Q2 2021 ChampionX Corp Earnings Call

[music].

[music].

Welcome to the champion X second quarter 'twenty 'twenty.

The earnings call. My name is Hilda and I will be your operator for today.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

During the question and answer session. If you have a question. Please press star and then 1 on your Touchtone phone.

Please.

Note that this conference is being recorded.

I will now turn the call over to Byron, Pope Vice President ESG and Investor Relations.

Mr. Pope you may begin.

Thank you.

Good morning, everyone with me today are Soma, Soma Thunder from President and CEO of <unk> and <unk>.

Fisher, our executive Vice President and CFO.

During today's call some of them will share some of our company's highlights Ken will then discuss our second quarter results and third quarter outlook before turning the call back to Soma for some summary thoughts.

Then open the call for the Q&A during today's call, we will be referring to the.

Slides posted on our website.

Let me remind all participants that some of the statements we'll be making today are forward looking these matters involve risks and uncertainties that could cause the material difference in our results from those projected in these statements. Therefore, I refer you to our latest 10-K filing and our other.

Pilings for a discussion of some of the factors that could cause actual results to differ materially are.

Our comments today May also include non-GAAP financial measures additional details on reconciliations to the most directly comparable GAAP financial measures can be found in the second quarter press release, which is available on our website.

I will now turn the call over to Soma.

Thank you Byron.

Good morning, everyone I would like to welcome our shareholders employees and analysts to our second quarter 2021 earnings call. Thanks for joining us today.

Before turning towards the business results, let me first take a moment to.

Note that June could mark the 1 year anniversary of our transformational merger.

We could not be more proud of how remarkably Val our organization has put together and executed on behalf of our customers and communities over the last year.

During what was of Diana.

I'm precedented market environment for our energy industry.

We are truly better together.

Consistent with our purpose of improving lives, we celebrated our 1 year anniversary by warranty, adding over 500 hours in communities around the world I.

I am truly inspired by our teams.

<unk> commitment to all of our purpose.

With that let me turn to our recent performance. We are pleased with that top line growth momentum we saw in the second quarter of <unk>.

All of our segments posted sequential growth outperforming the market.

Our second quarter results demonstrate.

Teams attractive growth profile of the global business portfolio and further illustrates the strong free cash flow generation capacity of the company.

As the global economic and energy industry recoveries for the take hold in the second half of this year and beyond champion X is well positioned.

To outperform.

We continue to make good progress on our targeted cost synergies and we are well positioned to deliver the full targeted cost synergies of 125 million within 24 months of the merger closing in.

In addition, our field team members are increasingly.

Are you able to visit in person with customers. We are very encouraged by how receptive customer for our customers or to our better together the effort with our combined technologies products and services offerings.

We are a purpose driven company. So we will always start with of our organizational guiding.

On the slide number 4.

The improving lifestyle for our customers employees shareholders and communities.

We see our culture as a source of sustainable competitive advantage. So we feel that it is important for all of all of stakeholders day know that we hold ourselves accountable.

<unk> lobbying the relentless customer advocates being committed to all the employees delivering technology that impact of help solve customer problems and having a continuous improvement mindset.

On slide 5 speaking of technology with the impact we are excited to welcome scientific aviation.

The 2 hour of champion X team.

We have listened to the voice of our customers with respect to their operational goals and plans for the energy transition it became crystal clear that companies across the energy value chain are making the reduction of greenhouse gas emissions 1 of their highest the ESG priorities.

For as a market leader in both site specific and regional methane emissions monitoring solutions for continuous and periodic monitoring.

Antefix aviation will accelerate our growth pathway of building out our emission management portfolio to help our customers achieve their emissions.

The.

Gold.

This acquisition is consistent with the energy transition pathways for growth the shared with you before.

We are excited about the future of growth potential as the combined scientific aviation for the industry, leading methane emission detection and monitoring solutions with our.

The productive expertise and presence in the upstream production, while price and midstream solutions.

Ken will take you through our second quarter financial results. Shortly so let me just share a few high level comments.

Over the last year as the combined company our portfolio resiliency.

The extent of topline growth and strong free cash flow generation speak to the power of our combined the global business in the second quarter, our teams capitalized well of the continued growth in our shorter cycle, North American land oriented businesses as well as the emerging rebound in our.

Our international sales.

Our digital business grew 12% sequentially driven by strong growth of our production optimization offerings.

We are excited about the pipeline of new product launches in our digital business that will drive healthy growth in the coming quarters.

In drilling technology.

Technologies customer adoption of new technologies accelerated resulting in 79% of the drilling technologies revenue in the second quarter came from products that were less than 3 years old.

The healthy volume growth in the second quarter, along with the beginning of price increase.

Increased realization more than offset the impact of short term raw material cost inflation and of our chemical technologies and occupancy of businesses.

We are highly confident that we will deliver on our margin improvement expectations in the back half of the year.

And beyond driven by continued volume growth.

The synergy delivery and full impact of the price increases.

I would now like to turn the call over to Ken to discuss of our second quarter results and of our third quarter outlook.

Thank you Soma. Good morning, Thank you for joining us today I will be referencing adjusted EBITDA.

As the metric for sequential comparisons we believe this metric best reflects the business performance of continuous operations.

As seen on slide 7 second quarter, 2021 revenue of $749 million increased by $64 million or 9% sequentially.

All of our business segments contributing to this strong top line growth geographically North America grew 9% and international was up 10% included in our quarter Lee revenues were $43 million of cross sales to ecolab.

As previously communicated.

Indicated cross supply sales for ecolab or associated with our post merger supply agreement executed with the trends action agreement, we do not recognize larger on the sales from an EBITDA perspective within our financial statements. These revenues are allocated to corporate and other we expect these.

Which will continue of the declining rate for approximately 2 more years.

For the quarter GAAP net income for the company was $7.3 million up $5.8 million from the first quarter.

We delivered strong consolidated adjusted EBITDA in the second quarter of 105.

Sales of a 12% sequential increase.

This increase was primarily driven by higher volumes at all for rebar business segments.

We delivered solid cash flow from operating activities of $61 million during the quarter and generated $41 million of free cash flow during the period.

Our free cash flow to revenue ratio of 5%.

In the second quarter, we invested $20 million of cash capital expenditures, which included integration related requirements to support the separation from ecolab.

The separation remains well ahead of schedule.

The contemplated in the transaction services agreement, we continue to expect to fund the capital investment in the range of 3 to 3.5% of revenues moving forward.

Turning to the business segments.

<unk> chemical technologies generated second quarter revenue of.

440.

Billion.

Up 8% from the first quarter the.

<unk> increase was driven by seasonally higher international volumes and continued positive sales momentum in our North American business geographically North American revenues increased 4%, while international revenue boost group.

17% sequentially.

Segment, adjusted EBITDA was $62 million up 10% sequentially profitability improved on higher sales volumes. Despite experiencing some continued raw materials of the logistics cost inflation, our commercial team has been working with customers.

Diligently to implement the selling price increases we announced earlier this year segue.

Segment, adjusted EBITDA margin was 14% as volumes continue to growth and realize the impact of price increase the actions. We are confident that we will deliver healthy margin improvement in the second half of the year as we.

Obviously stated we expect this year's exit margin rate above the prior year end level.

Moving to production of the automation technologies that they had revenue of $181 million, which was up 13% sequentially drew.

Driven by higher volumes as our E&P customers.

We are free.

The trend continued to improve.

Digital revenue increased 12% sequentially driven by our spirit business at our new Smart controller, we continue to expect increased adoption of our modular fit for purpose digital solutions.

Through time as customers are placing a greater focus.

Spending leveraging digital technologies to improve their cost structures of drive efficiencies.

In second quarter segment, adjusted EBITDA was $38 million up 7% sequentially.

Adjusted EBITDA margin was 20% down slightly versus the first quarter due primarily.

On some cost inflation experienced during the period, but we expect to fully offset this cost inflation with announced price increase actions to maintain of 20% plus.

<unk> margin per.

We'll file in the second half of the year.

Drilling technologies experienced the third consecutive.

<unk> to the quarter of improved customer demand as the active U S. REIT cash continued to increase during the second quarter, although it was offset a little bit by seasonal headwinds from the Canadian spring for a period segment revenue was $38 million of the second quarter of 7% increase sequentially.

Which outpaced the north American rig count during the period.

Drilling technologies delivered segment adjusted EBITDA of $8 million during the second quarter of $1 billion sequentially, driven primarily by higher volumes.

