ChampionX - Q2 2022

Transcript

Speaker 0

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 will conduct a question and answer session. As a reminder, the conference is being recorded.

I will now turn the call over to Byron Pope. Sir, you may begin.

Speaker 1

Thank you. Good morning, everyone. With me today are Soma Somasundaram, President and CEO of Champion X and Ken Fisher, our Executive Vice President and CFO. During today's call, we will share some of the company's highlights. Ken will then discuss our 2nd quarter results and 3rd quarter outlook Before turning the call back to Soma for some summary thoughts, we will then open the call for Q and A.

During today's call, we We'll 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 ks 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 Q2 press release, which is available on our website. I will now turn the call over to Selma.

Speaker 2

Thank you, Byron. Good morning, everyone. I would like to welcome our shareholders, employees and analysts to our Q2 2022 earnings call. Thanks for joining us today. I'm pleased with ChampionX's 2nd quarter results.

Our teams executed well. Our performance Increasing price realization, and we are well positioned to deliver strong adjusted EBITDA and Adjusted EBITDA Margin Growth in the Back Half of the Year. As we have shared before, we see our culture as a source of sustainable competitive advantage, which is why we always start with our organizational purpose As shown on Slide number 4, we hold ourselves accountable for being tireless customer advocates, Being committed to our employees, delivering technology that is impactful in helping solve customer problems I'm having a continuous improvement mindset. Speaking of our purpose, I would be remiss if I did not recognize That June 3 marked the 2 year anniversary of our transformational merger. We are proud of how remarkably well Our organization has executed on behalf of all our stakeholders over the last 2 years.

We are truly better together. Consistent with our purpose of improving lives, as you can see on Slide number 5, we celebrated our 2 year anniversary By volunteering over 1400 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. Ken will take you through our Q2 financial results shortly. So let me just share a few high level comments. Our business portfolio once again delivered superior top line growth in the Q2.

Year over year, our North America and international revenue grew 27% 20%, respectively, illustrating the attractive organic growth opportunities within our global business. As each of our businesses contributed to this strong performance. In particular, in our Q1 earnings call, We mentioned that we expected our Production Chemical Technologies business to experience top line growth for the full year 2022, approaching mid teens percentage. Given the robust top line first half of twenty twenty two, we now expect our Production Chemical Technologies business to deliver full year 2022 revenue growth in the high teens percentage. Revenues from digital products, Which includes our emission management products, increased 54% year over year and 14% sequentially in the 2nd quarter.

We continue to remain excited about the long term organic growth prospects in this business and investing appropriately to support it. Our teams are delivering price increase realization to offset the impact of raw materials, labor and logistics related cost inflation that we have experienced in our portfolio of businesses. Last quarter, we shared with you that we expected our chemical selling price To catch up to and exceed raw materials inflation exiting the Q2, and our teams delivered on that objective. As such, we confidently expect to see healthy EBITDA margin improvement in the second half of this year. We have previously shared with you our capital allocation priorities.

During the Q2, we demonstrated our commitment to returning capital to shareholders By returning over 60% of our free cash flow generated during the period to our investors via our regular cash dividend and by repurchasing $20,000,000 of ChampionX stock. We remain fully committed to creating value for our ChampionX Now, I would like to turn the call over to Ken to discuss our Q2 results and our Q3 outlook.

Speaker 3

Thank you, Soma. Good morning, and thanks, everyone, 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, 2nd quarter 2022 revenue was 933,000,000 Up $67,000,000 or 8% sequentially and up 24% year over year As we posted solid revenue growth in all of our operating segments, geographically North America revenue grew 6% And international revenue was up 11% sequentially.

Included in our quarterly revenues were 36,000,000 dollars of cross 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 Ecolab sales to continue at a declining rate through mid-twenty 23, The 3rd anniversary of our merger closing date. 2nd quarter GAAP net income for the company was 20 $7,000,000 or $0.13 per diluted share versus $37,000,000 in the 1st quarter $7,000,000 in the 2nd Quarter of 2021. 2nd quarter net income included a $23,000,000 charge to reduce The carrying value of the Chemical Technologies Russia business to its estimated fair value as this business was classified as held for sale during the quarter.

