Q1 2021 ChampionX Corp Earnings Call
Good morning, and welcome to the champion X first quarter 2021 earnings conference call. My name is Cheryl and I will be your operator for today's call and first time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session.
Have a question. Please press Star then one on your Touchtone phone.
Please note that this conference is being recorded and will now turn the call over to Byron Pope Vice President and he asked you you and investor relation.
Brian pulp you may begin.
Thank you good morning, everyone with me today are Soma, Soma Thunder, and President and CEO of champion X and Ken Fisher Executive Vice President and CFO.
During today's call some and we'll share some of our company's highlights can and will then discuss our first quarter results and second quarter outlook before turning the call back to Soma for some summary thoughts.
And then open the call for Q&A.
During today's call and we'll be referring to the slides posted on our website.
Let me remind all participants that some of the statements we will be making today are forward looking.
These matters involve risks and uncertainties that could cause material difference and our results from those projected and these statements.
And therefore, I refer you to our latest 10-K filing and our other SEC filings for a discussion of some of the factors that could cause actual results to differ materially.
Our comments today May also include non-GAAP financial measures additional details and reconciliations to the most directly comparable GAAP financial measures can be found and our first quarter press release, which is available on our website I will now turn the call over to Soma.
Thank you Byron and good morning, everyone I would like to welcome our shareholders employees and analysts for our first quarter 2021 earnings call and thanks for joining us today.
Let me start by recognizing the remarkable within E&P and focus of our champion X organization, and serving our customers teammates and communities well.
And after winter storm jewelry.
It was an unprecedented weather event challenging for Texas and neighboring states and impacting the wellbeing of many people.
Our employees worked diligently and tirelessly after the farm to minimize disruptions to our customers and turned our facilities to full operation and ibis.
And to supporting their colleagues, who experienced power and water disruptions and damage to their homes.
What day of dedication and commitment I am tremendously grateful.
Let me turn to our recent performance as we close in on the one year anniversary of our transformational merger off legacy apogee and legacy <unk>. Our first quarter results further demonstrate the geographic breadth and resiliency of our combined the business portfolio and the strong free cash.
Generation capacity of the company.
We are well positioned to outperform the sector irrespective of volume of the industry macro environment.
Our integration is going well, we continue to make progress on our target net cost synergies.
Our customers are increasingly recognizing the value of our better together the effort with our combined the technology products and services offering and we are excited about our growth opportunities and the future from the combined offering.
The purpose of our company, we always begin with our organization and purpose improving lives of our customers our employees, our shareholders and the communities and which we operate flight.
Slide four illustrates the common purpose that unites us and the shared culture and the operating principles by which we execute every day.
This will come as no surprise to those of you who have followed our champion X story.
It's at the heart of how we differentiate our company in the marketplace and we constantly strive to flow all our stakeholders exceptionally well.
One of our four operating principles.
Our focus which we passionately described that's being developed plus advocate for our customers.
We are proud that the energy point research and independent customer satisfaction research from which have made more than 3003 hundred customers of oilfield products awarded champion ex that top overall ranking for total customer satisfaction from 2021.
We also ranked first and eight specific categories, which you can see here on slide five.
While legacy apogee has been recognized as number one in prior years, we are especially encouraged to see a lot of merged company in the top overall spark.
And I love being number one and production chemicals op and she had left and digital oilfield segments.
This exceptional industry recognition illustrates the strong customer centric cultural alignment across our organization the dedication of our employees around the world and supporting our customers and how our combined offering our products and services is truly better together.
Later in my comments I will share with you, where we are headed as we strategically a worldwide business portfolio for sustained growth.
But first on slide six let me give me a quick example of one of the base and which we are already helping our customers produce the hydrocarbons that the world needs more.
More sustainable manner.
Through our research and development, and Nevada, Aberdeen, Scotland, and technical Center of Excellence, our chemical technologies team recently qualified and non toxic biodegradable corrosion inhibitor, which will house, one of our customers and the Nazi maximize recovery without sacrificing efficiency.
<unk>.
Our portfolio of environmentally superior posted and inhibitors will come from.
Not the operators meet strict environmental regulations, while economically and sustainably expanding the light of day of assets.
Technology is receiving great reception from our customers.
