLB, surviving as an indirect wholly-owned subsidiary[21] - At the effective time of the Merger, each share of ChampionX common stock will be converted into the right to receive 0.735 shares of SLB Common Stock[22] - The Merger Agreement includes termination rights, under which SLB would be required to pay ChampionX a termination fee of $326.6 million under specified circumstances[23] - During the three months ended March 31, 2025, ChampionX recorded $10.2 million in third-party legal and professional fees related to the pending Merger, reflected in selling, general and administrative expense[24] - New accounting standards include ASU 2024-03 (Disaggregation of Income Statement Expenses) effective after December 15, 2026, and ASU 2023-09 (Improvements to Income Tax Disclosure) effective after December 15, 2024[29][30] NOTE 2—SEGMENT INFORMATION This note provides detailed financial information for ChampionX's four reportable segments: Production Chemical Technologies, Production & Automation Technologies, Drilling Technologies, and Reservoir Chemical Technologies. It presents segment revenue, operating profit, assets, capital expenditures, and depreciation & amortization for the three months ended March 31, 2025, and 2024, along with geographic revenue distribution - ChampionX operates through four reportable segments: Production Chemical Technologies, Production & Automation Technologies, Drilling Technologies, and Reservoir Chemical Technologies[31][32] Segment Revenue and Operating Profit (Three Months Ended March 31) | (in thousands) | 2025 Revenue | 2024 Revenue | 2025 Operating Profit | 2024 Operating Profit | | :-------------------------------- | :----------- | :----------- | :-------------------- | :-------------------- | | Production Chemical Technologies | $523,390 | $590,108 | $82,172 | $87,832 | | Production & Automation Technologies | $264,377 | $252,614 | $37,554 | $28,470 | | Drilling Technologies | $50,530 | $55,206 | $8,174 | $44,402 | | Reservoir Chemical Technologies | $26,926 | $24,705 | $5,529 | $3,746 | | Total Reportable Segments | $865,223 | $922,633 | $133,429 | $164,450 | - Production Chemical Technologies revenue decreased by $66.718 million (11.31%) year-over-year, while its operating profit decreased by $5.66 million (6.44%) year-over-year[33] - Production & Automation Technologies revenue increased by $11.763 million (4.66%) year-over-year, and its operating profit increased by $9.084 million (31.91%) year-over-year[33] - Drilling Technologies revenue decreased by $4.676 million (8.47%) year-over-year, and its operating profit significantly decreased by $36.228 million (81.59%) year-over-year[33] - Reservoir Chemical Technologies revenue increased by $2.221 million (8.99%) year-over-year, and its operating profit increased by $1.783 million (47.60%) year-over-year[33] Capital Expenditures (Three Months Ended March 31) | (in thousands) | 2025 | 2024 | | :------------- | :--- | :--- | | Chemical Technologies | $5,539 | $14,734 | | Production & Automation Technologies | $24,099 | $16,291 | | Drilling Technologies | $1,589 | $795 | | Corporate and other | $23 | $92 | | Total | $31,250 | $31,912 | NOTE 3—ASSETS HELD FOR SALE This note details the classification of US Synthetic Corporation (Drilling Technologies segment) as assets held for sale following a definitive agreement to sell all equity interests to a controlled affiliate of LongRange Capital, L.P. The sale is for approximately $300 million cash, subject to customary closing conditions, including the closing of the merger with SLB. As of March 31, 2025, US Synthetic's assets held for sale totaled $226.6 million and liabilities held for sale totaled $61.4 million - On February 24, 2025, ChampionX entered into a definitive agreement to sell all equity interests in US Synthetic Corporation (the only operating entity in its Drilling Technologies segment) to a controlled affiliate of LongRange Capital, L.P. for approximately $300 million cash[41][42] - The USS Divestiture is subject to customary closing conditions, including regulatory approvals and the closing of the Merger with SLB[43] US Synthetic Corporation Assets and Liabilities Held for Sale (as of March 31, 2025) | (in thousands) | March 31, 2025 | | :------------- | :------------- | | Total assets held for sale | $226,584 | | Receivables, net | $38,937 | | Inventories, net | $22,310 | | Property, plant, and equipment, net | $18,590 | | Goodwill | $101,136 | | Intangible assets, net | $3,600 | | Operating lease right-of-use assets | $37,075 | | Total liabilities held for sale | $61,415 | | Accounts payable | $19,399 | | Accrued compensation and employee benefits | $3,729 | | Operating lease liabilities | $38,005 | - The results