Welcome to the ChampionX third quarter 2022 earnings conference call. My name is Hilda and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press zero-one on your touchtone phone.

As a reminder, this conference is being recorded. I will now turn the call over to Byron Pope. Sir, you may begin..

Thank you. Good morning everyone. With me today are Soma Somasundaran, President and CEO of ChampionX, and Ken Fisher, our Executive Vice President and CFO. During today’s call, Soma will share some our company’s highlights.

Ken will then discuss our third quarter results and the fourth 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 a material difference in our results from those projected in these statements, therefore I refer you to our latest 10-K filings 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 third 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 our shareholders, employees and analysts to our third quarter 2022 earnings call. Thanks for joining us today.

The third quarter reflected the accelerating momentum for ChampionX as we delivered strong performance along all key metrics, including revenue growth, adjusted EBITDA margin expansion, free cash flow generation, and capital return to our shareholders.

Before I elaborate on why I am so pleased with our third quarter performance, I would like to turn your attention to Slide No. 4.

We always begin our earnings calls with our organizational purpose and operating philosophy driven by our commitment and responsibility of improving the lives of each of our stakeholder groups, which include our customers, our employees, our shareholders and our communities.

In particular, as you can see in the heart of our purpose pyramid, ensuring that ChampionX has a strong financial engine is a critical element of being able to create value for our shareholders.

Our robust third quarter results represent the building momentum for the type of operational and financial performance that our company is poised to deliver for our shareholders as this energy upcycle unfolds next year and beyond.

Ken will take you through the details of our third quarter financial results shortly, but let me first touch on four key business highlights, which are shown on Slide No. 5.

First, revenue growth - ChampionX has consistently delivered strong top line growth since our transformational merger in June of 2020; in fact, the third quarter in which we grew our revenue by 10% sequentially and 25% year-over-year marked the sixth consecutive quarter in which we have delivered sequential revenue improvement.

International revenues grew 19% in the third quarter sequentially and accounted for 40% of ChampionX third quarter revenues. The strong international growth demonstrates the broad global reach of ChampionX, our competitiveness with global customers, and our leading share position in offshore markets.

While there are macroeconomic concerns, we expect 2023 to be a solid growth year for our industry, driven by the constructive fundamentals and the importance of energy security.

Our production-oriented portfolio has clearly demonstrated our portfolio’s ability to significantly outpace global oil production growth, and we expect this to be the case again next year.

Second, EBITDA margin expansion - on our second quarter earnings call, we shared with you that we had turned the corner in terms of pricing realization, having caught up to the pronounced raw material and other inflationary forces that our businesses, particularly our chemical technologies business, have faced over the last 18-plus months.

In the third quarter, our adjusted EBITDA margin of 16.3% represented an approximate 140 basis points of sequential improvement, and we remain confident that we will deliver on our targeted exit 2022 adjusted EBITDA margin rate of 18%. We continue to focus and execute on levers within our control and deliver solid operational improvements.

In addition, we are confident that our ChampionX will achieve our intermediate term goal of an EBITDA margin of at least 20%. Third, free cash flow - on our last earnings call, we stated that we expected our free cash flow profile to step up in the second half of the year versus the first half.

Our third quarter free cash flow of $167 million represented 101% of 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% free cash flow to EBITDA conversion through the cycle.

Fourth, returning capital to shareholders - we have previously shared with you our disciplined capital allocation framework and over the last two quarters, we have delivered on our commitment to return excess cash to our shareholders.

In the third quarter, between our regular cash dividend of $15 million and $80 million of share repurchases, we returned 57% of our free cash flow to our shareholders. Going forward, we are targeting to return at least 60% of our free cash flow to our shareholders through the cycle.

Consistent with this commitment, our board approved an increase in our share repurchase program authorization to $750 million versus the $250 million program initiated earlier this year.

We expect healthy free cash flow generation again in the fourth quarter, which will enable us to further return capital to shareholders by continuing to execute on our share repurchase program. Before I turn the call over to Ken, I would like to congratulate our teams for winning the best production technology award in the recent World Oil Awards.

Our High Rise series ESP technology is specifically designed to handle the dynamic production rates and challenging down hole conditions common to unconventional wells. Let me now turn the call over to Ken to discuss our third quarter results and our fourth quarter outlook..

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

As seen on Slide 7, third quarter 2022 revenue was $1 billion, up $89 million on second quarter or 10% sequentially, and up 25% year-over-year. Our three largest operating segments each posted sequential revenue growth led by our production chemical technologies business.

