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Apergy Reports Second Quarter 2019 Results

  • Revenue of $306 million in Q2-19, up 1% sequentially
  • Net income of $24 million and adjusted net income of $27 million in Q2-19
  • Diluted EPS of $0.31 and adjusted diluted EPS of $0.35 in Q2-19
  • Adjusted EBITDA of $75 million in Q2-19, up 3% sequentially with adjusted EBITDA margins improving 40 basis points
  • Repaid $25 million of term loan debt in Q2-19, bringing total repaid to $95 million since May 2018

THE WOODLANDS, Texas, July 24, 2019 (GLOBE NEWSWIRE) -- Apergy Corporation (“Apergy”) (APY) today reported net income of $23.8 million in the second quarter of 2019, compared to net income of $22.2 million in the second quarter of 2018. Adjusted net income was $26.8 million in the second quarter of 2019, compared to adjusted net income of $29.4 million in the second quarter of 2018. Results from the second quarter of 2018 do not include all of the expenses that would have been incurred had Apergy been a stand-alone public company during the period, including interest expense and additional corporate costs.

Diluted earnings per share was $0.31 in the second quarter of 2019. Adjusted diluted earnings per share, excluding restructuring and spin-off activities, was $0.35 in the second quarter of 2019.

Revenue was $306.1 million in the second quarter of 2019, an increase of $0.2 million compared to $305.9 million in the second quarter of 2018, and an increase of $4.4 million, or 1%, compared to $301.7 million in the first quarter of 2019.

Adjusted EBITDA was $74.6 million in the second quarter of 2019, a decrease of $2.0 million, or 3%, compared to $76.5 million in the second quarter of 2018, and an increase of $2.1 million, or 3%, compared to $72.5 million in the first quarter of 2019. Adjusted EBITDA margin was 24.4% in the second quarter of 2019. Compared to the second quarter of 2018, the second quarter of 2019 includes an additional $2.1 million of corporate costs associated with Apergy becoming a stand-alone public company.   

Cash from operating activities was $39.4 million in the second quarter of 2019, compared to $51.1 million in the second quarter of 2018, and $19.9 million in the first quarter of 2019. In the second quarter of 2019, Apergy paid an additional $12.3 million in cash interest expense compared to the second quarter of 2018.  The free cash flow conversion ratio was 35% in the second quarter of 2019, compared to 46% in the second quarter of 2018, and 14% in the first quarter of 2019. In the second quarter of 2019, Apergy used available cash to repay $25 million of term loan debt. Since the completion of the spin-off on May 9, 2018, Apergy has repaid $95 million of term loan debt.

    Three Months Ended     Variance
(dollars in thousands, except per share amounts)   Jun. 30,
2019
    Mar. 31,
2019
    Jun. 30,
2018
  Sequential   Year-
over-
year
Revenue $ 306,054     $ 301,691     $ 305,850     1%   0%
                         
Net income attributable to Apergy $ 23,779     $ 22,287     $ 22,154 *   7%   7%
Diluted earnings per share attributable to Apergy $ 0.31     $ 0.29     $ 0.28 *   7%   11%
                         
Adjusted net income attributable to Apergy $ 26,800     $ 24,896     $ 29,363 *   8%   (9)%
Adjusted diluted earnings per share attributable to Apergy $ 0.35     $ 0.32     $ 0.38 *   9%   (8)%
                         
Adjusted EBITDA $ 74,553     $ 72,458     $ 76,510     3%   (3)%
Adjusted EBITDA margin   24.4%       24.0%       25.0%     40 bps   (60) bps
                         
Net cash provided by operating activities $ 39,391     $ 19,910     $ 51,148   $ 19,481 $ (11,757)
Capital expenditures $ 12,970     $ 9,718     $ 16,087   $ 3,252 $ (3,117)
                         
*Results from the three months ended June 30, 2018 do not include all of the expenses that would have been incurred had Apergy been a stand-alone pubic company during the period. 

“We continued our strong execution in the second quarter against a volatile commodity market,” said Sivasankaran “Soma” Somasundaram, President and Chief Executive Officer. “We delivered sequential growth in revenue and adjusted EBITDA, which was driven by growth in our artificial lift and digital products, partially offset by the expected seasonal decline in Drilling Technologies. Our continued focus on productivity and cost discipline resulted in 40 basis points of sequential adjusted EBITDA margin improvement.

“Sequentially, Production & Automation Technologies second quarter revenue increased 5%, and Drilling Technologies revenue decreased 9%. The sequential decline in Drilling Technologies was due to the seasonally lower Canadian rig count and a decline in U.S. drilling activity through the second quarter.

