The operator introduces the Baker Hughes Company First Quarter 2024 Earnings Call and the host, Chase Mulvehill, who introduces the CEO, Lorenzo Simonelli, and CFO, Nancy Buese. They discuss the company's solid first quarter results and their momentum from last year. They also mention the resilience of their order book and margin progress in both OFSE and IET, leading to strong year-over-year growth in EBITDA margins. The margin upside is attributed to IET, specifically Gas Tech Equipment and Industrial.

The company had a positive start to the year with over $2.9 billion of orders in the IET business, including significant contracts from Aramco and Black & Veatch. The OFSE business also received two significant contract awards from Petrobras. The company had strong first quarter operating results with 50% year-over-year EPS growth and exceeded EBITDA margin guidance. They also booked $239 million of new energy orders and generated over $500 million of free cash flow.

In the third quarter of 2023, IET EBITDA increased by 30% compared to the same period in the previous year, representing the best quarterly growth rate in three years and an 80 basis points improvement in EBITDA margin. This was driven by higher-margin equipment backlog, margin expansion in industrial tech businesses, and cost optimization efforts. OFSE also saw solid progress in margins, with a 80 basis points improvement and nearly 40% incrementals year-over-year. There were some delays in rigs coming out of maintenance, but the overall outlook for OFSE remains strong. The company has also increased its dividend and remains on track to deliver returns to shareholders. Oil prices have rallied since December of last year due to a resilient global economy, decline in US oil production, and OPEC+ production cuts. The future trajectory of oil prices will depend on factors such as OPEC+ decisions, global economic activity, and geopolitical risks.

The company maintains its outlook for drilling and completion spending in North America and international markets, with potential offsets to higher oil prices. They anticipate a decline in activity in U.S. gas basins, but modest improvement in oil activity. They also expect high single-digit growth in international markets, driven by offshore markets and mature asset solutions. The company's Leucipa digital solution is in high demand and they are optimistic about the long-term demand for natural gas and LNG.

The demand for natural gas is expected to increase by 20% through 2040 due to a growing focus on reducing emissions and transitioning to a net-zero energy ecosystem. Non-OECD Asia, which currently relies heavily on coal for power generation, is expected to see a shift towards natural gas. This will drive a minimal digit CAGR for both India and China, while the rest of Asia will experience low single-digit growth. The demand for LNG is also expected to grow, with a projected increase in nameplate capacity by 2030 and further capacity additions beyond that. While there may be price volatility, lower prices tend to drive stronger demand from price-sensitive consumers. Baker Hughes is well-positioned to benefit from this growth, particularly in the aftermarket services sector.

The company's LNG equipment accounted for less than 10% of their total EBITDA last year. They have seen positive developments in their five focus areas of new energy, including securing new orders for compression trains and integrated compressor technology. They are confident in achieving a tripling of new energy orders in 2021 and reaching their target of $6 billion to $7 billion in new energy orders in 2030. The company also hosted their Annual Meeting in Florence, where they discussed emerging themes in the energy sector.

The transition to renewable energy is complex and slow, leading to a growing urgency to decarbonize the energy system. Gas is seen as a crucial component in this transition, with many energy providers planning to increase their exposure to it. Baker Hughes is well positioned to facilitate this through their capabilities in upstream, LNG, and gas infrastructure. The recent shift towards gas in Saudi Arabia presents a significant opportunity for their business. Additionally, there are emerging gas infrastructure projects around the world.

Baker Hughes is confident that their non-LNG Gas Tech Equipment orders will increase by more than 50% this year due to midstream opportunities and a growing demand for artificial intelligence in the energy industry. They have been utilizing AI in their digital solutions for years and are well positioned to provide clean power solutions for the increasing demand for energy-intensive data centers. As the market scales, Baker Hughes is also prepared to provide larger scale solutions that include steam turbines and net power. The focus is shifting towards reducing emissions rather than just focusing on the fuel source, which is a trend that Baker Hughes has been promoting for years.

The alignment of the market towards the view of CCUS is encouraging and providing momentum for Baker Hughes' technology solutions. The company's portfolio of capture, compression, and storage solutions position them well to meet the increasing demand for CCUS. This, along with their diverse customer base, strong order levels, and operational improvements, gives confidence in their full year guidance and a strong year ahead.

