Q3 2021 ChampionX Corp Earnings Call

Uh-huh.

Good morning, and welcome to the champion extra third quarter 2021 earnings Paul My Name's Brandon you know the Iraq breeders for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer and during which can be jealous Dar one if you have a question.

Please note. This conference is being recorded I will not turn the call over to Byron Pope Vice President E. S E and Investor Relations and you may be getting Sir.

Thank you good morning, everyone with me today or.

President and C E O of check your neck, and can picture or executive Vice President and C. F O.

During today's call someone will share some of our company highlights 10 will then discuss our third quarter results in fourth quarter outlook before turning to call back to sign up for some summer your thoughts.

Then open the call for Q&A.

During today's call, we will be referring to the slides posted on our website.

Let me remind all participants, but some of the statements will be making today are forward looking he's.

These matters involve risks and uncertainties that could cause material difference in our results from those protected in these statements.

Therefore, I refer you to our latest 10-K filing and our other a SEC filings for a discussion with some of the factors that could cause the actual results to differ materially.

Comments today May also include a non-GAAP financial measures.

No details on reconciliation to the most directly comparable GAAP financial measures can be found in our third quarter press release, which is available on our website.

Now turn the call in Tacoma.

Thank you buy it.

Good morning, everyone I would like to welcome all shareholders employees and and have a two hour per quarter of 2021 counties call. Thanks for joining us today.

I would like to start by expressing my sincerest gratitude to all that global champion X team.

I'm very proud of how old remarkable to get that level of organization continues to perform and adapt to the shutdown supply chain and logistics bottleneck, which have emerged this year at the global economic activity rebounds, and that makes levels.

I would employees that on the wall to have the main Nathan focused on improving the light subtle customers doesn't community and I want to thank each of them for their continued dedication and commitment.

We are pleased with the continued top line growth momentum B saw in the third quarter.

All of our business segment posted strong sequential growth outperforming the market for the second quarter.

In addition, a revenue growth outperformed the Dusty book in North America and internationally.

Our third quarter results demonstrate the attracted both profile off on a global business portfolio and further and let's trade the strong free cash flow generation capacity up the company.

The global economic and energy industry. The companies further gained momentum heading into the next year champion X is well positioned to continue to outperform.

We have made further progress toward target the cost synergies and we are well positioned to delegate it the full topic of approximately 535 million within 24 months of automotive clothing.

We remain encouraged by our customer reception better together the efforts with a a combined technology products and services offering.

As a purpose different company, we always talk with the authentication I will not stop on slide number for which is improving the lives of our customers the employees shareholders and community.

As an example of how what employees gladly volunteered their time and effort to improve the local communities in which we live and work our champion X T mean, Azerbaijan organized a wallet peer group.

Dissipate that in World cleanup day last month.

Teen partnering with <unk> from one of our customers improved via community by collecting over 3300 pounds of waste along the coastline.

Turning to flight five we are honored to be named the best energy workplace winner by ally energy we've.

We've got selected from nearly 400 nominations globally from oil and gas powered on utilities wind solar climate Tech startups and academia.

We believe this is a further validation off our purpose of improving lights off all of US take all those on the positive culture within the organization.

We work on <unk> every day.

Later in my comments I will share more with you on the tremendous growth opportunities before us in helping of our customers because they do say that greenhouse gas emissions.

But first on flight six let me give you a quick example of one of the less visible, but very impactful ways in which we had already helping you about customer reviews, the hydrocarbons that the world needs more sustainable fashion.

One of our customers so much of a job youth as production of chemical to break up the emotion and prevent form formation in their production screen.

Historically these products blended with raw materials, some solvent imported from other regions.

Our champion next team developed a solution, which enables us to replace imported swollen with the locally sourced inputs with no adverse impact on product quality audit effectiveness.

The end result is a sustainable production and see well two emissions related to seaboard and land based transport of materials.

Kendall they'll take you through our third quarter financial results chocolate. So let me just share a few high level comments.

At the cyclical recovery in demand for energy services and equipment has gained momentum during the course of this year our business portfolio has proven not suddenly it's cause I was William fee, but we have delivered industry, leading top line growth in each of the last two quarters.

This speaks to the attractive organic growth opportunities within another global business.

Third quarter, our teams continue to capitalize on the growth opportunities in our charter cycle, North American <unk>, 40th businesses, and we delivered double digit sequential international top line growth during the period.

Our digital business grew 28% sequentially, including the newly acquired scientific aviation business.

With a relatively broad based participation across our portfolio off the digital technologies.

We expect the pipeline of new product launches another digital business to drive further healthy growth in the coming quarters.

And drilling technologies customers continue to adopt our newer technologies, resulting in 79% of drilling technologies cause Avenue.

Coming from products that were less than three is walled for the second consecutive quarter.

Raw materials neighbor and logistics related cost inflation continues to be a challenge and our team started working diligently to deliver price increase relocation and productivity to offset the impact.

Chemical technologies, an outage in the businesses.

Via the main focused on delivering on our margin improvement expectation of exiting this year.

