ChampionX (CHX) 27 Jul 222022 Q2 Earnings call transcript

Welcome to the ChampionX Second Quarter 2022 Earnings Conference Call. My name is Richard, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session [Operator Instructions] As a reminder, the conference is being recorded. I'll now turn the call over to Byron Pope. begin. may you Sir,

morning, CEO me Fisher, of and Vice Good Somasundaram, our are President President and ChampionX; CFO. everyone. you. today With Soma Executive Thank and Ken

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

the will Q&A. for open call then We

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

factors we participants uncertainties Let from making some material you that our to results will could materially. these Therefore, me statements matters for cause of and filings be are the differ risks difference all that in latest the These forward-looking. XX-K remind discussion to those other I projected that results SEC filing today of cause and refer actual in a statements. of involve our our could some

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

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

quarter pleased Byron. earnings joining results. I Good morning, second to Thanks like our call. employees with I'm ChampionX's you, and second to us our would today. shareholders, for analysts Thank welcome everyone. XXXX quarter

well half our EBITDA are in the teams well, we growth North driven both year. Our of and international increasing our in realization adjusted our the by was and and robust performance deliver across margin American executed to portfolio top line back strong EBITDA business growth price positioned markets, adjusted

being which our Slide ourselves improvement and to is four. purpose having our helping mindset. delivering source before, impactful that as shared as shown always continuous in advocates, being talk hold employees, customer committed we with culture have organizational a As a solve we of We for customer advantage, problems sustainable competency why our technology tireless is accountable on number we see

remiss be June two-year recognize I if that I the did purpose, of X our would marked merger. of Speaking anniversary transformational not our

how of well organization of two our proud behalf years. our are stakeholders executed on has of We remarkably over the last all

together. our five, We by life, see to anniversary put communities improving are X,XXX volunteering can celebrated in our number we It on see in tangible of such over Consistent purpose commitment the truly of purpose two-year team's Slide as around humbling service is with our better world. into action our to ways. you hours

take financial will Now, you shortly. quarter results Ken second through our

just few level share let So a high me comments.

performance. revenue quarter. top global line our our each Our business North particular, Year-over-year, technologies portfolio our we businesses growth growth organic second America of to effectively top as in businesses, chemical In the to line growth mentioned mid-teens the our and experience contributed and again production this quarterly delivered XX% within percentage. we expected superior in year opportunities our once that the call, for full earnings illustrating strong international approaching grew attractive first XX% business XXXX

growth in the in our to chemical revenue and high second percentage. quarter. digital XX% increased full Given XXXX, the line robust products, first year-over-year which now of XX% the production year emission half from technologies management includes we teens sequentially Revenues business deliver our expect products XXXX top

growth to prospects business appropriately about We long-term remain the continue investing to it. organic excited support in and this

on our second expected inflation raw our increase selling exiting materials delivering have to price we materials, quarter Last related and that are inflation chemical with we price shared that we exceed of businesses. teams experienced in offset delivered of teams realization up that to to and objective. quarter, catch our you cost raw Our logistics the and portfolio the labor impact

such, the improvement second year. of half in margin healthy EBITDA this we expect confidently As to see

our capital you shared have We with priorities. previously allocation

increase returning to via capital and During of the commitment regular period our second our free by million cash by the flow cash ChampionX year. grows half remain to as of demonstrated returning to during our to XX over our our return ChampionX investors repurchasing stock. generated We XX% shareholders second capital flow creating quarter, dividend value cash in fully the to free of we our and shareholders committed this for

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

and comparisons. be Good I EBITDA commenting you, operations. joining morning Thank everyone continuing Today. year-over-year this will for best performance sequential of reflects metric on the We for Soma. adjusted us. believe thanks business and

sequentially as Included and up sales in XX% As quarterly not financial revenues and X% international on all cross statements. up $XX segments. Slide our XXXX post-merger We posted our million $XX revenue were to million revenue our year-over-year, and of these seen in revenue on associated X, second XX% other Ecolab X% with America solid operating revenue in corporate was is supply sequentially. revenue Geographically, we was million recognize $XXX grew and up North allocated or associated quarter margin sales to of do EBITDA the agreements. growth

