Q4 2023 Baker Hughes Co Earnings Call

January 24, 2024

Session and instructions will follow at that time as a reminder, this conference call is being recorded I would now like to introduce your host for today's conference. Mr. Chase Mulvehill, Vice President of Investor Relations, Sir you may begin.

Chase Mulvehill: Thank you.

Chase Mulvehill: Morning, everyone and welcome to Baker Hughes fourth quarter, and full year 2023 earnings conference call.

Chase Mulvehill: Here with me are our chairman and CEO, Lorenzo Simonelli, and our CFO Nancy BZ.

Chase Mulvehill: The earnings release, we issued yesterday evening can be found on our website at Baker Hughes Dot com.

Chase Mulvehill: We will also be using a presentation with our prepared remarks. During this webcast, which can also be found on our investor website.

Okay.

Chase Mulvehill: 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.

Good day, ladies and gentlemen, and welcome to the Baker Hughes Company fourth quarter 2023 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at.

Chase Mulvehill: Please review, our SEC filings and website for factors that could cause actual results to differ materially.

Chase Mulvehill: 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 Laura Enzo.

That time as a reminder, this conference call is being recorded I would now like to introduce your host for today's conference. Mr. Chase Mulvehill, Vice President of Investor Relations, Sir you may begin.

Thank you Chase good morning, everyone and thanks for joining us two.

Chase Mulvehill: 2023 proved to be a pivotal year for Baker Hughes as we continue our journey to reshape the company.

Chase Mulvehill: Thank you good morning, everyone and welcome to Baker Hughes fourth quarter and full year 2023 earnings conference call.

Chase Mulvehill: We successfully removed $150 million of costs.

Chase Mulvehill: Here with me are our chairman and CEO, Lorenzo Simonelli, and our CFO Nancy busy.

Chase Mulvehill: We aligned our IHT business and recently launched actions to further streamline our OFC business.

Chase Mulvehill: The earnings release, we issued yesterday evening can be found on our website at Baker Hughes Dot com.

Chase Mulvehill: Our strategy to transform the way we operate is working.

Chase Mulvehill: We will also be using a presentation with our prepared remarks during this webcast.

Chase Mulvehill: Turning to slide four.

Chase Mulvehill: In 2020 free we set records for all primary financial metrics, including orders revenue EBITDA EPS free cash flow and most importantly returns.

Chase Mulvehill: Which can also be found on our investor website.

Chase Mulvehill: As a reminder, during the course of this conference call. We will provide forward looking statements. These statements.

Chase Mulvehill: They are not guarantees of future performance and involve a number of risks and assumptions.

Chase Mulvehill: Please review, our SEC filings and website for factors that could cause actual results to differ materially.

Chase Mulvehill: Adjusted EBITDA was up 26% year over year, our fad consecutive year of double digit increases in exceeding prior cycle peak levels by 25%.

Chase Mulvehill: 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.

Chase Mulvehill: Adjusted diluted earnings per share was.

Thank you Jay good morning, everyone and thanks for joining us <unk>.

Chase Mulvehill: The $1 67.

Chase Mulvehill: 76% above 2022 levels.

Chase Mulvehill: 2023 proved to be a pivotal year for Baker Hughes as we continue our journey to reshape the company.

Chase Mulvehill: Free cash flow increased 83% year over year to just over $2 billion.

Chase Mulvehill: We successfully removed $150 million of costs.

Chase Mulvehill: We aligned our IHT business and recently launched actions to further streamline our OFC business.

Chase Mulvehill: Total company orders increased 14% year over year as orders of $14 2 billion grew 12% when compared to last year's record orders.

Chase Mulvehill: Our strategy to transform the way we operate is working.

Chase Mulvehill: And Mark the third consecutive year of double digit growth.

Chase Mulvehill: Turning to slide four.

In 2023, we set records for all primary financial metrics, including orders revenue EBITDA EPS free cash flow and most importantly returns.

Chase Mulvehill: New energy orders totaled $750 million up 45% year over year.

S. Sps orders increased by 27% to $3 9 billion the largest order year since 2014.

Chase Mulvehill: Adjusted EBITDA was up 26% year over year, our fad consecutive year of double digit increases in exceeding prior cycle peak levels by 25%.

Chase Mulvehill: These record results highlight strong market tailwind across both segments and the significant operational improvements the company has accomplished since 2022.

Chase Mulvehill: Adjusted diluted earnings per share was.

Chase Mulvehill: Clearly we are pleased with the progress demonstrated in 2020 free and excited about where the company is headed in 2024 and beyond.

Chase Mulvehill: The $1 67.

Chase Mulvehill: 76% above 2022 levels.

Chase Mulvehill: Free cash flow increased 83% year over year to just over $2 billion.

Chase Mulvehill: Turning to slide five fourth quarter adjusted EBITDA of 1.09 billion came in above the midpoint of our guidance range due to the continued operational improvement and full realization of the $150 million of cost out.

Total company orders increased 14% year over year as orders of $14 2 billion.

Chase Mulvehill: Grew 12% when compared to last year's record orders.

Chase Mulvehill: Free cash flow of $633 million exceeded expectations and resulted in full year.

Chase Mulvehill: And Mark the third consecutive year of double digit growth.

Chase Mulvehill: New energy orders totaled $750 million up 45% year over year.

Chase Mulvehill: Year of free cash flow conversion of 54%.

Chase Mulvehill: Orders remained strong exceeding $3 billion for the fifth consecutive quarter.

Chase Mulvehill: Sps orders increased by 27% to $3 9 billion the largest order year since 2014.

Chase Mulvehill: In addition, we were awarded more than $1 billion of CSA commitments.

Chase Mulvehill: These record results highlight strong market tailwind is across both segments and the significant operational improvements the company has accomplished since 2022.

Chase Mulvehill: And OFC, we continued to demonstrate solid margin improvement during the quarter with segment EBITDA margin, increasing to 17, 9% as Oss EBITA margins now exceed 20% both record margins.

Chase Mulvehill: Clearly we are pleased with the progress demonstrated in 2020 free and excited about where the company is headed in 2024 and beyond.

Chase Mulvehill: Turning to the macro on slide six oil prices have weakened considerably since peaking in late September.

Chase Mulvehill: Turning to slide five fourth quarter adjusted EBITA of 1.09 billion came in above the midpoint of our guidance range due to the continued operational improvement and full realization of the $150 million of cost out.

Chase Mulvehill: Ultimately weaker than anticipated oil demand coupled with robust production growth led to an unexpected inventory builds into year end. However.

Chase Mulvehill: However prices still remain at levels that are favorable for growth across our core OFC markets.

Chase Mulvehill: Free cash flow of $633 million exceeded expectations and resulted in full.

Chase Mulvehill: For 2020 for demand growth remains the biggest unknown in the face of global economic uncertainty and heightened geopolitical risks on.

Chase Mulvehill: Yes, our free cash flow conversion of 54%.

Chase Mulvehill: Orders remained strong exceeding $3 billion for the fifth consecutive quarter.

Chase Mulvehill: On the supply side, the biggest risk factor is non OPEC supply outpacing demand, possibly requiring OPEC plus to maintain the current level of cuts through the end of 2024.

Chase Mulvehill: In addition, we were awarded more than $1 billion of CSA commitments.

Chase Mulvehill: And OFC, we continued to demonstrate solid margin improvement during the quarter with segment EBITDA margin, increasing to 17, 9% as RFS EBITA margins now exceed 20% both record margins.

Chase Mulvehill: The volatility in commodity prices experienced during the fourth quarter and so far in 2024 will likely have some influence on upstream development plans.

Chase Mulvehill: Accordingly, we now see international D&C spend growth decelerating into the high single digit range. This year, which is down slightly from our prior expectations for low double digit growth.

Chase Mulvehill: Turning to the macro on slide six oil prices have weakened considerably since peaking in late September.

Chase Mulvehill: Ultimately weaker than anticipated oil demand coupled with robust production growth led to an unexpected inventory builds into year end. However.

Chase Mulvehill: Nevertheless, the international cycle remains healthy and we see no deviation from the long term development plans set in place amongst some of the world's largest noc's.

Chase Mulvehill: However prices still remain at levels that are favorable for growth across our core OFC markets.

Chase Mulvehill: The offshore cycle is maintaining the momentum built over the past couple of years and we have good visibility on the development pipeline, which is expected to support strong activity levels over the next several years.

Chase Mulvehill: For 2020 for demand growth remains the biggest unknown in the face of global economic uncertainty and heightened geopolitical risks on.

Chase Mulvehill: On the supply side, the biggest risk factor is non OPEC supply outpacing demand, possibly requiring OPEC plus to maintain the current level of cuts through the end of 2024.

Chase Mulvehill: In North America activity continues to lag and we are now anticipating no meaningful recovery in activity during the first half of the year.

Chase Mulvehill: On our last quarterly call, we expected 2024, North American D&C spend to be flattish, but now expect spending down in low to mid single digits driven by mid single digit declines in U S land.

Chase Mulvehill: The volatility in commodity prices experienced during the fourth quarter and so far in 2024 will likely have some influence on upstream development plans.

Chase Mulvehill: The combination of a volatile commodity price environment sector consolidation and the inherent elasticity of shale versus conventional developments are all factors contributing to the slower ramp up in activity.

Chase Mulvehill: Nevertheless, the international cycle remains healthy and we see no deviation from the long term development plan set in place amongst some of the world's largest nics.

Chase Mulvehill: In OFC, we secured two significant multi year integrated services contracts with a Latin American operator for drilling completion, and plugging and abandonment services, highlighting the customers' confidence and Baker Hughes is diverse technology and service offering.

Chase Mulvehill: In the offshore market, we were awarded additional subsea trees during the quarter, bringing our total number of subsea tree awards in 2020 free to 60.

Chase Mulvehill: In North America activity continues to lag and we are now anticipating no meaningful recovery in activity during the first half of the year.

Chase Mulvehill: Turning to LNG on slide seven despite the recent weakness in LNG prices, we believe the long term outlook for the global LNG market remains solid in fact, LNG prices remain at relatively strong levels compared to historical averages.

Chase Mulvehill: For example, 2023 European and Asian gas prices averaged about 20% above the 10 year average.

Chase Mulvehill: In the fourth quarter global LNG demand was up approximately 4% year over year.

Chase Mulvehill: And OFC, we secured two significant multi year integrated services contracts with a Latin American operator for drilling completion, and plugging and abandonment services, highlighting the customers' confidence and Baker Hughes is diverse technology and service offering.

Chase Mulvehill: For the full year global LNG demand reached record levels of 405, MTA up 2% compared to 2022, despite softer than anticipated gas demand in Europe.

Chase Mulvehill: LNG demand in Europe was around 115 MTA in line with 2022 levels.

Chase Mulvehill: In the offshore market, we were awarded additional subsea trees during the quarter, bringing our total number of subsea tree awards in 2020 free to 60.

Chase Mulvehill: Demand in China was 71 M tpa up 10% year over year.

With estimated global nameplate capacity of 491 M. Tpa last year effective utilization averaged 86%, which represents a tight LNG market.

Chase Mulvehill: Looking into 2024, we forecast LNG demand to increase by 2%, which should result in utilization rates remaining at strong levels. As we forecast just 15 M Tpa of nameplate capacity coming online this year.

Chase Mulvehill: For example, 2023 European and Asian gas prices averaged about 20% above the 10 year average.

Chase Mulvehill: In the fourth quarter global LNG demand was up approximately 4% year over year.

Chase Mulvehill: Looking out to 2025 and 2026, we see a similar trend of supply growth being balanced by demand growth, which should keep global LNG markets are good utilization levels.

Chase Mulvehill: For the full year global LNG demand reached record levels of 405, MTA up 2% compared to 2022, despite softer than anticipated gas demand in Europe.