We are also continuing to advance our fit for purpose digital and technology solutions that help our customers improve efficiency and produce oil and gas and a sustainable manner.
And the first quarter, we added autonomous control feature to our industry, leading ex box production optimization software.
Harnessing the power of AI models that is built into our advanced optimization software and the autonomous control future monitors and protect and ice us changes to well condition and equipment operation and autonomously adjust parameters to optimize production without any human and.
Prevention.
And this enhances safety and efficiency of production operations for our customers.
Ken will take you through our first quarter financials total shortly so let me just share a few high level comments.
Through three full quarters as a new company our portfolio, that's really resiliency and strong free cash flow generation.
[laughter] points after the power of our combined global business and.
And the first quarter continued growth and our shorter cycle and North American land oriented businesses helped offset the impact of seasonality.
National operations, and shocked up raw material cost inflation, and our chemical technologies businesses.
Our chemical technology team is making excellent progress on pricing improvement with our customers to offset the raw material cost inflation.
And we feel confident that we'll be able to fully offset the raw material inflation and the second half.
And the pricing improvement combined with our synergy delivery and increased volume gives us increased confidence that we will see meaningful margin improvement and the second half and we will exit 2021 with a better margin than 2020 exit rate.
I would now like to turn the call over to Ken to discuss our first quarter results and our second quarter outlook.
Thank you Soma good morning, everyone and thank you all for joining us today I will be commenting on the adjusted EBITDA for sequential comparisons. We believe this metric best reflects the business performance of contiguous operations.
As seen on slide eight first quarter 2021 revenue was $685 billion, 3% below our strong fourth quarter of 2020.
Growth in the shorter cycle, North American businesses, offset as expected by seasonality and our international operations sequentially North American revenues were up 7%, while international revenues declined 15% on the aforementioned and seasonality.
Included in our quarterly revenues were $41 billion of cross sales to go lab as previously communicated cross supply sales to ecolab are associated with post merger supply agreements under the transaction agreement.
We do not recognize margin on these sales from an EBITDA perspective, and our financial statements revenue associated with these sales is allocated to the corporate and other segment.
We expect these sales will continue and a declining rate for approximately three years from the merger closing date.
GAAP net income for the company and the quarter was $5 $8 million, we delivered consolidated adjusted EBITDA and the first quarter of 94 billion, a 13% sequential decline.
This decrease was primarily driven by the seasonally lower volumes and higher raw material costs, and our chemical technologies businesses and the impact of winter stopped Yuri on our facilities.
In the quarter, we delivered strong cash flow from operations of $90 million and generated $65 billion of free cash flow.
<unk> healthy free cash flow to revenue ratio of non per se.
And the first quarter, we invested $26 million and capital expenditures, primarily integration related requirements, and our chemicals businesses, including information technology infrastructure to support the separation from ecolab.
Which is significantly.
Ahead of the schedule and the transition services agreement through.
Through time, our Capex guidance remains consistent we expect to fund capital investment and the range of three to three and 5% of revenues.
Turning to the business segments.
Production chemical technologies generated first quarter revenue of $412 million, 8% lower and a strong fourth quarter. This sequential decrease was expected.
Lower seasonal international volumes, partially offset by the continued recovery in our North American land business.
Quarterly revenues were also impacted by the Gulf Coast supply chain disruptions caused by winter storm yours.
However, our team did an excellent job, ensuring our customers were supported and supply.
Geographically North America revenue increased 6%.
And while international revenue declined 19% sequentially.
Segment profitability was adjusted EBITDA of 56 billion down 28% sequentially on lower seasonal volumes higher raw material costs and the impacts of the winter storm.
Were impacted by the supply chain disruptions experienced across the Gulf Coast Petrochemicals complex and the cost of repair and restart our facilities.
To address commodity inflation, the chemicals team announced selling price increases in early March and we are working with customers to implement these increases.
Orderly adjusted EBITDA margin was 14%, we expect first quarter to be a low point for the year.
As it was impacted by the aforementioned matters as volume steps up and pricing actions kick in and we expect to see and improved margin trend throughout the year and and exit rate above the prior year's actual year and.
Moving to production and automation technologies segment revenue was $167 million or up 5% sequentially due to higher volumes as our E&P customer spending continues to improve.
Digital revenue grew 8% sequentially.