Geographically, North America revenue grew 4% and international revenue was up 19% sequentially. Year-over-year, North America revenue grew 21% while international revenue was up 30%. Included in our quarterly revenues were $34 million of cross-supply sales to Ecolab associated with post-merger supply agreements.

We do not recognize EBITDA margin on these sales and the associated revenue is allocated to corporate and other in our financial statements. We expect these cross-supply sales to continue at a declining rate through mid-2023, the third anniversary of our merger closing date.

Third quarter GAAP net income for the company was $23 million or $0.11 per diluted share versus $27 million in the second quarter and $57 million in the third quarter of 2021. Third quarter net income included a $68 million accounting charge primarily relate to the restructuring of our reservoir chemical technologies business announced last quarter.

As seen on Slide 8, ChampionX consolidated adjusted EBITDA for the third quarter was $166 million, up 20% versus the previous quarter and up 34% year-over-year. Higher volumes and selling prices primarily drove this improvement in net income and adjusted EBITDA and more than offset the impact of raw material and other cost inflation.

In the third quarter, we delivered consolidated adjusted EBITDA margin of 16.3%, higher by 143 basis points sequentially and up 117 basis points over the third quarter of 2021.

Our third quarter free cash flow of $167 million reflected our effective working capital management as we supported the strong top line growth of the business without additional working capital investments. Cash from operating activities was $187 million and capital investment net of disposal proceeds was $20 million.

Turning to our business segments, production chemical technologies generated third quarter revenue of $644 million, up 17% from the second quarter and up 32% year-over-year. The sequential increase was led by strong international growth. Geographically, North America revenue increased 9% while international revenue increased 24% sequentially.

Segment adjusted EBITDA was $103 million, up 31% sequentially and 45% higher than the third quarter of 2021. Volume growth and selling price increases drove the sequential and year-over-year improvements. Segment adjusted EBITDA margin was 16%, up 182 basis point sequentially and 140 basis points from the prior year’s period.

We had strong revenue growth in the first nine months of this year and we continue to realize the benefit of our pricing actions. We are confident that we will deliver our targeted 2022 adjusted EBITDA margin exit rate of 18% in the fourth quarter.

Production and automation technologies third quarter segment revenue of $248 million increased 2% sequentially. Year-over-year revenue was up 21% driven by activity and price increases. Digital revenue was flat sequentially in the quarter and up 20% year-over-year.

We continue to see growing customer focus on leveraging digital to reduce emissions and drive operational improvements and cost efficiencies. We expect our future revenues to continue to benefit from this trend. PAT third quarter segment adjusted EBITDA was $52 million, up 7% sequentially and 30% year-over-year.

Segment adjusted EBITDA margin was 21%, up 101 basis points versus the second quarter and 148 basis points from the prior year period, primarily due to higher pricing.

Drilling technology segment revenue was $61 million in the third quarter, up 5% sequentially and 23% up year-over-year as we experienced continued North American and international demand growth.

Drilling technologies delivered segment adjusted EBITDA of $17 million during the third quarter, flat sequentially and up 8% compared to the third quarter of 2021. Segment margin was 27% in the quarter, a 243 basis point sequential decline driven by product mix and the costs associated with serving customers.

Reservoir chemical technologies revenue for the third quarter was $35 million, a decrease of 20% sequentially and a 7% decline year-over-year. As discussed on our second quarter earnings call, after a strategic review, we decided to exit certain RCT product lines and the associated manufacturing capacity.

This exit resulted in a revenue decline with an improvement to the profitability of the segment. We recorded approximately $68 million in non-cash accounting charges during the third quarter related to exiting manufacturing capacity as of the cease use date.

Essentially, we established a book liability for existing future contractual costs for the capacity that we assumed in conjunction with the chemicals merger. The segment posted adjusted EBITDA of $3 million during the third quarter versus an adjusted EBITDA loss in the second quarter.

This was a $2 million increase compared to the corresponding prior year period. Segment adjusted EBITDA margin was 7% in the quarter, an 812 basis point sequential improvement which was the result of our restructuring efforts. We expect RCT segment margins to continue to improve and become accretive to ChampionX margins as we progress through 2023.

Moving to our balance sheet, as shown on Slide 9, we ended the third quarter in strong position with $187 million of cash on hand and approximately $811 million of total liquidity, including our available revolver capacity. This liquidity was an increase of $71 million versus the prior quarter and a record level of liquidity for our company.

