Q3 2021 Baker Hughes Co Earnings Call

Good day, ladies and gentlemen, and walk through the Baker.

<unk> third quarter 2021 earnings call at this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press star zero on your Touchtone phone.

As a reminder, this conference call is being recorded I would now like to use your host for today's conference Mr. Jud Bailey Vice.

He was kind of Investor relations, Sir you may begin.

Thank you good morning, everyone and welcome to the Baker Hughes third quarter 2021 earnings Conference call here with me are chairman and CEO, Lorenzo Simonelli, and our CFO, Brian Worrell. The earnings release, we issued earlier today can be found on our website at Baker Hughes Dot com.

As a reminder, during the course.

Vice present conference call. We will provide forward looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review, our SEC filings and website for a discussion of some of the factors that could cause actual results to differ materially.

As you know reconciliations of operating income and other GAAP to non-GAAP measures can be found in our earnings release with.

I will turn the call over to Lorenzo.

Thank you Jonathan good morning, everyone and thanks for joining US we are pleased with the way. The team has continued to execute on our strategy over the course of the first quarter at the total company level, we had a strong orders quarter grew adjusted EBITDA and adjusted operating income margin rates.

Sequentially and year over year and had another solid quarter of free cash flow.

While we did experience some mixed results across our product companies on the positive side TPS generated strong orders operating income and margin rates and <unk> had a solid orders quarter on the more challenging side our FX.

With that it was negatively impacted by hurricane either cost inflation in our chemicals business and delivery issues stemming from supply chain constraints, while DFS also face supply chain delays that impacted product deliveries.

As we look at the macro environment the global economy continues to recover.

However, the pace of growth is being hampered by lingering effects from the COVID-19 Delta variant global ship shortages supply chain issues and energy supply constraints in multiple parts of the world.

Despite these headwinds global growth appears to be on a relatively solid footing underpinning a favorable outlook for the.

Okay aided by continued spending discipline by the world's largest producers.

And the natural gas and LNG market fundamentals remained strong with a combination of solid demand growth and extremely tight supply in many parts of the world.

In fact, we believe the positive case for structural demand growth.

Oil and natural gas as part of the broader energy transition is becoming increasingly evident.

The current environment illustrates the need for policymakers to focus on the utilization of natural gas as a baseload fuel that can be combined with renewable energy sources to provide a cleaner safer and more affordable.

<unk> more reliable source of energy to populations around the world.

A number of developed economies have had great success over the last 10 to 15 years lowering their carbon emissions by switching from coal to natural gas.

However, some policy scenarios have seen a more rapid conversion straight to renewables, which.

Limits the role of natural gas as a transition fuel and can lead to broader grid instability.

We believe that there is a strong and logical combination of a secure stable base load of natural gas that is needed to complement renewable energy sources and in ton offset intermittency.

As.

<unk> MD from recent events the cost of moving to aggressively are beginning to surface as multiple parts of the world. They are experiencing energy sources unprecedented increases in energy prices and shutdowns and brownouts across multiple industries.

The increase in natural gas prices has been most acute due.

Due to a number of factors, including Underinvestment in gas reserves are declining contribution from hydroelectric and renewable power and continued increases in energy demand Ironically, the fallout from higher prices has also led to an increase in coal consumption, leading to coal shortages and a spike in.

The console prices.

Natural gas has been a key contributor to lowering emissions in the United States over the last 15 years as power generation consumption switch from coal to natural gas.

U S power consumption of natural gas has increased from around 16% of total generation so roughly.

<unk>, 2% over the past 20 years.

While coal consumption has declined from over 50% of the energy supply mix to approximately 25% over the same period.

By comparison today, roughly 60% of Asia Pacific's power generation comes from coal and about 10% from natural gas.

As more countries step up that carbon reduction commitments, we believe that natural gas will play a critical role in displacing higher emission sources like coal and by supporting the growth in renewable energy technologies would relatively cheaper and affordable Baseload power.

Natural gas and LNG a court.

40 use this strategy and we will continue to play a key role in providing natural gas as a safe reliable resource to the world.

In addition to our focus on natural gas and LNG Baker Hughes has spent considerable time over the last few years to move and accelerate a broader strategy forward.

During the third.

We outlined how we are working to best position Baker Hughes for today and in the coming years.

We have given a lot of Florida around how to service the oil and gas and energy markets today, while also investing for the future across the industrial space and various new energy initiatives.

Quarter, while we continued to execute our strategy through the free pillars of transform the core investor growth and position for new frontiers.

The way that we're thinking about the company and our broader long term strategy is clearly evolving.

We are starting to view our company in two broad business areas oilfield services and equipment and industrial energy technology.

On the O FSC side of the company, we are a technology leader in global enterprise with core strengths and drilling services high end completion tools flexible pipe artificial.

And production and downstream chemicals.

We strongly believe that these businesses can generate top tier returns and free cash flow conversion.

Oh FSC is poised to benefit from cyclical growth in the coming years as we believe that we are in the early stages of a broad based multi year recovery there will be characterized.

By longer time investments into the core OPEC plus countries.

The way, we think about industrial energy technology or E. T is essentially at TPS and <unk> businesses.

Both product companies have compelling portfolios that are beginning to see significant secular growth opportunities, particularly.

Lift areas like hydrogen and C. C U S.

With core competencies across a number of offerings like power generation compression and condition monitoring as well as a growing presence in flow control industrial asset management in digital we have a strong foundation on which to build an even more comprehensive presence.

And the broad industrial energy technology markets.

We believe that focusing on two major business areas with closer alignment will enhance our flexibility improve execution increased shareholder returns and provide long term optionality as the energy markets evolve.

Now I'll give.

And the pay on each of our segments.

In oilfield services activity levels continued to increase during the first quarter with North America outpacing the international markets broadly.

As I just mentioned, we believe the OSI its market is in the early stages of a broad based multi year recovery.

Internationally.

And we saw the strongest rig count growth during the third quarter in South East Asia, followed by a more modest growth in the North Sea and Latin America.

The return to growth in Russia, and the Middle East has been slower as OPEC plus is taking a measured approach to increasing production.

However, based on discussions with our customers.

The pipeline of opportunities in these regions continues to grow and will likely be a major driver of the international growth in 2022.

In North America offshore activity was disrupted by Hurricanes during the month of August while U S land continues to steadily move higher.

The underlying trends in.

<unk> America remains the same with public E&ps and I O sees remaining disciplined in deploying capital while private e&ps remain more active.

Based on conversations with our customers, we expect firm activity during the fourth quarter and continued strong growth in 2022.

While activity levels and pricing.

North and discussions are both moving in the right direction. Our RFS business has also had to navigate multiple challenges during the first quarter visa.

These include hurricane either COVID-19 related impacts supply chain constraints and higher input costs in our production chemicals business.

Despite these challenges.

We remain focused on growing our margin rates for a combination of cost reduction and efficiency initiatives as well as pricing increases to offset higher costs.

As a result, we remain committed to driving <unk> EBITDA margins to 25% level over the medium term.

Moving to TPS.

Pricing the outlook continues to improve driven by opportunities in LNG onshore offshore production pumps and valves and new energy.

Yes.

We still expect the order outlook for TPS in 2021 to be roughly consistent with 2020.

Importantly, the case for a multi.

T a growth opportunity beginning next year, beginning next year continues to improve.

While we expect the majority of the order growth in TPS to be driven by LNG over the next couple of years, we anticipate that we will start to book more meaningful equipment orders related to hydrogen and C. C U S.

2022.

And LNG why we did not book any awards during the third quarter, we still expect to book one or two additional awards by the end of 2021.

Based on the pace of discussions with multiple customers and the positive fundamentals in the global gas market, we still see the opportunity.

An additional 100 to 150 M. Tpa of awards over the next two to three years with a bias towards the upper end of that range.

But the non LNG segments of our TPS portfolio, we see multiple opportunities for continued growth most.

Most notably our onshore offshore production segment is.

For the benefit from our strong project pipeline for F. P. S. O awards, driven by a number of opportunities in Latin America.

In the first quarter, we were pleased to book two large F. P. S O awards in Brazil for power generation and compression equipment building on our recent success earlier in 2021 and in 2020.

We have now booked eight F. P S O and offshore topside equipment awards, so far in 2021, which follows five awards in 2020.

We also continued to see success in the industrial market, where TPS recently secured wins for our Nova L. T industrial gas turbine technology.

Poised yet in China.

We are deploying on Nova L. T turbines for power generation across several industrial segments, including electronics ammonia production and pharmaceutical manufacturing.

And carbon capture GPS with selected supply booster and export centrifugal pumps.

In England Lights C O two transport and storage project in Norway.

They sort of highlights are C O two pump injection capabilities and is the first C. C. U S Award for our pumps product line.

The TPS services, we saw continued signs of recovery during the quarter with strong growth across transactional and contractual.

<unk> services as well as our upgrade business and we remain optimistic about the outlook for 2022.

Next on oilfield equipment, we remain focused on right sizing the business improving profitability and optimizing the portfolio in the face of what remains and unclear longtime offshore outlook.

Trends in our OSB business remained somewhat mixed despite brent prices around $80. We continue to see a strong pipeline of flexible or the opportunities as well as improving market conditions in our international Wellheads and services business.

For industry wide subsea trees, we continue to expect modest improvements.

In 2021, followed by some additional growth in 2022.

During the third quarter, we were pleased to be awarded a contract by Chevron, Australia to deliver subsea compression manifold technology, but the jazzy I O compression project in offshore Western Australia.

This important win builds.

On our previous success for subsea equipment orders to Chevron's Gorgon natural gas facility.

We recently completed the merger of our subsea drilling systems business with MH worth.

We own 50% of the new fully independent company now called H M H.

<unk> is an excellent example.

Of how we are transforming the core to ensure that we're making the right strategic decisions for Baker Hughes.

By combining the two businesses HMH will have more capability and a more integrated offering customers are incredibly complementary about this enhanced model and we look forward to seeing H MH succeed.

<unk> in the future.

Finally in digital solutions, we saw multiple challenges during the quarter electrical component shortages largely around semiconductors boards and displays led to lower revenue conversion as well as broader supply chain constraints that drove pressure in the quarter.

Recognize that we have left to do in digital solutions to drive operating margins back to an acceptable level.

We are implementing changes across the business to drive operational improvements and ensure that we have the right team in place to take this business back to where it needs to be.

Core to our strategy in D. S is building out our.

We have asset management platform.

This area of focus and encompasses a range of digital services and products around asset performance asset inspection and emissions management.

As the world strive towards a net zero target in the coming decades enterprise level industrial asset management capabilities will be a key.

By enabling better operating efficiency, lowering energy consumption and reducing emissions across multiple industries.

Today, we have a strong position in monitoring critical industrial assets across a range of different facilities.

The next steps in our strategy will be expanding our presence to non critical assets.

Dry developing software capabilities to allow us to cover the entire balance of plant.

During the quarter <unk> continued to expand its industrial asset management presence with a number of wins across multiple end market.

We were pleased to announce the strategic framework Alliance agreement with <unk> for integrated asset.

And punishment services.

This five year Alliance includes the delivery of Bentley, Nevada plant wide condition monitoring and machine asset protection services across over 1200 assets at over 16 <unk> sites in Saudi Arabia.

The partnership with topic will deliver localized maintenance support and access to.

<unk> modest growing suite of sensors hardware software and engineering services, including the expensive now cloud enabled system one platform.

In Latin America, the Bentley, Nevada team secured a contract with a major company to apply system one in condition monitoring solutions to two hydroelectric.

