Q4 2023 ChampionX Corp Earnings Call
Recorded on the sixth of February 2024.
Operator: Recorded on the 6th of February, 2024. Good morning.
Good morning, welcome to champion X corporations fourth quarter and full year 2002.
Operator: Welcome to ChampionX Corporation's fourth quarter and full year 2023 earnings call. Your host for this morning's call is Byron Palmer. I will now turn the call over to Mr. Pope.
Three earnings conference call.
Your host for this morning's call is Byron Pope I will now turn the call over to Mr. Powell you may begin.
Operator: With me today are Soma Samasundaram, President and CEO of ChampionX, and Ken Fisher, our Executive Vice President and CFO. During today's call, Soma will share some of our company's highlights. Ken will then discuss our fourth quarter results and first quarter outlook before turning the call back to Soma for some summary thoughts. We will then open the call for Q&A.
With me today are film if I'm, a syndrome, president and CEO with champion X and Ken Fisher, Our executive Vice President and CFO during.
During today's call Soma, we'll share some of our company's highlights.
Ken will then discuss our fourth quarter results and first quarter outlook before turning the call back to Soma for some summary thoughts.
Then open the call for Q&A.
Operator: 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 a material difference in our results from those projected in these statements.
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 other SEC filings for a discussion of some.
Soma Samasundaram: Therefore, I refer you to our latest 10-K filing and 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 fourth quarter press release, which is available on our website. I will now turn the call over to... Thank you, Byron. Good morning, everyone.
Factors that could cause actual results to differ materially are.
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 fourth quarter press release, which is available on our website.
I will now turn the call over to Soma.
Thank you Byron good morning, everyone I would like to welcome all of our shareholders employees and analysts to our fourth quarter 2023 earnings call.
Soma Samasundaram: I would like to welcome our shareholders, employees, and analysts to our fourth quarter 2023 earnings call. Thanks for joining us today. For ChampionX, 2023 was a year of continued strong earnings momentum and best-in-class capital returns as we expanded our adjusted EBITDA margin by 430 basis points, delivered adjusted EBITDA growth of 25%, converted 53% of that adjusted EBITDA to free cash flow, and returned 83% of that free cash flow to our shareholders. In 2023, we achieved our highest level of performance in key financial metrics since our transformative merger in 2020. In addition, I'm excited about the foundation we have established in 2023 for continued revenue and earnings growth, margin expansion, and strong free cash flow generation in 2024 and beyond. I'm grateful to all our employees for their laser focus on delivering value to our customers day in and day out, as that is the heartbeat that drives our strong financial engine. Turning to the fourth quarter highlights on slide number five, our solid performance during the period illustrates the benefits of our geographically diversified and production-oriented portfolio. Fourth quarter revenue was flat sequentially, despite softer U.S. land drilling and completions related activity, especially into the year-end holidays.
For joining us today.
For champion X 2023, with a year of continued strong earnings momentum and best in class capital returns as we expanded our adjusted EBITDA margin by 430 basis points delivered adjusted EBITDA growth of 25% convert at 53% of that.
That EBITDA to free cash flow and returned 83% of that free cash flow to our shareholders.
In 2023, we achieved our highest level of performance in key financial metrics since our transformation merger in 2020.
In addition, I'm excited about the foundation, we have established in 2023 for continued revenue and earnings growth margin expansion and strong free cash flow generation in 2024 and beyond.
I am grateful to all of our employees what are they at laser focus on delivering value to our customers day in and day out as that is the heartbeat, which drives our strong financial engine.
Turning to the fourth quarter highlights on slide number five our solid performance during the period illustrates the benefits of our geographically diversified and production oriented portfolio.
Quarter revenue was flat sequentially, despite softer U S land drilling and completions related activity, especially into the year end holidays, our largest business production chemical technologies delivered high single digit sequential revenue growth internationally and grow in North America.
Soma Samasundaram: Our largest business, Production Chemical Technologies, delivered high single-digit sequential revenue growth internationally and grew in North America during that period. Our adjusted EBITDA margin was 21% in the fourth quarter, flat sequentially, which demonstrates our ability to sustain what is our highest margin level as ChampionX. International growth was strong in the fourth quarter at 6% sequentially, led by 15% growth in the Middle East and Africa region, followed by Latin America at 7% growth sequentially.
The period.
Our adjusted EBITDA margin was 21% in the fourth quarter flat sequentially, which demonstrates our ability to sustain what is our highest margin level as champion X.
International growth was strong in fourth quarter at 6% sequentially led by 15% growth in Middle East and Africa region, followed by Latin America at 7% growth sequentially in.
Soma Samasundaram: In North America, sequential growth in its production chemical technologies business was offset by a typical seasonal decline in our production and automation technologies and a decline in our drilling technologies business driven by software U.S. land drilling activity in the fourth quarter. Turning to our key performance metrics on slide six. We delivered strong adjusted EBITDA growth of 25% year over year, achieved an adjusted EBITDA margin of over 20%, which expanded 430 basis points. We generated over 400 million of free cash flow, and achieved return on invested capital of 18%, which is 400 basis points higher than prior years. We returned $343 million to our shareholders in 2023, which is up 52% from 2022. Our financial position is strong with record liquidity and low leverage.
In North America sequential growth in production chemical technologies business was offset by typical seasonal decline in our production and automation technologies and decline in our drilling technologies business driven by softer U S land drilling activity in the fourth quarter.
Turning to our key performance metrics on slide six.
We delivered strong adjusted EBITDA growth of 25% year over year.
Achieved adjusted EBITDA margin of over 20%, which expanded 430 basis points.
We generated over $400 million of free cash flow and achieved a return on invested capital of 18%, which is 400 basis points higher than prior year.
We returned 343 million to our shareholders in 2023, which is up 52% from 2022.
Our financial position is strong with record liquidity and low leverage.
Soma Samasundaram: Tune into full-year revenue details on slide 7. Adjusting for Russia's exit, the end of Ecolab's cross-sale agreement, and our RCT product line exit, our full-year normalized revenues grew 3.4% in 2023. And I would like to point out some key highlights of growth in 2023. Our production chemical technologies business grew 16% in the USA in 2023, driven by U.S. land and Gulf of Mexico activities
Turning to full year revenue details on slide seven.
Adjusting for Russia, exert and of equal App Cross sale agreement and our <unk> product line exit of a fully normalized revenues grew three 4% in 2023.
And I would like to point out some key highlights of growth in 2023.
Our production chemical technologies business grew 16% in the USA in 2023, driven by U S land and Gulf of Mexico activities.
Soma Samasundaram: Our production automation technologies business grew 16% internationally in 2023, and our drilling technologies business grew 11% internationally. Our digital business continued its strong growth momentum in 2023, growing 16% year-over-year. Growth in digital was broad-based, led by our production optimization and emission technology offerings. We remain excited and confident in our continued growth momentum across our digital portfolio. We expect the recent final ruling on methane standards by EPA to drive accelerated growth in our emission business.
<unk> automation technologies business grew 16% internationally in 2023, and the drilling technologies business grew 11% internationally.
Our digital business continued a strong growth momentum in 2023 growing 16% year over year.
Growth in digital was broad based led by our production optimization and the emission technology offerings via.
We remain excited and confident in our continued growth momentum in our digital portfolio.
We expect the recent final ruling of methane standards by EPA to drive accelerated growth in our Asia business.
