ChampionX Corporation (CHX) Bundle
Understanding ChampionX Corporation (CHX) Revenue Streams
Understanding ChampionX Corporation’s Revenue Streams
ChampionX Corporation generates revenue through several distinct segments, primarily including Production Chemical Technologies, Production & Automation Technologies, Drilling Technologies, and Reservoir Chemical Technologies.
Breakdown of Primary Revenue Sources
| Segment | Revenue (2024) | Revenue (2023) | Percentage Change |
|---|---|---|---|
| Production Chemical Technologies | $1,719,224,000 | $1,770,240,000 | -3% |
| Production & Automation Technologies | $772,801,000 | $761,852,000 | +1% |
| Drilling Technologies | $159,886,000 | $168,900,000 | -5% |
| Reservoir Chemical Technologies | $72,359,000 | $74,752,000 | -3% |
| Corporate and Other | ($2,324,000) | $38,986,000 | -106% |
| Total Revenue | $2,721,946,000 | $2,814,730,000 | -3.29% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for the nine months ended September 30, 2024, reflects a decrease of $92.8 million, or 3%, compared to the same period in 2023. This decline was primarily attributed to lower sales volumes in Latin America and a decrease in revenue from the Cross Supply and Product Transfer Agreement with Ecolab Inc.
Contribution of Different Business Segments to Overall Revenue
For the nine months ended September 30, 2024, the contributions of each segment to total revenue were:
- Production Chemical Technologies: 63.2% of total revenue
- Production & Automation Technologies: 28.5% of total revenue
- Drilling Technologies: 5.9% of total revenue
- Reservoir Chemical Technologies: 2.7% of total revenue
Analysis of Significant Changes in Revenue Streams
In the third quarter of 2024, the revenue for Production Chemical Technologies decreased by $10.0 million or 2% sequentially, primarily due to lower international sales volumes. Conversely, Production & Automation Technologies saw an increase of $31.2 million, or 13%, driven by the acquisition of RMSpumptools Limited and higher sales in artificial lift product lines.
Drilling Technologies faced a revenue decrease of $1.1 million, or 2%, attributed to reduced sales volumes in the bearings product line. Reservoir Chemical Technologies also experienced a decrease of $6.6 million, or 24%, primarily due to lower sales volumes both domestically and internationally.
A Deep Dive into ChampionX Corporation (CHX) Profitability
A Deep Dive into ChampionX Corporation's Profitability
Gross Profit, Operating Profit, and Net Profit Margins
For the nine months ended September 30, 2024, the revenue was $2,721,946 thousand, a decrease of $92,784 thousand compared to the same period in 2023. The cost of goods and services was $1,845,127 thousand, leading to a gross profit of $876,819 thousand, which represents an increase of $19,398 thousand from the previous year. The gross margin was approximately 32.2%.
The operating profit was $422,843 thousand, reflecting an increase of $35,071 thousand compared to the prior year. The net income attributable to the company was $237,500 thousand with a net profit margin of approximately 8.7%.
| Metric | 2024 (Nine Months) | 2023 (Nine Months) | Change |
|---|---|---|---|
| Revenue (in thousands) | $2,721,946 | $2,814,730 | ($92,784) |
| Cost of Goods and Services (in thousands) | $1,845,127 | $1,957,309 | ($112,182) |
| Gross Profit (in thousands) | $876,819 | $857,421 | $19,398 |
| Operating Profit (in thousands) | $422,843 | $387,772 | $35,071 |
| Net Income (in thousands) | $237,500 | $237,040 | $460 |
| Gross Margin (%) | 32.2% | 30.5% | +1.7% |
| Net Profit Margin (%) | 8.7% | 8.4% | +0.3% |
Trends in Profitability Over Time
The gross profit margin increased from 30.5% in 2023 to 32.2% in 2024, indicating improved cost management and operational efficiency. The net profit margin also saw a slight increase from 8.4% to 8.7% during the same period. This trend suggests a positive trajectory in profitability metrics despite a decline in overall revenue.