20 could be exit wait.

Regarding capital allocation that has not changed all of philosophy, we continue to make good progress toward achieving of a target leverage off one times net debt to EBITDA that further debt pay down in Q3.

We remain committed to reviewing our alternatives to a sustainable return of capital mechanism. After we retailer target leverage and based on the existing market conditions.

In addition, we will continue to remain disciplined about our capital location and our value creation framework will continue to guide, how we allocate capital to both organic and inorganic opportunities.

I would now like to turn to follow what the cab to discuss our third quarter of about an hour for corporate outlook.

Thank you Soma good morning, everyone. Thank you 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 continuing operations.

His feet on slide nine third quarter 2021 revenue of.

819 million increased by $70 million or 9% sequentially all for business segments contributed to this strong top line growth for the second consecutive quarter.

Geographically, we experienced robust sequential revenue growth with international revenues up 10% in North America up 9%, including in our quarterly revenues were $39 million across sales to equal lab as previously communicated.

Cross supply sales to ego lab or associated with post Burger supply agreements, we do not recognise margin on these sales from an EBITDA perspective within our financial statements revenue associated with B sales is allocated to corporate and other we expect these sales will continue at a declining rate for approx.

But at least three years from the merger closing date.

In the quarter GAAP net income for the company was 56 $8 million up from seven $3 million in the second quarter. The increase was primarily driven by a gain on the sale of our chemical manufacturing facility in Corsicana, Texas.

We also delivered incremental margins on higher volumes at a reduction in G&A costs due to fewer integration related charges associated with the merger.

We delivered strong consolidated adjusted EBITDA in the third quarter of $124 million, a 17% sequential increase.

This increase was primarily driven by higher volumes and all four of our businesses.

We delivered solid cash flow from operating activities of $89 million during the quarter and generated 67 million of free cash flow during the period of free cash flow to revenue ratio of 8%.

In the third quarter, we invested $21 million in capital expenditures and.

And moving forward, we continue to expect to fund capital investment in the range of 3% to 3.5% of revenues each period.

Turning to the business segments productions chemical technologies generated third quarter revenue of $488 million up 9% from the second quarter. The sequential increase was driven by higher volumes and continued positive sales momentum both internationally and in our North American business.

His geographically.

North America revenue increased 5%, while international revenue and improve 13% sequentially.

Segment, adjusted EBITDA was $71 million up 15% sequentially profitability improved on higher sales volumes. Despite experiencing continued raw material inflation. Our team continues to work with customers diligently to implement selling price increases that we announced.

Earlier this year.

Segment, adjusted EBITDA margin was 14.6%.

As volumes continue to grow and the full of packed of our pricing actions is realized we remain confident that we will realize healthy margin improvement in our production chemical business.

Moving to production and automation technologies segment revenue of $204 million grew 9% sequentially due to higher volumes as our E&P customer spending continued to improve.

Digital revenue increased 28% sequentially with a relatively broad based growth across our digital portfolio and our recently closed emissions monitoring acquisition contributing to revenues in the quarter looking forward, we expect increased adoption of our modular fit for purpose approach.

As our customers are clearly, placing a greater focus on leveraging digital technologies to improve their cost structures and drive efficiencies.

Third quarter segment, adjusted EBITDA was $40 million up 5% sequentially segment, adjusted EBITDA margin was 19.6% down slightly versus the second quarter, driven primarily by materials and logistics cost inflation.

Given recent selling price increases, we expect to maintain a 20% plus.

Percent profit margin profile in this business.

Moving to drilling technologies the segment experienced the fourth consecutive quarter of improved customer demand as the active U S rig count continued to increase during the third quarter, along with the seasonal rebound of Canadian drilling activity. After the spring thought period.

Segment revenue was $49 million in the third quarter of 31% increase sequentially, which comfortably outpaced the north American rig count additions during the quarter.

Drilling technologies delivered segment adjusted EBITDA of 15 million during the third quarter up 7 million sequentially, driven primarily by a a higher volumes and a favorable product mix.

Reservoir chemical technologies revenue for the third quarter was $38 million, a 15% sequential increase driven by higher U S well completion activity set.

Segment adjusted EBITDA in the third quarter was 1 billion dollar a small sequential improvement, which was primarily driven by the higher volumes.

During the third quarter, we completed the sale of our Corsicana, Texas Chemical manufacturing plant. This sale is consistent with our ongoing initiatives to optimize the chemical global supply chain and improve the cost structure of our reservoir.

Chemical technology business to enhance profitability.

Flexibility.

Moving to slide 10 merger synergies.

Demonstrates that we continue to make progress towards maximizing merger synergies are coordinated activity across the company is enabling us to capture potential integration benefits as well as cost improvements and increasingly revenue synergies, we still expect to achieve our targets.

125 million of annualized cost synergies within 24 months of the merger closing and we exited the third quarter at 118 million annualize run right up 15 million from the two Q exit right.

We will continue to share progress with you on both the cost and revenue synergies from.

