EX-99.1 2 exhibit991-q32019earningsr.htm NEWS RELEASE ISSUED BY APERGY CORPORATION DATED OCTOBER 23, 2019 Exhibit


Exhibit 99.1

apergylogopressreleasea01.gif

Apergy Reports Third Quarter 2019 Results

Revenue of $278 million in Q3-19, down 9% sequentially
Net income of $14 million and adjusted net income of $21 million in Q3-19
Diluted EPS of $0.18 and adjusted diluted EPS of $0.27 in Q3-19
Adjusted EBITDA of $67 million in Q3-19, down 11% sequentially; adjusted EBITDA margin of 24%
Cash from operating activities of $64 million, free cash flow of $55 million, and free cash flow conversion ratio of 83% in Q3-19
Repaid $25 million of term loan debt in Q3-19, bringing total repaid to $120 million since May 2018


THE WOODLANDS, TX, October 23, 2019 - Apergy Corporation (“Apergy”) (NYSE: APY) today reported net income of $13.6 million in the third quarter of 2019, compared to net income of $25.3 million in the third quarter of 2018. Adjusted net income was $20.9 million in the third quarter of 2019, compared to adjusted net income of $28.6 million in the third quarter of 2018.

Diluted earnings per share was $0.18 in the third quarter of 2019. Adjusted diluted earnings per share, excluding restructuring, environmental, and spin-off activities, was $0.27 in the third quarter of 2019.

Revenue was $278.4 million in the third quarter of 2019, a decrease of $38.1 million, or 12%, compared to $316.5 million in the third quarter of 2018, and a decrease of $27.7 million, or 9%, compared to $306.1 million in the second quarter of 2019.

Adjusted EBITDA was $66.5 million in the third quarter of 2019, a decrease of $11.8 million, or 15%, compared to $78.4 million in the third quarter of 2018, and a decrease of $8.0 million, or 11%, compared to $74.6 million in the second quarter of 2019. Adjusted EBITDA margin was 23.9% in the third quarter of 2019.

Cash from operating activities was $64.1 million in the third quarter of 2019, compared to $34.3 million in the third quarter of 2018, and $39.4 million in the second quarter of 2019. The free cash flow conversion ratio from adjusted EBITDA was 83% in the third quarter of 2019, compared to 26% in the third quarter of 2018, and 35% in the second quarter of 2019. In the third quarter of 2019, Apergy used available cash to fund a technology acquisition and repay $25 million of term loan debt. Since the completion of the spin-off on May 9, 2018, Apergy has repaid $120 million of term loan debt.

1




 
 
Three Months Ended
 
Variance
(dollars in thousands, except per share amounts)
 
Sep. 30,
2019
 
June 30,
2019
 
Sep. 30,
2018
 
Sequential
 
Year-over-year
Revenue
 
$
278,381

 
$
306,054

 
$
316,468

 
(9)%
 
(12)%
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Apergy
 
$
13,646

 
$
23,779

 
$
25,264

 
(43)%
 
(46)%
Diluted earnings per share attributable to Apergy
 
$
0.18

 
$
0.31

 
$
0.33

 
(42)%
 
(45)%
 
 
 
 
 
 
 
 
 
 
 
Adjusted net income attributable to Apergy
 
$
20,872

 
$
26,800

 
$
28,592

 
(22)%
 
(27)%
Adjusted diluted earnings per share attributable to Apergy
 
$
0.27

 
$
0.35

 
$
0.37

 
(23)%
 
(27)%
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
66,538

 
$
74,553

 
$
78,385

 
(11)%
 
(15)%
Adjusted EBITDA margin
 
23.9
%
 
24.4
%
 
24.8
%
 
(50) bps
 
(90) bps
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
 
$
64,089

 
$
39,391

 
$
34,318

 
$24,698
 
$29,771
Capital expenditures
 
$
8,901

 
$
12,970

 
$
13,945

 
$(4,069)
 
$(5,044)


“As the quarter progressed, U.S. onshore activity deteriorated more than anticipated, resulting in lower than expected operational results in the third quarter,” said Sivasankaran “Soma” Somasundaram, President and Chief Executive Officer. “While both of our segments were impacted by slowing U.S. activity, Drilling Technologies experienced a steeper than expected decline driven by the sharp decrease in the U.S. rig count, as well as the related destocking of polycrystalline diamond cutter inventories by our customers. The aggressive destocking by our drill bit customers had an estimated impact of $12 million on Drilling Technologies third quarter revenue. International markets continue to remain positive and our revenues outside of North America were up 13% in the quarter compared to the year ago period. Although total company revenue declined, our proactive cost management actions and continuous productivity initiatives enabled us to post a strong adjusted EBITDA margin performance of 24% in the quarter reflecting our margin resiliency.

