Q3 2022 ChampionX Corp Earnings Call

October 26, 2022

Welcome to the champion X third quarter 2022 earnings conference 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 see real one on your Touchtone phone.

As a reminder, this conference is being recorded.

I will now turn the call over to Byron Pope Sir you may begin.

Thank you.

Morning, everyone with me today are Soma Soma syndrome, President and CEO of champion X and Fisher, our executive Vice President and CFO during.

During today's call Soma will share some of our company's highlights.

Ken will then discuss our third quarter results and fourth quarter outlook before turning the call back to Soma for some summary thoughts.

We will 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 that some of the statements we will be making today are forward looking.

These matters involve risks and uncertainties that could cause material difference in our results from those projected in these statements. Therefore, I refer you to our latest 10-K filing and our other SEC filings for a discussion of some of the factors that could cause actual results to differ materially.

Our comments today May also include non-GAAP financial measures.

Additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter press release, which is available on our website I will now turn the call over to Soma.

Thank you Barbara.

Everyone I would like to welcome our shareholders employees and analysts to our third quarter 2022 earnings call. Thanks for joining us today.

The third quarter reflected the accelerating momentum for champion X as we delivered strong performance along all key metrics, including revenue growth adjusted EBITDA margin expansion free cash flow generation and capital return to our shareholders.

Before I elaborate on why I am so pleased with our third quarter performance I would like to turn your attention to slide number four.

We always begin our earnings calls with our organizational purpose and operating philosophy, driven by our commitment and responsibility of improving the lives of each of our stakeholder groups, which includes our customers our employees our shareholders and our communities.

In particular as you can see in the heart of our purpose pyramid, ensuring that champion X has a strong financial engine is a critical element of being able to create value for our shareholders.

Our robust third quarter results represent the building momentum for the type of operational and financial performance.

Our company is poised to deliver for our shareholders at the end of the upcycle unfolds next year and beyond.

Ken will take you through the details of our third quarter financial results shortly but let me first touch on four key business highlights which are shown on slide number five.

First revenue growth.

<unk> has consistently delivered strong topline growth since our transformational merger in June of 2020 in fact, the third quarter in which we grew our revenue by 10% sequentially and 25% year over year marked the sixth consecutive quarter in which we have.

<unk> delivered sequential revenue improvement.

National revenues grew 19% in the third quarter sequentially and accounted for 40% of champion X third quarter revenues.

Strong international growth demonstrates the broad global reach of champion X, our competitiveness with global customers.

Our leading share position in offshore markets.

While there are macroeconomic concerns we expect 2023 to be a solid growth year for our industry driven by the constructive fundamentals and the importance of energy security.

Our production oriented portfolio has clearly demonstrated our portfolio is the ability to significantly outpace global oil production growth and we expect this to be the case again next year.

Second EBITDA margin expansion.

On our second quarter earnings call. We shared with you that we have turned the corner in terms of pricing realization, having caught up to the pronounced raw materials and other inflationary forces that our businesses, particularly our chemical technologies business have faced over the last 18 plus months.

In the third quarter, our adjusted EBITDA margin of 16, 3% represented an approximate 140 basis points of sequential improvement and we remain confident that we will deliver on our targeted exit 2022, adjusted EBITDA margin rate of 18%.

We continue to focus and execute on levers within our control and delivered solid operational improvements.

In addition, we are confident that our champion X will achieve.

Over the intermediate term fall off in EBITDA margin of at least 20%.

Third free cash flow on our last earnings call. We stated that we expected our free cash flow profile to step up in the second half of the year versus the first half.

Our third quarter free cash flow of $160 7 million represented 101% of adjusted EBITDA. This demonstrates the best in class cash flow generating capability of our capital light portfolio of businesses and illustrates our high degree of confidence of generating.

50% to 60% free cash flow to EBITDA conversion through the cycle.

Fourth returning capital to shareholders.

We have previously shared with you our disciplined capital allocation framework and over the last two quarters, we have delivered on our commitment to return excess cash to our shareholders.

The third quarter between our regular cash dividend of $15 million and $80 million of share repurchases. We returned 57% of our free cash flow to our shareholders.

Going forward, we are targeting to return at least 60% of our free cash flow to our shareholders through the cycle.

System with this commitment our board approved an increase in our share repurchase program authorization to $750 million versus the $250 million program initiated earlier this year.

We expect healthy free cash flow generation again in the fourth quarter, which will enable us to further return capital to shareholders by continuing to execute on our share repurchase program.

Before I turn the call over to Ken I would like to congratulate our team for winning the best production Technology Award in the recent World Oil Awards. Our highlights series ESP technology is specifically designed to handle the dynamic production rates and challenging downhole conditions.

<unk> comment to unconventional valve.

Let me now turn the call over to Ken to discuss our third quarter results and our fourth quarter outlook.

Thank you Sylvia and good morning, everyone. Thank you for joining us today.

I will be commenting on adjusted EBITDA for sequential and year over year comparisons. We believe this metric best reflects the business performance of continuing operations.

As seen on slide seven third quarter 2022 revenue.

Does $1 billion up $89 million in second quarter, or 10% sequentially and up 25% year over year, our three largest operating segments. Each posted sequential revenue growth led by our production chemical technologies business geographically.

North America revenue grew 4% and international revenue was up 19% sequentially.

Year over year, North America revenue grew 21%, while international revenue was up 30%.

Included in our quarterly revenues were $34 million of cross supply sales to equal lab associated with post merger supply agreements, we do not recognize EBITDA margin on these sales and the associated revenue is allocated to corporate and other in our.

Actual statements.

We expect these cross supplies sales to continue at a declining rate through mid 2023, the third anniversary.

Averse REIT of our merger closing date.

Third quarter GAAP net income for the company was $23 million or 11 cents per diluted share versus 27 million in the second quarter and $57 million in the third quarter of 2021 third quarter net income included a 68 million.

Accounting charge, primarily related to the restructuring of our reservoir chemical technologies business announced last quarter.

As seen on slide eight champion X consolidated adjusted EBITDA for the third quarter was $166 million up 20% versus the previous quarter and up 34% year over year high.

Higher volumes and selling prices, primarily drove this improvement in net income and adjusted EBITDA and more than offset the impact of raw material and other cost inflation.

In the third quarter, we delivered consolidated adjusted EBITDA margin of 16, 3% higher by 143 basis points sequentially and up 117 basis points over the third quarter of 2021.

Our third quarter free cash flow of $167 million reflected.

Our effective working capital management as we supported the strong topline growth of the business without additional working capital investment.

Cash from operating activities was $187 million.

And capital investments net of disposal proceeds was $40 million.

Turning to our business segments production chemical technologies generated third quarter revenue of $644 million up 17% from the second quarter and up 32% year over year.

Sequential increase was led by strong international growth geographically North America revenue increased 9%, while international revenue increased 24% sequentially.