And a wind farm.

System, one will deliver proactive asset management to more than 600 megawatts of power between the free power generation facilities, enabling safer and more reliable renewable energy.

Despite a more challenging quarter in parts of our portfolio, we believe that Baker Hughes.

Eric playing equally positioned in the coming years to deliver sector, leading free cash flow conversion. While also building one of the most compelling energy transition growth stories.

We are committed to evolving our company with the energy markets, while maintaining our prioritization on free cash flow returns above our cost of capital and retaining.

As you have to pull to our shareholders.

With that I'll turn the call over to Brian.

Thanks, Lorenzo I'll begin with the total company results and then move into the segment details.

Orders for the quarter were $5 $4 billion up 6% sequentially driven by T. P. S O F N and O N E.

<unk> offset by a decrease in digital solutions.

Year over year orders were up 5% driven by increases in O N E. L. F S and D S, partially offset by a decrease in TPS.

Remaining performance obligation was $23 5 billion down 1% sequentially equipment.

Equipment Rps.

Paresh ended at $7 $6 billion down 1% sequentially and services <unk> ended at $15 9 billion down 2% sequentially. The reduction in <unk> in the quarter was primarily driven by foreign exchange movements. Our total company book to Bill ratio in the quarter was one one and our equipment book to Bill in the quarter.

P O 0.1.

Revenue for the quarter was $5 $1 billion down 1% sequentially driven by declines in T. P. S. O N E N D S, partially offset by an increase in OSA.

Year over year revenue was up 1% driven by increases in Oss TPS and D S partially offset.

By a decrease in OSB.

Operating income for the quarter was $378 million adjusted operating income was $402 million, which excludes $24 million of restructuring separation and other charges.

Adjusted operating income was up 21% sequentially and.

There was one 2% year over year, our adjusted operating income rate for the quarter was seven 9% up 140 basis points sequentially year over year, our adjusted operating income rate was up 330 basis points.

Adjusted EBITDA in the quarter was $664 million, which exclude.

$17 million to $24 million of restructuring separation and other charges adjusted EBITDA was up 9% sequentially and up 21% year over year.

Corporate costs were $105 million in the quarter. So the fourth quarter, we expect corporate cost to be flat compared to third quarter levels.

Depreciation.

Glued amortization expense was $262 million in the quarter for the fourth quarter, we expect DNA to be roughly flat sequentially.

Net interest expense was $67 million.

Income tax expense in the quarter was $193 million.

GAAP earnings per share was.

And included in GAAP earnings per share of losses from the net change in fair value of our investment in <unk> Dot AI.

These charges are recorded in other non operating income.

Adjusted earnings per share were <unk> 16.

Turning to the cash flow statement free cash flow in the.

One was $305 million free cash flow for the third quarter includes $40 million of cash payments related to restructuring and separation activities.

We are again, particularly pleased with our free cash flow performance in the third quarter. Following the strength we saw in the first half of 2021, we have now generated almost.

Quarter $2 billion of free cash flow in the first three quarters of this year, which includes $210 million of cash restructuring and separation related payments.

For the total year 2021, we now believe that our free cash conversion from adjusted EBITDA will exceed 50%.

We are pleased.

<unk> the performance this year as we have worked hard to improve our working capital and cash processes, our diverse portfolio of capital light businesses and strong free cash flow performance provides the company with flexibility and Optionality when it comes to our broader capital allocation strategy.

Last year this.

Stability allowed us to be the only company in our core peer group to maintain its dividend during the Covid crisis.

This year, a recovery from the industry downturn, coupled with our strong cash performance enabled us to authorized a $2 billion share repurchase in July which we began to execute on in early September.

In the third quarter, we repurchased $4 4 million Baker Hughes class a shares for $106 million at an average.

Bridge price of just over $24 per share.

Going forward, our strong balance sheet and strong free cash flow capability provide us with attractive optionality to continue to.

Timber in cash to shareholders and also invest in offerings related to energy transition.

More specifically in addition to paying our dividend, we intend to repurchase shares on a consistent basis and deploy capital in the tuck in M&A and technology investments on an opportunistic basis.

Now I will walk you through the segments.

Segment results in more detail and give you our thoughts on the outlook going forward.

Starting with oilfield services revenue in the quarter was $2 4 billion up 3% sequentially.

International revenue was up 2% sequentially led by increases in Latin America, and the middle East offset by declines in Asia.

To return it and the North Sea.

North American revenue increased 3% with solid growth in North America land.

By declines in North America offshore due to hurricane Ida disruptions.

Operating income was $190 million up 11% sequentially.

<unk> operate.

Margin rates expanded 60 basis points to seven 9% due to higher volume and lower depreciation and amortization.

Overall <unk> results were below our expectations in the third quarter due to several factors, but most notably hurricane Ida and supply chain related issues that impacted both revenues and.

Margins are chemicals business was the most heavily affected from these issues with some pricing increases offset by escalating input freight and logistics costs.

As we look ahead into the fourth quarter, we expect to see solid sequential improvement in international activity and continued improvement in North America as a result.

We expect sequential revenue growth for <unk> in the fourth quarter in the mid single digits on the margin side, we expect stronger sequential margin improvement in the fourth quarter as some of the supply chain related headwinds abate and expected product sales lead to a more favorable mix.

As a result, we believe that operating margin.

Rates could approach double digits in the fourth quarter.

Although it's still early I would like to give you. Some initial thoughts on how we see the Oss market in 2022.

In the international market, we expect the continuation of a broad based recovery with double digit growth a likely scenario across all geographic market.

In North America, we have limited.

Visibility next year due to the short cycle nature of the market. We believe that the region could experienced strong double digit growth if commodity prices remain at current levels.

With this type of macro backdrop, we would expect to generate double digit revenue growth in Oss in 2022.

Margin rate should also see strong improvement at some of the <unk>.

Recent supply chain and cost escalation headwinds normalize.

Moving to oilfield equipment orders in the quarter were $724 million up 68% year over year and up 6% sequentially.

Strong year over year growth was driven by subsea production systems and subsea services.

As Lorenzo mentioned orders this quarter were supported by a large contract from Chevron, Australia for subsea compression medical technology.

Sequential improvement.

And that was driven by an increase in orders in subsea drilling systems, and subsea services, partially offset by lower activity in Sps.

Revenue.

Revenue was $603 million down 17% year over year, primarily driven by declines in Sps SPC projects and the disposition of SPC flow, partially offset by growth in subsea services and flexible.

Operating income was $14 million down 27% year over year driven by lower.

Volumes.

For the fourth quarter, we expect revenue to decrease sequentially driven by the removal of Sds from consolidated OSV operations, we expect operating margin rate to remain in the low single digits.

Looking ahead to 2022, we expect a modest recovery in offshore activity driven by higher oil prices and.

We'll deployment into low cost basins and projects, we expect OSP revenue to be down primarily driven by the deconsolidation of Sds, but we expect <unk> margins to be in the low to mid single digit range driven by business mix and benefits from the recent cost out actions taken.

Next I will cover.

Turbo machinery.

And the team delivered another strong quarter with solid execution and we are very pleased with the performance. The TPS team has delivered this year.

Orders in the quarter were $1 $7 billion down 9% year over year equipment.

Equipment orders were down 33% year over year as Lorenzo.

Capital orders this quarter were supported by two large <unk> awards in Brazil for power generation and compression equipment.

Year over year decrease was primarily driven by a large LNG order we received in the third quarter of 2020 from Qatar Petroleum.

Service orders in the quarter were up 31% year over year driven.

Mentioned increases in transactional services contractual services and upgrades.

Revenue for the quarter was $1 6 billion up 3% versus the prior year.

Equipment revenue was up 2% services revenue was up 4% versus the prior year.

Operating income for TPS was.

With $278 million up 46% year over year, driven by higher volume and continued execution on cost productivity.

Operating margin was 17, 8% up 520 basis points year over year.

For the fourth quarter, we expect strong sequential revenue growth.

Due to the continued execution of our LNG and onshore offshore production backlog as well as typical fourth quarter seasonality.

As a result, TPS operating income should increase on a sequential basis with operating margin rates likely flat due to equipment project timing.

Looking.

Looking into 2022, we expect double digit orders growth in TPS led by LNG opportunities. We also see a solid pipeline of opportunities in our onshore offshore production segment, along with growth opportunities in pumps valves hydrogen and Cc you at all.

Although we expect to see a strong.

<unk> increase in TPS orders in this environment, we expect revenue to be roughly flat or modestly up in 2022.

This will depend on the growth of services the pacing of equipment project execution and order intake early in the year.

On the margin side, we expect operating income margin rates to be roughly flat.

<unk> modestly down depending on the mix between equipment and service.

Finally in digital solutions orders for the quarter were $523 million up 6% year over year, we saw growth in orders in industrial and transportation.

<unk> orders were down 3% driven by declines.

That oil and gas and power.

Revenue for the quarter was $510 million up 1% year over year, primarily driven by higher volumes in process and pipeline services and <unk> technologies, partially offset by lower volume in Nexus controls and Bently, Nevada sequentially revenue was down 2% driven by lower.

And in a bently, Nevada, partially offset by TPS.

As Lorenzo noted earlier <unk>.

Trickle component shortages and supply chain constraints led to lower revenue conversion during the quarter.

<unk> also saw some COVID-19 mobility restrictions in Asia Pacific and the Middle East and delays and plant outages as.

Sure by the Hurricane Ida.

Operating income for the quarter was $26 million down 44% year over year, largely driven by headwinds from mix or volume supply chain challenges and higher R&D costs sequentially operating income was up 3% for.

For the fourth quarter, we expect to see strong sequential revenue and margin.

<unk> growth in line with the traditional year end seasonality.

Looking into 2022, we expect solid growth in revenue of supply chain constraints begin to ease and orders pickup across digital solutions with higher volumes, we expect strong improvement in DS margins.

Overall I am pleased with our continued strong.

Free cash flow execution in TPS business performance, while we face short term challenges in our <unk> businesses, we are confident in our ability to execute in the fourth quarter and into 2022.

With that I will turn the call back over to Jeff.

Thanks, Brian operator, let's open the call for questions.

Yeah.

Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key we also ask that you limit yourself to one question and one follow up our first question comes from James West with Evercore ISI.

Hey, good morning, guys.

Hey, James.

Thanks.

So we're in the <unk>.

For 2022, I'm curious to hear your thoughts on both order rate.

Growth rates for that business, there's a lot of really positive momentum as you know in LNG and natural gas in general.

How is your prepared comments.

The kind of hear your.

Your broad outlook for that business.

As we go into next year, because I think we should be.

And maybe even 'twenty three we should be going into a major cycle for DBS.

Yes James.

We feel good about the TPS orders outlook and we do expect as it was mentioned that well see double digit order growth in 2022, and a lot of that driven by the LNG opportunities.

We've spoken about LNG before and as you look at the outlook for 'twenty fatty we increased the capacity requirements.

LNG to 800 M Tpa and during the course of the next few years, we see projects of.

100 to 150 M Tpa being awarded and we've got a bias towards the upper end of that and feel very good about the projects coming through a number of customer discussions that have been ongoing and you've seen.

And that in the industry at the moment. So we feel good about LNG with some larger deals as well as small and mid size opportunities and.

And then also in the other segments of our TPS business. When you look at the offshore onshore production side, most notably with some of the <unk> and a.

A strong number of opportunities in Latin America coming through continued traction on the services business, both transactional and contractual and then as we go through 'twenty two and beyond also a continued pipeline of good growth opportunities for our pumps valves as well as the new energy markets of hydrogen and <unk>. So this is a good.

