The operator introduces the Baker Hughes Company Second Quarter 2024 Earnings Call and introduces the host, Chase Mulvehill. Mulvehill introduces the CEO, Lorenzo Simonelli, and the CFO, Nancy Buese. They discuss the company's strong second quarter results and highlight the excellent operational performance in the IET and OFSE segments. They also mention the company's solid seasonal recovery in the Eastern Hemisphere, portfolio resilience in North America, and efforts to drive cost efficiencies.

In the second paragraph, the company highlights their strong operational consistency and record-breaking orders in their IET and new energy sectors. They also secured major contracts and agreements, showcasing their versatility and success in the market. Additionally, their services backlog adds to their profitability and sets them apart from competitors. The company is on track to exceed their new energy guidance for the year.

Baker Hughes has secured major contracts in the Asia Pacific region, including a Gas Tech and Climate Tech Solutions contract and a strategic collaboration with Air Products. They have also been awarded contracts in Germany and the US for zero-emission equipment and services, including compression, pumps, and turbines. These projects demonstrate the company's ability to provide innovative solutions and realize synergies between their OFSE and IET segments. They have also received a significant award from Petrobras for workover and plug and abandonment services in Brazil.

In the second quarter, Baker Hughes delivered strong financial results, exceeding EBITDA margin guidance and showing significant cost productivity improvements. The multi-year project with Petrobras will utilize Baker Hughes' integrated solutions portfolio. The macro view shows that oil prices experienced volatility due to softer global demand and economic uncertainty, but Brent prices remained at an average of $85 per barrel with support from OPEC+ production cuts and rising geopolitical risk. The trajectory of global economic activity, inflation, and geopolitical risk will determine the oil price path for the rest of the year, while the return of OPEC+ barrels to the market will likely impact prices next year.

The company has revised its global upstream spending outlook for the year, with a slight decrease due to lower activity in North America. However, they still expect their North American revenues to outperform the market. They also maintain their expectations for high single-digit growth in international markets. Looking beyond 2024, they anticipate growth in Latin America, West Africa, and the Middle East. The company also has a positive outlook for global gas markets, with the IEA predicting a potential doubling of electricity consumption from data centers by 2026.

The demand for natural gas is expected to significantly increase in the future, with generative AI technology potentially adding to this growth. This will lead to a rise in LNG demand, with projections for mid-single-digit annual increases and an installed capacity of 800 MTPA by 2030. Recent trends in contracting offtake volumes and FIDs for LNG projects only increase confidence in the potential for future projects. Baker Hughes also has strong opportunities in aftermarket services for its growing installed base of equipment. In addition to LNG, the company's Gas Technology Equipment portfolio has been experiencing strong demand and success in various end markets.

In the first half of the year, the company has seen strong orders for non-LNG equipment and services, particularly in the Gas Tech Equipment sector. They expect this trend to continue and see a potential for their GTE business to capture a larger share of the non-LNG market, which is estimated to be worth $100-120 billion by 2030. The company has recently secured major infrastructure projects and anticipates continued growth in this sector due to increasing global demand for natural gas and LNG. They also expect strong orders for onshore and offshore production, specifically in the FPSO market. Overall, the company's business model allows them to capitalize on equipment cycles and leverage their installed base for sustainable revenue growth.

The market for FPSOs is expected to grow in the next few years, with a focus on Brazil and Guyana. There is also potential for growth in associated processing opportunities in the Middle East. In refining and petrochemicals, there is an increase in demand for bio-feedstock and ethylene and ammonia markets. The power sector is also experiencing growth, particularly in data centers and electric vehicles. Due to concerns about power shortages, there is an increased interest in turbo-machinery technology for behind-the-meter and off-grid solutions. The NovaLT turbines, which can run on natural gas or hydrogen, are a key component of this micro-grid offering.

The company is expecting growth in demand for their utility scale power solutions, steam turbine generators, and super-critical CO2 technology. They have also experienced growth in their BRUSH portfolio, which includes solutions for power generation, grid stabilization, and decarbonization. They are confident in their ability to meet their orders this year. The company is committed to reducing their operational emissions and helping their customers reduce their emissions intensity. They have sold zero emission products and have seen increased customer interest in their more efficient turbines and flare technology.