As customers continue to place a greater focus on leveraging digital solutions to improve their efficiencies and cost structures. We expect increased adoption of our modular fit for purpose approach. These secular trends coupled with our better together digital production automation and chemicals combined.
<unk> product and service offerings positions us well to drive future digital revenue growth and also other revenue synergies.
First quarter segment, adjusted EBITDA was $36 million up 21% sequentially.
<unk>.
<unk> continues their strong execution with first quarter segment, adjusted EBITDA margin returning to historic experience levels.
First quarter adjusted EBITDA was a robust 21%.
The sequential margin improvement was driven primarily by leverage from the higher volumes and continued structural cost improvements. We expect this margin rate range to be maintained as we move through the year.
Drilling technologies experienced the second consecutive quarter of much improved customer demand as the U S. Active rig counts continued to increase during the first quarter.
Segment revenue was $35 million and the quarter and almost 50% increase sequentially, which significantly outpaced the 27% industry rig count growth of the U S. During the period as we saw customers continue to restock inventories.
Drilling technologies delivered segment adjusted EBITDA of $7 million during the first quarter up 5 million sequentially.
Adjusted EBITDA margin rate was 21% driven by a combination of the higher volumes and continued rigorous cost management.
GAAP earnings also benefited from a settlement on a patent infringement case, which we excluded from adjusted EBITDA.
We expect EBITDA margins to remain in this range unless we see a further significant step up and U S drilling activity driving higher order rates and volumes.
Reservoir chemicals technology revenue for the first quarter was $30 million, a 3% decrease sequentially driven by the delayed well completion activity during winter storm Yuri says.
Segment, adjusted EBITDA and the first quarter was a negative $600000 or $3 billion sequential decline, primarily driven by lower volumes and the absence of $1 6 billion of non recurring items, which benefited the fourth quarter.
We expect the business to be near breakeven and the second quarter and returned to profitability and the second half of this calendar year.
We remain laser focused on maximizing merger synergies, we continue to focus attention across the entire company to capture all potential integration benefits, including business and functional cost improvements as well as an exciting pipeline of revenue synergies slide.
And in the presentation summarizes these efforts of the progress.
We still expect to achieve our targeted $125 million of annualized cost synergies within 24 months of the merger closing and we exited the first quarter at a $91 million run rate will continue sharing synergy progress with you and coming quarters.
Turning to slide 10, and our financial position, we ended <unk> with approximately $611 million of total liquidity, including 260 billion cash on hand, and then available revolver capacity, we repaid $7 million of debt during the quarter.
As a result of our continued strong operating cash flow generation. This week, we have provided notice to the holders of our six and three eight senior notes due 2026 that we are redeeming $55 million and principal value and.
And the notes on May seven and including this announced redemption, we will have paid down over $221 million of debt obligations since the merger or approximately 20% of the total outstanding.
At March 31, our net debt to pro forma adjusted EBITDA was one nine times compared to net leverage of one eight times at the end of 2020 leverage was impacted as we rolled off the strong preprint that make first quarter of 2020.
We remain on track and maintain our strong free cash flow generation capability and strong liquidity and our focus on reduction of leverage we continue to execute on our capital allocation framework with a priority of allocation of free cash flow to invest and technologies to support high margin growth and issue.
And using available excess cash and the near term to reduce our leverage to the longer term target of approximately one times debt leverage we remain well on track to these financial objectives.
Turning to slide 11, and our near term outlook, we expect a sequential increase in revenue and the second quarter with revenues, including Ecolab Cross sales and the range of 700 million to $741 billion.
The expected sequential change is primarily driven by the seasonal upturn and our international operations and anticipated continued positive momentum and our shorter cycle and North American production oriented businesses are.
Our drilling oriented <unk> oriented businesses are expected to benefit from continued U S rig count growth, albeit at a moderating pace, but they will also face some seasonal headwinds on the Canadian spring and fall period, and the likely and the customer restocking.
We anticipate a moderate near term cost pressure from commodities and raw material inflation.
As noted we have begun the process of adjusted selling prices across our businesses and we expect selling prices to catch up with the raw material inflation as we move into the second half of the year.
We will also see the full impact of some employee costs and benefit restorations as we move into the second quarter.