Cycle for TPS in orders outlook positive.

Okay. Okay. Good good good to hear and maybe <unk>.

Leveraging off the last statement you made on the new energies business.

What are you what are you.

Thinking about growth there in 'twenty, two and 'twenty three and beyond are you starting I mean this has been.

We're going through a period of.

Every day, there's announcement on hydrogen or Cc U S.

But ours is this starting to translate now into concrete business or is that still on the come how would you kind of think about the new entities business.

Yeah, James we're definitely seeing the pipeline of Opex.

The opportunity is getting more firmed up and you'll have seen that even in <unk>, we announced the selection of TPS to supplying a booster in exports centrifugal pumps to northern lights to transport and storage project in Norway. So.

Previously we've also made other announcements around that linkage with that product so.

We're starting to see the market mature and also the opportunities firm up as we look to 2022, we expect to see $100 million to $200 million of orders from the new energy spaces and as we go forward. During the course of the next three to four years, we think that it could be around 10%.

Of our TPS orders coming.

The new energy spaces.

As we've said before by the end of the decade, we could have as much as $6 million to $7 million of orders and the new energy spaces.

Good traction and as you know, we're coming up to cop 20, fix and Theres a lot of activity and we think that with continued regulation and continued support.

Coming frozen policies.

Going to be more firming up in the new energy space as we go forward.

Okay, great. Thanks, a lot.

Thanks, Our next question or.

Our next question comes from Chase Mulvehill with Bank of America.

Hey, good morning, everybody.

Hey Chase.

Hey, Brian.

So Paul I guess first if.

If we can just.

Can we dig into the Oss a little bit I mean, you gave us some color around Ida supply chain friction and kind of raw material cost inflation.

<unk> results, but could you maybe just expand a little bit on that.

And I don't know if you're willing to quantify the impacts of each.

Maybe some of the timing of getting some of this stuff resolved.

Yes.

I'll give you some more color on that look at you know as I said.

First revenues were up 3% sequentially in the quarter North America land actually basically performed in line with overall market trends when you factor in the heavy influence of.

Each of our field and industrial chemicals business and international we did see some increases.

Primarily in Latin America, Russia, and the Middle East that were offset by declines in <unk> and some other areas due to some of the one off factors that we talked about so if I break it down and look at what was going on and what impacted revenue a couple of things. There first we did meant.

<unk> Ida.

As well as some of the supply chain constraints. So I'd say these two items cost us about $30 million to $40 million in revenue during the quarter, either obviously pretty straightforward as to what was going on logistics.

We're impacted by just timing of some shipments.

Some.

Some COVID-19 related things in a couple of our suppliers and in a in a couple of factories.

That will that will come back not not anything loss, there and then Asia Pacific specifically was modestly down during the quarter really related to some COVID-19 delays and mobility issues and that was about 10 to 15.

$15 million.

That overall revenue impact and I'd say, the second area, where we saw some impacts in the quarter again I think they are transitory are around margin impacts related to some of the supply chain items that that I talked about most notably we saw some higher freight and shipping costs across several.

Lines that resulted in higher costs in the quarter, we saw that particularly in lift and in the chemicals business.

And while we have been pushing price increases there is a delay in that coming through with some of the contracts and things that we are that we have in place and I'd I'd say chase we are as far.

Product related out related items go in factories and stuff, we have been working with the supply chain to build up inventory and safety stock to be able to handle that as we move forward and then on the on the logistics front, we are starting to see that stabilize and he's a bit. We are we saw a lot of capacity constraints, particularly.

Is that <unk>.

In Air as you know commercial aviation as well below pre pandemic levels and you don't have as much room in the belly of planes with thought with fewer flights. So as is the U S opens up.

And in more countries open up here, we're starting to see that creep back up and we've got good plans to deal with.

I'd say the team made some really smart decisions here in the quarter on some of the product sales Chase, where we saw logistics cost increase we work with our customers to make sure we weren't impacting their timings and the team decided not to ship at some of these higher costs and expedited freight costs and did the right thing for customers and for shareholders in terms.

And look at laying some of those shipments in getting the lower cost as we look here in the in the fourth quarter. So.

Over it on top of it every everybody is working on it and I think most of this is transitory we're still spending a lot of time on chemicals is they have some unique things going on in the supply chain, but feel good about <unk> and the margin trajectory.

<unk> are paid out over the short to medium term here.

Yeah, and you mentioned chemicals here, so as a follow up maybe if we can just.

Paul chemicals out and just kind of talk about separately about some of the issues that were happening in <unk>.

You talked about some raw material cost inflation.

<unk>, we launched the supply chain issues freight, but maybe just hash that out and just kind of lay out the path of kind of getting chemicals.

Margins in.

Back up to kind of where they were pre COVID-19 or maybe even above.

Yes Chase.

I'd say the chemicals business actually had about 100.

Bps drag on overall <unk> margins in third quarter due to the input cost.

That that we saw come through in some of the logistics challenges and look we have instituted multiple price increases in the chemicals business.

But you know most of our large contracts have contractual.

<unk> renegotiations every three to six months and when we when we put some of these increases in place. It does take some time for them to roll through based on the contracts that we have but spot prices have definitely been been taken up given how quickly.

Quickly, we saw increases from inputs like ethylene and propylene.

There is a bit of a delay in terms of getting that getting that through to customers.

The other thing in our chemicals business, that's a bit unique for us as we have been particularly impacted by.

By our sizable presence in North America, and our concentration of supply in the in the Gulf Coast about 75% of our supply chain roles.

Actual probably the Gulf coast, which has been impacted by several things. This year you know earlier, the Texas Freeze and then obviously in an August hurricane Ida and about 10% of our North American chemical business is in the Gulf Coast. So that saw a drop here in the in the quarter as well. So look we've got some pretty good contracts in place we've worked too.

Diverse.

<unk> the supply base.

Here in the short term I'd also remind you that we started back in 2018 and I'm happy to say that in the early part of 2022, our factory in Singapore should be up and running that is gonna be a natural margin accretion chases we have.

We have secured pretty favorable input costs, there and theyre going.

Diversified to a lot of our customers in Asia, which will naturally cut down on logistics cost the head of supply chain for Maria Claudia is spending his time down in Sugarland and working to make sure. These things are smoothed out here so for us it really boils down to two things, it's getting those price increases through which I feel good.

To be closed and will start to fill them coming and we've worked hard on the supply chain to make sure that the logistics are squared away and we're working on the supply base as far as the input costs go and I'd. Just note that typically the chemicals business is accretive to overall <unk> margins they've done a great job through the first half of the year, we did see that flip.

Good.

In the third quarter here.

And I do think it's transitory and as things start to normalize that business, we'll see margin rates.

Prove and again Chase will just reiterate that we feel good about the margin track that we laid out for Oss and being able to deliver on that 20% plus EBITDA here in the near to.

And in term.

Alright, perfect. Thanks, Brian I'll turn it over thanks.

Thanks, Jason.

Our next question comes from Neil Mehta with Goldman Sachs.

Good morning Lorenzo team.

On your question for me is around digital solutions, the operating margins have lingered in that 5%.

To me the last three quarters, you identified some supply chain concerns in the release, how do you see the margin dynamics in the business moving in <unk>, especially with year end sales and supply chain concerns and when do you see some of those issues abated.

Yes, Neil Hi, look as we did say we did.

Range few challenges in the quarter and I'd say the supply chain.

Is primarily focused around electrical component shortages are largely around semiconductors boards and displays.

That led to really some lower converted billety in the quarter.

And.

There's real tightness in supply.

See if market, we did have a quality issue from one of our suppliers that came out late in the quarter and with the tightness in the supply chain and then the supplier base that typically it could've been rectified within the quarter that that is.

Certainly had an impact and made some.

<unk> made some of the shipments slip out.

And that overall, the component shortages and a little bit around logistics and similar things we saw in.

In Asia. We also saw in our in DFS roughly impacted the top line about 3% to 4% in <unk> in the quarter look we've been well aware of this we've been taking preemptive steps.

To make sure we have got the right products.

To fulfill and I'd say the teams do daily production meetings on this end and move things around.

Accordingly, we have started to see that stabilize a little bit and.

Feel good that we've got what we need.

I'd say liver in the fourth quarter from a supply chain standpoint, and are obviously working on 2022 is as we as we speak today.

To get margins back up into the mid teens, which is where they should be.

Will require higher volume end and more recovery from our biggest businesses like Bently, Nevada next.

Nexis and.

Need to do and wake eight and four for fourth quarter in particular, we do see a strong sequential revenue in.

In line with traditional year end seasonality as I said, the supply chain constraints around electrical components.

Is is stabilizing and the logistics.

And we've worked through similar to what we've done in Oss and have that lined up for the quarter as well. So look we should see margin rate growth in line with traditional seasonality as well and then for 2022.

The team is.

Is working hard to make sure our supply chain is certainly not an issue and again it comes down.

Are we to getting those orders in the in the big businesses, which we've got a really solid pipeline.

As we see the economy recover we should see strength in those businesses, particularly in.

The the industrial sector.

That's really helpful just to add.

Just to add.

Down.

We have a good understanding of what we need to do at digital solutions and clearly it's an aspect of organizational changes supply chain improvements and also commercial intensity because as Brian laid out.

Into 2022, those margin rates should improve and we see again the digital.

Maybe she is getting back to where it needs to be so a big focus by myself and Brian on getting it back on track.

That makes sense Lorenzo that's a good follow up here in terms of.

Can you provide some incremental color on how the strategy of operating a fast a fee and TPS in DFS is more distinctly.

Wholesaler different groups, it's going and then how are you thinking about potential opportunities for maximizing shareholder value eventually.

Is the long term plan here that the businesses.

Are separated.

Yes, Neal again, you may have seen that.

Investor.

The conference in September we really laid out the way in which we view the business from two areas one being the upstream oilfield services and equipment side, which has some tailwind.

But it's also a mature marketplace and then the <unk>.

Matching higher growth in industrial energy technology as you look.

We also said it makes sense to keep it together and really run the full product companies as we do today.

It provides optionality as we go forward as well and we will always look at it from what's best for the shareholder return standpoint, there are benefits from a customer base perspective.

Also synergies from a technology.

Please standpoint, and we'll continue to run it on that basis and also continue to review what's best for the shareholders going forward. So that's really the key focus was to try and depict really the two growth areas that we have won and were more mature space, but then the evolving space of the energy transition and also.

Industrial applications for us.

And I just add that look we are we're paying close attention to the market and ultimately you know.

That will dictate.

Capital allocation in these businesses and and how we invest in and we're starting to see the market evolve and and and and push for more integration between.

Tween, our offerings, which is a which is a good thing and we see multiple opportunities here, particularly in new energy and in the digital space.

The teams to work together across the portfolio, but clearly as the market evolves there'll be different capital allocation priorities.

For those for those two big areas and we'll keep you guys updated on how we think about it and I just.

I remind you that with the HMH deal that just closed we have clearly demonstrated that we're willing to do things differently for the portfolio to increase overall returns and make these businesses successful and in different markets.

Okay.

Thank you. Our next question comes from Scott Gruber with Citigroup.

Okay.

Hi, yes, good morning.

Scott Good morning, Yeah, I just wanted to continue on that same line of inquiry I guess ask it.

But more directly.

If you do see proper value attribution for the industrial energy technology side of the business embedded within bakery stock would you then be inclined to remain integrated I mean is that just a.

Really the primary issue here.