Soma Samasundaram: Turning to slide 8, I would like to highlight the resilience and steady growth nature of our production chemicals business. As you can see from the slide, in North America, the business exhibits a steady growth trajectory as total fluids produced continues to grow along with chemical intensity, pricing, and share gains. Internationally, the business continues to grow, driven by similar factors in North America, but with seasonality during the year.
Turning to slide eight I would like to highlight the resilience and steady growth in nature are forward production chemicals business as we can see from the slide in North America. The business exhibit steady growth trajectory as total fluids produced continues to grow along with chemical intensity price.
And share gains internationally the business continues to grow driven by similar factors as North America, but with seasonality during the year.
Soma Samasundaram: In addition, during the second half of 2022, we had unusually higher order activity in Latin America, driven by customer inventory build, impacting our 2023 growth comparison. As we look to 2024, we are entering the year with a strong financial position, continued earnings momentum, and a solid pipeline of productivity projects that gives us confidence to grow earnings and expand margins during 2024. Despite near-term market uncertainty with respect to the timing and trajectory of U.S. land drilling and completions activity, we expect 2024 to be a growth year for ChampionX, both internationally and in North America, led by our production-oriented businesses, which benefit as upstream and midstream operators increase operating expenses to keep their cash flow-generating assets performing optimally. We support the view that we are in an overall constructive environment for our sector. There are certainly ups and downs across geography, but one of the cornerstones of the ChampionX portfolio is our ability to differentiate through our technology and service excellence.
In addition, during the second half of 2022, we had unusually high you had a lot of activity in Latin America, driven by customer inventory build impacting our 2023 growth comparison.
As we look to 2024, we are entering the year with strong financial position continued earnings momentum solid pipeline of productivity projects that gives us confidence to grow your earnings and expand margins during 2024.
Despite near term market uncertainty with respect to the timing and trajectory of U S land drilling and completions activity. We expect 2024 to be a growth year for <unk>, both internationally and in North America led by our production oriented businesses, which benefit as upstream.
And midstream operators increased opex spend to keep that cash flow generating assets performing optimally.
We support the view we are in an overall constructive environment for our sector that are certainly ups and downs across geography, but one of the cornerstones of the champion X portfolio is our ability to differentiate through our technology and service excellence.
Soma Samasundaram: We have seen the benefit of this in 2023, allowing us to capture growth in markets with sailwinds but also protecting us when volume goes down. And we expect to continue to see the benefit of this in 2024. Ken will take you through the details of our fourth quarter financial results shortly, but let me first touch on our commitment to value creation for our shareholders. We first shared our Capital Allocation Framework with you two years ago. As we reached our through-the-cycle target leverage ratio of 1x net debt to EBITDA, we delivered on our commitment to begin returning capital to our shareholders by initiating a regular quarterly dividend, which we anticipated would grow over time with free cash flow growth. In addition, we initiated a share repurchase authorization of $250 million around the same time as part of our comprehensive capital allocation framework.
We have seen the benefit of this in 2023, allowing us to capture growth in markets with tailwind, but also protecting us when volume goes down and we expect to continue to see the benefit of that in 2024.
Ken will take you through the details of our fourth quarter financial results shortly but let me first touch on our commitment to value creation for our shareholders.
First shared our capital allocation framework with you two years ago.
As we reached our through the cycle target leverage ratio of one times net debt to EBITDA, we delivered on our commitment to begin returning capital to our shareholders by initiating a regular quarterly dividend, which we anticipated would grow over time with free cash flow growth.
In addition, we initiated a share repurchase authorization of $250 million around the same time as part of our comprehensive capital allocation framework.
I am pleased to say that we have delivered on our commitment to returning excess cash to shareholders.
Soma Samasundaram: I'm pleased to say that we have delivered on our commitment to return excess cash to shareholders. Since we first shared our capital allocation priorities and framework in early 2022, ChampionX has generated over $800 million in free cash flow, which demonstrates the best-in-class cash flow generating capability of our capital-like portfolio of businesses. We have returned 71% of that free cash flow to our shareholders through our regular cash dividend and share repurchase. As an indication of our continued commitment to our shareholders, our Board of Directors approved an increase to our share repurchase program, which authorizes ChampionX to repurchase up to $1.5 billion of its stock, which is an increase of $750 million to the program previously increased in the fourth quarter of 2022.
Since we first shared our capital allocation priorities and framework in early 2020 to champion X has generated over $800 million in free cash flow, which demonstrates the best in class cash flow generating capability of our capital light portfolio of businesses.
We have returned 71% of that free cash flow to our shareholders through our regular cash dividend and share repurchases.
As an indication of our continued commitment to our shareholders. Our board of directors approved an increase to our share repurchase program, which authorizes champion X to repurchase up to one $5 billion of its stock, which is an increase of $750 million to the program.
Previously increased in the fourth quarter of 2022.
Kenneth M. Fisher: In addition, we are increasing our regular cash dividend by 12%, which reflects our demonstrated strong free cash flow generating capability. We remain committed to converting 50% to 60% of our adjusted EBITDA into free cash flow and to returning at least 60% of free cash flow to our shareholders through the cycle. Let me now turn the call over to Ken to discuss our fourth quarter results and our first quarter outcome. Thank you, Soma. Good morning, everyone.
In addition, we are increasing our regular cash dividend by 12%, which reflects our demonstrated strong free cash flow generating capability.
We remain committed to converting 50% to 60% of our adjusted EBITDA into free cash flow and to returning at least 60% of free cash flow to our shareholders through the cycle.
Let me now turn the call over to Ken to discuss our fourth quarter results and our fourth quarter outlook.
Thank you Soma good morning, everyone. Thank you for joining us today.
Kenneth M. Fisher: Thank you for joining us today. Before I move to the fourth quarter and total year results, I want to make a few points about our reporting today. For sequential and year-over-year comparisons, I will be commenting on adjusted EBITDA because we believe this metric best reflects the business performance of continuing operations. After a review of our OFSC, Pierrot, and consideration of our Comparative Adjusted EBITDA metric, beginning with the fourth quarter of 2023, we revised the definition of adjusted EBITDA to remove the impact related to foreign currency gains and losses. We believe this change provides a more consistent basis for comparing underlying operating performance versus our peers. In the fourth quarter, FX losses were predominantly attributable to the recent devaluation of the Argentine peso.
Before I move to fourth quarter, and total year results I want to make a few points about our reporting today.
For a sequential and year over year comparisons I will be commenting on adjusted EBITDA. We believe this metric best reflects the business performance of continuing operations.
After a review of our <unk> S E peer group and consideration of our comparative adjusted EBITDA metric beginning with the fourth quarter of 2023, we revised the definition of adjusted EBITDA to remove the impact related to <unk>.
And currency gains and losses.
We believe this change provides a more consistent basis for comparing underlying operating performance versus our peers.
In the fourth quarter FX losses were predominantly attributable to the recent devaluation of the Argentine peso as a reminder, our market guidance for fourth quarter did not include any foreign exchange losses.