“In addition, during the third quarter we generated robust free cash flow of $55 million representing a free cash flow conversion ratio of 83%, which highlights one of the many strengths of our portfolio. Consistent with our capital allocation priorities, we also funded a strategic technology acquisition and repaid $25 million of term loan debt. Since our spin-off we have repaid $120 million of debt, and we remain committed to further deleveraging our balance sheet.

“For the fourth quarter of 2019, we expect continued weakness in U.S. onshore activity driven by traditionally lower seasonal activity, as well as our E&P customers’ budget exhaustion and capital discipline, which we expect will result in a sequential decrease in revenue and adjusted EBITDA for Apergy. We expect the U.S. rig count to further decline in the fourth quarter extending the destocking by our drill bit customers as they continue to adjust to lower drilling activity and adhere to capital discipline. In addition to the softening drilling activity, built into our fourth quarter outlook is an incremental sequential revenue impact of $5 million from destocking by our drill bit customers. We view the destocking as a temporary phenomenon during periods of meaningful decline in the rig count. Given the short cycle nature of our portfolio and continued destocking in the fourth quarter, visibility continues to remain challenging; therefore, we will provide an update to our fourth quarter outlook in early December.


2



“For the remainder of the year, we intend to build on our solid cash generation capabilities, and we are increasing our expected a free cash flow conversion ratio to 45% to 50% for full year 2019. We do expect business activity levels to sequentially improve from current levels as we enter 2020, driven by new budgets and restocking by our drill bit customers as they prepare for the increased activity levels.

“We continue to remain focused on the factors under our control, including our productivity and share gain initiatives, as well as aligning our cost structure to meet the current market needs. To this end, so far we have taken actions to reduce our cost structure resulting in an annualized benefit of approximately $20 million, and we will continue to evaluate and execute further actions moving forward. We feel confident that we will continue to deliver “top box” performance driven by our margin resiliency and free cash flow generation.”

 
 
Three Months Ended
 
Variance
(dollars in thousands)
 
Sep. 30,
2019
 
June 30,
2019
 
Sep. 30,
2018
 
Sequential
 
Year-over-year
Production & Automation Technologies
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
223,503

 
$
235,703

 
$
241,214

 
(5)%
 
(7)%
Operating profit
 
$
21,819

 
$
20,919

 
$
24,175

 
4%
 
(10)%
Operating profit margin
 
9.8
%
 
8.9
%
 
10.0
%
 
90 bps
 
(20) bps
Adjusted segment EBITDA
 
$
53,353

 
$
51,743

 
$
51,441

 
3%
 
4%
Adjusted segment EBITDA margin
 
23.9
%
 
22.0
%
 
21.3
%
 
190 bps
 
260 bps
 
 
 
 
 
 
 
 
 
 
 
Drilling Technologies
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
54,878

 
$
70,351

 
$
75,254

 
(22)%
 
(27)%
Operating profit
 
$
13,796

 
$
24,251

 
$
26,209

 
(43)%
 
(47)%
Operating profit margin
 
25.1
%
 
34.5
%
 
34.8
%
 
(940) bps
 
(970) bps
Adjusted segment EBITDA
 
$
16,566

 
$
26,577

 
$
28,926

 
(38)%
 
(43)%
Adjusted segment EBITDA margin
 
30.2
%
 
37.8
%
 
38.4
%
 
(760) bps
 
(820) bps


Production & Automation Technologies

In the third quarter of 2019, Production & Automation Technologies revenue decreased $12.2 million, or 5%, sequentially, driven by lower customer spending for both artificial lift products and other production equipment. Segment operating profit increased $0.9 million, or 4%, and adjusted segment EBITDA increased $1.6 million, or 3%, sequentially, due to strong cost reduction actions and higher than expected productivity in the quarter.

On a year-over-year basis, Production & Automation Technologies revenue decreased $17.7 million, or 7%, due to lower artificial lift revenue in North America, partially offset by higher international and digital revenue. Segment operating profit decreased $2.4 million, or 10%, and adjusted segment EBITDA increased $1.9 million, or 4%, due to strong cost discipline and higher than expected productivity in the quarter.

Revenue from digital products was $34.5 million in the third quarter of 2019, an increase of $0.2 million, compared to $34.3 million in the second quarter of 2019, and an increase of $3.2 million, or 10%, compared to $31.2 million in the third quarter of 2018.



3



Drilling Technologies

In the third quarter of 2019, Drilling Technologies revenue decreased by $15.5 million, or 22%, sequentially, driven by the decline in U.S. drilling activity and customer destocking of polycrystalline diamond cutter inventories, as well as the push-out of diamond bearings orders due to capital discipline by our oilfield services customers. Sequentially, the average worldwide and U.S. rig counts declined 1% and 7%, respectively. Segment operating profit decreased $10.5 million and adjusted segment EBITDA decreased by $10.0 million, or 38%, due to the lower volumes.