Yes, Scott look I think.

Again, we wanted to depict the optionality that we have and that's why we clearly laid out the two business areas and ultimately we think that it's a topic that investors and the market will decide as we go forward. We see that there are synergies there today as we mentioned before on just the global scale of the customer base.

And we will continue to monitor as that evolves.

What it provides for US is also a differentiation in the marketplace again, we've got a portfolio that can now really cut across the landscape of energy within these two different business areas.

Got it.

And then just turning back to us.

Yes.

A few of your peers are starting to highlight selective areas of pricing gains both domestically and internationally.

Are you seeing pricing traction and discrete services, particularly on the on the international side, where we just have less less insight.

When contemplating that.

70% EBITDA margin goal.

How much pricing is required to get to that margin threshold.

If there's if there's much contemplated what we're putting forth cycle.

Yeah, I'll kick it off here Scott.

Generally speaking we've been pushing pricing.

To offset the cost inflation and we've seen success in that outside of the chemicals business, which is as Brian mentioned going to take a little longer due to the way the contractual agreements where we.

We're seeing the largest gains in North America and also in some of the markets internationally I'd say one area that remains competitive as some of the larger.

As in the Middle East on the.

Turnkey aspects and again, we're being very much are focused in how we price and looking to offset inflation.

Yeah, I would just add to that even when you look at the path to 20%, we're not counting on net price to get US there it's really.

<unk> working hard to offset.

Deflation, particularly and in chemicals is as I've mentioned here, but you know again, we have we've.

10, cheating a lot in terms of improving margins in RFS and I'd just remind you again I mentioned the chemicals factory, that's going to be starting in Singapore in the first half of the year. In addition to that we have a lot of the initiatives that have been taking hold over the last 12 months to 18 months, including remote operations, we still.

<unk> XR are closing down some rooftops and we've got some supply chain moves where we're moving things closer to our largest customer base. So there's still some other thing Scott that we put into place that haven't you know fully matured and an or and you know aren't fully reflected in the results yet and that will come through in the fourth quarter and into.

Our year as we as we bridge over to that 20% plus EBITDA rate.

Got it thanks, Brian appreciate it wanted to.

Thanks.

Our next question comes from David Anderson with Barclays.

Hey, good morning, a question on the on the mix of TPS revenue going into.

22, and 23 in particular on the pace of backlog conversion.

I guess I'm curious is it fair to say that the aftermarket services has been much slower to convert.

For the last couple of years and that should accelerate in the next couple of years and then secondarily the equipment side on backlog conversion, how does that compare to historical is that normal.

It kind of just help me understand how you see those two components moving part I heard your guidance on kind of the TPS revenue in the orders, but just maybe a little bit more color on the mix between those two categories. Please. Thank you yes.

Yeah, David look I mean, you know Brian.

Brian and the team have done an outstanding job this year and I'd say from a backlog conversion.

And standpoint and in.

Seen this for almost 20 years now and TPS things can move around from a project timing step.

Uh huh.

<unk> timing perspective, with its mostly customer schedules that moved that with some moving forward and some being pushed back so I'd say, what we're seeing.

Seeing right now is just typical movement across the backlog are actually capability and capacity to fulfill has certainly gotten better over the last few years and so we can have that flexibility for our for our customers and so I would say what you've seen this year as you've seen some projects move in and you've seen some projects.

And just given the order cadence and how that cycle is has played out that's really what's driven the uptick in what we see in equipment revenue.

For 2022 as far as services go you know look we saw a.

A bit of a dip last year contractual services has performed exactly in line.

I'm with with how we thought we did see some movement in transactional services and then we started to see an uptick in AR and upgrades.

Coming through this year and the tailwind for services look pretty good for next year as well. So while you may not see the same level of growth that you're doing equipment because of the way the backlog is going to convert we're pretty.

Happy with the trajectory that we see.

In in TPS services, So I just break that down again contractual services have performed right in line with what we expected transactional orders are up this year and we expect revenue to be up next year for that and the upgrade cadence looks it looks pretty good as well so listen overall next year margins.

For both businesses or within TPS are going to be strong. The overall margin rate is really going to depend on the mix of equipment.

The services and the other thing I'd just add about the performance here as the cost productivity has been outstanding this year with how rod and the team have been have been executing I would expect that they.

Would drive productivity productivity next year, given everything we're seeing and the commodity markets.

Not not prudent right now to count on it falling through at the same level given some of the potential inflation, that's coming through but I think we've demonstrated this year that that team can drive productivity and you know.

It's shown up in the margin rates and.

They are ahead of where we thought they'd be at this time and I'm really pleased with that and feel good about the outlook for next year.

That's great Brian. Thank you very much thank you Lorenzo.

Alright. Thanks.

Thanks, just to add on the if you look at the LNG outlook.

He indicated and the potential for the 100 to 150 in Tpa.

And we're on the upper end of that Youre going to be increasing our installed base, which obviously.

Now, we're seeing an additional 30% of installed base by 2025, which then.

It gives us a good outlook for services as well going forward.

That's a great point Lorenzo Lorenzo on a different subject I was curious your views on offshore.

Are you starting to feel a little bit better about offshore you've been kind of your outlook on offshore has been rather conservative.

You saw a nice pickup of orders this quarter and OFC in Guyana in Australia, now starting to see a lot more coming out of Brazil.

It's more than <unk> of course, but I was wondering if you can just kind of maybe just kind of talk about how youre seeing.

<unk> are you more optimistic.

Or maybe the second half of 'twenty, two offshore start coming in and playing a greater role you have nice orders, but obviously, we're still kind of below where we normally should be.

Yes.

Clearly with the pricing where it is at the moment.

There is.

That improvement I'd say, though it still remains a challenge then just when you look at the capacity that's still in the marketplace and again, we don't see it going back to the levels of.

Prior year still for another couple of years. So yes. There is some improvement in particular around the wellhead business also on the services.

Some side.

When you look at flexible pipes as you look at trees and awards on trees again, some modest improvement in 'twenty, one and additional growth in 'twenty, two but it's still.

Difficult to see at achieving the historic levels and those being sustained.

Thank you.

Our next question comes in comparison with Piper Sandler.

Thanks, Good morning.

Hey, Lorenzo back too.

Our strategic options for.

IEP versus OFC.

Do you view the OSC side is still.

Yeah.

Overly complex competitively I mean, do you think that M&A is a key consideration in terms of improving market structure that needs to happen on.

On the mature side of the business.

Potential M&A synergies factor into your calculus, there or are you really.

We're about optimizing value.

Kind of an independent basis excluding.

Market structure.

As you look at the marketplace clearly there are some big players.

We're really focusing on the optimization, improving the margin rates and really.

The operational improvements within our upstream business and as you look at some tailwind clearly demand is increasing and we do expect to get back up to 2019 demand level. So.

We'll continue to evaluate the prospects on each of the businesses and again, it's more a margin focus as we said before.

<unk>.

<unk> business.

Okay.

And then either Lorenzo or Brian I was going to ask a follow up on the near term outlook for for orders in TPS.

Just thinking.

Reconciling your full year guidance for this year for orders.

For the fairly similar.

Similar to last years and yet you could have.

It sounds like you could have materially more big LNG orders in Q4 versus essentially not in Q3, which seems like that could tilt the scales to a positive year on year comp am I thinking about that correctly or are there other.

Pieces.

Below the surface that would that would iron that out.

And then just as you correctly say, we didn't book any LNG orders in third quarter and as you know.

A bit of Lumpiness when it comes to LNG. They are large scale orders and we do expect to book.

To be for two additional awards in the fourth quarter based on the current discussions we're having with customers and also some of the seasonality as you look at TPS orders will likely be modestly up sequentially and flat year over year for the fourth quarter and 2021 and then as you go into 2022 again, we stated before we expect.

Book wanted digit order growth led by the LNG opportunities and there is some timing elements there, but feel very good about the 2022 and double digit orders expectation.

Indeed did I hear correctly, you said that up to 10% of that could be for the new energy pieces next year versus a very low comp this year.

Doubled now not not next year its as you look out to the next three to four yes, okay. Thanks.

Thanks for question, we've thought about it we said about 100 to 200 for the new energy next year.

Thanks for taking me on that I appreciate it.

Our next question comes from Marc Bianchi with Cowen.

Hey, thanks.

I wanted to start maybe at a higher level question.

It relates to the OFC NIH.

Division that Youre talking about there is some others in the business that are talking about integrating subsea production systems and carbon capture.

Sure.

I'm curious if that.

How do you see that opportunity and if that could perhaps become a limiting factor too.

Essentially separating those businesses.

Yeah, Matt as we mentioned before we see synergies that exist between the.

Wholesale services and equipment.

As well as the industrial energy technology, we're retaining the full product companies and in fact, we have synergies across the capabilities of <unk> as you know from a drilling perspective also from a storage reservoir understanding as well as then the capture from the compression side. So.

We continue to look.

Off from a holistic basis as those opportunities arise.

Yes, Mark I would say I don't think I don't.

Don't think how the businesses work together limit optionality in the in the long run I mean, we've got tons of examples of partnerships across the industry. Today. So again, we're going to be really focused on.

Margins and.

It it for some returns in the upstream business and <unk>.

It's growth.

Taking advantage of what's going on in the new energy space and again, we'll look at overall shareholder return.

As we think about structure over the long term, but.

These businesses naturally worked together I don't think that's a hindrance to any structure going.

Forward and in fact, I think it is.

It could help in multiple structures.

Yeah, Okay. Thanks, Brian.

Brian on the share repurchase pace.

So about $100 million in the third quarter, but you didn't start you didn't have a full quarter of <unk>.

Having the program in place.

Curious.

When you actually started that in the third quarter and if that would be reflective.

Type of buyback versus what we could see going forward.

Yes look we started up in September.

With with.

With the program and look Ive had.

Continue to be active and listen our.

Our goal here is.

To continue to be in the market.

And from a capital allocation standpoint, we like the dividend.

We like the pace of buyback, we've generated quite a bit of free cash flow and have excess.

Excess cash to deploy in that space and we still have capital to deploy in the tuck in M&A and technologies that we talked about here. So.

From a from a buyback standpoint, we will continue to be in the market and look we will also be opportunistic if if things change and we have.

Trinity to do more so that's that's the the thing I like about our free cash flow.

Capabilities. It gives us some optionality here to continue to drive returns and we will do that.

Great. Thanks, so much.

And ladies Alright, I think.

Sorry go ahead.

And I was just going to say I think that concludes the call. So I just wanted to thank everyone for joining the earnings call today, and just leave you with a couple of thoughts.

We're really pleased with the way the teams executed and continue to X.

On our strategy over the course of the first quarter, while we had some mixed results across our <unk>. We're pleased with the strong operating in orders performance at TPS and a solid quarter of free cash flow and looking ahead, we see a multiyear cycle in the RFS business and a multiyear growth cycle for TPS led by LNG and new.

SKU initiatives. So we're going to continue to execute our strategy through the free pillars of transform the core invest for growth and position for new frontiers, and as I mentioned the way, we're thinking about the company and our broader long term strategy is evolving we are starting to view our company and the two broad business areas of oilfield services and equipment and industrial.

Energy technology, we feel Baker Hughes is uniquely positioned in the coming years to evolve with the energy markets and grow in the industrial space, while maintaining our prioritization on free cash flow returns above our cost of capital and returning capital shareholders. So thanks for taking the time and look forward to speaking to you again and operator, you may close the.

Real energy.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

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Nicole.

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Good day, ladies and gentlemen, and walked through the Baker Hughes company third quarter.