Segment, adjusted EBITDA was 103 billion up 31% sequentially and 45% higher than the third quarter of 2021 volume growth and selling price increases drove the sequential and year over year improvements.

Segment, adjusted EBITDA margin was 16% up 182 basis points sequentially and 140 basis points from the prior year's period.

We had strong revenue growth in the first nine months of this year and we continue to realize the benefit of our pricing actions. We are confident that we will deliver our targeted 2022, adjusted EBITDA margin exit rate of 18% in the fourth quarter.

Production and automation technologies third quarter segment revenue of $248 million increased 2% sequentially.

Year over year revenue was up 21% driven by activity and price increases.

Digital revenue was flat sequentially in the quarter and up 20% year over year, we continue to see growing customer focus on leveraging digital to reduce emissions and drive operational improvements and cost efficiencies. We expect our future revenues to continue to benefit from this trend.

Third quarter segment, adjusted EBITDA was $52 million up 7% sequentially and 30% year over year segment. Adjusted EBITDA margin was 21% up 101 basis points versus the second quarter and 148 basis points from the.

Here year period, primarily due to higher pricing.

Drilling technologies segment revenue was $61 million in the third quarter up 5% sequentially and 23% up year over year as we experienced continued north American and international demand growth drilling technologies delivered segment adjusted EBITDA of 17 million during the third quarter.

<unk> flat sequentially and up 8% compared to the third quarter of 2021.

Segment margin was 27% in the quarter 243 basis points sequential decline driven by product mix and the cost associated with serving customers.

Reservoir chemical technologies revenue for the third quarter was $35 million, a decrease of 20% sequentially at a 7% decline year over year.

As discussed on our second quarter earnings call. After a strategic review, we decided to exit certain RCT product lines and the associated manufacturing capacity.

This exit resulted in the revenue decline with an improvement of the profitability of the segment.

We recorded approximately $68 million in non cash accounting charges during the third quarter related to exiting manufacturing capacity as of the cease use date, essentially we established a book liability for existing future contractual cost for the capacity.

The debt, we assumed in conjunction with the chemicals merger.

The segment posted adjusted EBITDA of $3 million during the third quarter versus an adjusted EBITDA loss in the second quarter.

This was a $2 billion increase compared to the corresponding prior year period segment. Adjusted EBITDA margin was 7% in the quarter at 812 basis points sequential improvement, which was the result of our restructuring efforts, we expect RFC tea segment margins to continue to improve it.

Become accretive to champion X margins as we progress through 2023.

Moving to our balance sheet as shown on slide nine we ended the third quarter in a strong position with $187 million of cash on hand, and approximately $811 million of total liquidity, including our available revolver capacity.

This liquidity was an increase of $71 million versus the prior quarter at a record level of liquidity for our company.

We paid down $51 million of debt during the third quarter and at September 30, our leverage ratio was eight.

Eight times net debt to adjusted EBIT.

We remain committed to the return of surplus capital to our shareholders.

During the third quarter, we returned 57% of our free cash flow to shareholders in the form of our $15 million of regular cash dividend and $80 million of share repurchases. We remain laser focused on disciplined capital allocation strong working capital management.

Every of operating and free cash flow and maintaining our strong liquidity and financial position.

Turning to slide 10 in our fourth quarter outlook, we expect further EBITDA and EBITDA margin rate improvement in the fourth quarter, we continue to target the company to exit the year in the 18% margin rate range up approximately 170 basis points sequentially.

And up 180 basis points for the 2021 exit rate.

Specific to the fourth quarter, we expect revenue, including Ecolab Cross sales in the range of 985 to.

One point or one 5 billion and adjusted EBITDA in the range of $176 billion to $184 million in the quarter. We expect continued momentum in international revenues and the normal seasonality in North America from holiday <unk>.

<unk> slowed out.

In addition, we will see lower revenues due to the aforementioned reservoir chemical technologies restructuring.

On this slide we've also provided some additional specifics related to our fourth quarter outlook. We continue to expect capital investment to remain in the range of three to three 5% of revenues.

And while it periods of revenue growth, we will see the need for working capital investment we remain confident in our 50% to 60% free cash flow to EBITDA conversion ratio guidance through the cycle and we expect strong free cash flow delivery as we exit this year.

And now back to Soma.

Thank you Ken before we open the call to questions I would like to turn your attention to slide 12.

Jack.

Our capital allocation framework.

Yes.

At point to eight times net debt to trailing 12 months adjusted EBITDA. We are now below our through cycle leverage target of <unk>.

One times.

And after a strong third quarter financial performance illustrates our business portfolio does not require outsized incremental capital to fund our high Ottawa internal investments in maintenance and growth projects and initiatives.

Our sustainable level of cash dividend will grow over time as a lot of free cash flow growth and we have shared with you that M&A opportunities for us will be small tuck in strategic opportunities that add to our capabilities and organic growth profile.

Given the strong free cash flow generation profile of our portfolio. We feel confident that we can continue to invest in our business and deliver on our capital return commitments.

As such our shareholders can count on us to continue to return excess cash to them through growing dividends and share repurchases at this multiyear energy up cycle progresses.

I'm also pleased with the launch of our first annual sustainability report.

We are looking forward to reporting our progress in this area in our future reports.

With that let me. Thank all of our 7000 find that champion X employees around the world for their tireless dedication to our purpose of improving the lives of our customers our employees, our shareholders and our communities.

Inspire me daily.

Lastly, I am pleased to announce that we will hold our first investor day as champion X in early March next year. So so be on the lookout for further information regarding this event.

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 one on your Touchtone phone.

If you wish to be removed from the queue. Please press two.

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 press star zero.

One on your Touchtone phone.

And we have a question from David Anderson from Barclays. Please go ahead.

Hi, good morning Soma.

On the production chemical side.

The mix between the international and North America markets I think traditionally we've kind of thought about this as sort of 50 50.

Could you update us to kind of where we are today. You said you noted 19% sequential international growth. This quarter I think it was for the whole company.

Assuming that was pretty much all chemical so I guess, what I'm wondering is assuming these trends hold.

In North America production stays fairly limited how much could this swing towards international in the coming years and I guess, what does that mean for your overall business. If we do swing further towards international markets.

Yes, good morning, Dave.

So of our production chemicals group a few thoughts.

The significant growth in the quarter, both North America, and international grew and from a sequential perspective of international.

<unk> and PCP grew over 20, 24% so the mix.

Think about North America, because the U S and Canada, what I was going to be defined North America.

And particularly in production chemical business.

The mix is the over 50% now international.

So I would expect that that mix to continue to go up a little bit more of the international growth.

Continues to grow.

Is that better for margins is it worse is it better for supply chain, just kind of curious how that.

Potentially impacts your business.

Yes.

International margins typically better.

Production chemical business.

Because as you can imagine many update international business tends to be offshore more part of applications and things like that right right that makes sense and then on the input cost side, you have kind of three primary inputs there on the chemical side.

