SLB Limited Common Shares

Ladies and gentlemen, thank you for standing by. Welcome to the SLB Earnings Conference Call. At this time, all participant lines 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 1, then 0. You may remove yourself from queue by repeating the same 1-0 command. As a reminder, this conference is being recorded. I would now like to turn the conference over to the Senior Vice President of Investor Relations, and Industry Affairs, James McDonald. Please go ahead.

Thank you, Leah. Good morning, and welcome to the SOB Third Quarter 2023 Earnings Conference Call. Today's call is being hosted from New York City following our board meeting held earlier this week. Joining us on the call are Olivier Lepuche, Chief Executive Officer, and Stephane Biguet, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause the results to differ materially from those projected in these statements. I therefore refer you to our latest 10-K filing and our other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures can be found in our third quarter press release, which is on our website. With that, I will turn the call over to Olivier.

Thank you, James. Ladies and gentlemen, thank you for joining us on the call today. In my remarks this morning, I will begin by reviewing the third quarter financial results represented in today's earnings release. Then I will discuss the progress we are achieving across our three engines of growth and the macro environment supporting them. And finally, I will share our outlook for the fourth quarter and the full year. Stéphane will then provide more details on our financial results, and we will open the line to your questions. Our third quarter results have built upon the positive momentum we established in the first half of the year and firmly position us to achieve our full-year financial ambitions. We continued to grow revenue and adjusted EBITDA both sequentially and year-on-year, and we generated free cash flow of $1 billion for the second consecutive quarter. Internationally, we continue to seize the cycle. We achieved our highest international revenue quarter since 2015 by growing revenue in this market for the ninth consecutive quarter year-on-year. This was particularly visible in the Middle East and Asia, where we posted 22% year-on-year revenue growth, led by significant growth in Saudi Arabia, the United Emirates, Kuwait, and Egypt. Our strong international activity was further augmented by the resilient investments in the offshore markets, notably in Africa, Brazil, and Scandinavia. Offshore continues to offer many opportunities for our business, and I will shortly discuss how the recent closing of our one-subsession venture with Acker Solutions and Subsea7 will help us to expand our footprint in the market moving forward. And in North America, although revenue decreased sequentially due to low activity, we continue to grow year-on-year, outperforming the rate count. Once again, our focus on the quality of our revenue, combined with the differentiated value we deliver through technology, drove margin expansion. Our beta margins reached a new cycle high of 25%, and our pre-tax segment operating margin expanded for the 11th consecutive quarter year-on-year. These are very positive results, and I want to thank the entire CLB team for delivering this strong performance. Next, I would like to share some updates about progress across our three engines of growth, core, digital, and new energy. Let me begin with the core. The oil and gas sector continues to benefit from a broad, durable, and resilient multi-year growth cycle that is being supported by long-cycle developments. production capacity expansions, exploration and appraisal, and the recognition of gas as a critical fuel source for the energy transition. These market fundamentals remain very compelling for our core business, which has grown 22% year to date and has materially expanded margins. This strong performance is being driven by the diversity of our portfolio, our industry-leading technology, and our unique integration capabilities. Reservoir performance achieved exceptional results with stronger evaluation activity. Production systems achieved its highest level of margin in the cycle, led by subsea, surface, and offshore lift. Our construction maintained impressive results through new technology innovations and differentiated performance. All in all, this was a very strong quarter across our core divisions. The supportive macroenvironment is also leading operators to make long-cycle investments offshore. where advanced inefficiency has significantly improved project economics. We have visibility into FIDs extending well beyond 2025, and there could not be a better time to join forces with Acker Solutions and Subsea 7 to drive a new era for Subsea. Today, SLB is recognized for its unique ability to handle large, complex, and fully integrated offshore projects, from subsurface development to midstream processing. Throughout one Subsea joint venture, we will further enhance this offering by bringing new levels of technology and partnership to the market. Together, our companies are the clear leader in Subsea multiphase boosting and Subsea gas compression, and we will provide electrification and digital solutions to further enhance the business. This partnership approach will also create a more flexible customer offering through scale, increased capacity, and life of field services. Collectively, this will drive meaningful change to subsea asset performance as we partner with customers to help them unlock their reserves, drive efficiency, reduce cycle times, and reduce emissions in the deep water market. Now, let me turn to digital. On the last call quarter, I shared an update on the emerging digital trends shaping the industry. This included the adoption of cloud computing, the power of data, and security. AI at scale, and digital operation gaining maturity. At a recent investor conference, I discussed how SLB is capitalizing on this opportunity with our platform strategy, comprising of a workflow platform that serves as the backbone for our customers' planning and operation, and our data and AI platform that unlocks data at scale for digital transformation. Today, we are seeing increased digital adoption across the industry. Delphi continued its year-over-year growth momentum with a 49% increase in users and an 86% increase in compute hours compared to the third quarter last year. Additionally, our customers are embracing a connected and autonomous drilling solution with 1.9 million feet of automated drilling completed in the third quarter, an increase of 60% year-over-year. As a result, SLB's platform, representing our new digital technology offering, sustained growth at a CAGR rate of about 60%. The benefit of this technology is clear, and you can see this illustrated in our earnings press release this morning with our shared AWS collaborative agreement and the Kuwait Energy Basra Limited digital fuel contract that is serving as just two recent examples of customers choosing SLB digital technology to reimagine their workflows across the E&P value chain. And finally, let me quickly discuss some of the exciting opportunities in our new energy business and transition technology portfolio. As we address the energy dilemma, our industry has an imperative to decarbonize operations. Two of the most immediate opportunities to do this are reducing methane emissions and scaling CCUS as a solution for mitigating climate change. Organic methane, we have an opportunity to address fugitive methane and flaring to better monitoring and leak detection. A few weeks ago, we launched a new IoT-enabled methane point instrument for continuous monitoring that seamlessly connects to our methane digital platform for insights and analysis, eliminating the need for intermittent site visits and enabling operators to quickly scale up across their operations. and other solutions are available today to help clients abate their methane emissions. And in CCUS, momentum is building across the industry, both in oil and gas, as well as in other hard-to-abate sectors. SLB is actively involved with more than 20 CCUS projects globally, and we're investing in capture technology, as underscored by the partnership with TDA Research, highlighted in our earnings release. Overall, We are pleased with our pipeline of technology and projects, and we have confidence that by establishing ourselves as the leader in this space, we will create yet another avenue for diversified long-term growth. Now we turn to our outlook for the fourth quarter and the full year. In the fourth quarter, we expect continued sequential revenue growth driven by year-end digital sales and seasonal product and equipment sales in production systems. The quarter will also reflect the results of the OneSepsi joint venture. As a result, we expect overall sequential revenue growth to be in the high single digits. With our continued focus on the quality of revenue, harnessing operating leverage, and further technology adoption, we expect to maintain global pre-tax segment poverty and EBITDA margins at their highest levels in the cycle, in line with our third quarter performance. Stéphane will provide additional color on the net contribution of the one-subsidion venture on our fourth quarter guidance. Turning to the full year, we expect to achieve our financial ambition we shared back in January. Excluding the effects of the one-subsidion venture, we expect to conclude the year by increasing revenue more than 15% and growing EBITDA in the mid-20s, with recent North America headwinds being more than offset by strong international growth. These strong full-year results will remain well positioned to continue returning value to our shareholders.