The operator introduces the Baker Hughes Third Quarter 2023 Earnings Conference Call, and the host, Chase Mulvehill, introduces the Chairman and CEO, Lorenzo Simonelli, and CFO, Nancy Buese. The company's earnings release and presentation can be found on their website. Simonelli discusses the company's strong third quarter results and positive outlook, with strong orders and operating performance. They also received large awards in the LNG and subsea sectors and generated significant free cash flow.

Despite global uncertainty, our portfolio is performing well. Oil prices have rebounded and are expected to continue to tighten the market. We are confident in our 2023 outlook and expect international and North American drilling and completion spending to increase. This cycle is expected to be more durable and less sensitive to commodity price swings. Higher carbon prices are also providing positive momentum for operators' development plans. In the offshore market, we have been awarded 21 subsea trees, expanding our presence in offshore Angola. Our OFSE sector also saw growth in the North Sea with two major contracts secured.

Despite a soft economy, the global LNG market remains tight with recent price spikes and record levels of demand. This is due to strong utilization rates and limited new capacity coming online. Looking ahead, demand is expected to continue to grow, keeping the market at strong utilization levels. This has led to healthy LNG prices and sustained off-take contracting. Recently, the company received an order to provide additional equipment for a project in the United Arab Emirates.

Baker Hughes has announced a new contract for their electric motor technology to be used in the Ruiz-LNG project, making it one of the first all-electric LNG projects in the Middle East. This is part of their strategic commitment to provide lower carbon solutions. They have also secured other orders for their electric machinery portfolio. The LNG project pipeline remains strong and they expect to see similar levels of FID activity in the coming years, with a projected global LNG-installed capacity of 800 MTPA by 2030. Baker Hughes has been selected for the majority of new LNG capacity projects since 2017.

The company has several projects coming online in the next few years, leading to a 50% increase in their global liquefaction base. They believe natural gas is a crucial energy source for the future, as it is abundant, low-carbon, and versatile. The company predicts that primary energy demand will continue to grow, but it is essential to meet this demand with affordable and reliable energy. They also note that coal is still heavily relied upon in the energy mix, especially in Asian countries, and natural gas presents an opportunity to replace coal as a base load energy source. The company's customers' long-term spending plans are starting to reflect this shift towards cleaner energy sources, providing opportunities for the company to be an integrated solutions provider.

Baker Hughes is committed to transforming their core business to improve margins and returns while also investing for growth and positioning for the energy transition. They have a strategic framework in place to deliver sustainable value for shareholders and stakeholders. In the first time horizon (through 2025), they will focus on margin accretion through organizational simplification, operational discipline, and asset and people productivity. They are well positioned to benefit from macro tailwinds in natural gas and LNG growth and increased upstream spending. They will also work on transforming their business and developing their new energy portfolio and digital offerings. Their goal is to achieve 20% EBITDA margins in both OFSE and IET by 2025 and 2026, respectively.

In the second horizon of their strategic plan, Baker Hughes will focus on investing in new energy and industrial sectors, while also leveraging their Gas Tech services and digital businesses. They expect spending in upstream and natural gas to continue growing at a slower rate, with a greater emphasis on efficiency gains and emissions reductions. They aim to exceed their ROIC targets and drive margin expansions. In the third horizon, they plan to compete in new energy frontiers and expect decarbonization solutions to be a fundamental component in energy projects. They anticipate significant growth in new energy orders by 2030. The company has experienced positive momentum in both OFSE and IET during 2023.

The international and offshore markets are driving strong growth in the OFSE industry, with LNG activity and operational improvements leading to record orders and strong performance for the company. The third quarter results exceeded expectations, with high adjusted EBITDA and strong orders for both business segments. New energy orders are also on track to meet targets. The company has strong earnings visibility and free cash flow conversion is at a high level.

In this paragraph, the company discusses their target free cash flow conversion and their strong balance sheet. They also mention their capital allocation strategy, including increasing their dividend and repurchasing stock. The business segment results for oil-filled services and equipment are also discussed, with strong performance in SSPS and resilient performance in North America. Orders and revenue for the segment were above expectations, with strong momentum in offshore project awards. International revenue, excluding SSPS, was up 1% sequentially.

In the third quarter, excluding SSPS, North America revenue increased by 4% sequentially, with strong performance in offshore and a slight decline in land revenues that still outperformed the US land rig count. OFSE EBITDA was $670 million, up 5% sequentially and 27% year-over-year, with margins increasing by 60 basis points and 140 basis points, respectively. The industrial and energy technology segment also exceeded expectations, with record orders of $4.3 billion, driven by robust LNG awards. IET revenue for the quarter was $2.7 billion, up 37% year-over-year, and EBITDA was $403 million, above the guidance midpoint of $385 million.

The EBITDA margin for Baker Hughes decreased due to higher equipment mix and increased R&D spending for new energy investments. The company announced a realignment of their product lines to improve margins and provide transparency for their climate technology solutions business. The company expects significant growth in their structural IET business, driven by LNG equipment orders and services, which will result in strong earnings and returns visibility through 2030.

Baker Hughes is seeing growth potential in three areas: LNG, industrial solutions and products, and new energy. They are focusing on providing integrated solutions and simplifying their industrial hardware capabilities in order to improve profitability. The company is also optimistic about their outlook for both OFSE and IET segments, with expected revenue and EBITDA ranges for the fourth quarter and full year.