And with our synergy initiatives and ongoing cost and productivity actions. We continue to expect sequential margin improvement throughout the year with and exit EBITDA margin rate above 2000, Twenty's fourth quarter exit rate.
For the second quarter, we expect EBITDA and the range of $97 million to $105 million on this slide. We've also provided some additional specifics related to our second quarter outlook.
Overall, we remain pleased with our robust free cash flow performance and we are confident that we will maintain free cash flow.
EBITDA conversion ratio and the 50% to 60% range for 2021 now back to Soma.
Thank you Ken.
Before we open the call into question I would like to turn your attention to slide 13 of our deck, which highlights the price strategic priority of Timken ex we have previously shared with you.
Let me share with you a few high level thoughts on where we are headed over time with respect to all of our strategic priority uptick evolving our portfolio.
Sustained growth with the energy industry are unusual.
We see three distinct growth pathway for our company during the energy transition.
Our first growth pathway is and the area of Decarbonising oil and gas operations. This.
And this is in our backyard and we play and we have a strong right to win and from an existing upstream and midstream customers increasingly commit to long term carbon reduction goals.
Our technology portfolio, particularly as it relates to production chemistry digital solutions and the occupancy and net will play an instrumental role and helping our customers and reduce the carbon intensity of their operations. In addition, we believe judiciously evaluate clean technology investment opportunities.
That leverage our expertise and upstream production and vote site and midstream solutions as we did with our recent investment in <unk> Atlanta technology.
<unk> has developed.
<unk> technology for detecting visualizing and quantifying methane emissions.
The second growth pathway involves expanding debt our digital domain.
And we didn't know what digital portfolio, our proprietary hardware platforms and analytical solutions.
They are being employed and the oil and gas industry have applicability across multiple industrial end market.
So we have collectively evaluating partnerships, which facilitate broader industry application of our digital and technology.
See opportunities to further expand our digital domain beyond the oil and gas and.
An example of this is in the first quarter, we received on auto and real time components of monitoring and diagnostic solutions in the power generation and industry.
Lastly, the third growth pathway is and capitalizing on our core capabilities.
We have taken and exhaustive look at our differentiated skill sets across our existing portfolio of businesses.
See attractive opportunities to leverage our core capabilities and technology innovation and supply chain manufacturing across a number of positive and maximum adjacency and markets.
We are doing this today with respect to our Diamond Sciences, and expertise and you would see as more from us over time with regards to some of these identified new and market opportunities.
As we continue to use our full cycle free cash flow generating ability to further debt pay down debt to our target level. Please note that we will continue to allocate capital from both organic and inorganic opportunities to evolve the portfolio and a disciplined manner, which is consistent with our value creation framework.
And we also remain committed to the path toward a sustainable return on capital mechanism to our shareholders over time.
And clothing champion X is a global production Woody and pit technology provider and we are well positioned to be a long term winner as operating energy industry continues to evolve.
Through our differentiated products and technology attractive growth opportunities and strong free cash flow generation. We are focused on delivering strong financial performance for our shareholders. This year ended the future.
Again, I want to thank all of our championing ex employees around the world for their continued dedication to our focus of improving the likes of our customers our employees, our shareholders and our communities and.
Both humbled and inspired to lead such a phenomenal team.
With that I would like to open the call up for questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then the number one and your Touchtone phone.
We're using a speaker phone you need to pick up your handset first before pressing any numbers. Once again, if you have a question. Please press Star then one on your Touchtone phone.
Our first question comes from David Anderson from Barclays. Your line is now open.
Hey, good morning Soma.
I was hoping you could share some of your longer term views on global oil production and how that relates to production chemicals segment and the.
And the 20% margin goal you've talked about previously essentially this business the way I look at it and it's a volume story. So how do you see global production trending as it recovers out to 'twenty three and then how do you think about volumes beyond that because obviously it relates pretty heavily to Europe to this division.
Yeah, Good morning, Dave.
So.
We feel you know.
The global oil production and <unk>.
And by the economic recovery at Sps seeing starting to unfold.
And here, so that global production will start increasing.
In the coming quarters and the years.
And but I've covered here.
So while our production chemicals business.
Driven by the overall production volume.
Also and.
And the element here Dave.
The intensity of production chemistry, depending on the type of work.
Action.
And that that growth is the intensity of production chemicals had a very different so we feel.
And that's a little.