Chase Mulvehill: With energy markets, including LNG still fundamentally tight.

Chase Mulvehill: LNG demand in Europe was around 115 MTA in line with 2022 levels.

Chase Mulvehill: Global coal demand set another record last year, increasing one 4% year over year to $8 5 billion tons.

Chase Mulvehill: Demand in China, with 71, MTA up 10% year over year.

Chase Mulvehill: We think this recent growth in coal demand provides additional long term growth opportunities for LNG.

Chase Mulvehill: With estimated global nameplate capacity of 491 M. Tpa last year effective utilization averaged 86%, which represents a tight LNG market.

Chase Mulvehill: Where we see cleaner burning natural gas, replacing high emission coal in the energy mix across many Asian countries, where coal is still the predominant energy source for electricity.

Chase Mulvehill: Looking into 2024, we forecast LNG demand to increase by 2%, which should result in utilization rates remaining at strong levels. As we forecast just 15 MTA of nameplate capacity coming online this year.

Chase Mulvehill: During the fourth quarter, we were pleased to be awarded by AD not gas on behalf of App not to electric liquefaction systems for the nine six MTA Rouass LNG project in the United Arab Emirates.

Chase Mulvehill: Looking out to 2025 and 2026, we see a similar trend of supply growth being balanced by demand growth, which should keep global LNG markets are good utilization levels.

Chase Mulvehill: The LNG trains will be driven by Baker Hughes is 75 megawatt brush electric motor technology and will feature our state of the art compressor technology, making <unk> LNG one of the first all electric LNG projects in the Middle East.

Chase Mulvehill: With energy markets, including LNG still fundamentally tight.

Chase Mulvehill: Global coal demand set another record last year, increasing one 4% year over year to $8 5 billion tons.

Chase Mulvehill: In 2020 free we were extremely pleased to book almost 80 MTA of LNG orders, which outpaced Fid's are 57 MTA.

Chase Mulvehill: We think this recent growth in coal demand provides additional long term growth opportunities for LNG.

Chase Mulvehill: This variance was the result of the timing difference between orders and <unk>, which has been accentuated by the tightening LNG equipment market.

Chase Mulvehill: The outlook for <unk> over the next few years remains strong and we see projects progressing across all markets.

Chase Mulvehill: For 2024, specifically, we expect LNG <unk> of around 65 M. Tpa. However.

Chase Mulvehill: During the fourth quarter, we were pleased to be awarded by AD Nat gas on behalf of that not to electrical protection systems for the $9 six MTA ruse LNG project in the United Arab Emirates.

Chase Mulvehill: However, it is important to note. This includes a couple of major LNG orders that were booked during 2023.

Chase Mulvehill: As we look out to 2025 and 2026, we could see between 30 to 60 MTA of <unk> annually, bringing total potential LNG <unk> to 125 M Tpa and a 185 MTA through 2026.

Chase Mulvehill: In 2020 free we were extremely pleased to book almost 80 MTA of LNG orders, which outpaced Fid's are 57 MTA.

Chase Mulvehill: Based on existing capacity projects under construction and future <unk> in the pipeline. We have line of sight for global LNG installed capacity to reach 800 <unk> by the end of 2030.

Chase Mulvehill: This variance was the result of the timing difference between orders and.

Chase Mulvehill: <unk>, which has been accentuated by the tightening LNG equipment market.

Chase Mulvehill: Representing an almost 75% increase in nameplate capacity from 2022 levels.

Chase Mulvehill: The outlook for <unk> over the next few years remains strong and we see projects progressing across all markets.

Chase Mulvehill: This provides good visibility for significant near term growth and gas tech equipment, where we have the broadest set of LNG solutions to suit customer needs, including our modular stick built onshore offshore floating and small scale LNG offerings.

Chase Mulvehill: For 2024, specifically, we expect LNG <unk>.

Chase Mulvehill: Around 65 M. Tpa however.

Chase Mulvehill: However, it is important to note. This includes a couple of major LNG orders that were booked during 2023.

Chase Mulvehill: In addition, this expansion in our LNG installed base will provide long term structural growth for our gas Tech services.

Chase Mulvehill: As we look out to 2025 and 2026, we could see between 30 to 60 MTA of Fid's annually, bringing total potential LNG <unk> to 125, MTA and 185 MTA through 2026.

Chase Mulvehill: Turning now to slide eight on the new energy front, we have seen a number of developments of the past quarter.

Chase Mulvehill: At Cop 28, which brought together 154 heads of state and other government officials.

Chase Mulvehill: <unk> was well represented by Baker Hughes I was particularly pleased to see the increased representation and participation from energy companies.

Chase Mulvehill: Key commitments from the conference include doubling the global average annual rate of energy efficiency improvements by 2030.

Chase Mulvehill: Representing an almost 75% increase in nameplate capacity from 2022 levels.

Chase Mulvehill: Net zero methane emissions and no routine flaring by 2030.

Endorsement for our global hydrogen certification standard and accelerating efforts towards the phase down of unabated coal power.

Chase Mulvehill: We also continued to see progress on the policy and permitting front in the United States that should help advanced emissions reductions progress.

In addition, this expansion in our LNG installed base will provide long term structural growth for our gas Tech services.

Chase Mulvehill: We are pleased with the U S. As final ruling on the methane standards that should prevent an estimated 58 million tons of methane emissions from 2024 to 2038 according to the EPA.

Chase Mulvehill: Turning now to slide eight on the new energy front, we have seen a number of developments of the past quarter.

Chase Mulvehill: At Cop 28, which brought together 154 heads of state and other government officials.

Chase Mulvehill: Additionally, the state of Louisiana being granted primacy on classics World permitting should help to reduce <unk> U S project bottlenecks in that region of the United States.

Chase Mulvehill: And was well represented by Baker Hughes I was particularly pleased to see the increased representation and participation from energy companies.

Chase Mulvehill: In the area of hydrogen the U S. Treasury provided clarity on the 45, the hydrogen tax credits, which could impact the pace of green hydrogen development.

Chase Mulvehill: Key commitments from the conference include doubling the global average annual rate of energy efficiency improvements by 2030 <unk>.

Net zero methane emissions and no routine flaring by 2030.

Chase Mulvehill: We are hopeful that a pragmatic resolution will be reached that actually encourages rather than inhibits new investments in this critical industry that will play a vital role in decarbonizing hard to abate sectors.

Endorsement for our global hydrogen certification standard and accelerating efforts towards the phase down of unabated coal power.

We also continue to see progress on the policy and permitting front in the United States that should help advance emissions reductions progress.

Chase Mulvehill: As we have stated previously the energy transition will likely be more challenging and take longer than many expect.

Chase Mulvehill: This is why we at Baker Hughes are pursuing and all of the above strategy, where our technologies and capabilities have a key role to play in Decarbonizing the planet irrespective of the fuel source.

Chase Mulvehill: It is important to note the pace of the transition will not impact the ultimate size of the new energy market opportunity as.

Chase Mulvehill: Additionally, the state of Louisiana have been granted primacy on classics world permitting should help to reduce <unk> project bottlenecks in that region of the United States.

Chase Mulvehill: As an illustration the IEA has size the annual clean energy investment at four five trillion dollars.

Chase Mulvehill: In the area of hydrogen the U S. Treasury provided clarity on the 45, the hydrogen tax credits, which could impact the pace of green hydrogen development.

Chase Mulvehill: The early 20, <unk> and $4 seven trillion by 2050 under their net zero scenario.

Chase Mulvehill: In comparison investment in fossil fuels totaled just under one trillion dollars last year.

Chase Mulvehill: Turning to slide nine we are focused on executing our strategy over our free time horizons over the fast horizon, we're focused on unlocking the full potential of Baker Hughes successfully transforming our business and simplifying the way we work.

Chase Mulvehill: As we have stated previously the energy transition will likely be more challenging and take longer than many expect.

Chase Mulvehill: We are committed to developing and commercializing our new energy portfolio, while also evolving our digital offerings across both <unk> and <unk>.

Chase Mulvehill: These strategic investments along with better penetration across various underserved energy and industrial markets will be the underpinning for driving peer leading growth across.

It is important to note the pace of the transition will not impact the ultimate size of the new energy market opportunity as.

Chase Mulvehill: As an illustration.

Chase Mulvehill: Our next two time horizons.

<unk> has size the annual clean energy investment at $4 five trillion by the early <unk> and $4 seven trillion by 2050 and that their net zero scenario.

Chase Mulvehill: While our activities in LNG and new energy had been the focus for investors in recent years I'd like to take this opportunity to shine a spotlight on parts of the broader <unk> portfolio.

Chase Mulvehill: In comparison investment in fossil fuels totaled just under one trillion dollars last year.

Chase Mulvehill: And gas Tech.

Chase Mulvehill: Most 50% of our equipment business is focused on serving customers outside of LNG.

Chase Mulvehill: Our turbo machinery equipment generators motors and pumps have applications across multiple end markets, including upstream midstream refining petrochemical and various industrial end markets.

Chase Mulvehill: We are committed to developing and commercializing our new energy portfolio, while also evolving our digital offerings across both our FSC and <unk>.

Chase Mulvehill: These segments have demonstrated exceptional growth since 2020, increasing by more than 50% and we have good visibility on a number of growth opportunities in the coming year.

Chase Mulvehill: Take the Spss markets. For example, we have booked more than $1 billion of awards over the past two years and expect the market could see a further seven to nine fps's take care.

Chase Mulvehill: Our next two time horizons.

Chase Mulvehill: Each share out to the latter part of this decade.

Chase Mulvehill: While our activities in LNG and new energy have been the focus for investors in recent years I'd like to take this opportunity to shine a spotlight on parts of the broader portfolio.

We are also seeing a lot of potential opportunities in onshore gas processing and pipelines as natural gas becomes an important aspect of the energy mix around the world, particularly in places like the middle East and Southeast Asia.

Chase Mulvehill: And gas Tech.

Chase Mulvehill: 50% of our equipment business is focused on serving customers outside of LNG.

Chase Mulvehill: The diversity of our end markets and the opportunity set is not confined to equipment.

Chase Mulvehill: October machinery equipment generators motors and pumps have applications across multiple end markets, including upstream midstream refining petrochemical and various industrial end markets.

Chase Mulvehill: In gas tax services over 50% of our revenue has been generated from our transactional and upgrade services.

Which focus on maintaining our rotating equipment utilized in upstream midstream refining and petrochemical sectors.

Chase Mulvehill: These segments have demonstrated exceptional growth since 2020, increasing by more than 50% and we have good visibility on a number of growth opportunities in the coming year.

Chase Mulvehill: Like LNG, which accounts for less than 40% of the gas Tech services revenue. These non LNG markets also have significant growth opportunities as our installed base expand significantly.

Chase Mulvehill: Take the Spss markets. For example, we have booked more than $1 billion of awards over the past two years and expect the market could see a further seven to nine fps's take care.

Chase Mulvehill: Our industrial Tech portfolio provides additional diversity into industrial markets like aerospace automotive steel and electronics.

Chase Mulvehill: Each share out to the latter part of this decade.

Chase Mulvehill: We are also seeing a lot of potential opportunities in onshore gas processing and pipelines as natural gas becomes an important aspect of the energy mix around the world, particularly in places like the middle East and Southeast Asia.

Chase Mulvehill: In industrial solutions, we leverage our digital technology to monitor and maintain critical equipment.

We have a significant opportunity to extend this service beyond Dax critical equipment to the balance of plant.

Chase Mulvehill: In industrial products, we are focused on increasing market penetration and high margin niche sectors.

Chase Mulvehill: The diversity of our end markets and the opportunity set is not confined to equipment.