Turning to slide 11, our balance sheet and financial position.

We ended third quarter with 254 million of cash on hand, and approximately $613 million of total liquidity, including available revolver capacity during the quarter, we repaid 97 million of that in fact since the merger date, we have paid down $326 million.

A debt obligations or 30% of the total outstanding.

At September 30, our net debt to trailing 12 months pro forma adjusted EBITDA was one two times compared to a net leverage of one six times at the end of the second quarter, we remain highly focused on operating and free cash flow delivery working capital management and maintaining our.

Strong liquidity position, we will continue to execute on our capital allocation framework with a priority of using our free cash flow to invest in technologies to support our high margin growth initiatives, while using excess available cash in the near term to further reduce leverage to our alarm long term target of a <unk>.

Maximally one times net leverage.

Turning to slide 12 at or near term outlook, we expect a sequential increase in revenue in the fourth quarter with revenues, including Ecolab Cross sales in the range of $820 million to $860 million.

The sequential changes primarily driven by an <unk> continue.

<unk> growth, primarily in our international businesses as.

As well as the typical seasonality in North America, we expect the moderating pace of us recap groups to influence our drooling oriented businesses.

With our selling prices catching up with raw materials inflation, coupled with our synergy initiatives and ongoing costs and productivity actions. We continue to expect year over year exit right margin improvement as we conclude 2021 in the fourth quarter, we expect EBITDA in the range of 100 <unk>.

30.

$140 million on this slide we have also provided some additional specifics related to our fourth quarter outlook. We remain 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 the full year of 2021 now back to so.

Thank you Ken.

We opened the call to questions I would like to turn your attention to slide 14, I'll forward back.

Which provides a glimpse into one of the most exciting growth pathways for the energy competition, which is greenhouse gas emissions management.

During <unk> at last at last earnings call. We highlighted our recent acquisition of scientific aviation the market leader in continuous methane emissions monitoring solutions, coupled with solid investment earlier this year and two album Technology. We are focused on building out our portfolio of emissions measurement and managed.

<unk> technologies to help our customers achieve their emission direction goals.

We expect a strong secular growth in the north American methane emissions market in the coming years.

In addition, we see emerging opportunities to serve customers in the international Geomarkets at the momentum behind reducing greenhouse gas emissions has global and structural underpinnings.

We are excited to launch a advanced emission research lab, which will be focused on industry talk leadership and advancing applied research in emissions to enable decarbonisation of global energy systems.

In closing champion X is a global production oriented technology provider and we are well positioned to be a long term winner as our energy invested continues to evolve.

Through all what differentiated products, some technology attractive growth opportunities and strong free cash flow generation, we have focused on delivering strong financial performance for our shareholders that reminder, up this year and in the years to come.

Again, I want to thank all of those campaign ex employees around the world for that title of dedication to our purpose of improving the lives of our customers or employees of shareholders and our communities.

I'm humbled and inspired to lead such an extraordinary team.

That that I would like to open the call for questions.

Thank you and we will now begin the question and answer session.

If you have a question please press star.

One on your phone keypad, if you'd like to be rebooted. The queue. Please dial the Palestine or head.

There may be a delay before each question does it now.

If you're on a speaker phone please pick up your headset first before dialect.

Once again, if you have a question. Please don't Dar one on your phone keypad.

And from Barclays. We have Dave Anderson. Please go ahead.

Thank you good morning Soma.

Good morning, Dave.

So a question on the pressure chemicals business I heard the.

Year over year margins, improving but I was wondering if you'd just taking more than more specifically on production chemicals and sort of the.

The past two margin expansion here, you've talked to in the past. So it has been kind of a 20 percentage normalized margin business. Obviously, you've got a lot of inflationary issues that are kind of weighing on things today, but I was just wondering if you could just kind of walk through kind of how we get there may be kind of help us understand how much it's sort of being weighed down by these inflationary issues that will get pass through but.

Other side.

Where's the growth next year like what are the Marcus you think you're going to grow the fastest extra I think we're honored view that maybe middle East is probably the strongest I guess question is that accurate, but I'm also interested I understand where offshore fifth because I think that's going to be one of your higher margin regions out there. So sorry bunch of things to that question. If you wouldn't mind. Thanks, Yeah yeah.

Thank you David.

Professor foremost.

Our production chemicals team is doing an extraordinary job.

Given the circumstances around raw material inflation and supply disruptions.

You know very well right from the beginning of the year that have been cd's of events.

That up created significant challenges for the team and we are very very much. So proud that we have maintained.

The supply of shoot installed customers 12, PDA and that's been an extraordinary effort by the team.

The.

B at that aspect I would say Davis the margin expansion delivery from Q2 Q3 on a production technical to market business is extraordinary and I'd say.

Compared to the kind of inflationary.

Shares in the area.

And.

I'm, just so proud of the team that how well they have.

Execute it on price increases.

They have execute of our productivity, but I can also tell you you know.

Today, it's not that we are covering all of that information yet.

Type of all of that.

We have we have delivered.

Yeah.