Reservoir of chemical technologies revenue for the second quarter was 30.

<unk> 33 billion at 11% increase sequentially driven by higher U S well completion activity as expected the reservoir.

The chemical technology segment EBITDA improved in the second quarter, moving above breakeven of $1 million sequential improvement, which was primarily.

Driven by the higher volumes.

Moving to slide 8.

Of the presentation merger synergies demonstrates that we continue to make progress towards maximizing synergies from our transformational merger are coordinated activity across the company is enabling us to capture.

<unk> digital integration benefits as well as cost and efficiency improvements and revenue synergies, we still expect to achieve our targeted $125 million of annual cost synergies within 24 months of the merger closing date, and we exited the second quarter at of.

Of the tendered and $3 billion running rate.

We will continue to share with you progress on this front.

Turning to slide 9 our financial position.

We had $239 million of cash on hand, and approximately $592 million of total liquidity.

The including available revolving credit facility capacity at the end of the second quarter, we repaid $62 million of debt during the quarter and since the merger date, we have paid down $230 million of debt obligations or 21% of the then outstanding total.

At June 30, our net.

Debt to trailing 12 months pro forma adjusted EBITDA was 1.6 times compared to our net leverage of 1.9 times at March 31. This despite having now roll off all of the strong EBITDA pre pandemic quarters.

We remain highly focused on operating and free cash.

<unk> delivery working capital management, and maintaining our strong liquidity position.

We continued to execute on our capital allocation framework with the priority of using our free cash flow to invest in technologies to support our high margin growth initiatives.

And while using available.

The excess cash of the near term to further reduce our leverage to our long term target of approximately 1 time net debt to EBITDA.

Turning to slide 10 in our third quarter outlook, we expect a potential increase of revenue in the third quarter with revenues, including eco.

The lab cross sales in the range of $765 million the 8.

$805 million the.

The sequential change is primarily driven by anticipated continued volume improvement in our international operations and further positive momentum in our shorter cycle of North American protect.

To the oriented businesses.

Our drilling oriented businesses are expected to benefit from continued U S rig count growth, albeit at a moderating pace.

With our selling price catching up with the raw materials inflation and coupled with our synergy initiatives and ongoing cost of productivity actions we could.

Continue to expect year over year margin rate improvement as we move to the end of the year for.

For third quarter, we expect EBITDA of the range of $119 million to $125 million on this slide we have also provided some additional specifics related to our third quarter outlook.

We remain pleased with.

Of our strong cash flow performance and we are confident that we will maintain free cash flow EBITDA conversion ratio in the $50 to 60% range for 2021 now back for solar.

Ken before for the open the call for questions.

I'd like to Tony of attention to slide.

Off of the deck.

Which highlights the highest strategic priorities of champion X. We have previously shared with you.

Last quarter, we shared with you we have a few high level of pods on how we are positioning our portfolio for sustained growth as the energy industry evolve today, let me free.

<unk>, how do we think about Amazon 1 of all of strategic priorities, which is leveraging our global footprint to expand.

And international sales.

We have shared with you our plans to expand of our occupancy in the business in key international the Geo market by leveraging the already global footprint.

Frame for the chemical technologies businesses.

1 year into our merger we are encouraged by the reception that were receiving from I will seize mlps and independent upstream customers around the world.

And of our pipeline of opportunity continue to expand.

As a reminder.

Sprint of strategically prioritize 7 countries for international artificial lift expansion. These are countries in retail of chemical technologies businesses are already well established by the bench, we have limited to no off of share presence today.

These countries collectively represent an estimated 1 point.

$5 billion in the artificial lift market.

And we see the potential to capture 10% to 15% share over the first half of the decade.

We are starting to see the results of our efforts in the area in the second quarter, our production and automation technologies International.

<unk> revenue growth significantly outperformed the market growing 15% year over year, and 11% sequentially, primarily driven by our optics share net growth.

At the international line field activity levels start to grow next year and beyond we are excited about.

The organic growth opportunities ahead for <unk>.

Lot of our occupancy of net and production chemical businesses.

Regarding capital allocation, we will continue to use of our strong full cycle of free cash flow generating the ability to further debt pay down debt to our target level.

And our value creation.

We will continue to guide, how we allocate capital to both organic and inorganic opportunities.

In addition, we remain committed to the path for toward a sustainable return of capital mechanism to our shareholders over time.

We're very pleased with the progress we are making towards the <unk>.

<unk>.

In closing champion X is a global production of oriented technology provider and we are well positioned to be of long term winner as of the 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 to our shareholders in the second half of this year and in the future.

Again, I want to thank all of horse MPLX employees around the world.

For their continued dedication to our purpose of improving the lives of our customers our employees our shareholders.

The holders and our communities I'm, both humbled and inspired to lead such a phenomenal team with that I would like to open the call for questions.

Thank you we will now begin the question and answer session. If you have a question. Please press star and then 1 on you touched on.

Phone.

If you wish to be removed from the queue. Please press the pound sign or the hash key.

There may be at the labor for the first question is for now.

Using a speakerphone you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press star and then 1.

1 on your Touchtone phone.

We have the question from George O'leary from Tudor Pickering Holt. Please go ahead.

Good morning, guys can you hear me.

Good morning, George for.

The time here you're fine.

Can you all hear me.

Yes.

With many of your time George.

We seem to have lost Mr. O'leary will go to the next question.

The question comes from Scott Gruber from Citigroup.

Yes, good morning.

Good morning, Scott.

So the initial detection opportunities is very intriguing given for the.

The developments on the <unk> side.

How do you see this market developing what's the growth potential for champion that's here and what type.

The news to the generating from emission detection in say 3 to 5 years.

Yes, Scott.

We are very excited about the opportunity and you made a call in the previous call, we said with the <unk>.

Pathways, we are exploding.

Rather 3 pathways, we shared for sustainable growth for the energy transition.

And the 1 of them.

Talked about was to be called at the <unk>.

The carbonization of oil and gas production with an emphasis on <unk>.

Emissions monitoring of greenhouse monitoring the idea of behind.

Kind of clearly <unk> emissions.

The number 1 priority for us.

All of for E&P customers and production worldwide from MIT.

The midstream plans in the pipeline.

So of the methane emissions in debt, we all know methane emissions of API.

Times more potent than OCA.

Equal in carbon dioxide emissions.

So and we feel that given our presence of the wealth side and the midstream solutions.

The number of production well sites, we have access to this is that clearly in the 80 of.

We can help our customers and make a difference sort of.

We are excited to have of the opportunity to be able to.

Acquirer of scientific aviation and scientific aviation.

Is that day or a full suite of solutions developing from airborne to withdraw.

Based as well as the continuous monitoring of the production well site.

The scientific aviation from all of the work we have done.

Now that they have a clear early mover advantage in the Bay area.

With the largest installations.

Especially debt.

The board with I will see EPS with the large independence as well as with the mid tier solutions. So we are pretty excited about the.

The market is going to you in other view, it's going to grow really really fast on the area and that we are seeing that from just the request from our customers.

<unk> been wanting to know more about the solutions, we have been very pleased with the the uptake of.

Interest in the area and.

The market.

The adoption of the market can we think about it.

From the.

The business perspective.

The of typical fight.

The production well site may be the.

Acquire of between 6002 of let's say $8000 what type of equipment.

In addition to that you are going to see an ongoing.

Revenue stream of revenue stream related to monitoring and the Anil.

The analytics on the quantifying the solutions.

So in the.

Conservatively, even if you think about when you have $1 billion well flights from there.

In the in U S alone are conservatively if you.

Think about even 20% of the wildfire getting this type of wildfire equipped for.

On the displays because not all of it looks like sort of imaging the same way.

The market.

It can be anywhere between at.

100000 wealth side can be on a low end of the $600 million.

The 1 billion billion plus dollar.

In the near term.

And so we clearly see that this is that the area where things will grow really fast.

So obviously.

We are 1 month into the into the acquisition. We are pleased by this so.

Hopefully that gives you an idea of.

The type of the market.

And how the growth can.

The growth can happen.

Yes. It does the I appreciate the certainly exciting.

Given the the acquisition in your own internal capabilities on the digital side do you feel like the portfolio is rounded out.

To capture the opportunity or do you still need to go out and other buyer the develop some more technology to really capture of the opportunity in front of you.

Yes, Great question Scott up.

We are of great stocked with the initial offerings.

But we are continuously looking to.

Make sure of that to be.

Covering the full suite of solutions and that will require I would say yeah. An addition of from service capability, which we can do it organically.