Chase Mulvehill: And gas Tech services over 50% of our revenue has been generated from our transactional and upgrade services.

Chase Mulvehill: Finally, and most importantly, we are able to leverage core technologies like compressors turbo Expanders and turbines across Cts is five targeted new energy markets. These are ccs hydrogen.

Chase Mulvehill: Which focus on maintaining our rotating equipment utilized in upstream midstream refining and petrochemical sectors.

Chase Mulvehill: <unk>.

Chase Mulvehill: Clean power and emissions management, providing additional long term growth for IAG.

Chase Mulvehill: As you can see we have a differentiated portfolio of technologies within <unk> that provides baker Hughes, a unique opportunity to grow well beyond LNG.

Chase Mulvehill: Our industrial Tech portfolio provides additional diversity into industrial markets like aerospace automotive steel and electronics.

Chase Mulvehill: Before turning it over to Nancy I would like to speak at a high level about our 2020 for outlook.

Chase Mulvehill: In industrial solutions, we leverage our digital technology to monitor and maintain critical equipment.

Chase Mulvehill: FSC, we expect solid revenue growth led by international with a year of strong incremental margins as we continue to focus on reshaping the OCC cost structure and pursuit of 20% margins in 2025.

Chase Mulvehill: We have a significant opportunity to extend this service beyond our critical equipment to the balance of plant.

Chase Mulvehill: In industrial products, we are focused on increasing market penetration and high margin niche sectors.

Chase Mulvehill: In <unk>.

Chase Mulvehill: Conversion of a record gas tech equipment, Apio will drive robust revenue growth with margins, improving despite increasing mix headwinds and putting us on a path toward our 20% margin target in 2026.

Finally, and most importantly, we are able to leverage core technologies like compresses turbo Expanders and turbines across Cts is five targeted new energy markets. These are ccs hydrogen.

Speaker Change: With that I'll turn the call over to Nancy.

Chase Mulvehill: Geothermal.

Chase Mulvehill: Clean power and emissions management, providing additional long term growth for IAG.

Nancy BZ: Thanks, Lauren So I will begin on slide 11, with an overview of our consolidated results and then briefly talk to segment details before outlining our first quarter and full year 2024 outlook. We were very pleased with our fourth quarter and full year results. We made outstanding progress on all fronts during 2023.

Chase Mulvehill: As you can see we have a differentiated portfolio of technologies within that.

Chase Mulvehill: That provides baker Hughes, a unique opportunity to grow well beyond LNG.

Chase Mulvehill: Before turning it over to Nancy I would like to speak at a high level about our 2020 for outlook and.

Nancy BZ: After another year of record orders in IEP capitalized on market tailwind to deliver robust revenue growth across both segments.

Chase Mulvehill: And our FSC, we expect solid revenue growth led by international with a year of strong incremental margins as we continue to focus on reshaping the OCC cost structure and pursuit of 20% margins in 2025.

Nancy BZ: Realize the full benefit of our $150 million cost out program and continued to transform how we operate.

Nancy BZ: For the fourth quarter adjusted EBITDA of 1.9 billion came in above the midpoint of our guidance range, which was due to the stronger margin performance across both segments.

Chase Mulvehill: NIH.

Chase Mulvehill: Conversion of our record gas tech equipment, Apio will drive robust revenue.

Nancy BZ: For the year EBITDA came in at the upper end of our original three six to $3 8 billion guidance range.

Chase Mulvehill: Revenue growth with margins, improving despite increasing mix headwinds and putting us on a path toward our 20% margin target in 2026.

Nancy BZ: Fourth quarter GAAP operating income was $651 million during the quarter adjusted operating income was $816 million.

Speaker Change: With that I'll turn the call over to Nancy.

Nancy BZ: GAAP diluted earnings per share were <unk> 43.

Nancy: Thanks, Lauren So I will begin on slide 11, with an overview of our consolidated results and then briefly talk to segment details before outlining our first quarter and full year 2024 outlook.

Nancy BZ: Excluding adjusting items earnings per share were <unk> 51.

Nancy BZ: Which resulted in 2023 adjusted EPS of $1 60, a new record.

Nancy: We were very pleased with our fourth quarter and full year results. We made outstanding progress on all fronts. During 2023, we booked another year of record orders in IEP capitalized on market tailwind to deliver robust revenue growth across both segments.

Nancy BZ: Total company orders of $6 $9 billion during the quarter maintained strong momentum highlighted by continued strength in our E T orders.

Nancy BZ: The year IGT orders totaled $14 $2 billion, which sets another record.

Nancy: Realize the full benefit of our $150 million cost out program and continue to transform how we operate.

Nancy BZ: Sps full year orders were a robust $3 $9 billion, which as Lorenzo mentioned marks our largest order intake for that business since 2014.

Nancy: For the fourth quarter adjusted EBITDA of $1 9 billion came in above the midpoint of our guidance range, which was due to stronger margin performance across both segments.

Nancy BZ: Thanks to the sustained strength in orders I E.

Nancy BZ: <unk> of $29 $9 billion ended the quarter at yet another record level, while <unk> remained at a healthy $3 5 billion up 37% year over year.

Nancy: For the year EBITDA came in at the upper end of our original three six to $3 8 billion guidance range.

Nancy: Fourth quarter GAAP operating income was $651 million during the quarter adjusted operating income was $816 million.

Nancy BZ: These <unk> levels provided exceptional revenue and earnings visibility over the coming years.

Nancy: GAAP diluted earnings per share were <unk> 43 <unk>.

Nancy BZ: Free cash flow outperformed our expectations coming in at $633 million for the full year, we generated over $2 billion of free cash flow, resulting in a conversion rate of 54% from adjusted EBITDA, which was above the high end of our expected range and.

Nancy: Excluding adjusting items earnings per share were <unk> 51.

Nancy: Which resulted in 2023 adjusted EPS of $1 60, a new record.

Nancy: Total company orders of $6 $9 billion during the quarter maintained strong momentum highlighted by continued strength in orders for the year IGT orders totaled $14 2 billion.

Nancy BZ: In 2024, we are targeting free cash flow conversion of 45% to 50% and expect 50.

Nancy BZ: <unk> plus conversion rates through horizon, two and three.

Speaker Change: That's another record.

Nancy BZ: Turning to slide 12, our balance sheet remains strong as we ended the fourth quarter with cash of $2 $65 billion net debt to trailing 12 month adjusted EBITDA ratio of <unk> nine times and liquidity of over $5 5 billion.

Speaker Change: Sps full year orders were a robust $3 $9 billion, which as Lorenzo mentioned marks our largest order intake for that business since 2014.

Speaker Change: Thanks to the sustained strength in orders I E.

Speaker Change: <unk> of $29 $9 billion ended the quarter at yet another record level.

Nancy BZ: During the fourth quarter, we extended our $3 billion revolving credit facility by four years, which now has a maturity of November 2028, and we also used available cash to pay down $650 million of senior notes.

Speaker Change: <unk> remained at a healthy $3 5 billion.

Speaker Change: Up 37% year over year.

Speaker Change: These <unk> levels provided exceptional revenue and earnings visibility over the coming years.

Nancy BZ: Turning to capital allocation on slide 13.

Speaker Change: Free cash flow outperformed our expectations coming in at $633 million.

Nancy BZ: In 2023, we returned more than $1 3 billion to shareholders equivalent to 65% of free cash flow. This included almost $800 million of dividends, where we have increased the quarterly dividend twice over the past five quarters in.

Speaker Change: For the full year, we generated over $2 billion of free cash flow, resulting in a conversion rate of 54% from adjusted EBITDA, which was above the high end of our expected range in.

Nancy BZ: In addition, we repurchased $538 million of Baker Hughes shares in 2023, including $321 million during the fourth quarter.

Speaker Change: In 2024, we are targeting free cash flow conversion of 45% to 50% and expect 50.

Speaker Change: <unk> plus conversion rates through horizon, two and three.

Nancy BZ: We are committed to returning 60% to 80% of free cash flow to investors and have a strong track record.

Speaker Change: Turning to slide 12, our balance sheet remains strong as we ended the fourth quarter with cash of $2 $65 billion net debt to trailing 12 month adjusted EBITDA ratio of <unk> nine times and liquidity of over $5 5 billion.

Nancy BZ: Since the company was formed in 2017, we've now returned $10 billion to shareholders through dividends and buybacks.

Nancy BZ: We plan to grow our dividend with increases driven by the structural earnings power and growth of the company. We will continue to utilize buybacks to reach our 60% to 80% target and we will remain opportunistic on buybacks within this range.

Speaker Change: During the fourth quarter, we extended our $3 billion revolving credit facility by four years, which now has a maturity of November 2028, and we also used available cash to pay down $650 million of senior notes.

Nancy BZ: Now I will walk you through the business segment results in more detail and provide our 2020 for outlook.

Speaker Change: Turning to capital allocation on slide 13.

Starting with oilfield services and equipment on slide 14, the segment performed slightly above expectations as <unk> margins exceeded the 20% level. Despite the softer U S land market, where we are.

Speaker Change: In 2023, we returned more than $1 3 billion to shareholders equivalent to 65% of free cash flow. This included almost $800 million of dividends, where we have increased the quarterly dividend twice over the past five quarters.

Nancy BZ: Rig activity fell 4% during the quarter.

Nancy BZ: S. Sps orders of $654 million contributed to the highest order year since 2014.

Speaker Change: In addition, we repurchased $538 million of Baker Hughes shares in 2023, including $321 million during the fourth quarter.

Nancy BZ: With the offshore market expert acted to remains strong we expect Sps orders to persist at healthy levels in 2024 and beyond.

Speaker Change: We are committed to returning 60% to 80% of free cash flow to investors and have a strong track record.

Nancy BZ: Oh FSC revenue in the quarter was $3 95 billion up 11% year over year.

Speaker Change: Since the company was formed in 2017, we've now returned $10 billion to shareholders through dividends and buybacks.

Excluding Sps International revenue was up 2% sequentially as seasonal declines in Europe were more than offset by strength in Latin America and sub Saharan Africa.

Speaker Change: We plan to grow our dividend with increases driven by the structural earnings power and growth of the company. We will continue to utilize buybacks to reach our 60% to 80% target and will remain opportunistic on buybacks within this range.

Nancy BZ: Excluding Sps North America revenue was down 3% sequentially as North America land declined during the quarter.

Speaker Change: Now I will walk you through the business segment results in more detail and provide our 2020 for outlook.

Nancy BZ: Oh FSC EBITDA in the quarter was $709 million.

Speaker Change: Starting with oilfield services and equipment on slide 14 the.

Nancy BZ: Up 6% sequentially and up 16% year over year, while also slightly above our guidance midpoint of $705 million.

Speaker Change: The segment performed slightly above expectations as <unk> margins exceeded the 20% level. Despite the softer U S land market, where rig activity fell 4% during the quarter.

Nancy BZ: Oh, FSC EBITDA margin rate was 17, 9%, increasing 99 basis points sequentially and 79 basis points year over year.

Speaker Change: S. Sps orders of $654 million contributed to the highest order year since 2014.

Nancy BZ: Sps margins significantly improved year over year, increasing by 300 basis points to just over 8% driven by improved execution and commercial success.

Speaker Change: With the offshore market expert acted to remains strong we expect Sps orders to persist at healthy levels in 2024 and beyond.

Nancy BZ: Now turning to industrial and energy technology on slide 15.

Speaker Change: Oh FSC revenue in the quarter was $3 95 billion up 11% year over year.

Nancy BZ: This segment also performed above expectations during the quarter due to a better than expected gas tech margin.

Speaker Change: Excluding Sps International revenue was up 2% sequentially as seasonal declines in Europe were more than offset by strength in Latin America and sub Saharan Africa.