In the paragraph, it is mentioned that monitoring and controlling emissions is an important aspect of the company's operations. The company has developed efficient and environmentally friendly solutions for its customers, and has seen a significant increase in margins and returns in the past two years. The company's strong backlog conversion, effective supply chain management, and productivity improvements have contributed to a 25% increase in adjusted EBITDA. GAAP operating income was $833 million and adjusted operating income was $847 million, with a GAAP diluted earnings per share of $0.58.

In the second quarter, the company's earnings per share increased by 46%, excluding adjusting items. Corporate costs were down 20% since the company's transformation efforts began in 2022. The adjusted tax rate was approximately 30%, with potential for further improvement. The company had a strong order book and record RPO in IET. Free cash flow was $106 million for the quarter and the balance sheet remains strong. In the second quarter, the company returned $375 million to shareholders through dividends and share repurchases, and a total of $743 million in the first half of the year.

In the second quarter, Industrial and Energy Technology (IET) exceeded their EBITDA guidance for the second consecutive quarter due to strong performance in Gas Tech Equipment backlog. Orders for IET were also strong, with $3.5 billion in the quarter and $6.4 billion year-to-date. The versatility and differentiation of the IET portfolio has allowed the company to profitably grow with new customers and applications. Carbon capture and hydrogen-related projects have also contributed to solid order activity. IET RPO reached a record level of $30.2 billion, providing exceptional revenue and earnings visibility. Revenue for the quarter was $3.1 billion, a 28% increase from the previous year, primarily driven by a 59% increase in Gas Tech Equipment revenues. This will also lead to structural growth in the aftermarket service business in the future.

The company saw strong performance in their Cordant division, with a 5% increase in revenues and a 37% increase in EBITDA. They also saw good margin expansion in their Industrial Tech business, led by Cordant. In their Oilfield Services and Equipment segment, they maintained a strong margin trajectory and expect to achieve their 20% margin target for next year. They experienced continued growth in the Middle East and a strong recovery in the North Sea, but faced delays in rig reactivation in Mexico. In North America, growth was driven by project-related activities in the Gulf of Mexico.

In the first quarter, North America land revenues remained stable despite a decline in rig activity, thanks to the company's focus on production businesses. The OFSC segment saw a 13% increase in EBITDA, with a strong margin improvement of 144 basis points. This was a result of cost efficiency and productivity enhancements, as well as transformation efforts initiated in late 2022. The company is taking actions to drive sustainable margin improvement, including adopting a process mindset and focusing on supply chain optimization and service delivery. Commercially, they are remaining disciplined and focusing on profitable growth, with the goal of achieving 20% margins by 2026.

The company is making progress in reducing corporate costs and improving operations. They are optimistic about the future and expect strong results in the third quarter, particularly in their IET business. They anticipate a third quarter EBITDA of $1.2 billion and an IET EBITDA of $525 million, driven by backlog conversion and operational execution. OFSE is expected to see seasonal growth in international markets and stable activity in North America.

The company expects third quarter OFSC EBITDA to be $760 million, with factors such as 2024 E&P budgets, backlog conversions, cost initiatives, and international projects affecting the range. The full year EBITDA guidance has been increased by 5%, primarily due to strong IET performance. The company expects to end the year towards the high-end of their new energy orders range and maintain a strong IET order range. Backlog conversion and margin performance have led to an increase in the full year outlook for IET EBITDA by 12%. For OFSE, the EBITDA midpoint remains unchanged at $2.9 billion, with expected margin upside balancing out lower revenue expectations in North America. The company is confident in their ability to generate at least 20% EBITDA growth for the second consecutive year and is focused on executing their strategic plans. The company is pleased with their second quarter results and believes that their structural changes will continue to positively impact their financial performance.

Baker Hughes is focused on driving sustainable margin improvements and is on track to achieve 20% EBITDA margins in both OFSC and IET. They are confident in their plan to achieve these margins and have seen growth in multiple end markets. They also attribute their success to their people and strong culture. They had strong operating results and are continuing to work towards their goal of 20% margins for both segments.

Lorenzo Simonelli, CEO of the company, discusses the progress made by the team in terms of cost initiatives, operational enhancements, backlog conversion, and mix. He mentions the restructuring and streamlining processes that took place in 2022, as well as the continuous improvement and adoption of lean mindset in the IET segment. In the OFSC segment, the focus is on cost competitiveness, service delivery improvements, and profitable growth. The company is also committed to achieving margin expansion and reaching 20% margins in OFSE and IET by 2025 and 2026 respectively. Overall, Simonelli is confident in the team's ability to achieve these goals.