The because of level of given out what I'll do the field service network and that may be.

1 of 2 other addition of technology, we might have to do but I think from my production Wellsite standpoint, I think we have a very good in the show.

Solution, but we will build out the service offerings around debt or a period of time.

Got it.

I appreciate the color of civil Thank you.

Thanks Scott.

Thank you and Michelle Lairage that let's go ahead and taking the question.

Please go ahead, Mr around the area.

Sorry about that guys may internet cut out right of about to ask the question.

Q3 guidance is very strong I wonder if you could provide some incremental color on kind of of the moving pieces underneath that by business. The the geographic commentary was helpful. You touched on drilling technologies, but what about phe and production chemicals, how do you think that plays out.

Yes.

I think we have.

The 3 mentioned we are pleased with the with the top line momentum in our.

And the businesses and I want to think of the teams because of executing extremely well navigating the.

Top line growth at the same time.

The inflationary aspects and the associated price increases. So when you look at Q3, we expect all of those segments to grow across the board.

Given both the momentum starting to show in the international side as well as the not the American charts cycle activity. So we expect the all of them to grow production chemicals is going to benefit from the continued international of recovery. So we feel really good about that.

So so I think the you said that you should expect the all of those segments to show growth now.

Now on the on the raw material side as I mentioned.

It seems are doing great job navigating bev and so.

So we are continuing to stay focused on making sure of that we manage the inflationary pressure and the associate of price increases.

But I would also say that we have multiple levels.

In addition to price increase.

We are working on that includes everything from our productivity effort synergy delivery.

So we have done multiple scenarios.

Of inflation was of.

Our of price increase the as well as our other levers and based on that we feel really confident about the the.

The pup delivery in the marketing expectations as you can see.

And the.

The other thing we are excited about the the given the top line growth.

The.

The inflation stopped the easing at some point whether it is towards the end of the year beginning of the next year I think you should see a mob doom acceleration in our business of given the top line top line growth. So.

While the near term raw material inflation from there, but I would be got multiple levels to navigate.

That and deliver on that.

For the second half margin.

Improvements true.

Feel really good about that.

Very helpful. Thank you so much and then the smart chemical skip dilution of us over the line in the presentation that that'll be commercialized in July and there was something kind of around the time of the merger of that was brought up.

Pretty frequently and people are clearly interested and can you just remind us.

With all of that offering is and how it's differentiated and then the kind of the market opportunity in the strategic plan of attack for for rolling that out.

Yeah.

Fluidly I think the.

The the the the idea of around the smart chemical injection caters to make sure that the.

We are doing the chemical injection on.

On demand and make sure that the right type of chemicals on the right quantities are injected at the right time and this has a significant impact for our customers both from the perspective of the or operating expenses.

They'll optimization as well as when you think of the ESG implications associated with it and the second aspect of the with the Smart injections gets is also the last mile optimization.

That is still a common practice of using.

Treat the trucks to go in.

Inject the chemicals.

So the smart indiction for kids will be focused on.

The the eliminating the need for.

Those type of treat the clerks, which has again safety and and an environmental implications for can avoid all of the trucks going through so we have customers who are.

Right now.

Of piloting the chemical addiction for kids.

With the objective of eliminating the tree.

Need for treat of trucks, and so on and so forth. So given our access to the market given our chemistry domain expertise and give and combining that with the digital.

So the typical smart addiction scared, we'll have a complete skid, including all of the mechanical hardware required which will include everything from the.

To the associate that fitting some tanks as well as the power pack.

If that is no electric power available with the solar power pack.

As well as a controller with the embedded software.

Which has the intelligence to control of optimized so that's the whole.

Packet of the of kids and we are very pleased with the way. It is progressing. So this should again as I mentioned in May of prepared comments the pipeline of the digital products the should deliver a healthy growth.

Thank you guys. Thanks OMA.

Thank you.

Our next question day.

The Anderson from the dark Green.

Hi, good morning Soma.

Just come out of your comment made of artificial lipkin for the international penetration chunk of like if I heard you right. I think you were talking about maybe of 10% to 15% market share.

By the end of the decade internationally.

I know this has been sort of 1 of the.

1 of the idea of behind champion access to kind of leverage the footprints that you had over there with you of equal labs had over there I was just wondering if you could kind of talk about where you are in that process. Today. I think you had a couple of some of the smaller kind of middle east countries that you're working on but no cheese of the last 6 months between a ton of artificial of contracts out there from some of the bigger.

Service contract company, So I'd love to kind of get your take on kind of that strategy. How you see the coloring and also kind of maybe comment on the price of what was your <unk> sort of the pricing of those contracts that you saw there does that like not kind of where you want it to be or just cause I just don't worry of a good sense of kind of.

For those ended up.

Yeah, the morning day of Bob.

So just to clarify.

We already have some of the she'll the presence internationally and particularly in the avs like Oman in Australia, and Argentina, Colombia.

So the cause of the framing of the commentary around the 7 countries. The $1.5 billion of market value is that the.

Take to the initial focus for 7 incremental countries.

So the 7 incremental countries where in of of chemical technologies.

Really good footprint.

They're out of art of she'll lift products have the limited of more present in the market.

So the framing of the 7 countries represent the 1.5 billion dollar market an occupation lift the 7 countries and we think we would be in a position to get to about 10% to 15% in that 7 countries as the market share. So that's the framing.

So we are making really good progress on it.

Said before.

That is the fifth of.

What I would call it.

Slowness in the during the pandemic time for because of not being able to.

Make joined visits to the customer and even in some cases, the customer's ability to.

Qualify in a pool because David.

Workings of the monthly and so on and so forth the right, but but our teams of doing a really nice job.

Getting through the items you could see the results of that when you look at however.

The international business then.

Pretty much largely driven by the option of grew internationally. So we have we of.

Winning contracts.

But again I want to talk about the 7 countries because in for it and as you can understand for competitive reasons for we are not in the position to talk about the charge of 7 country, but but we are focused on the on the.

The 7 countries and I would say that the day of that we are pleased with what we are paying and the evidence of that day.

The growth you are seeing and of our international business and not the shipment.

So so what are some of the challenges the in order to kind of get to that market share of the that you are targeting there is the brand recognition.

Admission is it just getting sort of countries approvals because of the footprint kind of when you think about how to get there.

What are some of the kind of the the hurdles you'd have to to get past.

Great question, the from a brand recognition standpoint for.

Auction lately for us Dave that.

Since we have some of the growth standard bramson option left like liberate cognizant of ratio of an already sort of already left I think.

That does not there is an issue the.

The the key aspect is making sure of that is enough.

Service the capability on the ground.

So that the customer of Kevin.

Feel comfortable and confident that they have at local service capability.

On the ground and that's where the existing chemical.

Technologies footprint helps.

So we can since the elderly have an existing footprint. It is it the accelerator ability to add.

Incremental off of Shameless service capabilities quickly, including things like that is the legal entity and plays that as the HR support structure in place that has the ability to do local business in place. So.

Making sure of that you are able to do business locally and you have the service capability locally and you have the support of capabilities locally is the key and I think that's where the chemical technology business would of accelerated and I think that's the market and reopened from more in the area.

Is.

I think you will see the moving.

The building up the of capabilities moving much more quickly.

And those southern countries that you just mentioned you already have a presence there you've already had kind of.

Infrastructure on the ground correct, that's exactly right and that's why the particularly choose those countries because they have good autumn share lift the market with what.

Alex line can immediately participate.

And out of it.

Chemical technology business already have that for the current and place okay.

Alright, Thank you from.

Thanks day.

Thank you. Our next question comes from changed small small the hill from Bank of America.

Good morning.

I guess a couple of questions on international at.

It all start on the chemical sod.

For the international.

I think everybody kind of knows that there's there's a little bit of competitive forces out there with the with some of the larger cup guys trying to take some market share on the chemical side of.

So maybe if you can kind of just talk about what you're seeing out there in the market today, how competitive it is <unk>.

Obviously, it sounds like you've been able to kind of pushed price.

But then maybe you also talk about some of the large tenders and the pricing that you're seeing of some of the large tenders I know that 1 of the large diversified service companies recently announced.

The tender award.

<unk>. So so just kind of give us an update their of what you're seeing on the international chemical side of.

From the competitive dynamics.

Yeah.

<unk>.

In fact I spent.

The day with our.

International sales teams and I would say that I am very pleased with the how focused they are in continuing to maintain our leadership position in the in those countries. So from an international perspective.

We are pleased with the recovery bfp.

