Baker Hughes Company

Good day, ladies and gentlemen, and welcome to the Baker Hughes Company second quarter 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 Mulvehill, Vice President of Investor Relations. 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 Moghal. 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 and presentation available on our investor website. With that, I will turn the call over to Lorenzo. Thank you, Chase.

Good morning, everyone, and thank you for joining us. First, I'd like to provide a quick outline for today's calls. I will start with a summary of our second quarter results, then highlight key awards and address the evolving macro environment. I will also discuss the recent closing of the chart acquisition and the compelling opportunities it brings to Baker Hughes. I will then turn it over to Ahmed who will review our financial performance, provide guidance for the third quarter, and review our outlook for the full year. To close, I will highlight how we are connecting our capabilities across energy upstream, energy infrastructure, and industrial markets to create greater value for our customers and shareholders. Let's turn to slide four. We delivered another strong quarter as disciplined execution and the strength of our diversified portfolio more than offset anticipated headwinds in the Middle East. While conditions in the region remain fluid, Our teams have responded exceptionally well, maintaining a clear focus on safety, execution, and meeting our customer needs. For the second quarter, adjusted EBITDA totalled $1.23 billion, exceeding the high end of our guidance range. The outperformance was driven primarily by strong OFSC execution, supported by greater resilience in the Middle East, and a solid seasonal recovery across broader markets outside the region. Adjusted earnings per share were $0.64, up modestly year-over-year, as strong operational performance more than offset the effects of the PSI divestiture and the formation of the SPC joint venture. Adjusted EBITDA margin expanded 70 basis points year-over-year to a record 18.3%, as strong IET performance more than offset lower OFSE margin, resulting from higher inflationary costs. During the second quarter, we generated robust free cash flow of $1.1 billion. Turning to orders, IET delivered another exceptional quarter with orders doubling year over year to a record $7.1 billion, resulting in a 2.2 times book-to-bill ratio and driving RPO up 19% to an all-time high of $37.1 billion. Over the past four quarters, IET had secured more than 20 billion of orders, providing significant revenue visibility while expanding the installed base that will drive future aftermarket and digital revenue. These results highlight the breadth and versatility of the IET portfolio and reinforce our ability to capture sustained growth as customers continue investing in reliability, resilience, and security of supply across critical energy infrastructure markets. Our confidence in the long-term outlook for power generation continues to be supported by the strength of our power systems backlog and the depth of our order pipeline. In response, we are further expanding gas, turbine and generator capacity while maintaining disciplined capital deployment and operational flexibility. When this additional capacity comes online by 2029, we estimate it could support nearly $5 billion in annual power systems revenue opportunity at full utilization. Even assuming a practical utilization below full capacity, the implied revenue opportunity still represents a three to four times increase over 2025 revenue, underscoring the growth opportunity ahead. With $12 billion of IET orders year-to-date, strong end-market demand, and expanding power systems capacity, we now expect Horizon 2 IET orders to exceed $45 billion. Earlier this month, we completed the acquisition of Chart Industries, a significant milestone in the continued execution of our portfolio strategy. We are pleased to welcome Chart employees to Baker Hughes and look forward to leveraging our combined capabilities to create greater value for customers and shareholders. Now turning to key awards on slide five. The second quarter further demonstrated broad-based demand across our core end markets with meaningful awards across power, gas infrastructure, digital, and energy upstream markets. Starting with power, We booked $2.6 billion of power systems orders during the quarter, including 2.7 gigawatt of power generation. We continue to expand our presence in power generation for data center markets, securing several significant awards across North America that further reinforce our strategy and technology leadership. Most notably, we secured a major award from Dynamis for Nova LT gas turbines, representing approximately 1.3 gigawatt of mobile power generation capacity across data center and oil and gas applications. Additionally, we signed a multi-year strategic agreement with Kodiak Gas Services anchored by an initial award for approximately one gigawatt of power generation capacity and a framework for up to 1.8 gigawatt over time. The agreement leverages Nova LT, and Generator Technologies to support growing power demand across North America. In gas infrastructure, we delivered another outstanding quarter, highlighted by $1.8 billion of LNG equipment orders across three large projects. We received a major award from Venture Global, including six LNG blocks comprising of 12 liquefaction modules, The scope includes advanced centrifugal compressors, cold boxes, air coolers, and integrated control systems, further strengthening our long-standing customer relationship. We also booked a significant award from GOLA to provide four aeroderivative gas turbine-driven refrigerant compressor trains for a floating LNG facility, marking the fourth GOLA vessel to feature Baker Hughes' gas technology solutions. In addition, we secured multiple awards supporting Chenier's Sabine Pass LNG facility, including aeroderivative gas turbines and compression equipment for Train 7, a boil-off gas reliquifaction unit, and fleet-wide gas turbine