SLB Limited Common Shares

Good morning, my name is Sarah and I will be your conference operator today and would like to welcome everyone to the second quarter SLB earnings call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. You may remove yourself from the queue by pressing star one again. As a reminder, this call is being recorded. I will now turn the call over to James R. McDonald, Senior Vice President of Investor Relations and Industry Affairs. Please go ahead.

James R. Thank you, Sarah. Good morning and welcome to the SOB Second Quarter 2026 Earnings Conference Call. Today's call is being hosted from London, following our board meeting held earlier this week. Joining us on the call are Olivier Le Peuch, 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. For more information, please refer to our latest 10-K filing and other SEC filings, which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our second quarter earnings press release, which is on our website. With that, I will turn the call over to Olivier.

Thank you, James. Good morning, ladies and gentlemen. Thank you for joining us. Today, we'll begin with our second quarter performance. Then I will discuss the evolving macro environment and strategy growth areas for SLB. And finally, I will close by sharing our outlook for the third quarter and how we will exit the year. Stephane will then provide additional details on our financial results, and after that, we'll open the line for your questions. Let's begin. This was a solid quarter for SLB, marked by broad-based international growth and rebound in North America. Excluding the Middle East, growth will increase sequentially across all divisions. This was supported by higher offshore activity in Latin America, including Brazil, Guyana, and Mexico, in Europe and Africa, across Scandinavia and Nigeria, and in Asia, including China, Indonesia, India, and Australia. Additionally, we saw a rebound in U.S. land, with higher sales of production chemicals, artificial lifts, and valves, driven by strong demand for production and recovery solutions. In the Middle East, we continued to navigate the conflict during the second quarter, while maintaining our focus on protecting our people and facilities across the region. Activity resumed in several countries, although operations in Iraq remained constrained by security challenges. While uncertainty persists, we continue to work closely for our customers to gradually restore activity. That said, returning to full activity will take time, and the pace of recovery will vary by country, customer, and operating environment. Turning to the divisions, I was very pleased with the continued momentum in production systems and digital. In production systems, growth was supported by higher demand in offshore lifts, valves, surface production systems, and production chemicals, as well as stronger subsidy activity, particularly in North America and Latin America. This reflects clear and durable customer priorities, improving production, enhancing recovery, and extending the life of existing assets, which are fully aligned with our increased focus in the core toward production and recovery. Production Systems' adjusted EBITDA margins returned to above 20%, supported by strong execution. Champonnex also continued to provide accretive margins to production systems despite facing cost inflation in chemicals. Notably, Champonnex delivered sequential margin expansion for the third consecutive quarter. Digital also delivered very strong results, supported by a favorable business mix. This included higher exploration data licenses and transfer fees, in Brazil and Indonesia, which helped digital adjusted EBITDA margins to reach approximately 35% for the quarter. Additionally, annual recurring revenue increased by 15% year over year. As we shared during our Digital Investor Day last month, the future of our industry is digital. We are confident that the key growth drivers highlighted at the event, digital operations and AI, will continue to build strong momentum across the industry. You can see several examples of recent customer contracts and deployments in the quarterly highlights, including in today's earnings press release. Meanwhile, revenue in world construction and reservoir performance declined slightly as a result of activity disruption in the Middle East. However, the impact was largely offset by stronger activity in North America and across other international markets. Data center solutions also continued this strong growth trajectory. Revenue increasing 33% sequentially and 80% year-on-year. Growth was supported by the addition of new hyperscaler customers and a broader scope of offerings as we evolved beyond manufacturing into data center design, engineering, and system integration, as exemplified by the recent announcement with Meta. All in all, this was a strong quarter against a difficult backdrop with solid financial results and steady progress in our strategy execution. I want to thank the entire SLB team for delivering these results in a very dynamic market. I continue to be impressed by your performance, your innovation, and your commitment to our customers. Now let me turn to the macro environment, which continues to evolve following the disruption in the Middle East. There are several structural drivers of upstream investment that have been heightened by the conflict in the Middle East. These include the replenishment of commercial inventories and strategic reserves that have been depleted during the conflict, increased efforts to diversify supply and the development of domestic resources to strengthen long-term energy security. These priorities support a favorable investment backlog across both short- and long-cycle markets, and they are bringing a renewed focus on exploration to unlock new reserves and on increasing production recovery from existing assets. In this context, we expect a range-bound community environment that is constructive for upstream investment. Indeed, inventory replenishment and the need to rebuild spare capacity should provide support at the low end of the range. And at the same time, higher price would encourage the development of new supply, while unlocking new opportunities for our business. Let me now turn to regional activity dynamics. The market is starting to exhibit the characteristics