On a year-over-year basis, Drilling Technologies revenue decreased $20.4 million, or 27%, due to lower U.S. drilling activity and customer destocking of polycrystalline diamond cutter inventories, as well as the push-out of diamond bearings orders due to capital discipline by our oilfield services customers. Year-over-year, the average worldwide and U.S. rig counts declined 7% and 12%, respectively. Year-over-year, segment operating profit decreased $12.4 million, or 47%, and adjusted segment EBITDA decreased by $12.4 million, or 43%, as a result of the lower volume.

Q4-19 Guidance

Apergy is providing guidance for Q4-19 as follows:

 
 
Three Months Ended
December 31, 2019
Consolidated revenue
 
$255 to $270 million
Adjusted EBITDA
 
$53 to $63 million
Depreciation & amortization expense
 
~$30 million
Interest expense
 
~$9 million
Effective tax rate
 
22% to 24%


For full year 2019, we expect our capital expenditures to be:
Infrastructure related capital expenditures equal to 2.5% of revenue; plus
Capital expenditure portion for leased ESP investment between $10 and $15 million

For full year 2019, we expect investment in leased assets in the net cash from operating activities section of our consolidated statement of cash flows to be between $40 and $45 million.


Other Business Updates

Generated our first revenue from ESP installations in the U.S. with one of the major International Oil Companies (IOCs). Expect additional installations with this customer in the fourth quarter of 2019.
Made a strategic investment in Apex Metalúrgica, an Argentinian-based start-up manufacturer of sucker rods, to advance Apergy’s growth in South America.
Closed on a strategic acquisition of a digital technology which strengthens our artificial lift portfolio.
Norriseal-Wellmark introduced an integrated chemical injection package which combines a pump, controller, and tank onto a single skid which supports enhanced customer productivity.
Twenty-two patents were issued to Drilling Technologies in the third quarter of 2019.



4



Conference Call Details

Apergy Corporation will host a conference call on Thursday, October 24, 2019, to discuss its third quarter 2019 financial results. The call will begin at 10:00 a.m. Eastern Time. Presentation materials that supplement the conference call are available on Apergy’s website at www.investors.apergy.com.

To listen to the call via a live webcast, please visit Apergy’s website at www.apergy.com. The call will also be available by dialing 1-888-424-8151 in the United States and Canada or 1-847-585-4422 for international calls. Please call approximately 15 minutes prior to the scheduled start time and reference Apergy conference call number 6597 102.

A replay of the conference call will be available on Apergy’s website. Also, a replay may be accessed by dialing 1-888-843-7419 in the United States and Canada, or 1-630-652-3042 for international calls. The access code is 6597 102#.


###


Basis of Presentation

For periods prior to May 9, 2018 (the “Separation”), our results of operations, financial position and cash flows are derived from the consolidated financial statements and accounting records of Dover Corporation (“Dover”) and reflect the combined historical results of operations, financial position and cash flows of certain Dover entities conducting its upstream oil and gas energy business within Dover’s Energy segment, including an allocated portion of Dover’s corporate costs. Our financial statements have been presented as if such businesses had been combined for all periods prior to the Separation. These pre-Separation combined financial statements may not include all of the actual expenses that would have been incurred had we been a stand-alone public company during the periods presented prior to the Separation, and consequently may not reflect our results of operations, financial position and cash flows had we been a stand-alone public company during the periods presented prior to the Separation. All financial information presented after the Separation represents the consolidated results of operations, financial position and cash flows of Apergy.

About Non-GAAP Measures

This news release presents information about Apergy’s adjusted EBITDA, adjusted EBITDA margin, adjusted segment EBITDA, adjusted segment EBITDA margin, adjusted net income attributable to Apergy, adjusted diluted earnings per share attributable to Apergy, free cash flow, and free cash flow conversion ratio which are non-GAAP financial measures made available as a supplement, and not an alternative, to the results provided in accordance with generally accepted accounting principles in the United States of America (“GAAP”). See Reconciliations of GAAP to Non-GAAP Financial Measures included in the accompanying financial tables for the reconciliation of each non-GAAP financial measure to its most directly comparable financial measure in accordance with GAAP.

Adjusted EBITDA and adjusted segment EBITDA are defined as, or as a result of, net income excluding income taxes, interest income and expense, depreciation and amortization expense, separation and supplemental benefit costs associated with the spinoff from Dover Corporation, royalty expense incurred only prior to the spinoff, environmental costs, and restructuring and other related charges. Adjusted EBITDA margin and adjusted segment EBITDA margin are defined as adjusted EBITDA and adjusted segment EBITDA, respectively, divided by revenue.