Kenneth M. Fisher: As a reminder, our market guidance for the fourth quarter did not include any foreign exchange losses. To assist investors and analysts, we have provided the comparative periods utilizing the revised definition in our earnings release. As seen on slide 10, fourth quarter 2023 revenue was $944 million, up slightly sequentially and 4% lower year over year. Revenue was up 5% sequentially in our largest business, production chemical technologies, based on expected seasonal strength in international operations, which grew 8% while North American revenues were up 2%. As U.S. oil field activity softened into the year-end holidays and some customers destocked inventory, our shorter-cycle U.S. land businesses were impacted. As a result, production automation technologies revenue was down 6% sequentially, while drilling technologies and reservoir chemical technologies revenues were each down 15% sequentially. Geographically, North American revenue declined 3% and international revenue increased 6% sequentially on the PCT seasonal strength. Year over year, fourth quarter North American revenues were flat, while international revenues declined 11%, primarily on lower sales to a large customer in Latin America.
To assist investors and analysts we have provided the comparative peer utilizing the revised definition in our earnings release.
As seen on slide 10 fourth quarter, 2023 revenue was $944 million up slightly sequentially and 4% lower year over year.
Revenue was up 5% sequentially at our largest business production chemical technologies based on expected seasonal strength in our international operations, which grew 8% while north American revenues were up 2%.
As U S oil field activity softened into the year end holidays, and some customers destock inventory are shorter cycle U S. Land businesses were impacted as a result production automation technologies revenue was down 6% sequentially, while drilling technologies.
And reservoir chemical technologies revenues were each down 15% sequentially.
Yes.
Geographically North America revenue declined 3% and international revenue increased 6% sequentially on the PCT seasonal strength year over year fourth quarter, North American revenues were flat, while international revenues declined 11% primarily on lower.
Our sales to a large customer in Latin America.
Fourth quarter GAAP net income for the company was $77 million or <unk> 39 cents per diluted share versus $78 million in the third quarter at $68 million in the fourth quarter of 2022.
Kenneth M. Fisher: Fourth quarter gap net income for the company was $77 million, or 39 cents per diluted share versus $78 million in the third quarter and $68 million in the fourth quarter of 2022. As seen on slide 11, ChampionX delivered consolidated adjusted EBITDA in the fourth quarter of $198 million, flat on the previous quarter and an increase of 10% versus the prior year period. This represents a $6 million outperformance versus the midpoint of our guidance range. Higher volumes, productivity, cost management, and higher selling prices primarily drove this improvement in net income and adjusted EBITDA. In the fourth quarter, we delivered a very strong consolidated adjusted EBITDA margin of 21%, consistent with the third quarter and up 280 basis points over the fourth quarter of 2022. Fourth quarter free cash flow of $140 million reflected strong cash flow from operations and our continued focus on working capital management. The $140 million free cash flow represented 71% of free cash flow from adjusted EBITDA. Cash from operating activities was $169 million, and capital investments were $29 million net of proceeds from asset sales.
As seen on slide 11 champion X delivered consolidated adjusted EBITDA in the fourth quarter of $198 million flat, all the previous quarter and an increase of 10% versus the prior year period. This represents a $6 million.
Our outperformance versus the midpoint of our guidance range.
Yes.
Higher volumes productivity cost management and higher selling prices, primarily drove this improvement in net income and adjusted EBITDA.
In the fourth quarter, we delivered very strong consolidated adjusted EBITDA margin of 21% consistent with the third quarter and up 280 basis points over the fourth quarter of 2022.
Fourth quarter free cash flow of 140 billion reflected strong cash flow from operations and our continued focus on working capital management.
$140 million free cash flow represented 71% conversion of free cash flow from adjusted EBITDA cash from operating activities was 169 million and capital investments were <unk> 9 million net of proceeds from asset sales.
Kenneth M. Fisher: Turning to our business segments, I will cite Sequential and the same quarter for the year-over-year comparison. Production chemical technologies generated fourth quarter revenue of $634 million, up 5% from the third quarter and flat year over year. Geographically, international revenue increased 8% sequentially, and North America increased 2%. Segment-adjusted EBITDA was $139 million, up 5% sequentially, and 15% higher than the fourth quarter of 2022. Higher volumes and productivity projects drove the sequential improvement; volume, increased selling price, and productivity projects drove the straw year-over-year improvement. Segment adjusted EBITDA margin was 21.9%, consistent with third quarter levels and up 290 basis points from the prior year period, driven again by higher volume selling prices and the productivity initiatives previously noted. Production and Automation Technology's fourth quarter segment revenue of $241 million decreased 6% sequentially, driven primarily by the seasonality of Digital revenue was down 9% in the quarter and down 3% year over year as customers deferred purchases in the fourth quarter to optimize inventory and cash flow.
Turning to our business segments, I will cite sequential and the same quarter for the year over year comparisons.
Production chemical technologies generated fourth quarter revenue of $634 billion up 5% from the third quarter and flat year over year geographically International revenue increased 8% sequentially and North America increased 2%.
<unk> adjusted EBITDA was $139 million up 5% sequentially and 15% higher than the fourth quarter of 2020 to higher volumes and productivity projects drove the sequential improvement volume increased selling price and productivity.
<unk> grew drove the strong year over year improvement.
Segment adjusted EBITDA margin was 21, 9% consistent with third quarter levels and up 290 basis points from the prior year period, driven again by higher volumes selling prices and the productivity initiatives previously noted.
Production and automation technologies fourth quarter segment revenue of $241 million decreased 6% sequentially driven primarily by the seasonality of our North American business year over year revenue was down 1% digital <unk>.
<unk> was down 9% in the quarter and down 3% year over year.
Customers deferred purchases in the fourth quarter to optimize inventory and cash flows.
For the full year 2023 digital revenue grew 16% and we continue to see strong customer focus on leveraging digital technologies to reduce emissions drive operational improvements and realized cost efficiencies, we expect future digital <unk>.
Kenneth M. Fisher: For the full year 2023, digital revenue grew 16%, and we continue to see strong customer focus on leveraging digital technologies to reduce emissions, drive operational improvements, and realize cost efficiency. We expect future digital revenues to continue to benefit from this industry trend. PAT's fourth quarter segment adjusted EBITDA was $53 million, down 11% sequentially and up 3% year over year. Segment adjusted EBITDA margin was 22%, down 126 basis points versus the third quarter on lower volumes, seasonality, and product mix. Adjusted EBITDA margin was up 94 basis points versus the prior year period due to higher volumes and favorableness. Drilling technology segment revenue was 47 million in the fourth quarter, down 15% sequentially, and 13% lower year-over-year.
Revenues to continue to benefit from this industry trend.
Fourth quarter segment, adjusted EBITDA was 53 billion down, 11% sequentially and up 3% year over year.
Segment, adjusted EBITDA margin was 22% down 126 basis points versus the third quarter on lower volumes seasonality and product mix. Adjusted EBITDA margin was up 94 basis points versus the prior year period due to higher <unk>.
<unk> and favorable mix.
Drilling technologies segment revenue was $47 million in the fourth quarter down, 15% sequentially and 13% lower year over year as expected we experienced a decline in sales in the fourth quarter in line with the trend in <unk>.
Kenneth M. Fisher: As expected, we experienced a decline in sales in the fourth quarter, in line with the trend in U.S. land recounts and customer year-end activity slowdowns and the stock. Drilling Technologies delivered segment-adjusted EBITDA of $10 million during the fourth quarter, down $3 million sequentially and $2 million lower compared to the fourth quarter of 2022 adjusted EBITDA level. The segment adjusted EBITDA margin was 22% in the Margin was up 168 basis points year-over-year, driven by productivity improvement. Reservoir Chemical Technologies' revenue for the fourth quarter was $21 million. 15% lower sequentially and 17% lower year-over-year. The sequential decline was a function of lower volumes in US land during the year-end holidays.
