In the third quarter 2024 earnings call for Baker Hughes, Chase Mulvehill, the Vice President of Investor Relations, introduces the presentation and provides an overview of the earnings release. Lorenzo Simonelli, the Chairman and CEO, highlights the company's strong performance, noting a record quarterly EBITDA and consistent year-on-year EBITDA growth of at least 20% for three consecutive quarters. The EBITDA margins have improved significantly, reaching 17.5%, the highest since 2017, reflecting substantial margin expansion across both company segments and progress toward their target of a 20% EBITDA margin.

During the quarter, Baker Hughes achieved strong company orders, including $2.9 billion from Industrial & Energy Technology (IET), marking the eighth consecutive quarter at or above that level. The company also recorded significant free cash flow of $754 million. Baker Hughes is becoming less cyclical and is enhancing its capacity for generating stable earnings and cash flow. The company highlighted recent achievements, including new key contracts and technological advancements such as FPSO orders, compressor supply contracts, and an LNG facility service agreement. Gas Technology Services booked over $600 million in service agreements, while new energy orders reached $287 million in the quarter, with expectations to exceed $1 billion in orders for the year.

The paragraph discusses recent achievements and initiatives in climate technology and oilfield services. Highlights include a significant contract to supply zero-emission compressor units to Dubai Petroleum as part of the UAE's decarbonization strategy and ongoing success in Brazil with Petrobras, including contracts for flexible pipe systems and multi-year service agreements in the Santos Basin. The company observes increased investments in optimizing recovery from existing fields, boosting demand for mature asset solutions. They secured a multi-year well intervention contract in the Middle East and report progress in digital solutions with increased use of Leucipa, an automated field production tool, by a major global operator. A new collaboration with Repsol aims to enhance AI capabilities for Leucipa, and a new product, CarbonEdge, was launched at the Gastech Conference.

The paragraph discusses a digital solution that provides real-time data on CO2 flows within CCUS infrastructure, helping customers enhance efficiency and compliance. It emphasizes the growing global energy demand, projected to increase by 10% by 2040 due to population growth and rising energy use in developing nations. Despite the anticipated growth in renewables, the paragraph argues that multiple energy sources will be necessary to meet demand and lower carbon emissions. It highlights natural gas as a preferred option due to its abundance, low cost, and lower emissions, predicting a 20% rise in demand for natural gas and a 75% increase for LNG by 2040, which presents opportunities for Baker Hughes.

The article discusses the rising demand for gas infrastructure equipment, driven by developing economies increasing their use of natural gas for power generation and industrial applications. There is a projected need for 800 MTPA of LNG liquefaction capacity by 2030, with ongoing construction of over 200 MTPA. While oil demand growth is expected to moderate, OpEx spending may increase due to a shift from greenfield to brownfield projects. The company is focusing on mature asset solutions to optimize production in mature fields and emphasizes the importance of lowering emissions through energy efficiency and decarbonization technologies. The company's new energy portfolio includes CCUS, hydrogen, geothermal, clean power, and emissions abatement technologies. They anticipate improved project economics and policy support will drive decarbonization technology deployment, aiming to meet a 2030 orders target of $6 to $7 billion by enhancing efficiency and reducing emissions in their equipment.

The paragraph discusses Cordant's increased digital adoption to improve asset performance and efficiency. Despite uncertainties in the oil market due to global economic factors and geopolitical tensions, their global upstream spending outlook remains unchanged for this year. While North American spending is expected to decrease slightly, international markets anticipate high-single-digit growth. Looking ahead to 2025, factors like rising North American and deepwater production, alongside planned OPEC+ increases, may soften oil fundamentals, though Middle East tensions could add volatility. The company will update its 2025 guidance in January and expects global upstream spending in 2024 to be similar to this year. As the upstream cycle progresses, there will be growth opportunities in optimizing production from existing assets.

The paragraph discusses the company's strategic focus and growth outlook across its oil and gas services and equipment (OFSE) and industrial energy technology (IET) portfolios. It highlights the company's strengths, including its experience, knowledge, and technology, and notes that by 2030, most of the world's oil and gas will come from mature fields. There is strong growth in natural gas, driving demand for related products and solutions, with LNG off-take contracting expected to exceed previous records. Demand for gas infrastructure projects remains robust, and non-LNG gas technology equipment orders are expected to double. The company anticipates continued growth in new energy projects and stable earnings and cash flow from its diversified portfolios, emphasizing the recurring revenue from IET's equipment and services lifecycle.

