Baker Hughes Company

Good day, ladies and gentlemen, and welcome to the Baker Hughes Company first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Chase Mulvihill, Vice President of Investor Relations. Sir, you may begin.

Thank you. Good morning everyone. And welcome to Baker Hughes first quarter earnings conference call. Here with me are our chairman and CEO Lorenzo Seminelli and our CFO Ahmed Mogul. The earnings release we issued yesterday evening can be found on our website at BakerHughes.com. We will also be using a presentation with our prepared remarks during this webcast, which can be found on our investor website. As a reminder, We will provide forward-looking statements during this conference call. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for the factors that could cause actual results to differ materially. Reconciliation of adjusted EBITDA and certain GAAP to non-GAAP measures can be found in our earnings release. With that, I'll turn the call over to Lorenzo.

Thank you, Chase. Good morning, everyone. and thanks for joining us. Before getting into the results, I would like to welcome Ahmed to the earnings call as our new CFO. Ahmed brings extensive experience and a deep understanding of the Baker Hughes portfolio. He will collaborate with me and the broader executive team to advance our strategic priorities with a clear focus on profitable growth and sustained margin improvement. Now, let me start by providing a quick outline for today's call. I will begin by providing our thoughts on the macro environment before discussing our strong first quarter results. I will then highlight key awards and technology developments announced during the quarter. After this, I will briefly speak to our outlook before handing the call over to Ahmed, who will provide more details on our financial performance, walk through the potential tariff impacts to our business, and provide further detail around our outlook. Ahmed will then hand it back to me for a quick recap before we open the line for questions. Now let's turn to our macro outlook, starting on slide four. The global economy has started cautiously this year due to ongoing geopolitical tensions, uncertainty around trade policy and tariffs, China's slower growth rate, and lingering inflationary pressures. Specifically for Baker Hughes, we continue to monitor the evolving landscape closely and are taking proactive steps to mitigate the potential impact of changes in trade policy, particularly tariff rates. Broadly speaking, our strong weighting to international markets, along with a diversified, localized supply chain and established competitive position, helps reduce our overall financial exposure. Later during the call, Ahmed will provide more detail on the potential implications for Baker Hughes. Turning to oil markets, there are several factors driving downward pressure on oil prices. As announced earlier in the first quarter, OPEC Plus has now begun executing its plan to return 2.2 million barrels per day of previously idled oil production to the market. Subsequently, oil prices saw increased volatility stemming from elevated tariff uncertainty that's affecting global GDP and oil demand. With the softening macro backdrop, we now expect global upstream spending to be down by high single digits in 2025, including a mid to high single-digit decline internationally and a low double-digit decrease in North America. Excluding Mexico, international upstream spend is expected to fall in the low to mid-single-digit range. These expectations assume a stabilization of oil prices around the current levels and tariffs hold at the current 90-day pause rates. A sustained move lower in oil prices or worsening tariffs would introduce further downside risks to this outlook. The prospects of an oversupplied oil market, rising tariffs, uncertainty in Mexico, and activity weakness in Saudi Arabia are collectively constraining international upstream spending levels. Amid broader market softness, we see pockets of resilience in key international markets like Brazil and several countries in the Middle East and Asia Pacific. In North America, Discretionary spending delays are extending into the second quarter, driven by ongoing uncertainty. Additionally, recent oil price volatility presents potential downside to second half activity, particularly in U.S. land. While second half visibility remains limited, we expect to outperform the broader North American market supported by our production weighted portfolio. On natural gas, we see a more positive outlook. Long cycle gas-levered projects in LNG, gas infrastructure, and data centers continue to make progress towards FID. Rising gas-fired power demand underscores a long-term shift in market fundamentals unaffected by near-term macroeconomic volatility. To this point, Natural gas demonstrated the strongest increase in demand among fossil fuels in 2024, led by a significant increase in power consumption. According to the IEA, gas demand increased by 115 BCM, or 2.7%, compared with an average of 75 BCM annually over the past decade. Strong gas fundamentals remain positive for LNG contracting trends. Wood Mackenzie reports that 15.5 MTPA of long-term LNG offtake contracts were signed in the first quarter, following a record 81 MTPA last year. These statistics highlight consumer