Baker Hughes Company

Good day ladies and gentlemen and welcome to the Baker Hughes Company third quarter earnings call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. If you would like to ask a question please press star 1 to raise your hand. As a reminder this conference 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' third 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 investor website at BakerHughes.com. We will also use a presentation with our prepared remarks during this webcast, which can be found on our 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 and presentation available on our investor website. With that, I'll 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 brief outline for today's call. I'll begin with an overview of our third quarter performance, including the continued strength in orders, and then provide an update on our progress integrating chart. I will then highlight key commercial awards that demonstrate the breadth of opportunities across our portfolio before providing a high level update on the macro environment. Prior to handing the call over to Ahmed, I will discuss our mature asset solutions or mass offering. This represents a growing opportunity that expands our role across the lifecycle of producing assets while helping customers optimize recovery, extend asset life, and maximize value. Ahmed will then review our financial performance, provide fourth quarter guidance, and update our full year expectations. To close, I will highlight the progress we are making in shaping a new More industrialized Baker Hughes that connects capabilities to deliver integrated solutions across many end markets throughout the molecule to electron value chain. Let's turn to slide four. We delivered another exceptional quarter reflecting disciplined execution, strong cash generation, and continued progress in our evolution into a higher value solutions-led company. The quarter also marked our first period reporting chart following the close of the acquisition on July 16th. Adjusted EBITDA totaled $1.42 billion, with margins of 17.6% comparable to last year. We delivered strong performance across the portfolio, supported by a recovery in the Middle East activity within OFSE, consistent backlog conversion in IET, and early progress from chart. Adjusted earnings per share were 70 cents, up modestly year over year, a strong operational performance more than offset the impact of higher interest expense. Free cash flow remains strong at $769 million, including approximately 200 million of integration, restructuring and closing related cash costs associated with the chart acquisition. Turning to orders, Demand remains strong across our key end markets, driving broad-based strength within the portfolio, with the company achieving a book-to-bill ratio of 1.3 times. IET recorded $5.9 billion of orders, representing a 1.7 times book-to-bill ratio, including $1 billion of LNG equipment awards and $2.2 billion of power systems orders, led by strong data center demand. This continued order momentum drove IET RPO to a new record of $39.4 billion, up 6% sequentially and 23% year over year, further enhancing our visibility into future revenue growth. Supported by approximately $18 billion of IET orders year to date and ongoing capacity expansions, We now expect full year orders of $21.5 billion to $23.5 billion. Given the strength of demand and increased visibility into future opportunities, we now expect IET orders to exceed $50 billion over Horizon 2. The outlook reflects sustained investment across gas infrastructure, offshore production, data center, and industrial markets. along with emerging opportunities in geothermal and space. Importantly, these equipment orders expand our installed base, reinforcing the long term earnings potential from high margin aftermarket services, upgrades and digital solutions over the asset lifecycle. Turning now to the recently closed chart transaction. The acquisition represents a significant step in our strategy to broaden Baker Hughes' exposure to attractive energy and industrial growth markets. Chart adds complementary capabilities in thermal management, cryogenics, and carbon capture. enabling us to deliver more integrated solutions across the molecule to electron value chain. The combination also significantly expands our market opportunity, positioning Baker Hughes with a total addressable market of more than $400 billion with greater exposure to attractive growth markets, including data centers, gas infrastructure, geothermal, space, and industrial gases. Turning to integration. We have made strong progress in the first 100 days, already executing $70 million of our $325 million cost synergy target. We have established clear KPIs and accountability across the organization as we deployed the Baker Hughes business system and advance our people, systems, commercial and operational priorities while maintaining business continuity. Ahmed will provide more details on cost synergies later in the call. Importantly, the value creation opportunity extends well beyond cost synergies. Through the Baker Hughes business system, we see meaningful opportunities to improve charts manufacturing, sourcing, project execution and commercial performance, driving better delivery, higher productivity and significant margin improvements. Together with the realization of synergies, These improvements give us confidence that chart EBITDA margins can reach 22 to 23% by the second half of 2028 with further expansion beyond that. We are also moving quickly to capture the commercial synergy opportunities created by the combination. Our teams are working together across our highest priority accounts with a regular cadence to identify and convert opportunities across the combined portfolio and installed base. We are already seeing early proof points, including a major power generation order secured by IET from a legacy chart customer. This is a great example of commercial opportunities created by bringing these two companies together. With that, let's turn to key awards on slide five. Third quarter orders demonstrated broad-based demand for our versatile portfolio. across our end markets with meaningful awards in data center, gas infrastructure, digital, nuclear, and energy upstream markets. Starting with data centers, we continue to expand our position in power generation for this