The paragraph discusses the company's approach to collaborating with customers from the project's design phase to select suitable equipment and create effective maintenance plans, focusing on safety, reliability, and efficiency. This collaborative approach enhances visibility into future equipment orders and provides long-term revenue through aftermarket service agreements, which often surpass the initial equipment sales in value due to high-performance guarantees and customer loyalty. Additionally, the company capitalizes on upgrade opportunities to prolong equipment life and improve performance. They are investing in new technology and advanced service solutions, incorporating AI and extensive data, to meet increasing demand and provide innovative solutions, securing further growth.

The paragraph discusses the company's iCenter facilities, which enhance operational performance and asset efficiency while reducing emissions. The company provides differentiated industrial services through gas technology, leading to higher-margin revenue. Their serviceable equipment base in various markets has doubled since 2000, resulting in a significant revenue increase. The company anticipates a further 20% increase in this base by 2030, driven by a solid equipment backlog and positive order outlook, positioning them for structural revenue growth in their Gas Technology Services. Additionally, Amerino Gatti joins as Executive Vice President of OFSE, expected to help achieve their 2025 EBITDA margin targets.

In the company's third-quarter results, they achieved record EBITDA and margins, highlighting strong operational performance and growth. Both OFSE and IET showed excellent margin contributions, leading to an adjusted EBITDA of around $1.21 billion, marking a 23% year-over-year increase. They consistently hit or exceed guidance targets for seven consecutive quarters, demonstrating commitment to their goals. The GAAP operating income was $930 million, and excluding adjustments, earnings per share were $0.67, up 59% from the previous year. The adjusted tax rate fell to 26% with expectations of a slightly lower year-end tax rate. They reported solid orders totaling $6.7 billion, including $2.9 billion from IET.

In the third quarter, IET's diverse end markets and new gas infrastructure projects, along with FPSO awards, have resulted in a robust order book and significant free cash flow of $754 million, bringing the year-to-date total to nearly $1.4 billion. The company aims for a full-year free cash flow conversion of 45% to 50% and maintains a strong balance sheet with $2.7 billion in cash and a net debt-to-EBITDA ratio of 0.8x. The company returned $361 million to shareholders in the third quarter, with $1.1 billion returned year-to-date, and is committed to distributing 60% to 80% of free cash flow as dividends and share repurchases. The Industrial and Energy Technology (IET) segment surpassed margin performance expectations and reported $2.9 billion in orders, driven by rising demand for FPSO and gas infrastructure projects, as well as record bookings for Cordant solutions. Year-to-date, IET orders total $9.2 billion, positioning the company to meet its annual order guidance.

Baker Hughes is experiencing growth and profitability due to its diverse IET portfolio, reporting a record RPO of $30.2 billion, offering strong revenue visibility for the future. Their IET segment's revenue increased to $2.9 billion, rising 9% from the previous year, with notable growth in Climate Technology Solutions and Gas Technology Services. The EBITDA rose significantly, showcasing improvements in margins through efficiency and productivity gains. Additionally, the Oilfield Services & Equipment (OFSE) segment is on track to achieve a 20% margin target, driven by cost efficiencies and a focus on profitable growth. Continued strength in flexibles supported high orders in Subsea & Surface Pressure Systems, with offshore activity expected to remain robust.

The paragraph discusses the financial performance and strategic improvements of a company. International revenue remained flat, with growth in Europe and Sub-Saharan Africa being offset by declines in the Middle East and Latin America. North American revenues fell by 5%, primarily due to challenges in the Gulf of Mexico, while land revenue remained steady. The company's OFSE EBITDA rose by 14% year-over-year, with an improved margin rate due to higher pricing, cost efficiencies, and productivity. The paragraph highlights ongoing efforts to drive structural margin improvements, with transformation actions contributing significantly. The company is streamlining activities, removing duplication, and modernizing systems to enhance decision-making and reduce costs. It is also optimizing its supply chain by sourcing from cost-effective locations like India, Mexico, and Eastern Europe. Additionally, IET EBITDA margins have significantly improved, reaching the high-teens this quarter.