“During the second quarter we generated healthy free cash flow of $26 million. Consistent with our capital allocation priorities we repaid $25 million of term loan debt in the second quarter of 2019. Our focus on cash flow generation and disciplined capital management has enabled us to repay $95 million of debt since our spin-off.

“As we look into the second half, we expect our customers to exercise capital discipline and focus on free cash flow generation. While North American market activity is expected to be slightly down in the third quarter, we expect modest sequential revenue growth for Apergy, driven by our growth initiatives in artificial lift and digital products. We expect a slight sequential revenue decline in our Drilling Technologies segment due to lower drilling activity in North America. With respect to free cash flow, we generated 23% more free cash flow in first half of 2019 compared to the same time period in 2018. We expect this momentum to continue and result in a full year 2019 free cash flow conversion ratio of 40% to 45%. At Apergy, we continue to remain focused on the factors under our control and delivering solid performance relative to the market.”

  Three Months Ended   Variance  
(dollars in thousands)   Jun. 30,
2019
    Mar. 31,
2019
    Jun. 30,
2018
  Sequential   Year-
over-
year
 
Production & Automation Technologies                          
  Revenue $ 235,703     $ 224,156     $ 240,608     5%   (2)%  
  Operating profit $ 20,919     $ 16,163     $ 23,225     29%   (10)%  
  Operating profit margin   8.9%       7.2%       9.7%     170 bps   (80) bps  
  Adjusted segment EBITDA $ 51,743     $ 46,098     $ 54,198     12%   (5)%  
  Adjusted segment EBITDA margin   22.0%       20.6%       22.5%     140 bps   (50) bps  
                           
Drilling Technologies                          
  Revenue $ 70,351     $ 77,535     $ 65,242     (9)%   8%  
  Operating profit $ 24,251     $ 26,806     $ 21,340     (10)%   14%  
  Operating profit margin   34.5%       34.6%       32.7%     (10) bps   180 bps  
  Adjusted segment EBITDA $ 26,577     $ 29,315     $ 24,135     (9)%   10%  
  Adjusted segment EBITDA margin   37.8%       37.8%       37.0%     0 bps   80 bps  
                           

Production & Automation Technologies

In the second quarter of 2019, Production & Automation Technologies revenue increased $11.5 million, or 5%, sequentially, driven by growth in North American artificial lift activity, including strong growth in the Permian basin. Segment operating profit increased $4.8 million, or 29%, and adjusted segment EBITDA increased $5.6 million, or 12%, sequentially, due to the higher volume and productivity initiatives.

On a year-over-year basis, Production & Automation Technologies revenue decreased $4.9 million, or 2%, primarily driven by declines outside of the Permian basin and foreign exchange headwinds. Revenue grew 5% in the Permian basin, driven by our ESP product line. Segment operating profit decreased $2.3 million, or 10%, and adjusted segment EBITDA decreased $2.5 million, or 5%, year-over-year due to the lower revenue and higher input costs, including tariffs.

Revenue from digital products was $34.3 million in the second quarter of 2019, an increase of $3.0 million, or 10%, compared to the first quarter of 2019, and an increase of $3.8 million, or 12%, compared to $30.5 million in the second quarter of 2018.

Drilling Technologies

In the second quarter of 2019, Drilling Technologies revenue decreased by $7.2 million, or 9%, sequentially, driven by the seasonal decline in the Canadian rig count and lower U.S. drilling activity. Segment operating profit decreased $2.6 million and adjusted segment EBITDA decreased by $2.7 million, or 9%, due to the lower revenue. Cost reduction actions and the benefit of productivity initiatives resulted in a 38% decremental to segment adjusted EBITDA.

On a year-over-year basis, Drilling Technologies revenue increased $5.1 million, or 8%, outperforming the flat year-over-year worldwide average rig count. The outperformance was driven by polycrystalline diamond cutter share gains and continued diamond bearings growth. Year-over-year, segment operating profit increased $2.9 million, or 14%, and adjusted segment EBITDA increased by $2.4 million, or 10%, as a result of the increased volume and productivity initiatives.

Q3-19 Guidance

Apergy is providing guidance for Q3-19 as follows:

    Three Months Ended
September 30, 2019
Consolidated revenue   $305 to $315 million
     
Adjusted EBITDA   $72 to $77 million
     
Depreciation & amortization expense   ~$30 million
     
Interest expense   ~$10 million
     
Effective tax rate   23% to 25%
     

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 $15 and $20 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 $45 and $50 million.