'twenty one earnings call at this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press star zero on your Touchtone phone.

As a reminder, this conference call is being recorded I would now like to use your host for today's conference Mr. Jud Bailey, Vice President of Investor Relations.

22, you may begin.

Thank you good morning, everyone and welcome to the Baker Hughes third quarter 2021 earnings Conference call here with me are chairman and CEO, Lorenzo Simonelli, and our CFO, Brian Worrell. The earnings release, we issued earlier today can be found on our website at Baker Hughes Dot com.

As a reminder, during the course of this conference call we.

Certain forward looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions.

Please review, our SEC filings and website for a discussion of so it was the factors that could cause actual results to differ materially.

Reconciliations of operating income and other GAAP to non-GAAP measures can be found in our earnings release with that I will turn the call.

We'll provide them though.

Thank you Jonathan good morning, everyone and thanks for joining US we are pleased with the way. The team has continued to execute on our strategy over the course of the first quarter.

Total company level, we had a strong orders quarter grew adjusted EBITDA and adjusted operating income margin rate sequentially and year.

Over to later and had another solid quarter of free cash flow.

We did experienced some mixed results across our product companies on the positive side TPS generated strong orders operating income and margin rates and <unk> had a solid orders quarter on the more challenging side, our FX business was negatively.

Year over year by hurricane either cost inflation in our chemicals business and delivery issues stemming from supply chain constraints, while also.

Also face supply chain delays that impacted product deliveries.

As we look at the macro environment the global economy continues to recover.

However, the pace.

<unk> is being hampered by lingering effects from the COVID-19 Delta variant global ship shortages supply chain issues and energy supply constraints in multiple parts of the world.

Despite these headwinds global growth appears to be on a relatively solid footing underpinning a favorable outlook for the oil market aided.

Growth continued spending discipline by the world's largest producers.

And the natural gas and LNG market fundamentals remained strong with a combination of solid demand growth and extremely tight supply in many parts of the world.

In fact, we believe the positive case for structural demand growth in natural gas.

As part of the broader energy transition is becoming increasingly evident.

The current environment illustrates the need for policymakers the focus on the utilization of natural gas as a base load fuel that can be combined with renewable energy sources to provide a cleaner safer and more affordable and more reliable source.

Aided by the energy to populations around the world.

A number of developed economies have had great success over the last 10 to 15 years lowering their carbon emissions by switching from coal to natural gas.

Some policy scenarios have seen a more rapid conversion straight to renewables, which limits the role of natural.

<unk> gas as a transition fuel and can lead to broader grid instability.

We believe that there is a strong and logical combination of a secure stable base load of natural gas that is needed to complement renewable energy sources and in ton offset intermittency.

As you can see from recent events.

Hence the cost of moving to aggressively are beginning to surface as multiple parts of the world, they're experiencing energy sources unprecedented increases in energy prices and shutdowns and brownouts across multiple industries.

The increase in natural gas prices has been most acute due to a number of factors.

Including Underinvestment in gas reserves are declining contribution from hydroelectric and renewable power and continued increases in energy demand Ironically, the fallout from higher prices has also led to an increase in coal consumption, leading to coal shortages and a spike in coal prices.

Natural gas has been a key contributor to lowering emissions in the United States over the last 15 years as power generation consumption switch from coal to natural gas.

U S power consumption of natural gas has increased from around 16% of total generation, so roughly 40% over the past 20 years.

Coal consumption has declined from over 50% of the energy supply mix to approximately 25% over the same period.

By comparison today, roughly 60% of Asia Pacific's power generation comes from coal and about 10% from natural gas.

As more countries.

Step up that carbon reduction commitments, we believe that natural gas will play a critical role in displacing higher emission sources like cold and by supporting the growth in renewable energy technologies would relatively cheaper and affordable Baseload power.

Natural gas and LNG are core to Baker Hughes the strategy.

And we will continue to play a key role in providing natural gas as a safe reliable resource to the world.

In addition to our focus on natural gas and LNG Baker Hughes has spent considerable time over the last few years to move and accelerate a broader strategy for <unk>.

During the third quarter, we outlined.

<unk> been working to best position Baker Hughes for today and in the coming years.

We have given a lot of Florida around how to service the oil and gas and energy markets today, while also investing for the future across the industrial space and various new energy initiatives.

While we continue to.

How would you a strategy through the free pillars of transform the core investor growth and position for new frontiers.

Way that we're thinking about the company and our broader long term strategy is clearly evolving.

As we recently highlighted at an Investor conference at the beginning of September we are starting.

Excellent company in two broad business areas oilfield services and equipment and industrial energy technology.

On the OSV side of the company, we have a technology, leading global enterprises with core strengths and drilling services and completion tools flexible pipe artificial lift and production.

To view upstream chemicals.

We strongly believe that these businesses can generate top tier returns and free cash flow conversion.

<unk> is poised to benefit from cyclical growth in the coming years as we believe that we are in the early stages of a broad based multi year recovery there will be characterized by longer time investment.

And down into the core OPEC plus countries.

The way, we think about industrial energy technology or E. T is essentially our TPS and <unk> businesses.

Both product companies have compelling portfolios that are beginning to see significant secular growth opportunities, particularly in the areas like hydrogen.

And C C U S.

With core competencies across a number of offerings like power generation compression and condition monitoring as well as a growing presence in flow control industrial asset management and digital.

We have a strong foundation on which to build an even more comprehensive presence in the broad industrial.

Energy technology markets.

We believe that focusing on two major business areas with closer alignment will enhance our flexibility improve execution increased shareholder returns and provide long term optionality as the energy markets evolve.

Now I'll give you an update on each of.

Trojan Thats.

In oilfield services activity levels continued to increase during the third quarter with North America outpacing the international market broadly.

As I just mentioned, we believe the Oss market is in the early stages of a broad based multi year recovery.

Internationally, we saw the.

The strongest rig count growth during the third quarter in Southeast Asia.

Float by more modest growth in the North Sea and Latin America.

The return to growth in Russia, and the Middle East has been slower as OPEC plus is taking a measured approach to increasing production.

However, based on discussions with our customers the pipeline.

<unk> opportunities in these regions continues to grow and will likely be a major driver of the international growth in 2022.

In North America offshore activity was disrupted by Hurricanes during the month of August while U S land continues to steadily move higher the.

Underlying trends in North America remains.

Same with public E&ps and I O sees remaining disciplined in deploying capital while private e&ps remain more active there.

Based on conversations with our customers, we expect firm activity during the fourth quarter and continued strong growth in 2022.

While activity levels and pricing discussions.

We remain both moving into right direction. Our RFS business has also had to navigate multiple challenges during the first quarter.

These include Hurricane Ida Covid related impacts supply chain constraints and higher input costs in our production chemicals business.

Despite these challenges we remain.

<unk> been growing our margin rates for a combination of cost reduction and efficiency initiatives as well as pricing increases to offset higher costs.

As a result, we remain committed to driving Oss EBITDA margins to 25% level over the medium term.

Moving to TPS the outlook.

<unk> continues to improve driven by opportunities in LNG onshore offshore production pumps and valves and new energy.

Yeah.

We still expect the order outlook for TPS in 2021 to be roughly consistent with 2020.

Importantly, the case for a multiyear growth.

Opportunity beginning next year, beginning next year continues to improve.

While we expect the majority of the order growth in TPS to be driven by LNG over the next couple of years, we anticipate that we will start to book more meaningful equipment orders related to hydrogen and Cc U S. In 2000.

'twenty two.

And LNG, while we did not book any awards during the third quarter, we still expect to book one or two additional awards by the end of 2021.

Based on the pace of discussions with multiple customers and the positive fundamentals in the global gas market, we still see the opportunity for an additional.

It's 150 M T P. A of awards over the next two to three years with a bias towards the upper end of that range.

But the non LNG segments of our TPS portfolio, we see multiple opportunities for continued growth.

Most notably our onshore offshore production segment is poised to benefit.

Hunt from a strong project pipeline for CSO awards, driven by a number of opportunities in Latin America.

In the first quarter, we were pleased to book two large F. P. S O awards in Brazil for power generation and compression equipment building on our recent success earlier in 2021 and in 2020, we.

We have now booked eight F BSO and offshore topside equipment awards, so far in 2021, which follows five awards in 2020.

We also continued to see success in the industrial market, where TPS recently secured wins for our Nova L. T industrial gas turbine technology in India.

China.

We are deploying on Nova L. T turbines for power generation across several industrial segments, including electronics ammonia production and pharmaceutical manufacturing.

And carbon capture TPS was selected to supply booster and export centrifugal pumps that northern.

And C O two transport and storage project in Norway.

They sort of highlights are C O two pump injection capabilities and is the first C. C. U S Award for our pumps product line.

The TPS services, we saw continued signs of recovery during the quarter with strong growth across transactional and contractual services.

As well as our upgrade business and we remain optimistic about the outlook for 2022.

Next on oilfield equipment, we remain focused on right sizing the business improving profitability and optimizing the portfolio in the face of what remains and unclear longtime offshore outlook.

Trends in our.

OFC business remained somewhat mixed despite brent prices around $80.

We continue to see a strong pipeline of flexible or the opportunities as well as improving market conditions in our international wellhead and services business.

For industry wide subsea trees, we continue to expect modest improvement in 'twenty.

<unk> 21, followed by some additional growth in 2022.

During the third quarter, we were pleased to be awarded a contract by Chevron, Australia to deliver subsea compression manifold technology for the J&J I O compression project in offshore Western Australia.

This important win builds on our previous.

For subsea equipment orders cause chevron's Gorgon natural gas facility.

We recently completed the merger of our subsea drilling systems business with MH West.

We own 50% of the new fully independent company now called H M H.

<unk> is an excellent example of how we are trying.

Extending the core to ensure that we're making the right strategic decisions for Baker Hughes.

By combining the two businesses HMH will have more capability and a more integrated offering.

Customers are incredibly complementary about this enhanced model and we look forward to seeing H MH succeed in the future.

Finally in digital solutions, we saw multiple challenges during the quarter electrical components shortages largely around semiconductors boards and displays led to lower revenue conversion as well as broader supply chain constraints that drove pressure in the quarter.

We recognize that we have work to do.

In digital solutions to drive operating margins back to an acceptable level, we are implementing changes across the business to drive operational improvements and ensure that we have the right team in place to take this business back to where it needs to be.

Core to our strategy in DFS is building out our industrial asset management platform.

This area of focus encompasses a range of digital services and products around asset performance asset inspection and emissions management.

As the world strive towards a net zero target in the coming decades enterprise level industrial asset management capabilities will be a key driver by enabling better operating.

C lowering energy consumption and reducing emissions across multiple industries.

Today, we have a strong position in monitoring critical industrial assets across a range of different facilities.

The next steps in our strategy will be expanding our presence to non critical assets and developing software capabilities.

Efficient that allow us to cover the entire balance of plant.

During the quarter <unk> continued to expand its industrial asset management presence with a number of wins across multiple end market.

We were pleased to announce the strategic framework Alliance agreement with <unk> for integrated asset performance management services.

Decides.

Sure Alliance includes the delivery of Bentley, Nevada plant wide condition monitoring and machine asset protection services across over 1200 assets at over 16 <unk> sites in Saudi Arabia.

The partnership with topic will deliver localized maintenance support and access to bently, Nevada growing suite of sensors.

Five years, where software and engineering services, including the expensive now cloud enabled system one platform.