So clear.

Clearly.

Sequential growth in our international of revenues.

In our PCT business.

Which in fact of of international revenue grew fast of them the North American revenues in our PCT business. So it's good to see that momentum starting to come through.

Competitively.

No.

We're very focused on our customers and making sure of that we are of executing an hour of valid proposition with our customers.

So of the.

The the.

The recent announcements made by on of the service company as we are aware of it.

We are not the incumbent in that the in that the account.

So.

We are defending our share.

Very well as well as you know.

We have continuing to execute an incremental share games as well. So I think I would say that when I look at our production chemical technology growth.

We are pleased with how all the teams are executing and I think it's the outperforming the market.

The perfect appreciate the code of summer.

The the quick follow up of sticking out of the international theme some of the larger diversified service companies of noted some of that.

Did they have some confidence that the.

Top line can increase double digits next year on the percentage basis.

Totally realize that your portfolio is a little bit is definitely different than some of the diversified companies.

But I would of figure the kind of the production related services would outperform some of the other kind of drilling of completion of related services next year as more of kind of OPEC production comes back on line.

So so I guess maybe trying.

Trying to look out the 2022, how comfortable are you the international top line.

Increase kind of the double digit percentages on the year over year basis.

Yeah, So a chain of.

We are not going to provide the 2022 guidance on the but.

But having said that I would say that.

When I looked at the the macro of market environment.

I think they are feeling much more constructive as we go into the 2022 and when you look at the.

The the announcements from OPEC class and the outward internal the efforts around.

Recently talked about.

And the international growth.

Opportunities there of the momentum we're starting to see.

So I feel very good about the outperforming the market in the international growth so.

I think we of well positioned and in addition to the market momentum the.

Also have unique to champion act the ability to expand incremental sales outside given out of revenue synergy opportunities and leveraging the global footprint the I feel.

Really good that we can outperform the market.

Alright of good to hear the think summer I'll turn it back over thanks.

Thanks Jake.

Thank you. Our next question comes from Mark the Yankee from Colleen.

Thank you.

If I'm interpreting the message correctly for the for the year here and for the exit.

PCT as well as the whole company would have higher year over year.

Margins in the fourth quarter, so if that's going to be the case.

Assume we need to make quite a bit of progress on PCT here in the third quarter. So that it would have the.

The highest incrementals among the for correct me if that's wrong.

And then the the the follow up to that is.

As you fully get the price increases implemented assuming no change to raw materials. What is the the margin looked like for that segment of whether it's fourthquarter sometime in 2022.

Yes, I'm in Mark of I think let me start with the first the.

The assumption.

We do expect the PCP.

And the whole company to exit Q.

Q for with the higher margin rate than last year's.

The last year exit place so you're right in the.

In the other assumption that PCT will have a very healthy incremental in the in the third quarter.

And.

So so I think it would be as I mentioned.

Ask the price increases continues to take hold in the other levels the G.

Including the cost of energy delivery and productivity.

The feel good about.

2022 margin expansion.

And.

At the at the also mentioned as the inflation. He says that will also help us in more of margin expansion in 2022, what I am really pleased the marquez for that if you look at the other Phd segment, it's already passed the Prepandemic margin levels.

Given the.

The cost.

The the volume growth and the the.

The the productivity as well.

The the continued pace improvement they are implementing so I think we're well positioned the 2022 margin expansion.

That we can execute on a daily healthy margin expansion in 2022 as well.

So.

I think we are very focused on that.

And you should see bake the trade this year, both in PCT and for the whole company to be much better than last year.

Okay, great. Thank you.

Falling onto that discussion in terms of the the evolution into 22, I think you mentioned earlier some expectation that raw materials. These can you just remind us what raw materials, if I'm gonna try to pull something up on my screen I should be watching and what gives you confidence that.

Could it be some easing there.

Yeah the.

I think.

As I mentioned, a marked about let me down for the top 3 raw material. The track top 10 raw materials very closely for us, but let me share with you of the top 3 particularly.

Technology is the propylene ethylene and methanol.

Those are those of the the 3.

Free.

And in addition to that obviously.

The office should lift we monitor of the steel and particularly the special block quality steel, which are the Houston, particularly in product line for like Rod for them.

The other element of the monitors also freight right. So those of the type of things, we monitor very closely to.

The the question of.

What gives us.

Confidence that could be some using.

Obviously, we depend on.

Forecast of this in this is forward looking forecasts.

But also if you look at from of the things that drove the tightness in the market going back the the winter Tom.

In per quarter.

And how the Gulf Coast.

A lot of the plants were taken offline and now they are trying to bring back.

Those plans.

We feel that most of the plan. It is not all of them will should operate and get the operated full capacity by the time, we get for the fourth quarter.

Both of the fact of.

Get out of that are giving us.

More confidence in terms of of.

In terms of the there could be some ease of inflation now let me also be clear that we are not ah depending on that to be out of the reason for marketing expansion as I mentioned before the we're working on multiple levels for Martin expansion has so I always believed.

We always believe of 10 connect.

The control, what we can control really well and execute.

And that's what we are doing but.

Hopefully that helps you with the hour feel on the way, we think of that could be some easing of raw material pressure, particularly in can put technologies as we get the the end of the year.

Yep, it's very helpful. Thank you very much.

Thanks Mark.

Thank you. Our next question comes from that by Schnapp from co current Palmer.

Hey, good morning, and thank you day for taking my questions.

Sometimes like obviously you guys have a very good for very strong free cash flow profile you guys have done very good job on working capital.

As we think about international on not to make an revenues improving from Hannah.

Most of the international do we need to think about how should we think about debt working capital to sales typically I think of international the stores as being.

More than non but maybe that's that's not the case of the issue can just help on that.

Yeah the morning right.

Of both thanks for the questions here.

We'd be of very pleased with out of the profile of our.

Free cash flow profile of we have to be of particularly focused on that and our portfolio built that way.

The feel good about the 50% to 60% free cash flow of conversion.

From the EBITDA, which we of which we have shared with you.

Depending on the part of that will always be some variation depending on the growth profile and for a quarter to quarter that is always going to be some variation.

So I would say that you should look at the $50 to 60 percentage for the year of a good number and then let me turn it over to Ken.

Particularly address.

Some additional detail on the working capital Okay. Thanks silver.

Very confident of non the guidance of the 50% to 60% free cash flow of conversion for EBITDA for the year, we took working capital to account as we as we.

Dave that guidance, so you'll see.

As the business growth, you'll have some more need for working capital, but similar drawn the margin side, we work hard on making sure that we have other levers to pull so digitalization of the.

Our interface with customers help will help us continue to work the.

The the DSO side, and then continued to work on the automation of the the <unk>.

<unk> sighed as well so.

I look for continued improvement overall in the working capital performance of the business, which will support that 50% to 60% free cash flow.

From EBITDA conversion rate.

That's helpful and maybe I think we have tried to ask different basis of maybe I'll try 1 more time on just PCT and.

So overall revenue guidance is all about the mid single digits growth, but we did.

From PCT like 8% of revenue growth to my at least thinking is maybe the growth rate.

From 2.2 should accelerate into <unk> for Q.

Is that fair and maybe if if at least the just doing monkey magic I, just think about low we get need to get through like 400 bps improvement in margins. The should see maybe a couple of hundred bps margin implement <unk> and another 1 in for you would that be of <unk> of thinking about how the second half progresses.

Yeah I'm in the.

I think you should see a nice step up.

From.

The second quarter of the third quarter and PCT margin and then the further improvement in the fourth.

The fourth quarter margin of some third quarter to for the margin in the city so that for you.

If I could find that out.

The the the step up from the second half will be coming both from sequence of lead from Q2, Q3, and Q3 to queue for because they look at it.

In some ways.

Our Q3 margin for of a company of the campaign ex.

Right.

Is at 15 at the midpoint, we had already.

At the rate of.

Exhibiting last years.

So for.

That is going to be a really good step up coming through in the PCT and that's the that's a good way.

To think about it.

Alright, Thanks for taking my question.

Thank you at this moment, we shown on other questions.

So.

Thanks, everyone for your continued interest in champion ex and we look forward to talking to you again in the queue 3 earnings call. Thank you and have a great day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.

[music].

[music].

[music].

Yeah.

Welcome to the champion X second quarter 'twenty.

The 1 earnings call My name is Hilda and I will be your operator for today.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

During the question and answer session. If you have a question. Please press star and then 1 on your Touchtone phone.

Yeah.