enhancements that helped drive record GTS upgrade orders in the quarter. Beyond equipment upgrades, we continue to strengthen our lifecycle services portfolio. through a significant multi-year agreement extension with Nigeria LNG, and a new multi-year CSA with Arnor Gas Processing Company for its gas processing facility in Nigeria. Together, these awards highlight the strength of our LNG franchise, the durability of our installed base, and the recurring nature of our services business. We also continue to see strong global demand across gas processing and production infrastructure. During the quarter, we secured two significant awards for electric motor-driven compression trains, supporting the brownfield expansion of a large offshore field in the Middle East and Aramco's Ufania onshore gas development. These awards demonstrate the critical role of our compression technology in enhancing recovery, sustaining production, and improving the efficiency of global gas infrastructure. Turning to digital solutions, we also continue to accelerate digital adoption across our installed base, securing multiple software awards for our cordon solutions portfolio with several NOCs and IOCs. In addition, we entered into a preferred supplier agreement with a large global turbine manufacturer to deliver sensing, condition monitoring, and asset health software solutions that enhance equipment reliability and performance. Turning to energy upstream, our OFSE team received several key awards across integrated services, subsea digital and production, reinforcing the breadth of our capabilities and global customer relationships. In integrated services, we secured a major award for Petrobras for well construction solutions across Brazil Santos Basin, while Equinor extended key contracts for integrated drilling, well services, and wireline intervention in Norway. In subsea, we expanded our North Sea footprint with a new manufacturing facility in Norway and booked two notable subsea production systems awards, including Azul Energy's Ultra Deepwater Development Offshore Angola and an Offshore Gas Development in Brunei. These investments and awards demonstrate the strength of our global subsea capabilities. We also continue to build commercial momentum across our digital platforms while extending their application into adjacent markets. Kantori, our autonomous well construction solution launched earlier in 2026, secured an award for an Equinor well construction project and was recognized with the 2026 OTC Spotlight New Technology Award. Lucepa also reached an important milestone with its first deployment outside oil and gas, integrating our ESP and digital production optimization capabilities to support a geothermal and lithium development in Europe. Finally, we also advanced our geothermal strategy, through an agreement with Mantle Reach Power to support up to 500 megawatt of development in North America. Separately, we entered into a strategic collaboration with HMP. Collectively, these awards demonstrate the breadth of the Baker Hughes portfolio, the growing value of our enterprise capabilities, and rising demand for integrated energy and industrial solutions spanning molecules to electrons. Turning to the macro on slide six. Since the onset of the conflict in the Middle East, global growth expectations have moderated, with the World Bank now projecting growth of 2.5% in 2026. While the recent escalation has increased uncertainty, global trade and energy markets continue to adapt as supply chains adjust. Inventories are rebuilt and regional supply and demand patterns evolve. At the same time, These events have further elevated energy security as a strategic priority for governments, customers and economies globally. The need for resilient infrastructure, diversified supply and secure energy flows is supporting sustained investment across energy upstream and energy infrastructure, markets where Baker Hughes is particularly well positioned. Across global energy upstream markets, Thank you very much. and North America Land is more than offset by lower spending in Europe and the Middle East. In LNG, recent disruptions further reinforce the importance of supply security and energy diversification. We believe it will take time for LNG markets to fully normalize given the complexity of restoring liquefaction capacity, rebalancing trade flows and rebuilding inventories. Importantly, Recent developments have not changed our conviction in the long-term LNG outlook. We continue to see a path toward installed nameplate capacity approaching 800 MTPA by 2030 and approximately 950 MTPA by 2035, underpinned by energy security needs, expanding power demand, and increasing natural gas consumption across emerging markets. Turning to power markets, Demand remains exceptionally strong. The rapid growth of AI and other compute intensive workloads is driving a step change in electricity demand with access to reliable, scalable power increasingly becoming the primary constraint. We believe the power generation market remains in the early stages of a multi-year growth cycle driven by accelerating investment in AI infrastructure. The magnitude of planned hyperscaler investment reinforces the durability of this trend. Capital spending by the largest hyperscalers is expected to double, increasing from approximately $370 billion in 2025 to nearly $750 billion by 2028. As this infrastructure is deployed, S&P global forecast data center power demand will grow at an 18% annual rate through 2030. Thank you very much. Energy Management, Carbon Capture, and other lower carbon solutions that improve reliability, resilience, and affordability. This opportunity aligns directly with Baker Hughes' strategy. Our differentiated portfolio positions us to benefit from the convergence of energy and industrial demand. As customers increasingly seek integrated solutions, our connected capabilities enable us to address their most complex challenges. As a result, we see approximately $100 billion of addressable market opportunity by 2030 for power systems, with more than half expected to be associated with