As seen on Slide 8, ChampionX Consolidated adjusted EBITDA in the 2nd quarter was $138,000,000 up 11% versus the previous quarter and an increase of 31% versus the prior year period. 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 Q2, we delivered consolidated adjusted EBITDA margin of 14.8%, Higher by 41 basis points sequentially and up 76 basis points over the Q2 of 2021. Our 2nd quarter free cash flow of $54,000,000 reflects effective working capital management As we supported the strong top line growth of the business during the quarter, cash from operating activities was 70 $4,000,000 and capital investment was $21,000,000 net of proceeds from asset sales. Turning to our business segments.

Production Chemical Technologies generated 2nd quarter revenue of $552,000,000 up 7% from the 1st quarter North America revenue increased 4%, while international revenues increased 11% sequentially. Segment adjusted EBITDA was $78,000,000 up 17% sequentially and 27% higher In the Q2 of last year, volume growth and selling price increases drove the sequential and year over year improvement. Segment adjusted EBITDA margin was 14.2%, up 118 basis points sequentially And 36 basis points up from the prior year's period. We had strong revenue growth in the first half of this year And we continue to realize the benefit of our pricing actions offset by somewhat higher raw material and logistics costs in the quarter. Our price realization caught up to raw material inflation during the Q2 and we still expect to deliver healthy sequential EBITDA margin rate improvement in the second half of twenty twenty two.

Given the sanctions imposed by the United States, European Union and United Kingdom, we have initiated a plan to sell our operations at Russia, which is included in our Production Chemical Technologies segment. This business was classified as held for sale at the end of the second quarter and written down to expected fair value. Production and Automation Technologies 2nd quarter segment revenue of $242,000,000 increased 10% sequentially, primarily due to activity increases, Market share capture and increased pricing. Year over year revenue was up 29%. Digital revenues increased 14% sequentially in the quarter and 54% year over year.

We are seeing continued customer focus on leveraging digital To reduce admissions and drive operational improvements and cost efficiencies, our revenues are benefiting from this trend. Pat's 2nd quarter segment adjusted EBITDA was $49,000,000 up 8% sequentially and twenty Percent up year over year. Segment adjusted EBITDA margin was 20%, down 40 basis points versus the Q1, primarily due to materials and freight cost inflation in the period. Drilling Technologies segment revenue was 58,000,000 The second quarter, up 2% sequentially and 54% year over year as we experienced continued demand growth in North America and internationally as well as increased pricing. Drilling Technologies delivered segment adjusted EBITDA of 17 1,000,000 during the Q2, flat sequentially and up approximately 2 times on Q2 of last year.

Segment margin was 29.5 percent in the quarter, a 93 basis point sequential decline, but roughly 700 basis points above the year over year comparable. Revenue Chemical Technologies revenue for the 2nd quarter was $4,000,000 which is an increase of 11% sequentially and up 33% year over year. The segment experienced a small adjusted EBITDA loss driven by raw materials cost inflation. As noted on Slide 9, during the quarter, after a strategic review, we decided to exit certain RCT product lines And the associated manufacturing capacity to improve the overall profitability of this business moving forward. We incurred approximately $5,000,000 in restructuring charges during the Q2 related to these efforts and expect further restructuring charges in Q3 related to manufacturing capacity rationalization.

Moving to our financial position and balance sheet. As shown on Slide 10, we ended the 2nd quarter in strong position with $167,000,000 of cash on hand And approximately $740,000,000 of total liquidity, including available revolver capacity, An increase of $200,000,000 versus the prior quarter. During the quarter, we successfully refinanced our existing credit facilities With a restated senior secured credit facility and we redeemed all of our outstanding senior notes, The restated agreement provides a $625,000,000 Term Loan B and a $700,000,000 5 year revolving credit facility. The successful execution of the debt refinancing further simplified our balance sheet, Extended our nearest debt maturity to 2027 and enhanced our strong liquidity position. At June 30, our leverage ratio was 1 times net debt to adjusted EBITDA.

