ChampionX Earnings: Lower-Than-Expected U.S. Drilling and Completions Contribute to Guidance Miss

ChampionX’s CHX third-quarter results fell short of expectations mainly due to lower-than-expected drilling and completions activity across North America. More than half of the firm’s revenue comes from the United States, and the firm has quite a bit of exposure to shorter-cycle U.S. markets. The average active rig count in the U.S. dropped 10% during the quarter, while new well completions declined about 8%. This led to a significant shortfall in revenue and operating income, falling short of the guidance midpoints by $35 million and $13 million, respectively. We’re lowering our fair value estimate to $32 per share from $33 following the results. We are maintaining our no-moat rating.

Most of ChampionX’s business involves frac chemicals and artificial lift, two end markets closely affiliated with well completion activity. Despite reduced U.S. well completions, the firm still delivered relatively stable performance quarter over quarter, holding on to an adjusted EBITDA margin above 20% with relatively flat top-line growth. A comparatively asset-light operating model compared with traditional oilfield-services firms enables more effective cost management through adverse market environments. Seasonal slowdowns relating to poor weather conditions and operator budget constraints will exacerbate a tepid industry outlook for U.S. completion activity heading into 2024. This will weigh on the company’s results over the next few months, but we expect ChampionX will maintain similar performance stability through year-end.