It might be an expansion in that in that business.

So given that backdrop, so as he walked forward.

Alright.

Three.

Three elements, that's going to dry for them logging expansion in peace.

<unk> business.

So first and foremost if our continued price reallocation.

So even if one doesn't increase at all the volume of the mindset of Fame you should expect margin expansion in this business.

Now, let me phrase that by saying today, we have accounted for everything we know that aspect inflation in this business. If you look at our fourth quarter guidance that incorporates the thing we know today about.

At the invitation of the pressures, but it was out of new issues that come up.

Be able to deal with it.

But just stick the Walliams remains the same you should expect.

With business to continue to get anywhere because the price relocation is going to continue to increase you might have noticed that be in October we put through October 1st an additional level of prices price increases.

Second.

We do believe.

That would be continued one human fetus and now I want to pay Q4, two Q1.

You will typically see see some of the volume drop right. So you will see that but when you look at the it'll what a year you will see continue the volume increases and we expect to international markets to grow faster.

PCT business, then, but U S Latin market, but that's what Mexico.

<unk> can also grow right. So if you look at even in Q3.

The international market Swallow PCT business of an international governance, much higher than that the U S.

A avenue 70 blue as well right.

But the intellectual W. A little faster.

To take the Kid too. So we are very confident that.

If the economic conditions continue to stay and commodity prices continued to be where they off.

You will see you have nice growth and <unk> business.

Clearly international business will grow faster than that of that.

The domestic business.

And then the third element.

As we mentioned we are continuing to what kind of a synergy anybody's our supply chain Optimisation network optimization. So these are again factors well within our control and that type of execution is what deliver the marketing expansion today Potemkin X.

All of the.

Inflationary pressure.

All right. So I think that is more to calm our teams are working on it. So these three elements continued price lately station.

Continued volume growth and on top of it that continue productivity efforts. So that's what we are pretty excited about you know I'm in rehab delegating margin expansion under some extraordinary conditions today bye.

And that he says.

No.

See the mobbed in the coming years, the margin is going to expand to that.

Very good to hear Soma switching gears over your drilling tech business literally the tip of the spirit when it comes to global drilling activity is there a particular region to seen the greatest demand right now and should we expect us restocking of drillbit in search to last well into next year and maybe just separate.

If you could just discuss some of the IP in this business there seems to be some concerns out there about patents expiring, but I believe that's primarily on the leaching process, which shouldn't impact you. So if you wouldn't mind.

Those two questions. Thank you.

Yeah, let me start with the building.

Building activity here.

As you are fine.

Dave.

This does directly.

Is driven by debit account increases so you've seen sequentially from Q2 Q3.

The use of account went up 10% seasonally obviously Canadian to come then.

And a significant get higher so north America frequency event happened on average victim perspective, cute to Cleveland up about 24%, but the international peace.

Is also a continuously growing.

International to count on an average went up about 5% three so I think that that is the field next year that is going to be a robust drilling activity.

Clearly there has been some reductions in.

Well so that that is clearly more building is going to be needed to maintain production, particularly in the U S land.

So I feel that.

U S land as well as the international activity will continue to grow in clearly next year.

And this business Dave.

It does really well.

And then as it comes continued to grow.

The our our customers continue to be prepared to keep stopping level appropriate. So that's why these be faye in a growing recount environment.

You should expect the business to outperform that may come growth and you saw that in.

And Q2 Q3.

So we feel good about.

Above activity in the business.

Respect to the leaching license.

I think it's an emerging situation you know.

You know the leaking license is provided by one company too.

A lot of the drill bit manufacturers so clearly.

If you are going to see the Bluebird manufacturers.

Considering.

The implications South B leeching license, we're watching the situation closely be have excellent relationship with all of them right. So we are watching the situation closely.

From Bank of America, We have case logo Hill. Please go ahead.

Yeah, Hey, good morning, everybody.

So so quick questions for you just kind of keep it on production chemicals.

Navigated the supply chain and raw material cost inflation better than when you are larger peers.

So maybe if you could just take a moment and maybe explain to US why you think you outperformed your peers.

And production chemicals.

And do you think it's just kind of more mix you are in North America focus or are you more offshore focus do you have a broader chemicals manufacturing footprint execution like what is it that led you to materially outperform your larger pier during the quarter.

Yeah.

Again, I can only talk to specific to what we do right for one of the things we always focus on is to pay.

The market is the same for everybody.

So what we have to focus on is focused on what they can control and make sure that we are delivering it differentiated performance for the market. So that's kind of.

Foundational focus we have within the organization that keep started indication really focused on things, we can control and execute on things, we can control and that's like UFC and the benefits of that the second is very focused approach to these things right.

Right from the beginning.

Then things started if you have a great team as I mentioned, they've been focused on it will clearly have bailey.

What room then Bailey.

Because things are changing quite a bit because this is a global supply chain right. So you have to be on top of it daily.

And.

We always believed than uncertainty increases the frequency of reviews and frequency of actions happy and pleased with it. So that was a quite a bit of review that happened right from my my level 10 tenths level.

