ChampionX - Q3 2022
October 26, 2022
Transcript
Speaker 0
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. As a reminder, this 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, Soma will share some of our company's highlights. Ken will then discuss our Q3 results and the Q4 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 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 ks filing and our other SEC filings for a discussion of some of the factors that could cause actual results 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 Q3 press release, which is available on our website.
I will now turn the call over to Selman.
Speaker 2
Thank you, Byron. Good morning, everyone. I would like to welcome our shareholders, Employees and analysts to our Q3 2022 earnings call. Thanks for joining us today. The Q3 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 3rd quarter performance, I would like to turn your attention to Slide number 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 includes our customers, our employees, our shareholders and our communities. In particular, as you can see in the heart of Our purpose pyramid, ensuring that Champion X has a strong financial engine, is a critical element of being able to create value for our Our robust third quarter results represents the building momentum for the type of operational and financial 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 Q3 financial results shortly, but let me first touch on 4 key business highlights, which are Shown on Slide number 5. First, revenue growth.
ChampionX has consistently delivered Strong top line growth since our transformational merger in June of 2020. In fact, the 3rd quarter In which we grew our revenue by 10% sequentially and 25% year over year marked the 6th consecutive quarter In which we have delivered sequential revenue improvement. International revenues grew 19% in the 3rd quarter sequentially And accounted for 40% of Champion X 3rd 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. 2nd, EBITDA margin expansion. On our Q2 earnings call, We shared with you that we have turned the corner in terms of pricing realization, having caught up to the pronounced raw materials And other inflationary forces that our businesses, particularly our Chemical Technologies business, have faced over the last 18 plus months.
In the Q3, 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 Champion X will achieve our intermediate term goal of an EBITDA margin of at least 20%. 3rd, 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 3rd quarter free cash flow of 160 $7,000,000 represented 101 percent 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. 4th, 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 Q3, between our regular cash dividend of 15,000,000 And $80,000,000 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 $750,000,000 versus the $250,000,000 program initiated earlier this year. We expect healthy free cash flow generation again in the Q4, which will enable us to further return capital to shareholders by Before I turn the call over to Ken, I would like to congratulate our team for winning the Best Production Technology Award in the recent World Oil Awards. Our HiRise Series ESP technology It's specifically designed to handle the dynamic production rates and challenging downhole conditions common to unconventional valves.
Let me now turn the call over to Ken to discuss our Q3 results and our Q4 outlook.
Speaker 3
Thank you, Soba. Good morning, everyone. Thank you for joining us today. I will be commenting on adjusted EBITDA for sequential and year over year We believe this metric best reflects the business performance of continuing operations. As seen on Slide 7, Q3 2022 revenue was $1,000,000,000 Up $89,000,000 on 2nd quarter or 10% sequentially and up 25% year over year.
Our 3 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 $34,000,000 of cross supply sales to Ecolab associated with post merger We do not recognize EBITDA margin on these sales and the associated revenue is allocated to 3rd quarter GAAP net income for the company was $23,000,000 or $0.11 per diluted share Versus $27,000,000 in the 2nd quarter $57,000,000 in the Q3 of 2021. 3rd quarter net income included a $68,000,000 accounting charge, primarily related The restructuring of our reservoir chemical technologies business announced last quarter.
As seen on slide 8, Champion X consolidated adjusted EBITDA for the 3rd quarter was 166,000,000 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 In the 3rd quarter, we delivered consolidated adjusted EBITDA margin of 16.3 percent, higher by 143 basis points sequentially and up 117 basis points over the Q3 of 2021. Our 3rd quarter free cash flow of $167,000,000 reflected our effective working capital management as we supported the strong top line growth of the business without Additional working capital investment. Cash from operating activities was $187,000,000 And capital investment net of disposal proceeds was $20,000,000 Turning to our business segments. Production Chemical Technologies generated 3rd quarter revenue of $644,000,000 Up 17% from the 2nd 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 $103,000,000 up 31% sequentially And 45% higher than the Q3 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 points sequentially and 140 basis points from the prior year's period.