We paid down $51 million in debt during the third quarter and at September 30, our leverage ratio was 0.8 times net debt to adjusted EBITDA. We remain committed to the return of surplus capital to our shareholders.

During the third quarter, we returned 57% of our free cash flow to shareholders in the form of our $15 million regular cash dividend and $80 million of share repurchases.

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. Turning to Slide 10 and our fourth quarter outlook, we expect further EBITDA and EBITDA margin rate improvement in the fourth quarter.

We continue to target the company to exit the year in the 18% margin rate range, up approximately 170 basis points sequentially and up 180 basis points on the 2021 exit rate.

Specific to the fourth quarter, we expect revenue, including Ecolab cross-sales, in the range of $985 million to $1.015 billion and adjusted EBITDA in the range of $176 million to $184 million. In the quarter, we expect continued momentum in international revenues and the normal seasonality in North America from holiday-related slowdowns.

In addition, we will see lower revenues due to the aforementioned reservoir chemical technologies restructuring. On this slide, we’ve also provided some additional specifics related to our fourth quarter outlook.

We continue to expect capital investment to remain in the range of 3% to 3.5% of revenues, and while in periods of revenue growth we will see the need for working capital investment, we remain confident in our 50% to 60% free cash flow to EBITDA conversion ratio guidance through the cycle, and we expect strong free cash flow delivery as we exit this year.

Thank you, and now back to Soma..

Thank you Ken. Before we open the call to questions, I would like to turn your attention to Slide 12 of our deck which summarizes our capital allocation framework.

At 0.8 times net debt to trailing 12-months adjusted EBITDA, we are now below our through-cycle leverage target of one time, and as our strong third quarter financial performance illustrates, our business portfolio does not require outsized incremental capital to fund our high ROI internal investments in maintenance and growth projects and initiatives.

Our sustainable regular cash dividend will grow over time as our free cash flow grows, and we have shared with you that M&A opportunities for us will be small, tuck-in strategic opportunities that add to our capabilities and organic growth profile.

Given the strong free cash flow generation profile of our portfolio, we feel confident that we can continue to invest in our business and deliver on our capital return commitments.

As such, our shareholders can count on us to continue to return excess cash to them through growing dividends and share repurchases as this multi-year energy upcycle progresses. I’m also pleased with the launch of our first annual Sustainability Report. We are looking forward to reporting our progress in this area in our future reports.

With that, let me thank all of our 7,500 ChampionX employees around the world for their tireless dedication to our purpose of improving the lives of our customers, our employees, our shareholders and our communities. You inspire me daily.

Lastly, I am pleased to announce that we will hold our first investor day as ChampionX in early March next year, so be on the lookout for further information regarding this event. With that, I would like to open the call for questions..

[Operator instructions] We have a question from David Anderson from Barclays. Please go ahead..

Hi, good morning Soma. On the production chemicals side, the mix between the international and North America market, I think traditionally we’ve kind of thought about this as sort of 50/50.

Could you update us as to where we are today? You said you noted 19% sequential international growth this quarter - I think that was for the whole company, but I’m assuming that was pretty much all chemicals, so I guess what I’m wondering is assuming these trends hold and North America production stays fairly limited, how much could this swing towards international in the coming years, and I guess, what does that mean for your overall business if we do swing further towards international markets?.

Yes, good morning Dave. The production chemicals group, as you saw, drove significant growth in the quarter. Both North America and international grew, and from a sequential perspective our international business in PCT grew over 24%, so the mix--if you think about North America, which is U.S.

and Canada for us when we define North America, particularly in the production chemical business, the mix is over 50% now international, so I would expect that mix to continue to go up a little bit more as international growth continues to grow..

Is that better for margins, is it worse? Is it better for supply chain? Just kind of curious how that potentially impacts your business..

Yes, our international margins are typically better in production chemical business, because as you can imagine, many of the international business tends to be offshore, more harder applications and things like that..

Right, that makes sense. Then on the input cost side, you have kind of three primary inputs there on the chemical side. I think we’re seeing a little bit of moderation in those costs.

Can you just kind of walk us through how are you seeing that, and really what I guess what I’m really most curious about is how does this roll through your business? Let’s say costs do start coming down.

How does that roll through your business, and I guess I’m curious, the contracts that you signed last year, is pricing tied to any index on costs? How does that work?.