On a weekly biweekly the views on what the supply chain issues, however, pricing realization of happening and they'd be up getting availability.

And so I would say it's all about.

Clearly, we have a very global footprint right and.

But I would say it is Scott Lobdell web how.

How we operate within the company and the focus we have on this issue and the great team behalf.

The job well done.

Actually you know.

Yeah put up some some pretty solid numbers, considering the environment three Q.

I guess a follow up.

Yes, two part question or returning capital to shareholders number one in the presentation, you mentioned Ah one two tons leverage ratio.

And.

I guess I am getting one times just using your EBITDA that you put in the press release over the past four quarters.

So number one I guess, maybe help us understand the difference between the one two and the one if you pull to we can take it offline.

But I'm getting a difference there and number two how should we think about the timing and the magnitude.

And.

How you will actually start returning cash to shareholders.

Okay.

Thanks for the question <unk>, let me ask a bite.

<unk> tend to clarify the first one about.

The leopard echinacea difference and they may come back to be comment on.

From Africa.

This is just to keep in mind that the denominator denominators trailing four quarters, either so I think that's perfect. We will get you to the different.

Okay.

Is that helpful safe.

Okay.

Thanks.

Okay and so.

As we have said.

Our philosophy FM changed as I mentioned.

I am committed to looking at the other option what is the best option to return to the shareholders. So you should see it clearly.

Look at that and review that and as we achieved this one one time elaborate so more to come on that case.

Hanging from people, we got Stevens in Barrow. Please go ahead.

Hi, Thanks, good morning, everybody.

<unk>.

Just a question when we think about the.

The revenue synergies from from the merger and sort of how they unfold could you maybe talk a little bit more about about the opportunities there and and how you think that maybe impacts your growth relative to the overall market over the next year or two.

Yeah great.

Great.

Look I think thats him as he is.

You have seen you know.

Popped up the contribution of our top line growth momentum. If also these revenue synergies.

So you kind of included.

From from.

Elements of that novel.

Right back on the flight pattern as we talk about revenue synergies.

So we expect.

The outperformance to the market.

What we expect.

In the coming quarters in coming years is going to be partly due to the contribution of these revenue synergies.

So.

As we have talked before it comes in three distinct.

The kids.

One is.

The cost of opportunities in the in the U S market.

Second is.

Leveraging our.

International footprint and relationships of chemical technology business to further enhance our market penetration five hour occupation less at the digital products and then the code is.

New new offering combining our arcature left digital Adam and production chemical business. So we are pursuing all three fronts and.

Seeing benefits.

And all three friends. So I think you should expect that to be a continuing.

Focus for us in the coming in the coming quarters.

Great. Thank you and then just best to the production chemicals for a second do you.

And I know you can talk a little bit about this but when you look out at the drivers of what's driven through your raw material costs rising and some of the issues there that you've navigated so well.

You have good visibility or sort of internal intelligence on on how those things start to normalize and sort of a timeframe for normalization or is it still too early to to sort of see how that plays out over the next year.

Yes.

Our team internally we have.

Team that.

Aggressive endless supply chain team at our finance team aggressively tracks.

Key raw materials and these are all in that space I think we have said before that.

The key things, we'd watch far off key inputs into our raw materials propylene ethylene methanol xylene.

Total Levine itch to beat http. So the Cds off.

Hydrocarbon derivative right, which b b.

Between track and that are indexed prices.

Which you can track what has been challenging this year is how quickly those.

Indexes are changing.

That's been that.

Even though we have four outward visibility.

Because all of these indexes satisfied with visibility.

The reliability of that visibility at that faraway that's been the challenge.

From a month to month, sometimes it changes quickly.

And that's not a lot to do with the bite came disruptions we saw that due to the winter Star Mark R. B had it at night.

How about chocolate issues in China.

Multitude of things that.

This year, it's been so.

So we have a very active management of this so if you look at the visibility of these.

Definitely the index they did this show.

As we get it.

Get to the middle of next year these things should stop using.

But again.

That's what today they needed show, but.

Again this year.

Those have been changing.

Rapidly. So I think we have taken a conservative assumption in our view.

On beads because of that right and that's why he said that you can look at a a queue for guidance at inclusive the thing.

We know off today.

But first we walk into next year will what will monitor it and it'll Monica, but.

But if there is a pretty pretty active processing time.

Citigroup, we have Todd Gruber. Please go ahead.

Yes, good morning.

So some of the emissions monitoring opportunity Super exciting.

So this is a hockey stick charred on slide 14.

The curious when the opportunity starts to impact your financials is that something we could see in 2022 and if so what type of revenue run right as soon as possible as we exit 22 from the business.

Yes, Scott.

Absolutely. This is David excited about this opportunity.

If the if the emerging.

Pretty pretty rapidly and.

So with respect to.

How it impacts of financial as we mentioned this is a fairly a small business.

Date, but growing rapidly.

And.

You see that getting impacted on our digital because this is part of our digital portfolio because it includes.