In Latin America, the Bentley, Nevada team secured a contract with a major company to apply system. One in condition monitoring solutions to two hydroelectric plants in a wind farm.

System.

Han will deliver proactive asset management to more than 600 megawatts of power between the free power generation facilities, enabling safer and more reliable renewable energy.

Despite a more challenging quarter in parts of our portfolio. We believe that Baker Hughes is uniquely positioned in the coming years.

System will deliver sector, leading free cash flow conversion, while also building one of the most compelling energy transition growth stories, we are committed to evolving our company with the energy markets, while maintaining our prioritization on free cash flow returns above our cost of capital and returning capital to our shareholders.

With that I'll turn the call over to Brian.

Thanks, Lorenzo I'll begin with the total company results and then move into the segment details.

Orders for the quarter were $5 4 billion up 6% sequentially driven by TPS.

And OSB, partially offset by a decrease in digital solution.

The year over year orders were up 5% driven by increases in O N E. L. F S and D S, partially offset by a decrease in TPS.

Remaining performance obligation was $23 5 billion down 1% sequentially.

Equipment <unk> ended at $7 6 billion.

<unk>, 1% sequentially and services <unk> ended at $15 9 billion down 2% sequentially.

<unk> and <unk> in the quarter was primarily driven by foreign exchange movements.

Total company book to Bill ratio in the quarter was one one and our equipment book to Bill in the quarter was 1.1.

Revenue for.

Downward or was $5 $1 billion down 1% sequentially driven by declines in TPS OFC and D. S, partially offset by an increase in OSA.

Year over year revenue was up 1% driven by increases in Oss TPS and D. S, partially offset by a decrease in OSB.

The core operating income for the quarter was $378 million adjusted operating income was $402 million, which excludes $24 million of restructuring separation and other charges.

Adjusted operating income was up 21% sequentially and 72% year over year.

Our adjusted.

Operating income rate for the quarter was seven 9% up 140 basis points sequentially year over year, our adjusted operating income rate was up 330 basis points.

Adjusted EBITDA in the quarter was $664 million, which excludes $24 million of restructuring separation.

Adjusted and other charges.

Adjusted EBITDA was up 9% sequentially and up 21% year over year.

Corporate costs were $105 million in the quarter. So the fourth quarter, we expect corporate cost to be flat compared to third quarter levels.

Depreciation and amortization expense was 260.

<unk> in the quarter for the fourth quarter, we expect DNA to be roughly flat sequentially.

Net interest expense was $67 million.

Income tax expense in the quarter was $193 million.

GAAP earnings per share was <unk> <unk>.

Included in GAAP earnings per.

The losses from the net change in fair value of our investment in <unk> III Dot AI piece.

These charges are recorded in other non operating income.

Adjusted earnings per share were <unk> 16.

Turning to the cash flow statement free cash flow in the quarter was $305 million.

Free cash flow for the third quarter includes $40 million of cash payments related to restructuring and separation activities.

We are again, particularly pleased with our free cash flow performance in the third quarter. Following the strength. We saw in the first half of 2021, we have now generated almost $1 $2 billion of free cash.

Flow in the first three quarters of this year, which includes $210 million of cash restructuring and separation related payments.

For the total year 2021, we now believe that our free cash conversion from adjusted EBITDA will exceed 50%.

We are pleased to see the performance this year as we have.

Worked hard to improve our working capital and cash processes, our diverse portfolio of capital light businesses and strong free cash flow performance provides the company with flexibility and Optionality when it comes to our broader capital allocation strategy.

Last year this flexibility allowed us to be the only company in.

Our core peer group to maintain its dividend during the Covid crisis.

This year, a recovery from the industry downturn, coupled with our strong cash performance enabled us to authorized a $2 billion share repurchase in July which we began to execute on in early September in the third quarter, we repurchased four.

4 million Baker Hughes class a shares for $106 million at an average price of just over $24 per share.

Going forward, our strong balance sheet and strong free cash flow capability provide us with attractive optionality to continue to return cash to shareholders and also invest.

Four offerings related to energy transition.

More specifically in addition to paying our dividend, we intend to repurchase shares on a consistent basis and deploy capital in the tuck in M&A and technology investments on an opportunistic basis.

Now I will walk you through the segment results in more detail and give you our thoughts on.

Best in going forward.

Starting with oilfield services revenue in the quarter was $2 4 billion up 3% sequentially.

International revenue was up 2% sequentially led by increases in Latin America, and the Middle East offset by declines in Asia Pacific and the North Sea North.

The outlets and revenue increased 3% with solid growth in North America land offset by declines in North America offshore due to hurricane Ida disruptions.

Operating income was $190 million up 11% sequentially.

<unk> operating margin rates expanded 60 basis points.

<unk> seven 9% due to higher volume and lower depreciation and amortization.

Overall <unk> results were below our expectations in the third quarter due to several factors, but most notably hurricane Ida and supply chain related issues that impacted both revenues and margins our chemicals business with the most.

<unk> totally affected from these issues with some pricing increases offset by escalating input freight and logistics costs.

As we look ahead into the fourth quarter, we expect to see solid sequential improvement in international activity and continued improvement in North America. As a result, we expect sequential revenue growth for <unk> in.

In the fourth quarter in the mid single digits on the margin side, we expect stronger sequential margin improvement in the fourth quarter as some of the supply chain related headwinds abate and expected product sales lead to a more favorable mix.

As a result, we believe that operating margin rates could approach double digits in the fourth quarter.

Most hurdle, it's still early I would like to give you. Some initial thoughts on how we see the Oss market in 2022.

In the international market, we expect the continuation of a broad based recovery with double digit growth a likely scenario across all geographic market.

In North America, we have limited visibility next year due to the short cycle nature of the Mark.

We believe that the region could experienced strong double digit growth if commodity prices remain at current levels.

With this type of macro backdrop, we would expect to generate double digit revenue growth in <unk> in 2022.

Margin rate should also see strong improvement at some of the recent supply chain and cost escalation headwinds normalize.

Market.

Moving to oilfield equipment orders in the quarter were $724 million up 68% year over year and up 6% sequentially strong year over year growth was driven by subsea production systems and subsea services.

As Lorenzo mentioned orders this quarter were supported by.

Normalized contract from Chevron, Australia for subsea compression medical technology the sequential.

Improvement was driven by an increase in orders in subsea drilling systems, and subsea services, partially offset by lower activity in Sps.

Revenue was $603 million down 17% year over year.

Largely driven by declines in Sps SPC projects and the disposition of SPC flow, partially offset by growth in subsea services and flexible.

Operating income was $14 million down 27% year over year, driven by lower volumes for.

For the fourth quarter, we expect revenue to decrease sequentially driven.

Primary Louisville of Sds from consolidated OFC operations, we expect operating margin rate to remain in the low single digits.

Looking ahead to 2022, we expect a modest recovery in offshore activity driven by higher oil prices and capital deployment into low cost basins and projects, we expect OFC.

OSP revenue to be down primarily driven by the deconsolidation of Sds, we expect <unk> margins to be in the low to mid single digit range driven by business mix and benefits from the recent cost out actions taken.

Next I will cover turbo machinery, rod and the team delivered another strong quarter with solid execution.

And by the women and we are very pleased with the performance. The TPS team has delivered this year.

Orders in the quarter were $1 $7 billion down 9% year over year.

Equipment orders were down 33% year over year as Lorenzo mentioned orders. This quarter were supported by two large <unk> awards in Brazil.

<unk> for power generation and compression equipment.

Year over year decrease was primarily driven by a large LNG order we received in the third quarter of 2020 from Qatar Petroleum.

Service orders in the quarter were up 31% year over year, driven by increases in transactional services contractual services and upgrades.

<unk>.

Revenue for the quarter was $1 6 billion up 3% versus the prior year.

Equipment revenue was up 2% services revenue was up 4% versus the prior year.

Operating income for TPS was $278 million up 46% year over year.

Grades higher volume and continued execution on cost productivity.

Operating margin was 17, 8% up 520 basis points year over year.

For the fourth quarter, we expect strong sequential revenue growth due to the due to the continued execution of our LNG and onshore offshore.

Driven by auction backlog as well as typical fourth quarter seasonality.

As a result, TPS operating income should increase on a sequential basis with operating margin rates likely flat due to equipment project timing.

Looking into 2022, we expect double digit orders growth in TPS led.

Sure for Lindsay opportunity, we also see a solid pipeline of opportunities in our onshore offshore production segment, along with growth opportunities in pumps valves hydrogen and Cc U S.

Although we expect to see a strong increase in TPS orders in this environment, we expect revenue to be roughly.

<unk> are modestly up in 2022.

This will depend on the growth of services the pacing of the equipment project execution and order intake early in the year.

On the margin side, we expect operating income margin rates to be roughly flat to modestly down depending on the mix between equipment and service.

Finally in digital solutions orders for the quarter were $523 million up 6% year over year, we saw growth in orders in industrial and transportation sequentially orders were down 3% driven by declines in oil and gas and power.

Revenue for the quarter was $510 million.

The 4% year over year, primarily driven by higher volumes in process and pipeline services and <unk> technologies, partially offset by lower volume in Nexus controls and Bently, Nevada sequentially revenue was down 2% driven by lower volume in Bently, Nevada, partially offset by TPS.

As Lorenzo noted earlier.

Earlier, electrical component shortages and supply chain constraints led to lower revenue conversion during the quarter.

<unk> also saw some COVID-19 mobility restrictions in Asia Pacific and the Middle East and delays and plant outages as a result of Hurricane Ida.

Operating income for the quarter was $26 million down.

At one 4% year over year, largely driven by headwinds from mix or volume supply chain challenges and higher R&D costs sequentially operating income was up 3% for.

For the fourth quarter, we expect to see strong sequential revenue and margin rate growth in line with the traditional year end seasonality.

Looking into 2022 weeks.

40, <unk> solid growth in revenue as supply chain constraints begin to ease and orders pick up across digital solutions with higher volumes, we expect strong improvement in Dcs margins.

Overall I am pleased with our continued strong free cash flow execution in TPS business performance, while we face short term challenges in.

We express in Oss businesses, we are confident in our ability to execute in the fourth quarter and into 2022.

With that I will turn the call back over to Jeff.

Thanks, Brian operator, let's open the call for questions.

Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press Star then the one key on your Touchtone telephone.

D M. If your question has been answered or you wish to move yourself from the queue. Please press the pound key we also ask that you limit yourself to one question and one follow up our first question comes from James West with Evercore ISI.

Hey, good morning, guys.

Hey, James.

So we're in the TPS for $2000.

Telephone, who I'm curious to hear your thoughts on both order rate.

Growth rates for that business, there's a lot of really positive momentum as you know in LNG and natural gas in general as you how is your prepared comments.

Can I hear your.

<unk> broad outlook for that business.

You know as we go into next year, because I think we should be and maybe even 'twenty three we should be going into a major cycle for DBS.

Yes, James and we feel good about the TPS orders outlook can we do expect as was mentioned.

But we will see double digit order growth in 2022, and a lot of that driven by the LNG opportunities.

Spoken about LNG before and as you look at the outlook for 2000 and fatty we increased the capacity requirement of LNG to 800 M Tpa and during the course of the next few years, we see project.

And that's all.

100 to 150 M Tpa being awarded and we've got a bias towards the upper end of that and feel very good about the projects coming through a number of customer discussions that have been ongoing and you've seen what's happened in the industry at the moment. So we feel good about.

<unk> with.

Hi, Jeff Ids as well as small mid size opportunities and then also in the other segments of our TPS business. When you look at the offshore onshore production side, most notably with some of the <unk> and <unk>.