US land rig count and customer year end activity slowdowns and Destocking.
Drilling technologies delivered segment adjusted EBITDA of $10 million during the fourth quarter down $3 million sequentially and $2 million lower compared to the fourth.
Fourth quarter of 2022, adjusted EBITDA level.
Segment, adjusted EBITDA margin was 22% in the quarter.
A 300 basis points sequential decline driven by the lower revenues margin was up 168 basis points year over year driven by productivity improvements.
Reservoir chemical technologies revenue for the fourth quarter was $21 billion.
15% lower sequentially and 17% lower year over year. The sequential decline was a function of lower volumes in U S land into the year end holidays. The year over year decline was primarily driven by the exit of certain low margin RCT product lines last year.
Kenneth M. Fisher: The year-over-year decline was primarily driven by the exit of certain low-margin RCT product lines last year. This was consistent with our purposeful strategy to drive higher margin rates in this business. The product line exit resulted in lower revenues but a strong improvement in the overall profit margin profile of this segment. The segment posted adjusted EBITDA of $6 million in the fourth quarter, up $1 million versus the third quarter and up $2 million compared to the corresponding prior year period.
This was consistent with our purposeful strategy to drive higher margin rates of this business.
The product line exit resulted in lower revenues, but a strong improvement in overall profit margin profile in this segment.
The segment posted adjusted EBITDA of $6 million in the fourth quarter up $1 million versus the third quarter and up $2 million compared to the corresponding prior year period.
Segment, adjusted EBITDA margin was 26% in the quarter and 897 basis point sequential improvement.
Kenneth M. Fisher: Segment-adjusted EBITDA margin was 26% in the quarter and 897 basis points of sequential improvement and over a thousand basis points of improvement versus the prior year period, as fourth quarter 2023 included the benefit of a year-end LIFO inventory favorability. Moving to our balance sheet, as shown on slide 13, we ended the fourth quarter in a very strong position with $289 million of cash on hand and $959 million of total liquidity, That is a record level of liquidity for the company. As of December 31st, our leverage ratio was 0.4 times net debt to trailing 12-month adjusted EBITDA.
And over a 1000 basis point improvement versus the prior year period as fourth quarter 2023 included the benefit of a year end LIFO inventory favorability.
Moving to our balance sheet as shown on slide 13, we ended the fourth quarter in very strong position with $289 million of cash on hand, and $959 million of total liquidity, including available revolver capacity that is a record.
Level of liquidity for the company.
At December 31, our leverage ratio was four times net debt to trailing 12 month adjusted EBITDA.
Good alignment with our capital allocation framework, we remain committed to the return of surplus capital to our shareholders.
Kenneth M. Fisher: In alignment with our capital allocation framework, we remain committed to the return of surplus capital to our shareholders. During the fourth quarter, we returned 96% of free cash flow to shareholders in the form of $17 million in regular quarterly dividends and $118 million in share repurchase. For the full year 2023, we returned a sector-leading 83% of free cash flow to shareholders. Consistent with our continued commitment to return surplus capital, our board has approved an increase to our share repurchase program to $1.5 million, which doubles the size of the prior authorization. In addition, we are increasing our regular quarterly dividend by 12% to nine and a half cents per share per quarter.
During the fourth quarter, we returned 96% of free cash flow to shareholders in the form of $17 billion in regular quarterly dividends and $118 million of share repurchases for the full year 2023, we returned a sector leading.
83% of free cash flow to shareholders.
Consistent with our continued commitment to return surplus capital. Our board has approved an increase to our share repurchase program to $1 5 billion, which doubles the size of the prior authorization.
In addition, we are increasing our regular quarterly dividend by 12% to <unk>.
Neither the half cents per share per quarter. These actions demonstrate our commitment to capital discipline and our confidence in our free cash flow generation capability moving forward.
Kenneth M. Fisher: These actions demonstrate our commitment to capital discipline and our confidence in our free cash flow generation capability moving forward. We remain laser-focused on disciplined capital allocation, strong working capital management, delivery of operating and fleet-free cash flow, and maintaining our strong liquidity and financial position. As we discussed in our March 2023 Investor Day, and as you can see on slide 14, our disciplined capital allocation and continuous improvement in productivity are driving continued improvement in our Return on Invested Capital, or ROIC, metric. We are making strong progress to our 20% plus ROIC target. For the full year 2023, ROIC improved to 18%, up 400 basis points year over year. We expect this trend to continue as we move forward into 2024 and beyond. Turning to slide 15 in our forward outlook for the first quarter, we expect revenue in the range of $908 to $938 million, with projected, sequential decline driven by typical international seasonality partially offset by sequential increases in our North American business. For adjusted EBITDA, we expect a range of $179 million to $189 million.
We remain laser focused on disciplined capital allocation strong working capital management delivery of operating and free cash flow and maintaining our strong liquidity and financial position.
As we discussed at our March 2023, Investor Day, and as you can see on slide 14, our disciplined capital allocation and continuous improvement.
Productivity are driving continued improvement in our return on invested capital or ROI seat metric, we are making strong progress to our 20% plus.
<unk> target for the full year 2023, ROIC improved to 18% up 400 basis points year over year. We expect this trend to continue as we move forward into 2024 and beyond.
Turning to slide 15, and our forward outlook for the first quarter, we expect revenue in the range of $908 billion to $938 billion.
With projected <unk>.
Sequential decline driven by typical international seasonality, partially offset by sequential increases at our North American businesses.
For adjusted EBITDA, we expect a range of $179 million to $189 million.
From the seasonally low starting 0.1st quarter, we expect our revenue and adjusted EBITDA margin to improve progressively throughout the year.
Kenneth M. Fisher: From the seasonally low starting point of the first quarter, we expect our revenue and adjusted EBITDA margin to improve progressively throughout the year. We expect capital investment to be in the range of 3.5% of revenues in 2024. We remain confident in our 50-60% free cash flow to adjusted EBITDA conversion ratio guidance through the cycle, and we expect a free cash flow conversion ratio of at least 50% in 2024. As a reminder, our free cash flow delivery is typically weighted toward the back half of each year. Thank you, and now back to Sold.
We expect capital investment to be in the range of three 5% of revenues in 2024.
We remain confident in our 50% to 60% free cash flow to adjusted EBITDA conversion ratio guidance through the cycle and we expect.
Free cash flow conversion ratio of at least 50% in 2024.
A reminder, our free cash flow delivery is typically weighted towards the back half of each year.
Thank you and now back to Soma.
Thank you Ken before we open the call to questions. Let me share a few thoughts with you.
Soma Samasundaram: Thank you, Ken. Before we open the call to questions, let me share a few thoughts with you. ChampionX's positioning as a leading global provider of production optimization solutions for the energy industry places us in the sweet spot of helping our upstream and midstream customers maximize the value of their producing and operating assets in the most sustainable and cost-effective way possible. As such, we remain confident in the favorable demand tailwinds for our businesses in 2024 and beyond. In addition, our strong pipeline of productivity opportunities gives us confidence and a line of sight for continued earnings growth and margin expansion. What you can expect from us is a laser focus on delivering continued revenue and earnings growth, further expanding our adjusted EBITDA margin, generating strong free cash flow, investing in high-return growth opportunities, and returning excess capital to you, our shareholders. With that, let me thank all of our 7,100 ChampionX employees around the world for your tireless dedication to our purpose of improving the lives of our customers, our employees, our shareholders, and our communities. You inspire me daily.
