Q1 2022 Baker Hughes Co Earnings Call

April 20, 2022

Good day, ladies and gentlemen, and welcome to the Baker Hughes Company first quarter 2022 earnings Conference call.

At this time all participants are in a listen only mode.

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 then zero on your touched on telephone.

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference.

Mr. Jud Bailey, Vice President of Investor Relations.

Sir you may begin.

Thank you good morning, everyone and welcome to the Baker Hughes first quarter 2022 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 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 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 that I will turn the call over to Lorenzo.

Thank you Chad good morning, everyone and thanks for joining us our first quarter results reflect operating in a very volatile market environment. During the first few months of 2022 on the positive side TPS orders were up over 100% year over year with TPS book to Bill of two two as the LNG order cycle continues to unfold.

We also experienced some challenges in parts of our business due to continued pressures from broader global supply chain constraints as well as some impact from the recent geopolitical events.

As we look ahead to the rest of 2022, we see a favorable oil and gas price backdrop as well as a dynamic operating environment with perhaps the most challenging supply chain, an inflationary environment. We have seen in several decades. The recent an unfortunate geopolitical events are amplifying several trends, including broad based <unk>.

<unk> and supply pressure for key materials commodities and labor.

Dave events are also driving changes on the economic front, where the world is transitioning from an era of strong economic growth to an environment that is more tenuous and likely to feature diverging economic conditions regionally.

Despite broader political uncertainty around the world Baker Hughes is committed to helping deliver energy globally, and a safe clean and reliable manner. While also maintaining our commitment to net zero carbon emissions and leadership in the energy transition.

To meet the world's energy needs in a responsible manner. We believe multiple years of spending growth will be required as well as significant increase in LNG infrastructure investment.

While there is some near term risk on the demand side, we expect global oil and gas supply to remain constrained in the coming years, which should support higher commodity prices and multiple years of spending growth from our customers.

Recent geopolitical events have severely constrained what was already a tight global natural gas market.

And have refocused the world on the importance of energy security diversity and reliability as the world reacts to the rapid changes in the global commodity market governments are prioritizing natural gas and LNG is a key transition and destination fuel.

We continue to see a focus on prioritizing LNG from stable lower cost markets and locations that can provide cleaner LNG.

Given the current LNG price environment and the quickly changing dynamics, we believe that global LNG capacity will likely exceed 800 MTA by the end of this decade to meet growing demand forecast. This compares to the current global installed base of 460, MTP and projects under construction totaling almost 150.

<unk> M Tpa.

In order to be operational by 2030, this additional capacity will need to reach.

By around 2025.

Despite the volatile yet improving medium term macro environment Baker Hughes remains focused on executing our strategy and we continue to drive further optimization across the two core business areas of OFC and IEP.

Earlier this year, we created climate technology solutions, or Cts, and industrial asset management or I am the creation of these two groups is critical to accelerating the speed of commercial development across our key growth areas of new energy frontiers and industrials.

We continue to make steady progress in developing our climate technology solutions capabilities with recent investments in partnerships and net power Haf global and the acquisition of mosaic materials, which features a promising direct air capture technology mosaics materials science and technical expertise, including their unique met.

Organic framework technology provides baker Hughes with the potential to efficiently capture low concentrations of <unk> across a number of applications.

Net power as an emission free gas to power technology, where Baker Hughes will develop supercritical cotwo separate vendors and other critical pumping and compression technology. We will also bring system integration and process knowledge experience that a partnership to help accelerate the market positioning and deployment of net powers emission.

Free and low cost of electric power.

HFF global developed projects in multiple geographies to produce E fuels by blending green hydrogen and Cotwo Baker.

Baker Hughes is investing alongside AIG, Porsche Ami and gemstone and will provide compresses turbines pumps.

Valves and other technology on future projects. We are also discussing how our recently acquired mosaic materials. The AC technology could be incorporated entities future projects.

Overall, we're excited about adding another carbon capture technology to our portfolio and the potential of these two partnerships to open new market opportunities and clean power and low carbon fuels for Baker Hughes.

And industrial asset management, we signed an important agreement with Accenture <unk> and Microsoft to collaborate on the Buildout of the Iam solutions offering.

Partnership will focus on creating and deploying Baker Hughes I am solutions that use digital technologies to help improve the safety efficiency and emissions profile of industrial machines field equipment and other physical assets.

In addition to advancing our commercial efforts and Cts and I am we also remain focused on optimizing our broader organizational structure under the core business areas of OFC and.

At the beginning of April we took some steps to strengthen and better position oilfield services to more closely align our products services and solutions to the lifecycle of the well and ultimately to what our customers require.

Oh, Fas will move from a product line oriented structure to a solutions focused business centered around well construction completion intervention and measurements and production solutions.

In addition to the organizational changes and RFS, we were pleased to announce an agreement to acquire altice intervention, a leading international provider of well intervention services and downhole technology, the acquisition complements <unk> existing portfolio by enhancing our life of wealth capabilities as operators look to improve.

<unk> from mature fields.

Maria Claudia and the RFS team are enhancing their operating model to become more competitive improve the speed of decision, making and capitalize on growth opportunities in the market.

These organizational changes are important steps in the RFS as Johnny.

As customers are increasingly asking for integrated offerings and more solutions oriented outcomes as well as a continuation of the strong productivity improvements in RFS over the past few years.

As we continue to evolve Baker Hughes across the two business areas of OFC and we.

We expect more meaningful synergy opportunities between TPS Mds. We are also focused on driving better returns in our OSB business as well as further synergies between Oss and OFC.

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

And oil field services activity levels at the started the year have continued to trend positively in both the international and North American markets. We also see improving visibility for stronger growth in several key areas over the rest of 2022.

In the international markets underlying activity is improving broadly with particular strength in southeast Asia, Latin America, and the Middle East.

Certainty in Russia, as an offset we expect growth in most international markets to continue with the strongest increases likely to come from the middle East over the second half of the year and into 2023.

Producers in the region are in the early stages of investing in capacity expansion and should help drive a multi year increase in activity across the region.

In North America drilling and completion activity continues to move solidly higher with further increases expected over the course of the year.

Although current oil and gas prices would normally suggest a stronger increase in activity the combination of E&P capital discipline and industry shortages in labor and equipment is likely to keep short term incremental increases more moderate in nature.

While we are pleased with the growth in activity and the growing pipeline of work in many regions underlying operations continued to be impacted by supply chain and inflationary pressures and most recently disruption to our operations in Russia.

Our <unk> team is working extremely hard to offset these headwinds with price increases sourcing actions and our global team working to solve logistics constraints.

The product line that continues to feel the most supply chain related pressure as our production chemicals business.

Where we have taken actions to enhance our sourcing and manufacturing functions and.

In addition to recently enacting a supply surcharge and changing out some of the leadership in our chemicals business. We are also taking steps to source and produce chemicals closer to key demand hubs with the opening of our production chemicals facility in Singapore later, this year and the recently announced JV with us or in Saudi Arabia.

As we look over the balance of the year, we remain committed to achieving a 20% EBIT margin by the fourth quarter.

Moving to TPS, the first quarter represented a continuation of the successes we achieved in 2021 TPS orders totaled $3 billion for the second consecutive quarter, driven again by strong orders in LNG.

We believe that we are at the beginning of another constructed LNG cycle, which is being expedited by the current geopolitical situation, particularly for U S LNG projects.

Positive long term view is also supported by the recent improvements and policy sentiment and southern parts of the world towards natural gas role within the energy transition there.

The recent EU taxonomy changes to now include natural gas as a transition fuel as an example of this and the added need to diversify and provide energy security will likely intensify policy efforts.

As these market dynamics play out a number of projects should accelerate and we now believe that 100 to 150 M. TBA of LNG <unk> will be authorized over the next two years, we have additional <unk> is becoming more likely in 2024 and 2025.

Given the strong TPS orders performance in the first quarter as well as the acceleration and timing for several LNG projects. We now expect TPS orders to increase in 2022 versus 2021.

During the first quarter, we were pleased to be awarded a major order to provide an LNG system for the first phase of venture Global's Plaquemines LNG project, we will be providing 24 modularized compression trains for the first phase of the project and this award is part of our 70 M Tpa Master equipment supply agreement.

The highly efficient liquefaction train system is modularized, helping to lower construction and operational costs with a plug and play approach that enables faster installation and first cargo.

This important order builds on an award in the fourth quarter of 2021 for power generation and electrical distribution equipment for the comprehensive power Island system for the Plaquemines project.

<unk> order follows a similar contract for Vg's Calcasieu pass LNG terminal in 2019 and.

In 2021 Baker Hughes successfully completed delivery of the ninth and final block for Calcasieu pass all shipments were finalized ahead of schedule and excellent achievement by our team Calcasieu pass holds the global record for the fastest construction of a large scale Greenfield LNG project moving from <unk>.

First LNG and 29 months.

Outside of LNG, we booked an award for Nova <unk>, 16 turbines, which will run on 100% hydrogen for air products, New net zero Blue hydrogen energy complex in Edmonton, Alberta.

Collaboration with air products will be critical for a net zero future and they sort of follows. The award we received for advanced compression technology, but then the carbon free green hydrogen project.

Yeah.

We were also pleased to be awarded a contract by cabinets to supply gas turbines and compresses that can run on a blend of natural gas and hydrogen for a new compression station for the Greek natural gas transmission system.

Baker Hughes will provide free compression trains deploying on Nova LTE 12, hydrogen ready gasped happens and PCL compresses with the capability to transport up to 10% hydrogen for this project.

The project directly supports the use hydrogen strategy goals to accelerate the development of clean hydrogen and sure its role as a cornerstone of our climate neutral energy system by 2050.

These latest hydrogen orders build on Baker Hughes has extensive experience in developing and supplying teva machinery equipment to compress transport and utilize hydrogen.

Next I'll field equipment, we are encouraged to see improving demand trends across the different business areas. Although recent world events impacted first quarter results, we remain disappointed with the overall level of profitability.