Our digital product fit.

Enterprise platform.

So this is part of our digital portfolio.

It's already contributing.

Tibet to the active growth.

In that area. So I think by I would expect.

As we get into 2022 and that is to play.

You have progressive.

I expect the business to get more meaningful.

Gotcha Gotcha, and I think it's it's a fairly sound conclusion to assume that the future.

Fugitive emissions initiatives really globalizers.

So what's your pathway to commercialize your efforts internationally when it comes to emission monitoring I assume there's a testing and acceptances and potential about like some of the other.

Other products.

As we started discussions that we started.

We're pushing pushing.

Pushing for subsequent posting.

How long until international revenues can be part of the mix when it comes to emission monitor.

Yeah, So Scott.

If you look at the emissions monitoring we have talked about that.

Periodic monitoring because.

The other boy type periodic monitoring using plain and drones and then you have this continuous monitoring because that new product. We introduced at what you saw and I'll, let slide on the left hand side of that slide may be caused the two feet. The <unk> sort of a continuous monitoring that goes on at <unk> dot I gas costs.

Being planned beatup continuously monitoring for the leak.

So when it comes to the airborne monitoring with planes, we already do quite a bit of those work internationally. That's why we in fact, we have people today in the brain and doing.

The add one pipe monitoring so that is.

At work that happen.

They're the growth would be you know.

Continuous growth.

Monitoring so that I think we are well positioned to.

To continue to benefit from it.

Exciting opportunities in the continuous monitoring and so they're clearly we're starting to have conversations now.

That.

That.

With the international customers and the uptake has been pretty fast, particularly in the U S. Lan cuss.

Customers.

The.

Meaning minute to have taken a wants to test at making sure that you know.

Both in and pretty much what you see this graph is all mostly driven by U S and some Canada.

So the international via let me starting to have conversations with a couple of them, particularly one in middle East and so they have expressed aspirations to start testing so I expect.

In the next three to four months will start.

Testing.

In some of that at least one if not two international customers.

From the Tudor Pickering in hopes we have Kayla Restrictor. Please go ahead.

Okay. Kenneth Thanks for taking my question most of my questions have been answered, but I wanted to follow up on international growth opportunities in artificial lift.

So in the press release, you talked about some some contract wins.

With operators in Latin America, the Middle East and Asia Pack and you also talked about some continued momentum for.

On the production oriented joined sell efforts in markets like Egypt, Angola in Romania, So management he said altogether.

Just wanted to see if we could get an update on how the.

And then targeted expansion into the seven countries for for.

Is progressing thus far and and how you're thinking about international growth within Phd for 2022.

Yeah, No I think it'll be a very optimistic about our vote.

Phd growth into 2022.

What the combination of constructive market dynamics as well as the.

Unique.

Both opportunities, we have because I'll be the better together effort.

The what you saw in the slides.

Some evidence of.

Those seven countries and how we are progressing.

On those.

We mentioned before.

The timeline was little bit impacted due to the COVID-19 situation that.

Particularly in internationally.

Different countries have different COVID-19 protocols, and so that that impacted a little bit of the pipeline.

But if.

If you walk into 2022, we feel this will pick up pace as the global vaccination continues to improve and the access to visiting customers, having those meetings improve.

So I think we are seeing good signs of that.

Here, So I feel like you know.

Of 2022, we are very optimistic about <unk>.

Business internationally.

All right good to hear and we've kind of beaten into the ground the supply chain dining.

Dynamics within PCT, but I haven't talked to as much about the similar dynamics going on in <unk> in there I think mostly about steel cost inflation, but.

I was hoping you guys could give us just that just an update on what sort of.

Raw materials cost inflation and logistics issues, you're dealing with today.

And and how we should think about margin progression Q form beyond in that segment of some of these issues hopefully normalize over the next few months.

Sure I think clearly the margin issue, which is R. V had been dipped below that that 20% in.

<unk> is that completely due to be supply chain and logistics inflation and pick up lavell ability I would say as well.

So the main items as you pointed out of the theme cost is one but there's also lesbian cough.

Because <unk> uses the lesbians. So when you think about the in the in the.

And there are left you get those guide that go on top of.

Around the cut off so we used a lot of it is in in that area. So steel cause it doesn't cost and logistics cost.

It's been well published.

Because of cost increases and particularly availability of containers Fob feeble.

Fight them Kodak Cortes, So I think what you're seeing what you saw in the quarter, what's a bit the impact of that but as Ken mentioned in these prepared remarks as he looked into Q4 and beyond I think of actions we have taken.

We feel good that.

Segments of it occurred to add 20%.

Plus.

Margin in the coming quarters and.

Again, I want to reiterate that.

That you would be able to count up for everything we know.

So I mean, we think we know today I think this is the.

The segment should return to a 20% plus margin in Q4 and beyond.

From Piper Sandler we have Ian Mcpherson. Please go ahead.

Thanks, Good morning, Soma, Ken Bemoaning yet.