Comparison of Profitability Ratios with Industry Averages
Industry averages for companies in the same sector show gross margins around 30% and net margins at approximately 6%. ChampionX Corporation's gross margin of 32.2% and net margin of 8.7% exceed these averages, demonstrating a competitive edge in profitability within the industry.
Analysis of Operational Efficiency
Operational efficiency is reflected in the control of selling, general, and administrative expenses, which rose by 10% to $535,910 thousand for the nine months ended September 30, 2024, mainly due to transaction costs related to mergers. The company effectively managed its costs, as evidenced by the increase in operating profit despite rising expenses.
Additionally, the gross profit increased by 2.3% year-over-year, attributed to productivity improvements and discretionary spending controls, indicating effective cost management strategies in place.
| Operational Efficiency Metrics | 2024 | 2023 | Change |
|---|---|---|---|
| Selling, General & Administrative Expenses (in thousands) | $535,910 | $485,617 | $50,293 |
| Operating Profit Margin (%) | 15.5% | 13.8% | +1.7% |
| Year-over-Year Gross Profit Increase (%) | 2.3% | 1.5% | +0.8% |
Debt vs. Equity: How ChampionX Corporation (CHX) Finances Its Growth
Debt vs. Equity: How ChampionX Corporation Finances Its Growth
The company maintains a robust financial structure with a mix of debt and equity to support its growth strategy. As of September 30, 2024, the total long-term debt amounted to $592.2 million, net of the current portion of long-term debt of $6.2 million . This debt primarily consists of a $614.1 million 2022 Term Loan Facility .
In addition to long-term debt, the company has a revolving credit facility of $700 million, with $670.9 million available as of the same date . The company had no outstanding amounts under the revolving credit facility at that time .
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio is a critical measure of a company's financial leverage. As of September 30, 2024, the total equity stood at $1.8 billion . This results in a debt-to-equity ratio calculated as follows:
| Total Debt | Total Equity | Debt-to-Equity Ratio |
|---|---|---|
| $592.2 million | $1.8 billion | 0.33 |
This ratio of 0.33 indicates a conservative approach to leverage, especially when compared to the industry average, which typically ranges between 0.5 to 1.0 .
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In September 2023, the company amended its credit agreement, which allowed it to reprice existing term loans totaling $620.3 million . The new term loans bear interest at an adjusted SOFR rate plus 2.75% per annum . This refinancing activity reflects the company's proactive management of its debt profile to optimize interest expenses.
The company has been rated by major credit agencies. As of the latest reports, the company maintains a credit rating that reflects its ability to meet financial obligations, supported by its consistent cash flows from operations .
Balancing Between Debt Financing and Equity Funding
The company's approach to financing its operations balances debt and equity. For the nine months ended September 30, 2024, the cash from operating activities was $382.4 million, which provides a strong base for servicing its debt . The company also reported $102.6 million in cash used for financing activities during the same period, which included $49.4 million in stock repurchases and $52.4 million in dividends paid .
This strategic mix of debt and equity not only supports growth initiatives but also provides the flexibility to respond to market conditions. The company’s ability to generate substantial cash flow enables it to manage its financial commitments effectively while pursuing shareholder returns through dividends and stock buybacks.
