Market Overview

Apergy Reports Third Quarter 2019 Results

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  • 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, Texas, Oct. 23, 2019 (GLOBE NEWSWIRE) -- 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.

           
    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 from 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.

"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

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