At a macro level trends in the subsea and offshore markets continued to improve and the subsea tree and flexible pipe market. We expect a solid increase in industry Awards. This year as a firm commodity price outlook supports a growing pipeline of deep water opportunities in core markets.

In our international Wellhead business, we also see a positive order outlook across multiple regions and particularly in the middle East.

In the first quarter, we were awarded a contract in Asia to provide subsea wellheads and subsea production systems, plus related services, including 12 subsea trees for a deepwater gas field.

We also achieved our first award in Ivory Coast, where we will supply subsea trees flexible flow lines and rises to develop the <unk> deepwater oilfield.

In Latin America, we were pleased to build on our flexible pipe business success, securing awards for flexible pipe systems and services that will be deployed across a number of key post salt revitalization programs, enabling increased oil recovery and extending the life of multiple subsea developments.

Finally in digital solutions order activity remained solid with growth across our industrial end markets as well as improvement in the oil and gas market.

<unk> continues to be affected by supply chain challenges and electronic shortages as well as continued inflationary pressures. The team is working tirelessly to manage the situation and navigate the evolving supply chain issues that have been exacerbated by recent events.

In the past quarter, we made a number of changes in the DS business as we look to improve the overall performance, we unified our unique sensor business units, Panama tricks, Reuter, Stokes and druck and the one product line precision sensors and instrumentation or tsi as a combined business tsi will better support.

Potential investment opportunities crucial for the future development and help optimize the unique technology and commercial requirements of each brand unifying the businesses will also help drive better cost and operational performance.

While we recognize that there is still more work to do we also continued to make key personnel and operational changes across the us to drive performance profitability and return improvements and to ensure that we have the right team in place to take this business forward.

During the quarter Bently, Nevada secured an important contract with a refinery in Brazil, our arms reliability, one PM solution will support the customers' operations by providing visibility on over 10000 assets, we won't be providing optimal digital strategies to support asset integrity, and availability, which will lead to maintain.

Since cost optimization and effectively enable risk management, while delivering enhanced performance.

Despite some of the challenges this quarter, we are optimistic on the outlook across both of our core business areas and excited about the new energy investments, we are making for Baker Hughes.

We believe that we are well positioned to benefit from an extended cyclical recovery and OFC and longer term structural growth trends and LNG, new energy and industrial asset management.

Importantly, we expect to generate strong free cash flow as the cycle plays out and remain committed to returning the majority of it back to 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 $6 8 billion up 3% sequentially, driven by OFC and TPS, partially offset by a decrease in digital solutions and Oss year over year orders were up 51% driven by increases across all four segments. We are particularly pleased with the orders performance in the quarter, especially in TPS.

Following our strong orders performance in the fourth quarter.

Remaining performance obligation was $25 8 billion up 10% sequentially equipment <unk> ended at $9 9 billion up 20% sequentially and services <unk> ended at $15 9 billion up 4% sequentially.

Our total company book to Bill ratio in the quarter was one four and our equipment book to Bill ratio in the quarter was $1 nine Rev.

Revenue for the quarter was $4 8 billion down 12% sequentially with declines in all four segments.

Year over year revenue was up 1% driven by increases in Oss and digital solutions, partially offset by decreases in OSV and TPS.

Operating income for the quarter was $279 million.

Adjusted operating income was $348 million, which excludes $70 million of restructuring separation and other charges.

Adjusted operating income was down 39% sequentially and up 29% year over year.

Our adjusted operating income rate for the quarter was seven 2% down 320 basis points sequentially year over year, our adjusted operating income rate was up 160 basis points.

Adjusted EBITDA in the quarter was $625 million.

Down, 26% sequentially and up 11% year over year adjusted.

Adjusted EBITDA rate was 12, 9% up 120 basis points year over year.

And as I will expand in a moment, our adjusted operating income and adjusted EBITDA margin rates were impacted by geopolitical events as well as broader global supply chain challenges.

Corporate costs were $105 million in the quarter for the second quarter, we expect corporate cost to be roughly flat compared to the first quarter.

Depreciation and amortization expense was $277 million in the quarter for the second quarter, we expect DNA to be slightly up compared to first quarter levels.

Net interest expense was $64 million.

Income tax expense in the quarter was $107 million.

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

Included in GAAP diluted earnings per share is an $85 million gain from the net change in fair value of our investment in AD not drilling and a $74 million loss from the net change in fair value of our investment in <unk> three AI. Both are recorded in other non operating loss.

Adjusted earnings per share were <unk> 15.

Turning to the cash flow statement free cash flow in the quarter was negative $105 million free cash flow in the quarter was impacted by lower collections from a select number of international customers, which are largely timing related as well as a build in inventory as we get ready to execute on our large order backlog.

For the second quarter, we expect free cash flow to improve sequentially, primarily driven by higher earnings and stronger collections. We continue to expect free cash flow conversion from adjusted EBITDA to be around 50% for the year, but anticipate the majority of our free cash flow to be generated over the second half of 2022.

The quarterly progression should be more in line with what we experienced during 2018 in 2019.

In the first quarter, we continued to execute on our share repurchase program repurchasing $8 1 million Baker Hughes class a shares for $236 million at an average price of just under $29 per share.

As of March 31, Ge's ownership of Baker Hughes class B shares represented 4% of the total company down from just over 11% at the end of 2021.

Ge's overall ownership of class, a and class B shares was 11, 4% at the end of the first quarter down from 16, 2% at the end of 2021.

Before I go into the segment results I will comment on the current situation in Russia, and how it currently factors into our broader outlook, Russia represented roughly 4% of total company revenue in the first quarter and we recently announced that we have halted all new investment in the country.

Additionally, sanctions from the U S UK and EU continue to evolve and are making ongoing operations increasingly complex and significantly more difficult.

As a result, we expect erosion of our Russia related revenues over the course of 2022, particularly in Oss.

However, the pace and magnitude of this is difficult to predict given the dynamic nature of the situation. Therefore, there is a range of possible outcomes, we are preparing for across our product companies.

On broader supply chain, while we did see some areas stabilize in the first quarter. There continues to be pressure on electronics challenges in logistics and an evolving understanding of implications due to global and geopolitical uncertainty we remain focused on being adaptable to deliver for our customers and on our commitments now.

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

In oilfield services the team delivered a solid quarter. Despite some of the global challenges Oss revenue in the quarter was $2 $5 billion down 3% sequentially International revenue was down 7% sequentially led by declines in the North Sea, Russia, Caspian and the Middle East and Latin America.

<unk> America revenue increased 6% sequentially with solid growth in both North America land and offshore.

Operating income in the quarter was $221 million down 14% sequentially.

Operating margin rate was eight 9% with margins declining 110 basis points sequentially, driven by lower volume less favorable mix and continued inflationary pressure in the chemicals business.

Year over year margins were up 230 basis points as we look ahead to the second quarter underlying macro fundamentals continued to improve and we expect to see strong growth in both international and North American activity as well as improvement in pricing. This is likely to be partially offset by weakness in Russia.

We estimate that our second quarter revenue should increase sequentially in the mid to high single digit range with this revenue framework, we would expect our margins to increase by approximately 100 to 200 basis points sequentially.

For the full year 2022, we see an improving outlook across most major markets, which is partially tempered by global supply chain and geopolitical factors.

In the international market, we expect the continuation of a broad based recovery with industry wide activity growth in the low to mid double digits.

In North America, we expect continued activity increases with the broader market set to experience strong growth in excess of 40%.

Given this macro backdrop and some of the headwind considerations I noted earlier, we would expect <unk> revenue to increase in the low to mid double digits. The largest variable to this range as the number of potential outcomes in Russia. Despite this.

Uncertainty, we still expect margin rates to increase throughout the year and continue to target, 20% EBIT margins by the fourth quarter.

Moving to oilfield equipment orders for the quarter were $739 million, an increase of over 100% or $394 million year over year the.

The strong orders performance was driven by Sps supported by a large subsea tree contract in Asia, along with growth in flexible surface pressure control and services as a reminder, we removed subsea drilling systems from consolidated OSV operations. When we completed the merger with MH worth in the fourth quarter of 2000.

'twenty one.

Revenue was $528 million down 16% year over year, primarily driven by Sps STC and the removal of Sds, partially offset by growth in services and flexible.

Operating loss was $8 million down $12 million year over year, primarily driven by lower volume in the quarter Osp's lower revenue and operating margin in the quarter were driven by lower equipment backlog conversion in Sps.

For the second quarter, we anticipate revenue to be approximately flat to up mid single digits sequentially, depending on the timing of backlog conversion, we expect operating income to be around breakeven or slightly positive for.

For the full year 2022, we expect a recovery in offshore activity and project awards, which should help drive a solid increase in orders when adjusting for the removal of ft Sds.

We expect OSP revenue to decline double digits, primarily driven by the deconsolidation of STS and OSV margin rate to be in the low single digit range.

Next I will cover turbo machinery, the team delivered another strong quarter with solid execution orders in the quarter were $3 billion up $1 $6 billion year over year, a new quarterly record for TPS equipment orders were up $1 $5 billion year over year, driven by a significant award to provide <unk>.

<unk> LNG system for the first phase of Bg's Plaquemines LNG project in North America.

Service orders in the quarter were up 8% year over year, primarily driven by growth in contractual and transactional services, partially offset by lower order volumes and upgrades.

Revenue for the quarter was $1 3 billion down 9% versus the prior year equip.

Equipment revenue was down 26% driven by timing of project execution services revenue was up 6% year over year, driven by higher volume and upgrades pumps and valves.

Operating income for TPS was $226 million up 9% year over year operating margin was 16, 8% up 280 basis points year over year.

Margin rates in the first quarter were favorably impacted by higher services mix and strong cost productivity, especially on projects at or near completion.

For the second quarter, we expect revenue to be flat to up mid single digits on a year over year basis, driven by higher equipment volume from planned backlog conversion.

With this revenue outlook, we expect TPS margin rates to be roughly flat to slightly higher versus the second quarter of 2021, depending on the ultimate mix between equipment and services.