<unk> positioning as a leading global provider of production optimization solutions for the energy industry places us at the sweet spot of helping of upstream and midstream customers maximize the value of their producing an operating assets in the most sustainable and cost effective way possible.
<unk>.
We remain confident in the favorable demand tailwind for our businesses in 2024 and beyond.
In addition, our strong pipeline of productivity opportunities gives us confidence and line of sight for continued earnings growth and margin expansion.
What you can expect from US is a laser focus on delivering continued revenue and earnings growth further expanding of our adjusted EBITDA margin generating strong free cash flow investing in high return growth opportunities and returning excess capital to you our shareholders.
With that let me. Thank all of our 7100 champion X employees around the world.
Your tireless dedication to our purpose of improving the lives of our customers our employees our shareholders and our communities you inspire me daily.
Operator: With that, I would like to open the call for questions. Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, simply press star followed by two.
With that I would like to open the call for questions.
Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a sweet home prompt acknowledging your request and if you would like to withdraw from the question queue simply press star followed by two.
Operator: And your first question will be from Steven Rangel at Stiefel. Please go ahead. Good morning, everybody.
And your first question will be from Stephen Mcgill at Stifel. Please go ahead.
Good morning, everybody.
Soma Samasundaram: Well, thanks for all the details. I guess I'd start with when we think about what we've been hearing from some of your peers about, you know, give or take 10% revenue growth internationally next year and maybe North America being down slightly year over year, maybe zero to 5%. How do you guys perform in that environment in 2024? Yeah, so Stephen, you know, so let me frame our assumptions as we go into 2024.
Good morning, Amit.
Well thanks for all the details I guess I would start with.
When we think about what we've been hearing from some of your peers.
Give or take 10% revenue growth internationally next year, and maybe even north America being down slightly year over year, maybe zero to 5%.
How do you guys perform in that environment in 2024.
Yes, so Steven.
So let me frame our.
Assumptions as we enter 2024.
Soma Samasundaram: So we believe in international activity; we agree with the market view that it continues to be robust, and we expect strong growth in our international activity. Second, in North America, as you know, we are highly exposed to operating expense spending. So we believe operating expense spending will be incrementally stronger to drive incremental production growth in North America, as customers are very much focused on incremental production growth. And thirdly, our digital product portfolio, we believe, will continue to grow strongly. So when you put that all together for us, you know, the international revenue growth will be primarily for us led by the Middle East, Sub-Saharan Africa, and Latin America.
So we believe the international activity, we agree with.
The market view that it continues to be robust and we expect a strong growth in our international activity.
Second in North America as you know we are highly exposed to the operating expense spending. So we believe the operating expense spending will be incrementally stronger to drive.
Growth incremental production growth in North America as customers are very much focused on incremental production growth.
And.
Thirdly, our digital product portfolio. We believe we will continue to grow strong. So when you put that all together for us.
The international revenue growth will be primarily for US led by Middle East Sub Saharan Africa, and Latin America.
Soma Samasundaram: And then in North America, our production chemical technologies business combined with our digital portfolio will lead the growth. In our PAT business, we expect incremental growth, but it will probably be more weighted to the second half. Now when I look at January, as you know, we have gotten through January, consistent with our expectations, we can see the activity improve from Q4 to Q1, particularly in North America. Great. Thank you. That's helpful.
And then in North America, our production chemical technologies business.
Bind with our digital portfolio level lead the growth in our <unk>.
<unk> business, we expect.
We expect incremental growth, but it will be probably more weighted to the second half now when I look at the.
January is January.
We have gotten through January consistent with our expectations. We can see the activity improved from Q4 to Q1, particularly in North America.
Great. Thanks.
Soma Samasundaram: And then just as a follow-up, you've had good progression on the PC on the production chemicals margins over the last couple years. Should we start thinking about that in terms of, you know, kind of the incrementals that I think you've talked about in the past? I think we've talked about kind of 30% incrementals in that business. Is that a reasonable starting point? That's correct, Stephen. Okay, great. That's all for me.
That's helpful. And then just just as a follow up you've had good progression on the PC and the production chemicals margins over the last couple of years.
Should we start thinking about that in terms of kind of the Incrementals I think you've talked about in the past I think we've talked about kind of 30% incrementals in that business is that a reasonable starting point.
That's correct Steven.
Okay great.
That's all for me. Thank you. Thank.
Thank you.
Soma Samasundaram: Thank you. Thank you. Thank you. The next question will be from Mark Bianchi at TD Cowen. Please go ahead.
Thank you next question will be from Marc Bianchi at TD Cowen. Please go ahead.
Hi, Thanks.
Operator: Hi, thanks. I wanted to ask about your revenue progression over the course of 23, because it seems like you fell short of your guidance on revenue for several quarters in 23, but you did quite well on EBITDA. So I'm curious if there's any kind of high-level explanation for that.
I wanted to ask about your revenue progression over the course of 'twenty three because it seems like you fell short of your guidance on revenue.
For several quarters in 'twenty, three but you did quite well in EBITA.
So I'm curious if there's kind of any high level explanation for that is it.
Soma Samasundaram: Is it perhaps turning away some lower-profitability business? Do you think you're losing share? Just any commentary on the revenue progression would be appreciated.
Perhaps turning away some some lower profitability business do you think youre, losing share just any commentary on the revenue progression would be appreciated.
Yes, Mark.
Thanks for that so if you look at our.
Soma Samasundaram: So if you look at our segments, you can see our largest segment, production chemical technologies, consistently growing in North America. And as we expected in Q4, international growth was strong in our production chemical technologies. Where we tend to have issues with respect to some shortfalls is driven by our short cycle North American business, and particularly when you look at what happened in our Q3, Q4 timeframe, the U.S. land activity-based short cycle business, particularly our drilling technologies business, you probably noticed we expected a 12% sequential decline in our drilling technologies in Q4 as we guided, but it came in a little bit more than that.
Segments.
And you can see our largest segment the production chemical technologies consistently is.
In North America, and we expect it in Q4 that international growth was strong in our production chemical technologies.
We tend to have.
Issues with respect to some shortfall is driven by our short cycle, North American business, and particularly when you look at.
What happened in our Q.
Q3, Q4 timeframe that U S land activity based short cycle business, particularly our drilling technologies business, you probably noticed we guide.
We expect at a 12% sequential decline in our <unk>.
Telling technologies in Q4 as we guided.
Came in a little bit more than that so that is somewhat tough to predict that short cycle, North American business, but more importantly, what I wanted to say is we are very focused on what we can control and what we can control are those productivity efforts and ability to.
Soma Samasundaram: So that is somewhat tough to predict, the short-cycle North American business. But more importantly, Mark, what I wanted to say is that we are very focused on what we can control. And what we can control are those productivity efforts and ability to deliver on those, along with some targeted share gains, right? So what you're seeing in our ability to drive continuous earnings growth, despite some softness or a flattish revenue type, is primarily driven by our ability to continuously drive productivity growth. As I mentioned before, this comes from our industrial heritage DNA, where there is a constant pipeline of productivity efforts. And that's what we focus on controlling.
