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, 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 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.

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.

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.

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

 
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 services182,373  196,285  202,734  574,800  594,416 
Gross profit96,008  109,769  113,734  311,326  311,028 
Selling, general and administrative expense68,813  66,642  69,206  200,790  194,374 
Interest expense, net9,537  10,057  10,584  30,068  16,813 
Other (income) expense, net(310) 2,676  725  3,468  3,917 
Income before income taxes17,968  30,394  33,219  77,000  95,924 
Provision for income taxes4,128  6,544  7,723  16,741  24,159 
Net income13,840  23,850  25,496  60,259  71,765 
Net income attributable to noncontrolling interest194  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:         
Basic77,460  77,425  77,340  77,416  77,340 
Diluted77,573  77,632  77,569  77,615  77,742 


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 Technologies54,878  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 Technologies13,796  24,251  26,209  64,853  71,738 
Total segment operating profit35,615  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, net9,537  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.


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, net236,381  249,948 
Inventories, net222,246  218,319 
Prepaid expenses and other current assets33,878  20,211 
Total current assets533,132  530,310 
    
Property, plant and equipment, net251,242  244,328 
Goodwill910,693  904,985 
Intangible assets, net251,411  283,688 
Other non-current assets29,627  8,445 
Total assets1,976,105  1,971,756 
    
Liabilities   
Accounts payable114,185  131,058 
Other current liabilities92,268  70,937 
Total current liabilities206,453  201,995 
    
Long-term debt588,580  666,108 
Other long-term liabilities135,845  122,126 
Equity   
Apergy Corporation stockholders’ equity1,042,222  979,069 
Noncontrolling interest3,005  2,458 
Total liabilities and equity$1,976,105  $1,971,756 


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 
Depreciation51,116  52,814 
Amortization38,504  38,863 
Receivables12,218  (79,533)
Inventories8,823  (21,149)
Accounts payable(15,532) 27,776 
Leased assets(36,502) (33,331)
Other4,504  35,826 
Net cash provided by operating activities123,390  93,031 
    
Cash provided (required) by investing activities:   
Capital expenditures(31,589) (42,883)
Acquisition(12,500)  
Proceeds from sale of fixed assets2,954  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 discounts36,500  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 period41,832  23,712 
Cash and cash equivalents at end of period$40,627  $18,014 


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 costs1,988      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 Apergy20,872  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 interest194  71  232  547  295 
Depreciation and amortization29,556  30,140  30,218  89,620  91,677 
Provision for income taxes4,128  6,544  7,723  16,741  24,159 
Interest expense, net9,537  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.


 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 amortization27,185  2,244  127  29,556 
Separation and supplemental benefit costs (1)    4,439  4,439 
Restructuring and other related charges2,194  526    2,720 
Environmental costs1,988      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 reported9.8% 25.1%   6.5%
Adjusted EBITDA margin23.9% 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 amortization27,689  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 reported8.9% 34.5%   9.9%
Adjusted EBITDA margin22.0% 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.


 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 amortization27,305  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 reported10.0% 34.8%   10.5%
Adjusted EBITDA margin21.3% 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.


 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 amortization82,167  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 costs1,988      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 reported8.6% 32.0%   8.7%
Adjusted EBITDA margin22.1% 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 amortization83,006  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 charges2,473      2,473 
Interest expense, net    16,813  16,813 
Adjusted EBITDA$145,028  $80,117  $(6,441) $218,704 
        
Operating profit margin, as reported8.2% 34.2%   10.6%
Adjusted EBITDA margin20.8% 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.


Adjusted Working Capital
 
(in thousands)September 30, 2019 December 31, 2018
Receivables, net$236,381  $249,948 
Inventories, net222,246  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 EBITDA66,538  74,553  78,385  213,549  218,704 
          
Free cash flow conversion ratio83% 35% 26% 43% 23%
               

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