On the 20th out that this conference is being recorded.

I will now turn the call over to Byron, Pope Vice President of ESG and Investor Relations.

Mr. Pope you may begin.

Thank you.

Morning, everyone with me today are Thomas on the standard room, President and CEO of champion X and.

Fisher, our executive Vice President and CFO.

During today's call some of them will share some of our company's highlights Ken will then discuss our second quarter results and third quarter outlook before turning the call back to Soma for some summary thoughts.

Then open the call for Q&A during today's call, we will be referring.

Please provides the 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 the material difference in our results from those projected in these statements. Therefore, I refer you to our latest 10-K filing and our.

The other SEC filings for a discussion of some of the factors that could cause actual results to differ materially.

Comments today May also include non-GAAP financial measures additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our second quarter press release, which is available on our.

The website I will now turn the call over to Soma.

Thank you Byron.

Morning, everyone.

Like to welcome all the shareholders employees and the analyst to our second quarter 2021earnings call. Thanks for joining us today.

Before turning towards the smoke the result, let me close to take them.

The moment to note that June could mark the 1 year anniversary of all of transformational merger.

We could not be more proud of how remarkable eval, our organization has put together and execute day on behalf of our customers and communities for the last year.

During what.

What's the dynamic and unprecedented market environment for whether or not the industry.

We are truly better together.

Consistent with our purpose of improving lives, we celebrated our 1 year anniversary by warranty, adding over 1500 hours in communities around the world.

I'm truly inspired.

Our team's commitment to all of our purpose.

With that let me turn to our recent performance. We are pleased with the top line growth momentum we saw in the second quarter of all of our segments posted sequential growth outperforming the market.

Our second quarter results.

By the attractive growth profile of our global business portfolio and further illustrates the strong free cash flow of innovation capacity of the company.

As the global economic I mean and that the industry recoveries for the take hold in the second half of this year and beyond champion X as well.

Positioned to outperform.

We continue to make good progress on our target net cost synergies and we are well positioned to deliver the full target debt cost synergies of 125 million within 24 months of the mode of closing.

In addition, our field team members are in.

Constraining Lee able to visit in person with customers. We are very encouraged by how receptive customer for our customers or to our better together the effort with our combined technology product and services offerings.

We are a purpose driven company. So we will always start with our organizational.

The increased guiding light on the slide number 4.

The improving life of our customers employees shareholders and communities.

We see our culture as a source of sustainable competitive advantage. So we feel that it is important for all of the let's take hold us to know that we hold ourselves accountable.

Comfortable for being the relentless customer advocates being committed to all the employees delivering technology that the impact of help solve customer problems and having a continuous improvement mindset.

On slide 5 speaking of technology that the impact we are excited to welcome scientific TVA.

Aviation 2 out of champion X team as we have listened to the wife of for our customers with respect to their operational goals and plans for the energy transition it became crystal clear that companies across the energy value chain are making the reduction of greenhouse gas emissions 1 of the highest ESD.

As of March.

Market leader in both sides of specific in the regional methane emissions monitoring solutions for continuous and periodic monitoring.

Scientific aviation will accelerate our growth pathway of building out our emissions management portfolio to help our customers.

Achieved their emissions reduction goals.

This acquisition is consistent with the energy transition pathway for growth, we shared with you before we.

We are excited about the future of growth potential as the combined scientific aviation for the industry, leading methane emission detection and monitoring solutions.

Proud of our extensive expertise and presence in the upstream production outside of midstream solutions.

Ken will take you through our second quarter financial to the South shortly so let me just share a few high level comments over the.

Last year as the combined company our portfolio.

With AMC, the robust top line growth and strong free cash flow generation speak to the power of our combined the global business in the second quarter, our teams capitalized well of the continued growth in our shorter cycle North American land oriented businesses.

Well as the emerging.

The rebound in our international sales.

Our digital business grew 12% sequentially driven by strong growth in of our production optimization offerings.

We are excited about the pipeline of new product launches in our digital business that will drive healthy growth in the coming quarters.

Brazil in drilling technologies customer adoption of new technologies accelerated resulting in 79% of the drilling technologies revenue in the second quarter came from products that were less than 3 years old.

The healthy volume growth in the second quarter, along with the beginning.

Our price increase realization more than offset the impact of short term raw material cost inflation net of our chemical technologies on the occupancy of businesses via.

We are highly confident that we will deliver on our margin improvement expectations in the back half of the year and.

And beyond driven by continued volume.

Growth synergy delivery and full impact of the price increases.

I would now like to turn the call over to Ken to discuss of our second quarter results and our third quarter outlook.

Thank you Soma good morning, Thank you for joining us.

Today, I will be referencing adjusted.

For the EBITDA as the metric for sequential comparisons. We believe this metric best reflects the business performance of continuous operations.

As seen on slide 7 second quarter, 2021 revenue of $749 million increased by $64 million or 9% sequentially.

<unk> with all of our business segments contributing to the strong top line growth geographically North America grew 9% and international was up 10% included in our quarter revenues were $43 million of cross sales to ecolab.

As previous.

Previously communicated cross supply sales for ecolab are associated with our post merger supply agreement executed with the trends action agreement, we do not recognize larger on the sales from an EBITDA perspective within our financial statements. These revenues are allocated to corporate and other we expect.

These sales will continue in the declining rate for approximately 2 more years.

For the quarter GAAP net income for the company was $7.3 million up $5.8 million from the first quarter.

We delivered strong consolidated adjusted EBITDA in the second quarter of 1.

105 million a 12% sequential increase this increase was primarily driven by higher volumes at all 4 of our business segments. We delivered solid cash flow from operating activities of $61 million during the quarter and generated $41 million of free cash flow during the period.

<unk> of free cash flow to revenue ratio of 5%.

In the second quarter, we invested 20 million of cash capital expenditures, which included integration related requirements to support the separation from ecolab. The separation remains well ahead of schedule.

Schedule contemplated in the transaction services agreement, we continue to expect the fund capital investment in the range of 3 to 3.5% of revenues moving forward.

Turning to the business segments.

Production chemical technologies generated second quarter revenue of 400.

$47 million.

Up 8% from the first quarter. The sequential increase was driven by seasonally higher international volumes and continued positive sales momentum in our North American business geographically North American revenues increased 4% while international revenue.

<unk> and grew 13% sequentially.

Segment, adjusted EBITDA was $62 million up 10% sequentially profitability improved on higher sales volumes. Despite experiencing some continued raw materials of the logistics cost inflation, our commercial team has been working with.

<unk> diligently to implement the selling price increases we announced earlier this year.

Segment, adjusted EBITDA margin was 14% as volumes continue to grow and we realize the impact of price increase actions. We are confident that we will deliver healthy margin improvement in the second half of the year.

As we have previously stated we expect this year's exit margin rate above the prior year end level.

Moving to production of the automation technologies that they had revenue of $181 million, which was up 13% sequentially.

Driven by higher volumes as our E&P.

The customer spending.

The trend continued to improve.

Digital revenue increased 12% sequentially driven by our spirit business at our new Smart controller, we continue to expect the increased adoption of our modular fit for purpose digital solutions.

Through time as customers are placing of.

Cut focus on leveraging digital technologies to improve their cost structures of drive efficiencies.

In second quarter segment, adjusted EBITDA was $38 million up 7% sequentially.

Segment, adjusted EBITDA margin was 20% down slightly versus the first quarter.

Greater primarily to some cost inflation experienced during the period, but we expect to fully offset this cost inflation with announced price increase actions to maintain of 20% plus margin.

Profile in the second half of the year.

Drilling technologies experienced.

<unk> third consecutive quarter of improved customer demand as the active U S rig count continued to increase during the second quarter of.

Although it was offset a little bit by seasonal headwinds from the Canadian spring Thaw period segment revenue was $38 million of the second quarter of 7% increase sequentially.

<unk>, which outpaced the north American rig count during the period drilling technologies delivered segment adjusted EBITDA of $8 million during the second quarter of $1 billion sequentially, driven primarily by higher volumes.

Reservoir chemical technologies revenue for the second.

Against the third was 33 billion at 11% increase sequentially driven by higher U S well completion activity as expected the.

Reservoir kit technology, the chemical technology segment EBITDA improved in the second quarter, moving above breakeven of $1 million sequential improvement.

Good for us primarily driven by the higher volumes.

Moving to slide 8.

Of the presentation merger synergies demonstrates that we continue to make progress towards maximizing synergies from our transformational merger are coordinated activity across the company is enabling.