Deliver on those along with some target that share gains right. So what youre seeing in our ability to drive continuous earnings growth. Despite some softness.
At a flattish type revenue is primarily driven by out of ability to continuously drive productivity growth and I've mentioned this before this comes from our industrial headache data DNA bad debt as a constant pipeline of productivity.
Productivity efforts and Thats, what we focus on controlling because.
Soma Samasundaram: In a short cycle business, sometimes revenues can be up and down. So what you should expect from us is continued delivery on that productivity effort that drives our earnings growth. Okay, great; thanks for that explanation.
In the short cycle business, sometimes revenues can be up and down. So what you should expect from us as a continued delivery on that productivity efforts that price somebody earnings growth.
Okay, great. Thanks for that that explanation. The other question I had related to the first quarter guidance for EBITDA, which seems to be reflecting some very high operating leverage like a 70% decremental at the midpoint.
Soma Samasundaram: The other question I had related to the first quarter guidance for EBITDA, which seems to be reflecting some very high operating leverage, like a 70% decremental at the midpoint. Can you discuss that at all and if there's anything unusual that might be occurring? Yeah, sure, Mark, absolutely. So, I would say there are three things that are driving what I would call a higher, more gradual decline. One is, we are expecting an increased freight cost in Q1, particularly driven by the Red Sea situation. Now, we will recover those costs through the year as we put through price increases and so on and so forth. So the increase in freight costs in the first quarter is one element. The second element is that we continue to make some incremental investments, particularly in our digital and emissions business, to support upcoming growth. And then the third element is, as you know, the mix tends to be less international, particularly in PCT, less international than offshore. So that tends to drive some higher decrements. So those are the three factors.
Can you discuss that at all and if there is anything unusual that might be occurring.
Yes, sure absolutely so.
So I would say there are three things that are driving the what I would call it more higher decrementals.
One is.
We are expecting an increased freight cost in Q1, particularly driven by the <unk> situation.
Now we will recover those costs through the year as we put through price increases and so on and so forth. So so the increase in freight cost in the first quarter is one element. The second element is if you continue to make some incremental investments, particularly in our digital and emissions business to support upcoming growth.
And then the third element is as you know the mix tends to be.
The less internationally, particularly in PCP less international and offshore so that tends to drive also some higher decremental. So those are the three factors.
Soma Samasundaram: But as we have said in our prepared comments, you should expect from that point, I think our midpoint guidance for the first quarter is about 20% margin for ChampionX. I think you should expect that to progressively improve through the year. Very good. Thank you. I'll turn it back.
But.
As we have said in our prepared comments you should expect from that point I think our midpoint guidance for the first quarter is about 20% margin.
<unk> I think you should expect that to progressively improve through the year.
Very good thank you I'll turn it back.
Operator: Thanks, Mark. Thank you. The next question will be from Surabhant at Bank of America. Please go ahead. Hi, good morning, Solman Kent. Good morning, Thoreau.
Thanks Mark.
Thank you next question will be from Sohrab pad.
Bank of America. Please go ahead.
Hi, Good morning, Selman Ken.
Good morning, Sarah.
Soma Samasundaram: Soma, maybe we could touch on the productivity improvement pipeline you talked about, I think, several times in your prepared remarks and in response to Mark's question. Can you give us a little more color on that, Soma? What kind of initiatives, what kind of pipeline you're looking at? What's most exciting to you from an incremental contribution and margin contribution standpoint? And then just in broad strokes, Soma, I know you said you expected margins to improve in 2024. But is there a way to say on a year-over-year basis, all else equal, what productivity improvements can get you? a certain way there in terms of margin improvement, right? So based on things that are just in your control.
So maybe.
Let's touch on the productivity improvement the pipeline you talked about I think several times in your prepared remarks and in response to Mark's question can you give us a little more color on that.
So what kind of initiatives what kind of pipeline you are looking at what what's what's most exciting to you from a.
Incremental contribution margin contribution standpoint, and then just broad strokes I know you said you expect.
<unk> do improve in 'twenty four is there a way to see on a year over year basis.
All else equal it productivity improvements can get to you.
So it Didnt way there in terms of margin improvement right. So based on things that are in your control.
Yeah. So.
Soma Samasundaram: Yeah, so thanks for that question. So when you look at our productivity improvements, I would put them in two buckets. One is that we operate with lean manufacturing principles; we call it a continuous improvement journey. So all of our operations are on a continuous lean manufacturing continuous improvement journey. So that drives continuous improvement, employees driving daily improvement. Then on top of that, we have what we call, you know, high-impact productivity projects, which are teams focused on driving significant productivity on certain projects. So, let me give you a few examples of that.
Thanks for the question. So when you look at our productivity improvements I would put it them in two buckets. One is as you know.
B E.
We operate with a lean manufacturing principles, we call it continuous improvement journey. So so all of our operations are in their lean manufacturing continuous improvement journey, so that drives the continuous improvement employees driving daily improvements.
Then on top of that is what we call it yes.
High impact productivity projects, which our teams focused on driving significant productivity on certain projects. So let me give you a few examples of that so the first one is given about large spend in particularly in raw materials.
Soma Samasundaram: So the first one is, you know, given our large spend on, particularly raw materials and bought out components. So we have a team working on how do we continue to drive productivity or reduce the cost of that through best cost country sourcing, strategic spend leverage, and so on and so forth. So that's one example, one particular project in 2024. The second project is, you know, we have internal digitization efforts that drive productivity. And that's the second element.
And.
<unk> components. So we have teams working on how do we continue to drive productivity are reduced reducing cost of that through.
Best cost country sourcing strategic spend leverage and so on and so forth. So that's one example, one particular project in 2020 for the second project as you know we have internal digitization efforts that drives productivity and that's the second element that third element out of for example has continued.
Soma Samasundaram: The third element, for example, is continued utilization improvement as well as yield improvement in our large chemical facilities as well as our drilling technologies facilities and so on and so forth. So those are high impact, large productivity type projects. So, to answer your question about how we should think about the contribution of this, the way I would think about it is, in an environment even if our revenues are flattish, you should expect us to deliver incrementally more earnings in 2024, even if revenues are flattish. That's how I think about it. Okay, no, that's very helpful, Soma.
Utilization improvement as well as yield improvement in our large chemical facilities as well as our drilling technologies facilities and so on and so forth. So those are high impact large productivity type projects.
So to answer your question around.
How should we think about the contribution of this so the way I would think about it is in an environment. Even if our revenues are flattish right you should expect us to deliver incrementally more earnings in 2024, even if the revenues are flattish.
No.
That's how to think about it.
Mhm mhm, Okay, no thats very helpful Soma.
Soma Samasundaram: And then quickly, maybe a follow-up on shareholder returns, Soma. Obviously, very strong free cash flow, right? You returned 83% of that to shareholders in 2023. That's a lot more than your minimum threshold of 60%. I know it's at least 60%, so it's got to be more than that, but 83% is very strong.
Then quickly.
Maybe a follow up on shareholder returns of Soma, obviously, very stronger free cash flow, but I do returned 83% of that to shareholders in 2023.
A lot more danielle minimum threshold of 60% I know, it's at least 60%.