confidence in long-term global LNG and natural gas demand. In the U.S., The repeal of the LNG permitting moratorium and the administration's stated goal of increasing U.S. LNG exports has led to an improvement in orders for U.S. LNG projects. We have now booked around $1.7 billion of orders for U.S. LNG projects over the past two quarters. Given this positive backdrop, Several key LNG customers in the Gulf Coast are indicating plans to further expand capacity beyond 2030. This offers greater clarity regarding the potential increase in installed capacity above the anticipated 800 MTPA by the end of the decade. I would now like to address our outlook given the current macroeconomic environment. We have a clear view of the near-term direct impacts that tariffs will have on our business and are actively implementing a number of mitigation actions. However, the ongoing and dynamic trade negotiations between the U.S. and its trading partners and the uncertainty regarding the eventual status of tariff rates and other trade policies across key markets introduce a high degree of variability. Given this backdrop, we are providing our second quarter guidance along with a framework for our 2025 outlook, which Ahmed will cover in more detail later. As we evaluate the path forward, it is important to recognize the differing dynamics across our segments. OFSE is facing a wider range of potential outcomes, driven by reduced upstream spending, tariff-related cost inflation, and exposure to more cyclical markets, limiting visibility beyond the current quarter. IET offers greater visibility and is well positioned in this environment, supported by a healthy equipment backlog, substantial recurring revenues, and strong operational performance, underscoring the strength and balance of our portfolio. We remain confident in our strategy. Our focus is on the areas within our control, driving productivity, executing with discipline, and accelerating our efforts to be a leaner, more efficient company. Turning to our first quarter operational performance on slide five, we delivered strong results, maintaining the trend of meeting or exceeding the midpoint of our EBITDA guidance for the ninth consecutive quarter. We also set new first quarter records for revenue and our adjusted measures of EPS, EBITDA, and EBITDA margin. Adjusted EBITDA of $1.04 billion increased by 10% year over year, led by IET, where EBITDA has increased by at least 30% for five consecutive quarters. Industrial and energy technology experienced a solid start to the year, booking $3.2 billion of orders with segment backlog reaching another record level of $30.4 billion. Excluding LNG equipment, orders totaled a robust $2.7 billion. During the quarter, we generated free cash flow of $454 million and returned a total of $417 million to shareholders. Our strong first quarter results reflect our commitment to profitable growth and continuous margin improvement. Solid operational execution and transformation progress are driving structural margin improvement, with our adjusted EBITDA margin expanding by 140 basis points to 16.1%. including gains across both segments, even as a softer upstream market weighed on OFSE. Turning to slide six, we are witnessing strong commercial momentum across new and existing markets. This was reinforced by the record attendance at our recent annual meeting in Florence, Italy, which brought together over 2,300 customers and delegates from 85 countries. Importantly, we had representation across industrial and energy ecosystems, including participants from mining, steel, cement, industrial power generation, and data center markets. Following several customer engagements at this event, we booked multiple data center awards marking our entrance into this market and further expanding IET's industrial reach. Of the 35 Nova LTs booked during the quarter, 22 will be utilized to power data centers. This amounts to more than 350 megawatts of power for this high-growth market. In March, we signed an agreement with Frontier Infrastructure to develop large-scale CCS and power solutions for data centers, including the development of behind-the-meter gas-fired power generation that will utilize our Nova LT turbines. This partnership will leverage technologies and services across Baker Hughes by providing CO2 compression, industrial gas turbines, digital monitoring solutions, well construction, and completion services. We also secured an order from Turbine X Energy, one of Baker Hughes' network of authorized packages in North America. The scope includes Nova LT gas turbines, gears, and power generation technology for microgrid solutions to power data centers. In gas infrastructure, we secured an award in North America for two pipeline compression stations, which will provide feed gas to a Gulf Coast LNG facility. This award includes a total of 10 gas turbines and 10 centrifugal compressors. Generally, we see growing opportunities in North America for gas infrastructure driven by LNG capacity expansion along the Gulf Coast and AI-led demand for gas-powered data centers. We also received an award to supply a Nova LT gas turbine and a pipeline compressor for a gas boosting station in the UK. This equipment order is part of National Gas Transmission's broader investment to enhance the UK's gas infrastructure, ensuring