Adjusted net income attributable to Apergy and adjusted diluted earnings per share attributable to Apergy are defined as net income attributable to Apergy and earnings per share attributable to Apergy, respectively, excluding separation and supplemental benefit costs associated with the spinoff from Dover Corporation, royalty expense incurred only prior to the spinoff, environmental costs, and restructuring and other related charges.

Adjusted working capital is defined as accounts receivable, plus inventory, less accounts payable. We believe adjusted working capital provides a meaningful measure of our operational results by showing changes caused by revenue or our operational initiatives.


5



Free cash flow is defined as cash provided by operating activities minus capital expenditures. Free cash flow conversion ratio is defined as free cash flow divided by adjusted EBITDA.

References to net income, diluted earnings per share, adjusted net income and adjusted diluted earnings per share are exclusive of our non-controlling interest.

This news release also contains certain forward-looking non-GAAP financial measures, including adjusted EBITDA and free cash flow conversion ratio. Due to the forward-looking nature of the aforementioned non-GAAP financial measures, management cannot reliably or reasonably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures, such as net income and cash from operating activities. Accordingly, we are unable to present a quantitative reconciliation of such forward looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures. Amounts excluded from these non-GAAP measures in future periods could be significant. Management believes the aforementioned non-GAAP financial measures are good tools for internal use and the investment community in evaluating Apergy’s overall financial performance.

These non-GAAP financial measures are included to help facilitate comparisons of Apergy’s operating performance across periods by excluding items that do not reflect the core operating results of our businesses. As such, Apergy’s management believes making available non-GAAP financial measures as a supplemental measurement to investors is useful because it allows investors to evaluate Apergy's performance using the same methodology and information used by Apergy management.

About Apergy

Apergy is a leading provider of highly engineered equipment and technologies that help companies drill for and produce oil and gas safely and efficiently around the world. Apergy's products provide efficient functioning throughout the lifecycle of a well - from drilling to completion to production. Apergy’s Production & Automation Technologies offerings consist of artificial lift equipment and solutions, including rod pumping systems, electric submersible pump systems, progressive cavity pumps and drive systems and plunger lifts, as well as a full automation and digital offering consisting of equipment and software for Industrial Internet of Things (“IIoT”) solutions for downhole monitoring, wellsite productivity enhancement, and asset integrity management. Apergy’s Drilling Technologies offering provides market leading polycrystalline diamond cutters and bearings that result in cost effective and efficient drilling. To learn more about Apergy, visit our website at http://www.apergy.com.

Forward-Looking Statements

This news release contains statements relating to future actions and results, which are "forward-looking statements" within the meaning of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, Apergy's market position and growth opportunities.  Forward-looking statements include, but are not limited to, statements related to Apergy’s expectations regarding the performance of the business, financial results, liquidity and capital resources of Apergy, the effects of competition, and the effects of future legislation or regulations and other non-historical statements. Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from current expectations, including, but not limited to, tax and regulatory matters; and changes in economic, competitive, strategic, technological, regulatory or other factors that affect the operation of Apergy's businesses. You are encouraged to refer to the documents that Apergy files from time to time with the Securities and Exchange Commission (the “SEC”), including the “Risk Factors” in Apergy’s Annual Report on Form 10-K for the year ended December 31, 2018, and in Apergy’s other filings with the SEC, for a discussion of these and other risks and uncertainties. Readers are cautioned not to place undue reliance on Apergy’s forward-looking statements. Forward-looking statements speak only as of the day they are made and Apergy undertakes no obligation to update any forward-looking statement, except as required by applicable law.

Investor Contact: David Skipper
david.skipper@apergy.com
713-230-8031

Media Contact: John Breed
john.breed@apergy.com
281-403-5751

6



APERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

 
Three Months Ended
 
Nine Months Ended
 
Sept. 30,
 
June 30,
 
Sept. 30,
 
September 30,
(in thousands, except per share amounts)
2019
 
2019
 
2018
 
2019
 
2018
Revenue
$
278,381

 
$
306,054

 
$
316,468

 
$
886,126

 
$
905,444

Cost of goods and services
182,373

 
196,285

 
202,734

 
574,800

 
594,416

Gross profit
96,008

 
109,769

 
113,734

 
311,326

 
311,028

Selling, general and administrative expense
68,813

 
66,642

 
69,206

 
200,790

 
194,374

Interest expense, net
9,537

 
10,057

 
10,584

 
30,068

 
16,813

Other (income) expense, net
(310
)
 