The company expects strong revenue and EBITDA growth for both Baker Hughes and IET in 2023, with increased expectations for orders in IET. They also anticipate typical year-end growth in international revenue and a decline in North America for OFSE. Detailed 2024 guidance will be provided in January, and the company remains optimistic for continued growth and operational enhancements in the future.

Baker Hughes remains focused on navigating supply chain challenges and economic uncertainty as they continue their transformation journey. They are seeing progress in driving efficiencies and reducing costs, and are committed to achieving their targets for EBITDA margins and ROIC. Despite the uncertainty of the energy transition, their diverse portfolio positions them for growth in both traditional and climate technology solutions. This makes Baker Hughes less cyclical and set for solid growth regardless of the pace of the energy transition.

The company is laying the foundation for future growth and shareholder returns. The call is opened for questions. The IET order outlook and guidance has been raised by $3 billion since the beginning of the year. The company expects continued strength in LNG orders, with $4.8 billion already booked and more expected in the fourth quarter.

The speaker is pleased with the increase in electrification and use of electric motors in their brush division, as well as the strength in onshore and offshore production. They expect a good fourth quarter with larger FPSO orders and anticipate continued offshore activity. In the new energy sector, they have already exceeded their forecast and expect to see more orders in the fourth quarter. They remain confident in reaching their goal of $6-7 billion by the end of the decade. Looking ahead to 2024, they see a strong pipeline of project opportunities in LNG, including both brownfield and greenfield projects, in the US Gulf Coast and internationally, and in both modular and stick build projects. They believe that natural gas will play a significant role as a transition and destination fuel, and they have a goal of 800 mTPA of installed LNG capacity by 2030. So far, there have been 53 mTPA of FIDs in 2023, and they have already booked 80 mTPA in orders.

In the third quarter, GE's IET results exceeded expectations despite concerns about air derivative tightness. GE has been managing this issue well and has already incorporated it into its guidance. The company is experiencing challenges in the air derivative supply chain, but expects improvements over the next 12 months. There is potential for upside once this issue is resolved.

Lorenzo Simonelli and Nancy Buese discuss the challenges in the aerospace supply chain and how they are addressing them. They also mention that supply chain challenges were considered in their 2023 guidance and will continue to be considered in 2024. James West asks about the horizon strategy and how it informs the overall strategy for Baker. Lorenzo and Nancy explain that the horizon strategy has informed their approach and will continue to do so in the future.

Lorenzo Simonelli discusses the company's strategy and how it has evolved in response to changes in the energy markets. The first time horizon, through 2025, focuses on enhancing margins and operational efficiency, while the second horizon, through 2027, shifts to growth in new energy and industrial sectors. The company aims to exceed its EBITDA margin and ROIC targets during this time. By 2030, the company expects to see significant growth in the new energy sector.

The speaker mentions the increase in orders for the company in the new energy sector, including in areas such as CCUS, hydrogen, clean power, and geothermal. They believe that emissions management will be a key factor in the energy transition and that the company is focused on operational discipline. The speaker also mentions the recent announcement of hydrogen hubs by the DOE and the company's optimism in being able to differentiate themselves in this growing market.

The speaker discusses the company's 20% EBITDA margin target for its IET segment and the potential challenges in achieving it. They mention the strong pipeline and the mix of services versus equipment as the main drivers of margin expansion. They also note that services have a higher margin than equipment.

The company is focused on achieving a 20% margin through cost-cutting, operational efficiency, and improvements in industrial tech margins. They expect supply chain and chip shortages to normalize and are investing in climate tech for the future. The margin expansion will be gradual and may be lumpy due to unpredictable equipment orders and services revenue. The company is confident in their ability to reach the 20% margin and will provide guidance on their progress.

The speaker asks about the backlog conversion for Gas Tech equipment and how it has improved this quarter compared to last year. They also ask about the company's plans to speed up backlog conversion and how the energy transition may affect their LNG and upstream business in the long term. The speaker responds by stating that they have improved their processes and are confident in their ability to handle the increased orders. They also mention that the energy transition is complex and some companies are pulling back, but their business is set up to benefit either way.

In response to a question about the complexities of technology driving the transition to a low carbon economy, Lorenzo Simonelli, CEO of the company, acknowledged that the transition will take time and will be gradual. However, he emphasized that the company is well-positioned to benefit from the growth opportunities in the new energy market, with a potential 10X increase in order intake over the next seven years. He also mentioned that existing technologies will be leveraged to tap into this market.

Lorenzo Simonelli, CEO of the company, is confident in their ability to deliver on their projected revenue of six to seven billion. They have been investing in R&D and are prepared for this growth, particularly in the compression and turbo expander areas. They also see potential in clean power generation and hydrogen, as well as existing equipment that is already hydrogen ready. Nancy Buese, CFO, explains that their capital allocation will focus on returning 60% to 80% to shareholders, with the dividend increasing over time and share buybacks being opportunistic.

The company plans to increase its dividend and return to shareholders as it moves towards more stable and secular growth. They also expect solid upstream spending growth next year, with double-digit growth in international spending. Their LNG services business currently accounts for about 35% of their overall services business.

The company offers services for all its applications and equipment in the downstream pipeline, with 35% of services dedicated specifically to LNG. The call ended with apologies for technical difficulties.

This summary was generated with AI and may contain some inaccuracies.