For the full year, we expect strong growth in TPS orders versus 2021, driven by increasing LNG Awards. We also continue to see a solid pipeline and our onshore offshore production segment along with opportunities in pumps.

<unk> and new energy areas.

While we expect very strong growth in orders revenue growth should likely range between high single digits to low double digits.

On the margin side, we continue to expect operating income margin rates to be roughly flat year over year and 2022, depending on the mix between services and equipment.

As we mentioned last quarter included in this framework is an expected increase in investments in R&D expenses that relate to our new energy and industrial growth areas.

Finally in digital solutions orders for the quarter were $567 million up 3% year over year <unk> continues to see a strengthening market outlook and delivered growth in orders across most end markets sequentially orders were down 6% driven by typical seasonality.

Revenue for the quarter was $474 million up 1% year over year, primarily driven by higher volumes in precision sensors and instrumentation and wake eight partially offset by lower volume in PPS Nexus controls and Bently, Nevada.

Sequentially revenue was down 15% driven by typical seasonality and challenges in the global environment, particularly supply chain.

Operating income for the quarter was $15 million down 38% year over year, largely driven by headwinds from electronics shortages, some cost inflation and COVID-19 related lockdowns in China <unk>.

Sequentially operating income was down 71% driven by lower volume for the second quarter, we expect to see strong sequential revenue growth and operating margin rates back into the mid single digits for the full year. Following five quarters in a row of positive book to Bill, we expect solid revenue growth as supply chain constraints begin to.

He's over the second half of the year and backlog conversion improves with higher volumes, we expect to see strong improvements in DS margins, we should approach high single digits for the total year.

Overall, we have navigated a volatile environment during the quarter delivering strong orders across the company and positioning to execute on our record backlog, despite very troubling and challenging geopolitical events and broadly stressed global supply chains, we are confident in our ability to adapt and execute as the rest of the year unfolds with.

That I will turn the call back over to Jud.

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

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

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In consideration of time, we ask that you. Please limit yourself to one question and one related follow up.

No first question coming from the line of James West with Evercore ISI. Your line is open.

Hey, good morning, Lorenzo Brian .

Hey, James.

You gave some great detail on the LNG outlook, but I was wondering if we get a little more color.

The conversations specifically with customers as things have clearly changed pretty dramatically in the last.

Eight or nine.

Thanks.

<unk> has come into focus here and if you could maybe provide us what they're seeing with their urgency level is kind of just a little more detail on how those conversations are going and how accelerated.

Build out cycle could be.

Yes sure James.

I think it's clear the unfolding situation in Europe has definitely accelerated the pace of discussions on the next wave of LNG projects aiming to take FID.

<unk> started to see market momentum pick up in 2021 as country set net zero targets and also started to realize the role of natural gas and what it would play in the energy transition now I'd say, we're arguably in the early stages and what could be a multi year reorganizing of the global energy system and with that it will take.

Time for the LNG landscape to evolve and based on the discussions with customers, we see a significant step up in.

A number of customers looking to take <unk> would also increase long term supply agreements. We now expect 100 to 150 M. Tpa to take over the next two years with the potential of more <unk>.

<unk> in 'twenty, four and 'twenty five as you know a lot of these projects are in the U S. So this U S should be a big beneficiary as Ts redrawing of the global energy map, but also as we look at other places such as east.

Middle East, Mexico, and also Asia, we're seeing increasing interest from customers I think we're very well positioned with some interesting concepts around flexibility and also speed to market and with our highly efficient Modularized Retroflexion train system, which again was empathized in Vg, we're helping to lower.

Construction and operational costs with the plug and play approach that enables faster installation. So feeling good about the LNG outlook for a number of years.

Sure no doubt about that thanks for that Lorenzo and then maybe just a quick follow up for me you made this investment in April .

Or would you go with <unk> global.

To expand I think.

<unk> could you maybe comment on what exactly is going on there what that market looks like how you see that.

That played out.

Yes, sure Jameson HFF is a great opportunity and we're pleased to be involved with this customer and its another example of how collaboration can really helped to drive the energy transition.

Global develops projects to produce E fuels by blending green hydrogen and Cotwo and we've invested alongside Ami AIG Porsche and gemstone great partners to really help <unk> continue to develop carbon neutral if you will projects in the United States, Chile, and Australia with the.

Small minority investment in this equity round, we will be providing compresses turbines pumps valves and other technology on future projects and I think what's interesting here is again as you look at electricity based fuels ratios. They are clean carbon neutral fuels produced from renewable green hydrogen and carbon dioxide taken from.

The atmosphere and that can be used by existing cars and trucks without any modification to the engines and <unk> require no new infrastructure transportation or filling station. So a good opportunity in an expanding market for us.

Got it thanks for that.

Our next question coming from the line of Jason <unk> with Bank of America. Your line is open.

Yes, good morning, everyone.

Alright, guys.

Hey, Brian .

I guess kind of a follow up question on James.

A question around LNG, and obviously, you've taken up your guidance for LNG or sorry for TPS orders.

This year based on strong LNG, so you've been guiding flat now you expect kind of strong order growth momentum. So I don't know if you'd want to kind of quantify what strong means and then we kind of all understand whats happening in LNG and accelerated growth opportunities here, but maybe step back a little bit and talk.

Upstream onshore offshore.

Order opportunities because it ultimately looks like the base orders related to kind of some of the onshore offshore stuff has taken a step higher as well.

Yes Chase.

TTS again, we're seeing a continued order momentum that we saw start at the end of 'twenty, one and it's really accelerated in 'twenty, two primarily driven by LNG also the new energy opportunities, even though they are smaller in nature, but when you look at the.

The LNG projects that are moving forward as I mentioned before and you think about the likely timing it could translate in an order number for GPS of $8 billion to $9 billion in 2022, and importantly, based on our customer discussions we would expect our order levels to remain elevated in 2020 free as well as.

You can see a lot of data on the LNG projects.

Pull forward and also strong long term LNG fundamentals and we also see a continued traction in the new energy space and as you saw again in the first quarter, we booked some awards on the new energy space and we're still at the upper end of 100 to 200 range as we continue to see new energy orders in 2022.

Okay, Alright, thats helpful. There nice to hear strong orders theyre going to continue into 2023 years with UBS.

Follow up is really.

Obviously, the Russia, Ukraine conflict is causing Europe and other countries to focus on energy security.

Obviously this is positive on the LNG front, but well what does it ultimately mean for the energy transition do you think that it actually slows the pace of adoption does it speed it up like what does it mean for energy transition.

Yeah Chase it some.

A question that many of posting them I think.

The focus right now in the near term has switched to energy security reliability and diversity, but we don't believe that sustainability goes away. In fact, if you look at some of the policies even introduced in Germany that 25, five energy plan still continues to focus on sustainability, we think the current environment will actually accelerate clean.

Energy initiatives, particularly for fuels like hydrogen.

Which EU is making a large part of its long term energy plan, what we're seeing from the current situation is that you cannot become too reliant on one country or one source of energy. So diversity of supply is critical and we think that pragmatism has come back into the discussion and the role of energy not just renewables.

But also as we've mentioned before gas playing a key critical role.

Given the elevated commodity prices a number of major oil companies and <unk> are going to report good profits and free cash flow. We think that will use that to continue actually developing and accelerating their competence decarbonization plans as well as healthy shareholder returns and you can see that also with an example, like aramco with its capex plans.

That includes a significant hydrogen so we think Baker Hughes is very well positioned then with gas LNG hydrogen cc U S oil and pipelines and we've got the technologies that are going to continue to drive this transition.

Alright, perfect. Thanks Lorenzo.

Thanks.

Our next question coming from the line of Connor Lynagh with Morgan Stanley . Your line is open.

Yes. Thanks.

Something maybe we could we could talk a little bit more about Russia. So just wanted to understand first off the data point on the 4% of revenues is that already fully accounting for any ruble depreciation impacts and so is what you're basically guiding to two <unk>.

Actual activity declines and I'm curious.

Further to that.

Is it at this point you have received notification from your customers that youre activity will decline or is that just your expectation based on what youre seeing in the market.

Yeah Conor to hit the first part this does.

Include the impact of what was going on.

With the ruble and as you know.

It's been down and up again and is relatively stable at this point in time.

It represented roughly about 4% of revenues.

In the first quarter and look I'd say in terms of how we're thinking about it.

For the full year, you got to take a step back and realize that sanctions from the U S. UK and EU continue to evolve and are evolving and are making ongoing operations increasingly complex.

And in a bit more difficult and kind of to give you. Some perspective on the first quarter. We did see some decremental impact on EBITDA about the same level on EBITDA as the as Russia represented in terms of revenue of the total company and it was really driven from.

Lower volumes from not being able to move people and assets into the country.

I would say there were also some logistical delays and delivery challenges, which largely impacted OFC in both equipment.

And services and then we also saw some logistical delays and delivery challenges in TPS, primarily in services as well. So those were the two areas that we saw the most significant impact in the quarter from Russia, and if you take a step back and look at what we talked about going forward and kind of the framework that we tried to provide you for the year.

Year, we did contemplate everything that we know today and the anticipation that things are going to continue to evolve there. So so based on what we've talked about in terms of the revenue outlook for Oss up low to mid double digits. The low end really assumes that our <unk>, Russia operation declines over the course of the year to base.

<unk> an immaterial level.

So by the end of the year really really low there we do have inventory in the country, but given the sanctions are unable to import key technologies for some of the services. So there'll be a drop off over the course of the year barring something unforeseen and there'll be some impacts.

In TPS associated with that but look is as we get more clarity on the situation will clearly react and take the appropriate cost actions to offset any declines in volume, which we also included in the framework that we provided you and then.

As you think about Russia, and the impact on the.

Global environment, we're obviously working through supply chain challenges that.

Come with things coming out of Russia, and Ukraine or not as the case may be and then kind of you got to take a look to theres going to be some offsetting activity increase to soak up the supply.

To meet the demand that goes away from.