of an upcycle. International and depot activity is growing, supported by the fundamentals I have just discussed. According to third-party reports, final investment decisions for long-circle projects are expected to increase by approximately 30% year-on-year in 2026. This will support higher exploration spending and upstream capex growth across dipolar markets during the second half of 2026, led by Africa. And we expect a more meaningful impact in 2027, with growth extending to Latin America, the Mediterranean, and Asia. North American land will remain tied to short-circuit market dynamics, including community price, inventory level, and the pace of restocking. Our position in North America has been strengthened by ChampionX and by the increasing need for technology innovation in production and recovery. In the Middle East, we should impact as largely transitory. Restoring production to prior levels will require higher service intensity, partially in-way intervention, along with increased equipment demand, infrastructure repairs, and realigned shipping logistics. Based on these conditions and our exposure to international deepwater and exploration, production and recovery, and digital, our outlook for our business into 2027 is compelling. Against this backdrop, SAP's strategy remains closely aligned with our customers' highest investment priority. In the core, this includes restoring production capacity, developing advantageous resources, including deepwater, and Improving Capital Efficiency. Beyond the core, digital remains both a key enabler of performance and a powerful growth platform for SLB. Data and AI will increasingly touch every part of the upstream lifecycle. Advantage is that digital is grounded in deep domain expertise and connected to real-field operations. By embedding intelligence to the workflows that matter most, from subsurface interpretation and well-delivery to production optimization, and Autonomous Operations. Finally, we are accelerating our data center solution strategy around three priorities. Diversifying our customer base, expanding internationally and increasing the scale and scope of our offerings. This quarter, we deliver on our strategic pathways, adding new IP escalator customers to our portfolio, diversifying our end markets across Canada and Asia and expanding our capabilities to include design, engineering and system integration. At the same time, We continue to leverage our off-site fabrication capabilities to scale up in response to accelerating demand and to compress delivery time for our customers. Our differentiated capabilities have resulted in our backlog growing ahead of expectations, with new contract awards, strong customer engagement, and international expansion. This momentum gives us the confidence that we will finish this year strong as we have previously guided, and we now foresee the data center solution will exit 2027 at an annualized revenue run rate exceeding $2 billion. But this is just the start. Our ambition is to become an industrial technology partner to the data center industry. And our expanding role in design and integration provides us a platform to have adjacent capabilities, including decarbonized power and cooling solutions. These are natural extensions of our domain expertise in process engineering and complex energy systems. and given the pace of market development we can accelerate this strategy further through partnerships and acquisitions. Examples of this include our recent alliance with Liberty Energy that will combine SLB modular infrastructure solution and global market reach with Liberty behind the meter power generation system in addition to our pilot reformat for next generation geothermal power development to support future data center demand. are exciting steps toward becoming a critical infrastructure partner for the AI economy. Together, these strategic investments offer us a broader and more resilient growth profile for the future, anchored in the core, accelerated by digital, and expanded through data center solutions. Let me now turn to our outlook for the third quarter, followed by our preliminary view of the fourth quarter. Turning to our third-quarter outlook, our base case Assumes a gradual recovery in Middle East activity, consistent with the pace we observed toward the end of the second quarter, as we continue to remobilize operations across the countries affected by the conflict. Based on this trajectory, we expect global sequential revenue growth between 3 and 4%, with adjusted EBITDA margin expansion of approximately 75 basis points. At the division level, We anticipate revenues of the core divisions to increase sequentially in the low to mid-single digits, while digital revenue is expected to grow in the low single digits. The heightened tensions recently observed in the Middle East have not had a major impact on our current activity. However, we have developed a downside scenario to help model the potential impacts of the ongoing geopolitical volatility. In the event of a significant re-escalation that disrupts ongoing remobilization efforts, and results in flat sequential Middle East revenue, we estimate third quarter revenue would be approximately 150 million lower than our base case assumption. This would translate into an adjusted bid headwind of approximately 75 million. The impact of this downside scenario would be concentrated primarily in the well construction and reservoir performance divisions. Looking ahead to the fourth quarter, our preliminary outlook assumes that Middle East activity reaches between $2.1 and $2.2 billion, or approximately 95% of the revenue achieved in the fourth quarter of 2025. Based on this assumption, and supported by deep water momentum in the typical year-end digital and product sales, we would expect fourth quarter revenue to surpass $10 billion, representing approximately 5% growth year-on-year. We also expect adjusted EBITDA margin to be approximately 24%, in line with the fourth quarter of last year. While this outlook remains dependent on certain conditions, Pramale wrote that to limit this conflict, view it as an encouraging indicator of the underlying strengths of the business, and believe it will position us well to deliver a solid growth in 2027. I will now turn the call over to Stephane to discuss our financial results in more detail.