We remain committed to the return of surplus capital to our shareholders. During the Q2, we returned over 60% of our free cash The shareholders in the form of our $15,000,000 regular quarterly cash dividend and with $20,000,000 of share repurchases. We remain laser focused on disciplined capital allocation, delivering our operating and free cash flow targets, Strong working capital management and maintaining our strong liquidity and financial position. Turning to Slide 11 and our forward outlook. We continue to expect 2022 to be a year of solid revenue growth And sequentially improving EBITDA margin rate.

We continue to target the company to exit the year in the 18% margin range, up Approximately 100 basis points on the 2021 exit rate. Specific to the Q3, we expect revenue, Including Ecolab cross sales in the range of $925,000,000 to $955,000,000 With chemical Selling price increases now exceeding raw materials inflation, coupled with our ongoing cost and productivity actions, We expect our adjusted EBITDA margin to improve healthily in the second half of the year. For the Q3, we expect In the quarter, we also expect sequential revenue improvement in our PCT, PAT and Drilling Technologies businesses. We expect some revenue offsets, specifically the impacts of exiting certain product lines Within our reservoir Chemical Technologies business and the expected and previously communicated reduction in cross supply sales On this slide, we have also provided additional specifics related to our Q3. We continue to expect capital investments to remain in the range of 3% to 3.5% of revenue.

And while in periods of revenue growth, we will see working capital investment requirements, we remain confident in our 50% to 60% Free cash flow to EBITDA conversion ratio target through the cycle. And we still expect our 2020 2 free cash flow delivery to be weighted to the second half of the year. Thank you. And now back to Soma.

Speaker 2

Thank you, Ken. Before we open the call to questions, I would like to turn your attention to Slide 13 of our deck, which summarizes our capital allocation framework, which we shared with you earlier this year. As we mentioned last quarter, Now that we have reached our target leverage ratio, our commitment was to begin to return capital to our shareholders, while continuing to invest in high return organic growth investments and small bolt on technology additions. During the Q2, we utilized our free cash flow to deliver on that commitment. We expect our free cash flow profile to further improve in the second half of Thank you to our previously announced share repurchase program.

We remain committed to our disciplined capital allocation framework. We are laser focused on delivering strong operational execution. As we shared on our Q1 call, We expected Q1 to be our EBITDA margin low point of the year, with our EBITDA margin progressively improving through the year. In the Q2, we saw our Production Chemical Technologies business start to deliver margin expansion As our pricing realization caught up to the raw material inflation that we have been experiencing over the last year and a half, We expect our Production Chemical Technologies and overall Champion X EBITDA margin to accelerate in the second half of this year, exiting 2022 at an EBITDA margin rate of 18%. In addition, we have increasing confidence That Champion X will achieve our intermediate term goal of an EBITDA margin of at least 20%.

Finally, we are excited about the constructive demand tailwinds in our businesses. Our market leadership And scale in our key product lines, combined with our broad exposure to global basins and customers, Physicians Champion X particularly well for the favorable multiyear outlook for our sector. As an example, There is an increasing evidence that global offshore oil and gas activity levels are improving. Offshore environment, Particularly in deepwater, tend to be more technically challenging and chemicals intensive, and our market leading Production Chemical Technologies business He's especially well positioned in this arena. In closing, I want to thank all of our 7,000 ChampionX employees around the world for their relentless dedication to our purpose of improving the lives of our customers, our employees, our shareholders and our communities.

I draw inspiration daily from leading such a remarkable team. With that, I would like to open the call for questions.

Speaker 0

Thank you. We will now begin the question and answer session. Standing by for questions. And our first question online comes from Mr. Dave Anderson Barclays.

Please go ahead.

Speaker 4

Hi, good morning, Soma. So it looks like you're pretty well on track to hit your target for actually chemicals to recover margins. And as you And now the pricing has turned to has taken over the on the raw materials side. I'd like to talk about what happens to the segment after that In terms of kind of how the drivers of this business might change, particularly international activity poised to ramp up. I guess my question is, I guess you just said, if I'm not mistaken, I think you said 11% increase in international outpaced North America pretty well.

