The speaker, Chase Mulvehill, introduces the Baker Hughes Company Fourth Quarter 2023 Earnings Call and introduces the company's Chairman and CEO, Lorenzo Simonelli, and CFO, Nancy Buese. He reminds listeners that the call is being recorded and directs them to the company's website for more information. Simonelli then discusses the company's successful cost-cutting measures and realignment of its IET business, as well as their record-breaking financial performance in 2023. He also mentions their strategy to transform their operations and their strong returns.

In 2023, the company saw a significant increase in adjusted diluted earnings per share and free cash flow, with a 14% increase in total company orders. This was driven by strong market conditions and operational improvements since 2022. The fourth quarter also saw strong results, with adjusted EBITDA and free cash flow exceeding expectations. The company remains optimistic about its future, despite a recent weakening in oil prices and uncertainty in global economic conditions.

The supply side of the oil and gas industry faces the risk of non-OPEC supply surpassing demand, which could lead to OPEC+ maintaining current cuts until the end of 2024. This may result in a deceleration of international D&C spending. However, the international cycle remains healthy and the offshore market is expected to maintain strong activity levels. In North America, activity is not expected to recover significantly in the first half of the year due to factors such as a volatile commodity price environment and sector consolidation. In OFSE, Baker Hughes secured two major contracts and in the offshore market, they were awarded additional subsea tree contracts. LNG is also discussed on Slide 7.

The long-term outlook for the global LNG market remains strong, with prices remaining at relatively high levels compared to historical averages. Global LNG demand reached record levels in 2023, with a 4% increase year-over-year. The market is expected to remain tight in 2024, with a 2% increase in demand and limited new capacity coming online. This is further supported by the growth in coal demand, which presents opportunities for LNG to replace coal in the energy mix in Asian countries. In the fourth quarter, the company was awarded a contract for a large LNG project in the United Arab Emirates.

Baker Hughes is set to provide electric motor technology for the Ruwais LNG project in the Middle East, making it one of the first all-electric LNG projects in the region. The company has booked a significant amount of LNG orders for 2023, with a strong outlook for FIDs in the coming years. By 2030, global LNG installed capacity is expected to reach 800 MTPA, providing growth opportunities for Baker Hughes' Gas Tech equipment and services. The company also participated in COP28, where there was increased representation and participation from energy companies.

The conference has made key commitments to double energy efficiency improvements, reduce methane emissions and phase out coal power. Progress has also been made in the US with methane standards and hydrogen tax credits. The energy transition will be challenging but Baker Hughes is pursuing an all-of-the-above strategy to decarbonize the planet. The IEA estimates a large investment opportunity in clean energy, compared to fossil fuels. Baker Hughes is focused on executing their strategy in the coming years.

The company is focused on unlocking its full potential and simplifying its operations. They are committed to developing and commercializing their New Energy portfolio and evolving their digital offerings. The company also has a strong presence in various energy and industrial markets, including LNG and Gas Tech, with significant growth opportunities in the near future. They have seen exceptional growth in segments such as FPSO markets and onshore gas processing and pipelines. Additionally, their Gas Tech Services division generates a significant portion of revenue from transactional and upgrade services for rotating equipment used in various sectors.

The Gas Tech Services revenue is primarily driven by LNG, but the company sees significant growth opportunities in non-LNG markets such as industrial tech, industrial products, and new energy markets. The company plans to leverage its core technologies and expects solid revenue growth and improved margins in both OFSE and IET segments in the coming years.

The company had a successful year, with record orders in IET, strong revenue growth, and the full benefit of a cost-cutting program. Adjusted EBITDA for the fourth quarter was above expectations, with strong margin performance in both segments. Total company orders and RPO levels were at record levels, providing revenue and earnings visibility for the future. Free cash flow was also strong, exceeding expectations and resulting in a high conversion rate from adjusted EBITDA. The company is targeting continued strong cash flow conversion in the future.

The company's balance sheet remains strong with a high cash balance, low debt ratio, and significant liquidity. In 2023, they returned over $1.3 billion to shareholders through dividends and buybacks, and plan to continue returning 60-80% of free cash flow to investors. The oilfield services and equipment segment performed well, with margins exceeding expectations and high orders expected to continue in 2024. Revenue for the segment was up 11% year-over-year.

Excluding SSPS, international revenue increased by 2% sequentially due to strength in Latin America and Sub-Saharan Africa, while North America revenue declined by 3% due to a decrease in North America land. OFSE EBITDA was $709 million, up 6% sequentially and 16% year-over-year, with a margin rate of 17.9%. Industrial and Energy Technology also performed above expectations, with orders of $3 billion and a Gas Tech margin that exceeded expectations. IET revenue for the quarter was $2.9 billion, up 24% from the previous year, and EBITDA was $463 million, surpassing the guidance midpoint.

In 2023, Baker Hughes saw a decrease in EBITDA margin due to increased R&D spending for new energy investments. However, the company has undertaken significant structural changes to drive cost efficiency and has plans to continue their transformation journey. They are focusing on operational excellence, eliminating duplication, and improving execution to achieve 20% margins by 2025. The company has also begun synchronizing systems and streamlining processes to ensure success in the future.

Baker Hughes is focusing on efficiency gains and improving data to achieve structural margin improvements. They are also prioritizing meeting the needs of customers who are increasingly looking for integrated solutions to reduce emissions. Collaboration between the OFSE and IET commercial teams is crucial for unlocking the full potential of their service and technology portfolio. The outlook for both business segments remains strong, with expected tailwinds and operational enhancements driving sustained improvement in backlog execution and margins. For the first quarter, Baker Hughes expects revenue between $6.1 billion and $6.6 billion and EBITDA between $880 million and $960 million. For IET, they anticipate seasonal declines but with improved linearity, and expect revenue between $2.4 billion and $2.65 billion and EBITDA between $340 million and $380 million. The pace of backlog conversion in Gas Tech Equipment and any supply chain issues in Gas Tech will be major factors in this range.