of US Synthetic will continue to be reported in continuing operations in the condensed consolidated income statement until the sale is completed[43] NOTE 4—REVENUE This note details ChampionX's revenue sources, primarily from product sales, with service and lease revenue also contributing. It explains the use of joint ventures and third-party distributors for sales and marketing, and how consideration is recorded. The note also provides a disaggregation of revenue by geographic region and segment for the three months ended March 31, 2025, and 2024, and contract balances - Revenue is primarily generated from product sales, supplemented by service revenue (e.g., installation, repair, chemical management) and lease revenue from rental production equipment[46] - The company utilizes joint ventures and independent third-party distributors and sales agents, recording consideration received on a net basis within product revenue[47] Revenue Disaggregated by Geography and Segment (Three Months Ended March 31, 2025) | (in thousands) | Production Chemical Technologies | Production & Automation Technologies | Drilling Technologies | Reservoir Chemical Technologies | Corporate and other | Total | | :------------- | :------------------------------- | :----------------------------------- | :-------------------- | :------------------------------ | :------------------ | :---- | | United States | $248,289 | $193,542 | $40,581 | $15,907 | $0 | $498,319 | | Latin America | $57,540 | $8,649 | $0 | $2,754 | $0 | $68,943 | | Middle East & Africa | $73,987 | $21,314 | $1,541 | $5,763 | $(759) | $101,846 | | Canada | $77,282 | $18,376 | $3,923 | $636 | $0 | $100,217 | | Europe | $41,105 | $6,113 | $2,796 | $1,311 | $0 | $51,325 | | Asia-Pacific | $13,177 | $2,743 | $1,663 | $552 | $0 | $18,135 | | Australia | $12,010 | $13,640 | $26 | $3 | $0 | $25,679 | | Total revenue | $523,390 | $264,377 | $50,530 | $26,926 | $(759) | $864,464 | Revenue Disaggregated by Geography and Segment (Three Months Ended March 31, 2024) | (in thousands) | Production Chemical Technologies | Production & Automation Technologies | Drilling Technologies | Reservoir Chemical Technologies | Corporate and other | Total | | :------------- | :------------------------------- | :----------------------------------- | :-------------------- | :------------------------------ | :------------------ | :---- | | United States | $242,484 | $195,667 | $43,620 | $13,845 | $0 | $495,616 | | Latin America | $122,313 | $4,325 | $97 | $3,284 | $0 | $130,019 | | Middle East & Africa | $79,367 | $14,662 | $2,248 | $5,563 | $(492) | $101,348 | | Canada | $77,880 | $18,315 | $4,323 | $514 | $0 | $101,032 | | Europe | $47,653 | $4,939 | $4,387 | $1,137 | $0 | $58,116 | | Asia-Pacific | $15,325 | $2,339 | $531 | $362 | $0 | $18,557 | | Australia | $5,086 | $12,367 | $0 | $0 | $0 | $17,453 | | Total revenue | $590,108 | $252,614 | $55,206 | $24,705 | $(492) | $922,141 | - Total revenue decreased by $57.677 million (6.25%) year-over-year, with notable declines in Latin America (from $130.019 million to $68.943 million) and Europe (from $58.116 million to $51.325 million)[48] NOTE 5—INTANGIBLE ASSETS AND GOODWILL This note provides a breakdown of ChampionX's definite- and indefinite-lived intangible assets and goodwill. As of March 31, 2025, total intangible assets were $247.907 million, and goodwill was $619.505 million. The note highlights the reclassification of US Synthetic's intangible assets and goodwill to assets held for sale, impacting the reported amounts Intangible Assets (as of March 31, 2025 and December 31, 2024) | (in thousands) | March 31, 2025 Net Carrying Amount | December 31, 2024 Net Carrying Amount | | :------------- | :--------------------------------- | :------------------------------------ | | Customer relationships | $142,925 | $147,062 | | Unpatented technologies | $71,278 | $76,349 | | Software | $3,421 | $0 | | Trademarks (definite-lived) | $18,736 | $19,240 | | Patents | $5,165 | $5,399 | | Other | $5,182 | $5,764 | | Trademarks (indefinite-lived) | $0 | $3,600 | | In-process research and development | $1,200 | $1,200 | | Total | $247,907 | $258,614 | Goodwill by Reportable Segment (as of March 31, 2025 and December 31, 2024) | (in thousands) | December 31, 2024 | Reclassified to assets held for sale | Foreign currency translation | March 31, 2025 | | :------------- | :---------------- | :--------------------------------- | :--------------------------- | :------------- | | Production Chemical Technologies | $347,560 | $0 | $(21) | $347,539 | | Production & Automation Technologies | $270,248 | $0 | $1,718 | $271,966 | | Drilling Technologies | $101,136 | $(101,136) | $0 | $0 | | Reservoir Chemical Technologies | $0 | $0 | $0 | $0 | | Total | $718,944 | $(101,136) | $1,697 | $619,505 | - Goodwill decreased by $99.439 million from December 31, 2024, to March 31, 2025, primarily due to the reclassification of $101.136 million of Drilling Technologies goodwill to assets held for sale[51] NOTE 6—DEBT This note details ChampionX's long-term debt, primarily consisting of the 2022 Term Loan Facility. As of March 31, 2025, total long-term debt was $596.949 million, with a current portion of $6.203 million. The company has a $700.0 million 2022 Revolving Credit Facility, with no amounts outstanding as of March 31, 2025. The note also mentions the repricing of term loans in September 2023 and an interest rate swap to hedge variable interest rate exposure Long-term Debt (as of March 31, 2025 and December 31, 2024) | (in thousands) | March 31, 2025 | December 31, 2024 | | :------------- | :------------- | :---------------- | | 2022 Term Loan Facility | $611,007 | $612,559 | | Net unamortized discounts and issuance costs | $(14,058) | $(14,903) | | Total long-term debt | $596,949 | $597,656 | | Current portion of long-term debt | $(6,203) | $(6,203) | | Long-term debt, less current portion | $590,746 | $591,453 | - The 2022 Term Loan Facility has a principal amount of $611.007 million as of March 31, 2025, matures on June 7, 2029, and is subject to mandatory quarterly amortization payments of 1% per annum[53][55] - The 2022 Revolving Credit Facility has an aggregate principal amount of $700.0 million, matures on June 7, 2027, and had no amounts outstanding as of March 31, 2025[54][55] - ChampionX was in compliance with all debt covenants as of March 31, 2025[55] - A five-year amortizing floating-to-fixed interest rate swap was executed on June 29, 2022, to hedge exposure to increases in variable interest rates on the 2022 Term Loan Facility, based on a $300.0 million notional amount for the first three years[57] NOTE 7—COMMITMENTS AND CONTINGENCIES This note outlines ChampionX's various claims and contingencies, including workers' compensation, general liability, environmental matters, and lawsuits. The company accrues liabilities for probable and reasonably estimable losses. As of March 31, 2025, outstanding letters of credit, surety bonds, and guarantees totaled $76.6 million. Environmental liability accruals were $5.7 million, with a specific $1.2 million accrued for remediation at the Norris Sucker Rods plant in Tulsa, Oklahoma - ChampionX is subject to various claims and contingencies, including legal actions, environmental matters, and product liability, accruing liabilities when a contingent loss is probable and reasonably estimable[58][61] - As of March 31, 2025, outstanding letters of credit, surety bonds, and guarantees totaled $76.6 million, primarily maintained as security for insurance, warranty, and other performance obligations[60] - Environmental liability accruals were $5.7 million as of March 31, 2025, consistent with December 31, 2024[62] - A specific liability of approximately $1.2 million is accrued for groundwater remediation at the Norris Sucker Rods plant in Tulsa, Oklahoma, with ongoing discussions with the Oklahoma Department of Environmental Quality (ODEQ) to finalize a consent order[63] NOTE 8—STOCKHOLDERS' EQUITY This note details ChampionX's dividend declarations and share repurchase program. A quarterly cash dividend of $0.095 per share was declared on February 19, 2025, resulting in an $18.7 million dividend payable. The Board authorized an increase in the share repurchase program to $1.5 billion on January 31, 2024, but no shares were repurchased during the three months ended March 31, 2025 - A cash dividend of $0.095 per share was declared on February 19, 2025, payable on April 25, 2025, resulting in an $18.7 million dividend payable as of March 31, 2025[64] - The Board authorized an increase in the share repurchase program to $1.5 billion on January 31, 2024[65] - No shares were repurchased under the share repurchase program during the three months ended March 31, 2025[65] NOTE 9—EARNINGS PER SHARE This note provides the reconciliation of shares used for basic and diluted earnings per share calculations. For the three months ended March 31, 2025, basic EPS was $0.45 and diluted EPS was $0.44, based on 191.143 million basic weighted-average shares and 193.709 million diluted shares Earnings Per Share Reconciliation (Three Months Ended March 31) | (in thousands, except per share data) | 2025 | 2024 | | :---------------------------------- | :--- | :--- | | Net income attributable to ChampionX | $85,797 | $112,923 | | Weighted-average number of shares outstanding | 191,143 | 190,803 | | Dilutive effect of stock-based compensation | 2,566 | 3,161 | | Total