We had strong revenue growth in the 1st 9 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 4th quarter. Production and Automation Technologies 3rd quarter segment revenue of $248,000,000 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 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 3rd quarter segment adjusted EBITDA was $2,000,000 up 7% sequentially and 30% year over year. Segment adjusted EBITDA margin was 21%, Up 101 basis points versus the 2nd quarter and 148 basis points from the prior year period, Primarily due to higher pricing. Drilling Technologies segment revenue was $61,000,000 in the 3rd 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 $17,000,000 during the 3rd quarter, flat sequentially Up 8% compared to the Q3 of 2021. Segment margin was 27% in the quarter, 243 basis points sequential decline driven by product mix and this cost associated with serving customers. Reservoir Chemical Technologies revenue for the Q3 was $35,000,000 a decrease 20% sequentially and a 7% decline year over year. As discussed on our 2nd quarter earnings call, After a strategic review, we decided to exit certain RCT product lines and the associated manufacturing capacity. This exit resulted in the revenue decline with an improvement to the profitability of the segment.
We recorded approximately $68,000,000 in non cash accounting charges during the 3rd 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 $3,000,000 during the Q3 versus an adjusted EBITDA loss in the 2nd quarter. This was a $2,000,000 increase compared to the corresponding prior year period. Segment adjusted EBITDA margin was 7 In the quarter, an 8 12 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 3rd quarter in a strong position With $187,000,000 of cash on hand and approximately $811,000,000 of total liquidity, Including our available revolver capacity. This liquidity was an increase of $71,000,000 versus the prior quarter At a record level of liquidity for our company, we paid down $51,000,000 in debt during the Q3 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 Q3, We returned 57% of our free cash flow to shareholders in the form of our $15,000,000 regular cash dividend And $80,000,000 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 4th quarter outlook, we expect further EBITDA and EBITDA margin rate improvement in the 4th quarter. We continue to target the company to exit the year in the 18% margin rate range, up approximately 170 basis sequentially and up 180 basis points on the 2021 exit rate. Specific to the Q4, we expect revenue including Ecolab cross sales in the range of $985,000,000 to $1,015,000,000 and adjusted EBITDA in the range of 176,000,000 To $184,000,000 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 4th 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.
Speaker 2
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 crew 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 and 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 multiyear energy upcycle progresses. I'm also pleased with the launch of our 1st annual sustainability report. We are looking forward to reporting our progress in this area in our future reports. With that, Let me thank all our 7,500 Champion X 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'm pleased to announce that we will hold our 1st 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.
Speaker 0
Thank you. We will now begin the question and answer And we have a question from David Anderson from Barclays. Please go ahead.
Speaker 4
Hi, good morning, Soma. On the production chemical side, the mix between the international North America market, as I think traditionally we've kind of thought about this as sort of fifty-fifty. Could you update us to kind of where we are today? You said you noted 19% sequential international growth this quarter. I think it was for the whole company, I'm assuming that was pretty much all chemicals.
So I guess what I'm wondering is assuming these trends hold in 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?
Speaker 2
Yes. Good morning, Dave. So, I mean, our Production Chemicals group, as you saw, drove a 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 when you think about North America, which is U.
S. And Canada for us when we define North America, particularly in 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.
Speaker 4
Is that better for margins? Is it worse? Is it better for Supply chain, just kind of curious how that potentially impacts your business?
Speaker 2
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
Speaker 4
that. Right, right. That makes sense. And then on the input cost side, You have kind of 3 primary inputs there on the chemical side. I think we're seeing a little bit of moderation in those costs.
Could you just kind of walk us through How are you seeing that? And then really kind of I guess what I'm really most curious about is how does this roll through your business? Like 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've signed in the last year, is pricing Tied to any index on cost, how does that work?
Speaker 2
Yes. So Dave, let me just walk you through a few points First, as we 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 it another way, we are not anticipating any raw material moderation In Q4 as the driver for achieving 18% margin. So that's the first point. The second point is, As you have rightly pointed out, if you look at our raw material input, so we have commodity based raw material inputs and non commodity Key based raw material inputs and non commodity based raw material inputs.
So the commodity based raw material inputs, 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 would be things like phosphates or silicon and time derivatives and those type of things. So we are seeing moderation in the commodity based raw materials. It's coming down since the commodity prices Come down. So the commodity based raw material constitute about 40% of our spend and they are they tend to be Larger spends within that 40%.
And so we have shared earlier items like methanol, gasoline, ethylene, Propylene, Xylene, these are the commodity based spend. But even though they are higher dollars, they constitute about 40% of our spend. The remaining 60% is a long list of small spend items. So those we are not seeing moderation. So 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.
So 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, We have net net, we have not assumed any raw material moderation. What really gives me a lot of 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, that's a it will be additive To what is already a very positive margin expansion story for us.
Speaker 4
But that pricing you just mentioned, that's not tied to any Index on those commoditized costs?
