ChampionX Corporation

Good morning. Welcome to ChampionX Corporation's second quarter 2023 earnings conference call. Your host for this morning's call is Byron Pope. I will now turn the call over to Mr. Pope. You may begin.

Thank you. Good morning, everyone. With me today are Soma Somasundaram, 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 second quarter results and third quarter outlook before turning the call back to Soma for some summary thoughts. We will then open the call for Q&A. During today's call, we will be referring to the slides posted on our website. Let me remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause material difference in our results from those projected in these statements. Therefore, I refer you to our last 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 second quarter press release, which is available on our website. I will now turn the call over to Sama.

Thank you, Byron. Good morning, everyone. I would like to welcome our shareholders, employees, and analysts to our second quarter 2023 earnings call. Thanks for joining us today. We demonstrated ChampionX's strong execution capabilities in the second quarter as we delivered adjusted EBITDA growth and adjusted EBITDA margin expansion while continuing our robust free cash flow generation and returning capital to our shareholders. I'm grateful for the tireless dedication that our employees demonstrate day in, day out in being consummate advocates for our customers. On slide number four, we will always begin our earnings call with our corporate vision, purpose, and operating philosophy. We work every day to improve the lives of our customers, our employees, our shareholders, and our communities. Speaking of our purpose, June 3 marked the three-year anniversary of our transformational merger. Consistent with our purpose of improving lives, as you can see on slide number five, we celebrated our three-year anniversary by volunteering over 3,000 hours of service in communities around the world. It is humbling to see our team's commitment to our purpose put into action in such tangible ways. Turning to slide six, one of our four operating principles is being relentless advocates for our customers. We are proud that Energy Point Research, an independent customer satisfaction research firm, which surveyed more than 4,000 customers of oil field products, ranked Champion X first in six specific categories, including production chemicals and artificial lift. This exceptional industry recognition illustrates the strong customer-centric cultural alignment across our organization. We continue to see multi-year constructive outlook for oil and gas industry driven by increasing energy demand. Our customers continue to focus on maximizing the value of their producing assets in a sustainable and efficient manner. ChampionX's differentiated technology, superior service, and global capabilities are well positioned to benefit from this customer demand. At ChampionX, we continue to remain focused on driving profitable growth, margin expansion, strong free cash flow generation, and a disciplined and balanced capital allocation, which includes return of capital to shareholders. We consistently achieved this through customer-driven innovations, focusing on higher value-added products and services, responsive price management, continuous productivity efforts, effective working capital management, and disciplined adherence to our capital allocation framework. This strong execution has resulted in ChampionX achieving 20% adjusted EBITDA margin in the second quarter and returning 349 million of capital to shareholders through dividends and stock repurchases since we began our capital return program in second quarter of 2022. This represents 64% of the free cash flow generated during the same period. Turning to second quarter performance, our second quarter revenues were unfavorably impacted by shipment delays in Latin America due to customer logistics delay, Canadian wildfires, and extended production platform turnarounds in Gulf of Mexico. In addition to the above factors, sequential revenue decline was also impacted by exit of Russia operations in Q1. Now we are already seeing expected activity pickup in the month of July as impact of these items recede. Our digital revenues grew 4% sequentially and 21% year over year. We are seeing continued strong adoption for our fit-for-purpose digital solutions, including our emissions management technologies that drive tangible productivity for our customers and help them achieve their sustainability goals. Ken will take you through the details of our second quarter financial results shortly, but let me first touch on three key business highlights which are shown on slide number seven. First, EBITDA margin expansion. Our laser focus on margin expansion is delivering substantive and sustainable results. Despite experiencing a slight sequential revenue decline in the second quarter, we achieved Q2 adjusted EBITDA margin of 20.1%, which improved by approximately 158 basis points sequentially and 527 basis points year over year on continued productivity improvements, pricing realization, and strong cost management. This marked the fifth consecutive quarter of sequential improvements in our adjusted EBITDA margin. We expect our adjusted EBITDA margin to further improve in the second half of the year, and we now expect to deliver an exit rate of 21% in the fourth quarter of this year. Second, free cash flow. We delivered another strong free cash flow quarter, having generated free cash flow of 89 million, which represents 48% of our adjusted EBITDA. This demonstrates the best-in-class cash flow generating capability of our capital-like portfolio of businesses and illustrates our high degree of confidence in converting at least 50% of EBITDA to free cash flow in 2023, and delivering between 50 to 60% conversion of EBITDA to free cash flow through the cycle. Third, returning capital to shareholders. Our disciplined capital allocation framework is designed to create value for our shareholders. And in the second quarter, we once again delivered on our commitment to return excess cash to our shareholders. In the second quarter, between our regular cash dividends of 17 million and 51 million of share repurchases, We returned 76% of our free cash flow to shareholders. We remain committed to return at least 60% of free cash flow to our shareholders this year and through the cycle. Let me now turn the call over to Ken to discuss our second quarter results and our third quarter outlook.