Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Baker Hughes Co (BKR, Financial) delivered a record quarterly EBITDA with a 23% year-over-year increase, marking the highest EBITDA margins since 2017.
- The company achieved strong free cash flow performance of $754 million for the quarter.
- Baker Hughes Co (BKR) secured significant orders in gas technology equipment, including FPSO and LNG projects, highlighting its strong market position.
- The company is on track to exceed its new energy order guidance, with year-to-date orders reaching $971 million.
- Baker Hughes Co (BKR) continues to make progress in digital solutions, with increased customer adoption of its Leucipa digital solution and a new strategic collaboration with Repsol.
Negative Points
- The company's revenue for the third quarter was slightly below expectations due to timing issues in gas technology equipment deliveries.
- There is uncertainty in oil markets due to geopolitical factors and fluctuating global economic growth, which could impact future performance.
- Baker Hughes Co (BKR) anticipates a potential softening in oil demand fundamentals in 2025, which may affect upstream spending.
- The company faces challenges in maintaining its strong order momentum in gas infrastructure projects, which may see a slight decline in 2025.
- There are concerns about the impact of aeroderivative supply chain tightness on gas technology equipment operations.
Q & A Highlights
Q: Can you discuss the interconnectivity between equipment and services in the global gas infrastructure and how you expect services to evolve?
A: Lorenzo Simonelli, CEO: The life cycle offering in gas technology optimizes customers' total cost of ownership, generating recurring service revenue streams that can be 1-2 times the original equipment revenue. This spans 20-30 years, with higher margins than equipment sales. Gas tech services already account for nearly 50% of IET's total EBITDA. The installed capacity is expected to grow by 70% by 2030, providing structural growth for gas tech services revenue.
Q: How do you view the cadence of margin improvement for IET over the next two years?
A: Nancy Buese, CFO: We are making significant progress, with IET margins reaching 17.9%, up 2.9 percentage points year over year. This improvement is driven by higher margin backlog conversion, cost efficiency, and productivity gains. We are confident in achieving our 20% EBITDA target by 2026, with continuous margin improvement beyond that.
Q: How should we think about revenue growth relative to the installed base for Gas Technology Services (GTS)?
A: Lorenzo Simonelli, CEO: Revenue growth is expected to outpace the 20% increase in the installed base by 2030, driven by higher pricing, mix improvement with a 70% increase in LNG installed base, advanced service solutions, and upgrade opportunities. These factors will contribute to revenue growth exceeding the installed base growth.
Q: Can you provide an update on IET's order expectations for 2025 and when it might surpass OFSE in terms of income?
A: Lorenzo Simonelli, CEO: We feel good about 2025, expecting similar or slightly higher orders compared to 2024. The LNG FID pace is expected to pick up, and we have a considerable addressable market outside LNG. Both segments are expected to grow, with IET potentially surpassing OFSE in income as both continue to improve margins.
Q: What drove the lower-than-expected IET revenue in Q3, and what is driving the rebound in Q4?
A: Nancy Buese, CFO: The Q3 revenue shortfall was due to timing issues related to supplier and vessel delays in Gas Technology Equipment (GTE). We expect these revenues to materialize in Q4 and Q1. Despite the lumpiness, our guidance remains intact, with GTE revenue up 33% year-to-date and margins improving significantly.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