Speaker 2
Yes. We have contract specific contracts with specific suppliers. So it's a negotiated contracts. Now on the commodity side, it is mostly index based. The bigger purchases Sent to be index based.
On those, Dave, I would say that it is the raw material prices We'll move with the index on the commodity based items.
Speaker 4
Okay, great. Thank you, Soma.
Speaker 2
Sure.
Speaker 0
Thank you. Our next question comes from Scott Gruber from Citigroup. Please go ahead.
Speaker 5
Yes, good morning.
Speaker 2
Good morning, Scott.
Speaker 5
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 kind of Through the cycle, and I realize you have working capital swings, on an annual basis. But How do we think about kind of that clarifier? Is the true intent here to do 60% On an annualized basis, are you kind of keeping flexibility for M and A? I guess the big question is why not commit on an annualized basis To 60% minimum cash return?
Speaker 2
Yes. Scott, first and foremost, As you have seen, we have absolute commitment to return excess cash to the shareholders. And when you look at, for example, this year, right, over the last 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. Now the reason for at least 60% through the cycle is primarily a function of how the cycles unfold, Right.
So from a we are very focused and disciplined on the capital allocation, as you have seen. And the M and A opportunities are going to be small, and they're going to be strategic And tuck in type acquisition, which expands our organic growth profile or our technology Technology additions. So for us, we feel very comfortable with at least 60%. And You should expect us to do more if 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 the excess cash to the shareholders and that could be more. Got you. I appreciate the color.
Speaker 5
And 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? And then you mentioned getting the margins to an accretive Posture relative to the rest of the business, how quickly does that happen
Speaker 6
as you take
Speaker 5
Yes, some of the less profitable business lines out of that segment.
Speaker 2
Yes. No, great questions, Scott. So as we go through this, we are executing through the restructuring. And so as you what you should see is, as we progress through 2023, we should our margin 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.
Speaker 5
Got you. How do we think about revenues in kind of 4Q and And maybe 23, kind of what's the new kind of run rate there?
Speaker 2
In terms you're specifically I think about RCT on the revenue?
Speaker 5
Yes, I think there was a comment in the deck that there would still be lower revenues In 4Q, the outlook page? Correct. I'm just curious where RCT goes in 4Q.
Speaker 2
Yes. As you know, we don't give specific guidance, but it should be getting lower more closer towards the $30,000,000 range. Okay. Okay. Appreciate the color.
Thank you. Thank
Speaker 0
you. Our next question comes from Stephen Gengaro from Stifel. Please go ahead.
Speaker 7
Thanks and good morning everybody. So could you maybe talk a little bit about how we think about your production chemicals Revenue profile versus what's going on with sort of 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?
Speaker 2
Yes. Stephen, great question. And 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 drives the growth. So clearly, Pricing drives it.
Clearly, activity growth drives it and share incremental share gains drives it, right? But one of the factors that is less understood are not very visible is In higher commodity price environment, the customers' production programs We tend to focus more spend on production chemistry because the most important asset our customers have If they are producing Wow! So in a higher commodity environment, they want to make 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 chemistries. So that's one important element.
The second element is, If you look at the as a harder to treat oil continues to become more of the production because Easy to find easy to treat oils have taken have been taken. As we get towards more particularly more offshore or more shale, you are going to see more Production chemistry intensity into that, right? So that's the second part. The third part is depending on the region around the world, Depending on the region around the world, the number of wells which are actively being treated currently also varies. So that is so when you think about in a place like U.
S. Or North America, That percentage tends to be higher because there's more production program, the infrastructure is there, the service facilities are there To treat the wells and maintain them. But internationally as you go, the number of wells, Active production wells that are currently being treated with chemicals tends to vary. So there is a set of growth opportunities where producing wells, Actually producing wells going on to 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 in chemicals in this regions, Regions vary, right? That's the last. And then the final aspect On the production chemistry, yes, the production chemistry chemicals usage is also a function of Total liquids produced, right? 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 those water also needs to be treated.
More water and so those water also needs to be treated. So these are the finer elements or the next set of elements Drive production chemistry growth. And so that's why we have a long runway of production chemistry growth and it always grows in multiples Of the actual production growth. So we will detail this out in a much more deep dive In our Investor Day. Is that helpful?
Speaker 7
That's extremely helpful. Thank you. The other quick one And I'm not sure you can comment or not, but when you think about the share repurchase program, Is there a timeframe on the $750,000,000 I'm just sort of trying to kind of back into next year's free cash flow guidance a little bit, but Is there a timeframe and or just the execution going to be opportunistic over time?