Potential declines in Russian output and as you know that's not going to be one for one in terms of timing. So we are seeing increased activity in North America, you've seen increased plans, particularly in the middle east to invest more.

<unk>.

Bring more supply to market. So we will see some impacts from that but there is likely to be a delay versus the impact you see in Russia.

Yes, thanks for all that color.

Last portion you were talking about there was my follow ups. So basically at this point have you seen any of your major international customers alternate plans or accelerate plans or indicate that they are planning to accelerate.

It seems like there is going to be some loss of Russian oil volumes to the market I'm curious how some of these bigger companies are going to respond to that.

Yes, yes, yes, we are seeing customers talk about increasing their increasing their spend planned I'd say, particularly we've seen that in the middle East and have started to see awards increase and I think youll start to see some of that flow through here in the second half of the year.

And into into 'twenty, three obviously, we've talked about the outlook in North America, that's clearly reaction to what's going on in the market.

And what's happening in Russia, and look Lorenzo talked about what we're seeing in and TPS orders.

For the year and the situation has current is certainly had.

An impact on that and ironically, a little bit Conor as I look at everything we're seeing right. Now 23 is is shaping up with some pretty good visibility.

Maybe even a little better than 22 because of the volatility right now but.

With the backlog that we're building on the back of potentially $8 billion to $9 billion of orders in TPS with some service tailwind you saw service orders up in TPS, 8% this quarter with strong returns and cash flow with a lot of operators I think youre likely to see.

See that continue and then we talked about what youre seeing in the upstream space and I talked about that timing disconnect and things coming in later I think 'twenty three is shaping up with pretty good visibility and is looking to be pretty strong based on what we're seeing today. So look we'll manage through the volatility.

In in 'twenty, two but I think we're positioning things to be able to.

<unk> advantage of the broader context of things going on in the marketplace across the portfolio.

Got it thanks very much.

Okay.

And our next question comes from the line of Scott Gruber with Citigroup. Your line is open.

Yes, Sir.

Building upon <unk> last question there.

Sounds like the visibility in the 'twenty threes, improving what's the potential for the international Oss market to actually see an acceleration in spending 23, given the fact that budgets for this year was set well before the surge in oil prices.

Some additional color if you will on longer cycle projects.

Building, a building into Q to support growth.

Three and beyond.

Yes, Scott just on RFS.

International outlook based on the conversations with our customers, we expect broad based recovery internationally with all major geographies and overall international growth in the low to mid teens, we believe middle east could be one of the strongest markets in 2022 and is likely in the early stages of a growth cycle.

<unk> in the region and look to add production capacity on a gradual long term basis. So good outlook going into 2023 as well and we also expect to see another strong year of growth in Latin America led by Brazil, and Mexico, and then as we go forward, we would expect North Sea and Asia Pacific diseases led growth in 2022 and not as strong.

As middle East or Latin America, but solid growth and lastly, West Africa is also seeing some incremental activity and strong growth as we go forward I think on the offshore side.

We'd say at a macro level the trends in the subsea and offshore markets continue to improve and as you look at our first quarter as well I'm an orders perspective, you can see that.

The subsea tree and flexible pipe market, we expect to see a solid increase in industry Awards this year and.

Coming back for the foreseeable future.

Got it and with some of the international <unk>.

Operators are pulling forward some projects that respond into oil prices can you provide some color on the pricing trends, you're seeing on the international side It Oss market.

Things are getting better.

But do you foresee sufficient momentum there to propel above normal incrementals.

In 2003, and continuing to expand your margins seem to be on the 20% threshold.

Scott generally speaking, we're starting to get good pricing leverage and back getting net pricing, particularly in North America, but also in some of the international markets right now it varies by market, but we're having more success embedded discussions around higher pricing levels.

Yeah, and look I'd say, particularly from an <unk> perspective, as the chemicals business recovers I would expect to see some improvement in Incrementals. There and then the only thing I would say Scott as you know, we're all dealing with inflation in the market and we're working hard to get surcharges and price increases in but that's something you've got to take into consideration as you.

About the next 12 months or so.

Yes.

Thanks, I appreciate the color.

Okay.

And our next question coming from the line of Jay.

With Jpmorgan Chase your line is open.

Yes. Good morning, you book Clackamas, the LNG system this quarter with venture global.

And I believe Calcasieu pass was booked in the third quarter of 2019 I was wondering if you could talk a little bit about.

The margin potential of this project relative to Calcasieu pass.

And obviously, a much more challenging supply chain and deflationary environment and what are you doing in order to protect your margins from those inflationary pressures.

Yeah, Arun look we're very pleased that we've gotten the second phase of.

Our work with Vg here with with Plaquemines, Nate look I think it's fair to assume that margins will be similar to what we saw on <unk> I mean, there's a couple of things going on here. Obviously, we've got experience with this type of project with this customer before so theres some natural synergies that come through and in this project that we didn't have in.

Sure.

The first one you did mentioned inflation there obviously, we price that in.

And I have worked on productivity to help offset that as well and look you can imagine as we've said before.

When we.

When we quote and when we win orders, we go out and we place.

Orders for long lead items, certainly have a view of what we believe is happening in the market today, and what will happen and take the appropriate actions to protect ourselves and the customer from that inflation as much as possible, but look this is a great order for us.

It's similar to what we did with calculus, you and you heard Lorenzo talk about.

We delivered all of these modules ahead of schedule, which is very helpful for <unk>.

Getting to first cargo and in record time, So our track record here is pretty good and we're really excited about this space in this order and our partnership with BG.

Great and I just had a follow up I think you delivered calcasieu pass in less than 30 months or so which is very very impressive.

One of the questions we've been getting from clients just given what's going on in LNG is this fast LNG.

Concept, which is offshore.

These are generally a third of the size of some of the.

The onshore facilities, but could you talk a little bit about that does does baker habit, a toolkit that can.

Participate.

In the offshore LNG market.

Do you see this playing out and is this a sandbox you'd want to play out planned.

So Arun I think while we have.

Capability and capacity to handle.

Many different types of LNG equipment orders at the same time, we've got great capability in our facilities and as you look at the 30 years, we've been in LNG, we've always been looking at new technologies to reduce the cycle time and also to plug and play. So this new modularized approach to foster LNG can be applied.

<unk>, two onshore and offshore and the number of customer discussions are intensifying around the speed to market. So I think again with the technology enhancements. We've made we are well positioned to capture the market here.

Great. Thanks, a lot.

And our next question coming from the line of Stephen <unk> with Stifel. Your line is open.

Thanks, Good morning, gentlemen, good morning, good morning.

Do you mind going back to your prepared comments on the oilfield services side and some of the changes you've made there could you could you talk about.

Sort of the path.

20% EBITDA margins by the end of the year and maybe with some color around the impact some of these changes you've made.

Yes look so I'd say overall, we still feel confident Steven in.

And hitting our margin target rates and getting <unk> to 20% EBITDA margin rate.

On a consistent basis, and I would say from here.

There's a couple of things that should drive market margin improvement the biggest driver will be better profitability in our chemicals business, which as you know has been squeezed by higher input costs higher logistics and shipping cost and some raw material shortages.

As Lorenzo mentioned, we put in pricing increases in surcharges to help offset that but chemicals had about 170 basis point drag on Oss margins in in the first quarter.

The normalization of broader logistics and supply chain issues that have disrupted shipment schedules.

Here in the quarter should also should also help with with that these two issues. If you combined with the volume improvement that we're expecting should be enough to get us to the 20% level. In addition.

So we are set to bring on new chemical plants in Singapore, and Saudi in 'twenty, two and 'twenty, three which will lower the cost for chemicals get us closer to some of our customers and give us some advantages for our eastern hemisphere delivery.

Also continuing to work other productivity initiatives with Maria Claudia and the team primarily around service delivery with.

With a remote operations continuing to drive margin improvements there and we have been executing on.

Supply chain rationalization.

As well as.

So we're seeing from some lower cost countries and thats been part of a multi year plan. So we've got a lot of things that we have been working and they are continuing to work to get the margin rates to that 20% level, but as I said.

Broader supply chain and logistics and normalization of the chemicals margins, which we think of trough here in the first quarter.

Will will get US there and then there should be some icing on top and Stephen just to add the new organization that we announced is going to improve the speed of decision, making and also be able to capitalize on the growth opportunities in the market. So it's very much customer focused and allows us to be more responsive and more comprehensive and integrated solutions and capture more.

The market share of operating costs related to spend so it's what our customers have been asking for and we're delivering.

Yeah.

Thanks.

As a quick follow up on the chemicals on the supply chain side.

Clearly, Russia kind of disrupted what look like I think a stabilization.

What's your visibility and sort of confidence that things will.

Let's start to normalize here as you get into the second half of the year.

Yes look I would say we started to see some encouraging signs in.

In the latter part of the fourth quarter as chemical prices started to stabilize and logistics started to look a bit better, but obviously with everything going on in Russia, and the increase in commodity prices that has created some more headwinds we have seen stabilization in the broader bay.

Base chemical space.

But I'd say, where inflation is still tough as in the specialty chemical market and as I mentioned, we had some unique issues with a supplier who had a facility that was basically shut down and getting that facility back up and running has taken them a bit longer. So we've been having to get some alternative supply that starting to normalize.

As well so we should see some some recoveries come through and then look we've made some we've made some changes we recently changed out leadership in chemicals.

We're doing some specific things in supply chain to deal with the current environment, we broadened our sourcing relationships just given what we experienced with this large supplier that we had we've actually taken a look and have eliminated some products where volumes were low and margins were relatively low to free up the capability to focus on some areas.

Where we make more money and deal with some of the supply chain challenges and focus the team there and then with the new factories coming on it's allowed us an opportunity to take a step back and look at the overall supply base, how we're contracting and we've made some changes there that we should start to see come through here in the second half but.

Good visibility to what's what's going on there the team understands it just working through.

A little bit of a perfect storm here that seems to be abating.

Very good thank you.

Okay.