A strong number of opportunities in Latin America coming through continued traction on the services business.

Some lot both transactional and contractual and then as we go through 'twenty two and beyond also a continued pipeline of good growth opportunities for our pumps valves as well as the new energy markets of hydrogen and <unk>. So this is a good cycle for TPS in orders outlook positive.

Okay. Okay. Good.

There's nothing to here and maybe.

Leveraging off the last statement you made on the new energies business.

What are you what are you thinking.

Thinking about growth there in 'twenty, two and 'twenty three and beyond or are you starting I mean this has been.

We're going through a period of.

Every day, there's announcement on hydrogen or <unk>.

Good.

But ours is this starting to translate now into concrete business or is that still on the come how are you kind of think about the new entities business.

Yeah, James we're definitely seeing the pipeline of opportunity is getting more firmed up and you'll have seen that even in <unk>, we announced.

The selection of TPS to supplying a booster and export fast centrifugal pumps to northern light tier two transport and storage project in Norway. So.

Previously we've also made other announcements around that linkage with that product. So youre starting to see the market mature and also the opportunities firm up as we look to.

2022, we expect to see $100 million to $200 million of orders from the new energy spaces and as we go forward through the course of the next three to four years, we think that it could be around 10%.

Of our TPS orders coming from the new energy spaces.

As we've said before by the end of the decade.

<unk> have.

As much as $6 billion to $7 billion of orders and the new energy spaces.

Good traction and as you know, we're coming up to cop 20, fix and Theres a lot of activity in that.

With continued regulation and continued support in policy. You said this is going to be more firming up in the new energy space as we go forward.

Okay, great. Thanks, Linda.

Thanks, Our next question.

Question comes from Chase Mulvehill with Bank of America.

Hey, good morning, everybody.

Chase.

Hey, Brian.

I guess first if.

We can just.

Can we dig into the Oss a little bit.

Some color around idose supply chain friction and kind of raw material cost inflation.

Hampering <unk> results, but could you maybe just expand a little bit on that.

And I don't know if you want to quantify the impacts of each and maybe some of the timing of getting some of this stuff resolved.

Yes Chase all I'll.

You gave me more color on that look at you know as I said, Oh, a first revenues were up 3% sequentially in the quarter North America land actually basically performed in line with overall market trends when you factor in the heavy influence of our oilfield and industrial chemicals business and international we did see some increases.

I'll give you some primarily in Latin America, Russia, and the middle East that were offset by declines in some other areas due to some of the one off factors that we talked about so if I break it down and look at what was going on and what impacted revenue a couple of things. There first we did mentioned Ida.

As well as some of the supply chain constraints. So I'd say these two items.

Cost us about $30 million to $40 million in revenue during the quarter, Ida obviously pretty straightforward as to what was going on logistics, we're impacted by just timing of some shipments.

Some COVID-19 related things in a couple of our suppliers and in a in a couple of factories.

<unk> will that will come back not not anything loss, there and then Asia Pacific specifically was modestly down during the quarter really related to some COVID-19 delays and mobility issues and that was about $10 million to $15 million of that overall revenue impact and I'd say the second area, where we saw some impacts in the quarter.

Again, I think they are transitory are around margin impacts related to some of the supply chain items that that I talked about most notably we saw some higher freight and shipping costs across several product lines.

That resulted in a higher cost in the quarter, we saw that particularly in.

Quarter lift and in the chemicals business.

And while we have been pushing price increases there is a delay in that coming through with some of the contracts and things that we that we have in place and I would say chase.

As far as the Covid related out related items go in factories and stuff, we have been working with the supply chain to build up.

Inventory and safety stock to be able to handle that as we move forward and then on the logistics front, we are starting to see that stabilize and he's a bit. We are we saw a lot of capacity constraints, particularly.

In air as commercial aviation as well below pre pandemic levels and you don't have as much room.

The belly of planes with thought with fewer flight. So as is the U S opens up.

And in more countries open up here, we're starting to see that creep back up and we've got good plans to deal with that and look I would say the team made some really smart decisions here in the quarter on some of the product sales Chase, where we saw logistics.

Fixed cost increase we work with our customers to make sure we weren't impacting their timings and the team decided not to ship at some of these higher costs and expedited freight cost and did the right thing for customers and for shareholders in terms of delaying some of those shipments in getting the lower.

Cost as we look here in the in the fourth quarter. So.

Over it on top of it every everybody is working on it and I think most of this is transitory we're still spending a lot of time on chemicals is they have some unique things going on in the supply chain, but feel good about Oh, Fas and the margin trajectory, we laid out over the short to medium term here.

Yes Mitch.

<unk> chemicals.

So as a follow up maybe if we can just.

Paul chemicals out and just kind of talk about separately about some of the issues that were happening in <unk>.

Talked about raw material cost inflation.

Supply chain issues freight, but maybe just hash that out and just kind of lay out the path.

And they are getting chemicals.

Margins in.

Back up to kind of where they were pre COVID-19 or maybe even above.

Yeah Chase.

I'd say the chemicals business actually had about 100 bps drag on overall O F S margins in third quarter due to the input costs.

A debt that we saw come through in some of the logistics challenges and look we have instituted multiple price increases in the chemicals business, but you know most of our large contracts have contractual price renegotiations every three to six months and when we when we put some of these increases in place it does take some.

Time for them to roll through based on the contracts that we have but spot prices have definitely been been taken up given how quickly we saw increases from inputs like ethylene and propylene.

There is a bit of a delay in terms of getting that getting that through to customers.

The other thing.

Tom Nichols business, that's a bit unique for us as we've been particularly impacted.

You know by our sizable presence in North America, and our concentration of supply in the in the Gulf Coast about 75% of our supply chain roles to the Gulf Coast, which has been impacted by several things. This year you know earlier, the Texas Freeze and then obviously in August.

And our cocaine Ida and about 10% of our North American chemical business is in the Gulf Coast. So that saw a drop here in the in the quarter as well. So look we've got some pretty good contracts in place we have work to do.

Diversify the supply base.

Here in the short term I'd also remind you that you know we started.

Her in 2018, and I'm happy to say that in the early part of 2022, our factory in Singapore should be up and running that is gonna be a natural margin accretion chases we.

You now have secured pretty favorable input costs, there and are going to be closer to a lot of our customers are in Asia, which will naturally cut down on logistics cost.

Back in the head of supply chain for Maria Claudia is is spending his time down in Sugarland and working to make sure. These things are smoothed out here so for us it really boils down to two things, it's getting those price increases through which I feel good.

Start to fill them coming and we've worked hard on the supply chain to make sure that.

Districts are squared away and we're working on the supply base as far as the input costs go and I'd. Just note that typically the chemicals business is accretive to overall <unk> margins they've done a great job through the first half of the year, we did see that flip and in the third quarter here and I do think it's transitory and as things start to normalize.

The lids that business, we'll see margin rates improve and again chase will just reiterate that we feel good about the margin track that we laid out for Oss and being able to deliver on that 20% plus EBITDA here in the near to medium term.

Alright, perfect. Thanks, Brian I'll turn it over thanks.

Thanks, Jason.

Our next question comes from Neil Mehta with Goldman Sachs.

Good morning Lorenzo team.

The kick off on your question for me is around digital solutions. The operating margins have lingered in that 5% range for the last three quarters you identified some supply chain concerns in the release, how do you see the margin dynamics in the business.

<unk> moving into <unk>, especially with year end sales and supply chain concerns and when do you see some of those issues abated.

Yeah, Neil Hi, look as we did say we did see a few challenges in the quarter and I'd say the supply chain.

Is primarily focused around.

That took a component shortages are largely around semi conductors boards and displays.

Led to really some lower converted billety in the quarter.

And theirs.

There's real tightness in supply in that market. We did have a quality issue from one of our suppliers that came out late in the quarter and with the tightness and.

Let the supply chain and then the supplier base that typically could've been rectified within the quarter that that is.

It certainly had an impact and made some.

<unk> made some of the shipments.

Lip out I'd.

I'd say overall, the component shortages and a little bit around logistics and similar things we saw in.

In Asia.

We also saw in our in DFS roughly impacted the top line about 3% to 4% in the quarter look we've been well aware of this we have been taking preemptive steps.

To make sure we have got the right products.

To fulfill and I'd.

The teams do daily production meetings on this end and move things around.

Accordingly.

We have started to see that stabilize a little bit and.

Feel good that we've got what we need to deliver in the fourth quarter from a supply chain standpoint, and are obviously working on 2022 is as.

As we speak today look to get margins back up into the mid teens, which is where they should be it will require higher volume end and more recovery from our biggest businesses like bently, Nevada.

Nexis, and and wake eight and four for our fourth quarter in particular, we do see a strong sequential revenue.

As we end with traditional year end seasonality as I said, the supply chain constraints around electrical components.

Is is stabilizing and the logistics.

We've worked through similar to what we've done in Oss and have that lined up for the quarter as well. So look we should see margin rate.

Growth in line with the traditional seasonality as well and then for 2022. The team is working hard to make sure. Our supply chain is certainly not an issue and again it comes down to getting those orders in the in the big businesses, which we've got a really solid pipeline.

And as we see.

And the economy recover we should see strength in those businesses, particularly in the industrial sector.

That's really helpful just to add.

Just to add maybe.

We have a good understanding of what we need to do at digital solutions and platelets.

It's an aspect of organizational changes supply chain improvements and also commercial intensity because as Brian laid out going into 2022, those margin rates should improve and we see again, the digital solutions getting back to where it needs to be so a big focus by myself and Brian on getting it back on track.

That makes sense Lorenzo that's a good follow up here in terms of.

Can you provide some incremental color on how the strategy of operating a fastener fee and TPS in DFS is more distinctly different groups. It's going and then how are you thinking about potential opportunities for maximizing shareholder value.

And then eventually.

Is the long term.

Plan here that the businesses.

Are separated.

Yes, Neal again.

You may have seen that.

Investor Conference in September, we really laid out the way in which we view the business from two areas one being.

Value the upstream oilfield services and equipment side, which has a tailwind.

But it's also a mature marketplace and then the <unk>.

Matching higher growth in industrial energy technology as you look at it. We also said it makes sense to keep it together and really run the full product companies.

Do today.

<unk> functionality as we go forward as well and we'll always look at it from what's best for the shareholder return standpoint, there are benefits from a customer base perspective, that's also synergies from a technology standpoint, and we'll continue to run it on that basis and also continue to review.

Is what's best for the shareholders going forward.

That's really the key focus was to trying to pick really the two growth areas that we have one of them are more mature space, but then the evolving space.

Energy transition and also industrial applications for us yes.

Yes, and I'd, just add that look where we're paying close attention.

To the market and ultimately you know.

That will dictate.

Capital allocation in these businesses and and how we invest in and we're starting to see the market evolve and and and and push for more integration between our offerings, which is <unk>.

Which is a good thing and we see multiple opportunities here, particularly.

Particularly in new energy and in the digital space.

For the teams to work together across the portfolio, but clearly as the market evolves there'll be different capital allocation priorities for those for those two big areas and we'll keep you guys updated on how we think about it and I just remind.

Mind, you that with the H M. H deal that just closed we have clearly demonstrated that we're willing to do things differently for the portfolio to increase overall returns and make these businesses successful in in different markets.

Thanks, Steve.

Yes.

Thank you our next.

Next question comes from Scott Gruber with Citigroup.

Okay.

Yes, good morning.

Hey, Scott good morning, Yeah.

I just wanted to continue on that same line of inquiry I guess ask it.