a closing Ecolab through third continue anniversary mid-XXXX, date. the declining We of at these to expect sales rate our merger

in for GAAP or XXXX. was in the $XX second million income quarter million $XX the $X.XX first and the share versus quarter company $X quarter Second per net diluted million of

this to million value Russia value sale business for a to of its net fair quarter. classified reduce was $XX charge carrying income the quarter chemical as Second business as during estimated held technologies the the included

and consolidated Higher versus primarily inflation. points second quarter impact EBITDA X, offset second XX% the was adjusted the material Slide year million and net points In by and the As the basis delivered improvement selling of drove $XXX we seen in of income XX EBITDA consolidated adjusted an more on up in prices versus and XXXX. quarter, than of previous higher and sequentially of other second XX raw XX.X% over up quarter EBITDA margin the quarter and cost increase basis XX% this the period. adjusted volumes ChampionX prior

supported as proceeds flow million $XX during quarter activities operating effective and million top from business million asset the quarter. free sales. the $XX from Cash of reflects line net growth second Our cash the of capital capital was $XX of investment strong working was we management

North material our XX% quarter to the revenue $XXX Volume XX.X% of EBITDA points points increased revenues year. had selling Geographically price increases by sequential the Technologies second Production sequentially. drove from year's was the up million margin Segment sequentially quarter period. from We revenue basis logistics first year-over-year the up year, led adjusted improvement. the international costs benefit in quarter of the first America X% prior quarter. our than offset business somewhat year-over-year. while continued Segment in and growth Turning XX XX% pricing we half increase generated and $XX international adjusted and and revenue was basis was growth. this the to strong and of by million solid The last of XXX increased sequential higher up growth up EBITDA and sequentially X% XX% up raw XX% higher realize actions second segments, Chemical and

of to realization we inflation rate half during healthy raw price second still margin in and caught expect material Our quarter, second improvement the the up deliver sequential XXXX. to EBITDA

Production the Technology in operations fair quarter of to end imposed have quarter initiated in Digital European by Given quarter revenue primarily second we to our technology's expected and and the down and increased Chemical as XX% $XXX of This increased Union plan our the segment sequentially held United activity market segment. Production million was included due Kingdom, in value. in sell and business a Russia, to increased was share States XX% sale second the which at classified pricing. Year-over-year, has revenues and United XX%. sanctions automation year-over-year. increases, revenue sequentially capture for XX% written up

drive cost We efficiencies. focus are seeing leveraging digital operational and improvements on continued reduce emissions customer to and

million segment margin decline, but was sequential EBITDA flat approximately of second experienced freight and XX% the a of down comparable. trend. the EBITDA materials increase quarter was quarter as in The second adjusted year. year-over-year benefiting basis XX Revenue to sequentially primarily two increased quarter, $XX and well these up from segment on basis up adjusted XXX up we technologies PAT cost cost was Chemical Our and revenue Segment the up during was revenue Drilling quarter, year-over-year, XX.X% $XX Segment for Drilling million in quarter second an sequentially $XX X% small above growth as was million, is the EBITDA year-over-year. and basis revenues quarter points continued segment versus XX% margin pricing. due in points by demand the XX adjusted million sequentially year-over-year. XX% North second XX% inflation. sequentially inflation segment America raw the driven second fourth experienced materials roughly period. the are last loss and as Technologies' which and internationally X% up in adjusted $XX delivered times EBITDA XX% points of a quarter, Technology's

during incurred expect capacity restructuring the decided quarter related charges moving forward. improve manufacturing overall restructuring strategic efforts $X rationalization. the quarter, related a third As capacity review, RCT the certain further million profitability noted the to on these after Slide second X, this in in we and manufacturing to of lines the product associated We to approximately and business charges exit during quarter to

million and increase and we on liquidity, the of $XXX sheet, XX, with $XXX of million available strong Moving as position capacity, quarter balance an total to shown position hand prior Slide our the second financial million in on ended cash quarter. revolver including $XXX of versus approximately