<unk> two <unk>.
Production volume story as well.
And then net and top of that.
<unk>.
The etsy.
As we told you.
Sample off.
What we call it the green chemistry.
Helping our customers.
Reduced debt carbon intensity, and we feel that that's a growth element and for us and production Chemistries really play an important role and <unk>.
And as that unfolds, I think you will see and that.
A lot flow growth element to our production chemical business.
So does the mix of production itself, just kind of get you more closer to that margin goal I guess, what youre, saying is as you see these different types of production comes on some more some of it is more chemical intensive and therefore is that kind of how you can get to those margin goals.
And goes has two elements one is the top line.
So this is just a top line story, but.
We have a significant.
It got put on the synergy delivery as well as as we have talked before a lot of the synergy delivery is going to be benefiting the production chemicals business and particularly around supply chain and we have a very very focused effort.
And all kinds of technology and business to drive.
Excellent and supply chain, which is driven by our scale footprint. So.
I would say David it's a combination of both we feel very good about that the march towards that.
And that 20% goal.
So my second question is on the artificial lift side.
The business has recovered really nicely the last few quarters, it looks like only about 19% off of a year ago levels and.
Assuming this business kind of outperformed spending I think this will be something on the kind of a 200 million quarterly run rate by kind of year by year end is that fair or is that within reason and I guess the other question is is there still room for margin expansion, you're already pretty closer to peak margin is already so how do we think about that as well.
Yes.
No.
Back to the Opex should lift and I'm not going to put a timeframe around the the growth, but but but here's what I would say day, we feel very good about how that team is executing our position and then that revenue synergy opportunities.
And that will unfold as the quarters go on so I think you should expect this business to be sequentially, increasing throughout this year and and and and don't forget that also some share gains and <unk>, but really executing well. So we feel very very good about the opposite and Lyft business.
Yes.
And with respect to margins I think the combination of structural cost.
Execution of this business has done along with the <unk>.
One and increases I think you know.
Look in the near term the margin rates and <unk> 20, 22% is that it's very real and you should continue to expect that and as the volume increases I think there's potential for more.
Great. Thank you very much.
Thank you.
Thank you. Our next question comes from George O'leary with Tudor Pickering. Your line is now open.
Good morning, <unk> morning, guys.
One and judge.
Just on related to the last question, but looking at it a little bit differently. Just curious if you could frame kind of the breadth of artificial orders artificial lift systems orders from a technology type perspective.
Are we seeing a pretty broad array of technology types at this point and are there any read through as you might be able to make through make from that is as a result of that Brett.
I think what.
And Doug what I would say as you know.
As our completion activity is starting to recover we are clearly seeing.
The strength and bad debt.
And by the ESP.
Business and then in addition, I would say dogs and ESP business, you've made a call that we introduce that new technology.
Powerful motor, which we shared with you last quarter and that has continued to get some strong acceptance. So clearly we are seeing good momentum and the ESP technology, partly driven by that debt.
And completions and and partly the new product and production.
And Rod lift has been a really great story.
And I covered from the bottom up and up mid last year at that shut in volume came back online and then ask though and the price continue to move up.
We saw we are seeing continued to see increased broad enough activity as customers start spending more on those volume throughout and we are also starting to see the conversions starting to.
Show up now so again rod lift continues to be a strong.
Strong, Slovakia, and and our teams are executing well on from shared opportunities as well.
So those two clearly our.
The big product again.
All forms of artificial lift we have seen growth jobs, all forms of lucky enough to get to and growth.
Great. That's very helpful. And then just the free cash flow generation continues to be very strong for you. All and you mentioned there are various growth opportunities certainly sounds like plenty of organic growth opportunities on the horizon.
But you also want to return cash to shareholders.
At some point down the road and your Capex as a percentage of revenue is relatively low compared to the free cash flow generation.
Given the strength above and beyond kind of the guided free cash flow to EBITDA levels that we've projected.
And I mean, you guys have kind of trials and those levels quarter end and quarter out any expectation and our thoughts around broad brush strokes and not looking for exact timing around when you might be able to be and are positioned to start returning cash to shareholders.
Yes, Doug and it will be a very.
Pleased with that.
Cash flow generation potential and execution of the portfolio.
And as we mentioned you know.
We remain committed to that I think you should continue to expect us.