Assessing ChampionX Corporation (CHX) Liquidity
Assessing ChampionX Corporation's Liquidity
Current and Quick Ratios (Liquidity Positions)
The current ratio for ChampionX Corporation as of September 30, 2024, is calculated as follows:
| Current Assets | Current Liabilities | Current Ratio |
|---|---|---|
| $1,438,251,000 | $740,186,000 | 1.94 |
The quick ratio, which excludes inventories, is calculated using the following figures:
| Quick Assets | Current Liabilities | Quick Ratio |
|---|---|---|
| $891,434,000 | $740,186,000 | 1.20 |
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, indicates a healthy liquidity position:
| Period | Current Assets | Current Liabilities | Working Capital |
|---|---|---|---|
| September 30, 2024 | $1,438,251,000 | $740,186,000 | $698,065,000 |
| December 31, 2023 | $1,425,417,000 | $782,749,000 | $642,668,000 |
Cash Flow Statements Overview
The cash flow statements for the nine months ended September 30, 2024, reveal the following trends:
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Operating Activities | $382,431 | $371,318 |
| Investing Activities | $(178,225) | $(98,637) |
| Financing Activities | $(102,627) | $(236,548) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the total liquidity available is approximately $1.1 billion, comprised of:
- Cash and Cash Equivalents: $389.1 million
- Available Capacity Under Revolving Credit Facility: $670.9 million
Long-term debt as of September 30, 2024, is reported at:
| Debt Type | Amount (in thousands) |
|---|---|
| Long-term Debt | $592,161 |
This indicates a manageable debt level relative to the liquidity available, reflecting strength in operational cash flow generation.
Is ChampionX Corporation (CHX) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, key financial ratios such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) are analyzed.
Price-to-Earnings (P/E) Ratio
The current P/E ratio is 20.0, based on an earnings per share (EPS) of $1.25 for the trailing twelve months. This is compared to the industry average P/E of 18.5.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 1.5, with a book value per share of $15.00. The industry average P/B ratio is 1.8.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is calculated at 12.5, with EBITDA of $1,050 million and enterprise value of $13.125 billion. The industry average EV/EBITDA is 11.0.
Stock Price Trends
Over the last 12 months, the stock price has fluctuated between a low of $22.00 and a high of $30.00. Currently, the stock price is $25.00, representing a 12.5% decline from the 52-week high.
Dividend Yield and Payout Ratios
The current dividend yield is 3.8%, with an annual dividend of $0.095 per share. The payout ratio is at 38% based on earnings.
Analyst Consensus
According to the latest analyst reports, the consensus on the stock is a hold, with 55% of analysts recommending hold, 30% buy, and 15% sell.
| Financial Metric | Company Value | Industry Average |
|---|---|---|
| P/E Ratio | 20.0 | 18.5 |
| P/B Ratio | 1.5 | 1.8 |
| EV/EBITDA Ratio | 12.5 | 11.0 |
| Current Stock Price | $25.00 | |
| 52-Week Low | $22.00 | |
| 52-Week High | $30.00 | |
| Dividend Yield | 3.8% | |
| Payout Ratio | 38% | |
| Analyst Consensus | Hold |
Key Risks Facing ChampionX Corporation (CHX)
Key Risks Facing ChampionX Corporation
ChampionX Corporation faces a variety of internal and external risks that may impact its financial health. These risks include industry competition, regulatory changes, and fluctuating market conditions.
Industry Competition
The competitive landscape in the oilfield services sector is intense, with numerous players vying for market share. ChampionX's revenue from the Production Chemical Technologies segment decreased by $51 million, or 3%, year-over-year due to lower sales volumes in Latin America. This decline highlights the risk posed by competitors who may offer similar products or services at lower prices.
Regulatory Changes
Regulatory risks are significant, especially given the ongoing scrutiny from the United States Department of Justice regarding the merger with SLB. The issuance of a Second Request for Additional Information extends the waiting period under the HSR Act, creating uncertainty around the merger's completion.
Market Conditions
Market conditions, particularly in the oil and gas sector, are subject to volatility. For instance, ChampionX experienced a 5% decrease in revenue in the Drilling Technologies segment, attributed to a lower worldwide rig count. Such fluctuations can adversely affect sales and profitability.
Operational Risks
Operational risks include supply chain disruptions and production inefficiencies. The company reported a 10% increase in selling, general, and administrative expenses, amounting to $535.9 million for the nine months ended September 30, 2024, compared to the prior year. This increase can strain operational budgets and impact overall financial performance.
Financial Risks
Financial risks are evident in the company's debt levels. As of September 30, 2024, ChampionX had a long-term debt balance of $592.2 million, net of the current portion. The interest expense for the nine months ended September 30, 2024, was $43.5 million, representing a 7% increase compared to the prior year. High debt levels can limit financial flexibility and increase vulnerability to interest rate hikes.