I think we're seeing a little bit of moderation in those and those costs could you just kind of walk us through how you're seeing that and then really kind of I guess, what I'm really most curious about is.

How does this roll through your business like lets say cost to start coming down how does that roll through your business and I guess I'm curious.

The contracts that you signed last year is is pricing tied to any index on costs, how does that work.

Yeah, So Dave.

Let me just walk you through a few points on that first.

Let's see on our Q4 guidance as we've given the Q4 guidance our achievement up 18% exit rate.

Not dependent on.

Any raw materials coming down Q3 to Q4.

So said another way we are not anticipating.

Any raw material moderation.

In Q4 as the driver for achieving 18% margin. So so that's the first point. The second point is as you rightly pointed out.

If you look at our raw material inputs.

So we have commodity based raw material and put some non commodity based raw material inputs. So the commodity based raw material inputs I typically defined that are typically hydrocarbon based oil gas based and the non commodities depend on.

Outside of oil and gas, which would be things like in our phosphate.

Silicon.

Paint derivatives and those types of things. So we are seeing.

Moderation in the commodity based raw materials, it's coming down since the commodity prices have come down so.

The commodity based raw materials constitute about 40% of our what our spend.

They tend to be in la defense within that 40%.

So we have shared earlier items like methanol to gasoline ethylene propylene xylene. These are the commodity baseband, but even though they are higher dollars. They constitute about 40% of core spend the remaining 60% is a long list of.

Small spend items. So those we are not seeing moderation.

So in fact, we have seen a little bit of inflation in those primarily because of the demand from other industries as well as some of the Chinese.

<unk> balanced we saw Covid related recently, so net net I would say when commodity.

A moderation coming down the non commodities are still not down so in our assumption for Q4 guide.

Net net we have not assumed any raw material moderation, what really gives me a lot of.

What I am really pleased about is if you look at our margin expansion story.

Is completely right now driven by our pricing and our teams executing on productivity.

So Ben the materials start moderating that set.

It will be additive to what is already a very positive margin expansion story for us.

But the pricing you just mentioned that's not tied to any index on the on those commoditized costs.

Yes, we have that we have contracts specific contracts with specific suppliers.

So it's a negotiated contracts now on the commodity side.

It is mostly an expat the bigger purchases tend to be indexed based on those.

Dave I would say that.

It is.

Raw material price hospital will move with the index on the commodity based items okay great.

Great. Thank you so much.

No.

Thank you. Our next question comes from Scott Gruber from Citigroup. Please go ahead.

Yes, good morning.

Morning, Scott.

Wanted to start out on the cash return commitment, which everyone definitely appreciates.

As you kind of detailed that 60% minimum threshold.

You described it as a minimum kind of through the cycle.

And I realize you have working capital swings.

Annual basis, how do we how do we think about kind of that clarifier.

True 10 year to do 60% on an on an annualized basis are you, where you kind of keeping flexibility for M&A I guess.

Neither wind to commit on an annualized basis to 60%.

Minimum cash.

Yes.

First and foremost.

We have seen.

We have.

<unk> commitment to return excess cash to the shareholders and when you look at for example, this year right.

Year to date over the last three quarters.

We have returned over 80% of our free cash flow.

<unk> shareholders. So so clearly put up.

It is.

It's.

Free cash flow.

We are committed to return.

The reason for at least 60% through the cycle.

Primarily a function of.

How the cycles unfold right so.

We are very focused and disciplined on the capital allocation as you have seen and the M&A opportunities going to be small.

And they are going to be strategic.

Tuck in type acquisition with the expanse of our organic growth profile at our technology and work.

Technology additions so for us.

We feel very comfortable with at least 60%.

And you should expect us to do more.

So as we continue to generate more free cash flow, but.

As a firm commitment.

We are talking about at least 60%, but but as history has shown.

We will return excess cash to the shareholders and that could be more.

Got you I appreciate the color.

And then just on the the reservoir chemicals.

How should we think about that segment for Q, what's kind of the new run rate kind of revenue potential there.

And then you mentioned getting those the margins too and Creatives posture relative to.

The rest of the business.

How quickly does that happen.

Yeah as you take.

Some of the less profitable business lines out of that segment.

Yes, no great question, Scott So as we go through this.

<unk>.

We are executing through the restructuring.

And as far as what.

What you should see as we progress through 2023.

We showed our margins should start further improving from where we are and we would expect.

Scott as we get into the second half of next year.

It should start getting.

At retail.

Got you and how do we think about.

Revenues in kind of <unk>.

And then just 23, what's the new.

Kind of run rate there.

Yes.

Sure.

I think asking about RPT and revenue, yes, I think there was a comment in the deck that there would still be lower revenues.

<unk> on the outlook page correct correct I'm just curious.

RCT goes in <unk>.

Yes.

We don't give specific guidance, but it should be getting lower more closer towards the $30 million range.

Okay. Okay I appreciate the color. Thank you Joe.

Thank you. Our next question comes from Stephen <unk> from Stifel. Please go ahead.

Thanks, and good morning, everybody.

So could you maybe talk a little bit about.

How we think about you.

Our production chemicals.

Revenue profile versus what's going on with sort of global oil production, that's something that comes up a lot and obviously, you've outpaced stack, but what are some of the drivers behind the revenue growing at a more rapid rate than the.

Overall global production levels.

Yes, Steven.

Great question and this is something we will make sure that we detail that out in our Investor day.

And give more specific color into it.

But let me give you the key elements that drive the.

The.

The growth.

Clearly.

Pricing.

That clearly activity growth drives that and shed.

Incremental share gains drive that right.

But one of the one of the factors that is less understood or not.

Very visible is.

In higher commodity price environment.

The customers prefer.

<unk> programs.

Tend to focus more spend on production chemistry, because the most important asset our customers have.

They are producing wow, so in a higher commodity environment, they want to protect the asset and the asset integrity.

And everything they can do to continue to enhance the production so the production programs.

Gearing.

Commodity prices.

Tend to spend more on production chemistries. So.

One important element the second element is.

If you look at it.

Harder to treat oil continues to become.

More of the production because easy to find easy to treat oils have taken have been have been taken as we get towards more product oil, particularly more offshore or more.

Shale.

Youre going to see more production chemistry intensity to that right. So that's the second part the third part is depending on the region around the world depending on the region around the world. The number of wells, which are actively being treated currently also varies.

So that is.

When you think about in a place like U S or North America.

That percentage tends to be higher.

Because thats more production programs. The infrastructure is there the service facilities are there.

The valve and and maintain them, but internationally as you go.

The number of wells active production wells that are currently being treated with chemicals.

It tends to vary so Dennis.

Set of growth opportunities.

We're producing wells actually new actually producing vote going onto chemical programs. So when you look at the or.

Growth in Latin America, and also some of the growth in Middle East is actually driven by that and that is more of a run rate for that.

If you look at the percentage of routes being treated in chemicals in the regions.

<unk> alright.