Other Business Updates

  • U.S. rod lift revenue grew high single digit percent for the twelve months ended June 30, 2019.
  • Completed the qualification process and received our first order for ESP installations in the U.S. with one of the major International Oil Companies (IOCs). We expect to generate our first ESP revenue from this order in the second half of 2019.
  • Approximately 60 customer representatives attended Windrock’s Annual User Conference in New Orleans, Louisiana for product education and knowledge sharing.
  • SpotlightTM for High Speed Engines was featured in the April issue of Oil & Gas Engineering, available at https://www.oilandgaseng.com/articles/high-speed-engine-monitoring-iiot-enhanced/, and the May issue of Gas Compression magazine, available at https://www.digitalgcm.com/i/1109824-may-2019/31?m4=.
  • Twenty-two patents were issued to Drilling Technologies in the second quarter of 2019.
  • US Synthetic received the Peak Performer Award from the Junior Achievement of Utah charitable organization for providing an exceptional level of volunteer support.
  • Consistent with our capital allocation policy, we have completed the divestiture our pressure vessel fabrication business, as it was not core to our portfolio. The business represented about 2% of Production & Automation Technologies revenue.

Conference Call Details

Apergy Corporation will host a conference call on Thursday, July 25, 2019, to discuss its second 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 6817 965.

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 6817 965#.

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, 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, 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 interests.

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 measure, 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   Six Months Ended
  June 30,   Mar. 31,   June 30,   June 30,
(in thousands, except per share amounts) 2019   2019   2018   2019   2018
Revenue $ 306,054     $ 301,691     $ 305,850     $ 607,745     $ 588,976  
Cost of goods and services 196,285     196,142     202,171     392,427     391,682  
Gross profit 109,769     105,549     103,679     215,318     197,294  
Selling, general and administrative expense 66,642     65,335     65,671     131,977     125,168  
Interest expense, net 10,057     10,474     6,062     20,531     6,229  
Other expense, net 2,676     1,102     499     3,778     3,192  
Income before income taxes 30,394     28,638     31,447     59,032     62,705  
Provision for income taxes 6,544     6,069     9,372     12,613     16,436  
Net income 23,850     22,569     22,075     46,419     46,269  
Net income (loss) attributable to noncontrolling interest 71     282     (79 )   353     63  
Net income attributable to Apergy $ 23,779     $ 22,287     $ 22,154     $ 46,066     $ 46,206  
                   
Earnings per share attributable to Apergy:                  
Basic $ 0.31     $ 0.29     $ 0.29     $ 0.60     $ 0.60  
Diluted $ 0.31     $ 0.29     $ 0.28     $ 0.59     $ 0.59  
                   
Weighted-average shares outstanding:                  
Basic 77,425     77,363     77,340     77,394     77,340  
Diluted 77,632     77,640     77,770     77,636     77,904  
                             


APERGY CORPORATION
BUSINESS SEGMENT DATA
(UNAUDITED)

  Three Months Ended   Six Months Ended
  June 30,   Mar. 31,   June 30,   June 30,
(in thousands) 2019   2019   2018   2019   2018
Segment revenue:                  
Production & Automation Technologies $ 235,703     $ 224,156     $ 240,608     $ 459,859     $ 454,503  
Drilling Technologies 70,351     77,535     65,242     147,886     134,473  
Total revenue $ 306,054     $ 301,691     $ 305,850     $ 607,745     $ 588,976  
                   
Income before income taxes:                
Segment operating profit:                  
Production & Automation Technologies $ 20,919     $ 16,163     $ 23,225     $ 37,082     $ 33,097  
Drilling Technologies 24,251     26,806     21,340     51,057     45,529  
Total segment operating profit 45,170     42,969     44,565     88,139     78,626  
Corporate expense and other (1) 4,719     3,857     7,056     8,576     9,692  
Interest expense, net 10,057     10,474     6,062     20,531     6,229  
Income before income taxes $ 30,394     $ 28,638     $ 31,447     $ 59,032     $ 62,705  
                   
Bookings:                  
Production & Automation Technologies $ 227,405     $ 219,465     $ 249,461     $ 446,870     $ 466,395  
Book-to-bill ratio (2) 0.96     0.98     1.04     0.97     1.03  
Drilling Technologies $ 64,401     $ 78,586     $ 70,450     $ 142,987     $ 139,634  
Book-to-bill ratio (2) 0.92     1.01     1.08     0.97     1.04  

_______________________

  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) June 30, 2019   December 31, 2018
Assets      
Cash and cash equivalents $ 24,336     $ 41,832  
Receivables, net 256,379     249,948  
Inventories, net 234,254     218,319  
Prepaid expenses and other current assets 14,576     20,211  
Total current assets 529,545     530,310  
       