Nancy Buese, a representative from the company, explains that the company is making fundamental changes and putting in a lot of hard work to improve their margins. This effort is paying off, as seen in the 5% increase in EBITDA guidance and record EBITDA for the second consecutive year in the IET segment. The increase in guidance is mainly due to stronger revenue expectations and margin improvements in GTE and Industrial Solutions, driven by backlog conversion and cost efficiencies. There is also a higher margin backlog in GTE that is contributing to the overall improvement.

The Industrial Solutions division of the company is performing well due to supply chain optimization and higher volumes. The backlog and growth in equipment base is expected to drive even more growth opportunities for Gas Tech Services in the future. The division has seen a 50% growth in RPO over the past five years, indicating a strong portfolio and presence in various markets.

Gas Tech is a full life cycle business that focuses on providing services to customers for 20 to 30 years after the initial equipment sale. This aspect of the business is under-appreciated but provides long-term visibility and confidence in sustained growth. The company has a strong backlog and is following a razor-razor blade model. On the OFSE side, the company has outperformed its peers in the Eastern Hemisphere, particularly in the Middle East, and has good visibility on growth in markets such as Saudi Arabia and West Africa due to upcoming contracts.

During an earnings call, the company's CEO and CFO expressed their satisfaction with the company's performance in the second quarter, citing a 7% increase compared to the previous quarter. They highlighted the strong performance in international markets, specifically in countries like Suriname, Namibia, Guyana, Brazil, and the Middle East. They also mentioned slower but positive growth in the future, particularly in the areas of mature assets and brownfield opportunities. The company's CEO also discussed their leverage in the behind-the-meter market, which includes microgrids, off-grid solutions, and data centers.

Lorenzo Simonelli, CEO of Baker Hughes, discusses the company's role in providing gas technologies for solutions outside of large LNG projects. He highlights the increasing demand for continuous power supply, distributed power systems, and off-grid solutions, particularly in industries such as data centers, oil and gas, airports, and shipping. The company's portfolio of capabilities, including gas turbine technology, steam cabins, SMR solutions, and net power, positions them well for these opportunities. Nancy agrees with this assessment and asks for the company's outlook for the year.

The speaker is curious about the cash flow and wants to know the factors that contribute to either hitting the high end or being towards the low end of the range. The speaker acknowledges that free cash flow is lumpy from quarter-to-quarter and that the company does not provide quarterly guidance but has consistently landed within the 45% to 50% conversion range in the past 5 years. The speaker also mentions that the second half of the year typically has stronger free cash flow, but it is impacted by factors such as timing of collections and down payments. The speaker expresses confidence in the company's ability to achieve a 45% to 50% conversion rate for the year and a longer-term target of 50% or higher. The speaker also mentions the company's focus on returning value to shareholders through dividends and share buybacks. The next question is from an analyst asking about the company's cash flow.

Lorenzo Simonelli, CEO of Baker Hughes, discusses the growth of non-LNG orders in the company's Gas Tech division and the underlying drivers behind it. He affirms that LNG is still an important part of the company's business and expects it to come back in the future. He also mentions the strength of their orders in the first half of the year and their expectations for the rest of the year and into 2025. Simonelli highlights the breadth of their portfolio and their ability to provide the right equipment at the right time. He also mentions recent large orders for gas infrastructure and expresses confidence in their future prospects.

Lorenzo Simonelli, the CEO of Baker Hughes, discusses the potential for growth in the natural gas industry. He highlights the company's recent bookings and mentions the need for gas infrastructure in various countries. When asked about the outlook for 2025, he states that it is too early to provide details, but the company will continue to focus on growth and margin improvement.

The company expects to see continued international growth, with a rebound in North America in the second half of 2025. The focus will be on margin improvement and order momentum, with opportunities in LNG, gas infrastructure, FPSOs, and New Energy. The company's diverse portfolio allows them to provide solutions for a range of New Energy projects, from sub-surface to CO2 reduction and storage.

The speaker discusses the company's capabilities in both IET and OFSE, which allow them to play a unique role in projects such as Wabash. They mention that 50% of their New Energy orders this year have been on the CO2 side, and they see CCUS as a continuing trend. The speaker concludes by thanking everyone for joining the call and looks forward to speaking with them again.

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