And then the final aspect.

On the production chemistry yet.

Sure.

<unk>.

The production chemistry chemical usage. It's also a function of total liquids produced right. It's just not the oil alone because as well see age.

Even though the oil production may come down the total liquids produced.

They continue to be the same because they are producing more water and so those water also needs to be treated.

So these are the.

The final elements of the next set of elements that drive production chemistry growth.

And so that's why we have a long runway of production growth and Mr growth and it always growth in multiples of the actual production growth. So we will.

Detailed this out.

Much more deep dive.

In our Investor day.

Is that helpful.

That's extremely helpful. Thank you.

The other quick one.

And I'm not sure you can comment or not but when you think about the share repurchase program.

Is there a timeframe on the 750.

<unk>.

Sort of.

I'm trying to kind of back into next year's free cash flow guidance, a little bit, but is there a timeframe and or just the execution going to be opportunistic over time.

Yes.

If you look at if you if you look at what we have done this year you should expect us to execute on this program.

We have demonstrated that and as we have said in our prepared comments and we will.

We will execute on the Q4 and <unk>.

We have also.

We are putting in place a systematic approach to do that even through.

Through times, where that dislocation.

There are dislocations prices and things like that so we are very committed to that.

Systematically UBM.

We'll execute on that.

The way we framed this.

Yes.

Is that.

You can think of it this way right.

Given our strong cash flow generation.

Yeah.

If there is no other use for our our free cash flow.

You can see us.

Returning.

<unk> <unk> program two to three year time period right. So so it's a very realistic in the sense that what we are executing we are execute at $80 million this quarter.

And as you look into Q4 with a strong free cash flow generation will continue to execute strong on this program. So we are very committed to it.

In that sense.

Excellent. Thank you for the detail.

Yes.

Thank you. The next question comes from <unk> <unk> from Bank of America. Please go ahead.

Hi, Ken good morning.

Maybe I can start with.

A follow up on the production chemicals business I know you said in your prepared remarks.

That you still feel good about getting to that intermediate term target of 20% I don't think you've committed to a timeline to that so maybe.

You did great, but how should we think about that rate I think in the past you said, it's more of a function of volume and then I guess, but it looks like mix.

<unk> pricing is going to be drivers.

You can help us think about that when can you potentially get.

What is the path.

The key drivers.

Yeah. So I think that you have.

But understanding is correct that we have not we did not put a specific time timeline on that right now.

The key drivers behind the production coming from margin expansion.

It's going to be obviously volume is one but the productivity.

We are executing on the business is also an important thing.

Our particularly our supply chain organization in production chemicals have done an amazing job.

Of executing operational productivity at the <unk>.

Time when supply disruptions.

Really really a major challenge.

No it does.

They've done a great job of continuing to drive operational productivity.

An example of that is we are digitizing.

Our complete.

Field.

Fulfillment side.

<unk>.

Which drive significant amount of productivity so.

<unk>.

Volume is important.

One part of it but productivity and then followed by pricing. We do expect continued net pricing next year in our production chemical business. So both of these these are the three factors that will drive and as our international.

Growth goes more that also the mix also helps.

Driving higher margin as well.

So we are pretty excited about.

The positive margin expansion runway in this business.

Okay cool.

A follow up related follow up on that it looks like obviously very strong growth in revenue BCP, 17% sequentially it looks like it.

Think about 2022 as a whole revenues could be up or hide when Easter fantasy at under 20%.

For context, just so that we understand what's driving that rate can you hit the dissect that a little bit in terms of how much of that is volume versus pricing.

But then pricing how much of that if steel pricing with these surcharges because you would think surcharges, which we launched at some point.

As inflation starts to go the other way around.

And just for some context, what drove the high 20%.

Revenue growth for PCB.

Yes, I mean look from.

From a.

From a qualitative perspective, and obviously thought about as you can imagine.

For competitive purposes, we don't want to detail out.

A lot of specifics on that.

But we track these things very very.

In a detailed manner, but let me talk about that in a quantitative sense and I'll give you a little bit of color here.

No.

Clearly that has been volume growth.

Pricing.

And incremental share gains.

Teams have done and this is really important because when you think about all the supply disruptions that has happened over the last 18 months.

In the supply chain.

No.

The supply assurance is a very critical aspect for our customers right because.

Many of the high value valve.

Yes.

This is the consumable and the production so they need that right. So this is where the strength of champion X really really shines in the supply assurance the network off Manny.

Manufacturing capabilities that distribution points under that.

The supply chain team capability, we have.

As we have mentioned we are very proud of the fact that we have not.

Declared force majeure during this time to any of our customers our suppliers have done that to us, but even with that our supply chain teams have really worked hard to provide the suppliers to the customers and that is it.

Really given us a significant market share incremental market share improvements and this kind of capabilities have been built over decades that.

The technology capability that supply chain capabilities the manufacturing network.

So it's not easy to replicate.

So that's a very important element in driving share gains, which we have experienced.

So all this put together drive.

Kind of a strong growth you've seen.

<unk> seen in PCT.

So to give you a context around pricing.

For example in Q3.

Overall champion X level.

Pricing is about 50% of our growth.

The rest is.

All other factors, so and our PCT businesses somewhat similar to that.

Okay, Okay perfect.

Contest.

Context, so thanks for that if I can sneak in one more on the <unk> side.

Obviously, if you look within the different businesses with different underlying drivers right I think 35% to 40% each within ESPN.

<unk> and Rod lift obviously different drivers of those businesses right and I think the band into depending on some of the other smaller production annuity service line today, so with that mix.

Should we think about 2023, let's say North America D&C Capex grew 20% next year put on numbers, how should we think about those three buckets ESP broaden it and digital and fit together.

Yes look we're not going to be providing 2023 guidance in this in the call, but qualitatively again talking about it. If you look at this year right all forms of artificial lift has grown and in fact rod lift.

Was the highest growth.

This year, followed by USPS and other forms of lift right. So.

Increasing D&C spending environment.

Artificial lift portfolio will benefit from it what we have seen historically as you've seen this year it should grow in the high <unk>.

And.

Historically, our artificial lift portfolio as grown.

<unk> to the DMC.

Spending levels.

And this is another element of it as you think about rod lift and again similar to production chemicals.

During the times of.

Constructive commodity prices.

Customers spend to make sure that.

They are well thought of operating the most efficient manner and with less downtime.

The rod lift benefitted from that spending on also the conversion cycle that is going on.

You May remember, we had talked about the conversions and our outlook.

Continuing to benefit from that conversion as well so so slow.

You should expect.

That is going to be a strong D&C spending growth next year, you should expect our rod lift.

Artificial lift business too.

Pretty strong in conjunction with that.

Okay Awesome, that's full thick.

It doesn't make sense right now.

You are an E&P you investing production, that's going to be our highest return investment perhaps.

Okay I've done it back thank you.

Thank you and at this moment, we have no other questions in queue I would like to turn the call back to Soma for final remarks.