Is it going to be more than that but 83% is very strong maybe.
Soma Samasundaram: Maybe, Soma, you or maybe Ken, you want to go through that, but maybe just refresh us on your capital allocation priorities, and then maybe talk a little bit about M&A. Where do you see opportunities on the M&A side of things? And maybe talk about your emissions monitoring business a little bit as well.
Maybe Ken you want to go through that but maybe just refresh us on your capital allocation priorities and then maybe talk a little bit on M&A, where do you see opportunities on the M&A side of things and.
And maybe talk to your emissions monitoring business, a little bit as well.
Yeah.
So when you look at our capital allocation framework, which we accomplished in 2022.
Soma Samasundaram: So, you know, when you look at our capital allocation framework, which will be published in 2022, you know, if we stick to that very much in a disciplined way, right, you know, just to refresh that, obviously, our first priority is to invest in high-impact organic opportunities, then we want to make sure that we are sustaining our dividend, as we have said before that we will consistently increase that in line with our free cash flow increases. And third, we said that any, you know, bolt-on, tuck-in type opportunities for us, technology additions, geographic expansion opportunities, M&A type opportunities. And then lastly, you know, any exertion, cash we will opportunistically deploy to share repurchase programs. So that's our capital allocation framework which we, Hey, published in 2022, and you are seeing us really, you know, in a disciplined way, sticking to that. So 2023 is a good example of that.
We are very much a disciplined sticking to that right just to refresh that.
Our first priority is to invest in high impact organic opportunities then we want to make sure that we are sustaining our dividend as we have said before that we will consistently increase that in line with our free cash flow increases and third we said that.
OLT on tuck in type opportunities for its technology additions geographic expansion additions M&A type opportunities and then lastly.
Any excess cash we will opportunistically deploy two share repurchase programs. So that's our capital allocation framework, which we.
Yeah.
Published in 2022, and you are seeing is really.
Disciplined way sticking to that so.
<unk> 23 is a good example of that and even from the inception of our.
Soma Samasundaram: And even from the inception of our capital return program, you can see that. For example, in 2023, we returned 83%, as you said, because we didn't feel the M&A opportunity. It's not like we are not looking at M&A opportunities, but, you know, we have a high bar on our M&A opportunities. So we are very disciplined about it.
Capital return program you can see that for example in 2023, we returned 83% as you said because we didn't feel the M&A opportunity. It's not like we are not looking at M&A opportunities, but we have a high bar.
Our M&A opportunities so when we.
We are very disciplined about it so when we don't have a need for that.
Soma Samasundaram: So when we don't have a need for that, we are returning that cash to our shareholders. And when you look at it right from the inception, we have returned 71% of our free cash flow to our shareholders. So it's just a demonstration of establishing a capital allocation framework and being disciplined about it and sticking to that. So you should expect that from us going forward. Now with respect to your question on M&A, I think we continue to look at opportunities, and as we have said before, they have to be a clear strategic fit into our portfolio. They are bolt-on type opportunities. So we continue to look at them. But again, it's a high bar for us, and you should expect us to do it, and that's why we say at least 60%. Can it be more?
Turning dose.
Cash to our shareholders and when you look at right from the inception.
We have returned 71%.
Our free cash flow to our shareholders. So it's just a demonstration of establishing a capital allocation framework and being disciplined about it and and sticking to that so you should expect that.
That from US going forward now with respect to your question on M&A I think we.
We continue to look at the opportunities and as we have said before it has to be a clear strategic fit into our portfolio.
Tom type opportunities. So we continue to look at them right, but again.
The high bar for Us and you should expect us to.
It's why we said at least 60% can it be more sure we have to demonstrate that it can be more so.
Soma Samasundaram: Sure. We have demonstrated it can be more. And then your question on emissions, we are pretty excited about the developments that are happening in emissions. As you know, the recent final ruling, which was adopted on methane standards, the big change in this ruling is the inclusion of existing facilities, which includes things like storage tanks, includes things like terminals, and includes things like gas processing plants.
And then your question on emissions, we are pretty excited about the developments that are happening in the in the emissions.
And final ruling which was adopted on methane standards.
Big change in this ruling is.
The inclusion of existing facilities, which include things like storage tanks includes things like terminal includes things like gas processing plants, so which means that our regulated facilities.
Soma Samasundaram: So this means the regulated facility is significantly improving. In some estimates, it goes from what is 60,000 regulated facilities to as much as a million regulated facilities now. So we are excited about our emissions technology offering. As you know, we offer everything from aerial surveys to leak detection to optical gas imaging to continuous monitoring. So we have a full portfolio of emissions technologies to offer. And you should see our emissions business continue to grow in an accelerated way in the coming years. Okay, fantastic. No, Soma, I know I rolled a lot of questions into that one, so thank you for answering all of those. Thank you, Soma. I'll turn it back.
Is significantly improving in some estimate by some estimates it goes from what is 60000 regulated facility to as much as a million regulated facilities now.
We are excited about our emissions technology offering as you know we offer everything from aerial surveys to leak detection to optical gas imaging to continuous monitoring. So we have a full portfolio of emissions technologies offering. So you should see our emissions business continued.
Grow yes.
In our accelerated way in the coming years.
Okay Fantastic Nozomi I know it all a lot of questions into that one so thank you for answering all of those thank you Soma has done it back.
Soma Samasundaram: Cheers fellas! Thank you. The next question will be from Addie Modak at Goldman Sachs. Please go ahead. Hi, good morning team.
Sure.
Thank you next question will be from Adam <unk> at Goldman.
Goldman Sachs. Please go ahead.
Hi, good morning team.
Good morning.
Operator: Slide 8 shows that PCT North America has delivered steady growth so far. Can you talk about the expectations for the cadence for the full year with respect to the activity levels that you are expecting in North America? Yeah, so with respect to production chemical technologies in particular, you can see the North American business is a very steady growth consistent business as the fluids produced continue to grow in North America, not just oil production, but the total fluids produced both on land as well as in the Gulf of Mexico. And that, combined with our continued ability to, you know, introduce new technologies, address chemical intensity increases.
On slide eight you showed <unk> North America has delivered steady growth. So far can you talk about the expectations for the cadence for the full year with respect to the activity levels that you are expecting in North America.
Yes, so I think.
With respect to production chemical technologies in particular, you will see our you can see the North American business is a very steady growth consistent business as the fluids produce continues to grow in North America, not just the oil production, but the total fluids produced water and land as well as in Gulf of Mexico.
Alright, and that combined with our continued ability to.
You introduce new technologies address chemical intensity increases. So you should expect our north American business, particularly the U S land Gulf of Mexico type businesses to continue to.
Soma Samasundaram: So you should expect our North American business, particularly the U.S. land Gulf of Mexico type businesses, to continue to increase in 2024. And with respect to our other businesses, as I mentioned, you know, PAT and drilling technologies businesses, we have seen an improvement in activity in January from Q4. But we think that given the near-term, you know, uncertainty around, we still expect these businesses to grow, and especially PAT given the digital growth. But the activity in other forms of lift could be a little bit more second-half weighted. But we do expect PAT and the drilling technologies business to show some growth in 2024 as well. Great
The increase in 2024.
And with respect to our other businesses as I mentioned.
And drilling technologies businesses.
You have seen in January the improvement in activity from Q4, but we think that given the near term.