shares and dilutive securities | 193,709 | 193,964 | | Earnings per share attributable to ChampionX: | | | | Basic | $0.45 | $0.59 | | Diluted | $0.44 | $0.58 | - Diluted EPS decreased from $0.58 in Q1 2024 to $0.44 in Q1 2025[66] - Approximately 0.1 million shares in 2025 and 0.5 million shares in 2024 were excluded from diluted EPS calculation due to their anti-dilutive impact[66] NOTE 10—ACQUISITIONS, DIVESTITURES AND SALE-LEASEBACK This note details ChampionX's acquisition and divestiture activities. In 2024, the company completed three acquisitions: OTS Consulting Services LLP ($8.7 million), Artificial Lift Performance Limited ($13.4 million), and RMSpumptools Limited ($106.1 million), all enhancing the Production & Automation Technologies segment. For divestitures, the CT Russia Business was classified as held for sale in 2022 due to deteriorating conditions, resulting in a $13.0 million impairment in Q1 2023. The note also covers a sale-leaseback transaction in March 2024 for three buildings in Orem, Utah, generating a $29.8 million net gain - In 2024, ChampionX completed three acquisitions for its Production & Automation Technologies segment: OTS Consulting Services LLP ($8.7 million), Artificial Lift Performance Limited ($13.4 million), and RMSpumptools Limited ($106.1 million)[67][68][70] - The acquisition of RMSpumptools Limited on July 8, 2024, aimed to create growth opportunities in the artificial lift business internationally, recording $53.0 million in definite-lived intangible assets and $45.0 million in goodwill[70][72] - The CT Russia Business (Production Chemical Technologies segment) was classified as held for sale in Q2 2022 due to deteriorating business conditions and sanctions, leading to a $13.0 million pre-tax impairment expense recorded during the three months ended March 31, 2023[73][75] - A sale-leaseback agreement for three buildings in Orem, Utah, was completed on March 29, 2024, for $45.5 million, resulting in a $29.8 million net gain on sale[76] NOTE 11—FAIR VALUE MEASUREMENTS This note defines fair value and outlines the three-level hierarchy for inputs used in fair value measurements. It presents the carrying amount and estimated fair value for assets and liabilities measured on a recurring basis, including foreign currency forward contracts and interest rate swaps, which are classified as Level 2 inputs. The fair value of the term loan facility is also based on Level 2 quoted market prices - Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date[77] - The fair value hierarchy consists of three levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[77][78] Fair Value of Assets and Liabilities (as of March 31, 2025 and December 31, 2024) | (in thousands) | Measurement Level | March 31, 2025 | December 31, 2024 | | :------------- | :---------------- | :------------- | :---------------- | | Assets | | | | | Foreign currency forward contracts | Level 2 | $6,983 | $10,078 | | Interest rate swaps | Level 2 | $2,330 | $4,199 | | Total Assets | | $9,313 | $14,277 | | Liabilities | | | | | Foreign currency forward contracts | Level 2 | $4,265 | $13,430 | | Interest rate swaps | Level 2 | $0 | $13 | | Total Liabilities | | $4,265 | $13,443 | Fair Value of Long-term Debt (as of March 31, 2025 and December 31, 2024) | (in thousands) | Carrying Amount (March 31, 2025) | Fair Value (March 31, 2025) | Carrying Amount (December 31, 2024) | Fair Value (December 31, 2024) | | :------------- | :------------------------------- | :-------------------------- | :---------------------------------- | :----------------------------- | | 2022 Term Loan Facility | $611,007 | $612,535 | $612,559 | $613,324 | NOTE 12—DERIVATIVES AND HEDGING TRANSACTIONS This note describes ChampionX's use of derivative financial instruments, specifically foreign currency forward contracts and floating-to-fixed interest rate swap agreements, to manage foreign currency exchange rate and interest rate risks. These derivatives are not for speculative purposes. Cash flow hedges are used for forecasted foreign currency transactions and debt interest rates, with changes in fair value recognized in AOCI. Derivatives not designated as hedging instruments are used to offset foreign currency denominated assets and liabilities, with changes recognized immediately in earnings - ChampionX uses foreign currency forward contracts to manage foreign currency exchange rate risks and floating-to-fixed interest rate swap agreements as cash flow hedges to mitigate interest rate risk on certain debt[81] - Derivative contracts are recorded as assets and liabilities on the balance sheet at fair value; the company does not hold derivative financial instruments of a speculative nature or for trading