Well. Thank you before we close out the call I'd like to recap the key elements of champion acts as we look into the future.

Strong organic growth combined with the positive momentum and runway in our margin expansion the strong free cash flow generation and our commitment to return at least 60% of our free cash flow to our shareholders.

These are the key elements as we look into the future.

<unk>.

And thanks for joining the call and have a great day.

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

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<unk>.

Okay.

Welcome to the champion X third quarter 2022 earnings Conference 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.

Have a question. Please press <unk> one on your Touchtone phone.

As a reminder, this conference is being recorded I.

I will now turn the call over to Byron Pope Sir you may begin.

Thank you.

Morning, everyone with me today are Soma Soma syndrome, President and CEO of champion X and Ken Fisher, Our executive Vice President and CFO during.

During today's call Soma will share some of our company's highlights.

Ken will then discuss our third quarter results in the fourth quarter outlook before turning the call back to Soma for some summary thoughts.

We will 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 that some of the statements we will be making today are forward looking.

Our comments today May also include non-GAAP financial measures.

Thank you Byron.

Good morning, everyone I would like to welcome our shareholders employees and analysts to our third quarter 2022 earnings call. Thanks for joining us today.

The third quarter reflected the accelerating momentum champion X as we delivered strong performance along all key metrics, including revenue growth adjusted EBITDA margin expansion free cash flow generation and capital return to our shareholders.

Before I elaborate on why I am so pleased with our third quarter performance I would like to turn your attention to slide number four.

In particular as you can see in the heart.

Our purpose pyramid, ensuring that champion X has a strong financial engine is a critical element of being able to create value for our shareholders.

Our robust third quarter results represent the building momentum for the type of operational and financial performance that our company is poised to deliver for our shareholders as the NMDA upcycle unfolds next year and beyond.

Ken will take you through the details of our third quarter financial results shortly but let me first touch on four key business highlights which are shown on slide number five.

First revenue growth.

We have delivered sequential revenue improvement international.

<unk> revenues grew 19% in the third quarter sequentially and accounted for 40% of champion X third quarter revenues.

The strong international growth demonstrates the broad global reach of champion X, our competitiveness with global customers and our leading share position in offshore markets.

While there are macroeconomic concerns.

Expect 2023 to be a solid growth year for our industry driven by the constructive fundamentals and the importance of energy security.

Our production oriented portfolio has clearly demonstrated our portfolio's ability to significantly outpace global oil production growth and we expect this to be the case again next year.

Second EBITDA margin expansion.

Continue to focus and execute on levers within our control and delivered solid operational improvements. In addition, we are confident that our champion X will achieve our intermediate term goal of an EBITDA margin of at least 20%.

Third free cash flow on our last earnings call. We stated that we expected our free cash flow profile to step up in the second half of the year versus the first half hour third quarter free cash flow of 167 million represented 101% of adjusted EBITDA. This.

<unk> the best in class cash flow generating capability of our capitalized portfolio of businesses and illustrates our high degree of confidence of generating 50% to 60% free cash flow to EBITDA conversion through the cycle.

Access past all the shareholders.

Third quarter between our regular cash dividend of $15 million and 80 million of share repurchases, we returned 57% of free cash flow to our shareholders.

Going forward, we are targeting to return at least 60% of our free cash flow to our shareholders through the cycle.

[noise] system with this commitment our board approved an increase in a a share repurchase program authorization to 750 million versus the 250 million program initiated the earlier this year.

We expect healthy free cash flow generation again in the fourth quarter, which will enable us to further returned capital to shareholders by continuing to execute on our share repurchase program.

Before I turn the call over to can I would like to congratulate our team for winning the best production Technology Award in the recent World Oil Awards, our highrise theories ESP technology is specifically designed to handle the dynamic production plaids and challenging downhold.

<unk> comment too unconventional bouts.

Let me now turn the call over to Ken to discuss our third quarter results in the fourth quarter outlook.

Q silver good morning, everyone. Thank you for joining us today I will be commenting on adjusted EBITDA for sequential and year over year comparisons. We believe this metric best reflects the business performance of continuing operations.

As seen on slide seven third quarter 12.

2022 revenue.

Was $1 billion up 89 million on second quarter work, 10% sequentially and up 25% year over year, our three largest operating segments. Each posted sequential revenue growth led by our production chemical technologies business.

Geographically North America revenue grew 4%.

National revenue was up 19% sequentially.

You're over a year in North America revenue grew 21%, while international revenue was up 30%.

Included in our quarterly revenues were $34 million of cross supply sales to eco lab associated with post merger supply agreements we.

We do not recognise EBITDA margin on these sales and the associated revenue is allocated to corporate and other in our financial statements.

We expect these cross supply sales to continue that are declining right through mid 2023.

Third anniversary of our merger closing date.

Third quarter GAAP net income for the company was 23 million or 11 cents per diluted share versus $27 million in the second quarter and $57 million in the third quarter of 2021.

Third quarter net income included a 68 million dollar accounting charge, primarily related to the restructuring of our reservoir chemical technologies business announced last quarter.

As seen on slide eight champion X consolidated adjusted EBITDA for the third quarter was $166 million up 20% versus the previous quarter and up 34% year over year.

Higher volumes and selling prices, primarily drove this improvement in net income and adjusted EBITDA and more than offset the impact of raw material and other cost inflation.

In the third quarter, we delivered consolidated adjusted EBITDA margin of 16.3% higher by 143 basis points sequentially and up 117 basis points over the third quarter of 2021.

Our third quarter free cash flow of $167 million reflected.

Are effective working capital management as we supported the strong top line growth of the business without additional working capital investment.

Cash from operating activities was $187 million in capital investment net of disposal proceeds was $20 million.

Turning to our business segments production chemical technologies generated third quarter revenue of $644 million up 17% from the second quarter and up 32% year over year.

Quite shall increase was led by strong international growth geographically North America revenue increased 9%, while international revenue increased 24% sequentially.

Segment, adjusted EBITDA was 103 million up 31% sequentially and 45% higher than the third quarter of 2021 volume growth and selling price increases drove the sequential and year over year improvements.

Segment, adjusted EBITDA margin was 16% up 182 basis points sequentially and 140 basis points from the prior year's period.

We had.

Strong revenue growth in the first five months of this year and we continue to realize the benefit of our pricing actions. We are confident that we will deliver are targeted 2022, adjusted EBITDA margin exit rate of 18% in the fourth quarter.

Production at automation technology third quarter segment revenue of $248 million increased 2% sequentially.

Year over year revenue was up 21% driven by activity in price increases.

Digital revenue was flat sequentially in the quarter and up 20% year over year.

We continue to see growing customer focused on leveraging digital to reduce emissions and drive operational improvements and cost efficiencies. We expect our future revenues to continue to benefit from this trend.