position. agreement with loan secured balance capital one all XXXX five-year debt ratio of The our outstanding the and the our restated sheet, net return EBITDA. and surplus to and the of our During our debt committed execution existing quarter, $XXX successful credit At B times million simplified to facility. leverage enhanced maturity provides senior nearest a June we The refinancing restated was term adjusted our successfully XX, credit senior of We $XXX strong shareholders. credit a a million our extended debt facility remained liquidity we to revolving further refinanced redeemed to notes. facilities our

our returned over million and allocation, quarter, management with in our working remain our the dividend During share form strong delivering and second capital and flow laser capital disciplined repurchases. focused on shareholders maintaining of of We targets, regular XX% strong the position. $XX cash our quarterly million cash cash to free of flow and we free financial liquidity $XX operating

be to our rate. growth XXXX and to a in outlook, sequentially continue EBITDA year XX Slide to expect margin improving revenue Turning solid of we forward

XX% in target approximately XXX to XXXX third the quarter, coupled chemical EBITDA adjusted our second cost margin ongoing $XXX million inflation, half of the $XXX year the selling range up the the including company cross to exceeding continue improve now we Specific Ecolab the to the and rate. range sales to on million. exit price revenue raw points exit in expect in to actions, We the increases year. our expect with basis With margin materials of productivity healthily we

the revenue expect also For quarter, and quarter, the million in drilling to expect PCT, In third we in improvement businesses. EBITDA we sequential technologies of PAT $XXX million. our the $XXX range

We in previously communicated related to Reservoir and certain business our Ecolab. expect some impacts product third this specifics provided of specifically exiting offsets, revenue sales we and Chemical have lines Technologies slide, additional within expected our the On the reduction cross-supply to also quarter.

to remain will the free X% to capital the now and revenue target of our cash see the We the cycle. to expect cash confident to ratio free flow our XX% And of we flow of working weighted to growth, XXXX to XX% you in we through revenue and back remain X.X% Soma. investment continue capital still Thank to with delivery investments expect second requirements, while year. we of to periods half EBITDA range be in conversion

Thank you, Ken.

to call earlier Slide would questions, our the year. I capital framework, open your deck, we our XX to allocation attention like with to you we which which Before of shared summarizes this turn

commitment mentioned have return growth to to additions. and that continuing reached begin shareholders our organic our target while quarter, our we leverage to last invest return small now capital investments As to ratio, high we in technology was bolt-on

commitment. our flow that deliver free the cash to quarter, During on we second utilized

remain a we and on our half profile our to expect to committed flow by to second return capital to improve our We to We substantial cash our the free of flow this previously portion disciplined cash further share repurchase allocation of that announced intend continuing year free framework. shareholders in program. execute

We execution. laser operational on delivering are strong focused

year In to call, of QX business our through deliver material and saw experiencing with our the production point low As pricing chemical up progressively to half. we that a to year. our technologies we the realization last margin as expansion we start over the on caught quarter have EBITDA our be quarter, expected margin we margin the EBITDA improving year, our been inflation first second raw the shared

and at EBITDA in XX%. to year, ChampionX EBITDA second We margin margin XXXX expect of accelerate overall exiting Technologies this of half the our Chemical Production rate an

achieve EBITDA goal addition, In have will XX%. ChampionX margin increasing intermediate term at we of confidence our that least of an

about in are we our demand the businesses. Finally, excited constructive tailwind

with our market and multi-year Our and lines sector. product key exposure for particularly customers, the positions our leadership ChampionX basins scale broad outlook for combined to in favorable global well our

example, closing, an arena. our evidence that chemicals market-leading Technologies business As In well global technically Offshore oil especially in lives gas there improving Chemical ChampionX this and X,XXX deep levels daily want challenging is from like be remarkable employees, and to an our employees the in that, the offshore would call water, tend open thank Production relentless world communities. to to leading I inspiration our our around is such team. improving. increasing With are our draw I the and more of environments, activity of to all intensive and for I questions. particularly shareholders positioned customers, their dedication for purpose our of a our

Please Dave instructions] comes Anderson from Barclays. first from And [Operator go question our ahead. online Mr.