US the capture potential integration benefits as well as cost and efficiency improvements and revenue synergies, we still expect to achieve our targeted $125 million of annual cost synergies within 24 months of the merger closing date and we exited the second.

Which was at a $103 million running rate, we will continue to share with you progress on this front.

Turning to slide 9 our financial position.

We had $239 million of cash on hand, and approximately $592 million of total.

Core liquidity, including available revolving credit facility capacity at the end of the second quarter, we repaid $62 million of debt during the quarter and since the merger date, we have paid down $230 million of debt obligations or 21% of the then outstanding total.

At June.

June 30 of our net debt to trailing 12 month pro forma adjusted EBITDA was 1.6 times compared to our net leverage of 1.9 times at March 31. This despite having now roll off all of the strong EBITDA pre pandemic quarters.

We remain highly focused on.

Total operating and free cash flow delivery, working capital management, and maintaining our strong liquidity position.

We continued to execute on our capital allocation framework with the priority of using our free cash flow to invest in technologies to support our high margin growth initiatives and.

Offer using available excess cash of the near term for further reduce our leverage to our long term target of approximately 1 times net debt to EBITDA.

Turning to slide 10 in our third quarter outlook, we expect the sequential increase in revenue in the third quarter with revenue.

Revenues, including Eco lab cross sales in the range of $765 million the 8.

$805 million the sequential change was primarily driven by anticipated continued volume improvement in our international operations and further positive momentum in our shorter.

The cycle North American production oriented businesses are drilling oriented businesses are expected to benefit from continued U S rig count growth, albeit at a moderating pace.

With our selling price catching up with the raw materials inflation, and coupled with our synergy initiatives and ongoing cost of productivity.

Patients, we continue to expect year over year margin rate improvement as we move to the end of the year for.

For third quarter, we expect EBITDA of the range of $119 million to $125 million on this slide we have also provided some additional specifics related to our third quarter outlook.

We.

<unk> been pleased with our strong cash flow performance and we are confident that we will maintain free cash flow EBITDA conversion ratio in the $50 to 60% range for 2021 now back to the solar.

Thank you Ken before for the open the call for questions I.

I would like to.

We remain attention to slide 12 of the deck.

Which highlights the high strategic priorities of cash connect we have previously shared with you.

Last quarter, we shared with you we have a few high level thoughts on how we are positioning our portfolio for sustained growth as the energy industry evolve.

Today, let me frame for you, how we think about Amazon 1 of our strategic priorities, which is leveraging our global footprint to expand international sales.

We have shared with you our plans to expand of our artificial lift business in key international Geo markets by leveraging.

Tony already global footprint of all of the chemical technologies businesses.

1 yet into all the module we are in page by debt assumption that the absence of <unk> from I will seize mlps and independent upstream customers around the world.

While the pipeline of opportunity continue to expand.

As a reminder, we have strategically prioritize 7 countries for international occupancy and net expansion. These are countries in the tailored chemical technologies businesses.

<unk> well established by the bench, we have limited to no occupancy and net presence today.

Countries collectively at a percent and.

The other.

$1.5 billion in the artificial lift market and we see the potential to capture of 10% to 15% share over the first half of this decade.

We are starting to see the results of our efforts in the area in the second quarter, our production and automation.

And as technologies international revenue growth significantly outperformed the market growing 15% year over year, and 11% sequentially, primarily driven by our optics share net growth.

At the international line between the activity levels start to grow next year and beyond.

Tech non tech excited about the organic growth opportunities ahead for both of our auto show net and production chemical businesses.

Regarding capital allocation, we will continue to use of our strong full cycle of free cash flow generating the ability to further debt pay down debt to our target level.

The attic of value creation framework will continue to guide, how we allocate capital to both organic and inorganic opportunities in.

In addition, we remain committed to the path for 2.

At sustainable return of capital mechanism 12 of shareholders with time.

Im very pleased with the progress we.

And now moving towards this objective.

In closing <unk> is a global production of oriented technology provider and we are well positioned to be of long term winner as of the energy industry continues to evolve.

Through our differentiated products and technology attractive growth opportunities and strong free.

Free cash flow generation, we are focused on delivering strong financial performance to our shareholders in the second half of this year and in the future.

Again, I want to thank all of our <unk> ex employees around the world for.

Their continued dedication to our purpose of improving the lives of our customers our.

The employees, our shareholders and our communities.

I'm, both humbled and inspired to lead such a phenomenal team that that I would like to open the call for questions.

Thank you we will now begin the question and answer session. If you have a question Please press star and.

1 on your Touchtone phone.

If you wish to be removed from the queue. Please press the pound sign or the hash key.

There may be at the labor for the first question is for now.

If you are using a speakerphone you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question please.

And then Y Star and then 1 on your Touchtone phone.

We have a question from George O'leary from Tudor Pickering Holt. Please go ahead.

Good morning, guys can you hear me.

Good morning, George.

We can hear you fine.

Can you hear me.

Okay.

The near time George.

We seem to have lost Mr. O'leary will go to the next question.

The question comes from Scott Gruber from Citigroup.

Yes, good morning.

Good morning, Scott.

So the initial protection opportunity is very intriguing given for the.

The developments on the <unk>.

Syed.

How do you see this market developing what's the growth potential for champion that share.

The type.

Do you think you kept the generating from emission detection in say 3 to 5 years.

Yeah, Scott Guy.

We are very excited about the opportunity and you made a call in the previous call the shared with the debt.

Pathways, we are exploring.

The 3 pathways, we shared for sustainable growth for the energy transition.

And 1 of them.

Talked about was to be called at the deep carbonization of oil and gas production with an emphasis on.

The emissions monitoring of greenhouse monitoring.

Idea behind.

Find it clearly maintain emissions.

The number 1 priority for us.

All of for E&P customers and production worldwide from mid.

Midstream plants the pipeline for <unk>.

So some of these methane emissions in debt, we all know methane emissions are the AP.

More potent than <unk>.

Equal of carbon dioxide type of emission.

So.

And we feel that given our presence of the wealth side and the midstream solutions.

The number of production sites, we have access to this is clearly an area.

Everywhere, we can.

Our customers and make a difference.

So we are excited to have.

Half of the opportunity to be able to.

Our acquirer of scientific aviation and scientific aviation.

The <unk> full suite of solutions everything from air born too.

Broad based as well as the continuous monitoring at the production well sites.

Thank you for the aviation from all of the work we have done.

We could tell that they have a clear early mover advantage in the Bay area.

And with the largest installations.

Especially debt across.

The board that the <unk>.

I will feed with the large independence as well as with the.

Mid tier solutions. So we are pretty excited about it.

The market is going to in our view, it's going to grow really really fast on the area and that we are seeing that from just the request from our customers.

Across wanting to know more about the solutions, we have been very pleased with the.

The the uptake of.

Interest in the area and.

The market.

For the adoption on the market can you think about it.

From the.

The business perspective.

Yes typical fight.

The production well site may be the.

Acquire of between 6000 to let's say $8000 what type of equipment.

In addition to that you are going to see an ongoing.

<unk>.

<unk> Street revenue stream related to monitoring and.

The analytics on the quantifying the solutions.

So in the.

Conservatively, even if you think about when you have million well flights from there.

In U S alone are conservatively if you.

Given 20% of the wildfire getting this type of fat.

And at the place because not all of it looks like sort of meeting the same way.

The market.

It can be anywhere between at.

The 101000 wealth side can be on a low end of the $600 million.

The 1 billion billion clouds.

Think of the near term.

And so we clearly see that this is there any area, where things will grow really fast.

So obviously.

For 1 month into the into the acquisition we are pleased by this.

So.

Hopefully that gives you an idea of.

Of.

The price of the market.

And how the growth.

The growth can happen.

Well it does and I appreciate the color.

Really excited.

Given the acquisition of your own internal capabilities on the digital side do you feel like the portfolio is rounded out.

At this point to capture the opportunity or do you still need to go out and other buyer to develop some more technology to really capture the opportunity in front of you.

Yes, great question Scott.

We have a great stock with that initial offering.

But we are continuously looking to.

To make sure of that to be of.

Covering the full suite of solutions and that will require I would say, yeah. And addition of from service capability, which we can do it organically.

The because of level, given our elderly of field service network and that.

May be you know.

1 of 2 other addition of technology, we might have to do but I think from a production well site standpoint, I think we have a very good initial.

The solutions, but we will build out the <unk>.

Service offerings around debt for a period.

Of time.

Got it for.

The color Soma. Thank you.