In the first quarter, the company saw a 21% increase in adjusted EBITDA, exceeding their guidance range. GAAP operating income was $653 million and adjusted operating income was $660 million. Adjusted tax rate decreased to 29.7% and is expected to continue to decrease in the future. Total company orders and RPO levels remained strong, providing visibility for future revenue and earnings. Free cash flow was $502 million and the company aims for a 45% to 50% conversion rate for the full year. The balance sheet is strong with cash of $2.7 billion, a low net debt to EBITDA ratio, and $5.7 billion in liquidity. In the first quarter, the company returned $368 million to shareholders through dividends and share repurchases, and plans to continue returning 60% to 80% of free cash flow to shareholders.

The company has returned over $10 billion to shareholders since its formation in 2017 through dividends and buybacks. Their primary focus is to continue growing their dividend in line with the company's earning power. The Oilfield Services & Equipment segment had strong margins and met expectations despite seasonal declines in international markets. Orders for SSPS remained solid and the offshore market is expected to remain strong. Revenue for OFSE was up 6% year-over-year, with international revenue down 5% and North America down 3%. OFSE EBITDA was $644 million, slightly below guidance due to seasonal declines and slower activation of offshore rigs. The segment's EBITDA margin rate increased 80 basis points year-over-year due to cost efficiencies and improved execution. The Industrial & Energy Technology segment will be discussed on the next slide.

The IET segment performed well in the first quarter, exceeding the midpoint of their EBITDA guidance due to strong revenues and margins. Orders for IET were solid, with a significant increase in non-LNG Gas Tech Equipment orders. The segment also saw a 10% increase in RPO compared to last year. IET revenue and EBITDA were up significantly, with EBITDA margin improving by 80 basis points. The company is on track to achieve their 20% EBITDA margin target for both OFSE and IET.

The company is confident in achieving their targets for OFSE and IET in the next few years. The consolidation of segments in 2017 has led to a simpler and more cost-efficient structure. The company has been working on transforming their core and investing for growth. OFSE has shown the most visible success with margins expected to approach 18%. IET's margin progress has been slower due to strong growth in Gas Tech Equipment. The team is committed to executing their margin expansion strategy by instilling a more rigorous process-driven culture.

The company has implemented changes to improve operational discipline and focus on value over volume. They are confident in achieving 20% margins for the segment and expect strong performance in both business segments. For Baker Hughes, they anticipate increased revenue and EBITDA margins. For OFSE, they expect typical seasonal growth in international and stable activity in North America. For IET, they anticipate strong revenue growth and improved margins due to backlog execution and operational improvements.

Baker Hughes expects second quarter IET revenue and EBITDA to be between $2.8 billion and $3.05 billion and $425 million and $475 million, respectively. They maintain their full year 2024 guidance and expect strong EBITDA growth. They also maintain their full year forecast for OFSE revenue and EBITDA, with continued strength in international markets offsetting softness in North America land. They expect robust IET orders and maintain their full year guidance for IET revenue and EBITDA. Overall, the company remains confident in their ability to generate double-digit EBITDA growth through operational improvements and a strong portfolio.

Baker Hughes is pleased with their first quarter results and remains optimistic about the future. They have seen strong margin performance and are on track to achieve their 20% margin targets. The company has significantly improved their returns on invested capital and expects to see further improvement in margins, EBITDA, and returns. They also anticipate stronger free cash flow conversion and plan to return 60% to 80% of free cash flow to shareholders. Since 2017, they have already returned over $10 billion to shareholders and plan to continue this trend in the future.

Lorenzo Simonelli, CEO of the company, discussed the strong performance of the IET segment during the first quarter earnings call. He mentioned that the segment's margins were strong despite a headwind from more equipment revenues. He also highlighted the multiple drivers behind the strong performance and mentioned that the company is committed to achieving a 20% EBITDA for IET. Simonelli believes that the strong backlog conversion and productivity in the factories will continue to drive margins in the second half of the year.

