ChampionX Corporation

Welcome to the ChampionX fourth quarter and full year 2021 earnings call. My name is Annette and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the Q&A session, if you have a question, please press star then one on your touchtone phone. Please note this conference is being recorded. I will now turn the call over to Byron Pope, Vice President, ESG and Investor Relations. Mr. Pope, you may begin.

Thank you. Good morning, everyone. With me today are Soma Soma Sundaram, President and CEO of ChampionX, and Ken Fisher, our Executive Vice President and CFO. During today's call, Soma will share some of the company's highlights. Ken will then discuss our fourth quarter 2021 results and first quarter 2022 outlook before turning the call back to Soma for some summary thoughts. We will then open the call for Q&A. During today's call, we will be referring to the slides posted on our website. Let me remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause material difference in our results from those projected in these statements. Therefore, I refer you to our latest 10-K filing and our other SEC filings for a discussion of some of the factors that could cause actual results to differ materially. Our comments today may also include non-GAAP financial measures. Additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our fourth quarter press release, which is available on our website. I will now turn the call over to Salma.

Thank you, Byron. Good morning, everyone. I would like to welcome our shareholders, employees, and analysts to our fourth quarter 2021 earnings call. Thanks for joining us today. Before turning to our business results, let me first express my sincere gratitude to all of our employees for their focus and dedication in serving our customers and communities during 2021. which marked our first full calendar year as ChampionX. Against the backdrop of the ongoing global pandemic, the health and safety of our employees remains our most important priority. Our teams have worked tirelessly to help our customers sustainably unlock the energy that our global economy needs and deliver a strong year for ChampionX. With that, let me turn to our fourth quarter performance. Amid COVID-19-driven productivity challenges and continued raw material inflation, product availability, and logistics headwinds, we delivered solid results driven by healthy margin improvement in our chemical technologies businesses. Our execution on pricing and productivity initiatives helped us achieve 110 basis points sequential EBITDA margin expansion exiting the year at 80 basis points higher than last year. We also delivered another quarter of strong free cash flow generation. We made further progress in our cost synergies, and we are well positioned to deliver the full targeted cost synergies of $125 million within 24 months of the merger closing. In addition, our revenue synergy efforts are paying off. We achieved 30 million of new customer wins in 2021 due to revenue synergy efforts, and we expect this to grow in the coming years. From the time of legacy Apergy spin-off from Dover Corporation nearly four years ago, through the completion of the transformational merger between Apergy and ChampionX in June of 2020, to the fourth quarter of this year, we have been steadfast in our consistent and disciplined approach to capital allocation, which enabled us to reach our target leverage ratio of one times net debt to EBITDA during the fourth quarter. We are pleased to now deliver on our commitment to begin returning capital to shareholders by initiating a regular quarterly dividend, which we believe is sustainable through the cycle, and which also maintains our flexibility to invest in attractive organic and M&A opportunities as well as further pay down debt. As a purpose-driven company, we always start with our organizational North Star on slide number four, which is improving the lives of our customers, employees, shareholders, and communities. As an example of how our employees regularly engage in the broader communities in which we live and work, ChampionX recently partnered with Ally Energy to sponsor a two-day energy transition event in Houston at Greentown Labs, which is North America's largest climate tech incubator. This brought together the energy workforce, entrepreneurs, policymakers, and leaders to celebrate the diverse perspectives that will help pave the way for the energy transition. Later in my comments, I will update you on our progress toward our five long-term strategic priorities. But first, on slide five, let me give you a quick example of how we are thoughtfully allocating capital to evolve our business portfolio for sustained growth in the energy transition. We are fully committed to helping our customers decarbonize oil and gas operations through impactful technology solutions while also enabling customers to maximize the value of their producing assets. Our recent acquisition of Thomson Technologies adds to our suite of technologies that help our customers reduce their carbon footprint. Thomson's innovative nanosubstrate technology solution significantly increases the efficiency of scale treatment, resulting in approximately three times more effective life versus traditional scale treatment. This results in meaningful annual cost savings for our customers as fewer treatments are needed and thus reducing costs and carbon footprint related to transportation, rig up and downtime, and tanks and pumps rentals. Ken will take you through our fourth quarter financial results shortly, so let me just share a few high-level comments. As the cyclical recovery in demand for energy services and equipment gained momentum last year, our business portfolio delivered industry-leading top-line growth in 2021. This illustrates the attractive organic growth opportunities within our global business. While our overall revenue was relatively flat sequentially in the fourth quarter, we delivered 5% growth in North America, offset by supply chain bottlenecks, which constrained international sales during the period, particularly in our chemical technologies businesses. In the fourth quarter, our teams executed well on pricing and productivity initiatives to deliver solid margin improvement. Our digital business grew 6% sequentially in fourth quarter. We expect the pipeline of our new product launches in our digital business to drive further healthy growth in the coming quarters. In drilling technologies, customers continue to adopt our new technologies, resulting in approximately 80% of drilling technologies revenues coming from products that were less than three years old for the third consecutive quarter. Our teams continue to work diligently to deliver price increase realizations to offset the impact of raw materials, labor and logistics related inflation that we have experienced in our portfolio of businesses. We expect these efforts to drive our continued margin expansion in 2022. As the energy industry upcycle further gains momentum in 2022 and beyond, ChampionX is well positioned to continue delivering strong earnings, margin, and free cash flow growth. We remain focused on delivering profitable growth, prioritizing quality of growth over just volume. While we expect raw material availability and global supply chain bottlenecks to constrain growth somewhat in the first half of 2022, We are confident that we will deliver positive top-line and bottom-line growth with meaningful margin expansion for the full year. We expect Q1 to be the low point in our margin performance, and we expect progressive improvement through the year exiting 2022 at a EBITDA margin rate of 18%. I would now like to turn the call over to Ken to discuss our fourth quarter results and our first quarter outlook.