Thanks Scott.

Thank you and Mitchell Larry Spat, Let's go ahead and taking the question. Please.

Please go ahead Mr. Larry.

Sorry about that guys may internet cut out right at or about to ask.

Yes.

Just Q3 guidance is very strong I wonder if you could provide some incremental color on kind of of the moving pieces underneath that by business. The the geographic commentary was helpful. You touched on drilling technologies, but what about phe in production chemicals, how do you think that plays out.

The question I think.

As we mentioned we are pleased with the with the top line momentum in our <unk>.

In our businesses, but I wanted to think of the teams because they are executing extremely well navigating.

The top line growth at the same time.

The inflationary aspects and the associated price increases.

Yes, when you look at Q3, we expect all of our segments for growth across the board.

Given both the momentum starting to show in the international side as well as the North American short cycle activity. So we expect all of them to grow production chemicals is going to benefit from the continued.

Sales national of recovery, So we feel really good about the app.

So so I think of you said that you should expect all of our segments to show growth now on the on the raw material side as I mentioned.

Our teams are doing great job navigating this and Sylvia.

So we are continuing to.

Jude and took us from making sure of that we manage the inflationary pressure and the associate of price increases.

But I would also say that we have multiple levers.

In addition to price increases.

We are what we are working on that includes everything from our productivity efforts synergy.

Stay for the <unk>, So we have done multiple scenarios.

The inflation with the.

Our price increase as well as our other levers and based on that we feel really confident about the step up delivery in the margin expectations as you.

Can see.

And the other thing we are excited about given the top line growth.

Yes.

When the inflation stopped the easing at some point whether it is towards the end of the year beginning of next year I think you should see of margin acceleration.

The daily business of given the top line top line growth.

No.

While the near term raw material inflation sub debt, but we've got multiple levers to navigate.

That and deliver on that.

The second half margin.

Improvements.

Feel really good about that.

Very helpful. Thank you Soma and then the.

Smart chemicals skip dilution of I saw the line in the presentation that that'll be commercialized in July and that was something kind of around the time of the merger that was brought up.

Pretty frequently and people who are clearly interested in can you just remind us.

But all of the debt offering is and how it's differentiated and then.

The kind of the market opportunity in the strategic plan of attack for rolling that out.

Yes.

Absolutely I think the.

The the idea of around the smart chemical injection caters to make sure that.

We are doing the chemical injection.

On demand.

And make sure that the right type of chemicals from the right quantities.

<unk> at the right time, and this has a significant impact for our customers both from a perspective of the out of operating expenses the.

Well optimization as well as when you think of the ESG implications.

Created with it and the second aspect of the.

The smart injections get the is also the last mile optimization.

Debt is still a common factor of.

Using.

Treater trucks to go in.

Inject the chemicals.

So the.

It's smart injection per kit will be focused on.

The eliminating the need for those.

Of those type of fleet of trucks, which has again safety and and and and.

Mental implications for if we can avoid all of the trucks going through so we have customers.

So.

Right now.

The piloting these chemical injection for kids.

With the objective of eliminating these.

The need for treatment of trucks and so on so forth. So given our access to the market given our chemistry domain expertise.

The teeth and gift and combining that with our digital.

So the typical smart injections kit will have a complete scale, including all of the mechanical hardware required which will include everything from.

Pump to the associated fittings and tanks as well as the power pack.

But if there is no electric power available with the solar power packs as well as our controller with the embedded software.

The intelligence to control of optimized so that's the whole.

Packet of the kids and we are very pleased with the way it is progressing.

This should again as I mentioned in my prepared comments the pipeline of the digital products. This should deliver a healthy growth.

Thank you guys. Thanks Soma.

Yes.

Thank you our next.

David Anderson from Barclays.

Hi, good morning Soma.

Just how much of your comment you made about artificial lift and switch the international penetration of shrinking like if I heard you right. I think you were talking about maybe of 10% to 15% market share.

By the end of the decade internationally.

I know this.

This has been sort of 1 of the.

1 of the ideas behind champion X's 2 of kind of leverage the footprint that you had over there with you of Ecolab had over there I was just wondering if you could kind of talk about where you are in that process. Today. I think you had a couple of some of the smaller kind of middle east countries that you're working on but we choose of last 6 months, we've seen a ton of artificial of contracts.

Cash out there from some of the bigger service contract company. So I'd love to kind of get your take on kind of that strategy. How you see that going and also kind of maybe comment on the pricing. What is your take on sort of the pricing of those contracts that you saw there is that like not kind of where you want it to be or just because I just don't really have a good sense of kind of.

<unk> ended up.

Yeah, Good morning, Dave.

So just to clarify.

Already have some artificial lift the presence internationally and particularly in areas like Oman in Australia, and Argentina and Colombia.

So the car the framing of the commentary around.

The 7 countries. The $1.5 billion of market value is specific to the initial forecast, Florida have any incremental countries.

So the 7 incremental of countries, where in our chemical technologies.

Have a really good footprint there.

Our artificial lift products have the limited or no presence in the market.

For the framing is the 7 countries represent the 1.5 billion.

Market in artificial lift the 7 countries and we think with the.

<unk> be in a position to get to about 10% to 15% in.

7 countries as the market share so that's the framing.

<unk>.

So we are making really good progress on it as the head before.

That is a bit of what I would call it.

The slowness in the during the pandemic time.

In that for a because of not being able to make joint visits to the customer and even in some cases the customers.

The 2.

Quantify in a pool because they've got the.

Working remotely and so on and so forth right, but but our teams are doing a really nice job.

Getting through the App and you can see the results of that when you look at how our.

International business.

Pretty much largely driven by the auction NAV grew internationally. So we have we are winning contracts.

But again I want to talk about the.

The on countries, because and foot and as you can understand for competitive reasons, we have not been of position to talk about which of those 7 countries, but but we are focused on the on the.

On the 7 countries and I would say that the Dave that we are pleased with what we're seeing and the evidence of that debt.

The growth you are seeing in our international.

The national business and auto share method.

So what are some of the challenges debt in order to kind of get to that market share the debt youre targeting there is the brand.

Brand recognition is it just getting sort of country approvals because of the footprint kind of when you think about how to get there.

Some of the.

Kind of the.

The hurdles you have to get past.

Yes, great question.

A brand recognition standpoint.

<unk> for as Dave debt.

Since we have some of the gold standard brands in auto share left like limited cognizant Fisher of now raised our oil lift I think.

We're not there.

As an issue the.

The key aspect is making sure that debt is enough.

Service capability on the ground.

So that the customers Kevin for.

Feel comfortable and confident that they have a local service capability.

That would be on the ground and thats, where the existing chemical technologies.

Technologies footprint helps.

So we can since the elderly have an existing footprint. It is it's the accelerates our ability to add.

Incremental op of shipments service capabilities.

Ability, including things like that is the legal entity in place that is the HR support structure in place that has the ability to do local business in place. So just making sure that you are able to do business locally and you have the service capability locally and you have the support capabilities.

Quickly for locally is the key and I think that's what the chemical technologies business sort of accelerate and I think thats the market.

And the open for more in the areas.

I think you will see the moving of Bill.

Building up the capabilities moving much more quickly.

And those 7 countries that you just mentioned you already have a presence there you already had.

Infrastructure on the ground correct, that's exactly right and Thats why the particularly chose those countries because they have good artificial lift market.

Of that product line can immediately participate and out of chemical technology.

This business already half of that footprint in place.

Great. Thank you Tom.

Thanks, Dave.

Thank you. Our next question comes from Chase Mulvehill from Bank of America.

Yes.

Good morning.

Sure.

I guess of couple of questions on international.

Start on the chemical side.

For international.

I think everybody kind of knows that there's a little bit of.

The competitive forces out there with some of the larger cap guys trying to take some market share on the.

The molecule side so.

So maybe if you could kind of just talk about what youre seeing out there in the market today, how competitive it is.

Obviously, it sounds like you've been able to kind of push price.

But then maybe also talk about some of the large tenders in the pricing.

Youre seeing some of the large tenders I know that with the large diversified service.

The company's recently announced the.

The tender award.

<unk>. So so just kind of give us an update there and what youre seeing on the international chemical side.

From the competitive dynamics.

Yes.

<unk>.

In fact I spent.

Today with our international sales.

The chemical <unk>.

I would say that I am very pleased with the.

How focused they are and continuing to maintain our leadership position in those countries. So from international perspective.

We are pleased with the recovery of the FCA for.

So.

Clearly.