I'm just wondering if we should expect that really to continue all through next year as we see Middle East volumes ramp up. And you just mentioned as what I was really interested about is the offshore coming back, I think a lot of it's going to be pretty short cycle. So maybe just kind of talk about how North America versus international, how you see that playing out a little bit further out?

Speaker 2

Yes, Dave. Thank you. Let me first say that I'm fighting a little bit of a scratchy throat. So I apologize If my answers are into one with a little bit of scratchy throat here. So Going back to the question about beyond 2022, I think we as you have seen, I think our teams are Particularly in production chemicals, our teams are executing well on the price increases.

So we have seen As we saw in the 2nd quarter as we exited the 2nd quarter, we could see that the price increases are Offsetting the raw material inflation, so we feel good about the margin progression in this segment and overall for Champion As you know, we have a very strong position in deepwater offshore. And as we have shared before, They tend to be more chemically intensive, technically challenging, and we have a strong competitive moat around that area. To give you an idea, close to about 40% of our revenues in our Production Chemical Technologies comes from Deepwater and Offshore. So at that market, we are seeing increasing evidence that the market is recovering in that area. And we have seen a nice growth in that in the second quarter.

So we feel good about in 2023 that our production chemical technology should continue to benefit from That international as well as the deepwater and offshore growth.

Speaker 4

Are the margin I mean, presumably the margins are much higher than Deepwater as well?

Speaker 2

That's correct. Directionally, as we have shared before, that deepwater offshore margins tend to be better than What you typically see on a conventional?

Speaker 4

Going back to the mode, that makes sense. My second my follow-up question, I kind of have a 2 parter there on the artificial lift side. I was wondering if you could talk about the U. S. Onshore business kind of year to date, What you've seen on kind of ESP versus the wireless side?

And then secondarily, kind of similar question on the international side. I know you've been trying to build out further On the lift side, the topic has come up quite a bit from some of your competitors over the last week or so. So if you wouldn't mind just kind of expanding on both sides, please? Thank you.

Speaker 2

Yes, Dave, absolutely. As you've seen, our artificial lift and PAT continue to post very strong Sequential growth, you saw we grew 10% sequentially in Q2, and we expect to grow nicely again in Q3. And international has been a really strong growth both in Q2 and we expect another strong growth in Q3. Going back to specifically on the ESP side, again, we have seen nice growth in ESPs continue to be there. And I want to address this issue of what you mentioned about competitors.

Again, I want to remind that Internationally, today, we don't participate in the ESP market. So Really, that's complete greenfield opportunity for us. And we are working Our entry into the international ESP markets and in the coming quarters, So again, today, we don't have any presence in the ESP market internationally. So But on the other side, our majority of our international growth is driven by our rod lift to Progressive Cavity Palms, our Jet Palms, the other forms of artificial lift, which we have got a strong position. And with the this is a big focus of our revenue synergy opportunities, which we have been reporting on.

And so we expect the revenue synergies to build up. As we said last year, We got about $30,000,000 of incremental revenue synergy awards across our portfolio. We expect this year to be higher than that. So the international ESP opportunities are all incremental to that in the coming quarters and the coming years.

Speaker 4

Thank you.

Speaker 2

Yes, sure Dave.

Speaker 0

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

Speaker 4

Hey, good morning everybody. So I guess first thing on just your guidance. 3Q, you kind of gave us obviously revenue and EBITDA, but I want to unpack the revenue a little bit. The guidance, it seems tough to kind of get to even the high end of the revenue guidance. So just, I mean, walk us through each of the three segments and how we're thinking of how you guys are thinking about sequential revenue growth because I feel like that the reservoir chemicals and the Ecolab revenues must be falling off pretty hard, because I think the core segment still should see some really nice growth.

Speaker 2

Yes. Chase, I think you're thinking about that right in the sense that we expect our PCT, PAT and Drilling Technologies all to have sequential growth in Q3 And that is being offset by the exiting of certain product lines in our RCT business as part of our restructuring. So and then the decline in the cross sell of Ecolab. So you have seen the momentum in our Q2 top line growth in each of these segments. So we feel good about the top line growth in the PCT, PAT and Drilling Technologies.