2,676

 
725

 
3,468

 
3,917

Income before income taxes
17,968

 
30,394

 
33,219

 
77,000

 
95,924

Provision for income taxes
4,128

 
6,544

 
7,723

 
16,741

 
24,159

Net income
13,840

 
23,850

 
25,496

 
60,259

 
71,765

Net income attributable to noncontrolling interest
194

 
71

 
232

 
547

 
295

Net income attributable to Apergy
$
13,646

 
$
23,779

 
$
25,264

 
$
59,712

 
$
71,470

 
 
 
 
 
 
 
 
 
 
Earnings per share attributable to Apergy:
 
 
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.31

 
$
0.33

 
$
0.77

 
$
0.92

Diluted
$
0.18

 
$
0.31

 
$
0.33

 
$
0.77

 
$
0.92

 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
77,460

 
77,425

 
77,340

 
77,416

 
77,340

Diluted
77,573

 
77,632

 
77,569

 
77,615

 
77,742


7



APERGY CORPORATION
BUSINESS SEGMENT DATA
(UNAUDITED)

 
Three Months Ended
 
Nine Months Ended
 
Sept. 30,
 
June 30,
 
Sept. 30,
 
September 30,
(in thousands)
2019
 
2019
 
2018
 
2019
 
2018
Segment revenue:
 
 
 
 
 
 
 
 
 
Production & Automation Technologies
$
223,503

 
$
235,703

 
$
241,214

 
$
683,362

 
$
695,717

Drilling Technologies
54,878

 
70,351

 
75,254

 
202,764

 
209,727

Total revenue
$
278,381

 
$
306,054

 
$
316,468

 
$
886,126

 
$
905,444

 
 
 
 
 
 
 
 
 
 
Income before income taxes:
 
 
 
 

 
 
 
 
Segment operating profit:
 

 
 
 
 

 
 
 
 
Production & Automation Technologies
$
21,819

 
$
20,919

 
$
24,175

 
$
58,901

 
$
57,272

Drilling Technologies
13,796

 
24,251

 
26,209

 
64,853

 
71,738

Total segment operating profit
35,615

 
45,170

 
50,384

 
123,754

 
129,010

Corporate expense and other (1)
8,110

 
4,719

 
6,581

 
16,686

 
16,273

Interest expense, net
9,537

 
10,057

 
10,584

 
30,068

 
16,813

Income before income taxes
$
17,968

 
$
30,394

 
$
33,219

 
$
77,000

 
$
95,924

 
 
 
 
 
 
 
 
 
 
Bookings:
 
 
 
 
 
 
 
 
 
Production & Automation Technologies
$
228,632

 
$
227,405

 
$
241,729

 
$
675,502

 
$
708,124

Book-to-bill ratio (2)
1.02

 
0.96

 
1.00

 
0.99

 
1.02

Drilling Technologies
$
49,337

 
$
64,401

 
$
75,834

 
$
192,324

 
$
215,468

Book-to-bill ratio (2)
0.90

 
0.92

 
1.01

 
0.95

 
1.03

_______________________
(1)
Corporate expense and other includes costs not directly attributable to our reporting segments such as corporate executive management and other administrative functions, costs related to our separation from Dover Corporation and the results attributable to our noncontrolling interest.
(2)
The book-to-bill ratio compares the dollar value of orders received (bookings) relative to revenue realized during the period.

8



APERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(in thousands)
September 30, 2019
 
December 31, 2018
Assets
 
 
 
Cash and cash equivalents
$
40,627

 
$
41,832

Receivables, net
236,381

 
249,948

Inventories, net
222,246

 
218,319

Prepaid expenses and other current assets
33,878

 
20,211

Total current assets
533,132

 
530,310

 
 
 
 
Property, plant and equipment, net
251,242

 
244,328

Goodwill
910,693

 
904,985

Intangible assets, net
251,411

 
283,688

Other non-current assets
29,627

 
8,445

Total assets
1,976,105

 
1,971,756

 
 
 
 
Liabilities
 
 
 
Accounts payable
114,185

 
131,058

Other current liabilities
92,268

 
70,937

Total current liabilities
206,453

 
201,995

 
 
 
 
Long-term debt
588,580

 
666,108

Other long-term liabilities
135,845

 
122,126

Equity
 
 
 
Apergy Corporation stockholders’ equity
1,042,222

 
979,069

Noncontrolling interest
3,005

 
2,458

Total liabilities and equity
$
1,976,105

 
$
1,971,756


9



APERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 
Nine Months Ended
September 30,
(in thousands)
2019
 
2018
Cash provided (required) by operating activities:
 
 
 