And on a full year basis generate between 50.
Could you kind of look between 50% to 60% of the EBITDA to cash flow.
Some products will be much higher from partners will be slightly lower back down and full year, because we feel very comfortable with that 50% to 60%.
So if the if the activity level continues to be constructive I think we will get there sooner than later, but and I'm not going to put that timeframe precisely but.
But I just want to.
And we emphasize that would be out very clearly focused on debt.
Thanks for that color Soma.
Thank you.
Thank you. Our next question comes from James West from Evercore ISI. Your line is now open.
Hey, good morning, good morning, Ken.
And getting in Florida.
So I'm curious about your operations around the middle East as we restart the economy here and you alluded to it earlier, the reopening and oil demands about.
Rip higher and built.
And they'll take barrels have to come back online as we all know well or are they already.
Engaging with you in that process at this point and setting up for that and.
And as a result of that could you see a nice.
Sequential.
Q3, Q bump in.
And your production business as a result.
Yes, James Yes.
And at least seeing you know.
And increased tender activity in.
And in the Middle East area, and particularly around Opex and that business as well as and that production chemical side, but on the person chemical side as you know the tenders.
And tend to be.
But longer term contracts rightful. So here the question of I think the more of the production chemical activity will be driven by budget.
Releases in the second half and now.
As customers, particularly into the OPEC countries.
Starting to.
Increased production.
Definitely we are seeing debt tender activity picked up and and <unk>.
The middle East.
And our teams are well set up for that.
And so you should expect.
Sequentially all of our international, particularly Middle East continued to show strong growth as we walk into Q2, and then as we had in Q2, and then Q3 and Q4, we expect to all of our product lines to grow in Q2.
Right, Okay, Great and then just come and unrelated follow up you mentioned when you were talking about the Decarbonize and of the Carbonization excuse me and the operations that there could be organic but also inorganic.
Growth, how should we think about the inorganic side what kind of for.
Acquisition or.
JV or partnership opportunities.
Are out there that we should be considered.
Yes, Jim Great question and.
Yes definitely.
Walk us on all of those possibilities.
And that's an example of it should be pointed out.
And that technology.
Investments, we've made and QM.
Evaluating number up those options you know.
So I think debt.
The number of new technologies, which are being developed and we are participating in them.
So it's.
In terms of.
And how the timing of those things will work its too early to tell.
We are we've got a number of things.
Yes, we are looking at in the Bay area and so you should expect us to continue to update on the progress on that and this is an area. We feel really really good about our games because of the debt that the access.
We have to the production well site.
We have over 3000 employees, who day in day out.
Visit fees.
All sites so.
We had and a much better position and the access to the well site. So so you should you should see us continue to stay focused and you'll see more of that.
You know from us.
Okay got it thanks, so much.
Thank you.
Thank you. Our next question comes from Scott Gruber from Citigroup. Your line is now open.
Yes, good morning, good morning, Scott.
<unk>.
So great to hear the pricing traction and chemicals.
Obviously, we've also seen crude prices continued to inflate here and.
And with the global economic backdrop, peering very constructive through the summer and fall there does appear to be risk of additional inflation from variety of commodities.
Can you just speak to how you thought about that with the pricing resets.
Did you try to build and some buffer for additional inflation.
Or are there contractual mechanisms to offset additional inflation I guess the main question is.
One how much additional inflation can be absorbed without putting the year and margin expansion go at risk and what's your ability to talk.
Said, another bout of inflation and.
And the second half.
Yes.
Scott This is something that we are watching.
Definitely closely I would say you know two two.
And to your question I think we have done some sensitivity around these things and.
Given our pricing improvement efforts, plus our productivity and synergy efforts.
We feel pretty good about.
Pretty good about the margin.
Execution here and.
<unk> weighted for the year.
So.
I think of I think.
You said that the sensitivities, we have done all point to the fact that we should be able to offset the raw material inflation, even if debt is a little bit more than what we what we are currently experiencing.
Got you.
And then yesterday.
And other service company commented on getting drill bit pricing, that's above and beyond.
Input cost inflation.
Do you have any ability to push pricing.
And the Diamond cutter and search at this point.
Yeah, Scott del Webb and.
<unk> discussed from the past the way, we do typing and our Diamond cutter business is.
