Baker Hughes Company

Good day, ladies and gentlemen, and welcome to the Baker Hughes Company's second quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will apply 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 Investillations. Sir, you may begin.

Thank you. Good morning, everyone, and welcome to Baker Hughes' second quarter earnings conference call. Here with me are our chairman and CEO, Lorenzo Simonelli, 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 gap to non-gap 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. First, I'd like to provide a quick outline for today's call. I will begin by discussing our strong second quarter results and recently announced transactions. I will then highlight key awards and technology developments announced during the quarter and provide some thoughts on the macro backdrop. After this, I will share an update on the exciting progress we are making in the distributed power space. We have a particular focus on data centers. Ahmed will then cover our financial performance followed by an overview of our portfolio optimization strategy and our outlook. Finally, I'll provide a quick recap before opening the line for questions. Let's now turn to the key highlights on slide four. We delivered another strong set of results, maintaining the trend of meeting or exceeding the midpoint of our EBITDA guidance for the 10th consecutive quarter. Adjusted EBITDA rose to $1.21 billion reflecting 170 basis point year-over-year improvement in margins. This was driven by the impact of structural cost actions and stronger operational execution. We continue to make clear progress in scaling our business system, a standardized platform that enables consistent strategy execution and delivers differentiated outcomes. These efforts are driving structural margin improvement, strengthening the resilience of our earnings and laying the foundation for long-term value creation. This performance reflects strong execution across both segments amid ongoing macro and industry-related headwinds. Oilfield services and equipment delivered 90 basis points of sequential margin improvement driven by stronger international and subsea and surface pressure systems revenue, as well as meaningful progress on cost-out initiatives. In industrial and energy technology, margins expanded by 190 basis points year over year, supported by the continued deployment of our business system, which is enhancing operational discipline and execution. IET orders continue to demonstrate strong momentum, totaling $3.5 billion in the quarter. Notably, this was achieved with no material LNG equipment orders, once again highlighting the strength and versatility of our technology portfolio as we further expand across energy and industrial end markets. This diversification is reflected in the growing demand for our data center solutions. During the quarter, we booked more than $550 million in power generation equipment orders for data centers. In addition, we experienced another strong quarter for gas tech services, upgrades, and transactional bookings, as customers focus on improving performance, and extending the life of equipment. IET backlog grew 3% sequentially, reaching a new record of $31.3 billion, reinforcing the durability of our growth outlook. Following a strong first half and a positive outlook for the second half awards, we are confident in achieving IET's full year order guidance range of $12.5 to $14.5 billion. Looking beyond this year, We see continued momentum for power solutions, sustained growth in new energy, and a robust pipeline of LNG and gas infrastructure opportunities, all of which support a constructive outlook for orders. During the quarter, we generated free cash flow of $239 million and returned a total of $423 million to shareholders, including $196 million in share repurchases. Turning to slide five, we also announced free strategic transactions in the quarter to advance our portfolio optimization strategy, reinforcing efforts to enhance the durability of earnings and cash flow while creating long-term value for shareholders. First, regarding divestitures, we entered into an agreement to establish a joint venture with Cactus, contributing surface pressure control in exchange for approximately $345 million while maintaining a minority ownership stake. Additionally, we announced the sale of precision sensors and instrumentation to Crane Company for approximately $1.15 billion. These proceeds will provide the company with increased flexibility to reinvest in higher growth, higher return opportunities, supporting further margin expansion and enhancing overall returns. Next, from a strategic acquisition perspective, we signed an agreement to purchase Continental Disc Corporation, a leading provider of pressure management solutions for approximately $540 million. CDC represents a high-quality bolt-on acquisition within IET, adding a highly complementary offering to our existing VALS portfolio that expands our presence in the pressure and flow control market and brings margin-accretive, lifecycle-based revenue. As we