Net income
$
60,259

 
$
71,765

Depreciation
51,116

 
52,814

Amortization
38,504

 
38,863

Receivables
12,218

 
(79,533
)
Inventories
8,823

 
(21,149
)
Accounts payable
(15,532
)
 
27,776

Leased assets
(36,502
)
 
(33,331
)
Other
4,504

 
35,826

Net cash provided by operating activities
123,390

 
93,031

 
 
 
 
Cash provided (required) by investing activities:
 

 
 

Capital expenditures
(31,589
)
 
(42,883
)
Acquisition
(12,500
)
 

Proceeds from sale of fixed assets
2,954

 
970

Payment on sale of business
(2,194
)
 

Purchase price adjustments on acquisition

 
53

Net cash required by investing activities
(43,329
)
 
(41,860
)
 
 
 
 
Cash provided (required) by financing activities:
 

 
 

Issuances of debt, net of discounts
36,500

 
713,963

Payment of debt issue costs

 
(16,006
)
Repayment of long-term debt
(111,500
)
 
(20,000
)
Distributions to Dover Corporation, net

 
(728,857
)
Other
(5,949
)
 
(5,894
)
Net cash required by financing activities
(80,949
)
 
(56,794
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(317
)
 
(75
)
 
 
 
 
Net decrease in cash and cash equivalents
(1,205
)
 
(5,698
)
Cash and cash equivalents at beginning of period
41,832

 
23,712

Cash and cash equivalents at end of period
$
40,627

 
$
18,014


10



APERGY CORPORATION
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
(UNAUDITED)


 
Three Months Ended
 
Nine Months Ended
 
Sept. 30,
 
June 30,
 
Sept. 30,
 
September 30,
(in thousands)
2019
 
2019
 
2018
 
2019
 
2018
Net income attributable to Apergy
$
13,646

 
$
23,779

 
$
25,264

 
$
59,712

 
$
71,470

Pre-tax adjustments:
 
 
 
 
 
 
 
 
 
Separation and supplemental benefit costs (1)
4,439

 
827

 
4,403

 
6,046

 
9,540

Royalty expense (2)

 

 

 

 
2,277

Restructuring and other related charges (3)
2,720

 
3,135

 
(39
)
 
8,497

 
2,473

Environmental costs
1,988

 

 

 
1,988

 

Acquisition transaction costs (4)
330

 

 

 
330

 

Tax impact of adjustments (5)
(2,251
)
 
(941
)
 
(1,036
)
 
(4,005
)
 
(1,650
)
Adjusted net income attributable to Apergy
20,872

 
26,800

 
28,592

 
72,568

 
84,110

Tax impact of adjustments (5)
2,251

 
941

 
1,036

 
4,005

 
1,650

Net income attributable to noncontrolling interest
194

 
71

 
232

 
547

 
295

Depreciation and amortization
29,556

 
30,140

 
30,218

 
89,620

 
91,677

Provision for income taxes
4,128

 
6,544

 
7,723

 
16,741

 
24,159

Interest expense, net
9,537

 
10,057

 
10,584

 
30,068

 
16,813

Adjusted EBITDA
$
66,538

 
$
74,553

 
$
78,385

 
$
213,549

 
$
218,704

 
 
 
 
 
 
 
 
 
 
Diluted earnings per share attributable to Apergy:
 
 
 
 
 
 
 
 
 
Reported
$
0.18

 
$
0.31

 
$
0.33

 
$
0.77

 
$
0.92

Adjusted
$
0.27

 
$
0.35

 
$
0.37

 
$
0.93

 
$
1.08

_______________________
(1)
Separation and supplemental benefit costs primarily relate to separation costs, and to a lesser extent, supplemental benefits costs related to enhanced or supplemental benefits provided to employees no longer participating in Dover Corporation benefit and compensation plans. Supplemental benefit costs are expected to be incurred through the end of 2020. Includes $3.4 million of tax indemnification expense during the three and nine months ended September 30, 2019 pursuant to the provisions of the tax matters agreement with Dover Corporation.
(2)
Patents and other intangible assets related to our business were conveyed by Dover Corporation to Apergy on April 1, 2018. No royalty charges were incurred after March 31, 2018.
(3)
Includes a $2.5 million loss during the three and nine months ended June 30, 2019 and September 30, 2019, respectively, related to the disposal of our pressure vessel manufacturing business in our Production & Automation Technologies segment. Includes a $1.7 million impairment during the nine months ended September 30, 2019 related to our pressure vessel manufacturing business.
(4)
Acquisition transaction costs include compensation for post business combination services which are expected to be incurred through the end of January 2021.
(5)
We generally tax effect adjustments using a combined federal and state statutory income tax rate of approximately 24 percent. Includes tax expense of $1.7 million during the nine months ended September 30, 2018, associated with capital gains related to certain reorganizations of our subsidiaries as part of the Separation from Dover Corporation.