We don't necessarily have like a price increase type mechanism, what we do it's mostly through the innovations we do as you know.
More than 50% of this business.
Comes from new products within the last three years. So that's our primary mechanism for getting price increases and I would I would say we have we are engaged now because the customers.
That's a market that's what I covered it's very clear that the customers focus up turn to technology and and differentiate it.
Our products and technology, so that gives us that opportunity.
Got you appreciate the color. Thank you.
Scott.
Thank you. Our next question comes from Chase Mulvehill from Bank of America. Your line is now open.
Hey, good morning, everybody.
Good morning.
So I guess first question and kind of wanted to talk about was there's a debate out there about completions momentum kind of stalling as we get into the summer and kind of look into the back half of the year.
And I'm here and the U S and so maybe if you could talk about how this could impact if that happens how that would actually impact the U S. Lyft business I know, there's a bit of a lag between completions.
And you lift revenue. So just I don't know if you can kind of bridge the gap.
If you start seeing kind of stalling momentum on completions and what kind of impact that may have on the lyft business.
Yeah.
<unk>.
I think that the business that gets impacted with the lag is.
And as the ESP part of the business if that is the completion slowdown.
We don't see.
And other parts of our portfolio and in the net getting significantly impacted by that.
But our conversation so far with our customers.
And I would indicate.
And any type of path.
You have slowdown, but also among all you made a policy and ESP business and nowadays that is the the second and third runs on.
On the ESP, so even if the completion and flows.
Going to take a little bit of time before we see that impact and yet because of the second and third line.
Awesome, that's very helpful. I appreciate the color.
And then and I.
And I know drilling tech is less impactful these days post the merger.
But obviously, it's had a good couple of quarters here on the on the restocking and looking at debt chart that you guys provided and are always appreciate that chart. It looks like you kind of have a roughly a three quarter benefit of restocking. So if we kind of use history and.
And think about what it means for this restocking.
It looks like we may have one more quarter and restocking and.
So you should be able to outperform the rig count and <unk>.
Would you agree with that or do you think that the restocking is done at this point.
Yeah, I would say type cases, and the Destocking is largely at largely done and as you know the business wall Hume.
As you've pointed out.
And how these businesses.
That's been it's stepped down from a small items.
And so that the restocking.
Uh huh.
Don't expect it to be beyond two quarters, and so which means and second quarter.
We're not anticipating more impact from Destocking, but to your point of outperforming that account.
We feel good about outperforming the rig count, but just that the magnitude of outperformance wont be as high as what you saw and in Q4 Q1, but we will definitely outperformed the rig count.
Okay and the <unk>.
Outperformance was really driven by better pricing or market share gains or mix.
And what's driving the outperformance so it's a combination of a couple of things one.
As we have said debt.
And then in a growing environment.
<unk> tend to adapt a new new new technologies quicker and faster so that gives us the ability to outperform and then the second thing.
And particularly in the U S rig count as you know since the drillbit this a rental model.
As the rig count increases debt.
The fleet a little bit growth. So typically every and account every day. They may have three or four debt associated with it. So generally as the U S rig count growth that tends to be more.
More of our throughput get patent.
Got it got it and that makes sense.
Appreciate the color. Thank you.
Thank you Jason.
Thank you. Our next question comes from Stephens and Garo from Stifel. Your line is now open.
Thanks, Good morning.
The only thing I wanted to ask about was on the on the revenue synergies and any any traction you've seen there, thus far and and.
And how you think that unfolds over over the next sort of one to two years between the two between the two businesses.
Yes, I guess, thus far since the merger and and and and as we look out here in the next couple of quarters.
Yes, Steven.
Okay.
I expect to up.
Going on with the pandemic our teams have been really collaborating well and really doing a great job of it.
Executing on the opportunities. So we haven't really good pipeline of opportunities that teams are built out so if I if I look at the the SBA debt to recalibrate.
We looked at this and three buckets. The first bucket is what we call it past that cross sell up to and a deep and that tends to be largely you know.
And the short term opportunities up mostly in North America, because the international opportunities tend to take a little longer time, because debt tender driven and you have to build local capabilities and qualification and so on the cross sell opportunities and in North America debt teams have made excellent progress.
And number of examples of success.
And it is contributing today.
To sum up our E P.