advance our portfolio optimization initiatives, we remain focused on executing a strategic and disciplined capital allocation approach to maximize long-term shareholder value. Overall, we made strong progress on multiple fronts during the quarter, and each of these actions support our commitment to profitable growth, continuous margin expansion, and improving quality of earnings. Turning to slide six, we continue to build strong commercial momentum across new and existing markets with growing synergy opportunities across our portfolio that enhance how we deliver value to customers while expanding our market presence. During the quarter, IET secured two significant data center awards. First, we received our largest data center award to date for 30 Nova LT gas turbines. These units will deliver almost 500 megawatts of power to data centers in the United States and operate on a blend of natural gas and hydrogen, supporting both reliability and lower carbon operations. Second, we received an order for 16 Nova LT gas turbines representing up to 270 megawatts of power for deployment of Frontier's data centers in Wyoming and Texas. This award is the first phase of the previously announced enterprise-wide agreement with Frontier to advance power solutions and large-scale carbon capture and storage. These awards reflect the accelerating long-term demand for distributed lower carbon power in support of digital infrastructure. This trend is also unlocking greater commercial synergies across our power and decarbonization portfolios, reinforcing the potential for sustained data center and new energy growth. In total, IET booked 69 Nova LT units this quarter, with more than 70% allocated to data center projects. Year-to-date, we have secured almost 1.2 gigawatts of Nova LT capacity for data center applications. highlighting our expanding role in enabling the growth of digital infrastructure through flexible, lower carbon power solutions. We are also expanding our pipeline of future digital infrastructure opportunities. At the recent Saudi U.S. Investment Forum, we signed an MOU with Data Vault for data center projects globally, which includes plans to power data centers in the kingdom with our Nova LT turbines using hydrogen from NEON. Beyond data centers, we continue to see strong demand in gas infrastructure. In Saudi Arabia, we secured an award for four Nova LT turbines to support a Ramco's master gas system free pipeline. Also, in climate technology solutions, we signed a framework agreement with Enerjet to supply 16 reciprocating compressor packages, supporting an increase in biogas production while driving emissions reduction for gas infrastructure in Denmark. In GTS, we secured more than $350 million in contractual service agreements during the quarter, strengthening our backlog of recurring revenue. Key awards included a new maintenance agreement with Petrobel to improve uptime and reliability of critical turbo machinery equipment, and a renewal of a multi-year service contract with Oman LNG featuring remote monitoring and diagnostic services delivered through our iCenter. In new energy, we continue to build momentum internationally, where we have historically seen the greatest concentration of waters. During the quarter, CTS secured one of the largest CCS waters to date, providing compression technology for a large CCS hub in the Middle East. In geothermal, we successfully drilled Lower Saxony's first productive deep exploration well in Germany. This project highlights the strength of our integrated well construction and production solutions capabilities supported by advanced digital solutions that optimize performance. In OFSE, we maintain strong momentum in production and mature asset solutions, booking several meaningful awards. Notably, we signed a significant master services agreement with Aramco for installation and maintenance of electric submersible pumps across the kingdom. We also received two large multi-year contracts to help optimize production, throughput, and reliability for two major operators in offshore Angola and the U.S. Gulf Coast, leveraging our chemicals, artificial lift, and digital solutions. In Norway, Equinor awarded us a contract to industrialize offshore plug and abandon operations in the Osnaburg East field, which followed the announcement of a new multi-year framework agreement for integrated wealth services. OFSC also secured a multi-year contract to provide drag reducing chemicals to be deployed on two major offshore pipeline systems operated by Genesis Energy. To support this agreement, we will expand our chemicals manufacturing footprint and deploy Lucepa, our digitally automated fuel production solution. Also for Lucepa, we received an award from Repsol for next generation AI capabilities and entered into a new agreement with ENI to deploy Lucepa for ESP optimization and AI-driven predictive analytics in the Middle East. Continuing on digital, Cordon Solutions secured a notable contract with a large NOC to deploy asset performance management to several compressor stations in the Middle East. Cordon