Property, plant and equipment, net 250,573     244,328  
Goodwill 905,885     904,985  
Intangible assets, net 257,922     283,688  
Other non-current assets 31,513     8,445  
Total assets 1,975,438     1,971,756  
       
Liabilities      
Accounts payable 128,664     131,058  
Other current liabilities 72,440     70,937  
Total current liabilities 201,104     201,995  
       
Long-term debt 613,301     666,108  
Other long-term liabilities 129,296     122,126  
Equity      
Apergy Corporation stockholders’ equity 1,028,926     979,069  
Noncontrolling interest 2,811     2,458  
Total liabilities and equity $ 1,975,438     $ 1,971,756  


APERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

  Six Months Ended
June 30,
(in thousands) 2019   2018
Cash provided (required) by operating activities:      
Net income $ 46,419     $ 46,269  
Depreciation 34,191     35,129  
Amortization 25,873     26,330  
Receivables (6,115 )   (53,496 )
Inventories (2,290 )   (15,026 )
Accounts payable (1,506 )   31,361  
Leased assets (30,999 )   (26,342 )
Other (6,272 )   14,488  
Net cash provided by operating activities 59,301     58,713  
       
Cash provided (required) by investing activities:      
Capital expenditures (22,688 )   (28,938 )
Proceeds from sale of fixed assets 2,475     62  
Payment on sale of business (2,194 )    
Purchase price adjustments on acquisition     53  
Net cash required by investing activities (22,407 )   (28,823 )
       
Cash provided (required) by financing activities:      
Issuances of debt, net of discounts 4,000     713,963  
Payment of debt issue costs     (15,851 )
Repayment of long-term debt (54,000 )    
Distributions to Dover Corporation, net     (716,126 )
Other (4,489 )   (4,796 )
Net cash required by financing activities (54,489 )   (22,810 )
       
Effect of exchange rate changes on cash and cash equivalents 99     41  
       
Net increase (decrease) in cash and cash equivalents (17,496 )   7,121  
Cash and cash equivalents at beginning of period 41,832     23,712  
Cash and cash equivalents at end of period $ 24,336     $ 30,833  


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

  Three Months Ended   Six Months Ended
  June 30,   Mar. 31,   June 30,   June 30,
(in thousands) 2019   2019   2018   2019   2018
Net income attributable to Apergy $ 23,779     $ 22,287     $ 22,154     $ 46,066     $ 46,206  
Pre-tax adjustments:                  
Separation and supplemental benefit costs (1) 827     780     5,137     1,607     5,137  
Royalty expense (2)                 2,277  
Restructuring and other related charges (3) 3,135     2,642     2,030     5,777     2,512  
Tax impact of adjustments (4) (941 )   (813 )   42     (1,754 )   (613 )
Adjusted net income attributable to Apergy 26,800     24,896     29,363     51,696     55,519  
Tax impact of adjustments (4) 941     813     (42 )   1,754     613  
Net income (loss) attributable to noncontrolling interest 71     282     (79 )   353     63  
Depreciation and amortization 30,140     29,924     31,834     60,064     61,459  
Provision for income taxes 6,544     6,069     9,372     12,613     16,436  
Interest expense, net 10,057     10,474     6,062     20,531     6,229  
Adjusted EBITDA $ 74,553     $ 72,458     $ 76,510     $ 147,011     $ 140,319  
                   
Diluted earnings per share attributable to Apergy:                  
Reported $ 0.31     $ 0.29     $ 0.28     $ 0.59     $ 0.59  
Adjusted $ 0.35     $ 0.32     $ 0.38     $ 0.67     $ 0.71  

_______________________

  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. 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 six months ended June 30, 2019, related to the disposal of our pressure vessel manufacturing business in our Production & Automation Technologies segment. Includes a $1.7 million impairment during the three months ended March 31, 2019 and six months ended June 30, 2019 related to our pressure vessel manufacturing business.
  4. 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 three and six months ended June 30, 2018, associated with capital gains related to certain reorganizations of our subsidiaries as part of the Separation from Dover Corporation.


  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.
     