Nancy BZ: IGT orders were $3 billion included more than $800 million of LNG equipment, bringing full year LNG equipment orders to approximately $5 6 billion.

Speaker Change: Excluding Sps North America revenue was down 3% sequentially as North America land declined during the quarter.

Nancy BZ: Orders in Cts, which now comprises iets, new energy business increased to $123 million in the fourth quarter with about 80% of these orders representing projects across the clean power and emissions management market.

Speaker Change: Oh FSC EBITDA in the quarter was $709 million.

Speaker Change: Up 6% sequentially and up 16% year over year, while also slightly above our guidance midpoint of $705 million.

Nancy BZ: <unk> ended the quarter at $29 9 billion up 4% sequentially gas.

Speaker Change: Hello, FSC EBITDA margin rate was 17, 9%, increasing 99 basis points sequentially and 79 basis points year over year.

Nancy BZ: Gas Tech equipment, <unk> was $12 1 billion.

Nancy BZ: Gas Tech services, <unk> was $14 $8 billion and included more than $1 $1 billion of newly signed CSA contracts.

Speaker Change: PS margin significantly improved year over year, increasing by 300 basis points to just over 8% driven by improved execution and commercial success.

Nancy BZ: <unk> equipment book to Bill was one one times, the 10th consecutive quarter above one.

Speaker Change: Now turning to industrial and energy technology on slide 15.

Nancy BZ: Turning to slide 16, IEP revenue for the quarter was $2 9 billion up 24% versus the prior year led by gas Tech equipment growth that was up more than 40% year over year, driven by execution of project backlog.

Speaker Change: This segment also performed above expectations during the quarter due to a better than expected gas tech margin.

Speaker Change: <unk> orders were $3 billion.

Speaker Change: Included more than $800 million of LNG equipment, bringing full year LNG equipment orders to approximately $5 6 billion.

Nancy BZ: <unk> EBITDA was $463 million up 8% year over year and coming in above our guidance midpoint of $460 million.

Speaker Change: Orders in Cts, which now comprises iets, new energy business increased to $123 million in the fourth quarter with about 80% of these orders representing projects across the clean power and emissions management market.

Nancy BZ: EBITDA margin was 16, 1% down 233 basis points year over year, a solid improvement in gas tech equipment margin was offset by mix and higher R&D spend related to our new energy investments.

Speaker Change: <unk> ended the quarter at $29 9 billion up 4% sequentially gas.

Nancy BZ: For 2023, I E T R&D spending increased by approximately $70 million as we continue to advance our new energy investments as well as investing in other <unk> technology upgrades.

Speaker Change: <unk> Tec equipment, <unk> was $12 1 billion.

Speaker Change: Gas Tech services <unk> was $14 8 billion and included more than $1 $1 billion of newly signed CSA contracts.

Nancy BZ: Turning to slide 17, before detailing our outlook I'd like to provide an update on our business transformation activities and the path that lies ahead and unlocking the full potential of Baker Hughes.

Speaker Change: <unk> equipment book to Bill was one one times.

Speaker Change: 10th consecutive quarter above one.

Speaker Change: Turning to slide 16, IEP revenue for the quarter was $2 9 billion up 24% versus the prior year led by gas Tech equipment growth that was up more than 40% year over year, driven by execution of project backlog.

Nancy BZ: Over the course of the past 18 months the business has undertaken significant structural changes the delivered over $150 million of annualized cost synergies.

Nancy BZ: Riding sustainable benefits across the organization.

Speaker Change: <unk> EBITDA was $463 million up 8% year over year and coming in above our guidance midpoint of $460 million.

Nancy BZ: However, there is still more to do as we continue our transformation journey.

Nancy BZ: Our focus is on operational excellence and continuous improvement in all that we do early this year, we launched actions and now FSC to remove duplication and drive more cost efficiency across the business.

Speaker Change: EBITDA margin was 16, 1% down 233 basis points year over year, a solid improvement in gas tech equipment margin was offset by mix and higher R&D spend related to our new energy investments for.

Nancy BZ: These measures resulted in additional restructuring charges during the fourth quarter with these changes being executed during the first half of 2024.

Speaker Change: For 2023, IHG R&D spending increased by approximately $70 million as we continue to advance our new energy investments as well as investing in other technology upgrades.

Nancy BZ: These charges are almost entirely related to severance costs.

Nancy BZ: It's important to note that these discrete OFC actions will drive margin upside into the back half of this year and put the segment on a clear path to achieve 20% margins in 2025.

Speaker Change: Turning to slide 17, before detailing our outlook I'd like to provide an update on our business transformation activities and the path that lies ahead and unlocking the full potential of Baker Hughes.

Nancy BZ: As we continue our transformation work in 2024, we continue to focus on eliminating duplication remaining focused on execution and listening to our customers while ensuring the company is set up for success in the back half of this decade.

Speaker Change: Over the course of the past 18 months the business has undertaken significant structural changes that delivered over $150 million of annualized cost synergies, providing sustainable benefits across the organization. However, there is still more to do as we continue our transformation journey.

Nancy BZ: In 2023, we laid the groundwork for improved execution accountability and transparency, we will draw on those foundational aspects to evolve Baker Hughes.

Speaker Change: Our focus is on operational excellence and continuous improvement in all that we do early this year, we launched actions and now FSC to remove duplication and drive more cost efficiency across the business.

Nancy BZ: We've begun the work of synchronizing, many diverse systems and working towards efficient and streamlined processes and reporting these efforts will allow us efficiency gains improved data.

Speaker Change: These measures resulted in additional restructuring charges during the fourth quarter with these changes being executed during the first half of 2024.

Nancy BZ: All oriented towards the goal of structural margin improvement.

Nancy BZ: Further part of our transformation journey is centered around our approach to customers and meeting their needs as we've highlighted customers are increasingly looking for integrated solutions as they reduce the emissions footprint of their operations.

Speaker Change: Charges are almost entirely related to severance costs.

Speaker Change: It is important to note that these discrete OFC actions will drive margin upside into the back half of this year and put the segment on a clear path to achieve 20% margins in 2025.

Nancy BZ: It is critical that our OFC niet commercial teams collaborate and respond to these customer demands.

Speaker Change: As we continue our transformation work in 2024, we continue to focus on eliminating duplication remaining focused on execution and listening to our customers while ensuring the company is set up for success in the back half of this decade.

Driven by this developing customer trend, we see an opportunity for greater collaboration across the Baker Hughes organization, which will be a vitally important factor and unlocking the full commercial potential of our unique and differentiated service and technology portfolio.

In 2023, we laid the groundwork for improved execution accountability and transparency, we will draw on those foundational aspects to evolve Baker Hughes.

Nancy BZ: Next I'd like to update you on our outlook for the two business segments, which is detailed on slide 18.

Nancy BZ: Overall, the outlook remains strong for both FSC and E T with tailwind is expected to persist across each business in spite of macro uncertainty.

Speaker Change: We've begun the work of synchronizing, many diverse systems and working towards efficient and streamlined processes and reporting these efforts will allow us efficiency gains improved data.

This will be complemented by continued operational enhancements driving sustained improvement in backlog execution and margin upside as we pursue our 20% margin target across both segments.

Speaker Change: Oriented towards the goal of structural margin improvement.

Further part of our transformation journey is centered around our approach to customers and meeting their needs as we've highlighted customers are increasingly looking for integrated solutions as they reduce the emissions footprint of their operations.

Nancy BZ: For Baker Hughes, we expect first quarter revenue to be between six one and $6 6 billion and EBITDA between $880 and $960 million.

Speaker Change: It is critical that our OFC niet commercial teams collaborate and respond to these customer demands.

Nancy BZ: E T. We expect first quarter results to reflect seasonal declines in both gas tech and industrial Tech businesses.

Speaker Change: Driven by this developing customer trend, we see an opportunity for greater collaboration across the Baker Hughes organization, which will be a vitally important factor and unlocking the full commercial potential of our unique and differentiated service and technology portfolio.

Nancy BZ: However, due to improved linearity, we expect gas techs sequential declines to be less pronounced than prior years overall.

Nancy BZ: Overall for <unk>, we expect first quarter revenue between two four and $2 65 billion and EBITDA between 340 and $380 million.

Speaker Change: Next I'd like to update you on our outlook for the two business segments, which is detailed on slide 18.

Nancy BZ: The major factors driving this range will be the pace of backlog conversion and gas tech equipment and the impact of any aero derivative supply chain tightness in gas tech.

Speaker Change: Overall, the outlook remains strong for both OFC and IGT with tailwind is expected to persist across each business in spite of macro uncertainty.

Nancy BZ: FSC, we expect first quarter results to reflect the typical seasonal decline in international revenues as well as the slow start across U S land markets.

Speaker Change: This will be complemented by continued operational enhancements driving sustained improvement in backlog execution and margin upside as we pursue our 20% margin target across both segments.

Nancy BZ: We therefore expect first quarter OFC revenue between three seven and $3 95 billion and EBITDA between $630 and $670 million.

Speaker Change: For Baker Hughes, we expect first quarter revenue to be between six one and $6 6 billion in.

Nancy BZ: Factors driving this range include the pacing of 2020 for E&P budgets.

Speaker Change: And EBITDA between $880 and $960 million.

Speaker Change: For <unk>, we expect first quarter results to reflect seasonal declines in both gas tech and industrial Tech businesses How's.

Nancy BZ: P S backlog conversion realization of further cost out initiatives and winter weather in the northern hemisphere.

Speaker Change: However, due to improved linearity, we expect gas tech sequential declines to be less pronounced than prior years overall.

Nancy BZ: Turning to our full year outlook.

Nancy BZ: For the full year 2024, we expect Baker Hughes' revenue to be between 26, 5% and $28 5 billion and EBITDA between four one and $4 5 billion in.

Speaker Change: Overall for <unk>, we expect first quarter revenue between two four and $2 65 billion and EBITDA between 340 and $380 million.

Nancy BZ: In addition, we expect total company, new energy orders of $800 million to $1 billion, which would amount to more than tripling of new energy orders since 2021.

Speaker Change: The major factors driving this range will be the pace of backlog conversion and gas tech equipment and the impact of any aero derivative supply chain tightness in gas tech.

Nancy BZ: We expect <unk> orders to remain at robust levels. This year anticipating a range between 11, 5% to $13 5 billion driven.

FSC, we expect first quarter results to reflect the typical seasonal decline in international revenues as well as the slow start across U S land markets.

Nancy BZ: Driven by strong momentum across all aspects of the portfolio importantly, we expect a noticeable increase in non LNG gas equipment orders.

Speaker Change: We therefore expect first quarter <unk> revenue between three seven and $3 95 billion.

Speaker Change: And EBITDA between $630 and $670 million.

Nancy BZ: As a result of this continued momentum in exceptional orders performance over the last two years, we expect full year <unk> revenue between $10 75, and $11 75 billion and EBITDA between $1 65, and $1 $85 billion.

Speaker Change: Factors driving this range include the pacing of 2020 for E&P budgets Sps backlog conversion realization of further cost out initiatives and winter weather in the northern hemisphere.

Speaker Change: Turning to our full year outlook.

Nancy BZ: Oh, FSC, we forecast full year revenue between $15 75, and $16 75 billion and EBITDA between two eight and $3 billion as we expect softness in North America land to more than offset continued strength across international markets.

Speaker Change: For the full year 2024, we expect Baker Hughes' revenue to be between 26, 5% and $28 5 billion.

Speaker Change: And EBITDA between four one and $4 5 billion.

Speaker Change: In addition, we expect total company, new energy orders of $800 million to $1 billion, which would amount to more than tripling of new energy orders since 2021.