A little bit more directly yes, I guess, if you do see proper value attribution for the industrial energy.

The allergy side of the business embedded within Baker's stock would you then be inclined to remain integrated I mean is that just the really the primary issue here.

Yes, Scott look I think again, we wanted to depict the optionality that we have and that's why we clearly laid.

Two business areas and ultimately we think that it's a topic that investors and the market will decide as we go forward. We see that there are synergies there today as we mentioned before on just the global scale of the customer base and we will continue to monitor as that evolves.

What it provides for US is also.

Out the creation and the marketplace again, we've got a portfolio that can now really kind of across the landscape of energy within these two different business areas.

Got it.

And then just turning back to us.

A few of your peers are starting to highlight selective areas of pricing.

Different games.

Domestically and internationally.

Are you seeing pricing traction on discrete services, particularly on the on the international side, where we just have less less insight.

When contemplating the 20% EBITDA margin goal.

How much pricing is.

Pricing to.

Get to that margin threshold.

If there's if there's much more contemplated what we're putting toward that goal.

Yeah, I'll kick it off here Scott.

Generally speaking, we've been pushing pricing to offset the cost inflation and we've seen success in that outside of the chemicals.

Requirements, which is as Brian mentioned going to take a little longer due to the way the contractual agreements work, where we're seeing the largest gains in North America and also in some of the markets internationally I'd say one area that remains competitive as some of the largest centers in the middle east on the.

Turnkey aspect and again we're.

It's been very much focused in how we price and looking to offset inflation.

Yeah, I would just add to that even when you look at the path to 20%, we're not counting on net price to get US there its really working hard to offset the inflation, particularly in chemicals.

We're being as I've mentioned here, but you know again, we have.

We've been executing a lot in terms of improving margins in <unk> and <unk>.

Remind you again I mentioned, the chemical factory, that's going to be starting in Singapore in the first half of the year. In addition to that we have a lot of the initiatives that have been taking hold over.

12 months to 18 months, including remote operations, we still are.

Closing down some rooftops and we've got some supply chain moves, where we're moving things closer to our largest customer base. So there's still some other thing Scott that we put into place that haven't.

Fully matured and and and and.

Fully.

Fully reflected in the results yet and that will come through in the fourth quarter and into next year as we as we bridge over to that 20% plus EBITDA rate.

Got it thanks, Brian appreciate it wanted to.

Thanks.

Our next question comes from David Anderson with Barclays.

Hey, good.

For the last.

Question on the on the mix of TPS revenue going into 'twenty, two and 'twenty three in particular on the pace of backlog conversion.

I guess I'm curious is it fair to say that the aftermarket services has been much slower to convert.

Over the last couple of years and that should accelerate in the next couple of years, and then secondarily the equipment side.

On backlog conversion, how does that compare to historical is that normal it kind of just help me understand how you see those two components moving part I heard your guidance on kind of the TPS revenue on the orders, but just maybe a little bit more color on the mix between those two categories. Please thank you.

Yeah, David look I mean, you know Brian.

The team has done an outstanding job this year and I'd say from a backlog conversion standpoint and in <unk>.

Seen this for almost 20 years now and TPS things can move around from a project timing step you know.

Project timing perspective, with its mostly customer schedules.

Does that move that with some moving forward and some being pushed back so I'd say, what we're seeing right. Now is just typical movement across the backlog are actually.

<unk> ability and capacity to fulfill has certainly gotten better over the last few years and so we can have that flexibility for our for our customers and so I.

I'd say, what you've seen this year as you've seen some projects move in and you've seen some projects move out and just given the order cadence and how that cycle is has played out that's really what's driven the uptick in what we see in equipment revenue.

For 2022 as far as services go you know look we saw.

Have a dip last year contractual services has performed exactly in line with with how we thought we did see some some movement in transactional services and then we started to see an uptick in AR and upgrades.

You know coming through this year and the tailwind for services looked pretty good for next year as well. So while you may not see the same level.

A bit of growth that you're doing equipment because of the way the backlog is going to convert we're pretty happy with the trajectory that we see.

In in TPS services, So I just break that down again contractual services have performed right in line with what we expected transactional orders are up this year and we expect revenue to be up next year for that and the upgrade cadence looks.

Level looks pretty good as well so listen overall next year margins.

For both businesses or within TPS youre going to be strong. The overall margin rate is really going to depend on the mix of equipment.

Versus services and the other thing I'd just add about the performance here as the cost productivity has been outstanding this year with how.

And the team have been have been executing I would expect that they would drive productivity productivity next year, given everything we're seeing and the commodity markets.

Not prudent right now to count on it falling through at the same level given some of the potential inflation, that's coming through but I think we've demonstrated this year that that team can drive.

<unk> and.

It's shown up in the margin rates and are there. They are ahead of where we thought they'd be at this time and I'm really pleased with that and feel good about the outlook for next year.

That's great Brian Thank you very much.

Okay Alright.

Thanks, just to add on the if you look at the LNG outlook.

We indicate.

Protiviti potential for the 100 to 150 <unk> and we're on the upper end of that Youre going to be increasing our installed base, which obviously.

We're seeing an additional 30% of installed base by 2025, which then.

It gives us a good outlook for services as well going forward.

That's a great point.

Enzo Lorenzo on a different subject I was curious your views on offshore today.

Are you starting to feel a little bit better about offshore you've been kind of your outlook on offshore has been rather conservative.

Nice pickup of orders this quarter and OFC in Guiana in Australia, now start to see a lot more coming out of Brazil.

It's more than.

And this of course, plus just wondering if you could just kind of maybe just kind of talk about how youre seeing that develop are you more optimistic.

Or maybe the second half of 'twenty, two offshore start coming in and playing a greater role you have nice orders, but obviously, we're still kind of below where we'd normally should be.

Yes.

Clear.

Clearly with the pricing where it is at the moment. There is some improvement I would say, though it still remains a challenge then just when you look at the capacity that's still in the marketplace and again, we don't see it going back to the levels of.

Prior year still for another couple of years. So yes, there is some.

Movement in particular around the wellhead business also on the services side when.

When you look at flexible pipes as you look at trees and awards on trees again, some modest improvement in 'twenty, one and additional growth in 'twenty, two but it's still.

Difficult to see at achieving the historic levels and those being.

Sustained.

Thank you.

Yeah.

Our next question comes from comparison with Piper Sandler.

Thanks, Good morning.

Okay.

Hey, Lorenzo back to your strategic options for <unk>.

B versus at OFC.

Do you view the OFC side is still.

Overly complex competitively I mean, do you think that M&A is a key consideration in terms of improving market structure that needs to happen on the mature.

Each of the business.

Potential M&A synergies factor into your calculus, there or are you really thinking more about.

Optimizing value.

Kind of an independent basis excluding.

Market structure.

As you look at the marketplace clearly there are some big.

Plants and.

We're really focusing on the optimization, improving the margin rates and really the operational improvements within our upstream business and as you look at some tailwind clearly demand is increasing and we do expect to get back up to 2019 demand level. So we will continue to evaluate.

Sorry to prospects on each of the businesses and again, it's more a margin focus as we said before for the <unk> business.

Okay.

Just thinking.

Reconciling your full year guidance for this year for orders to be fairly <unk>.

Similar to last years, and yes, you could have.

It sounds like you could have materially more big LNG orders in Q4 versus essentially not in Q3, which seems like that.

Tilt the scales.

A positive year on year comp am I thinking about that correctly or are there other pieces.

Below the surface that would iron that out.

And then just as you correctly say, we didn't book any LNG orders in first quarter and as you know.

A bit of Lumpiness when it comes to LNG. They are large scale orders and we do expect to book one or two additional awards in the fourth quarter based on the current discussions we're having with customers and also some of the seasonality as you look at TPS orders will likely be modestly up sequentially and flat year over year for the fourth.

Quarter and 2021, and then as you go into 2022 again, we stated before we expect double digit order growth led by the LNG opportunities and there is some timing elements there, but feel very good about the 2022 and double digit orders expectation.

Indeed did I hear correctly.

Up to 10% of that could be from the new energy pieces next year versus a very low comp this year.

No not not next year as you look out to the next three to four yes, okay. Thanks.

Thanks for question, we've thought about it we said about 100 to 200 for the new energy next year.

Thanks for taking.

You said that I appreciate it.

Our next question comes from Marc Bianchi with Cowen.

Hey, thanks.

I wanted to start maybe at a higher level question as it relates to the <unk>.

FSC niet.

<unk> Division that you are talking.

Looking about Theres some others in the business that are talking about integrating subsea production systems and carbon capture offshore.

I'm curious if.

Is that how you see that opportunity and if that could perhaps become a limiting factor too.

Essentially separating those businesses.

Yes, Matt as we mentioned before we see synergies that exist between the oilfield service and equipment as well as the industrial energy technology, we're retaining the full product companies and in fact, we have synergies across the capabilities of <unk> as you know from a drilling perspective also from a storage reservoir.

While understanding as well as then the capture from the compression side. So.

We continue to look at it from a holistic basis as those opportunities arise.

Yes, Mark I would say I don't think I don't think how the business has worked together limit optionality in the in the long run I mean, we've got tons of examples of partnerships across.

The industry today, so again, we're going to be really focused on.

Margins and cash and returns in the upstream business and it's.

It's growth.

Taking advantage of what's going on in the new energy space and again, we'll look at overall shareholder return.

As we think about structure.

Long term, but.

These businesses naturally worked together I don't think that's a hindrance to any structure going forward and in fact, I think it could help in multiple structures.

Yeah, Okay. Thanks, Brian.

Brian on the share repurchase pace.

So about $100 million in the third.

Quarter, but you didn't start you didn't have a full quarter of having the program in place just kind of curious.

When you actually started that in the third quarter and if that would be reflective.

Type of buyback versus what we could see going forward.

Yes look we started up.

Okay.

September.

With with the program and look of have continued to be active and listen R.

Our goal here is.

To continue to be in the market.

And from a capital allocation standpoint, we like the.

Up in and.

We like the pace of buyback, we've generated quite a bit of free cash flow and have excess cash to deploy in that space and we still have capital to deploy in the tuck in M&A and technologies that we talked about here. So.

From a from a buyback standpoint will continue.

To be in the market and look we will also be opportunistic if if things change and we have an opportunity to do more so that's that's the thing I like about our free cash flow.

Capabilities. It gives us some optionality here to continue to drive returns and we will do that.

Great. Thanks, so much.

The dividend.

Ladies alright, I think.

Sorry go ahead.

And I was just going to say I think that concludes the call. So I just wanted to thank everyone for joining the earnings call.

Today, and just leave you with a couple of thoughts.

We're really pleased with the way the teams executed and continue to execute on our strategy over the course of the first quarter. While we had some mixed results across our <unk>. We're pleased with the strong operating in orders performance at TPS and a solid quarter of free cash flow and looking ahead, we see.

A multiyear cycle in the RFS business and a multi year growth cycle for TPS led by LNG and new energy initiatives. So we're going to continue to execute our strategy through the free pillars of transform the core invest for growth and positioned for new frontiers and as I mentioned the way we are thinking about the company and our broader long term strategy is evolving.

We are starting to view our company and the two broad business areas of oilfield services and equipment and industrial energy technology, We feel Baker Hughes is uniquely positioned in the coming years to evolve with the energy markets and grow in the industrial space, while maintaining our prioritization on free cash flow returns above our cost of capital and returning.

Capital shareholders. So thanks for taking the time and look forward to speaking to you again and operator, you may close the call.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.