purposes[81] - For cash flow hedges, changes in fair value attributable to changes in spot exchange rates are recognized in accumulated other comprehensive income (AOCI) and reclassified into earnings when the hedged transaction affects earnings[81][86] - Derivatives not designated as hedging instruments, used to offset exposure to foreign currency denominated assets and liabilities, have changes in value recognized immediately in earnings[88] Effect of Derivative Instruments on Income (Three Months Ended March 31) | (in thousands) | 2025 | 2024 | | :------------- | :--- | :--- | | Loss (gain) reclassified from AOCI to income on cash flow hedges: | | | | Cost of goods and services | $(899) | $(438) | | Interest expense | $(946) | $(1,714) | | Loss (gain) on derivatives not designated as hedging instruments: | | | | Other (income) expense, net | $(784) | $953 | | Total loss (gain) of derivative instruments | $(2,629) | $(1,199) | NOTE 13—INVENTORIES This note provides a breakdown of ChampionX's inventories, which include raw materials, work in progress, and finished goods. As of March 31, 2025, net inventories totaled $497.183 million, slightly up from $496.831 million at December 31, 2024. The inventory balance includes a reserve for obsolescence and LIFO adjustments Inventories (as of March 31, 2025 and December 31, 2024) | (in thousands) | March 31, 2025 | December 31, 2024 | | :------------- | :------------- | :---------------- | | Raw materials | $117,647 | $131,605 | | Work in progress | $9,912 | $24,431 | | Finished goods | $443,793 | $420,282 | | Subtotal | $571,352 | $576,318 | | Inventory reserve | $(26,976) | $(27,997) | | LIFO adjustments | $(47,193) | $(51,490) | | Inventories, net | $497,183 | $496,831 | - Finished goods inventory increased by $23.511 million from December 31, 2024, to March 31, 2025[90] - Raw materials and work in progress decreased, while finished goods increased, contributing to a slight overall net inventory increase[90] NOTE 14—ACCOUNTS RECEIVABLE FACILITIES This note describes ChampionX's uncommitted accounts receivable purchase agreements with JPMorgan Chase Bank, N.A. (JPM Accounts Receivable Facility) and HSBC Bank USA, National Association (HSBC Accounts Receivable Facility). These facilities allow the company to sell eligible receivables, with maximum outstanding amounts of $160.0 million for JPM and CAD $40.0 million (approx. $30.0 million) for HSBC. Transfers are accounted for as sales, with the purchaser assuming credit risk. Losses on sale of receivables were $1.1 million for JPM and $0.3 million for HSBC in Q1 2025 - ChampionX utilizes uncommitted accounts receivable purchase agreements (JPM and HSBC Accounts Receivable Facilities) to sell eligible receivables[91][92] - The maximum amount of receivables that may be sold and remain unpaid is $160.0 million for the JPM facility and CAD $40.0 million (approximately $30.0 million) for the HSBC facility[91][92] - Accounts receivable sold in Q1 2025 were $120.4 million for JPM and $42.9 million for HSBC[93] - Losses on the sale of accounts receivable for Q1 2025 were $1.1 million under the JPM facility and $0.3 million under the HSBC facility[94] - Transfers are accounted for as sales, resulting in derecognition of receivables from the balance sheet, with the purchaser assuming credit risk[95] NOTE 15—SUPPLY CHAIN FINANCE This note states that ChampionX utilizes a supply chain finance program, allowing suppliers to obtain financing by selling their receivables to a third party earlier in the payment cycle. As of March 31, 2025, approximately $38.3 million was outstanding under this program, recorded in accounts payable - ChampionX uses a supply chain finance program that enables suppliers to work with a third party to provide financing by purchasing their receivables earlier in the payment cycle[96] - As of March 31, 2025, approximately $38.3 million was outstanding under the program, which is included in accounts payable on the condensed consolidated balance sheet[96] NOTE 16—CASH FLOW INFORMATION This note provides additional cash flow details, including the leased asset program within the Production & Automation Technologies segment, where inventory is transferred to property, plant, and equipment upon customer contract. In Q1 2025, $28.9 million of inventory was transferred. It also mentions the Argentina Blue Chip Swap transactions from Q1 2024, which resulted in a $4.1 million pre-tax loss due to currency controls, but no such swaps occurred in Q1 2025 - The electrical submersible pumping leased asset program, reported in the Production & Automation Technologies segment, involves transferring assets from inventory to property, plant, and equipment when a customer contracts