Soma. morning, Good

I'm to you're hit raw you're start you of we next we think should wondering outpaced I if So to through you is pretty that, I business talk up. margins question short material drivers pricings mistaken, which And happens is, taken what on volumes that recover well about chemicals activity as that as but production going about I'd just was to the the guess just continue up. be on my in really this North like of the pretty think in the year, over your what ramp I looks guess side. it's change, I coming track to not expect offshore to increase this segment XX% -- East how mentioned said you particularly the to a international of after said Middle all target as interested pretty back, if I points just you're terms to really international America lot has see might of now cycle. it kind and like saying, well, ramp

how about bit international, you talk kind playing little just out. a maybe North that versus America So see further out how

Yeah, Dave, thank you.

throat. a Let little bit a of that me say fighting first I'm scratchy

scratchy little if here. apologize throat interwoven I with answers So my a bit of

XXXX, you our price executing teams So going back think have increases. in Production I particularly seen, as to Chemicals, the I question teams about, are think, beyond our are the well on

quarter second we saw that have second as could increases we material we So seen price we raw offsetting the exited inflation. quarter, in are as see -- what

overall So about we ChampionX. the segment for progression good margin and in the feel

our that have XX% of more they Production strong you offshore. technically around from idea, deep to have in comes and As know, Technologies water deep about revenues motor be as give and area. To have position offshore we close before, shaped very and an in we tend to Chemical chemically a intensive, you strong we competitive our challenging a

increasing in that seeing evidence recovering seen and in as is the we in quarter. the market, a market So that area second nice that have we that growth are

we feel in Production should benefit and from So deep as our as offshore international that water about continue growth. well Chemical XXXX good Technology that the to

much I'm margins are water well. margins, presumably as the Are higher in the deep

water be a deep margins on than offshore have you better typically what see before, That's Directionally, as we correct. said tend to conventional.

side. the come secondarily, rod-lift been question And last a of follow kind international it's business ESP about so. you've I been artificial if similar further versus Going I bit have some I quite kind [ph], the of US could sense. to two trying year-to-date, side, build a of what makes on over your it's a out was my more lift you've but kind side. or wondering the side, on know lift then up from back second, you in seen part onshore on the topic week the the there competitors talk to on On that my question, the

on you. you So Thank just mind of wouldn't if please. both kind expanding sides,

Dave, Yeah, absolutely.

PAT, our very sequential continue you've artificial to growth. post strong seen, and lift As

saw, in been XX% You international we growth QX growth in we both and another a QX in again grow has strong sequentially QX. nicely and strong QX and we in to expect really expect grow

to back today side ESP the the I Going in the this participate we we in growth to nice issue I continue seen ESP be don't about on remind internationally, again, specifically of there. you Again, And to EFP what address have market. want to competitors. mentioned that want

So, us markets the coming into really the in on entry working and ESP we Greenfield that's quarters. complete international our are and opportunity for

is we ESP of our But other don't side, have today have rod the is revenue international revenue got And forms have in internationally. strong jet the of driven any to the the growth a build with again, expect so pumps, pumps, which majority other the have been our we So which been lift a synergies we we reporting left, cavity progressive position. artificial this on of our -- -- on presence our up. synergy focus opportunities, you market by big

we've said portfolio. incremental awards we about our million synergy year, across last As $XX got revenue of

higher this that. be We expect year to than

that, ESP the opportunities years. all So the quarters in the incremental and coming coming international to are

Thank you.

go Mulvehill comes from Bank online Please America. Chase from of question ahead. next Our

Hey, good morning, everybody.

you I tough bit. wanted little to revenue the guess kind So EBITDA, get even on to of seems first I guidance. of end to and thing kind your obviously revenue guidance, high a of the just unpack revenue gave The XQ guidance, us it the but

I revenues still hard it, must should really and must segments that growth through walk nice I chemicals think the see reservoir just thinking you growth, up falling sequential the Ecolab some pretty because core segment -- thinking like are the be how each and feel -- the how guys of we're because three of us revenue So about I

Yeah, Chase.

expect have QX. I lines part growth Technologies that business as our RCT you're thinking offset to the that in PCT, think, in and right restructuring. that about sequential by sense the our And being in Drilling our we of all of product certain exiting PAT is

the decline in the Ecolab. then and lab So cross

So, each you've momentum line the in seen top segments. QX in of these growth our

good the Technologies. top and growth PCT, line we PAT about in So, feel the Drilling