energy security and reducing overall emissions. In LNG, we secured an order for a liquefaction train in North America. We will provide four main refrigerant compressors driven by LM6000 gas turbines and four expander compressors. We also signed key strategic framework agreements with NextDecade and Argent LNG, growing our pipeline of potential orders. For NextDecade, the scope includes equipment for five additional trains totaling 30 MTPA of liquefaction capacity at the Rio Grande LNG facility. This will be complemented by contractual services agreements for these equipment packages. Argent LNG has selected Baker Hughes to provide liquefaction, power solutions, and related aftermarket services for its proposed 24 MTPA LNG export facility in Louisiana. Importantly, the project will employ Baker Hughes' nimble, modularized LNG solution. driven by the LM9000 gas turbine, while also utilizing our iCenter and Cordon digital solutions. Including next decade in Argent, we now have LNG supply agreements in place for over 120 MTPA. This provides visibility for potential LNG equipment orders into the latter part of this decade. In gas tech services, we experienced a record quarter for upgrade orders, increasing by 167% year over year, as many operators look to drive efficiencies, reduce emissions, and extend the life of their gas infrastructure projects. This was the largest order quarter for upgrades in the history of the company. In the Middle East, We received a significant upgrade award to support one of the world's largest gas processing plants. The scope includes the upgrade of two existing gas turbines to drive new compressors and the supply of a third compression train to support production expansion. Separately, the team is partnering with Sonotrac to deliver an upgrade solution to support the modernization of a key compressor station in Algeria. Turning to oilfield services and equipment, we experienced sustained commercial momentum through market uncertainty during the first quarter. Petrobras continues to leverage our innovative solutions to help unlock Brazil's vast energy supply. During the quarter, Baker Hughes received a major integrated completion systems order across multiple deepwater fields in Brazil. In mature asset solutions, OFSC received an award from SOCAR in Azerbaijan to expand deployment of Losipa to all wells in the Uberson and Gunseli fields, including those with non-Baker Hughes electric submersible pumps. We also signed a multi-year frame agreement with Equinor to provide plugging services on the Norwegian continental shelf. As part of this agreement, Baker Hughes' mature asset solutions team will lead the integrated plug and abandonment campaign, managing the planning and execution across the North Seas-Oshberg East field. Across the Baker Hughes enterprise, we are capturing increasing commercial synergies between OFSE and IET through our early engagement on gas infrastructure, CCUS, geothermal, and data center projects. Looking out to Horizon 2, our pipeline of enterprise-wide opportunities continues to grow as customers seek solutions to address their energy efficiency and decarbonization needs. In addition to the previously mentioned frontier agreement, we booked two orders that highlight commercial synergies across the enterprise. OFSE was awarded a multi-year contract to provide integrated coil tubing drilling services on the Margam gas storage project in Dubai. This award was facilitated by IET's existing customer relationship with Dubai Supply Authority, who previously ordered ICL compressors for the same project. We are also observing this commercial trend offshore. In OFSC, we received a significant multi-year award from ExxonMobil Guyana to provide specialty chemicals and related services for FPSOs, which complements our IET scope that includes power generation and compression equipment previously awarded. Moving to new energy, we booked $238 million of orders and maintain our 2025 order target of $1.4 to $1.6 billion. During the quarter, we booked an award to supply free electric motor driven CO2 compression trains and gearboxes for a CCS project in northwestern Europe. We also made progress on several new energy technology developments. In geothermal, we have been selected by the US Air Force and the Department of Defense to explore the development of utility-scale geothermal power. During the quarter, we also announced the joint development and collaboration agreement with Hanwha for the development of a new small-scale turbine for ammonia applications. The new ammonia turbine will be suitable across shipping, FPSO, and gas infrastructure markets. Overall, We had a positive start to the year from a commercial and technology engagement perspective and remain confident in our IET orders guidance range this year. We are building strong order and technology pipelines that extend beyond our traditional oil and gas markets, providing additional lifecycle growth opportunities that further enhance our earnings durability. Baker Hughes is well positioned to deliver sustainable growth and long-term shareholder value, and we're excited about the future as we advance into the next phase of our journey. With that, I'll turn the call over to Ahmed, who will provide more details on our quarterly results, tariff exposure, and guidance.