for an asset[97] - During the three months ended March 31, 2025, $28.9 million of inventory was transferred into property, plant, and equipment for the leased asset program, compared to $29.5 million in Q1 2024[97] - In Q1 2024, Argentina Blue Chip Swap transactions resulted in a $4.1 million pre-tax loss due to currency controls and the use of a parallel U.S. dollar exchange rate[99] - No Blue Chip Swaps were entered into during the first quarter of 2025[99] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's analysis of ChampionX's financial performance, condition, and significant trends. It covers the business environment, market conditions, the pending merger with SLB, and a detailed analysis of consolidated and segment results of operations, as well as capital resources and liquidity. The company is a global leader in oil and gas solutions, heavily influenced by global oil production and investment levels Executive Overview and Business Outlook This overview reiterates ChampionX's core business in oil and gas solutions and its four segments. it discusses the business environment, highlighting dependence on global oil production and prices, which have seen a slight decline. The section also addresses the impact of tariffs and inflation, and provides an update on the pending merger with SLB, including key conditions and approvals - ChampionX is a global leader in chemistry solutions, artificial lift systems, and highly engineered equipment and technologies that support oil and gas production, transportation, and real-time emissions monitoring[102] - The company's business is substantially dependent on global oil production levels and new investment activity in the oil and gas and midstream sectors, influenced by crude oil and natural gas prices, rig count, and well completions[103] - Oil prices decreased slightly from approximately $70 per barrel at December 31, 2024, to $68 per barrel at March 31, 2025, and are expected to remain under pressure for the remainder of 2025 due to announced OPEC+ production increases[104] - ChampionX actively monitors tariffs and inflation, aiming to offset increased material input costs, labor rates, and transportation costs through customer selling price increases, supply chain adjustments, and productivity programs[105][107] - The pending merger with SLB, announced April 2, 2024, is progressing, with ChampionX stockholders adopting the Merger Agreement on June 18, 2024, and regulatory clearances ongoing[108][110] Consolidated Results of Operations This section analyzes ChampionX's consolidated financial performance for the three months ended March 31, 2025, compared to December 31, 2024. Total revenue decreased by 5% sequentially to $864.464 million, primarily due to a slowdown in market activity. Gross profit decreased by 7%, and net income attributable to ChampionX increased by $3.031 million, despite lower revenue, largely due to a significant decrease in the provision for income taxes (from 28.1% to 14.7% ETR) driven by discrete tax benefits Consolidated Results of Operations (Three Months Ended March 31, 2025 vs. December 31, 2024) | (in thousands) | March 31, 2025 | December 31, 2024 | Variance ($) | | :------------- | :------------- | :---------------- | :----------- | | Revenue | $864,464 | $912,037 | $(47,573) | | Cost of goods and services | $572,938 | $600,154 | $(27,216) | | Gross profit | $291,526 | $311,883 | $(20,357) | | Selling, general and administrative expense | $177,045 | $184,722 | $(7,677) | | Interest expense, net | $13,196 | $12,375 | $821 | | Foreign currency transaction losses (gains), net | $1,504 | $1,697 | $(193) | | Other (income) expense, net | $(4,631) | $(5,026) | $395 | | Income before income taxes | $104,412 | $118,115 | $(13,703) | | Provision for income taxes | $15,384 | $33,204 | $(17,820) | | Net income | $89,028 | $84,911 | $4,117 | | Net income attributable to ChampionX | $85,797 | $82,766 | $3,031 | - Revenue decreased by $47.6 million (5%) sequentially, primarily due to a slowdown in market activity[113] - Gross profit decreased by $20.4 million (7%) sequentially, mainly due to decreased volumes[114] - Selling, general and administrative expense decreased by $7.7 million (4%) sequentially, primarily due to a reduction in third-party legal and professional fees related to the Merger transaction with SLB[114] - The effective tax rate decreased significantly from 28.1% in Q4 2024 to 14.7% in Q1 2025, primarily due to discrete tax benefits related to stock compensation and changes in uncertain tax positions[116] Segment Results of Operations This section details the sequential performance of ChampionX's four segments for Q1 2025 compared to Q4 2024. Production Chemical Technologies