ChampionX Corporation

Good morning. Welcome to ChampionX Corporation's fourth quarter and full year 2022 earnings conference call. Your host for this morning's call is Byron Pope. I will turn the call over to Mr. Pope. You may begin.

Thank you. Good morning, everyone. With me today are Salma Samasundaram, President and CEO of ChampionX, and Ken Fisher, our Executive Price President and CFO. During today's call, Soma will share some of the 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. 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 risk 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 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 Selma.

Thank you, Byron. Good morning, everyone. I would like to welcome our shareholders, employees, and analysts to our fourth quarter 2022 earnings call. Thanks for joining us today. Let me start by saying that 2022 was a year of strong momentum for ChampionX as we delivered robust performance on each of our key metrics, including revenue growth, adjusted EBITDA margin expansion, free cash flow generation, and capital returned to our shareholders. I'm grateful to all of our employees for their focus and tireless dedication for delivering value to our customers day in and day out. Before I touch on our fourth quarter performance, on slide number four, we always begin our earnings calls with our corporate purpose and operating philosophy because we are passionate about improving the lives of our customers, our employees, our shareholders, and our communities. At the heart of our operating philosophy is being relentless advocates for our customers. So on slide number five, I could not be prouder of our company for recently being selected as the very first recipient of Exxon Mobil's Global Supplier of the Year Award. This annual award program recognizes suppliers that achieve a high-performance standard to meet Exxon Mobil's business needs, and nominees are evaluated on a variety of criteria, including on-time delivery, safety, responsiveness, service quality, innovation capabilities, and commitment to sustainability and diversity. We are incredibly humbled by this recognition, and I want to thank our teams for their continued hard work and commitment to our customers' success. Now, regarding the fourth quarter, our solid results reflect the positive momentum in financial performance that our company is committed to deliver for our shareholders as this energy upcycle unfolds this year and beyond. Ken will take you through the details of our fourth quarter financial results shortly, but let me first touch on three key business highlights which are shown on slide number six. First, EBITDA margin expansion. Despite experiencing a slight sequential revenue decline in the fourth quarter, which was driven by a normal seasonal slowdown in sales in our North America onshore businesses into the year-end holidays, Our Q4 adjusted EBITDA margin improved by approximately 190 basis points versus the third quarter on continued pricing realization and favorable mix. We delivered on our targeted exit 2022 adjusted EBITDA margin of 18%, and we remain confident that ChampionX will achieve our near-term goal of an EBITDA margin of at least 20%. Second, free cash flow. On our last earnings call, we stated that we expected another strong free cash flow quarter to end the year, and we delivered. Our four-quarter free cash flow of $169 million represented 94% of our adjusted EBITDA. For the full year 2022, we generated free cash flow of $329 million, which represented 54% of our adjusted EBITDA. This demonstrates the best-in-class cash flow generating capability of our capital-light portfolio of businesses and illustrates our high degree of confidence of generating 50% to 60% of free cash flow to EBITDA conversion through the cycle. Third, returning capital to shareholders. We have previously shared with you our disciplined capital allocation framework. And in the fourth quarter, we once again delivered on our commitment to return excess cash to our shareholders. In the fourth quarter, between our regular cash dividend of $15 million and $80 million of share repurchases, we returned 56% of our free cash flow to our shareholders. For the full year 2022, we returned $226 million, or 69% of our free cash flow, to our shareholders. We remain committed to return at least 60% of free cash flow to our shareholders through the cycle. Before I turn the call over to Ken, I want to give you some more details around our Q4 market activity as seen on slide seven. In the fourth quarter, we experienced normal seasonality in North America with the year-end holidays and some weather-related impact, particularly in Bakken and Rockies, which resulted in sequentially lower sales in North America. International activity was strong. Excluding Russia and cross sales to Ecolab, our international revenues grew modestly on the back of a strong 21% growth recorded in Q3. Growth in Middle East and Latin America were offset by decline in Russia and Asia Pacific. In production chemical technologies, we recorded 4% sequential growth in Middle East. In production automation technologies, ESP recorded 10% sequential growth, followed by 9% growth in digital, offset by weather-related weakness in rod lift and plunger lift. PAT, or production automation technologies, international revenues grew 3% sequentially. Drilling technologies international sequential growth was 11%, it was more than offset by the temporary destocking from our North American customers as they focused on year-end working capital management. We have already seen order rates rebounding in Q1, and we expect solid sequential growth in drilling technologies. We have experienced similar phenomena in drilling technologies in the past. Let me now turn the call over to Ken to discuss our fourth quarter results and our first quarter outlook.