The IET division of the company saw positive results in the first quarter, with revenue and margins improving in the Bently Nevada and Gas Tech services despite supply chain constraints. The company remains focused on its strategy for production solutions, as 70% of the world's production comes from mature assets. The competition's recent move does not change the company's strategy, and they continue to see potential for growth in the production vertical.

Lorenzo Simonelli, CEO of Baker Hughes, discusses the company's outlook on the international market, stating that E&P spending is expected to increase by high single digits this year. He also mentions the recent reduction in the Saudi MSC and how it will not have a significant impact on Baker Hughes. In fact, he sees it as an opportunity for the company, particularly in the areas of natural gas production, infrastructure spending, chemicals, and new energy. He also mentions the recent opening of a new chemicals facility in the Kingdom and the potential for future projects in the region.

Baker Hughes is experiencing a shift in their capital expenditures towards new energy sources, such as hydrogen. This shift will have a positive impact on their long-term outlook and does not change their previously stated forecast for the year. The company's second quarter guidance is above expectations, driven by their differentiated portfolio and strong backlog levels. They are also seeing growth in their industrial technology sector and a focus on cost reduction. Despite the impact of equipment growth, the company is still expecting margin expansion.

The company's slower start to the year in the OFSE sector has been offset by a stronger than expected recovery in Q2 due to delayed product shipments and rigs coming out of maintenance. The company is confident in its full year guidance and plans to monitor the situation closely. On the non-LNG side, the company has seen a 50% increase in orders this year, with a significant portion coming from the MGS3 award and the offshore sector. The company expects this trend to continue.

The non-LNG sector is an important part of the company's portfolio and has shown significant growth in the first quarter. It includes equipment and solutions for various end markets such as upstream, midstream, refining, petrochemical, and pipelines. The company's versatile equipment is also used in onshore/offshore production, compression, power generation, and the Master Gas System. With the increasing demand for gas, there is a growing need for the company's equipment in the non-LNG sector, including industrial gas turbines and other products such as pumps and valves. The company has also recently been awarded a contract in Saudi Arabia and is differentiated from its competitors in both the IET and OFSE sides.

The speaker discusses the opportunities for Baker Hughes in the oil and gas industry in Saudi Arabia, particularly in displacing oil-driven power with natural gas. They also highlight the company's focus on localization and manufacturing in the country as a key advantage. This allows them to support the region and their customers more effectively, and also positions them well in other Middle Eastern countries. The company's ability to play across the full value chain of the energy ecosystem is seen as a unique strength.

Lorenzo Simonelli, CEO of GE, discusses the increasing demand for energy and the shift towards focusing on emissions rather than fuel source. This has put carbon capture, utilization and storage (CCUS) at the forefront, and GE has been investing in CCUS capabilities. Their order intake for new energy projects last year was largely associated with CCUS. GE has a variety of CCUS technologies, including the chilled ammonia process for large-scale applications and the mixed salt process for smaller industrial applications. They are also testing and piloting Mosaic materials for direct air capture. GE also has compression and storage capabilities for CO2.

The speaker discusses a common trend in projects where there is an increasing focus on emissions rather than fuel source. They also mention the growing demand for energy driven by data centers and the need for solutions that can switch between natural gas and hydrogen. Data center developers are also realizing the need for off-grid and distributed power generation to reduce emissions.

Lorenzo Simonelli, CEO of Baker Hughes, discusses the company's outlook for its Industrial Tech segment, which includes opportunities in geothermal and other areas. He also mentions that the company is on track to meet its annual order guidance, with a strong focus on LNG equipment. He remains confident in the company's orders range for 2024, with a strong pipeline of activity in gas infrastructure and new energy.

Nancy Buese, CFO of the company, discussed the drivers behind the company's goal of reaching 20% EBITDA margins next year. She mentioned productivity, cost, and volume as key factors, and expressed confidence in achieving this target. The company has a cost-out program in place and is focused on becoming more efficient. Additionally, higher margin activity in the backlog will contribute to reaching the target. The company remains committed to this goal and does not require market tailwinds to achieve it. CEO Lorenzo Simonelli thanked everyone for joining the call and the operator ended the conference.

The paragraph is giving permission for everyone to disconnect and wishes them a great day.

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