Nancy BZ: In summary, 2023 was a strong year of execution for Baker Hughes, where we delivered results near the high end of our original guidance range and set records for all our primary financial metrics.

Speaker Change: We expect orders to remain at robust levels. This year anticipating a range between 11, 5% to $13 5 billion driven by strong momentum across all aspects of the portfolio Importantly, we expect a noticeable increase in non LNG gas equipment orders.

Nancy BZ: In 2024, we expect double digit EBITDA growth for the fourth consecutive year as we remain focused on execution driving further operational improvements and capitalizing on market tailwind with our unique solutions and equipment portfolio.

Speaker Change: As a result of this continued momentum in exceptional orders performance over the last two years, we expect full year <unk> revenue between $10 75, and $11 75 billion and EBITDA between $1 65, and $1 85 billion.

Nancy BZ: Lastly, we are intensely focused on achieving the guidance set for 2024, and our 20% EBITDA margin targets for <unk> in 2025, and <unk> in 2026 and.

And while 20% segment margins are important intermediate goals, we will continue to take transformative actions to exceed these levels overall.

Speaker Change: For OFC, we forecast full year revenue between $15, 75, and $16 75 billion and EBITDA between $2 eight and $3 billion.

Nancy BZ: Overall, we are proud of the progress demonstrated by our 2023 results and remain very excited about the future of Baker Hughes.

Nancy BZ: Turn the call back over to Lorenzo.

Speaker Change: As we expect softness in North America land to more than offset continued strength across international markets.

Lorenzo Simonelli: Thank you Nancy as you can see from our strong 2023 results and the exceptionally strong margin improvement illustrated on Slide 20, Baker Hughes is on its way to becoming a leaner and more efficient energy technology company.

Speaker Change: In summary, 2023 was a strong year of execution for Baker Hughes, where we delivered results near the high end of our original guidance range and set records for all our primary financial metrics in.

Lorenzo Simonelli: We continue to carefully execute a plan to drive margins meaningfully higher put simply we remain relentless in transforming the way we operate.

In 2024, we expect double digit EBITDA growth for the fourth consecutive year as we remain focused on execution driving further operational improvements and capitalizing on market tailwind with our unique solutions and equipment portfolio.

Lorenzo Simonelli: We also have a unique technology portfolio that will drive growth across all three of our horizons irrespective of the pace of the energy transition.

Speaker Change: Lastly, we are intensely focused on achieving the guidance set for 2024, and our 20% EBITDA margin targets for <unk> in 2025 and <unk> in 2026.

Lorenzo Simonelli: In addition, our versatile OFC and IHT portfolios provide significant growth opportunities across underserved end markets.

Speaker Change: And while 20% segment margins are important intermediate goals, we will continue to take transformative actions to exceed these levels overall.

Lorenzo Simonelli: This broad based portfolio that underpinned, our 17% EBITDA compounded annual growth rate from 2020 through 2023.

Speaker Change: Overall, we are proud of the progress demonstrated by our 2023 results and remain very excited about the future of Baker Hughes.

Lorenzo Simonelli: Given our balanced portfolio untapped market opportunities and overhauled cost structure.

Speaker Change: Turn the call back over to Lorenzo.

Lorenzo Simonelli: Baker Hughes is becoming less cyclical in nature, and therefore should generate more durable earnings and free cash flow across cycles.

Lorenzo Simonelli: Finally, while on this journey, we remain committed to our employees customers and shareholders as we continue to push Baker Hughes forward.

Lorenzo Simonelli: We continue to carefully execute a plan to drive margins meaningfully higher put simply we remain relentless in transforming the way we operate.

Lorenzo Simonelli: With that I'll turn the call back over to Chase.

Lorenzo Simonelli: We also have a unique technology portfolio that will drive growth across all three of our horizons irrespective of the pace of the energy transition.

Chase Mulvehill: Thanks, Lorenzo operator, let's open the call for questions.

Chase Mulvehill: Thank you.

Chase Mulvehill: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

Lorenzo Simonelli: In addition, our versatile OFC and IHT portfolios provide significant growth opportunities across underserved end markets.

This broad based portfolio that underpinned, our 17% EBITDA compounded annual growth rate from 2020 through 2023.

Speaker Change: Our first question comes from James West with Evercore ISI you May proceed.

James West: Hey, good morning, Lorenzo and Nancy.

Lorenzo Simonelli: Given our balanced portfolio untapped market opportunities and overhauled cost structure.

Speaker Change: Hi, James.

Speaker Change: So.

Speaker Change: There's a lot of versatility in the portfolio that you guys have put together here.

Lorenzo Simonelli: Baker Hughes is becoming less cyclical in nature.

Speaker Change: When you talk to your thoughts about in your prepared remarks, but I'm curious to know.

Speaker Change: Which of the end markets.

Speaker Change: Today do you see the biggest.

Speaker Change: Opportunities for growth.

Speaker Change: Yeah definitely James and.

Speaker Change: We've said it before and we wanted to state it more clearly.

Speaker Change: <unk> business has a very expansive portfolio of equipment and solutions, which really play across many different end markets, including upstream midstream refining petrochemical and a number of industrial end markets Aerospace automotive and we think that's been underappreciated state and largely because there's been a large focus which.

Speaker Change: Quite reasonably on LNG, and new energy and we're very proud of our LNG business. We've worked hard over the years to build it and we've got differentiated solutions and we're going to be committed to continue being the market leader for liquefaction solutions across all of the LNG market and we think that LNG is still very positive with.

Speaker Change: LNG awards over the next two to three years and also reaching the market installed capacity of 800, MTP a by 'twenty Friday.

Speaker Change: At our gas deck equipment is also more than that we've demonstrated exceptional growth since 2020, increasing by more than 50% and other areas and we've got good visibility on a number of growth opportunities in the coming years couple of examples as you look at onshore.

Speaker Change: Onshore offshore production.

Speaker Change: We've got a leadership position in <unk> and we see a seven to nine <unk> over the course of the next few years.

Speaker Change: Onshore production, we're seeing the emergence of a number of.

Speaker Change: Opportunities associated with pipeline and the processing of gas in particular as that continues to grow in places like the middle East and also exposure to petrochemicals, which is ultimately anticipate it to continue to grow and we've got the new Nova class of turbines compressors valves pumps gears there.

Speaker Change: <unk> solutions so.

Speaker Change: Put all in all it boils down to an exceptionally versatile portfolio that provides us significant growth opportunities as we serve many of the strengthening underserved market in the coming years.

Speaker Change: Alright, great So thats great.

Speaker Change: Huge opportunities there and then maybe a follow up for me on the new energies business.

Speaker Change: Clearly orders ramping significantly $400 million to $750 million.

Speaker Change: Her name is guidance for this year.

As we.

Speaker Change: Continued growth there.

Speaker Change: Which parts of the new introduce portfolio kind of similar question to the the IAG broadly but.

Speaker Change: Do you see the most potential near term growth, whereas the biggest demand.

Speaker Change: Hey.

Speaker Change: Definitely we have been very pleased with the progress of new energy orders and you saw last year that we continue to.

Speaker Change: K Cup also our guidance on new energy and as you correctly stated we've given guidance for this year relative to the 800 and also the 1 billion and we really think that this growth continues going forward.

Speaker Change: Markets are growing maturing across both <unk> and OFC portfolio technologies and when you look at it it really is.

Speaker Change: The sequence of carbon capture technologies that we have in our portfolio compact carbon capture mosaic as you look at direct air capture you look at the partnership we have with net power supplying tableau Expanders and also as you look at hydrogen and you've seen the growing emphasis on hydrogen and hot to a beta areas.

Speaker Change: But also geothermal and looking at emissions management and that the flaring and I think again as a consequence of some of the discussions of Cop 28, there's a clear move towards accelerating some of these as we continue to move forward.

Speaker Change: Total addressable market, we've mentioned it before for new energy in 'twenty fatty is between $60 billion to $70 billion across the five major markets that we serve and we believe we can book, 6% to $7 billion of new energy orders by 20 Friday. So again, it's something that we see as a growing area of the business and.

Speaker Change: Feel confident in that $6 billion to $7 billion of new LNG orders in 2030.

Speaker Change: Perfect. Thanks.

Speaker Change: Thanks Jay.

Speaker Change: <unk>.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Luke Lemoine with Piper Sandler you May proceed.

Luke Lemoine: Hey, good morning, Lorenzo Nancy.

Luke Lemoine: Hello.

24, quantitative outlook is pretty clear and you gave us the international North America, obviously growth rates as well, but I want to see if you could just loosely walk us through some of the qualitative aspects of the 24 also seen margin increase along with the drivers of the increase in <unk>.

Luke Lemoine: It rests in margins.

Speaker Change: Yeah. So thanks Louise for the question Yeah, we've been really pleased with our performance in 'twenty three we generated record EBITDA at levels last year that were about 25% before about fab prior cycle peaks on our.

Speaker Change: David EBIDTA margins for 'twenty, three re averaged about 200 bps above the 18 and 19 levels. So at the midpoint of our guidance. This implies another year of strong EBITDA in the mid teens range, which would mark crest, the fourth consecutive year of double digit growth.

Speaker Change: And then when we think about 2024, we're going to show another material step up in margins for the total company up about 100 basis points for overall company results.

Speaker Change: And then to your question about the segments. They both demonstrate margin improvement with potential upside as we continue to execute further cost optimization initiatives across the organization and then in OFC in particular, the cost initiatives that we launched early here in 2024 will really help drive that margin upside into the back half of the year and we.

Speaker Change: The <unk> business to average about 20% EBITDA margins in 2024. So there is there still a lot of macro and geopolitical uncertainty as we think about our 24 guidance and we also have concerns still about the aero derivative of supply chain tightness that we're managing through all of 2024 for gas Tac I would say also in OFC, we see.

Speaker Change: Questions for us about the U S land market in 2024, but our view on guidance overall is really based on on where we sit in the market conditions, where we operate and so that's really where we've we've come from as a source of our guidance numbers for 2024, and we're taking what I would call a really prudent and balanced approach to our guidance.

Speaker Change: We've got a lot of confidence in our numbers and were working hard as we demonstrated in 2023 unpredictability. So I would say net net knowing what we know today, we think the midpoint of our guidance range appropriately balances all the risks and opportunities that we see across both the IHT and OFC businesses.

Speaker Change: Alright, and look I think the other thing I'd just mention is it shows significant growth across both segments and continuing the trajectory that we've laid out very clearly with the targets set forth for 25 and 26 on the EBIT rate as well as then the free cash flow. So feel very confident on the execution of the strategy that we've laid.

Speaker Change: Al.

al: Okay. Thanks, and then maybe just touch on a little more lines of that 20% EBITDA margin targets for.

al: <unk> and 'twenty five 'twenty eight.

In 26 can you walk us through how you see those business lines unfolding to achieve those targets kind of relative to your 24 guidance.

Speaker Change: Yes, sure I'll, let Tom Nancy walk through the details. It's a combination of a number of things and actions that we've already put in place. So yes.

Nancy BZ: We remain as we've said very committed to those 20% EBITDA targets for both OFC Niet, we have a clearly defined path on how we're going to get to each of those targets and as we highlighted on the call. Today. There is a number of actions, we're taking to make structural changes to the way, we operate and truly streamline our overall cost profile and that's going to really help aid.

Nancy BZ: That market margin progression in the timeline, we've indicated and again, what we've said earlier this year about Oh FSC, we've taken those charges in the fourth quarter. Those are largely severance with a very short payback period, that's going to clear that path for the OFC business to get to those 20% margins by 2025.

Nancy BZ: And also drive some some good margin ups.

Nancy BZ: <unk> in the back half of this year.