saw an 8% revenue decrease and a 21% operating profit decrease due to lower international sales. Production & Automation Technologies revenue decreased by 2%, with operating profit remaining flat. Drilling Technologies experienced a 3% revenue decrease and a 24% operating profit decrease due to lower sales volumes, bonuses, and increased production costs. Reservoir Chemical Technologies was the only segment to grow, with revenue up 23% and operating profit up 141%, driven by higher sales volumes and favorable product/regional mix Segment Revenue and Operating Profit (Three Months Ended March 31, 2025 vs. December 31, 2024) | (in thousands) | March 31, 2025 Revenue | December 31, 2024 Revenue | Revenue Variance ($) | March 31, 2025 Operating Profit | December 31, 2024 Operating Profit | Operating Profit Variance ($) | | :------------- | :--------------------- | :------------------------ | :------------------- | :------------------------------ | :-------------------------------- | :---------------------------- | | Production Chemical Technologies | $523,390 | $569,662 | $(46,272) | $82,172 | $103,567 | $(21,395) | | Production & Automation Technologies | $264,377 | $269,568 | $(5,191) | $37,554 | $39,027 | $(1,473) | | Drilling Technologies | $50,530 | $51,942 | $(1,412) | $8,174 | $10,703 | $(2,529) | | Reservoir Chemical Technologies | $26,926 | $21,937 | $4,989 | $5,529 | $2,294 | $3,235 | | Total Reportable Segments | $865,223 | $913,109 | $(47,886) | $133,429 | $155,591 | $(22,162) | - Production Chemical Technologies revenue decreased by $46.3 million (8%) sequentially, mainly due to lower international sales volumes, leading to a $21.4 million (21%) decrease in operating profit[118] - Production & Automation Technologies revenue decreased by $5.2 million (2%) sequentially, primarily due to seasonally lower international sales volumes, with operating profit remaining flat[119][120] - Drilling Technologies revenue decreased by $1.4 million (3%) sequentially, and operating profit decreased by $2.5 million (24%) due to lower sales volume in the inserts product line, one-time bonuses, and increased production costs[121] - Reservoir Chemical Technologies revenue increased by $5.0 million (23%) sequentially, and operating profit increased by $3.2 million (141%) due to higher sales volumes in the U.S. and internationally, and favorable product and regional mix[122] Capital Resources and Liquidity This section discusses ChampionX's capital resources and liquidity, primarily driven by operating activities. As of March 31, 2025, the company had $526.6 million in cash and cash equivalents and total liquidity of $1.2 billion, including $673.6 million available under its $700.0 million revolving credit facility. Long-term debt stood at $590.7 million. Cash from operating activities decreased significantly in Q1 2025 compared to Q1 2024, while cash used in investing activities increased, and cash used in financing activities decreased due to the absence of common stock repurchases. The company expects to meet future needs through cash from operations and the revolving credit facility - ChampionX's primary source of cash is from operating activities, which is allocated to working capital, investments, acquisitions, share repurchases, dividend payments, and debt repayments[123] Liquidity Position (as of March 31, 2025) | (in millions) | Amount | | :------------ | :----- | | Cash and cash equivalents | $526.6 | | Available capacity under 2022 Revolving Credit Facility | $673.6 | | Total liquidity | $1,200.2 | - As of March 31, 2025, long-term debt was $590.7 million, net of the current portion, consisting of the 2022 Term Loan Facility with a principal amount of $611.0 million, and no amounts outstanding on the 2022 Revolving Credit Facility[126] - Net cash provided by operating activities decreased from $173.5 million in Q1 2024 to $66.8 million in Q1 2025, primarily due to lower net income and increased use of cash for working capital items[132][133] - Net cash used in investing activities increased from $10.8 million in Q1 2024 to $28.2 million in Q1 2025, primarily comprised of capital expenditures[132][135] - Net cash used in financing activities decreased from $64.1 million in Q1 2024 to $20.1 million in Q1 2025, largely due to the absence of common stock repurchases in Q1 2025[132][137][138] - Capital spending for 2025 is projected to be approximately 4.0% of revenue, inclusive of capital investments for electric submersible pump leased assets[130] Revolving Credit Facility Summary (as of March 31, 2025) | (in millions) | Amount | Debt Outstanding | Letters of Credit | Unused Capacity | Maturity | | :------------ | :----- | :--------------- | :---------------- | :-------------- | :------- | | Five-year