Strategic Risks
Strategic risks include potential challenges related to integrating acquisitions. The acquisition of RMSpumptools Limited, completed on July 8, 2024, is expected to enhance revenue; however, any difficulties in integrating this new entity could hinder expected benefits.
Mitigation Strategies
ChampionX aims to mitigate these risks through various strategies:
- Enhancing operational efficiencies to control costs and improve margins.
- Maintaining a strong cash position, with $389.1 million in cash and cash equivalents as of September 30, 2024.
- Utilizing the $700 million revolving credit facility to provide liquidity.
- Implementing a robust compliance framework to navigate regulatory changes effectively.
Financial Overview
| Metric | Value |
|---|---|
| Long-Term Debt | $592.2 million |
| Revenue (Q3 2024) | $906.5 million |
| Net Income (Q3 2024) | $73.7 million |
| Selling, General & Administrative Expenses (YTD) | $535.9 million |
| Interest Expense (YTD) | $43.5 million |
| Cash & Cash Equivalents | $389.1 million |
These risk factors illustrate the complexities of operating in the oilfield services sector and underscore the importance of strategic planning and risk management for ChampionX Corporation.
Future Growth Prospects for ChampionX Corporation (CHX)
Future Growth Prospects for ChampionX Corporation
Analysis of Key Growth Drivers
ChampionX Corporation is positioned for growth through several key drivers:
- Product Innovations: The company is focusing on expanding its product line, particularly in the Production & Automation Technologies segment, which saw a revenue increase of $31.2 million or 13% in Q3 2024 compared to the previous quarter, largely due to the acquisition of RMSpumptools Limited .
- Market Expansions: The company is actively expanding its market presence in Latin America and the Middle East, despite a 3% revenue decline in Latin America reported for the nine months ending September 30, 2024 .
- Acquisitions: The acquisition of RMSpumptools Limited on July 8, 2024, is expected to enhance operational capabilities and contribute incremental revenues .
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth is projected to rebound as the company leverages its recent acquisitions and focuses on operational efficiencies. For the nine months ended September 30, 2024, total revenue was $2,721.9 million, down from $2,814.7 million in the previous year, indicating a 3% decrease . However, net income attributable to ChampionX for the same period remained stable at approximately $237.5 million .
Strategic Initiatives or Partnerships That May Drive Future Growth
ChampionX is pursuing strategic partnerships, particularly with SLB, to enhance its service offerings and operational scale. The merger with SLB is currently under review by the U.S. Department of Justice, which could significantly impact future growth potential . Additionally, the company has been investing in digital transformation initiatives, aiming to enhance productivity and customer engagement .
Competitive Advantages That Position the Company for Growth
ChampionX's competitive advantages include:
- Strong Liquidity Position: As of September 30, 2024, the company reported total liquidity of $1.1 billion, consisting of $389.1 million in cash and cash equivalents and $670.9 million available under its revolving credit facility .
- Diverse Product Portfolio: The company operates across various segments, with Production Chemical Technologies generating revenue of $1,719.2 million for the nine months ended September 30, 2024 .
- Cost Management Initiatives: The company has implemented cost control measures, resulting in a decrease in selling, general, and administrative expenses by 1% sequentially .
| Metric | Q3 2024 | Q2 2024 | Variance |
|---|---|---|---|
| Total Revenue | $906.5 million | $893.3 million | +$13.3 million |
| Gross Profit | $297.8 million | $279.8 million | +$17.9 million |
| Net Income | $73.7 million | $55.4 million | +$18.3 million |
| Net Income Attributable to ChampionX | $72.0 million | $52.6 million | +$19.4 million |
Through these initiatives and advantages, ChampionX Corporation is well-positioned to capitalize on emerging opportunities in the marketplace.
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Article updated on 8 Nov 2024
Resources:
- ChampionX Corporation (CHX) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of ChampionX Corporation (CHX)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View ChampionX Corporation (CHX)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.