Nancy BZ: No wait for US there and then this is in addition to the more than $60 million of costs, we already removed from the office business. Following a combination of O F. S. Sanofi at the end of 2022, and then also in <unk> recall that we accomplished the $50 million of cost synergies by combining TPS and <unk> businesses in that same timeframe. So when.

Nancy BZ: We think about the building blocks from the 2023 ITT margin of 15% to 20% in 2026. That's also a combination of steps I would outline. Those is first is the conversion of higher margin backlog with improved volume improved pricing.

Nancy BZ: Secondly, thinking about variable cost productivity in terms of supply chain engineering design and other areas for improvement.

Nancy BZ: We also in the industrial Tech business plan to return to historical margin rates, which we've been working on.

Nancy BZ: Also new digital offerings and enhanced services models in that space and then finally, I would say base cost productivity, which we have elevated R&D now that will start to normalize and then also working towards further business simplification. There. So we have a path for both segments to get to that 20% margin rate, we're working that hard in a series of planned.

Nancy BZ: Calculated executable steps and I would say overall, we're very proud of what we've accomplished so far where we're coming along ways, but we know we are far from done and we remain intensely focused on driving these margins and the returns higher and ultimately that's intended to create much more value for our shareholders.

Speaker Change: Okay got it thanks, Nancy Thanks Laurence.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Arun Jairam with Jpmorgan you May proceed.

Arun Jairam: Yeah. Good morning, Lorenzo Bakers guided to 11, 5% to $13 5 billion of <unk> orders in 2024 I.

Speaker Change: I was wondering if you could give us maybe more details on the buildup of the order guide between LNG and other components. It seems like a theme of today's call has the potential to book more non LNG orders in <unk>.

Speaker Change: And perhaps what factors would push it towards the low end versus the higher end of the guide.

Speaker Change: Yes sure.

Speaker Change: Good to hear from you and we see another strong year of.

Speaker Change: Orders and again, if you look at our history. This again would be a significant.

Speaker Change: Year for us and in GTE, we see another strong year of LNG orders, we anticipate.

65 M Tpa of LNG <unk>.

Speaker Change: Just note some of those <unk>. This year, we actually booked last year, but outside of LNG. We expect another strong year of onshore offshore production, where there are a number of potential <unk> awards and some good opportunities also on the onshore side as well.

Speaker Change: You've also got the.

Speaker Change: The continued momentum of booking outside of LNG orders and GTE in 2024, increasing by more than 50% services had a strong year last year, we signed over $1 billion of CSA commitments in the fourth quarter and we expect to continue to see that contractual service agreement momentum to continuous.

Unnamed Host: Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Chase Mulvehill, Vice President of Investor Relations. Please, you may begin.

Cause a potential to book more non LNG orders in <unk>.

And perhaps what factors would push it towards the low end versus the higher end of the guide.

Speaker Change: Projects getting their commissioning and you'll also recall that.

Yes sure.

Good to hear from you and we see another strong year of orders and again, if you look at our history. This again would be a significant year.

Speaker Change: We signed our service contracts closer to commissioning time, a project, which is coming into place, we discussed new energy and Cts expect $800 million to $1 billion of orders that we highlighted and continuing momentum in industrial Tech, which should continue to progress in line with <unk>.

Chase Mulvehill: Thank you. Good morning, everyone, and welcome to Baker Hughes' fourth quarter and full year 2023 earnings conference call. Here with me are our Chairman and CEO, Lorenzo Simonelli, and our CFO, Nancy Buese. The earnings release we issued yesterday evening can be found on our website at BakerHughes.com. We will also be using a presentation with our prepared remarks during this webcast, which can also be found on our investor website. 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.

Yeah for us and in GTE, we see another strong year of LNG orders, we anticipate.

65 M Tpa of LNG <unk>.

Just note some of those.

Speaker Change: GDP.

This year, we actually booked last year, but outside of LNG. We expect another strong year of onshore offshore production, where there are a number of potential <unk> awards and some good opportunities also on the onshore side as well.

Speaker Change: And I would look at our overall Iot order outlook remains strong excited about the opportunities across all of our areas that we serve and our midpoint $12 5 billion, what's still rival our second biggest sort of year end 2022, when we booked a $12 7 billion of Iot orders, so continuing to see the moment.

You've also got the continued momentum of booking outside of LNG orders and GTE in 2024, increasing by more than 50% services had a strong year last year, we signed over $1 billion of CSA commitments in the fourth quarter and we expect to continue to see that contractual service agreement momentum.

Chase Mulvehill: Please review our SEC filings and website for factors that could cause actual results to differ materially. Reconciliations of operating income and other GAAP to non-GAAP measures can be found in our earnings release. With that, I'll turn the call over to Lorenzo.

Speaker Change: Some on the order side here.

Lorenzo a follow up on LNG.

Lorenzo Simonelli: Permitting process on new LNG export projects in the U S appears to have slowed.

Speaker Change: I wanted to see if it get some insights on why you think some of the approval process is taking longer.

Lorenzo Simonelli: Thank you, Chase. Good morning, everyone, and thanks for joining us. 2023 proved to be a pivotal year for Baker Hughes as we continue our journey to reshape the company. We successfully removed $150 million of costs, realigned our IET business, and recently launched actions to further streamline our OFSC business. Our strategy to transform the way we operate is working.

To continue as projects get near commissioning and you'll also recall that.

Speaker Change: Any risk to your 2024 profile if these permit delays persist.

We signed our service contracts closer to commissioning time, a project, which is coming into place, we discuss new energy and Cts expect $800 million to $1 billion of orders that we highlighted and continuing momentum in industrial Tech, which should continue to progress in line with GDP.

Speaker Change: Yeah, very topical at the moment to Rune and again, if you look at the.

Speaker Change: The aspect of LNG no impact for us this year and again as you know the project landscape and also the cycle of projects is a multi year.

And I'd look at our overall order outlook remains strong excited about the opportunities across all of our areas that we serve in.

Lorenzo Simonelli: In 2023, we set records for all primary financial metrics, including orders, revenue, EBITDA, EPS, free cash flow, and most importantly, returns. Adjusted EBITDA was up 26% year-over-year, a third consecutive year of double-digit increases and exceeding prior cycle peak levels by 25%. Adjusted diluted earnings per share was $1.60.

Speaker Change: I'd say that again there is some uncertainty in particular on North America.

Midpoint, $12 5 billion, what's still rival our second biggest all year in 2022, when we booked a $12 7 billion of Iot orders. So.

Speaker Change: Given some of the discussions that are taking place in some of the delays in the permitting I would also say I am disappointed that this is coming about right now U S. LNG is enormously beneficial to the U S economy.

To see the momentum on the order side here.

Lorenzo a follow up on LNG.

Speaker Change: Had a large impact beneficial impact on global energy market, especially when you look at everything Thats happened and Theres been commitments made to providing LNG supply to many other countries and I think it's important that we continue to go down that path and it's a matter of national security for many and so we anticipate.

Permitting process on new LNG export projects in the U S appears to have slowed.

I wanted to see if it get some insights on why you think some of the approval process is taking longer and any risk to your 2024 profile. If these permit delays persist.

Lorenzo Simonelli: 76% above 2022 levels. Free cash flow increased 83% year-over-year to just over $2 billion. Total company orders increased 14% year over year, as IAT orders of $14.2 billion grew 12% when compared to last year's record orders and marked the third consecutive year of double-digit growth. New energy orders totaled $750 million, up 45% year over year. SSPS orders increased by 27% to $3.9 billion, the largest order year since 2014.

Speaker Change: Dissipate that this will work itself through and we don't anticipate that there'll be any detrimental impact over the long time, two U S. LNG outside of U S. LNG, though international projects continued to be buoyant and there's several opportunities in the middle East you look at Africa, you look at South East Asia.

Yes, very topical at the moment to Rune and again, if you look at the.

The aspect of LNG no impact for us this year and again as you know the project landscape and also the cycle of projects is a multi year, but I'd say that again there is some uncertainty in particular on North America.

Speaker Change: And again, we've got an extensive reach on the international projects as well so no impact in 'twenty, four and continuing to monitor the situation in the U S. But I anticipate that will solve itself over the long term.

Given some of the discussions that are taking place in some of the delays in the permitting I would also say I'm disappointed that this is coming about right now.

Lorenzo Simonelli: Alright, Thanks Lorenzo.

Lorenzo Simonelli: These record results highlight strong market tailwinds across both segments and the significant operational improvements the company has accomplished since 2022. Clearly, we are pleased with the progress demonstrated in 2023 and excited about where the company is headed in 2024 and beyond. Turning to slide five, fourth quarter adjusted EBITDA of $1.09 billion came in above the midpoint of our guidance range due to the continued operational improvement and full realization of the $150 million of cost out. Free cash flow of $633 million exceeded expectations and resulted in a full year free cash flow conversion of 54%. IAT orders remain strong, exceeding $3 billion for the fifth consecutive quarter.

Lorenzo Simonelli: Thank you.

LNG is enormously beneficial to the U S economy.

Speaker Change: One moment for questions.

It's had a large impact beneficial impact on global energy market, especially when you look at everything Thats happened and Theres been commitments made to providing LNG supply to many other countries and I think it's important that we continue to go down that path and it's a matter of national security for many and so we.

Speaker Change: Our next question comes from sort of a pump with bank of America. You May proceed.

Speaker Change: Hi, good morning, Lorenzo and Nancy.

Speaker Change: Lorenzo maybe I'll start with a little more color on the.

Edo database side of things the supply chain has been a topic I think Nancy taste on that a little bit in her prepared remarks, but if you can give us a little more color on that how are things going if there's an update and should we expect things to get better as we move through 'twenty three food.

We anticipate that this will work itself through.

And we don't anticipate that there'll be any detrimental impact over the long term to U S. LNG outside of U S. LNG, though international projects continued to be buoyant and there's several opportunities in the middle East you look at Africa, you look at South East Asia and again, we've got an extensive reach on the international.

Speaker Change: Yeah.

Speaker Change: Yes, sure it's something that we continue to navigate I think externally you see all the news around the aerospace supply chain and.

Projects as well so no impact in 'twenty, four and continuing to monitor the situation in the U S. But anticipate that will solve itself over the long time.

Speaker Change: You've seen that that we've managed data in 2023 and there'll be no change to managing it in 2024, and that's contemplated within the guidance that we provided the situation remains stable, but will be tight through the end of 2024.

Lorenzo Simonelli: In addition, we were awarded more than a billion dollars of CSA commitment. In OFSE, we continue to demonstrate solid margin improvement during the quarter, with segment EBITDA margin increasing to 17.9% as OFS EBITDA margins now exceed 20%, both record margins. Tadding to the macro on slide six, oil prices have weakened considerably since peaking in late September.

Alright, Thanks Lorenzo.

Yeah.

Thank you.

One moment for questions.

Speaker Change: We're working closely with our supply base to make sure that.

Our next question comes from Saru Pant with Bank of America. You may proceed.

Our next question comes from Rupert <unk> with Bank of America You May proceed.

Speaker Change: We continue executing its it is tight though and we've incorporated that into the guidance that we've provided but ensuring we don't have any impact to our results.

Saru Pant: Hi, good morning, Lorenzo and Nancy. Lorenzo, maybe I'll start with a little more color on the arrow derivative side of things. The supply chain has been a topic. I think Nancy touched on that a little bit in her prepared remarks. But if you can give us a little more color on that, how are things going, if there's an update, and should we expect things to get better as we move through 2025?

Hi, good morning, Lorenzo and Nancy.

Speaker Change: Lorenzo maybe I'll start with a little more color on the.