And our next question coming from the line of David Anderson with Barclays. Your line is open.

Hey, good morning, Lorenzo So question, a global push to build out LNG capacity I had heard anecdotally with a minimum of four years.

Bringing new train on start to finish, but youre talking about plaquemines and closer to 29 months people. Its modular design is this the new standard that we should be thinking about these projects and I guess related to that is there a limit to how much equipment you can provide any given year.

Are your manufacturing capacity if these projects are accelerating.

Yes, Dave and I think you have to go back to the.

The tenure, we've had in the LNG cycle, and we've always said that there's going to be small scale mid scale large scale and we're going to be participating in all of those and also looking at modular as well as stick built and depending on the customers' needs, we're going to be providing them clearly the modular is a faster to market. It is a.

I can play model. So we are seeing increased interest from some of the independent players and I'd say also within North America globally with some of the larger projects. They still continue on that stick built we don't have a challenge on capacity again.

Had the big flows of LNG projects in the past and we feel good about being able to manage it and facilities that are set up and Florence in mass and Ive Ensign, Italy.

Well prepared for the LNG project wave.

So if we think about the U S build out export capacity.

Are there any other kind of areas, where you're seeing there.

Bottlenecks that need to be freed up.

Would you expect most of the awards going forward to be much more.

Modular category just curious how you think about that kind of supply can you just one part of the core so I'm just wondering looking at the rest of that are there other areas that are bottlenecks that could either speed up or slow down these projects.

I think the area that people are looking at and also reacting to is on the EPC side and that's one of the areas that I think it's a focus right now I would say also the modular approach rich.

Reduces some of the dependence on the full aspect of EPC and so it's a faster approach from that perspective, but labor continues to be constrained and so thats something thats being looked at.

Okay. Thank you.

Yeah.

Our next question coming from the line of Roger read with Wells Fargo. Your line is open.

Yes. Thank you good morning, how are you.

Hey, Roger.

Just a couple of quick questions.

First one is you made the comment about supply chain easing up as the year goes on and understand chemicals, a little different than some of the others, but as we think of some of the pieces that will go into these LNG order some of the issues going over in China is there any risk of that affecting.

Okay.

Yeah.

Hey, Roger I'll go ahead, and you cut off there a little bit but.

Sorry.

That's alright on supply chain.

It tends to be.

Challenging and obviously with everything going on in the global.

Geopolitical space, it's been it's been a little more challenging but look I would say from how it how it impacts us and how we're dealing with it we are managing the price increases in various metals like copper and steel and nickel Theres no supply issue is just managing through those pricing and you can imagine that that is going into our quotes.

And to deal with all of this we have taken down the <unk>.

Timing and validity of our quotes to be able to deal with this so so customers know what's going on and they can have good visibility into what the cost of these projects are going to be look from our castings and forging standpoint still able to get.

Supply, we're dealing with some scare.

Scarcity in Europe , and higher pricing there. So we're seeing what we're doing with our customers. Our suppliers are doing as well with quotes are only valid for a shorter period of time, given the raw material pricing and a unique energy challenges in Europe , but look that's the beauty of being part of a global company like Baker Hughes I mean, we've been.

To shift supply into China, we focused on northwest China to be able to deal with some of the port issues and things we're seeing in Covid. We had really good experience. There. We've also moved some.

Some supply to Mexico, and India. So we are able to pivot because we've got a large supply base and can direct that demand.

To different places.

So we feel good about what were doing their own supply chain, we expect to see some stabilization come through but have a great sourcing team.

Working with the projects team to make sure we can fulfill on the demand that we see coming through from a logistics standpoint, I'd say the team has done an outstanding job of managing that inflation, we've seen in logistics is well below the headline.

Prices that you've seen we've changed ports that were using in North America and China. So we've been incredibly reactive here I don't see it being a big constraint.

Today for the for the LNG cycle that we're seeing but that's something that we'll have to watch as it evolves.

Okay, great. Thanks, and then the follow up as we think about.

Just.

One of your competitors yesterday talk about exceptional tightness in North America I was just curious your view on availability.

Equipment labor et cetera, as we think about the international markets ramping up and at what point, you would see significant tightness really helping out on the pricing side there.

Understand thank you should get better as this year goes along and given the guidance, but what we could see things get very very good on the <unk> side.

Sides, Yeah look I would say broadly tightness, you're seeing outside of the U S. It's similar to what you're seeing inside of North America. Some some labor tightness.

Around the globe in some markets not as much as Youre seeing in North America and look just given the overall increase in activity you are seeing tightness in supply of equipment. I think we've all got capability or I know, we've got capability to ramp up and had been planning on that but look when you've got demand up as much as you are seeing in North America and global.

General economic tendencies come back into play and you start to see the ability to have more constructive pricing discussion to deal with some of those supply demand issues and I would say the international market. As you know is more longer term contract base versus spot market like you see in North America, where you see some real opportunity.

Here is on some of that spot business in and I'd say, we are being very constructive with our customers taking into account what we're seeing on the supply chain, what we're seeing in overall demand and.

It's a constructive backdrop for for <unk> at the moment.

Great. Thank you.

And Im showing no further questions at this time I would now like to turn the call back over to Lorenzo Simonelli for any closing remarks.

Yes. Thank you very much and thank you to everyone for joining our earnings call today, just before we end the call and wanted to leave you with some closing thoughts. Despite some of the challenges. This quarter. We are optimistic on the outlook across both of our core business areas and excited about the new energy investments, we're making for Baker Hughes, we believe that our upstream oil and gas businesses.

To capitalize on a strong multiyear recovery, while our industrial businesses are poised to benefit from a strong LNG cycle growth in new energy orders and the development of our industrial asset management capabilities, while we benefit from these macro tailwind, we expect to generate strong free cash flow and returned 60% to 80% of it back to shareholders.

So thanks for taking the time look forward to speaking to you all again soon and operator, you may close out the call.

Ladies and gentlemen that does conclude our conference for today. Thank you for participating in today's conference you.

You may all disconnect.

Yeah.

[music].

Okay.

[music].

Good day, ladies and gentlemen, and welcome to the Baker Hughes Company first quarter 2022 earnings conference 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 then zero on you touched on the telephone.

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference is.

Is it Jud Bailey Vice President of Investor Relations.

Sir you may begin.

With that I will turn the call over to Lorenzo.

Thank you John Good morning, everyone and thanks for joining us our first quarter results reflect operating in a very volatile market environment. During the first few months of 2022 on the positive side TPS orders were up over 100% year over year with TPS book to Bill of two two as the LNG order cycle continues to unfold.

We also experienced some challenges in parts of our business due to continued pressure from broader global supply chain constraints as well as some impact from the recent geopolitical events.

<unk> and supply pressure for key materials commodities and labor.

To meet the world's energy needs in a responsible manner. We believe multiple years of spending growth will be required as well as significant increase in LNG infrastructure investment.

Recent geopolitical events have severely constrained what was already a tight global natural gas market.

We continue to see a focus on prioritizing LNG from stable lower cost markets and locations that can provide cleaner LNG.

Given the current LNG price environment and the quickly changing dynamics, we believe that global LNG capacity will likely exceed 800 and tpa by the end of this decade to meet growing demand forecast. This compares to the current global installed base of 460, MTP and projects under construction totaling almost 150.

<unk> M Tpa.

In order to be operational by 2030, this additional capacity will need to reach.

By around 2025.

Organic framework technology provides baker Hughes with the potential to efficiently capture low concentrations of <unk> across a number of applications.

Net power as an emission free gas to power technology, where Baker Hughes will develop supercritical cotwo temporary Sanders and other critical pumping and compression technology. We will also bring system integration and process knowledge experience that a partnership to help accelerate the market positioning and deployment of net powers emission.

Free and low cost of electric power.

Haf global developed projects in multiple geographies to produce each yields by blending green hydrogen and Cotwo Baker.

Baker Hughes is investing alongside AIG Porsche.

And gemstone and will provide compresses turbines pumps.

Valves and other technology on future projects. We are also discussing how our recently acquired mosaic materials, the IC technology could be incorporated entities future projects.

And industrial asset management, we signed an important agreement with Accenture <unk> AI and Microsoft to collaborate on the Buildout of the Iam solutions offering the partnership will focus on creating and deploying Baker Hughes I am solutions that use digital technologies to help improve the safety efficiency and emission.

<unk> profile of industrial machines field equipment and other physical assets.

In addition to advancing our commercial efforts and Cts and I am we also remain focused on optimizing our broader organizational structure under the core business areas of OFC and.

Oh, Fas will move from a product line oriented structure to a solutions focused business centered around well construction completion intervention and measurements and production solutions and.

In addition to the organizational changes and RFS, we were pleased to announce an agreement to acquire altice intervention, a leading international provider of well intervention services and downhole technology, the acquisition complements <unk> existing portfolio by enhancing a life of well capabilities as operators look to improve <unk>.

<unk> from mature fields.

Maria Claudia and the RFS team are enhancing their operating model to become more competitive and improve the speed of decision, making and capitalize on growth opportunities in the market.

These organizational changes are important steps in the RFS as Johnny.

As customers are increasingly asking for integrated offerings and more solutions oriented outcomes as well as a continuation of the strong productivity improvements in RFS over the past few years.

As we continue to evolve Baker Hughes across the two business areas of OFC and we.

We expect more meaningful synergy opportunities between TPS Mds. We are also focused on driving better returns in our OSB business as well as further synergies between Oss and OFC.

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

And oil field services activity levels at the start of the year have continued to trend positively in both the international and North American markets. We also see improving visibility for stronger growth in several key areas over the rest of 2022.

In the international markets underlying activity is improving broadly with particular strength in southeast Asia, Latin America, and the Middle East.

The uncertainty in Russia, as an offset we expect growth in most international markets to continue with the strongest increases likely to come from the middle East over the second half of the year and into 2023 <unk>.

Producers in the region are in the early stages of investing in capacity expansion and should help drive a multi year increase in activity across the region.

In North America drilling and completion activity continues to move solidly higher with further increases expected over the course of the year.