The company is on track to achieve a 20% margin target by 2026 through strategic initiatives such as converting high-margin gas technology equipment backlogs, cost efficiencies, and reduced R&D spending. Significant progress is being made in IET with over 100 Kaizen projects, improving efficiency and product costs. In OFSE, the company is approaching its target with a recent EBITDA margin rate of 19.3%, driven by improvements in its commercial model and execution. There is ongoing focus on optimizing the supply chain and enhancing service delivery for further growth. Overall, the company is committed to profitable growth and continuous margin improvement.

The paragraph provides an update on the company's financial outlook, specifically for the fourth quarter and full year 2024. It highlights expected EBITDA for the fourth quarter at $1.26 billion and discusses the positive impact of multiple industry cycles, such as LNG and new energy, on the company's performance. The IET segment is projected to achieve $590 million in EBITDA due to productivity and revenue conversion improvements, while OFSE is expected to reach $750 million, influenced by regional activity uncertainties. For the full year, the total company EBITDA guidance range is narrowed but unchanged at the midpoint, with strong IET order momentum across its portfolio, maintaining expectations for orders between $11.5 billion and $13.5 billion.

The paragraph highlights Baker Hughes' improved financial performance, with increased EBITDA projections and record margins achieved in recent quarters. The company's strategic transformation is credited for these successes, with significant growth in EBITDA over four years and a focus on margin improvement. Baker Hughes is leveraging its strong market position in various energy sectors to drive revenue visibility and shareholder value. Both company segments are achieving high margins, aiming for a 20% target. The organization remains committed to maximizing market opportunities and enhancing operational efficiency.

The paragraph discusses Baker Hughes' focus on achieving leading margins in their segments and highlights the company's strong performance, attributed to the strength of their team, culture, portfolio, and enterprise value. Lorenzo Simonelli then transitions the call to Chase Mulvehill, who opens the floor for questions. David Anderson from Barclays asks about Baker Hughes' positioning in global gas infrastructure, particularly the interconnectivity between equipment and services. Lorenzo Simonelli responds by emphasizing the importance of their services business, especially in LNG, and how it differentiates them by optimizing customers' total cost of ownership throughout the lifecycle of their gas technology.

The paragraph discusses the long-term revenue potential and strategic importance of recurring service revenue for Gas Tech Services, which accounts for nearly half of IET's EBITDA. This business model, likened to "razor, razor blade," offers high margins compared to equipment sales and spans 20 to 30 years, potentially generating double the original equipment revenue. The timing of revenue can be uneven due to maintenance schedules, typically taking 7 to 10 years from equipment award to significant service revenue. Current benefits are seen from LNG projects commissioned in 2014-2019, while future revenue is expected from 200 MTPA projects under construction, which will contribute later in the decade. LNG capacity is set to grow by 70% by 2030, similarly impacting onshore and offshore gas infrastructure.

The paragraph discusses the confidence in the growth of Gas Tech Equipment (GTE) and Gas Tech Services, driven by $20 billion in orders since 2022 and a positive outlook for future orders. This is expected to result in a 20% growth in the installed base by 2030, with growth opportunities continuing beyond that year. The LNG services have a higher attachment rate, contributing to structural growth in Gas Tech Services revenue over the next decade. There are also significant opportunities within FPSOs and gas infrastructure. Scott Gruber from Citigroup acknowledges the impressive margin achievements and inquires about the anticipated margin growth cadence in the Integrated Energy Technologies (IET) sector, specifically regarding achieving a 20% margin by 2026, asking whether the expansion will be smooth or weighted towards 2026.

Nancy Buese discusses the company's significant margin improvements over the past year, highlighting an increase of 2.7 percentage points to a record 17.5%. The improvements were driven by self-help measures across the company, including a reduction in corporate costs by $60 million annually and increased efficiencies from enhanced systems and processes. Specifically, the IET EBITDA margins improved by 2.9 percentage points to 17.9%, thanks to efforts in cost efficiency, productivity gains, and supply chain improvements. The Gas Tech Equipment segment also saw significant margin increases due to the conversion of higher-margin backlog.