11



 
Three months ended
 
September 30, 2019
(in thousands, except percentages)
Production &
Automation
Technologies
 
Drilling Technologies
 
Corporate expense and other
 
Total
Revenue
$
223,503

 
$
54,878

 
$

 
$
278,381

 
 
 
 
 
 
 
 
Operating profit (loss) / income before income taxes, as reported
$
21,819

 
$
13,796

 
$
(17,647
)
 
$
17,968

Depreciation and amortization
27,185

 
2,244

 
127

 
29,556

Separation and supplemental benefit costs (1)

 

 
4,439

 
4,439

Restructuring and other related charges
2,194

 
526

 

 
2,720

Environmental costs
1,988

 

 

 
1,988

Acquisition transaction costs (2)
167

 

 
163

 
330

Interest expense, net

 

 
9,537

 
9,537

Adjusted EBITDA
$
53,353

 
$
16,566

 
$
(3,381
)
 
$
66,538

 
 
 
 
 
 
 
 
Operating profit margin, as reported
9.8
%
 
25.1
%
 
 
 
6.5
%
Adjusted EBITDA margin
23.9
%
 
30.2
%
 
 
 
23.9
%
_______________________
(1)
Separation and supplemental benefit costs primarily relate to separation costs, and to a lesser extent, supplemental benefits costs related to enhanced or supplemental benefits provided to employees no longer participating in Dover Corporation benefit and compensation plans. Supplemental benefit costs are expected to be incurred through the end of 2020. Includes $3.4 million of tax indemnification expense pursuant to the provisions of the tax matters agreement with Dover Corporation.
(2)
Acquisition transaction costs include compensation for post business combination services which are expected to be incurred through the end of January 2021.



 
Three months ended
 
June 30, 2019
(in thousands, except percentages)
Production &
Automation
Technologies
 
Drilling Technologies
 
Corporate expense and other
 
Total
Revenue
$
235,703

 
$
70,351

 
$

 
$
306,054

 
 
 
 
 
 
 
 
Operating profit (loss) / income before income taxes, as reported
$
20,919

 
$
24,251

 
$
(14,776
)
 
$
30,394

Depreciation and amortization
27,689

 
2,326

 
125

 
30,140

Separation and supplemental benefit costs (1)

 

 
827

 
827

Restructuring and other related charges (2)
3,135

 

 

 
3,135

Interest expense, net

 

 
10,057

 
10,057

Adjusted EBITDA
$
51,743

 
$
26,577

 
$
(3,767
)
 
$
74,553

 
 
 
 
 
 
 
 
Operating profit margin, as reported
8.9
%
 
34.5
%
 
 
 
9.9
%
Adjusted EBITDA margin
22.0
%
 
37.8
%
 
 
 
24.4
%
_______________________
(1)
Separation and supplemental benefit costs primarily relate to separation costs, and to a lesser extent, supplemental benefits costs related to enhanced or supplemental benefits provided to employees no longer participating in Dover Corporation benefit and compensation plans. Supplemental benefit costs are expected to be incurred through the end of 2020.
(2)
Includes a $2.5 million loss on disposal of our pressure vessel manufacturing business.

12




 
Three months ended
 
September 30, 2018
(in thousands, except percentages)
Production &
Automation
Technologies
 
Drilling Technologies
 
Corporate expense and other
 
Total
Revenue
$
241,214

 
$
75,254

 
$

 
$
316,468

 
 
 
 
 
 
 
 
Operating profit (loss) / income before income taxes, as reported
$
24,175

 
$
26,209

 
$
(17,165
)
 
$
33,219

Depreciation and amortization
27,305

 
2,717

 
196

 
30,218

Separation and supplemental benefit costs (1)

 

 
4,403

 
4,403

Restructuring and other related charges
(39
)
 

 

 
(39
)
Interest expense, net

 

 
10,584

 
10,584

Adjusted EBITDA
$
51,441

 
$
28,926

 
$
(1,982
)
 
$
78,385

 
 
 
 
 
 
 
 
Operating profit margin, as reported
10.0
%
 
34.8
%
 
 
 
10.5
%
Adjusted EBITDA margin
21.3
%
 
38.4
%
 
 
 
24.8
%
_______________________
(1)
Separation and supplemental benefit costs primarily relate to separation costs, and to a lesser extent, supplemental benefits costs related to enhanced or supplemental benefits provided to employees no longer participating in Dover Corporation benefit and compensation plans. Supplemental benefit costs are expected to be incurred through the end of 2020.