Speaker 2
Yes. I mean, Stephen, if you look at what we have done this year, you should expect us to execute on this program, Right. We have demonstrated that. And as we have said in our prepared comments, we'll execute on the Q4. And we have also 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.
So we are very committed to that and systematically we We'll execute on that. The way we framed this is that You can think of it this way, right? If we given our strong cash flow generation, If we if there is no other use for our free cash flow, You can see us returning completing this program in a 2 to 3 year time period, right? So it's very realistic in the sense that what we are executing. We have $80,000,000 this quarter, right?
And as you go 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.
Speaker 7
Excellent. Thank you for the details.
Speaker 0
Thank you. The next question comes from Surat Pant from Bank of America. Please go ahead.
Speaker 6
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 committed to a time line to that, so maybe you can correct me if you did, right?
But How should we think about that, right? I think in the past you said it's more a function of volume than anything else, but it looks like mix and pricing are going to be drivers Right. So 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?
Speaker 2
Yes. Saurabh, I think your understanding is correct that we have not we did not put a Specific time line on that right now. But the way the key drivers behind the Production and Chemical margin expansion It's going to be obviously volume is 1. But the productivity we are executing On the business is also an important thing. Our particularly our supply chain organization In production chemicals, I've done an amazing job of executing operational productivity At a time when supply disruptions were really, really a major challenge.
So it's just they've done a great job of continuing to drive operational productivity. We have an example of that is we are digitizing our complete You know, field order fulfillment side, which drives significant amount of productivity. So Volume is important, one part of it, but productivity and then followed by pricing. We do expect continued net pricing next year in our Production Chemical business. So those are these these are the three factors that will drive.
And as our international Growth grows more that also the mix also helps in driving higher margin as well. So we are pretty excited about the positive margin expansion runway in this business.
Speaker 6
Okay. Cool, cool. And a follow-up 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 20s percent, a share under 30%. For context, right, just so that we understand what's driving that, right?
Can you help us dissect that a little bit in terms of how much of That is volume versus pricing. But then pricing, how much of that is pure pricing versus surcharges, because you would think surcharges would reverse at some point As inflation starts to go the other way around. So just for some context, what drove the high 20s percent Revenue growth for PCT in 2022?
Speaker 2
Yes. I mean, 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 In a qualitative sense, and I'll give you a little bit of color here. So from a 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, Right. Because many of the high value wells have to this is the consumable in the production, so they need that, Right.
So this is where the strength of Champion X 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 ships to the customers, and that has really given us a significant market share incremental market share And this kind 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 this share gains, which we have experienced, right?
So all this put together drives Kind of a strong growth you have seen in PCT. So to give you a 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. So and our PCT business is somewhat similar to that.
Speaker 6
Okay, okay. Perfect. No, so much. It's perfect context for that. So thanks for that.
If I can sneak in one more on the PAT side. So obviously, if you look within PAT, there are different businesses with different underlying drivers, I think 35% to 40% each within PAT as ESPs and then rod lift obviously different drivers Of those businesses, right? And I think the balance is digital and some of the other smaller production oriented service lines, right? So with that mix, How should we think about 2023? Let's assume North America BNC CapEx grows 20 Next year for round numbers.
How should we think about those three parts, ESPs, rod lift and then digital and everything else?
Speaker 2
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, right, 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 Lyft, right? So in an increasing D and The spending environment, our artificial lift portfolio will benefit from it.
What we have seen historically like 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 and C spending levels. And this is the another element of it as 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 the most efficient manner and with less downtime. So RodLifter benefited from that spending and also the conversion cycle that is going on.
You may remember, we talked about this conversion and our rod lift is continuing to benefit from that conversion as well. So you should expect, if there's going to be a strong B and C spending growth next year, you should expect our rod lift I mean, our Auto Vision Lift business will grow pretty strong in conjunction with that.
Speaker 6
Okay. Awesome. That's perfect. So it does make sense, right? You're an E and P, you invest in production.
That's going to be your highest return investment perhaps. So that makes sense. Okay, I'll return it back. Thank you.
Speaker 0
Thank you. And at this moment, we have no other questions in queue. I would like to turn the call back to Soma for final remarks.
Speaker 2
Well, thank you. Before we close out the call, I'd like to recap the key elements of Champion X as we look into the future. Strong organic growth combined with a positive momentum and runway in our margin expansion, the On free cash flow generation and our commitment to return at least 60% of our free cash flow to our shareholders, These are the key elements as we look into the future. And thanks for joining the call, And have a great day.
Speaker 0
Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now