The first quarter results for OFSE are expected to reflect a seasonal decline in international revenues and a slow start in U.S. land markets. For the full year, Baker Hughes expects revenue between $26.5 million and $28.5 billion and EBITDA between $4.1 billion and $4.5 billion. New Energy orders are expected to triple since 2021, while IET orders are expected to remain robust. Full year IET revenue is forecasted between $10.75 billion and $11.75 billion, while OFSE revenue is expected to be between $15.75 billion and $16.75 billion. Overall, 2023 was a strong year for Baker Hughes, and 2024 is expected to continue with double-digit EBITDA growth.

The company is focused on achieving their guidance for 2024 and their margin targets for 2025 and 2026. They are proud of their progress and excited about the future. They have a strong technology portfolio that will drive growth and a balanced portfolio that will generate durable earnings and free cash flow. They remain committed to their employees, customers, and shareholders.

Lorenzo Simonelli, CEO of IET, discusses the versatility of their portfolio and the various end markets they serve, including upstream, midstream, refining, petrochemical, industrial, aerospace, and automotive. While their LNG business is a focus, they also see growth opportunities in other areas such as onshore and offshore production, petrochemicals, and their new Nova class of equipment and digital solutions. They expect to see continued growth in these areas in the coming years.

The company has a versatile IET portfolio that will provide significant growth opportunities in underserved markets. The New Energy business has seen a significant increase in orders and is expected to continue growing. The biggest demand is in carbon capture technologies, direct air capture, hydrogen, geothermal, and emissions management. The company's total addressable market for New Energy in 2030 is estimated to be between $60 billion to $70 billion, with a goal to book $6 billion to $7 billion of orders by 2030.

In the paragraph, the speaker discusses the company's outlook for 2024, focusing on the expected increase in margins for the OFSE and IET segments. They mention the strong performance in 2023 and the potential for further cost optimization initiatives to drive margin improvement in 2024. The OFSE business is expected to average 20% EBITDA margins in 2024.

The company is facing uncertainty due to macro and geopolitical factors, as well as supply chain issues. They are taking a cautious approach to their 2024 guidance, but are confident in their numbers. They also mention their 20% EBITDA margin targets for OFSE and IET in 2025 and 2026, which they are committed to achieving through various actions.

The company is taking several actions to streamline its cost profile and increase margins. This includes removing costs from the OFSE and IET businesses, converting higher-margin backlog, improving productivity and simplifying the business. The goal is to achieve a 20% margin rate by 2025 for OFSE and 2026 for IET. The company is confident in its progress and plans for both segments.

The company is focused on increasing margins and returns to create more value for shareholders. They expect another strong year of orders, with a significant amount coming from LNG projects. However, they also anticipate growth in non-LNG orders, particularly in onshore/offshore production and services. They have seen a strong year in services and expect this momentum to continue as projects near commissioning.

Lorenzo Simonelli, CEO of CTS, discussed the company's new energy and Industrial Tech orders, expecting $800 million to $1 billion in orders. He also mentioned that the IET order outlook remains strong and their projected $12.5 billion in orders for 2021 would rival their second biggest order year in 2022. Simonelli also addressed concerns about delays in the permitting process for new LNG export projects in the U.S., stating that while there may be some uncertainty, he is confident that it will not have a detrimental impact in the long-term.

Lorenzo Simonelli, CEO of Baker Hughes, discussed the company's international projects in the LNG sector, which remain strong in the Middle East, Africa, and Southeast Asia. He also mentioned that the supply chain for aeroderivatives is still tight, but the company is managing it and it will not impact their results. Nancy, the CFO, added that they have taken steps to make Baker Hughes a leaner organization and have already cut $150 million in costs.

Nancy Buese, the speaker, discusses the company's focus on operational excellence, execution, and continuous improvement. They achieved their cost-out goal of $150 million last year and have begun working on streamlining processes and systems to create efficiencies. They also have discrete projects, such as reducing their tax rate, that will have a meaningful impact on earnings. The company is committed to ongoing improvements and investments to set themselves up for success in the future.

The company has taken steps to improve efficiency and reduce costs in its OFSE business. They are not setting a new cost target, but instead focusing on margin improvements. The company believes there will still be opportunities for LNG projects internationally, even if there is a slowdown in U.S. approvals. They have a range of solutions for LNG and will continue to monitor the situation.

The speaker discusses the international opportunities for the company and the expected growth in the installed base of non-LNG equipment over the next 5 years. They also mention the potential for service opportunities in different industrial segments and the success of their digital solutions. The speaker then addresses a question about the LNG award expectation and explains that there is a wide range in the IET order guidance due to this factor.

The speaker discusses the company's expectations for LNG projects in 2024 and how it factors into their guidance for the year. They mention that they are only counting on projects that have already been FID-ed and that there is potential for additional growth from other projects. The speaker also addresses a question about the company's tax rate and mentions that they are working towards a lower rate in the low-20%. They acknowledge the complexity of their structures and contracts and the importance of improving their tax rate for earnings.

The speaker is personally invested in bringing down a certain rate and the company is working hard to achieve this goal. They are looking forward to the future and are committed to meeting their guidance. The call has ended and participants are thanked for their participation.

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