Lorenzo Simonelli: Ultimately, weaker-than-anticipated oil demand, coupled with robust production growth, led to unexpected inventory builds into year-end. However, prices still remain at levels that are favorable for growth across our core OFSC market. For 2024, demand growth remains the biggest unknown in the face of global economic uncertainty and heightened geopolitical risk. On the supply side, the biggest risk factor is non-OPEC supply outpacing demand, possibly requiring OPEC plus to maintain the current level of cuts through the end of 2024.

Speaker Change: Okay Fantastic and then Nancy maybe a quick follow up for you. This kind of relates to what Luc asked earlier on but you've been in the CFO role Nelson's, though I think late 2022, and we've heard you talk about organizational transformation and making a baker a leaner organization and like you said you've taken 150.

Speaker Change: Aero derivative side of things the supply chain has been a topic I think Nancy dies down that a little bit in her prepared remarks, but if you can give us a little more color on that how are things going if there's an update and should we expect things to get better as we move through 'twenty three food.

Speaker Change: Yeah.

Lorenzo: Yeah, sure. It's something that we continue to navigate. I think externally, you see all the news around the aerospace supply chain. And, you know, you've seen that we've managed it in 2023. And there'll be no change to managing it in 2024. And that's contemplated within the guidance that we provided. The situation remains stable, but we'll be tight through the end of 2024. And, you know, we're working closely with our supply base to make sure that we continue executing. It is tight, though, and we've incorporated that into the guidance that we've provided, but ensuring we don't have any impact to our results.

Yes, sure it's something that we continue to navigate I think externally you see all the news around the aerospace supply chain and.

Nancy BZ: Plus in cost out or could you update I know you talked about it a little bit can you give us a little more color on what you plan to do going forward.

Chase Mulvehill: You've seen that that we've managed data in 2023 and there'll be no change to managing in 2024, and that's contemplated within the guidance that we provided the situation remains stable, but will be tight through the end of 2024, and we are working closely with our supply base to make sure.

Nancy BZ: If there is any way to quantify the impact on that.

Speaker Change: Yes, that's a great question and I would say in every aspect across the company. Our focus is truly on operational excellence execution and continuous improvement last year, we really laid the groundwork for improving that execution accountability transparency and we did achieve that $150 million cost out goal and that was really designed around sustainable.

Lorenzo Simonelli: The volatility in commodity prices experienced during the fourth quarter and so far in 2024 will likely have some influence on upstream development plans. Accordingly, we now see international DNC spend growth decelerating into the high single-digit range this year, which is down slightly from our prior expectations for low double-digit growth. Nevertheless, the international cycle remains healthy, and we see no deviation from the long-term development plans set in place among some of the world's largest NOCs. The offshore cycle is maintaining the momentum built over the past couple of years, and we have good visibility on the development pipeline, which is expected to support strong activity levels over the next several years. In North America, activity continues to lag, and we are now anticipating no meaningful recovery in activity during the first half of the year.

Chase Mulvehill: That.

Chase Mulvehill: We continue executing its it is tight though and we've incorporated that into the guidance that we provided but ensuring we don't have any impact to our results.

Speaker Change: Structural changes that will benefit the organization longer term and it will stick over overtime and we've really began to work as well as synchronising. Many diverse systems working towards efficient streamline processes and reporting everything from our underlying technology just to the way we do things so that that is permeating through the business and will create efficiencies.

Speaker Change: Okay, fantastic. And Nancy, maybe a quick follow-up for you. This kind of relates to what Luke asked earlier on, but you've been in the CFO role now since, I think, late 2022, and we have heard you talk about organizational transformation and making Baker a leaner organization, and like you said, you've taken $150 million plus in cost out. Can you update? I know you talked about it a little bit. Can you give us a little more color on what you plan to do going forward, and if there is any way to quantify the impact?

Speaker Change: Okay Fantastic and then Nancy maybe a quick follow up for you. This kind of relates to what Luc asked earlier on but you've been in the CFO role now since I think late 2022, and we've heard you talk about organizational transformation and you can Baker, a leaner organization and like you said you've taken 150.

Speaker Change: <unk> sees over time, we also have discrete projects and I'll give you. One example, so far in 2023, we guided to a 35% to 40% tax rate and this year, we're guiding to a 27% to 32% tax rate and again these things over time have meaningful impact to our earnings down and are really structured thoughtful way.

Speaker Change: Plus in cost out Okay. Do you update I know you talked about it a little bit can you give us a little more color on what you plan to do going forward and if there is any way to quantify the impact on that.

Speaker Change: So all of these projects and initiatives will allow us efficiency gains improved data and improve transparency all focusing on structural margin improvements overtime I would say, though there is still much more to do as we continue down. This journey in 2024, we continue to focus on things like eliminating duplication thinking about how to.

Nancy: Yeah, it's a great question, and I would say in every aspect across the company, our focus is truly on operational excellence, execution, and continuous improvement.

Speaker Change: Yes, that's a great question and I would say in every aspect across the company. Our focus is truly on operational excellence execution and continuous improvement.

Lorenzo Simonelli: On our last quarterly call, we expected 2024 North American DNC spend to be flattish, but now we expect spending down in low to mid-single digits, driven by mid-single-digit declines in U.S. land. The combination of a volatile commodity price environment, sector consolidation, and the inherent elasticity of shale versus conventional developments are all factors contributing to the slower ramp-up in activity. In OFSC, we secured two significant multi-year integrated services contracts with a Latin American operator for drilling, completion, and plug-in abandonment services, highlighting the customer's confidence in Baker Hughes' diverse technology and service offerings. In the offshore market, we were awarded additional subsea trees during the quarter, bringing our total number of subsea tree awards in 2023 to 60.

Nancy: Last year, we really laid the groundwork for improving that execution, accountability, transparency, and we did achieve that $150 million cost out goal. And that was really designed around sustainable structural changes that will benefit the organization longer term and will

Chase Mulvehill: Last year, we really laid the groundwork for improving that execution accountability transparency and we did achieve that $150 million cost out goal and that was really designed around sustainable structural changes that will benefit the organization longer term and it will stick.

Execute at World class level, how we listen to our customers and execute from a.

Nancy: over time. And we've really begun to work as well as synchronizing many diverse systems, working towards efficient, streamlined processes and reporting everything from our underlying technology just to the way we do things. So that's permeating through the business and we'll create efficiencies over time. We also have discrete projects, and I'll give you one example. So in 2023, we guided to a 35 to 40% tax rate. And this year, we're guiding to a 27 to 32% tax rate. And again, these things over time, we're going to be doing a lot of different things. Over time, have meaningful impact to our earnings done in a really structured, thoughtful way.

Speaker Change: Point of Excellence, and then just making sure that while we're doing these things today. We're also setting up for a real success in the back half of the decade. So we are making some investments in things like systems and processes today to drive that back half of the decade, and then earlier. This year of course, we've talked about the actions I know FSC really designed around removing duplication driving more.

Chase Mulvehill: Over time, and we really began to work as well as synchronising, many diverse systems working towards efficient streamline processes and reporting everything from our underlying technology just to the way we do things. So that that is permeating through the business and will create efficiencies over time. We also have discrete projects and I'll give you. One example, so forth.

Speaker Change: Cost efficiency inside that business. So all in all what we're gonna stay on the journey. We are we are stopping short of putting on another cost target I would encourage you to think about that in terms of just margin improvement in both segments and overall, so so stay tuned and keep keep focusing on margins and that's where you'll see the improvements over time.

Chase Mulvehill: In 2023, we guided to a 35% to 40% tax rate and this year, we're guiding to a 27% to 32% tax rate and again these things over time have meaningful impact to our earnings down and are really structured thoughtful way.

Nancy: So all of these projects and initiatives will allow us efficiency gains, improve data, improve transparency, all focusing on structural margin improvements over time. I would say, though, there's still much more to do as we continue down this journey. In 2024, we continue to focus on things like eliminating duplication, thinking about how to execute at a world-class level, how we listen to our customers and execute

Chase Mulvehill: So all of these projects and initiatives will allow us efficiency gains improved data and improve transparency all focusing on structural margin improvements over time I would say, though there is still much more to do as we continue down. This journey in 2024, we continue to focus on things like eliminating duplication thinking about how to.

Speaker Change: Okay awesome, Okay, Nancy that's very thorough thank you Lorenzo thanks, I'll turn it back.

Lorenzo Simonelli: Turning to LNG on slide 7, despite the recent weakness in LNG prices, we believe the long-term outlook for the global LNG market remains solid. In fact, LNG prices remain at relatively high levels compared to historical averages. For example, in 2023, European and Asian gas prices averaged about 20% above the 10-year average.

Speaker Change: Thanks.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Scott Gruber with Citigroup you May proceed.

Scott Gruber: Yes, good morning.

Chase Mulvehill: Execute at World class level, how we listen to our customers and execute from a.

Scott Gruber: Hi, Scott Circle.

Scott Gruber: Morning.

Speaker Change: Thank you all so much for joining us today, and we'll see you next time.

Scott Gruber: I wanted to circle back to the LNG approval discussion.

Chase Mulvehill: Point of Excellence, and then just making sure that while we're doing these things today. We're also setting up for a real success in the back half of the decade. So we are making some investments in things like systems and processes today to drive that back half of the decade, and then earlier. This year of course, we've talked about the actions I know FSC really designed around removing duplication driving more.

Scott Gruber: Just given that it's a hot topic.

Lorenzo Simonelli: In the fourth quarter, global LNG demand was up approximately 4% year over year. For the full year, global LNG demand reached record levels of 405 MTPA, up 2% compared to 2022, despite softer-than-anticipated gas demand in Europe. LNG demand in Europe was around 115 MTPA, in line with 2022 levels. Demand in China was 71 MTPA, up 10% year over year.

Speaker Change: Lorenzo so.

Lorenzo Simonelli: There is a slowdown in U S. Approvals do you think that would pull forward some international projects to fill the gap. So it seems that buyers with pivot their focus.

Speaker Change: And then earlier this year, of course, we've talked about the actions in OFSC really designed around removing duplication, driving more cost efficiency inside that.

Lorenzo Simonelli: But does the international slate of projects ready.

Chase Mulvehill: Cost efficiency inside that business. So all in all look we're going to stay on the journey. We are we are stopping short of putting on another cost target I would encourage you to think about that in terms of just margin improvement in both segments and overall, so so stay tuned and keep keep focusing on margins and that's where you'll see the improvements over time.

Speaker Change: So all in all we're going to stay on the journey. We are stopping short of putting out another cost target. I would encourage you to think about that in terms of just margin improvement in both segments and overall. So stay tuned and keep focusing on margins and that's where you'll see the improvements over time.

Lorenzo Simonelli:

Lorenzo Simonelli: From a timing perspective to offset any slowdown.

Speaker Change: So Scott as you saw also in 2023, we actually had bookable orders that were on projects that we hadn't.

Lorenzo Simonelli: With an estimated global nameplate capacity of 491 MTPA last year, effective utilization averaged 86 percent, which represents a tight LNG market. Looking into 2024, we forecast LNG demand to increase by 2%, which should result in utilization rates remaining at strong levels, as we forecast just 15 MTPA of nameplate capacity coming online this year. Looking out to 2025 and 2026, we see a similar trend of supply growth being balanced by demand growth, which should keep global LNG markets at good utilization levels, with energy markets, including LNG, still fundamentally tight. Global coal demand set another record last year, increasing 1.4% year over year to 8.5 billion tons.

Speaker Change: We wouldn't obviously put that in any guidance and we think that the.

Speaker Change: Okay, awesome. Okay, Nancy, that's very thorough. Thank you. Lorenzo, thanks. I'll turn it back.

Speaker Change: Okay awesome, Okay, Nancy that's very thorough thank you Lorenzo thanks, I'll turn it back.

Speaker Change: Thanks.