<unk> revenues and some to alter our production chemicals, but but mostly the Phd revenues.
And then the second aspect, there and the international side and it'll be a number of tenders. We shared with you one last year, which we won a decently and the first quarter will be one.
And.
And nice opportunity and Argentina.
And because of the because of the joint joined up.
Synergy opportunity. So there's a number of those opportunities the pipeline is really building nicely. So you should see.
We walk into the end of this year and next year, you should see these opportunities starting to materialize as more and more.
Great. Thank you and then.
And just.
As a quick follow up.
To that.
On the cost front, I mean, you've sort of outlined.
Very well kind of the progress you've made today and and your and your and your goals that you have set out.
Are you finding areas that there's potentially upside to those goals longer term.
Soon we are always in that mode.
I think and I always say that coming out of the and industrial heritage. We are constantly focused on productivity day and day out. So we are always looking and looking at that and but right now we're very focused on executing on debt $125 million, but.
I want to assure you that we are always always in that mode.
Great Alright, thank you for the color.
Thanks Steven.
Yeah.
Thank you as a reminder, if you have a question. Please press Star then one on your Touchtone phone. Our next question comes from Blake Gendron from Wolfe Research. Your line is now open.
Hey, Thanks, Good morning, guys wanted to come back to the international and discussion I appreciate the commentary that you've given on the middle East and.
Some of the tendering opportunities broadly three specific questions one for each segment.
First on chemicals.
Hearing about some pricing competition and the middle east kind of across the surfaces Board. It's a.
Competitive tendering environment right now, but for chemicals, specifically there was a larger.
Just trying to get in to that region more. So that's the first question is just on pricing pressure and the middle East specifically and camps on artificial lift and wondering what the.
Opportunity is offshore and whether.
Do you expect to maybe become a bigger presence offshore just broadly outside of the middle East and artificial lift and then and drill tax can you remind us what the percentage of pdc's used versus other conventional bits like roller cone because our understanding is that it's mostly bdcs and the U S but outside.
It's fairly mixed I appreciate I appreciate those answers.
Yeah.
Starting with your first one.
<unk> net effect of the production chemicals and the pricing and.
And the middle East and especially with a lot of conflicting kind of trying to enter the market you know, so clearly and it'll be.
We've watched those dynamics, but b.
And we focus on our strength of competing and particularly around technology.
Technology differences and the customer responsiveness and that's you've seen you know all of our teams are very very focused on that customer centricity and customer responsiveness.
And so we feel.
Good about.
Competing positions and compete effectively and one of the reasons. We are very focused on making sure that we are.
Driving the synergies and and and.
<unk>.
Ah by chain optimization and other chemical technologies team is doing a really good job of staying focused on it is because we can strategically different shares as needed at the same time, you know continue to expand margin. So we feel good about how our roadmap there.
On the on the.
Opex.
Lift side.
And when I look at the set up opportunities and sandpiper.
We really have so much.
And a compelling opportunities in the land tied up the business both in U S as well as internationally.
In the near term, we don't have currently any.
And our plans to enter into offshore now.
Now, if we exhaust of opportunities and the near term.
And the exhaust all opportunities and the land.
And then we'll start looking into the offshore, but I feel so much compelling opportunities.
In the line.
And both from the U S and internationally I think I think we are going to stay focused on it.
Lastly, with respect to the.
The drilling.
Drilling technologies business can you remind me Blake.
Question on debt.
Yeah, just the proportion of Pdc's outside of the U S versus other types of bits. Thank you and.
And you rightly pointed out usf's, mostly moved onto the beat the PDP and thats, largely driven by that horizontal drilling and high spec rigs.
Because you need it.
And you need that type of power to drive the PTC. So I think U S is mostly gone through the PTC and type type cutters internationally that is still a roller cone you know so I would say that it's probably in the neighborhood of 70, 75% PDP and Thats still.
About 30% to 35% debt, possibly and that and that all of them.
Very helpful. I got my Money's worth without one so appreciate it and I'll turn it back.
Okay.
Thank you Blair. Thank you. Thank you and at this time I show no further questions in queue I'd like to turn it back to the presenters for closing comments.
Well thank you.
Thanks again, everyone for your continued interest and champion ex got excited about our future and we look forward to talking to you again and the next quarter call.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
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