Uncertain surround we still expect these businesses to grow and the especially given.
Given the digital growth, but the activity in other forms of lift could be a little bit more second half weighted but we do expect.
In drilling technologies business to show some growth in 2024 as well.
Great and then you noted in the release that you have 60 emissions technologies customers globally now.
Soma Samasundaram: And then you noted in the release that you have 60 emissions technologies customers globally now. You also mentioned that you would look at some investments there as well. So maybe if you could provide some color on both those pieces, what does the customer mix or geographic mix look like?
You also mentioned that you would look at some investments there as well so maybe if you can provide some color on both those pieces what does the customer mix or geographic mix look like and is there a way to quantify the market opportunity at this point.
Soma Samasundaram: And is there a way to quantify the market opportunity at this point? Yeah, Adi, so from a customer, 60 customer perspective, you know, the predominant large set of those customers today are in North America. And the reason is, as you can imagine, there are a lot more public companies in North America and their commitments they've made to emission reductions. So there's a really great mix in North America for us, IOCs, large independents, mid operators, you know, midstream operators. So it's really a great mix, and it continues to grow, and they adopt all different types of technology, and that's why it's really important when you're developing an emissions portfolio to have a mix of technologies, just like we had in artificial lift, so that customers can do a fit-for-purpose type of emissions technology picking, so we can offer them what is right for them.
Yes, so from a customer 60 customer perspective.
Yes.
Predominant a large set of those customers today are in North America and the reason is as you can imagine there is a lot of more public companies in North America.
And the commitments they've made to emission reductions so as you said.
Really great mix off in North America for US I will see large independent mid to operators midstream operators.
So it's a really a great mix and it continues to grow.
Adopt all different types of technology, and that's why it's really important when you're developing an emissions portfolio to have suite of technologies, just like we had in artificial lift so that customers.
Can do a fit for purpose.
The type of emissions.
Technology.
<unk>. So we can offer them what is right for them.
And.
That is more opportunities growing internationally, and particularly in middle East and so we see in the coming years that will continue to grow.
Soma Samasundaram: And there are more opportunities growing internationally, and particularly in the Middle East. And so we see in the coming years that this will continue to grow. Now, in terms of your question around quantifying the market, you know, with the recent final ruling by EPA, you know, as I mentioned, it's a significant increase in Potentially Regulated Facilities. So let me just say that it will grow to be a multi-billion dollar market over a period of time. It's very hard to determine how it will go, but the movement is in the right direction.
Now in terms of your question around is that a way too.
Quantify the market.
With the recent.
Final ruling by EPA as I mentioned, it's a significant increase.
In potentially regulated facilities.
So let me just say it will grow to be a multi multibillion dollar market over a period of time.
It's very hard to determine how it will go but but if that just the movement is in that right direction.
Soma Samasundaram: Yeah, yeah, makes sense. Thank you for taking the question. Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star followed by 1. And your next question is from Doug Becker at Capital One. Please go ahead.
Yes that makes sense. Thank you for taking the questions.
Thank you once again, ladies and gentlemen, if you would like to ask a question. Please press star followed by one.
And your next question is from Doug Becker of capital one. Please go ahead.
Thank you so much address the productivity initiatives, but EBITDA margins were up by more than 430 basis points last year pricing as well as cost management played a role in that just wanted to get your thoughts if you think pricing and costs are flat up or down this year.
Operator: Thank you. Someone addressed the productivity initiatives, but EBITDA margins were up by more than 430 basis points last year. Pricing as well as cost management played a role in that.
Soma Samasundaram: Just want to get your thoughts if you think pricing and costs are flat, up or down this year versus last. Yeah, so, I would say the pricing and raw materials, you know, we look at that price raw, we expect that to be pretty stable in 2024 from our Q4 level. So to put it another way, we don't expect pricing to be a major contributor to margin expansion in 2024, and we expect the raw material cost to stay stable. So productivity will play a bigger role. Now we'll continue to opportunistically put through pricing, just like I mentioned about our freight cost increases, so we'll take opportunities as we introduce new technologies. So productivity will be the bigger driver for margin expansion in 2024, along with volume. Got it. And then jumping to North America, you're seeing some increasing activity in January. Just if you could expand on that at all.
Versus last year.
Yes.
I would say the pricing and raw material.
If you look at that price rise, we expect that to be pretty stable in 2024 from our Q4 levels.
So say it another way, we don't expect pricing to be a major contributor to the margin expansion in 2024, and we expect raw material cost of space table. So productivity will play a bigger role now we will continue to opportunistically put through pricing just like I mentioned about our fright.
Cost increases so will opportunities as we introduce new technologies.
So productivity.
Productivity will be the bigger driver for margin expansion in 2024, along with volume.
Got it.
And then jumping to North America, you are seeing some increasing activity in January.
Just if you could expand on that at all I know in the past PMT generally doesn't get going until February and certainly in the drilling technologies business with a flat rig count.
Soma Samasundaram: I know in the past, P&T generally doesn't get going until February, and certainly in the drilling technologies business with a flat rig count. You know, it's not obvious that we'd see a restocking on this side. Yeah, you know, this is something we are carefully watching, right? You normally get this pump in January and then February, and then how does that flow?
It's not obvious that we'd see a restocking.
On the.
This side.
Yes.
This is something we have.
We're carefully watching right you would normally get this bump in January and then February and then how does that flow.
Soma Samasundaram: I think, you know, from an activity perspective, I think, you know, from a PAT perspective, we are seeing some good signs of those moving in, but in drilling technologies, you know, again, our bearings business is continuing to grow nicely. As we have noted, it grew about 40% in 2023. And it's now almost about, you know, reaching closer to 20% of our drilling technologies business. And we expect, in Q1, that to contribute to some additional growth as well. But we are watching, you know, that trend. But so far in Q1, the activity seems to be, as we expected, with a sequential increase in PAT and DT from Q1. And in PCT, also in North America, you know, internationally, you know, seasonality is going down.
<unk>.
From an activity perspective, I think from a.
Perspective.
UBS seeing some good signs of those moving in but in drilling technologies again.
Our buildings business is continuing to grow nicely at CBS and noted it grew about 40% in 2023, and it's now almost about reaching closer to 20% of our drilling technologies business and we expect in Q1 that to contribute to.
Some additional growth as well, but we are watching that plan, but so far in Q1.
The the activity seems to be as we expected with a sequential increase in <unk> from Q1 and in PCT also in North America internationally, the seasonality of going down, but even in PC and our U S land business in our PCT, we are seeing.
Soma Samasundaram: But even in PC, in our US land business, in our PCT, we are seeing, you know, the sequential growth in Q1. Sounds encouraging. Thank you very much. Thank you. And at this time, we have no other questions registered; please proceed. Well, I want to thank you for your continued interest in ChampionX, and we look forward to talking to you on our next quarterly call. Thank you. Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your line. Thank you for watching!
Yes.
The sequential increase.
In Q1.
Sounds encouraging thank you very much.
Thank you and at this time, we have no other questions registered please proceed.
Okay.
Well I want to thank you for your continued interest in champion X and we look forward to talking to you in our next quarter call. Thank you.
Thank you Sir.
Ladies and gentlemen, this does indeed conclude your conference call for today. Once again. Thank you for attending at this time, we ask that you. Please disconnect your lines.
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Yes.
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