Third quarter segment, adjusted EBITDA was $52 billion up 7% sequentially and 30% year over year segment. Adjusted EBITDA margin was 21% up 100 of one basis points versus the second quarter.

And 148 basis points from the prior year period, primarily due to higher pricing.

Drilling technology segment revenue was $61 million in the third quarter up 5% sequentially and 23% up year over year as we experienced continued north American and international demand growth drilling.

Drilling technologies delivered segment adjusted EBITDA 17 million during the third quarter flat sequentially and up 8% compared to the third quarter of 2021.

Segment margin was 27% in the quarter.

243 basis points sequential decline driven by product mix and this costs associated with serving customers.

Reservoir chemical technologies revenue for the third quarter was $35 million, a decrease of 20% sequentially and a 7% decline year over year.

As discussed on our second quarter earnings call. After a strategic review, we decided to exit certain RCT product lines and the associated manufacturing capacity.

This exit resulted in the revenue decline with an improvement to the profitability of the segment.

We recorded approximately $68 million in non-cash accounting charges during the third quarter related to exiting manufacturing capacity as of the cease used date essentially we established a book liability for existing future contractual costs for the.

City that we assumed in conjunction with the chemicals merger.

The segment posted adjusted EBITDA $3 million during the third quarter versus an adjusted EBITDA loss in the second quarter.

This was a $2 million increase compared to the corresponding prior year period segment. Adjusted EBITDA margin was 7% in the quarter at 812 basis points sequential improvement, which was the result of our restructuring efforts, we expect our C. T segment margins to continue to improve.

And become accretive to champion X margins as we progress through 2023.

Moving to our balance sheet is shown on slide nine we ended the third quarter and strong position with 187 million of cash on hand, and approximately $811 million total liquidity, including are available revolver capacity.

This liquidity was an increase of $71 million versus the prior quarter at a record level of liquidity for our company.

We paid down $51 million in debt during the third quarter and it's September 30th or leverage ratio was quite eight times net debt to adjusted EBITDA tall.

We remain committed to the return of surplus capital to our shareholders.

During the third quarter, we returned 57% of our free cash flow to shareholders in the form of a R 15 million dollar a regular cash dividend and $80 million of share repurchases. We remained laser focused on disciplined capital allocation strong working capital management.

Livery of operating in free cash flow and maintaining our strong liquidity and financial position.

Turning to slide 10 in our fourth quarter outlook, we expect further EBITDA and EBITDA margin right improvement in the fourth quarter, we continued to target the company to exit the year in the 18% margin right range up approximately 170 basis points sequentially and up.

180 basis points on the 2021 exit right.

Specific to the fourth quarter, we expect.

Revenue, including Ecolab Cross sales in the range of 985 to one.

One point, all one $5 billion and adjusted EBITDA in the range of $176 billion to $184 million.

In the quarter, we expect continued momentum and international revenues and the normal seasonality in North America from holiday related slowdowns.

In addition, we will see lower revenues due to the aforementioned reservoir chemical technologies restructuring.

On this slide we've also provided some additional specifics related to our fourth quarter outlook. We continue to expect capital investment to remain in the range of 3% to 3.5% of revenues.

And wall and periods of revenue growth, we will see the need for working capital investment, we remain confident and are 50% to 60% free cash flow to EBITDA conversion ratios guidance through the cycle and we expect strong free cash flow delivery as we exit this year. Thank.

And now back to solar.

Thank you can before we opened the call to questions I would like to turn your attention to slide 12 offered back, but somebody says how're capital allocation framework.

At point to eight times net debt to timing 12 months adjusted EBITDA, we have now below a about through cycle leverage I'll get up one time.

And asked of US Tonk third quarter financial performance and less Plaids, our business portfolio does not require outsized incremental capital to fund our high Ottawa.

Turn on the investment and maintenance and growth projects and initiatives.

Our sustainable local a cash dividend little grow over time after a lot of free cash flow grows and we have shared with you that in many opportunities for us that'd be small.

Can strategic opportunities that add to our capabilities and organic growth profile.

Given the strong feet cash flow generation profile of four portfolio, we feel confident that we can continue to invest another business and deliver on our capital a ton of time expense.

[noise] fetch our shareholders can count on us to continue to the ton excess cash to them through growing dividends and share repurchases asked this multi yet energy upcycled progressive.

I'm also pleased with the launch off all that first annual sustainability to port.

I'm looking forward to reporting about progress in this area in our future report.

With that let me. Thank all of 7000 and find that champion ex employees that around the world for that tiredness dedication to our purpose of improving the lives of our customers our employees our shareholders and our communities you inspire me daily.

Lastly, I'm pleased to announce that we will hold our first investor day as champion eggs in early March next year. So so be on the lookout for further information regarding this event.

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 zero one on your Touchtone phone.

If you wish to be removed from the queue. Please press zero two.

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 press zero one on your Touchtone phone.

And we have a question from David Anderson from Barclays. Please go ahead.

Hi, good morning, Soma on the production chemical side.

The mixed between the International North America, Mark because I think traditionally we've kind of thought about this is sort of 50 50.

Could you update us to kind of where we are today. You said you know the 19% sequential international Grosses Court I think it was for the whole company.

Assuming that was pretty much all chemical so I guess, what I'm wondering is assuming these trends hold.

In North America production States fairly limited how much could swing towards international in the coming years and I guess, what does it mean for your overall business. If we do swing further towards international markets.

Yeah. Good morning, Dave So I mean, the other products and chemicals group that you saw you know drove a significant growth in the quarter of both in North America, and International group and from a sequential perspective of international.

<unk> group or what 20 or 24% so the mix.

Think about how many cavities U S and Canada, what I was going to be defined enough to America.

And particularly in production chemical business.

The mix is the over 50% now international.

So I I would expect that that mixed still continued to go up a little bit more about the international growth.

Continues to grow.

Is that better for margins is it worse is it better for supply chain, just kind of curious how that potentially impact your business.

Yeah.

International Martin typically better.

And production technical business.

Because as you can imagine how many update international business tends to be offshore more part of applications and things like that right right that makes sense.

Then on the input costs side, you have three primary input.

Chemical side, I think we've seen a little bit of moderation in those in those costs could you just kind of walk us through how are you seeing that and then really kind of gets when I'm really most curious about is how.

How does this world through your business like let's say cost to start coming down how does that rolled through your business and I guess I'm curious.

The contracts that you've signed last year is is pricing tied to any index I'm cause how does that work.

Yeah, So Dave.

Let me just walk you through a few points on that first.

Let's see on our queue for guidance as we have given the queue for guidance our achievement of 18% exit 28.

Not dependent on.

Any raw materiel coming down Q3 Q for so.

Set it another way.

Anticipating.

<unk> moderation.

In queue for that that driver for achieving 18% market. So so.

The first point the second point is as you rightly pointed out you know.

If you looked at our raw material input.

So we have commodity based raw material and puts a noncommodity based drama community input. So the commodity based raw material inputs I typically defined that are typically hydrocarbon based oil gas based in the non commodity depend on materials outside of oil and gas which will be <unk>.