Yes, so Dave, let me just walk through a few points on that. First, on our Q4 guidance, as we have given the Q4 guidance, our achievement of 18% exit rate is not dependent on any raw material coming down Q3 to Q4, so said another way, we are not anticipating any raw material moderation in Q4 as a driver for achieving 18% margin.

That’s the first point. The second point is, as you rightly pointed out, if you look at our raw material input, so we have commodity-based raw material inputs and non-commodity based raw material inputs.

The commodity-based raw material input side, I typically define as that are typically hydrocarbon based - oil, gas based, and the non-commodities depend on materials outside of oil and gas, which will be things like phosphates or silicon and pine derivatives, those type of things.

We are seeing here moderation in the commodity-based raw materials - it’s coming down since the commodity prices have come down, so the commodity-based raw materials constitute about 40% of our spend and they tend to be a larger spend within that 40%.

We have shared earlier items like methanol, gasoline, ethylene, propylene, xylene, these are the commodity-based spend, but even though they are higher dollars, the constitute about 40% of our spend.

The remaining 60% is a long list of small spend items, so those we are not seeing moderation; in fact, we have seen a little bit of inflation in those primarily because of demand from other industries, as well as some of the Chinese lockdowns we saw COVID-related recently.

Net-net, I would say while commodity moderations are coming down, the non-commodities are still not down, so in our assumption for Q4 guide, net-net we have not assumed any raw material moderation.

What really gives me a lot of--you know, what I’m really pleased about is if you look at our margin expansion story, it’s completely right now driven by our pricing and our teams executing on productivity, so when those materials start moderating [indiscernible], it will be additive to what is already a very positive margin expansion story for us..

But that pricing you just mentioned, that’s not tied to any index on those commoditized costs?.

Yes, we have contracts, specific contracts with specific suppliers, you know, so it’s a negotiated contract. Now, on the commodity side, it is mostly index-based. The bigger purchases tend to be index-based. On those, Dave, I would say that the raw material prices will move with the index on the commodity-based items..

Okay, great. Thank you Soma..

Sure..

Thank you. Our next question comes from Scott Gruber from Citigroup. Please go ahead..

Yes, good morning. .

Morning Scott..

I wanted to start out on the cash return commitment, which everyone definitely appreciates.

As you kind of detailed, that 60% minimum threshold, you described it as a minimum through the cycle, and I realize you have working capital swings on an annual basis, but how do we think about that clarifier? Is the true intent here to do 60% on an annualized basis, or are you kind of keeping flexibility for M&A? I guess the big question is why not commit on an annualized basis to 60% minimum cash return?.

Yes, you know Scott, first and foremost, as you have seen, we have absolute commitment to return excess cash flow to shareholders, and when you look at, for example, this year, year-to-date over the last three quarters, we have returned over 80% of our free cash flow to our shareholders, so clearly for us it’s--the excess free cash flow, we are committed to return.

The reason for at least 60% through the cycle is primarily a function of how the cycle unfolds, so we are very focused and disciplined on the capital allocation, as you have seen, and the M&A opportunities are going to be small and they are going to be strategic and tuck-in type acquisitions, which expands our organic growth profile, our technology additions.

For us, we feel very comfortable with at least 60%, and you should expect us to do more as we continue to generate more free cash flow. But as a firm commitment, we are talking about at least 60%, but as history has shown, we will return excess cash to the shareholders and that could be more..

Got you. I appreciate the color. Then just on the reservoir chemicals, how should we think about that segment in 4Q? What’s kind of the new run rate revenue potential there? Then you mentioned getting the margins to an accretive posture relative to the rest of the business.

How quickly does that happen as you take some of the less profitable business lines of out that segment?.

Yes, great question Scott. As we go through this--you know, we are executing through the restructuring, as far as what you should see as we progress through 2023, we should--our margins should start further improving from where we are, and we would expect, Scott, as we get into the second half of next year, it should start getting accretive..

Got you.

How do we think about revenues in 4Q and into ’23? What’s the new run rate there?.

You are specifically asking about RCT on the revenue?.

Yes, I think there was a comment in the deck that there would still be lower revenues in 4Q on the outlook page..

Correct..

I’m just curious about where RCT goes in 4Q..

As you know, we don’t give specific guidance, but it should be getting lower, more closer towards the $30 million range..

Okay, appreciate the color. Thank you..

Sure..