The sequential growth in our international revenues.

Our PCT business.

Of which in fact of international revenue grew fast of them the North American revenues in our PCT business. So it's good to see that momentum starting to come true.

Competitively.

Sales of clip.

We are very focused on our customers and making sure of that we are executing on our value proposition with the customers.

So of.

The.

The recent announcements made by the service companies, we are aware of it.

<unk>.

We have not been combined.

In the DUC count.

So.

<unk>.

We are defending our share.

Very well as well as the.

We are continuing to execute on incremental share gains as well. So I think I would say that when I looked at our.

Production chemical technologies' growth.

We are pleased with how well the teams are executing and I think that's outperforming the market.

Perfect appreciate the color Soma.

The quick follow up sticking on the international theme some of the larger.

Larger diversified service companies have noted some of that.

They have some confidence with the.

The top line can increase double digits next year on a percentage basis.

Totally realize that your portfolio is a little bit is definitely different than some of the diversified companies.

But I would the figure that it kind of the production related services.

Perform some of the other kind of drilling and completion related services next year as more of kind of OPEC production comes back online. So so I guess maybe.

Trying to look out to 2020.2 how comfortable are you. The international top line can increase kind of double digit percentages on a year over year basis.

Yeah, So I can't say no other pay them, we're not going to provide plenty of 'twenty 2 guidance on debt but.

But having said that I would say that you know when I looked at the macro market environment.

I think the feeling much more constructive.

As we go into 2022, and then when you look at the.

The the announcements from multiplier.

And the outward internal efforts around.

The recently talked about and the international growth.

<unk>.

Attunity is there from the momentum we.

We're starting to see so I feel very good about outperforming the market in the international growth. So.

I think we are well positioned and in addition to the market momentum the Alt.

So have unique to <unk> the ability to expand.

Of the mental sales outside given out of revenue synergy opportunities and leveraging the global footprint. So I feel good.

Really good that we can outperform the market.

Already good to hear the thank Soma I'll turn it back over.

Thanks, Jason.

Thank you our next.

Next question comes from Marc Bianchi from Cowen.

Thank you.

If I'm interpreting the message correctly for the for the year here and for the exit.

PCT as well as the whole company would have higher year over year margins in the fourth quarter. So that's going to be the case.

I'd, just assume we need to make quite a bit of progress on PCT here in the third quarter. So that it would have the kind of highest incrementals. Among the 4 correct me if that's wrong.

And then the the follow up to that is.

As you fully get the price increases implemented.

Assuming no change to raw materials.

<unk> what does the margin look like for that segment of whether it's fourth quarter or sometime in 2022.

Yes, Mark.

I think let me start with the output the.

Assumption.

We do expect the PCP.

For the whole company.

We exit.

Q4, with the higher margin rate than last year's.

Lastly at exit rates.

So youre right.

In the.

The other assumption that the PCT will have a very healthy incremental index.

In the third quarter.

And.

So I think the as I've mentioned.

As the price increases continues to take hold and the other.

Other levels.

Including the cost synergy delivery and productivity.

We feel good about.

2020 to margin expansion.

<unk>.

As I also mentioned as the inflation <unk>.

That will also help us get in more of a margin expansion in 2020 do what I am really pleased the market I think if you look at the other segment is already passed the pre pandemic margin level.

I will give on that.

Of course.

The volume growth in the.

The productivity as well.

The continued price improvement they are implementing so I think we are well position that 2020 to margin expansion.

That we can execute in a really healthy margin expansion.

In 2022 as well.

So I think.

We're very focused on that.

And you should see the delayed this year, both in PCB and for the whole company to be much better than last year.

Okay, great. Thank you.

Following on to that.

Spansion discussion in terms of the the.

The evolution into 'twenty, 2 I think you mentioned earlier, some expectation that raw materials can.

Can you just remind us what raw materials, if I'm going to try to pull something up on my screen I should be watching and what gives you confidence that.

Could it be some easing there.

Yes.

I think thats of.

I mentioned mark about the.

Let me time for the top 3 raw material the track top 10 of our materials very closely for.

But let me share the view of the top 3 particularly.

Technologies is the propylene ethylene and methanol.

Those of those of the debt free.

<unk>.

And in addition to that.

The flea eating a lot of artificial lift we monitor the steel and particularly the special bar quality steel with the other Houston, particularly in our product line for like Rod for them.

The other element we.

Monitors also freight right. So those are the type of things, we monitor very very closely.

To the question of.

What gives us.

Confidence that could be some ethane.

Obviously, we depend on.

Forecast of these and this is forward.

Forward looking forecast.

But also if you look at from of the things that drove the tightness in the market going back for the winter some input quarter.

And how the Gulf Coast.

A lot of the plan.

<unk> taken offline and now they are trying to bring back.

The plan.

We feel that most of those plans.

It's not all of them should operate and get the operated at full capacity by the time, we get for the fourth quarter.

Both out of the factors.

Out of that are giving us.

More confidence in terms of.

In terms of the debt could be some ease of inflation now let me also be clear of that we have not depending on that to be out of it.

The reason for margin expansion as I mentioned before the working on multiple levers for margin expansion and so I always.

We always believe attempt connect we have the control what we can control really well and execute.

And Thats, what we are doing but.

Hopefully that helps you with though our feel on why we think there could be some easing of raw material pressure, particularly in kind of put technologies.

We believe we get to the end of the year.

That's very helpful. Thank you very much.

Thanks Mark.

Thank you. Our next question comes from the Vice map from Coker and Palmer.

Hey, good morning, and thank you for taking my questions.

Some of them obviously.

These guys have very good for very strong free cash flow profile you guys have done a very good job on working capital.

As we think about international and not to make them the revenues improving from here on.

Most of the international do we need to think about how should we think about net working capital to sales typically I think.

Obviously, you know the stores has been.

More than NAV, but maybe that that's not the case of if you could just help on debt.

Yeah the morning lifestyle.

Of that.

Thanks for the question here.

We are very pleased with all of the profile of our free.

Cash flow profile, we have and we are particularly focused on that and our portfolio is built that way.

We feel good about the 50% to 60% free cash flow conversion.

The from EBITDA, which we of which we've shared with you.

Depending on the quarter.

And then there will always be some variation depending on the growth profile in the quarter to quarter debt is always going to be some variation. So I would say that you should look at the 50.

50 to 60 percentage for the.

Yeah, that's a good number and the let me turn it over to Ken specifically.

Specifically address.

Some additional detail on the working capital Okay. Thanks Soma.

We're confident of non the guidance of the 50% to 60% of free cash flow conversion from EBITDA for the year, we took working capitals to account as we as we.

<unk>.

All of that guidance, so you will see.

As.

The business growth Youll have some more need for working capital.

Similar to on the margin side, we work hard on making sure that we have other levers to pull so digitalization of the.

Our interface with customers helped will help us continue to work the.

The DSO side and then.

Continued to work on the automation of the the.

The <unk> side as well so.

I look for continued improvement overall in the working capital performance of the business, which will support that 50%, 60% free cash flow.

From EBITDA conversion rate.

That's helpful and maybe I think we have tried to ask a different way. So maybe I'll try 1 more time on just PCT and.

So overall revenue guidance is kind of probably about the mid single digits growth, but we did.

On PCT like 8% revenue growth.

<unk> my at least thinking is maybe the growth rate.

From 2 Q should accelerate into 3 Q for Q.

Is that fair and maybe if if at least the just doing monkey math, if I just think about well we get need to get to like 400 bps improvement in margins, we should see maybe a couple of hundred bps.

I didn't implement <unk> and another 1 in the <unk> would that be a fair way of thinking about how second half progresses.

Yes, I mean look I think you should see a nice step up.

From.

The second quarter for the third quarter in PCT margin and then the further improve.

The improvement in the for.

Fourth quarter margin debt.

For the fourth quarter margin in <unk>, so that flow.

<unk> pointed out.

The debt.

The step up for the second half will be coming both from sequentially from Q2 for Q3 and Q3 for Q4 because.

Because if you look at it.

Some ways.

Our Q3 margin for the company of the champion ex Alright.

Is it 15 at the midpoint.

Already.

At a rate of.

Exiting last year.

So I thought.

That was going to be a really good step up coming through in the PCT and that's the that's a good way.

To think about it.

Alright, Thanks for taking my question.

Thank you at this moment, we show no other questions.

No.

Thanks, everyone for your.

Continued interest in the champion X and we look forward to talking to you again in our Q3 earnings call. Thank you and have a great day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.