Flight and a phosphate salt silicon.

Paying derivatives and those type of things so we off seeing yeah moderation in the commodity based raw materials it is coming down.

The commodity prices have come down so.

The commodity based raw materiel constitute about 40% of our four hour span and they are they are tend to be in law just spent within the 40% and so we have shared earlier.

Earlier items like methanol and gasoline Ethamine Popeline xylene. These are the commodity based fan, but even though they have higher dollars. They constitute about 40% of course spend the remaining 60% is a long list of.

Small spend items. So those we have not seeing moderation.

So in fact, we have seen a little bit of inflation and those primarily because of the demand from other industries as well as some of the Chinese.

<unk> balance to be saw Covid related recently, so net net I would say when commodity.

Motivation for coming down the Noncommodity, that's still not down so in our assumption for Q4 guide.

Net net we have not a zoom Guinea raw material moderation, what really gives me a lot of you know.

What I'm really pleased about if you look at the margin expansion story.

Is completely right now driven by our pricing and our.

Teams executing on productivity, so Ben those materials thoughts moderating that's sad.

It will be additive to what is already a very positive margin expansion is 45.

But the pricing you just mentioned that's not tied to any index on those commoditize costs.

Yeah, we have that we have a contract specific contracts with specific suppliers you know so so it's a negotiated contracts now on the commodity side.

It is mostly an expat the bigger purchases sent to be index based on those.

Dave I would say that.

It is it is.

<unk> <unk> well move with the index on the commodity based items okay.

Great. Thank you so much.

Sure.

Thank you. Our next question comes from Scott Cooper from Citigroup. Please go ahead.

Yeah good morning.

Monica Scott.

When did you start out on the.

Cash returned commitment, which everyone definitely appreciate it.

As you kind of details.

60 per cent minimum threshold you described as a minimum 10, a through the cycle and I realize you have working Capitol swings on an annual basis how.

How do we how do we think about kind of bad that clarifier.

Is it true and 10 here to do 60% on an on an annualized basis. So you were you kind of keeping flexibility for M&A I guess they have to be.

Questions, you know why not commit on an annualized basis to 60 per cent.

Minimum cash.

Yeah.

First and foremost piano.

<unk>.

It would be.

Have you know absolute commitment to return excess cash for the shareholders and when you look at for example, this year right.

Yet to date or the last three quarters, we have come in and be able to turn it over 80% of our free cash flow.

Shareholders. So so clearly put up it's.

It's it's it's.

Free cash flow.

We are permitted to return.

The reason for at least six.

2% through the cycle.

Primarily a function of.

How the cycles unfold.

So.

We are very focused and disciplined on the capital allocation as you have seen and they M&A opportunities.

Going to be small.

And they are going to be strategic and captain type acquisition with expansive organic growth profile, Ottawa technology and walk you know.

Technology additions so for US you know.

We feel very comfortable with at least 60% and you know you should expect us to do more if you know that's may continue to generate more free cash flow but.

As a as a firm commitment. We are we are we are talking about at least 60%, but but as history has shown.

We will return mix of cash to the shareholders and that could be more.

Gotcha I appreciate the colored.

And then just the the the reservoir chemicals.

How should we think about that segment and four Q, what's kind of the the new run rate revenue potential there.

And then you mentioned getting those the margins too and treated posture you know relative to.

The rest of the business knew how how quickly does that happen.

You take.

The less profitable business lines added that segment.

Yeah, No great question, Scott So as we go through this.

We are executing through the restructuring.

And as far as.

What you should see as as we progress through 2023.

We should our margins should start further improving columbia to be off and we would expect.

Scott as we get into the second half of next year.

It should start getting <unk>.

<unk>.

Gotcha, how do we think about revenues and kind of four children, and then you're twenty-three which to me.

Right there.

And.

Specifically.

I think asking about <unk> on the revenue Yeah. I think there was a comment in the deck that they would still be lower revenues and four Q. The outlook page correct correct just carry out but were RCT goes in and <unk>.

Yeah.

We don't give specific guidance, but it should be getting lower more closer towards the $30 million range.

Okay. Okay I appreciate the call us Thank you Joe.

Thank you. Our next question comes from Steven <unk> from Stifel. Please go ahead.

Thanks, and good morning, everybody.

So could you maybe talk a little bit about.

How we think about your production chemicals.

Wherever you profile versus what's going on with global oil production, that's something that comes up a lot and obviously you have outpaced stack, but so what are some of the drivers behind the.

The revenue growing at at a more rapid rate than than the.

Overall global production levels.

Yeah, let's Steven.

Great question and this is something we will make sure that we detailed about our investor day.

And give them more specific color into it.

But but let me give you the key elements that's drives the.

The growth so clearly.

Reising drives that clearly activity growth private and shared.

Incremental shed gains drive is that right.

But one of the one of the factors that is less understood or.

Not very visible is in in higher commodity price environment.

The customers.

Production programs.

Tend to focus more spend on production chemistry.

Because the most important asset our customers have is they are producing raul so in a higher commodity environment. They want to protect the asset and the asset integrity and everything they can do to continue to enhance the production. So the production programs.

During.

Constructive commodity prices.

Tend to spend more on production chemistry, so that that's that's one important element the second element is.

If you look at the at the S F.

SA harder to treat the oil continues to become.

More of the production because easy to find easy to treat the oil I've taken have been have been taken as we get towards more productively oil, particularly more offshore or more.

Shale.

You are going to see more production chemistry intensity into that right. So that's the second part the third part as depending on the region around the world depending on the region around the world. The number of wealth, which are actively being treated currently also varies.

So that is so when you think about in a place like U S. A in North America.

That percentage tends to be higher.

Because that's more protection program the infrastructure of the of the service facilities are there <unk>.

<unk>, the valve and and maintained them, but internationally as you go the number of wells active production wells that are currently being treated with chemicals.

You know tends to vary so that is a.

Is setup growth opportunities wording.

<unk> producing wells actually knew actually producing votes going onto chemical programs. So when you look at the <unk>.

Both in Latin America, and also some of the growth in Middle East is actually driven by that and that is more of a runway to that.

If you look at the percentage of Welts being treated and chemicals in this region.

<unk> right.

That's the last.

And then the final aspect.

On the production chemistry, it you know.

The production chemistry chemical usage. It's also a function of potent liquids produced right. It's just not the oil alone because ask wealthy age.

Even though the oil production may come down that put the liquids produced.

May continue to be the same because they are producing more water and so those water also needs to be treated.

So these are the.

The final elements of the next set of elements that drive production Chemistry Grove.

So that's why we have a long runway of production growth and Mr growth and it always growth in multiples of the actual production growth. So we will you know.

Detailed this out.

In a much more deep dive in.

Noah Investor Day does.

Does that helpful.

That's extremely helpful. Thank you.