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

Speaker 4

Okay. Would you hazard a guess which one of those three segments, whether it's PAT, Drilling Technologies or Production Chemicals will grow the most in 3Q?

Speaker 2

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

Speaker 4

Okay, all right, perfect. I guess follow-up question is just really on the capital allocation framework and appreciate the slide and the details here. But you've obviously hit your leverage ratio target. I mean, you bought back a small slither of stock in 2Q. But can you talk about how you're thinking about capital allocation as you go forward?

And especially as we think about it between Share repurchases and you mentioned special dividends. I mean your stock is exceptionally cheap. So just let us know how you're thinking about buybacks Given where the stock is trading.

Speaker 2

Yes. Chase, as we said in the prepared remarks, we stay committed to that capital allocation Framework, as you pointed out, having gotten to our target leverage We continue to invest in the organic investments like we talked about. And we feel good about where our portfolio is. So any type of investments in technology additions will be small So which means there is the substantial portion of our surplus cash, We expect to return to our shareholders. And you saw that in Q2, over 60% of it.

And we have said that We expect the cash flow profile to improve further in second quarter I mean second half, and we are committed to increasing Our cash flow return of cash to the shareholders as that cash flow profile increases. So you should expect substantial portion of our second half surplus cash to be returned to our shareholders. And we have that $250,000,000 of share repurchase. We do believe that given where our stock is, I think that would be our in the second half, that would be our primary Mechanism of returning capital to our shareholders. So again, Our commitment has not changed.

I think it will continue to increase. Okay.

Speaker 4

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

Speaker 0

Thank you. Thank you. Our next question online comes from Stephen Engaro from Stifel.

Speaker 5

Thanks. Good morning, everybody. Two things for me, if you don't mind. What I would start with, I guess, is on the production chemicals side. I mean, you had a step up in margin In the Q2, you gave some targets for the end of this year.

When you think about the progression and sort of the overall margin target of 20%, Is that a goal we should expect during 2023?

Speaker 2

Are you talking about our intermediate target of the 20% We mentioned that.

Speaker 5

Yes.

Speaker 2

Okay. Yes. So we are not providing guidance to the 2023 right now. But What I would say is that given the margin progression we are seeing And our increasing confidence in the exit rate of 18%, we feel that the 20% is there in the intermediate A term, a very achievable number, that's what I would say. I'm not specifically mentioning that it is the 2023 target at this stage, because we are not providing a 2023 guidance at this point.

Speaker 5

Okay. Thank you. And then when we think about The PAT business and what you're seeing both in North America and internationally on the revenue front, but also The margin flattish 1st quarter to 2nd quarter. I think there were some transportation costs Around that, can you just talk about that business a little bit more and sort of how we should think about that progression of revenue or margin relative to Just overall activity and some potential traction, you expect to gain on the international front?

Speaker 2

Yes. Steve, as you rightly pointed out, the Q2 was margin in PAT was Somewhat flattish, I mean, fairly flattish and primarily driven by, as you mentioned, increase in logistics and freight and fuel costs. And in the quarter, we have taken countermeasures in terms of price increases and surcharges. So you should expect as we go into Q3, you should see sequentially that playing out and The margin should start improving. And Q4, as you know, typically in PAT and In the North American short cycle business, there is seasonal Activity slowdown that could be related to number of working days, Holiday period, sometimes weather related things can achieve.

So Q4, sometimes In normal years, you tend to see a sequential Q3 to Q4 as a slowdown in some aspects of revenues driven by the holiday events. But as we walk into 2023 and as we continue to grow, you should expect to see, barring those seasonal Slowdowns, you should see continued revenue and margin progression for this business.

Speaker 1

Great. That's helpful color. Thank

Speaker 2

you. Sure, Steve.

Speaker 0

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

Speaker 6

Thank you. The revenue growth for PCT for this year upgraded to high teens from mid teens seems to imply very minimal sequential growth for the remainder of the year. Can you talk to the dynamic there? I think previously you had expected price increases to Maybe result in some market share loss, and it seems like that hasn't occurred. So maybe just put a little more color around the expectation for the back half, if you

Speaker 2

Yes, Mark. I think as you rightly pointed out that our teams have done a really nice Job executing on this. And I can tell you based on the tracking we do, I would say that in every geographic market we participate, We have actually gained net market share in our PCT business. So I feel good about however teams have stayed focused on executing on it. In the second half, we do expect sequential growth.