Solutions was also awarded a contract with Nova Chemicals to optimize maintenance and maximize production across multiple petrochemical facilities, leveraging APM's asset strategy and asset health digital offerings. Overall, it was another strong quarter, both from a commercial and technology engagement perspective. We are building strong order and technology pipelines that extend beyond our traditional oil and gas markets, creating additional lifecycle growth opportunities that further enhance our earnings and cash flow durability. Turning to the macro on slide seven. Amid continued macro uncertainty, I want to take a moment to reaffirm the strong long-term fundamentals underpinning our business. Global energy demand continues to grow, supported by durable secular macro trends that are shaping the future of the energy landscape. Population growth, particularly in emerging markets, is driving baseline demand for energy across residential, mobility, and infrastructure. At the same time, continued economic development and industrialization are expanding energy needs across critical sectors such as manufacturing, transportation, and technology. Urbanization and the global push for electrification are accelerating the build-out of modern energy systems. This includes both expanding access to reliable electricity and supporting new demand drivers like data centers and industrial decarbonization. Amid this backdrop, there is a global push for lower carbon solutions as countries advance their emission reduction goals. In response, we are seeing increased investment in clean power, CCUS, emissions abatement, geothermal, and hydrogen. These markets require scalable, flexible, and efficient energy solutions. capabilities that are core to BakerU's and essential to enabling a lower carbon economy. Consistent with this trend, we booked $1 billion in new energy orders during the quarter, bringing year-to-date bookings to $1.25 billion, already matching our total for last year. As a result, we now anticipate exceeding the high end of our $1.4 to $1.6 billion order range for this year. This performance reflects increasing global demand for lower carbon solutions and reinforces our confidence in achieving our $6 to $7 billion order target by 2030. Collectively, these macro trends support a strong long-term outlook for the global energy and industrial landscape, as customers increasingly prioritize efficiency, reliability, and sustainability. It is an environment aligned with our strengths and one that positions us to capitalize on the significant opportunities ahead. Now turning to natural gas. We continue to see growing divergence between oil and natural gas fundamentals. Its abundance, low cost reliability, and low emissions set natural gas apart from other fossil fuels. This year is increasingly being validated across policy and market dynamics. While we expect significant growth from renewables, Scaling these technologies at pace required to meet growing energy needs remains a challenge, particularly in light of supply chain constraints, permitting delays, cost inflation, and less favorable policy support. These challenges further reinforce the positive long-term outlook for natural gas. By 2040, we expect natural gas demand to grow by over 20%, with global LNG increasing by at least 75%. This growth outlook creates a favorable environment for Baker Hughes. We are already seeing strong momentum, booking $2.9 billion in gas infrastructure equipment orders over the past six quarters, a trend we expect to continue as countries turn to natural gas to support power generation and industrial development. In LNG, approximately 60 MTPA of additional FIDs are needed over the next 18 months to reach our three-year target of 100 MTPA, which would bring the global installed base to our long-held target of 800 MTPA by 2030. Beyond this, we see continued growth in the installed base as energy demand and emissions reduction efforts converge. This year, LNG demand continues to grow rapidly, up 5% year over year, as softness in China is more than offset by strength in Europe. This increase in demand is driving sustained momentum in LNG contracting activity. For example, Wood Mackenzie reports 49 MTPA of long-term LNG offtake contracts have been signed in the first half of the year, positioning 2025 to exceed the record 81 MTPA signed last year. Now turning to oil markets. This year has been marked by heightened volatility. with Brent prices ranging from a low of $60 per barrel in early May to a high of $77 per barrel in June, with continued volatility into July. The market continues to navigate cross-currents, balancing weakening demand and rising OPEC Plus production against persistent geopolitical risks in both the Middle East and Russia. As we look into the second half of the year, we expect continued volatility as OPEC Plus accelerates the return of its 2.2 million barrels per day of idle production into what we anticipate will be a soft market. Ultimately, until all excess OPEC Plus barrels are resolved by the market, we anticipate oil-related upstream spending