The paragraph discusses the ongoing achievements and future goals regarding margin expansion across various business segments, notably in Bently Nevada, valves, and gears. It highlights ongoing Kaizen projects aimed at further improvements and expresses confidence in achieving a 20% EBITDA target for the IET segment by 2026. It mentions a muted differential between Gas Tech Equipment and Gas Tech Services and reports an increase in OFSE's EBITDA margins to 19.3%, driven by progress in SSPS and other operational efficiencies. Actions are being taken to exceed a 20% margin rate in OFSE. The paragraph underscores the company's proactive efforts and self-reliant improvement strategies, which are not solely dependent on external market conditions.

The paragraph discusses Baker Hughes' confidence in surpassing their 20% margin improvement targets. Lorenzo Simonelli emphasizes that the 20% target is merely a milestone for 2025 for OFSE and 2026 for IET, not the final goal, and they aim for continued margin improvement. Stephen Gengaro from Stifel inquires about the growth of Baker Hughes' Global Technology Services (GTS) installed base and its revenue growth. He notes the historical outperformance of revenue growth compared to the installed base and seeks insights into future trends. Lorenzo Simonelli confirms that revenue growth is expected to outpace the 20% increase in the installed base by 2030, driven by factors such as higher pricing, particularly through contracts with indexed pricing.

The paragraph discusses the revenue growth strategies for transactional agreements, highlighting four key levers. Firstly, they benefit from market conditions in pricing. Secondly, there's an increase in LNG mix and installed base, which is expected to grow by 70% by 2030, surpassing the growth of the GTS installed base. Thirdly, they focus on advanced service solutions with digital capabilities, enhancing monitoring and diagnostic services. Lastly, while upgrades have been downplayed recently, there are future opportunities for upgrades focusing on emissions and efficiencies. These strategies are expected to ensure revenue growth outpaces the projected 20% increase in the overall installed base by 2030. Following this, James West from Evercore ISI asks about the IET business outlook, particularly regarding order numbers for the current year and projections for 2025 orders.

In the paragraph, Lorenzo Simonelli addresses James West's inquiry about the performance of the company's IET segment relative to OFSE. He expresses confidence in meeting their 2024 revenue guidance of $12 billion to $12.5 billion, despite reduced LNG equipment orders due to a moratorium. Simonelli highlights strong order intake and the diverse portfolio, notably in gas infrastructure and new energy, which is expected to surpass $1 billion for the first time. He mentions that more detailed guidance for 2025 will be provided in the fourth quarter earnings call but is optimistic about continued growth across most segments.

The paragraph discusses the expectations for various energy markets, particularly focusing on LNG (Liquefied Natural Gas) and Gas Tech Equipment (GTE). It anticipates an increase in LNG Final Investment Decisions (FIDs) in the coming year, contingent on the resolution of the U.S. LNG moratorium and progress in international projects. There is also a significant addressable market for GTE outside of LNG, estimated at $100 billion to $120 billion between 2024 and 2030. Despite potential softness in gas infrastructure in 2025, overall growth and market strength are expected to continue, including for FPSO markets and other sectors like microgrids. The IET orders are projected to perform well in 2025. In response to a question about third-quarter revenues being lower than expected and the anticipated rebound in the fourth quarter, Nancy Buese explains that this is typical of the long-cycle, potentially lumpy nature of the business due to large projects facing external delays.

The paragraph discusses the company's financial performance and outlook, highlighting a minor revenue shortfall in Q3 due to supplier and vessel delays, which impacted the IET midpoint by over $200 million, primarily tied to GTE timing. However, the revenue is expected in future quarters, maintaining confidence in their overall guidance with a 30% revenue increase anticipated this year. GTE revenue is up 4% year-over-year and 33% year-to-date against 2023, with margins improving to 17.9%. The company is confident in executing a $12 billion GTE backlog and achieving a 20% EBITDA target by 2026. They acknowledge the long-cycle nature of projects and logistical impacts but express strong confidence in order momentum and backlog conversion.

During the earnings call, Marc Bianchi from TD Cowen asked about the IET book-to-bill ratio for 2025, suggesting that order levels might remain similar to 2024. Lorenzo Simonelli responded by indicating positive momentum and a robust level of activity anticipated for 2025, with project cycle times remaining consistent. Simonelli also mentioned that the company would provide official guidance during the fourth quarter earnings call in January 2025. The call concluded with thanks from Simonelli and the operator closing the session.

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