behind-the-meter solutions and further growth through 2035. Let me now turn to chart on slide 7. The successful closing of the chart acquisition marks an important milestone in Baker Hughes's portfolio strategy and our evolution into a higher value industrialized energy solutions company. Chart adds differentiated capabilities in thermal management, air and gas handling and carbon capture, complementing our existing technologies and strengthening our position across attractive energy and industrial markets, including gas infrastructure, data centers, space, new energy and industrial gases. The combination expands the solutions we can offer customers while materially increasing our installed base and lifecycle services opportunity. This enhances our revenue mix through greater recurring aftermarket and digital growth, supporting more durable earnings and cash flow over time. Given the scale and strategic importance of these capabilities, Chart will operate as Baker Hughes' third reporting segment. This structure preserves the business, commercial, and operational focus while highlighting charts contribution to Baker Hughes growth and financial performance. Importantly, the reporting structure does not change how we will capture the anticipated synergies. With day one successfully completed, we are now focused on disciplined integration execution and delivering the full value of the transaction. Our integration management office is advancing 18 work streams across the combined organization. with clear milestones and accountability for both cost and commercial synergies. We have structured the initial integration into two phases across the first 180 days. During the first 90 days, we are prioritizing customer continuity, employee retention, and consistent operational performance. We are also initiating early cost synergy actions while mobilizing commercial teams to pursue cross-selling opportunities expand lifecycle services and develop more integrated customer solutions. Over the next 90 days, we plan to shift toward delivering early value and further embedding the Baker Hughes business system by aligning operating models and advancing our commercial playbook. We will also launch commercial workshops and sales training to support combined solutions and an integrated go-to-market strategy. This safe approach enables us to capture near-term efficiencies while building the foundation for sustained operational improvement and commercial growth. Turning to synergies on slide eight, we have identified almost 300 initiatives across procurement, corporate costs, systems operations, and footprint optimization, reinforcing our confidence in delivering the full 325 million of annualized cost synergies by year three. The largest opportunities are concentrated in three areas. First, SG&A offers significant potential through the elimination of duplicative costs and simplifying support functions and systems. Second, the scale of the combined company should drive meaningful supply chain efficiencies through greater purchasing power with suppliers and a more streamlined logistics network. Third, we see significant opportunities to optimize our manufacturing and operating footprint leveraging the scale of the combined company to improve efficiency and utilization across our global operations. The Baker Hughes business system will be central to this work, providing the operating discipline and accountability required to convert identified opportunities into sustainable margin and cash flow improvement. In addition to cost synergies, we see meaningful commercial upside. Chart broadens the solutions we can offer in existing markets while expanding our reach into attractive industrial adjacencies. For data centers, our power generation capabilities complement Chart's thermal management and cryogenic storage system. Chart also expands our capabilities in geothermal and CCUS through thermal management, gas handling, and carbon capture, enabling broader solutions and greater participation across the project value chain. In metals and mining, charts establish customer relationships, create opportunities to introduce additional Baker Hughes technologies. We also see emerging opportunities in space where charts cryogenic expertise complements our power generation and liquefaction capabilities in a market requiring advanced fuels, thermal management, and mission critical infrastructure solutions. Aftermarket represents another substantial opportunity. Baker Hughes's global service network and field presence position us to increase attachment rates across charts and stored base, while the cross-selling of iCenter, Cordent, and Uptime can enhance asset performance, improve customer outcomes, and generate additional recurring higher margin revenue. Overall, our work to date reinforces our confidence in the strategic fit of the combination. We are now focused on integrating with discipline, delivering the cost synergies we have identified, and steadily realizing the benefits of the broader portfolio. To close, let me briefly recap. Our second quarter performance reinforces the momentum across Baker Hughes. We delivered results above expectations, led by OFSE and supported by strengthening energy upstream markets. We also achieved another record quarter of IET orders. reflecting strong demand across the data centers and gas infrastructure markets. This demand combined with our expanding order pipeline and increased gas turbine and generator capacity supports raising our Horizon 2 IET orders target to more than $45 billion. Importantly, the equipment orders we secure today expand our installed base and create a longer term runway for higher margin services, upgrades, and digital solutions. The addition of chart further advances our portfolio strategy by strengthening our capabilities across energy and industrial markets and expanding our lifecycle services opportunity, while also providing cost and commercial synergy potential. This positions Baker Hughes to deliver more consistent growth, margins, and cash flow over time. With that, I'll now turn the call over to Ahmed.