The <unk> team is working extremely hard to offset these headwinds with price increases sourcing actions and our global team working to solve logistics constraints.

The product line that continues to feel the most supply chain related pressure as our production chemicals business.

We have taken actions to enhance our sourcing and manufacturing functions and.

As we look over the balance of the year, we remain committed to achieving a 20% EBITDA margin by the fourth quarter.

Moving to TPS, the first quarter represented a continuation of the successes we achieved in 2021.

TPS orders totaled $3 billion for the second consecutive quarter, driven again by strong orders in LNG.

We believe that we are at the beginning of another constructive LNG cycle, which is being expedited by the current geopolitical situation, particularly for U S LNG projects.

Positive long term view is also supported by the recent improvements and policy sentiment and southern parts of the world towards natural gas role within the energy transition there.

The recent EU taxonomy changes to now include natural gas as a transition fuel as an example of this and the added need to diversify and provide energy security will likely intensify policy efforts.

As these market dynamics play out a number of projects should accelerate and we now believe that 100 to 150 MTBE of LNG will be authorized over the next two years, we have additional <unk>, becoming more likely in 2024 and 2025.

Given the strong TPS orders performance in the first quarter as well as the acceleration and timing for several LNG projects. We now expect TPS orders to increase in 2022 versus 2021.

During the first quarter, we were pleased to be awarded a major order to provide an LNG system for the first phase of venture Global's Plaquemines LNG project.

We will be providing 24 modularized compression trains for the first phase of the project and this award is part of our 70 MTA Monster equipment supply agreement.

The highly efficient liquefaction train system is modularized, helping to lower construction and operational costs with a plug and play approach that enables faster installation and first cargo.

This important order builds on an award in the fourth quarter of 2021 for power generation and electrical distribution equipment for the comprehensive power Island system for the Plaquemines project the.

The Plaquemines order follows a similar contracts for Vg's Calcasieu pass LNG terminal in 2019 and.

In 2021 Baker Hughes successfully completed delivery of the ninth and final block for calculus, you pass all shipments were finalized ahead of schedule and excellent achievement by our team Calcasieu pass holds the global record for the fastest construction of a large scale Greenfield LNG project moving from <unk>.

The first LNG and 29 months.

Outside of LNG, we booked an award for Nova <unk>, 16 turbines, which will run on 100% hydrogen for air products, New net zero Blue hydrogen energy complex in Edmonton, Alberta.

Collaboration with air products will be critical for a net zero future and this order follows. The award we received for advanced compression technology, but then the carbon free Green hydrogen project.

Baker Hughes will provide free compression trains deploying on Nova LTE 12, hydrogen ready gas turbines and PCL compresses with the capability to transport up to 10% hydrogen for this project.

The project directly supports the use hydrogen strategy goals to accelerate the development of clean hydrogen and sure its role as a cornerstone of our climate neutral energy system by 2050.

These latest hydrogen orders build on Baker Hughes has extensive experience in developing and supplying teva machinery equipment to compress transport and utilize hydrogen.

On a macro level trends in the subsea and offshore markets continue to improve and the subsea tree and flexible pipe market. We expect a solid increase in industry Awards. This year as a firm commodity price outlook supports a growing pipeline of deepwater opportunities in core markets.

In our international Wellhead business, we also see a positive order outlook across multiple regions and particularly in the middle East.

In the first quarter, we were awarded a contract in Asia to provide subsea wellheads and subsea production systems, plus related services, including 12 subsea trees for a deepwater gas field.

We also achieved our first award in Ivory Coast, where we will supply subsea trees flexible flow lines and rises to develop the <unk> deepwater oilfield.

Finally in digital solutions order activity remains solid with growth across our industrial end markets as well as improvement in the oil and gas markets.

<unk> continues to be affected by supply chain challenges in electronics shortages as well as continued inflationary pressures. The team is working tirelessly to manage the situation and navigate the evolving supply chain issues that have been exasperated by recent events.

In the past quarter, we made a number of changes in the DS business as we look to improve the overall performance, we unified our unique sensor business units Panamax tricks Reuter Stokes and drug and the one product line precision sensors and instrumentation or tsi as a combined business PSA will better support.

<unk> cost optimization and effectively enable risk management, while delivering enhanced performance.

Despite some of the challenges this quarter, we are optimistic on the outlook across both of our core business areas and excited about the new energy investments, we are making for Baker Hughes.

We believe that we are well positioned to benefit from an extended cyclical recovery and OFC and longer term structural growth trends and LNG, new energy and industrial asset management.

Importantly, we expect to generate strong free cash flow as the cycle plays out and remain committed to returning the majority of it back to shareholders with that I will turn the call over to Brian .

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

Following our strong orders performance in the fourth quarter.

Remaining performance obligation was $25 8 billion up 10% sequentially equipment <unk> ended at $9 9 billion up 20% sequentially and services <unk> ended at $15 9 billion up 4% sequentially.

Our total company book to Bill ratio in the quarter was one four and our equipment book to Bill ratio in the quarter was one nine <unk>.

Revenue for the quarter was $4 8 billion down 12% sequentially with declines in all four segments.

Year over year revenue was up 1% driven by increases in Oss and digital solutions, partially offset by decreases in OSV and TPS.

Operating income for the quarter was $279 million.

Adjusted operating income was $348 million, which excludes $70 million of restructuring separation and other charges.

Adjusted operating income was down 39% sequentially and up 29% year over year.

Our adjusted operating income rate for the quarter was seven 2% down 320 basis points sequentially year over year, our adjusted operating income rate was up 160 basis points.

Adjusted EBITDA in the quarter was $625 million down, 26% sequentially and up 11% year over year.

Adjusted EBITDA rate was 12, 9% up 120 basis points year over year.

And as I will expand in a moment, our adjusted operating income and adjusted EBITDA margin rates were impacted by geopolitical events as well as broader global supply chain challenges.

Corporate costs were $105 million in the quarter for the second quarter, we expect corporate cost to be roughly flat compared to the first quarter.

Depreciation and amortization expense was $277 million in the quarter for the second quarter, we expect DNA to be slightly up compared to first quarter levels.

Net interest expense was $64 million.

Income tax expense in the quarter was $107 million.

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

Included in GAAP diluted earnings per share is an $85 million gain from the net change in fair value of our investment in AD not drilling and a $74 million loss from the net change in fair value of our investment in <unk> III AI. Both are recorded in other non operating loss.

Adjusted earnings per share were <unk> 15.

The quarterly progression should be more in line with what we experienced during 2018 in 2019.

In the first quarter, we continued to execute on our share repurchase program repurchasing $8 1 million Baker Hughes class a shares for $236 million at an average price of just under $29 per share.

As of March 31, Ge's ownership of Baker Hughes class B shares represented 4% of the total company down from just over 11% at the end of 2021.

<unk> overall ownership of class, a and class B shares was 11, 4% at the end of the first quarter down from 16, 2% at the end of 2021.

Additionally, sanctions from the U S UK and the EU continue to evolve and are making ongoing operations increasingly complex and significantly more difficult.

As a result, we expect erosion of our Russia related revenues over the course of 2022, particularly in Oss. However, the pace and magnitude of this is difficult to predict given the dynamic nature of the situation. Therefore, there is a range of possible outcomes, we are preparing for across our product companies.

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

In oilfield services the team delivered a solid quarter. Despite some of the global challenges.

Revenue in the quarter was $2 $5 billion down 3% sequentially International revenue was down 7% sequentially led by declines in the North Sea, Russia, Caspian and the Middle East and Latin America.

North America revenue increased 6% sequentially with solid growth in both North America land and offshore.

Operating income in the quarter was $221 million down 14% sequentially.

Operating margin rate was eight 9% with margins declining 110 basis points sequentially, driven by lower volume less favorable mix and continued inflationary pressure in the chemicals business year over year margins were up 230 basis points as.

As we look ahead to the second quarter underlying macro fundamentals continued to improve and we expect to see strong growth in both international and North American activity as well as improvement in pricing. This is likely to be partially offset by weakness in Russia. We.

For the full year 2022, we see an improving outlook across most major markets, which is partially tempered by global supply chain and geopolitical factors.

In the international market, we expect the continuation of a broad based recovery with industry wide activity growth in the low to mid double digits.

In North America, we expect continued activity increases with the broader market set to experience strong growth in excess of 40%.

Uncertainty, we still expect margin rates to increase throughout the year and continue to target, 20% EBITDA margins by the fourth quarter.

Moving to oilfield equipment orders for the quarter were $739 million, an increase of over 100% or $394 million year over year the.

'twenty one.

Revenue was $528 million down 16% year over year, primarily driven by Sps SPC and the removal of Sds, partially offset by growth in services and flexible.

Operating loss was $8 million down $12 million year over year, primarily driven by lower volume in the quarter Osc's lower revenue and operating margin in the quarter were driven by lower equipment backlog conversion in Sps.

For the full year 2022, we expect a recovery in offshore activity and project awards, which should help drive a solid increase in orders when adjusting for the removal of ft Sds.

We expect OSP revenue to decline double digits, primarily driven by the deconsolidation of Sds and OSV margin rate to be in the low single digit range.

Equipment orders were up $1 $5 billion year over year, driven by a significant award to provide an LNG system for the first phase of Bg's Plaquemines LNG project in North America.

Service orders in the quarter were up 8% year over year, primarily driven by growth in contractual and transactional services, partially offset by lower order volumes and upgrades.

Revenue for the quarter was $1 3 billion down 9% versus the prior year equipment revenue was down 26% driven by timing of project execution services revenue was up 6% year over year, driven by higher volume and upgrades pumps and valves.

Operating income for TPS was $226 million up 9% year over year operating margin was 16, 8% up 280 basis points year over year.

Margin rates in the first quarter were favorably impacted by higher services mix and strong cost productivity, especially on projects at or near completion.

For the second quarter, we expect revenue to be flat to up mid single digits on a year over year basis, driven by higher equipment volume from planned backlog conversion.