<unk> the other quick one and I'm not sure you can come in or not but when you think about the the share repurchase program is is there a time frame on the 750 I'm just sort of.

Sort of.

Trying to kind of back into next year's free cash flow guidance, a little bit, but is there a timeframe and or just the execution gonna be opportunistic overtime.

Yeah, I mean, even if you look at if you. If you look at what we have done. This year you should expect has to execute on this program.

We have demonstrated that and as we have said in our prepared comments and.

Will will execute on the queue for and.

We have also.

We are putting in place a systematic approach to do that even.

Through times that is dislocation.

Or a dislocation prices and things like that so we are very committed to that then systematically UBM.

We will execute on that.

The baby framed.

It.

Is that is that.

You can think of it this way right.

If we if given a strong cash flow generation.

If we if there is no other use for our our free cash flow.

You can see us.

Returning.

Bleeding this program and I put the three of time period yet.

So so it's a very realistic.

That you know.

What we are executing we have executed 80 million this quarter right and that's a good look into Q4 with a strong free cash flow generation.

Continued to execute strong on this program. So we are very committed to it.

In that sense.

Excellent. Thank you for the details.

Yeah.

Thank you. The next question comes from <unk> from Bank of America. Please go ahead.

[noise] Hi, So mine can good morning, <unk> start with.

A follow up on the production chemicals business I know you said in your prepared remarks so.

You still feel good about getting through that intermediate don't <unk> I don't think you've committed to a timeline to that so maybe you can correct me. If you. If you did right, but how should we think about that right I think in the past you said, it's more a function of what you've been anything goes but it looks like mix and and pricing are gonna be drive.

Right right. So if you can help us think about that when can you potentially get what's.

What's the path and what's what's the key drivers.

Yeah, but I think you have you know.

But understanding is correct that we have not.

Not put us Pacific time timeline on that right now, but the way the key drivers behind the product chemical Michael margin expansion.

Is going to be obviously volume is one but the productivity.

We are executing on the on the business is also an important thing you know, our particularly our supply chain.

Organization and <unk>.

Chemicals have done.

Amazing job you know.

Of executing.

Operational productivity.

At a time when supply disruptions.

Really really a major challenge so they've done a great job of continuing to drive operational productivity we had.

And an example of that is we have digitized lane.

Our complete.

Field.

Fulfillment side.

Which drives a significant amount of productivity. So what volume is important one.

One part of it but productivity and then followed by pricing.

We do expect to continue the net pricing next year and our production chemical business. So both of these these are the three factors that will dry and that's our international.

Growth goes more that also the mix also helps in driving higher margin as well. So so we have we're pretty excited about the positive margin expansion runway in this business.

Okay cool cool and follow up related follow up on that it looks like I'll just need very strong growth in revenues B C T, 17% sequentially looks like it to be.

Think about 2022 is a home revenues could be up our highest <unk> 50 per cent.

For context, just so that'd be endless understand what's driving that right can you help and dissect that a little bit in terms of homeless <unk> pricing.

But then pricing home because I feel pricing, which is so charges because you would think surcharges, which rewards at some point.

S as inflation starts to go the other way around.

So just for some context, what drove the heightened when he used to send a revenue code for P. C D.

Yeah, I mean look from from.

From a from.

From a qualitative perspective, and obviously thought of as you can imagine you know.

For competitive purposes, we don't want to detail out.

A lot of specifics on that.

But we track these things very very detailed.

Detailed manner, but let me talk about it in a quantitative sense and I'll give you a little bit of color here.

So.

From my.

It clearly that it's been volume growth.

Pricing.

And incremental shed gains.

Our teams have done this is really important because when you think about all the supply disruptions that has happened.

The last 18 months in the in the supply chain.

The supply assurance is a very critical aspect for our customers because many of the high value valve.

You know this is a consumable in the production so they need that right. So this is where the strength of champion acts really really shines in the supply assurance that network cough manner.

Manufacturing capabilities that distribution points Sunday, and that and that and that.

Supply chain team capability behalf.

As we have mentioned we are very proud of the fact that we have not.

They played at first major during this time to any of our customers or suppliers have done that to us, but even with that our supply chain teams really worked hard to provide the supplies for the spell customers and that is.

Really given us a significant market share incremental market share improvements and this kind of capabilities have been built over decades.

The technology capability, the supply chain capabilities the manufacturing network.

So it is not easy to replicate.

So so so that's a that's a very important element in driving this shared gains which we have experienced right. So all this put together drives.

Kind of a strong growth uf's scene in PCT.

So to give me a context around pricing.

For example in Q3 you know.

At a at a overall champion X level.

The pricing is about 50% of our growth.

And the rest is.

All other factors, so and our PCT businesses.

Somewhat similar to that.

Okay, Okay perfect no. So let it it's perfect contest context for that so thanks for that is it can sneak in one more on the east side.

So obviously, if you look within P. At the date of different businesses with different underlying drivers right at 835 to 40 per cent each within beauty is ESPN dendroid lift obviously different drivers of those businesses right and I think the band into disciplined and some of the other.

Smaller production service.

Service lines today, so it that mix how should we think about 23, three <unk> North America BMC Capex could always 20 per cent next year put on numbers, how should we think about those three bucks esp's coordinated and digital and they'll get together.

Yeah look we are not going to be providing.

Thousand twenty-three guidance in the in the call, but qualitatively again talking about it if you look at this year right all forms of artificial lift has grown and in fact rod left.

The highest growth.

This year, followed by Esp's and other forms of left right. So.

Increasing DSB spending environment, you know our audience.

She'll lift portfolio will benefit from it what we have seen historically like as you have seen this year it should grow in the high twenties.

And historically.

Historically, our optician lift portfolio as grown.

Similar to the BNP spending.

Spending levels.

And this is another element of that is do you think about rod left and.

And again in a similar to production chemicals in during the times of.

Constructive commodity prices and our customers spend to make sure that the that.

Well sort of operating the most efficient manner and met with a less downtime. So rodd lifted benefited from that spending on also the conversion cycle that is going on.

You may remember when we talked about this conversions and I would rather left is continuing to benefit from that conversion as well. So so so you should expect if that is going to be a strong BMC spending growth next year, you should expect our <unk>, our audition business to grow.

Pretty strong in conjunction with that.

Okay Awesome, that's perfect. So my doesn't exchange rate.

You're in E&P, you invested in production, it's going to be a higher.

Perhaps so so that makes sense, okay I've done it back thank you.

Thank you and at this moment, we have no other questions in Q I would like to turn the call back to summer for final remarks.

Well. Thank you before the close of the call I would like to recap the key elements of champion acts as we look into the future.

Strong organic growth combined with a positive momentum and runway Noah margin expansion, the throng free cash flow generation and our commitment to return at least 60% of our free cash flow to our shareholders.

These are the key elements as we look into the future.

And thanks for joining the call and have a great day.

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

Q3 2022 ChampionX Corp Earnings Call

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