will remain subdued. On global upstream spending, we maintain our outlook for a high single-digit decline this year. In international, we now expect spending to decline toward the high end of our mid to high single-digit range, given downward pressure in key countries such as Saudi Arabia and Mexico. In North America, we still project spending to decline in the low double digits. These forecasts assume current oil prices hold and no further trade policy escalation. Any meaningful deterioration in EVA could present incremental downside. Longer term, we expect oil demand to grow beyond 2030. To meet that demand, significant investments will be required. In addition, we anticipate growing customer focus on mitigating reservoir decline and optimizing production efficiency. This underscores our strategic focus on mature asset solutions in OFSE. These technologies will improve production reliability, boost fuel performance, and expand our presence in more durable OPEX-led production markets, increasing the resilience of our revenue base. Turning to slide eight, I wanted to take a few minutes to discuss the opportunity we see in distributed power solutions for data center market and beyond. Distributed power represents a compelling growth factor for Baker Hughes, drawing on multiple parts of our enterprise, from industrial gas turbines and electric motors to geothermal and CCS technologies. This opportunity broadens our market exposure to digital infrastructure and reinforces the stability of our earnings and cash flow through lifecycle-driven equipment and service revenue. According to the IA, global energy consumption from data centers is expected to more than double, reaching 945 terawatt hours by 2030. In the US, electricity demand for data processing alone is projected to surpass the combined power needs of all energy-intensive manufacturing sectors, including aluminum, steel, cement, and chemicals. To support this surge in power requirements, gas turbine manufacturers are experiencing robust order activity across both utility-scale and sub-utility-scale power applications. Our portfolio is well-suited for the sub-utility scale, behind-the-meter solutions, providing advanced technology and shorter deployment timelines with our hydrogen-ready Nova LT 12 and 16 megawatt turbines, as well as brush electric generators. To meet rising demand, we continue to make targeted organic investments to enhance our Nova LT capabilities, including initiatives to increase power range and reduce startup times. In addition, activities are underway to significantly increase our manufacturing capacity by 2027, capitalizing on strong order visibility. In the utility scale space, our geothermal solutions offer customers reliable and scalable baseload power, supported by IET's organic rank and cycle, steam turbine technologies, and OFAE's subsurface expertise. More broadly, we are seeing expanded market opportunities to deploy advanced and enhanced geothermal technologies to deliver dispatchable low-carbon power to data centers. Additionally, we are collaborating on the development of the utility and industrial-scale net power solutions, further expanding our power range and enabling near-zero emissions power generation. The growing frequency of grid disruptions is prompting industries with critical operations to seek more reliable on-site power solutions. This shift is especially evident in sectors like energy, healthcare, data centers, airports, and other mission-critical infrastructure, where our distributed power offerings are well-positioned to meet this emerging need for behind-the-meter power. Building on the momentum from our recent data center-related awards, totaling more than $650 million year-to-date, we are making strong progress toward our three-year target of $1.5 billion. The pace of recent awards positions us to meet or exceed this target earlier than planned. Importantly, this excludes the substantial recurring revenue opportunity tied to aftermarket services, which typically generate one to two times the original equipment value over a 20-year period. In summary, The surging momentum in data center development is reinforcing IAT's fundamental demand drivers while also increasing the pipeline of enterprise-wide opportunities. We are expanding into attractive high-growth markets beyond our traditional oil and gas space, creating new avenues for growth while further strengthening the durability of our earnings and cash flow. To conclude, it was another strong quarter for the company. with significant progress on several fronts, despite the challenges presented by the external environment. Our focus remains on the areas within our control, most notably the continued deployment of our business system across the enterprise, which is driving productivity and accelerating our efforts to be a leaner, more efficient company. Baker Hughes is well-positioned to deliver sustainable growth and create long-term shareholder value. We are excited about the future as we advance into the next phase of our journey. With that, I'll turn the call over to Ahmed.