Ecolab offsetting and decline is in the the RCT factor So here the sales.

will And Production those Okay. grow XQ? one in of Drilling Technologies most you segments to guess whether which Chemicals the it's would PAT hazard three or

Yeah. PAT most, PCT. DT by will probably grow the and followed

thinking follow-up capital allocation really you've Okay. ratio appreciate and details share in target XQ Right. of allocation you bought Perfect. But, obviously leverage and framework just you're repurchases on go cheap. special is the between, but you guess how about stock mentioned slide question is the I your here. can as you hit exceptionally the as about And think and especially back small dividends, stock it about, you talk a capital we slither forward? and your

us just thinking trading. So, the let is where you're know buybacks, how stock about given

Yeah.

Okay.

that the stay in marks, we allocation said framework. As prepared committed capital to

our As we and and your to continue invest like we our target pointed organic about having in about, talked feel where gotten the good investments leverage we to out, is. portfolio

any us. will So in additions for small investments type technology of be

increasing you substantial we cash, of there So, cash in flow the cash QX and return return in we our we of have flow, are second we shareholders that and cash expect as it the portion to of to quarter profile cash surplus that which said increases. and saw improve -- committed a XX% our shareholders is to flow expect half to to means second our that the profile of further

be would that We have our the repurchase. surplus of expect second million I would where if mechanism believe our substantial shareholders, we of to share given capital shareholders. should second our $XXX portion that to that do and you half in half, primary So be that stock be returning returned to is think cash our our of

our commitment has again, not changed. So,

think I increase. it'll continue to

turn Okay. Perfect. it color. I'll over. Appreciate the back

you. Thank

Gengaro Stifel. from on next line question Our comes Stephen from

the Two, me, mind things what if for I I would Thanks. side. Production don't Good you on guess, is everybody. start morning, Chemical with,

for about You in gave end the during the overall you goal of the of progression step this and the expect that is When up a of margin year. quarter in XXXX? you target some sort margin think had we targets XX%, a second should and

our mentioned? about the target Are of you we XX% talking intermediate

Yes. Yes.

Okay.

that increasing say So, we right we this that, the exit and is confidence I'm rate feel are at XXXX to a it in there intermediate not the because I the what at would XXXX providing not say. I we is XX%, very term, that a mentioning in progression given this But what the That's guidance are number. would a achievable providing now. point. of not are stage XXXX margin is the we guidance XX% specifically target seeing, our

just what front, when internationally second both the first we about the but little business some progression that Okay. to the relative you think gain think business I traction of a PAT front? you're that. were that also, and Can and you revenue how about of Thank potential talk America activity in then quarter, some to just transportation bit the on quarter you. about sort And think seeing there overall should costs expect margin to we and revenue flattish and North around on international more margin

rightly logistics you -- terms and in mentioned, freight and we quarter, in taken you margin driven as pointed counter have price of the measures surcharges. increases have by, was cost increase -- as we PT somewhat and, Steve, flat primarily taken in and fairly the QX and flattish out, and was fuel Yeah,

number working should see that should playing period, of sequentially as expect And the you American related business, weather achieve. and you should holiday in in into short there days, that improving. in things QX, the PAT as cycle we can typically out QX, North is you could seasonal sometimes margin related be go know, slowdown activity a to So start

you XXXX, borrowing you to should to see business. continue margin see this those QX, holiday seasonal revenue aspects normal and driven slowdowns, of the see sometimes by continued to in QX as slowdown sequential expect for walk So as know in progression into you and we grow, But years, tend revenues to events. should some you we QX as

Thank helpful that's No Great. call. you.

Thank you.

next Bianchi online Our comes question Mr. from Cowen. from Marc

The revenue in upgraded mid-teens there? dynamic for maybe result this seems think imply for you market I share of it for Thank talk minimal expected had like growth year. to some teens the to that loss you sequential very hasn't year the PCT price you. previously the Can for and remainder to growth seems increases to high occurred.

maybe around little put for if more back just you color So the a the expectation half, could.