Somehow I was wondering if you could update us on the leading edge trends in U S land lift how the relative growth rates are looking across.

P as in gas and Rod left.

And how you see the those unfolding into this next up cycle, there's a different customer.

Complexioned, and we've had prior cycles with more obviously private E&P waiting.

But there is.

There's also the gradual maturation of the shale basin, which we know ultimately.

Points towards that secular long tail for for Rod that doesn't seem like that has really taken off yet, but maybe update us on your thoughts from the timing for that as well.

Yeah I think.

They.

What we are seeing clearly.

<unk>.

With all forms of octave shed left off talking to show growth right in the early part we talked about that Rod left.

Showing the biggest biggest growth.

In the early part of the recovery. So this I'm going back to Q3 and Q4 of last year.

Now ask the completion started picking out.

We have seen is starting to grow up.

As well, but I would say that Orgulous continues to show good growth.

Continuing to grow and they will say the possibly to run by market, but partly also our teams have done a nice job of incrementally gaining chair.

In the Us plan.

And.

And so I would say.

As you look forward I think would be.

Very constructive about the U S land occupation lift growth I think our positioning in the key basin.

Which we expect to grow up.

Could I think the combined the team off our production chemical.

And are often she had left team with our digital solutions for our lifestyles differentiated opportunity to continue to expand and so.

So I think we have a very.

Very positive about the U S land growth followed occupation of business.

That's great. Thanks, so much.

I wanted to follow up on some earlier questions are there. There's obviously a lot of anticipation for the industry and in particular for for champion Max on.

Returning cash shareholders, but you have also begun to cultivate this nice.

Emissions monitoring platform with seemingly.

Boundless growth opportunity, especially internationally, where scope one munitions is still.

Hardly.

Even addressed as a market opportunity to compare it to the U S. So are those two opportunities and competition for capital or do you see.

An opportunity for the company to pursue a bigger emissions monitoring indeed conversation platform, but not necessarily so capital intensive.

Or the company.

Yeah. So.

Unless you had mentioned that will capital allocation philosophy hasn't changed we expect to both to coexist.

So as we get to the one time collaborate the op committed to make sure that we fully as a viewer options.

Capital, but the emissions growth as you know.

This this portfolio the cabinet next portfolio businesses generate.

Good cash right you have seen that in the demonstrated good cash generation and they emissions portfolio. What the building is very captain like.

So it's it's.

Digital.

It's a multiple model intensive.

The hardware if you look at <unk>.

The hardware.

Rebuild and matter of fact showed many of the.

Hardware can totally we assembled them but.

The <unk> the bold the.

We don't manufacture internally so be assembled until we maintain at very capital light model and that's part of our value creation framework is to make sure that we build a portfolio of depth capitalized highly captain right now so I do feel I feel.

Ability to advance of it emissions peak carbonization portfolio can happen along with.

Our commitment to.

Hum of capital to shareholders.

Understood. Thank you so much.

Thank you.

From Coca in Palmer, we have that's Vishna. Please go ahead.

Hey, good money and congratulations on a solid execution.

I think like you have tried to ask the question on inflation.

Inflation to maybe if I tried to do it either way.

You talked about like all the information that we know off has been already you have.

Put in the pricing increases, but if I think about the leading edge rate of change of those chemicals inflation.

How would you characterize that is accelerating stabilizing declining.

Just trying to think if you will need more pricing increases to be put through.

Yeah, I mean so.

It.

What what we thought this year was.

Van predictability effect, right and that's largely because of upset condition right.

When it would have such conditions I'm talking about the hurricanes in the winter storms and things like that right.

So if you if you look forward and say that that I'm not going to be.

Any of those upset condition semi expect the rate of change to be fairly.

Throwing down right because if you look at that commodity prices.

The natural gas price the commodity price now if that is a price shock.

Another commodity.

Then again.

<unk>.

You will see an increase in the input costs, but.

Barring any upset condition I do think that eight of change will.

Moderate and stabilize looking for upload.

Okay. That's helpful.

Then if I think about P. C. D margins they are talking <unk> margins EBITDA margin should be.

Higher so maybe I don't know 17 five is a good number to think about but if I didn't think about the air can we go from here on given all the inflation and everything and see that's still able to get some pricing.

Is maybe 100 to 200 bps a year a good way of thinking about the PCT margins good.

And by the end of the UN.

I want to be careful not to give any guidance for 2000 to rebuild because that's not what we are doing but as I mentioned you should expect a margin to go up right because of all of that so that year over year Morgan 20 22021.

Should be.

Significantly up the again I want to remind what had mentioned at the beginning.

Q4, two Q1, you will see you have one in.

Decreased right because of that seasonal Q4, two Q1, so that volume that will have some impact on the backing from Q4 Q1, but what you will see the Q1 2022 margin will.

Will be meaningfully higher than the Q1 2021 market.

Just two.

Fee that continued mobbed and progression, but frequently Q4, two Q1 because of the wall Hume, usually bcf's seasonal one and draw.

So if that happened.

You will see.

That margin progression slightly down but.