With this revenue outlook, we expect TPS margin rates to be roughly flat to slightly higher versus the second quarter of 2021, depending on the ultimate mix between equipment and services.

While we expect very strong growth in orders revenue growth should likely range between high single digits to low double digits.

On the margin side, we continue to expect operating income margin rates to be roughly flat year over year and 2022, depending on the mix between services and equipment.

As we mentioned last quarter included in this framework is an expected increase in investments in R&D expenses that relate to our new energy and industrial growth areas.

Finally in digital solutions orders for the quarter were $567 million up 3% year over year.

<unk> continues to see a strengthening market outlook and delivered growth in orders across most end markets sequentially orders were down 6% driven by typical seasonality revenue.

Sequentially revenue was down 15% driven by typical seasonality and challenges in the global environment, particularly supply chain.

Operating income for the quarter was $15 million down 38% year over year, largely driven by headwinds from electronics shortages, some cost inflation and COVID-19 related lockdowns in China sequentially operating income was down 71% driven by lower volume for the second quarter, we expect to see.

<unk> sequential revenue growth and operating margin rates back into the mid single digits for the full year. Following five quarters in a row of positive book to Bill we expect solid revenue growth as supply chain constraints begin to ease over the second half of the year and backlog conversion improves with higher volumes, we expect to see strong.

Improvements in DS margins, we should approach high single digits for the total year.

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

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

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

Question has been answered all your resume of yourself from the queue. Please press the pound key.

Consideration of time, we ask that you. Please limit yourself to one question and one related follow up.

No first question coming from the line of James West with Evercore ISI. Your line is open.

Hey, Good morning, Lorenzo Brian Hey, James.

Lorenzo you gave some great detail on the LNG outlook, but I was wondering if we get a little more color.

From your conversations specifically with customers as things have clearly changed pretty dramatically in the last.

Eight or nine.

Thanks.

He has come into focus here and if you could maybe provide us what theyre, saying what their urgency level is kind of a little more detail on how those conversations are going and how accelerated.

Build out cycle could be.

Yes sure James.

I think it's clear the unfolding situation in Europe definitely accelerated the pace of discussions on the next wave of LNG projects aiming to take out Friday.

Time for the LNG landscape to evolve and based on the discussions with customers, we see a significant step up in <unk>.

A number of customers looking to take <unk> would also increase long term supply agreements. We now expect 100 to 150 <unk> Tpa to take over the next two years with the potential of more <unk>.

In 'twenty four and 'twenty five as you know a lot of these projects are in the U S. So this U S should be a big bedroom fishery as these redrawing of the global energy map, but also as we look at the other places such as east.

Middle East, Mexico, and also Asia, we're seeing increasing interest from customers I think we're very well positioned with some interesting concepts around flexibility and also speed to market and with our highly efficient modularized broker selection train system, which again was empathized in Vg, we're helping to lower.

Construction and operational costs with the plug and play approach that enables faster installation. So feeling good about the LNG outlook for a number of years.

Sure no doubt about that.

So that Lorenzo.

Maybe just a quick follow up for me you made this investment in April .

Or would you go with HCA with global.

To expand I think <unk>.

Could you maybe comment on what exactly is going on there what that market looks like how you see that.

That played out.

Yes sure James.

<unk> is a great opportunity and we're pleased to be involved with this customer and its another example of how collaboration can really help to drive the energy transition.

Global develops projects to produce E fuels by blending green hydrogen and Cotwo.

And we've invested alongside Ami.

Porsche and gemstone, great partners to really help.

<unk> continued to develop carbon neutral fuel projects in the United States, Chile and Australia.

With a small minority investment in this equity round, we will be providing compresses turbines pumps valves and other technology on future projects and I think what's interesting here is again as you look at electricity based fuels ratios. They are clean carbon neutral fuels produced from renewable green hydrogen and carbon dioxide taken.

From the atmosphere and that can be used by existing cars and trucks without any modification to the engines and <unk> require new infrastructure transportation or filling station. So a good opportunity in an expanding market for us.

Got it thanks for that.

Our next question coming from the line of Jason <unk> with Bank of America. Your line is open.

Yes, good morning, everyone.

Hi Chase.

Brian I.

I guess kind of a follow up question on James.

A question around LNG, and obviously, you've taken up your guidance for LNG, sorry for TPS orders.

This year based on strong LNG.

Been guiding flat now you expect kind of strong order growth momentum. So I don't know if you'd want to kind of quantify what strong means and then we can all understand whats happening in LNG and accelerated growth opportunities here, but maybe step back a little bit and talk about <unk>.

Extreme onshore offshore.

Order opportunities because it ultimately looks like the base orders related to kind of some of the early shore offshore stuff has taken a step higher as well.

Yes Chase on TTS again, we're seeing a continued.

Continued order momentum that we saw start at the end of 'twenty, one and it's really accelerated in 'twenty, two primarily driven by LNG also the new energy opportunities, even though they are smaller in nature, but when you look at the.

LNG projects that are moving forward as I mentioned before and you think about the likely timing it could translate in an order number for GPS of $8 to $9 billion in 2022, and importantly, based on customer discussions wed expect our order levels to remain elevated in 2020 free as well as you.

Can see a lot of data on the LNG projects.

All forward and also strong long term LNG fundamentals and we also see a continued traction in the new energy space and as you saw again in the first quarter, we booked some awards on the new energy space and we're still at the upper end of 100 to 200 range as we continue to see new energy orders in 2022.

Okay, Alright, thats helpful. There nice to hear strong orders that are going to continue into $2023 for TPS.

Follow up.

It is really.

Obviously, the Russia, Ukraine conflict is causing Europe and other countries to focus on energy security.

Yes.

A question that many of posting them I think.

The focus right now in the near term has switched to energy security reliability and diversity, but we don't believe the sustainability goes away. In fact, if you look at some of the policies even introduced in Germany that 25, 5% energy plants still continues to focus on sustainability. We think the current environment will actually accelerate clean air.

<unk> initiatives, particularly for fuels like hydrogen.

<unk> is making a large part of its long term energy plan, what we're seeing from the current situation is that you cannot become too reliant on one country or one source of energy. So diversity of supply is critical and we think that pragmatism has come back into the discussion and the role of energy not just renewables, but also is.

We've mentioned before gas playing a key critical role.

The elevated commodity prices a number of major oil companies and <unk> are going to report good profits and free cash flow. We think that will use that to continue actually developing and accelerating their competence decarbonization plans as well as healthy shareholder returns and you can see that also with an example, like aramco with its capex plan for that.

It includes a significant hydrogen so we think Baker Hughes is very well positioned then with gas LNG hydrogen cc U S oil and pipelines and we've got the technologies are going to continue to drive this transition.

Alright, perfect. Thanks Lorenzo.

Thanks.

Our next question coming from the line of Connor Lynagh with Morgan Stanley . Your line is now open.

Yes. Thanks.

Hoping maybe we could we could talk a little bit more about Russia. So just wanted to understand first off the data point on the 4% of revenues is that already fully accounting for any ruble depreciation impacts. So is what you're basically guiding to two.

Actual activity declines and I'm curious.

Further to that.

Is it at this point you have received notification from your customers that your activity will decline or is that just your expectation based on what youre seeing in the market.

Yeah Conor to hit the first part this does.

Include the impact of what was going on.

With the ruble and as you know.

It's been down and up again and is relatively stable at this point in time.

It represented roughly about 4% of revenues.

In the first quarter and look I'd say in terms of how we're thinking about it.

For the full year, you got to take a step back and realize that sanctions from the U S. UK and EU continue to evolve and are evolving and are making ongoing operations increasingly complex.

And a bit more difficult and kind of give you some perspective on the first quarter. We did see some decremental impact on EBITDA about the same level on EBITDA as the as Russia represented in terms of revenue at the total company and it was really driven from.

Lower volumes from not being able to move people and assets into the country.

I would say there were also some logistical delays and delivery challenges, which largely impacted OFC in both equipment.

<unk> an immaterial level.

As you think about Russia and the impact on.

Global environment, we're obviously working through supply chain challenges that.

Come with things coming out of Russia, and Ukraine or not as the case may be and then kind of you got to take a look to theres going to be some offsetting activity increase to soak up the supply.

To meet the demand that goes away from.

Potential declines in Russia, and output and as you know that's not going to be one for one in terms of timing. So we are seeing increased activity in North America, you've seen increased plans, particularly in the middle east to invest more.

<unk>.

Bring more supply to market. So we will see some impacts from that but there is likely to be a delay versus the impact you see in Russia.

Yes, thanks for all that color.

It seems like there is going to be some loss of Russian oil volumes to market I'm curious how some of these bigger companies are going to respond to that.

And into into 'twenty, three obviously, you talked about the outlook in North America, that's clearly reaction to what's going on in the market.

And what's happening in Russia, and look Lorenzo talked about what we're seeing in <unk> and TPS orders.

For the year and the situation has current is certainly had.

An impact on that and ironically, a little bit Conor as I look at everything we're seeing right. Now 23 is is shaping up with some pretty good visibility.

Maybe even a little better than 22 because of the volatility right now, but you know with.

That timing disconnect and things coming in later I think 'twenty. Three is is shaping up with pretty good visibility and is looking to be pretty strong based on what we're seeing today. So look we'll manage through the volatility.

In in 'twenty, two but I think we're positioning things to be able to take advantage of the broader context of things going on in the marketplace across the portfolio.

Got it thanks very much.

Okay.

And our next question comes from the line of Scott Gruber with Citigroup. Your line is open.

Yes, Sir.

So just building upon Connors last question there.

It sounds like the visibility into 'twenty three is improving what's the potential for the international Oss market, it's actually seen acceleration.

Spending 23, given the fact that their budgets for this year was set before the surge in oil prices.

Some additional color if you will on longer cycle projects.

We are building a building in the queue to support growth in.

In 'twenty three and beyond.

Yes, Scott just on international.