  Three months ended
  March 31, 2019
(in thousands, except percentages) Production &
Automation
Technologies
  Drilling
Technologies
  Corporate
expense and
other
  Total
Revenue $ 224,156     $ 77,535     $     $ 301,691  
               
Operating profit (loss) / income before income taxes, as reported $ 16,163     $ 26,806     $ (14,331 )   $ 28,638  
Depreciation and amortization 27,293     2,509     122     29,924  
Separation and supplemental benefit costs (1)         780     780  
Restructuring and other related charges (2) 2,642             2,642  
Interest expense, net         10,474     10,474  
Adjusted EBITDA $ 46,098     $ 29,315     $ (2,955 )   $ 72,458  
               
Operating profit margin, as reported 7.2 %   34.6 %       9.5 %
Adjusted EBITDA margin 20.6 %   37.8 %       24.0 %

_______________________

  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 $1.7 million impairment related to our pressure vessel manufacturing business.

  Three months ended
  June 30, 2018
(in thousands, except percentages) Production &
Automation
Technologies
  Drilling
Technologies
  Corporate
expense and
other
  Total
Revenue $ 240,608     $ 65,242     $     $ 305,850  
               
Operating profit (loss) / income before income taxes, as reported $ 23,225     $ 21,340     $ (13,118 )   $ 31,447  
Depreciation and amortization 28,943     2,795     96     31,834  
Separation and supplemental benefit costs (1)         5,137     5,137  
Restructuring and other related charges 2,030             2,030  
Interest expense, net         6,062     6,062  
Adjusted EBITDA $ 54,198     $ 24,135     $ (1,823 )   $ 76,510  
               
Operating profit margin, as reported 9.7 %   32.7 %       10.3 %
Adjusted EBITDA margin 22.5 %   37.0 %       25.0 %

_______________________

  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.

  Six Months Ended
  June 30, 2019
(in thousands, except percentages) Production &
Automation
Technologies
  Drilling
Technologies
  Corporate
expense and
other
  Total
Revenue $ 459,859     $ 147,886     $     $ 607,745  
               
Operating profit (loss) / income before income taxes, as reported $ 37,082     $ 51,057     $ (29,107 )   $ 59,032  
Depreciation and amortization 54,982     4,835     247     60,064  
Separation and supplemental benefit costs (1)         1,607     1,607  
Restructuring and other related charges (2) 5,777             5,777  
Interest expense, net         20,531     20,531  
Adjusted EBITDA $ 97,841     $ 55,892     $ (6,722 )   $ 147,011  
               
Operating profit margin, as reported 8.1 %   34.5 %       9.7 %
Adjusted EBITDA margin 21.3 %   37.8 %       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. Includes a $2.5 million loss on disposal and $1.7 million impairment of our pressure vessel manufacturing business.


  Six Months Ended
  June 30, 2018
(in thousands, except percentages) Production &
Automation
Technologies
  Drilling
Technologies
  Corporate
expense and
other
  Total
Revenue $ 454,503     $ 134,473     $     $ 588,976  
               
Operating profit (loss) / income before income taxes, as reported $ 33,097     $ 45,529     $ (15,921 )   $ 62,705  
Depreciation and amortization 55,701     5,662     96     61,459  
Separation and supplemental benefit costs (1)         5,137     5,137  
Royalty expense (2) 2,277             2,277  
Restructuring and other related charges 2,512             2,512  
Interest expense, net         6,229     6,229  
Adjusted EBITDA $ 93,587     $ 51,191     $ (4,459 )   $ 140,319  
               
Operating profit margin, as reported 7.3 %   33.9 %       10.6 %
Adjusted EBITDA margin 20.6 %   38.1 %       23.8 %

_______________________

  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.
  2. Royalty expense represents charges for the right to use of Dover Corporation patents and other intangible assets.
     

Adjusted Working Capital

(in thousands) June 30, 2019   December 31, 2018
Receivables, net $ 256,379     $ 249,948  
Inventories, net 234,254     218,319  
Accounts payable (128,664 )   (131,058 )
Adjusted working capital $ 361,969     $ 337,209  


Free Cash Flow

  Three Months Ended   Six Months Ended
  June 30,   Mar. 31,   June 30,   June 30,
(in thousands) 2019   2019   2018   2019   2018
Free Cash Flow                  
Cash provided by operating activities $ 39,391     $ 19,910     $ 51,148     $ 59,301     $ 58,713  
Less: Capital expenditures (12,970 )   (9,718 )   (16,087 )   (22,688 )   (28,938 )
Free cash flow $ 26,421     $ 10,192     $ 35,061     $ 36,613     $ 29,775  
                   
Free Cash Flow Conversion Ratio                
Free cash flow $ 26,421     $ 10,192     $ 35,061     $ 36,613     $ 29,775  
Adjusted EBITDA 74,553     72,458     76,510     147,011     140,319  
                   
Free cash flow conversion ratio 35 %   14 %   46 %   25 %   21 %