13




 
Nine Months Ended
 
September 30, 2019
(in thousands, except percentages)
Production &
Automation
Technologies
 
Drilling Technologies
 
Corporate expense and other
 
Total
Revenue
$
683,362

 
$
202,764

 
$

 
$
886,126

 
 
 
 
 
 
 
 
Operating profit (loss) / income before income taxes, as reported
$
58,901

 
$
64,853

 
$
(46,754
)
 
$
77,000

Depreciation and amortization
82,167

 
7,079

 
374

 
89,620

Separation and supplemental benefit costs (1)

 

 
6,046

 
6,046

Restructuring and other related charges (2)
7,971

 
526

 

 
8,497

Environmental costs
1,988

 

 

 
1,988

Acquisition transaction costs (3)
167

 

 
163

 
330

Interest expense, net

 

 
30,068

 
30,068

Adjusted EBITDA
$
151,194

 
$
72,458

 
$
(10,103
)
 
$
213,549

 
 
 
 
 
 
 
 
Operating profit margin, as reported
8.6
%
 
32.0
%
 
 
 
8.7
%
Adjusted EBITDA margin
22.1
%
 
35.7
%
 
 
 
24.1
%
_______________________
(1)
Separation and supplemental benefit costs primarily relate to separation costs, and to a lesser extent, supplemental benefits costs related to enhanced or supplemental benefits provided to employees no longer participating in Dover Corporation benefit and compensation plans. Supplemental benefit costs are expected to be incurred through the end of 2020. Includes $3.4 million of tax indemnification expense pursuant to the provisions of the tax matters agreement with Dover Corporation.
(2)
Includes a $2.5 million loss on disposal and $1.7 million impairment of our pressure vessel manufacturing business.
(3)
Acquisition transaction costs include compensation for post business combination services which are expected to be incurred through the end of January 2021.



 
Nine Months Ended
 
September 30, 2018
(in thousands, except percentages)
Production &
Automation
Technologies
 
Drilling Technologies
 
Corporate expense and other
 
Total
Revenue
$
695,717

 
$
209,727

 
$

 
$
905,444

 
 
 
 
 
 
 
 
Operating profit (loss) / income before income taxes, as reported
$
57,272

 
$
71,738

 
$
(33,086
)
 
$
95,924

Depreciation and amortization
83,006

 
8,379

 
292

 
91,677

Separation and supplemental benefit costs (1)

 

 
9,540

 
9,540

Royalty expense (2)
2,277

 

 

 
2,277

Restructuring and other related charges
2,473

 

 

 
2,473

Interest expense, net

 

 
16,813

 
16,813

Adjusted EBITDA
$
145,028

 
$
80,117

 
$
(6,441
)
 
$
218,704

 
 
 
 
 
 
 
 
Operating profit margin, as reported
8.2
%
 
34.2
%
 
 
 
10.6
%
Adjusted EBITDA margin
20.8
%
 
38.2
%
 
 
 
24.2
%
_______________________
(1)
Separation and supplemental benefit costs primarily relate to separation costs, and to a lesser extent, supplemental benefits costs related to enhanced or supplemental benefits provided to employees no longer participating in Dover Corporation benefit and compensation plans. Supplemental benefit costs are expected to be incurred through the end of 2020.
(2) Royalty expense represents charges for the right to use of Dover Corporation patents and other intangible assets.

14



Adjusted Working Capital

(in thousands)
September 30, 2019
 
December 31, 2018
Receivables, net
$
236,381

 
$
249,948

Inventories, net
222,246

 
218,319

Accounts payable
(114,185
)
 
(131,058
)
Adjusted working capital
$
344,442

 
$
337,209



Free Cash Flow

 
Three Months Ended
 
Nine Months Ended
 
Sept. 30,
 
June 30,
 
Sept. 30,
 
September 30,
(in thousands)
2019
 
2019
 
2018
 
2019
 
2018
Free Cash Flow
 
 
 
 
 
 
 
 
 
Cash provided by operating activities
$
64,089

 
$
39,391

 
$
34,318

 
$
123,390

 
$
93,031

Less: Capital expenditures
(8,901
)
 
(12,970
)
 
(13,945
)
 
(31,589
)
 
(42,883
)
Free cash flow
$
55,188

 
$
26,421

 
$
20,373

 
$
91,801

 
$
50,148

 
 
 
 
 
 
 
 
 
 
Free Cash Flow Conversion Ratio
 
 
 
 

 
 
 
 
Free cash flow
$
55,188

 
$
26,421

 
$
20,373

 
$
91,801

 
$
50,148

Adjusted EBITDA
66,538

 
74,553

 
78,385

 
213,549

 
218,704

 
 
 
 
 
 
 
 
 
 
Free cash flow conversion ratio
83
%
 
35
%
 
26
%
 
43
%
 
23
%


15