rapidly growing market, securing two major awards in the United States. Year to date, we have now booked $4.9 billion of data center awards. These wins reinforce the strategic importance of the market and demonstrate that Baker Hughes is increasingly a critical enabler of the power infrastructure required to support the rapid growth of AI. Reflecting the scale of the AI-driven power opportunity, we secured a major order to provide 1.1 gigawatt of power generation capacity for a major US technology company. The project will support advanced computing infrastructure for model training, inference, and physical AI workloads. Additionally, we received a major power generation order from a US energy company representing approximately 500 megawatts of capacity for AI infrastructure development. In gas infrastructure, we delivered another strong quarter with awards spanning LNG liquefaction and feed gas transportation. along with the strategic agreement in behind the meter power generation. We expanded our relationship with Venture Global through a major LNG award for the Plaquemines expansion, including IET equipment across four liquefaction blocks that utilize chart cold boxes. This is an early example of the broader value we can deliver by combining the complimentary technologies of Baker Hughes, including chart. We also secured a substantial order for Venture Global's Cloud Connector Pipeline project. Our scope includes an integrated compression solution using Frame 5 2Es gas turbines to support one of the largest LNG feed gas transportation projects in the United States. Beyond these awards, we strengthened our long-term partnership with Venture Global through a new power framework agreement with GE Venova. The agreement covers up to 16 behind the meter power islands representing up to 10 gigawatts of generation capacity and establishes a repeatable model to support Venture Global's LNG growth and potential adjacent data center developments. Together, these awards further strengthen our longstanding relationship with Venture Global while highlighting the breadth of our leading LNG franchise across both liquefaction and pipeline infrastructure. We also continue to see strong demand for gas processing and offshore production infrastructure. We were awarded a substantial integrated FPSO equipment package for a large offshore development. The award includes LM2500 aeroderivative gas turbines driving both power generation and gas compression equipment. highlighting the versatility of our turbine portfolio and our ability to support critical offshore infrastructure. Beyond new equipment, we continue to grow our lifecycle services business. We secured a significant long-term service agreement with SBM Offshore, covering 27 LM2500 gas turbines across four FPSOs. The agreement combined maintenance and repair services with eye-centered digital service for remote monitoring and diagnostic, enhancing equipment reliability and availability across these critical offshore assets. We also received several compressor upgrade awards in the Middle East and Asia. These awards reflect continued investment in our installed base and demonstrate the value customers place on enhancing the reliability, efficiency, and performance of existing assets. while creating additional high margin recurring aftermarket opportunities for Baker Hughes. Turning to digital. Industrial Solutions secured key coordinate wins across data center, LNG and industrial markets, reflecting continued share gains across balance of plant applications, including third party equipment. These awards included a preferred supplier agreement, as well as Sensing, Protection and Asset Health Solutions, supporting T customers. These wins demonstrate Cordent's expanding reach across both Baker Hughes and third party installed bases. In nuclear, we secured an order for Macellian control valves across six reactor units in Europe. This award strengthens our position in the growing nuclear new build market. while expanding our installed base and creating attractive aftermarket opportunities over the life of these assets. Turning to energy upstream, our OFSE team secured several key awards across mass and subsea, reinforcing the breadth of our capabilities and global customer relationships. In Pakistan, we signed a multi-year mass contract with OGDC to optimize production and recovery across more than 120 wells in mature oil and gas fields. The program integrates our extensive subsurface expertise, surface production technologies, and digital solutions to help unlock additional value from existing assets while supporting greater domestic energy supply. In addition, BP awarded us a significant contract to provide integrated offshore production enhancement and stimulation services in the UK North Sea. Using our vessel-based solution and STEM force technology, we will support new well development and enhance recovery from mature fields. In the Middle East, we continue to deepen our partnerships with national oil companies. leveraging our broad technology portfolio to help customers improve production performance and maximize the value of their assets. In Kuwait, KOC awarded Baker Hughes a significant multi-year contract to deploy fit for purpose production, AI enabled solutions, and hybrid Chimera drill bits. We also announced plans to establish an in-country research and technology development center to accelerate innovation, Optimize upstream production and build local expertise. In subsea, Sahara North Canal awarded us a substantial contract for Kuwaiti northern hub development in Indonesia. Our scope includes deepwater horizontal tree systems, associated manifolds, subsea controls, and distribution systems, as well as cordon digital solutions. We also secured a significant integrated subsea system award from ENI for the deepwater Kronos gas development offshore Cyprus, representing an important win for our subsea business in the Eastern Mediterranean. Finally, we recently signed two strategic agreements in Venezuela that bring together capabilities across resource development and energy infrastructure. Building on more than 60 years in the country, Our installed base includes the largest artificial lift footprint, significant flexible pipe infrastructure and approximately 240 turbo machinery units across 23 sites, positioning us well to support Venezuela's long term energy ambitions.