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Baker Hughes(BKR) - 2024 Q3 - Earnings Call Transcript
BKRBaker Hughes(BKR)2024-10-23 18:11
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Financial Data and Key Metrics - The company achieved a record quarterly EBITDA with a 23% year-over-year increase, reaching approximately 1.21billion[23]−EBITDAmarginsimprovedby2.7percentagepointsyear−over−yearto17.51.21 billion [23] - EBITDA margins improved by 2.7 percentage points year-over-year to 17.5%, the highest since 2017 [3] - Free cash flow for the quarter was 754 million, bringing year-to-date free cash flow to nearly 1.4billion[4][24]−GAAPdilutedearningspersharewere1.4 billion [4][24] - GAAP diluted earnings per share were 0.77, with adjusted earnings per share at 0.67,a590.67, a 59% increase compared to the same quarter last year [23] - The adjusted tax rate declined to 26%, with expectations for the year-end tax rate to be slightly below the midpoint of the full-year guidance range [23] Business Segment Performance - Industrial and Energy Technology (IET) orders remained strong at 2.9 billion, driven by FPSO and gas infrastructure orders [26] - IET revenue for the quarter was 2.9billion,up92.9 billion, up 9% year-over-year, with EBITDA of 528 million, a 31% increase [27] - Oilfield Services & Equipment (OFSE) revenue was 4billion,withEBITDAof4 billion, with EBITDA of 765 million, up 14% year-over-year [28][29] - OFSE EBITDA margins reached 19.3%, up 2.3 percentage points year-over-year, driven by higher pricing and cost efficiencies [29] Market and Strategic Outlook - The company expects global primary energy demand to grow by 10% between now and 2040, driven by population growth and increasing energy intensity in developing countries [9] - Natural gas demand is expected to grow by almost 20% by 2040, with LNG demand increasing by 75% [10] - The company anticipates 800 MTPA of liquefaction capacity by 2030 to meet global LNG demand, with over 200 MTPA currently under construction [11] - The company is focusing on decarbonization technologies, including CCUS, hydrogen, geothermal, and clean power, with new energy orders expected to exceed 1billionforthefirsttime[6][12]ManagementCommentaryonOperatingEnvironment−Thecompanyremainsconfidentinachievingthemidpointofitsfull−yearEBITDAguidance,drivenbystrongoperationalperformanceandmarginexpansion[4][23]−Managementhighlightedtheshiftincustomerspendingtowardsglobalgasandmaturefuels,withoildemandfundamentalssoftening[13]−Thecompanyexpectsglobalupstreamspendingin2025tobesimilarto2024levels,withafocusonoptimizingproductionfromexistingassets[14][16]OtherImportantInformation−Thecompanyreturned1 billion for the first time [6][12] Management Commentary on Operating Environment - The company remains confident in achieving the midpoint of its full-year EBITDA guidance, driven by strong operational performance and margin expansion [4][23] - Management highlighted the shift in customer spending towards global gas and mature fuels, with oil demand fundamentals softening [13] - The company expects global upstream spending in 2025 to be similar to 2024 levels, with a focus on optimizing production from existing assets [14][16] Other Important Information - The company returned 361 million to shareholders in Q3, including 209millionindividendsand209 million in dividends and 152 million in share repurchases [25] - The company is investing in new technology to extend equipment life and improve efficiency, with over 2,000 upgrade projects executed globally [18][19] - The serviceable equipment base for Gas Technology Services has doubled from 4,400 units in 2000 to 9,000 units in 2023, with expectations for a 20% increase by 2030 [20][21] Q&A Session Summary Question: Global gas infrastructure and IET positioning - The company highlighted the interconnectivity between equipment and services, with recurring service revenue generating 1x to 2x the original equipment revenue over the life cycle [39][40] - LNG service revenue is expected to grow significantly, with the installed base projected to increase by 70% by 2030 [41][42] Question: Margin improvement cadence in IET - The company is confident in achieving a 20% EBITDA margin target in IET by 2026, driven by cost efficiencies, productivity gains, and supply chain improvements [45][47] - Over half of the year-over-year margin improvement is attributed to self-help initiatives, including corporate cost reductions and process improvements [46][47] Question: Revenue growth relative to installed base in Gas Technology Services - Revenue growth is expected to outpace the 20% increase in the installed base by 2030, driven by higher pricing, mix improvement, advanced service solutions, and upgrade opportunities [52][53] Question: IET order outlook for 2024 and 2025 - The company feels confident about achieving the $12.5 billion order target for 2024, with strong momentum in gas infrastructure, FPSO, and new energy orders [57][58] - For 2025, the company expects similar order levels to 2024, with potential growth in LNG FIDs and gas infrastructure projects [59][60] Question: IET revenue rebound in Q4 - The Q3 revenue miss was attributed to timing delays in large projects, with the revenue expected to rebound in Q4 and Q1 [63][64] - The company remains confident in its full-year guidance, with GTE revenue up 33% year-to-date and margins improving significantly [64] Question: IET backlog conversion in 2025 - The company expects robust activity in 2025, with backlog conversion continuing at the same pace as 2024, supported by record RPO levels [68]