So so 2022 PCT margin should be meaningfully high of that the 2021.

PCP margin.

Goldman Sachs, we have <unk> <unk>. Please go ahead.

Okay. So thanks for taking my question.

As you think about the long term production chemicals outlook is there a way to quantify the victory of chemistry and density that you were talking talked about in the past.

To the best production volume growth that you think about.

<unk> demand for oil over time.

Yes, there are multiple factors that goes into this area and I think we have talked about this before.

While the growth it because it's a consumable while the base growth is dependent on the wall.

It's a function of London growth, but it is not a one to one because ask the volume grows the customers.

Operating budgets expand and their intention to spend more on.

Production improvement goes up so the other factors that really.

In fact this is.

You've mentioned the intensity of production chemical I'm the type of production. So if you think about it most of the easy access oil are mostly done right. So the next generation of oil, which is being produced whether the deepwater and Diana whether it is.

Shale they enhanced oil recovery those things are all very highly chemistry in 10 said.

The third element I will say is.

And expanding volume growth environment customers tend to upgrade their chemistry, because they want the best.

Chemistry to be used.

So they will upgrade.

The chemistry.

And then the last pieces that continued price improvement you get.

While I'm environment so.

Sometimes that has a tendency to think that you know that the production chemicals were going to grow with the.

The production volume.

That is true on a base level, but there are three or four factors, which come on top of it now I haven't even mentioned, Nevada market share growth.

So I think the project technical but now it's not going to grow like a blooming business in that.

Growth environment, but it's not it's not a lower growth type of business. So I just want to clarify that.

Got it and.

And then Judas about the market share today, you have emissions control I think you guys are are the leader, but if there's a way to.

Think about and I was thinking about a 20% growth rate.

Given that some of your peers are starting to talk about some emissions control monitoring.

Offerings, how do you think about the competitive landscape going forward.

Yeah I think.

The emissions competitive landscape is the emerging right because there was a lot of.

What I would call at startup.

<unk> in this area and pursuing.

Different technologies in some cases.

Again somewhat focused on you had bomb type emissions monitoring somewhat focused on drone.

And then from a focused on continuous monitoring.

So clearly on the continuous monitoring.

We have the market leadership based on everything we know today and we measure that today by the number of units installed.

Particularly in the U S and Canadian market for a continuous continuous monitoring so I'd say again I want to point out that two feet. We talk about on a flight deck is our continuous.

Monitoring.

So I do think that they know that the competitive landscape really a wall. The other aspect that's going to kind of also.

Determine.

The competitive landscape on which technology goes faster than the others. It's also regulations.

Alright, so depending on you know.

The EPA has made methane emissions.

Their number one priority. So so the title of the regulations. The more frequencies you will probably see it's fair to assume our base case assumption is continuous monitoring little grow faster.

Because of the other type of monitoring install episodic. So you will Miss you can have one day.

Yeah, and they had one monitoring and everything is fine and then the next day you can have an episode where you have a problem.

So so I.

We do believe that continuous monitoring will grow faster.

Fastest so we feel we have a good leadership position there I'm very excited about the be the scientific aviation labs, which we are launching I think this is going to be.

One of the key at.

We know an advanced emission lab, which we added which we had establishing and I'm excited that we.

Evil Lee, we need talk leadership applied research and and play a park.

Isn't that the carbonization off B.

The energy systems.

Even if we had the cameras <unk>. Please go ahead.

Hey, good morning, Thanks for taking my question you guys sure.

So just.

One more try at the PCT margin progression and what you're seeing in that segment.

I see that pricing and volumes both are playing a role in.

The.

Revenue growth as well as keeping margins.

Had a reasonable level just wondering if you could separate those two well in rank order.

What you're seeing there in terms of volume of pricing, what's having a bigger impact and how do you see that progressing as we move into 22.

Yeah, I mean look I think I think.

Clearly you know.

The pricing given that it completely drops to your earnings in the early stages of.

The progression the piping clearly is going to have a bigger impact.

Which is why I said in the beginning even if followed one room doesn't grow.

You should see that modern continues to.

Progress.

File a PCT business with wanting stays flat you could still see marketing progression.

So I would say the early stages.

Early quarters, I think it's going to be still pricing is going to be.

And an important element and then after that it's going to be more driven by Walter Mondale productivity.

Got it that's helpful. Thank you so much.

And then just switching to our CTV asset. So this quarter that doesn't bother me much cash infusion hook reduce your debt levels just.

Curious if you could provide any other commentary around.

<unk> potential sales in the business.

They can get you closer to your library started getting and ultimately closer to some some sort of dividend or buy back.

Yeah, No I think it looked I think you should expect us to continue to generate good cash in.

Focus on paying down the debt and getting to that target leverage we talked about.

Right now with overall business, what we are very focused on this to make sure we continue to improve the profitability.

On margin in the business. So that's what we are currently focused on.

And at this time, we have no further questions.

Well.

You again for your continued interest and we look forward to talking to you in the next quarter of a call. Thank you.

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

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