Thank you. Our next question comes from Stephen Gengaro from Stifel. Please go ahead..

Thanks and good morning everybody.

Soma, could you maybe talk a little bit about how we think about your production chemicals revenue profile versus what’s going on with global oil production? That’s something that comes up a lot, and obviously you’ve outpaced that; but what are some of the drivers behind the revenue growing at a more rapid rate than the overall global production levels?.

Yes, you know Stephen, great question. This is something we will make sure that we detail that out in our investor day and give more specific color into it, but let me give you the key elements that drive the growth.

Clearly pricing drives it, clearly activity growth drives it, and incremental share gains drives it, right? But one of the factors that is less understood and not very visible is in higher commodity price environments, the customers’ production programs tend to focus more spend on production chemistry because the most important asset our customers have is their producing well, so in a higher commodity environment they want to protect the asset and the asset integrity and everything they can do to continue to enhance the production, so the production programs during constructive commodity prices tend to spend more on production chemistry, so that’s one important element.

The second element is if you look at--as harder to treat oil continues to become more of the production, because easy to find, easy to treat oil has been taken, as we get towards more harder to get oil, particularly in more offshore, more shale, you are going to see more production chemistry intensity to that. That’s the second part.

The third part is depending on the regions around the world, depending on the regions around the world, the number of wells which are actively being treated currently also varies, so there is--so when you think about a place like the U.S.

or North America, that percentage tends to be higher because they have more production programs, the infrastructure is there, the service facilities are there to treat the wells and maintain them.

But internationally as we go, the number of wells, active production wells that are currently being treated with chemicals tends to vary, so there’s a set of growth opportunities where producing wells, actually producing wells going onto chemical programs, so when you look at our growth in Latin America and also some of the growth in Middle East, it’s actually driven by that and there is more runway to that.

If you look at the percentage of wells being treated and chemicals in those regions, regions vary. That’s the [indiscernible] Then the final aspect on the production chemistry is the production chemistry chemicals usage, it’s also a function of total liquids produced.

It’s just not the oil alone, because as wells age, even though the oil production may come down, the total liquids produced may continue to be the same because they are producing more water, and so that water also needs to be treated.

These are the final elements or the next set of elements that drive production chemistry growth, so that’s why we have a long runway of production chemistry growth, and it always grows in multiples of the actual production growth. We will detail this out in a much more deep dive in our investor day.

Is that helpful?.

That’s extremely helpful, thank you.

The other quick one, and I’m not sure if you can comment or not, but when you think about the share repurchase program, is there a time frame on the 750? I’m just sort of trying to back into next year’s free cash flow guidance a little bit, but is there a timeframe or is the execution going to be opportunistic over time?.

Stephen, if you look at what we have done this year, you should expect us to execute on this program.

We have demonstrated that, and as we have said in our prepared comments and you know, we’ll execute on the Q4 and we are putting in place a systematic approach to do that, even through times where there is dislocation--there are dislocation prices and things like that. We are very committed to that and systematically we’ll execute on that.

The way we frame this is that you can think of it this way, right - given our strong cash flow generation, if there is no other use for our free cash flow, you can see us returning--completing this program in a two to three-year time period. It’s very realistic in the sense that what we are executing.

We have executed $80 million this quarter, and as you look into Q4 with the strong free cash flow generation, we’ll continue to execute strong on this program, so we are very committed to it in that sense..

Excellent. Thank you for the details. .

Thank you. The next question comes from Saurabh Pant from Bank of America. Please go ahead..

Hi Soma and Ken, good morning. Maybe I’ll start with a follow-up on the production chemicals business. I know you said in your prepared remarks that you still feel good about getting to that intermediate term target of 20%.

I don’t think you’ve committed to a timeline to that, so maybe you can correct me if you did, but how should we think about that? I think the in the past, you’ve said it’s more a function of volumes than anything else, but it looks like mix and pricing are going to be drivers as well.

If you can help us think about that, when can you potentially get there, what’s the path and what’s the key drivers to get there..

Yes Saurabh, I think your understanding is correct, that we did not put a specific timeline on that right now. But the key drivers behind the production chemical margin expansion is going to be, obviously volume is one, but the productivity we are executing on the business is also an important thing.

Particularly our supply chain organization in production chemicals has done an amazing job of executing operational productivity at a time when supply disruptions were really, really a major challenge, so they have done a great job of continuing to drive operational productivity.