Mark, think can nice rightly pointed I we share that would every done teams you in really have executing our in say tell have job market I participate, geographic out a do Yeah, business. if based you've tracking PCT on I our we this net and the market actually that on gained we

however stayed teams So, I on it. about good feel executing focused and are

in second expect and QX we because stronger half, and of do in to as, growth the be be a stronger QX As for sequential sequential QX. expect volume our we PCT tends the tends growth to international

the teams, prove second conservative the we but, on the our expectation possible, in high bit little line may PCT confident it's good. half but about So feel top is activity

are teams well. Our executing

XX% from is the there but reason that or Okay. then you're the is of the on It Super. ahead sounds just And the that, you on driving the catching delta XX%, end there there? it whenever up material at on mix, getting like XX% just or some of XX% now to more difference exiting curve versus margin other the is raw inflation? that's up

XXXX, prices XXXX, we -- some incremental a XX%, the volume I be XX% productivity. the continued full, more volume should as some think well think, as to the I it'll expect do as the moderation of well, be as it'll we raw it's of incremental in happen and but from Yeah, more the combination walk no, in into

it I'll Okay. back. Thank much. so you turn

you. Thank

question next [indiscernible] go from online Our Goldman ahead. Sachs. Please comes from

overall the terms free good as equity are Hey term to of between a is do -- think on in about flow over dividends strategy, longer guys, XX% cash yield and variables of return that the the think right you consider you it? the level way of about you return return buybacks? capital think What

stay framework as again, go capital again, back and to mentioned I committed Yeah, that. allocation before, we our to I

did in in in we flow QX. second XX% So half, should, as the over free mentioned, return you cash we of

expect half the and in be profile cash the second that. expect share We main we repurchase because to our substantial, of be flow the mechanism to for increased higher

flow sustainably as have on before, dividend, we are cash our said we grows. growing our as free Now very focused

right with of of return to is think reviewing the respect the long-term are to free way that. percentage flow, about what So view cash we capital currently

And a our so And sure a we do that -- be how in we make doing the when that will through we about position that think in so to are we but manner that, how be cycle? of sure integral we'll returning do very we make allocation capital to ready, shareholders in a to position I strategy. part want a communicate to that, capital is are

with feel our before, we we good about are As we portfolio. where have said

invest organic opportunities. growth to in continue We

of for small type will technology activity additions any So M&A be us. of

of returning there's means a surplus portion substantial flow which will cash toward shareholders. be our So, free

of segment? cadence the international strength if Great. do in the of can. there stocking about about record in think the or and think half for do And see round related you revenue How Technology think Drilling you could inflection you the as early then, for the 'XX, of second orders the another you rest you the year, year

regular restock to more function, we in least account Yeah, the In It's if addition, be orders, second is our our anticipating our the then editions. for restocking. restocking in any stock tend forecast to recount additional the more. which tend technologies, function our with add of which cadence not change half, forecast is a is what Drilling additional a there so drilling for current in at step into are the is line built step customers Technologies orders or means in

it you. over. I'll Thank turn

Thank you.

Mr. question from from comes next Mitchell Energy Our Partners. online Sean Daniel

anything squeezing about tracking Mark me raw may talked side a is there be was to with any you earlier. guys supply us One rigorous Are on at Thanks cost trying cost pretty this can going is thing guys. the lower of historically seeing in process the cost or you signs within relief in. on have something get for of Good chain raw general? kind morning, or guys share you with of materials, materials, and

particularly the Sean, been or Technologies our, in Chemical with side our it a Yeah, has in our business. rest pronounced Production thing Chemical

have small is right small half expect So which raw of we in categories. in we our some our for forecast we over mostly a QX. and we QX, as now, inflation, material in our certain into we increase into expect raw prices just view increases a another built in going is increase our the go then in second QX And from moderation saw material into small have we what QX,

So your question, QX we do in the forecast. of moderation quality in a PAT expect into we level side. -- our steel bar prices, in commodity quarter, QX, an the steel side, expect, small built still side do our And to increase answer some have the the and special but in particularly moderation we fourth

have We no at this further questions time.

our Well, forward earnings to I call. in in you Thank continued and everyone quarter talking look we ChampionX again your next want to thank interest to you. for

for ladies you, today's participating. This conference. And and concludes gentlemen. thank Thank you

may disconnect. You now