National outlook based on the conversations with our customers, we expect broad based recovery internationally with all major geographies and overall international growth in the low to mid teens, we believe middle east could be one of the strongest markets in 2022 and is likely in the early stages of a growth cycle as the NOC.

In the region and look to add production capacity on a gradual long term basis. So good outlook going into 2023 as well and we also expect to see another strong year of growth in Latin America led by Brazil, and Mexico, and then as we go forward, we would expect North Sea and Asia Pacific to see solid growth in 2022, and not as strong as middle East.

Latin America, but solid growth and lastly, West Africa is also seeing.

Some incremental activity and strong growth as we go forward I think on the offshore side.

I'd say at a macro level the trends in the subsea and offshore markets continue to improve.

And as you look at our first quarter as well I'm an orders perspective, you can see that in the subsea tree and flexible pipe market, we expect to see a solid increase in industry Awards this year and.

Coming back for the foreseeable future.

Got it and with some of the international operators are pulling forward some projects that respond into oil prices can you provide some color on the pricing trends, you're seeing on the international side Oss market.

And things are getting better.

Do you foresee sufficient momentum there to propel above normal incrementals in.

In 2003, and continuing to expand your margins beyond the 20% threshold.

Yeah, and look I'd say, particularly from an <unk> perspective, as the chemicals business recovers I would expect to see some improvement in Incrementals. There and then the only thing I would say Scott as you know, we're all dealing with inflation in the market and we're working hard to get surcharges and price increases and but that's something you've got to take into consideration as you.

About the next 12 months or so.

Yes.

Thanks appreciate the color.

Okay.

And our next question coming from the line of <unk> <unk>.

Iran with Jpmorgan Chase your line is open.

Yes. Good morning, you book Clackamas, the LNG system this quarter with venture global.

And I believe Calcasieu pass was booked in the third quarter of 2019 I was wondering if you could talk a little bit about.

The margin potential of this project relative to Calcasieu pass.

And obviously, a much more challenging supply chain and deflationary environment and what are you doing in order to protect your margins from those inflationary pressures.

Yes Arun.

We're very pleased that we've gotten the second phase of.

Our work with Vg here with with <unk> look I think it's fair to assume that margins will be similar to what we saw on <unk> I mean, there's a couple of things going on here. Obviously, we've got experience with this type of project with this customer before so theres some natural synergies that come through and in this project that we didn't have in.

Sure.

The first one you did mentioned inflation there obviously, we price that in.

And I have worked on productivity to help offset that as well and look you can imagine as we've said before.

When we.

When we quote and when we win orders, we go out and we place.

It's similar to what we did with calculus, you and you heard Lorenzo talk about.

We delivered all of these modules ahead of schedule, which was very helpful for <unk>.

<unk> getting to first cargo and in record time, So our track record here is pretty good and we're really excited about this space in this order and our partnership with BG.

Great and I just had a follow up I think you delivered calcasieu pass in less than 30 months or so which is very very impressive.

One of the questions we've been getting from clients just given what's going on in LNG is this fast LNG.

Concept, which is offshore.

These are generally a third the size of some of the.

The onshore facilities, but could you talk a little bit about that does baker have a toolkit that can.

Participate.

In the offshore LNG market.

Do you see this playing out and is this a sandbox you would want to play or planned.

So Arun I think while we have.

Capability and capacity to handle.

Great. Thanks, a lot.

And our next question coming from the line of Stephen <unk> with Stifel. Your line is open.

Thanks, Good morning, gentlemen, good morning, good morning.

Do you mind going back to your prepared comments on the oilfield services side and some of the changes you've made there can you could you talk about.

Sort of the path.

20% EBITDA margins by the end of the year and maybe with some color around the impact some of these changes you've made.

Yes look so I'd say overall, we still feel confident Steven in.

Hitting our margin target rates and getting <unk> to 20% EBITDA margin rate.

On a consistent basis, and I would say from here.

As Lorenzo mentioned, we put in pricing increases in surcharges to help offset that but chemicals had about 170 basis point drag on Oss margins in the in the first quarter.

The normalization.

Nation of broader logistics and supply chain issues that have disrupted shipment schedules.

So we are set to bring on new chemical plants in Singapore, and Saudi in 'twenty, two and 'twenty, three which are lower the cost for chemicals get us closer to some of our customers and give us some advantages for our eastern hemisphere delivery.

We're also continuing to work other productivity initiatives with Maria Claudia and the team primarily around service delivery.

With a remote operations continuing to drive margin improvements there and we have been executing on.

Supply chain rationalization.

As well as.

So we're seeing from some lower cost countries and thats been part of a multi year plan. So we've got a lot of things that we have been working and are continuing to work to get the margin rates to that 20% level, but as I said.

Broader supply chain and logistics and normalization of the chemicals margins, which we think of trough here in the first quarter.

The market share of operating costs related to spend so it's what our customers have been asking for and we're delivering.

Thanks.

As a quick follow up on the chemicals on the supply chain side, clearly, Russia kind of disrupted what looked like I think a stabilization.

What's your visibility and confidence that things will.

Let's start to normalize here as you get into the second half of the year.

Yes look I would say we started to see some encouraging signs in.

In the latter part of the fourth quarter as chemical prices started to stabilize and logistics started to look a bit better, but obviously with everything going on in Russia, and the increase in and commodity prices. That's created some more headwinds we have seen stabilization in the broader <unk>.

<unk> chemical space.

As well so we should see some some recoveries come through and then look we've made some we've made some changes we recently changed out leadership in chemicals.

Areas, where we make more money and deal with some of the supply chain challenges and focus the team there and then with the new factories coming on it's allowed us an opportunity to take a step back and look at the overall supply base, how we're contracting and we've made some changes there that we should start to see come through here in the second half but.

Good visibility to what's what's going on there the team understands it just working through.

A little bit of a perfect storm here that seems to be abating.

Very good thank you.

Yeah.

And our next question coming from the line of David Anderson with Barclays. Your line is open.

Hey, good morning, Lorenzo So question the global push to build out LNG capacity I had heard anecdotally is a minimum of four years.

Bringing new train on start to finish, but youre talking about plaquemines and closer to 29 months at all its modular design is this the new standard that we should be thinking about these projects and I guess related to that is there a limit to how much equipment you can provide any given year.

In terms of your manufacturing capacity if these projects are accelerating.

Yes, Dave and I think you have to go back to <unk>.

Plug and play model. So we're seeing increased interest from some of the independent players and I would say also within North America globally with some of the larger projects. They still continue on that stick built we don't have a challenge on capacity again.

<unk> had big flows of LNG projects in the past and we feel good about being able to manage it in our facilities that are set up in Florence, and Masa and Ive Ensign, Italy.

Well prepared for the LNG project wave.

So if we think about the U S build out export capacity.

Are there any other kind of areas where there.

There are bottlenecks that need to be freed up.

Would you expect most of the awards going forward.

I think the area that people are looking at and also reacting to is on the EPC side and that's one of the areas that I think it's a focus right now I would say also the modular approach Rick.

Reduces some of the dependence on the funnel aspect of EPC and so it's a faster approach from that respective but labor continues to be constrained and so thats something thats being looked at.

Okay. Thank you.

Yeah.

Our next question coming from the line of Roger read with Wells Fargo. Your line is open.

Yes. Thank you good morning, how are you.

Hey, Roger.

Just a couple of quick questions.

Yeah.

Hey, Roger I'll go ahead, and you cut off there a little bit but.

Alright.

Yes, that's right on supply chain.

It tends to be.

Challenging and obviously with everything going on in the global.

Geopolitical space, it's been it's been a little more challenging but look I would say from how it how it impacts us and how we're dealing with it we are managing the price increases in various metals like copper and steel and nickel Theres no supply issues, just managing through those pricing and you can imagine that that is going into our quotes.

And to deal with all of this we have taken down the <unk>.

Supply we're dealing with some.

Some supply to Mexico, and India. So we are able to pivot because we've got a large supply base and can direct that demand.

To to different places so we feel good about what were doing their own supply chain, we expect to see some stabilization come through but have a great sourcing team.

Working with the project team to make sure we can fulfill on the demand that we see coming through from a logistics standpoint, I would say the team has done an outstanding job of managing that inflation, we've seen in logistics is well below the headline.

Prices that you've seen we've changed ports that were using in North America and China. So we've been incredibly reactive here I don't see it being a big constraint.

Today for the for the LNG cycle that we're seeing but that's something that we'll have to watch as it evolves.

Okay, great. Thanks, and then the follow up as we think about.

Just.

One of your competitors yesterday talk about exceptional tightness in North America I was just curious your view on availability.

Of equipment labor et cetera, as we think about the international markets ramping up and at what point, you would see significant tightness really helping out on the pricing side there.

Understand thank you should get better as this year goes along and given the guidance, but what we could see things get very very good on the Oss ofa sides. Yeah look I would say broadly tightness, you're seeing outside of the U S. It's similar to what you're seeing inside of North America. Some some labor tightness.

General economic tendencies come back into play and you start to see the ability to.

Have more constructive pricing discussion to deal with some of those supply demand issues and I would say the international market. As you know is more longer term contract base versus spot market like you see in North America, where you see some real opportunity here is on some of that spot business in and I'd say, we are being very constructive with our customers.

Aching into account, what we're seeing on the supply chain, what we're seeing in overall demand and.

It's a constructive backdrop for for <unk> at the moment.

Great. Thank you.

And Im showing no further questions at this time I would now like to turn the call back over to Lorenzo Simonelli for any closing remarks.

Yes. Thank you very much and thank you to everyone for joining our earnings call today, just before we end the call wanted to leave you with some closing thoughts. Despite some of the challenges. This quarter. We are optimistic on the outlook across both of our core business areas and excited about the new energy investments, we're making for Baker Hughes, we believe that our upstream oil and gas businesses.

So thanks for taking the time look forward to speaking to you all again soon and operator, you may close out the call.

Ladies and gentlemen that does conclude our conference for today. Thank you for participating in today's conference you.

You may all disconnect.

Q1 2022 Baker Hughes Co Earnings Call

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