revolving credit facility | $700.0 | $0 | $26.4 | $673.6 | June 2027 | - Accounts receivable sold under the JPM facility were $120.4 million in Q1 2025, with $101.5 million remaining outstanding. Under the HSBC facility, $42.9 million were sold, with $26.9 million remaining outstanding[142][143] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section states that ChampionX is exposed to certain market risks from financial instruments in its ordinary course of business. It refers to the Annual Report on Form 10-K for the year ended December 31, 2024, for detailed disclosures, noting that the company's exposure to market risk has not materially changed since that date - ChampionX is exposed to certain market risks arising from the use of financial instruments in the ordinary course of business[144] - The company's exposure to market risk has not materially changed since December 31, 2024[144] ITEM 4. CONTROLS AND PROCEDURES This section confirms that ChampionX's management, including the principal executive and financial officers, evaluated the effectiveness of its disclosure controls and procedures as of March 31, 2025, and concluded they were effective. It also states that there were no material changes in internal control over financial reporting during the quarter - Management, with the participation of the principal executive officer and principal financial officer, concluded that ChampionX's disclosure controls and procedures were effective as of March 31, 2025[145] - There were no changes in internal control over financial reporting that occurred during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[146] PART II — OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, and other relevant information ITEM 1. LEGAL PROCEEDINGS ChampionX is involved in various legal actions incidental to its business. Management believes the ultimate resolution of these matters will not have a material adverse effect on the company's financial position, results of operations, or cash flows. Further details are referenced in Note 7 - ChampionX is involved in various pending or potential legal actions incidental to its business[149] - Management believes the most probable, ultimate resolution of these matters will not have a material adverse effect on the company's condensed consolidated financial position, results of operations, or cash flows[149] ITEM 1A. RISK FACTORS This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of ChampionX's Annual Report on Form 10-K for the year ended December 31, 2024[150] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ChampionX did not repurchase any equity securities during the first quarter of 2025. The Board authorized an increase in the share repurchase program to $1.5 billion on January 31, 2024, with approximately $996.7 million remaining available under the program as of March 31, 2025 - ChampionX did not repurchase any equity securities registered under Section 12 of the Exchange Act during the first quarter of 2025[151] - On January 31, 2024, the Board authorized a further increase in the aggregate value of shares that may be repurchased under the Share Repurchase Program to $1.5 billion[152] - As of March 31, 2025, the approximate dollar value of shares that may yet be purchased under the Share Repurchase Program is $996.7 million[152] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there were no defaults upon senior securities - There were no defaults upon senior securities[153] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to ChampionX Corporation[154] ITEM 5. OTHER INFORMATION This section reports that no directors or officers informed the company of the adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2025 - During the three months ended March 31, 2025, none of the company's directors or officers informed the company of the adoption or termination of a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"[155] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including the Merger Agreement, Equity Purchase Agreement, corporate organizational documents, executive severance plan, and various certifications (CEO, CFO) and XBRL documents - Key exhibits filed include the Agreement and Plan of Merger (dated April 2, 2024), the Equity Purchase Agreement for US Synthetic Corporation (dated February 24, 2025), and certifications from the Chief Executive Officer and Chief Financial Officer[157] SIGNATURES This section contains the official signatures certifying the accuracy and completeness of the report - The report was duly signed on behalf of ChampionX Corporation by Antoine Marcos, Vice President, Corporate Controller and Chief Accounting Officer, on April 30, 2025[161]