And as you know, Q3, We expect a sequential growth and Q4 tends to be stronger for our PCT because of the International volume tends to be stronger in Q4. So It's possible our top line expectation on PCT may prove A little bit conservative in the second half, but we feel confident about the high teens. But the activity is good. Our teams are executing well.

Speaker 6

Yes. Okay, super. And then On the margin, the 20% versus exiting at 18%, is the difference there just Catching up on the raw material inflation, it sounds like now you're ahead of the curve on that. But is it just more of that? Or Is there mix or some other reason that's driving the delta from 18% to 20% whenever you end up getting there?

Speaker 2

Yes. No, I think it will be a combination of I think the incremental Volume in 2023 as well as the full We do expect the As we walk into 2023, some moderation should happen in some of the raw prices as well. But it's more from 2018 to 2020, It will be more the incremental volume and continued productivity.

Speaker 6

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

Speaker 2

Sure.

Speaker 0

Thank you. Our next question online comes from Ati Modak from Goldman Sachs. Please go ahead.

Speaker 7

Hey guys. In terms of the capital return strategy, do you think 60% of free cash flow over the longer term is a good way to think about it? What are the variables that you consider as you think about the right level of return overall return yield on equity between dividends and buybacks?

Speaker 2

Yes, Ajit. Again, as I mentioned before, again, I go back to our Capital allocation framework and we stay committed to that. So in the second half, you should as we mentioned, We did over 60% return of free cash flow in Q2. We expect in the second half it to be higher, because of our increased cash flow profile And substantial I mean, we expect the share repurchase to be the main mechanism for that. Now as we have said before, we are very focused on Sustainably growing our dividend as our free cash flow grows.

So with respect to long term view of What is the right way to think about the capital return percentage of free cash flow? We are currently reviewing that. And so we will be in a position how we we are doing that in a manner to make sure that how do we think about that through the cycle. And so when we are ready, we'll be in a position to communicate that. And but I do want to make sure that returning capital to shareholders is a very integral part of Our capital allocation strategy, as we have said before, we feel good about where we are with our portfolio.

We continue to invest in organic growth opportunities. So any type of technology additions or M and A activity will be small for us. So which means there's a substantial portion of our surplus free cash flow We'll be returning to our shareholders.

Speaker 7

Great. And then as you think about the international rig count inflection in the second half of the year, Do you think you could see another round of stocking related strength in orders of revenue for the Drilling Technologies segment? How do you think about the cadence there for the

Speaker 2

Yes. So I mean the restocking or additional stocking Orders in our drilling technologies tend to be more a step function, which means If there is a step function change in rig count additions, then customers tend to Restock more. In our current Forecast for the second half, at least for our Tilling Technologies, we are not anticipating any additional restocking. It's what is built into our forecast is the regular cadence of orders, which is in line with the breakout additions.

Speaker 7

Thank you. I'll turn it

Speaker 2

over. Okay. Thanks, Adi.

Speaker 0

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

Speaker 3

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

Speaker 2

Yes, Sean. With the rest in our Particularly, it has been a pronounced thing in our production chemical side or our chemical technologies business. So Our view right now, what we have built into our second half forecast is in Q3, we expect Another small increase in our raw material inflation, which is mostly just below from Some of the increases we saw in Q2, and we expect a small increase going into Q3. And then as we go into Q4, we have a small moderation in our raw material prices in certain categories. So to answer your question, we do expect in Q4 a small moderation in our Commodity prices.

But Q3, we still have an increase built into our forecast. Okay. Thank you. And then we also on the PAT side, we do In fact, some level of moderation in the 4th quarter, particularly in the steel side, steel And the special bar quality side.

Speaker 3

Got it. Thank you.

Speaker 2

Sure.

Speaker 0

We have no further questions at this time.

Speaker 2

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

Speaker 0

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect. Speakers, please stand by for your