An example of that is we are digitizing our complete field on the fulfillment side, which drives a significant amount of productivity. So volume is important, is one part of it, but productivity and then followed by pricing, we do expect to continue to net pricing next year in our production chemical business.

These are the three factors that will drive, and as our international growth goes more, that also--the mix of those helps in driving higher margin as well, so we are pretty excited about the positive margin expansion runway in this business. .

Okay, cool. A follow-up, a related follow-up on that, it looks like obviously very strong growth in revenue in PCT, 17% sequentially. It looks like if we think about 2022 as a whole, revenues could be up high 20% this year, under 30%.

For context, just so that we understand what’s driving that, can you help us dissect that a little bit in terms of how much of that is volume versus pricing? Within pricing, how much of that is fuel pricing with your surcharges, because you would think surcharges would reverse at some point as inflation starts to go the other way, so just for some context, what drove the high 20% revenue growth for PCT in 2022?.

Yes, look - from a qualitative perspective, and obviously Saurabh, as you can imagine, for competitive purposes we don’t want to detail out a lot of specifics on this, but we track these things very, very in a detailed manner. But let me talk about it in a qualitative sense and I’ll give you a little bit of color here.

Clearly there has been volume growth, pricing, and incremental share gains.

Our teams have done--and this is really important, because when you think about all the supply disruptions that have happened over the last 18 months in the supply chain, the supply assurance is a very critical aspect for our customers because many of the high value wells will--you know, this is the consumable in the production, so they need that, right? This is where the strength of ChampionX really, really shines in the supply assurance.

The network of manufacturing capabilities, the distribution points and the supply chain team capability we have, as we have mentioned, we are very proud of the fact that we have not declared a force majeure during this time to any of our customers.

Our suppliers have done that to us, but even with that, our supply chain teams have really worked hard to provide the supply to the customers, and that has really given us a significant market share, incremental market share improvement.

These kinds of capabilities have been built over decades - the technology capability, the supply chain capability, the manufacturing network, so it’s not easy to replicate, so that’s a very important element in driving these share gains which we have experienced. All this put together drives kind of the strong growth you have seen in PCT.

To give you context around pricing, look - for example in Q3, at an overall ChampionX level, pricing is about 50% of our growth and the rest is all other factors, and our PCT business is somewhat similar to that..

Okay, perfect. No Soma, it’s perfect context for that, so thanks for that. If I can sneak in one more on the PAT side, obviously if you look within PAT, there are different businesses with different underlying drivers, right - I think 35%, 40% each within PAT is ESPs, and then rod lift, obviously different drivers of those businesses.

I think the balance is digital and some of the other smaller production oriented service lines.

With that mix, how should we think about 2023 - let’s assume North America D&C capex grows 20% next year, for round numbers, what should we think about those three parts - ESP, rod lift, and then digital and everything else?.

Yes, look - we are not going to be providing 2023 guidance in this call, but qualitatively again, talking about it, if you look at this year, all forms of artificial lift has grown and in fact, rod lift was the highest growth this year, followed by ESPs and other forms of lift.

In an increasing D&C spending environment, our artificial lift portfolio will benefit from it. What we have seen historically, as you’ve seen this year, it should grow in the high 20s, and historically our artificial lift portfolio has grown similar to the D&C spending levels.

Another element of it is if you think about rod lift, and again similar to production chemicals, during the times of constructive commodity prices, customers spend to make sure that their wells are operating in the most efficient manner and with less downtime, so rod lift benefited from that spending and also the conversion cycle that is going on--you may remember we talked about those conversions, and rod lift is continuing to benefit from that conversion as well, so you should expect if there’s going to be a strong D&C spending growth next year, you should expect our automation lift business to grow pretty strong in conjunction with that..

Okay, awesome. That’s perfect Soma, it does make sense. You’re in E&P, you invest in production, that’s going to be your highest return investment perhaps, so that makes sense. Okay, I’ll turn it back, thank you..

Thank you. At this moment, we have no other questions in queue. I would like to turn the call back to Soma for final remarks..

Well thank you. Before we close out the call, I’d like to recap the key elements of ChampionX as we look into the future.

Strong organic growth combined with the positive momentum and runway in our margin expansion, the strong free cash flow generation and our commitment to returns at least 60% of our free cash flow to our shareholders, these are the key elements as we look into the future. Thanks for joining the call, and have a great day..

Thank you. Ladies and gentlemen, this concludes today’s conference. We thank you for participating. You may now disconnect..