Speaker Change: 65, MTP <unk> will happen this year, but as you look at any slowdown in the U S. There's clearly projects internationally that can take the opportunity and offset what was anticipated from U S. LNG over time again, it's not something that.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Scott Gruber with Citigroup. You may proceed.

Speaker Change: Our next question comes from Scott Gruber with Citigroup you May proceed.

Scott Gruber: yes good morning um hey good morning i want to circle back uh to the lng approval discussion um just given that it's a hot topic um lorenzo so you know if there is a slowdown in u.s approvals do you think that would pull forward some international projects to fill the gap you know it seems that buyers would pivot their focus you know but is the international slate of projects ready

Speaker Change: Yes, good morning.

Operator: Our next question comes from Saru Pant with Bank of America. You may proceed. Good morning, Lorenzo and Nancy.

Speaker Change: Hi, Scott Circle.

Speaker Change: Morning.

I want to circle back to the LNG approval discussion.

Speaker Change: We factored into the guidance, but again, it's something that could happen and we will continue to monitor the situation I think the benefit for US is that we play globally. We play with a total gamut of solutions around LNG and so when it comes to small modular onshore.

Lorenzo Simonelli: Lorenzo, maybe I'll start with a little more color on the arrow derivative side of things. The supply chain has been a topic. I think Nancy touched on that a little bit in her prepared remarks. But if you can give us a little more color on that, how are things going, if there's an update, and should we expect things to get better as we move through 2025? Yeah, sure.

Chase Mulvehill: Given that it's a hot topic.

Speaker Change: Lorenzo so if there is a slowdown in U S approvals.

Speaker Change: That would pull forward some international projects to fill the gap. So it seems that buyers would pivot their focus.

Chase Mulvehill: But as the international slate of projects ready.

Speaker Change: Offshore stick you know our floating you come to us and again there is international opportunities.

Scott Gruber: You know, from a timing perspective to offset any U.S. lowdown.

Chase Mulvehill: From a timing perspective to offset any U S slowdown.

Lorenzo Simonelli: It's something that we continue to navigate. I think externally, you see all the news around the aerospace supply chain. And, you know, you've seen that we managed it in 2023. And there'll be no change to managing it in 2024.

Scott Gruber: So, Scott, as you saw also in 2023, we actually had bookable orders that were on projects that we hadn't FID'd. We wouldn't obviously put that in any guidance, and we think that the 65 MTPA FIDs will happen this year. But as you look at any slowdown in the U.S., there's clearly projects internationally that can take the opportunity and offset what was anticipated from US LNG. Again, it's not something that we factored into the guidance, but again, it's something that could happen, and we'll continue to monitor the situation. I think the benefit for us is that we play globally. We play with a total gamut of solutions around LNG, and so when it comes to small, modular, onshore, offshore, stick, you know, floating, you come to us. And again, there's international opportunities. I think the benefit for us is that we play globally. We play with a total gamut of solutions around LNG.

Chase Mulvehill: So Scott as you saw also in 2023, we actually had bookable orders that were on projects that we had.

Speaker Change: I appreciate the color still a lot of a colder displays out there.

Lorenzo Simonelli: We think this recent growth in coal demand provides additional long-term growth opportunities for LNG, where we see cleaner-burning natural gas replacing high-emission coal in the energy mix across many Asian countries, where coal is still the predominant energy source for electricity. During the fourth quarter, we were pleased to be awarded by Adnok Gas, on behalf of Adnok, two electric liquefaction systems for the 9.6 MTPA RUES LNG project in the United The LNG trains will be driven by Baker Hughes's 75-megawatt brush electric motor technology and will feature our state-of-the-art compressor technology, making Ruez LNG one of the first all-electric LNG projects in the Middle East.

Speaker Change: Shifting gears sorry.

Speaker Change: Shifting to the service opportunity for non LNG equipment.

Chase Mulvehill: We wouldn't obviously put that in any guidance and we think that the.

Lorenzo Simonelli: And that's contemplated within the guidance that we provided. The situation remains stable, but we'll be tight through the end of 2024. And, you know, we're working closely with our supply base to make sure that we continue executing. It is tight, though, and we've incorporated that into the guidance that we've provided, but ensuring that we don't have any impact on our results. Okay, fantastic. And Nancy, maybe a quick follow-up for you. This kind of relates to what Luke asked earlier on, but you've been in the CFO role now since, I think, late 2022, and we have heard you talk about organizational transformation and making Baker a leaner organization, and, like you said, you've taken $150 million plus in cost out. Can you update?

Speaker Change: Over the next five years could you provide some color on the rough growth rate in your installed base of non LNG equipment. Just so we can get a sense of the yes.

Chase Mulvehill: The 65, MTP AFI will happen this year, but as you look at any slowdown in the U S is clearly projects internationally that can take the opportunity and offset what was anticipated from U S. LNG over time again, it's not something that we.

Speaker Change: The associated growth in the service opportunity.

Speaker Change: So we haven't given a specific percentage, but your characterization is correct that there's a large opportunity as you look at the onshore and offshore from D. F. P. S O perspective than the gas pipelines, but then you also go to the transactional business and when you think of industrial segments.

Chase Mulvehill: We factored into the guidance, but again, it's something that could happen and we will continue to monitor the situation I think the benefit for US is that we play globally. We play with a total gamma of solutions around LNG and so when it comes to small modular onshore off.

Speaker Change: Fertilizers petrochemical refineries all of this goes to the transactional side of services and we mentioned one of the path to the 20% EBITDA for <unk> is also the new service solutions and the digital offerings. There is a tremendous amount of opportunity.

Chase Mulvehill: Sure stick.

Chase Mulvehill: Our floating you come to us and again there is international opportunities.

Lorenzo Simonelli: In 2023, we were extremely pleased to book almost 80 MTPA of LNG orders, which outpaced FIDs of 57 MTPA. This variance was the result of the timing difference between orders and FIDs, which has been accentuated by the tightening LNG equipment market. The outlook for FIDs over the next few years remains strong, and we see projects progressing across all markets. For 2024, specifically, we expect LNG FIDs of around 65 MTPA. However, it is important to note this includes a couple of major LNG orders that were booked during 2023. As we look out to 2025 and 2026, we could see between 30 to 60 MTPA of FIDs annually, bringing total potential LNG FIDs to 125 MTPA and 185 MTPA through 2026. Based on existing capacity, projects under construction, and future FIDs in the pipeline, we have a line of sight for global LNG installed capacity to reach 800 MTPA by the end of 2030, representing an almost 75% increase in nameplate capacity from 2022 levels.

Scott Gruber: I appreciate the color. There's still a lot of coal to displace out there. Shifting to the service opportunity for non-LNG equipment, you know, over the next five years, could you provide some color on the rough growth rate in your installed base of non-LNG equipment, just so we can get a sense of the associated growth and the service opportunities?

Chase Mulvehill: I appreciate the color still a lot of coal to displays out there.

I know you talked about it a little bit. Can you give us a little more color on what you plan to do going forward and if there is any way to quantify the impact? Yeah, it's a great question, and I would say in every aspect across the company, our focus is truly on operational excellence, execution, and continuous improvement. Last year, we really laid the groundwork for improving that execution, accountability, and transparency, and we did achieve that $150 million cost out goal.

Speaker Change: Sure sorry.

Speaker Change: Shifting to the service opportunity for non LNG equipment.

Speaker Change: As we continue to expand across the balance of plant as we look to our Accordant solutions being implemented and we're already seeing some success in the marketplace with non traditional customers and that's really a growth opportunity as we go forward and it just is a further demonstration of the diversity and versatility of the <unk>.

Chase Mulvehill: Over the next five years could you provide some color on the.

Chase Mulvehill: Growth rate in your installed base of <unk>.

Chase Mulvehill: Non LNG equipment, just so we can get a sense of the.

Chase Mulvehill: Associated growth in the service opportunity.

Speaker Change: Portfolio.

Speaker Change: So we haven't given a specific percentage, but your characterization is correct that there's a large opportunity as you look at onshore and offshore from D. F peso perspective than the gas pipelines. But then you also go to the transactional business and when you think of industrial segments.

Speaker Change: So we haven't given a specific percentage, but your characterization is correct that there's a large opportunity. As you look at onshore and offshore from the FPSO perspective, then the gas pipelines, but then you also go to the transactional business. And when you think of industrial segments, fertilizers, petrochemical, refineries, all of this goes to the transactional side of services. And we mentioned one of the paths to the 20% EBITDA for IET is also the new service solutions and the digital offerings. There's a tremendous amount of opportunity as we continue to expand across the balance of plant, as we look to our cordon solutions being implemented. And we're already seeing some success in the marketplace with non-traditional customers. And that's really a growth opportunity as we go forward. And it just is a further demonstration of the diversity. Diversity and versatility of the IET portfolio.

And that was really designed around sustainable structural changes that will benefit the organization longer term and will, over time. And we've really begun to work as well as synchronizing many diverse systems, working towards efficient, streamlined processes, and reporting everything from our underlying technology just to the way we do things. So that's permeating through the business, and we'll create efficiencies over time. We also have discrete projects, and I'll give you one example

Speaker Change: Got it thank you.

Speaker Change: Thanks, Scott Thank you.

Speaker Change: One moment for questions.

Our next question comes from Marc Bianchi with TD Cowen You May proceed.

Hey, thanks.

Marc Bianchi: I was curious if you could talk a little bit more about the LNG Award.

Chase Mulvehill: Fertilizers petrochemical refineries all of this goes to the transactional side of services and we mentioned one of the path to the 20% EBITDA for <unk> is also the new service solutions and the digital offerings. There is a tremendous amount of opportunity.

Marc Bianchi: Our expectation that's embedded in the IAG order guidance. So you did $5 $6 billion of LNG equipment Award in 2023, whats the assumption for 'twenty four and is that's what's contributing to the wide range of.

So in 2023, we're aiming for a 35 to 40% tax rate. And this year, we're aiming for a 27 to 32% tax rate. And again, these things over time, we're going to be doing a lot of different things that over time have a meaningful impact on our earnings in a really structured, thoughtful way. So all of these projects and initiatives will allow us efficiency gains, improve data, improve transparency, all focusing on structural margin improvements over time. I would say, though, there's still much more to do as we continue down this journey. In 2024, we continue to focus on things like eliminating duplication, thinking about how to execute at a world-class level, how we listen to our customers and execute. Thank you all so much for joining us today, and we'll see you next time. And then earlier this year, of course, we talked about the actions in OFSC really designed around removing duplication and driving more cost efficiency inside that. So all in all, we're going to stay on the journey. We are stopping short of putting out another cost target.

Marc Bianchi: Of IEP order guidance.

Marc Bianchi: Yeah.

Speaker Change: Yeah again, Mark going to also what I mentioned before relative to where LNG, we see that.

Chase Mulvehill: As we continue to expand across the balance of plant as we look to our Accordant solutions being implemented and we're already seeing some success in the marketplace with non traditional customers and that's really a growth opportunity as we go forward and it just is a further demonstration of the diversity and versatility of the <unk>.

Speaker Change: In 2024, there should be 65 M Tpa of awards and within our guidance. Obviously, we've taken account for what we've booked in the past and what we anticipate to book this year and we wouldn't go and actually start putting in orders that we.

Lorenzo Simonelli: This provides good visibility for significant near-term growth in gas tech equipment, where we have the broadest set of LNG solutions to suit customer needs, including our modular, stick build, onshore, offshore, floating, and small scale LNG offerings. In addition, this expansion in our LNG installed base will provide long-term structural growth for our gas tech services. Turning now to slide eight, on the new energy front, we have seen a number of developments in the past quarter. At COP28, which brought together 154 heads of state and other government officials and was well represented by Baker Hughes, I was particularly pleased to see the increased representation and participation from energy companies. Key commitments from the conference include doubling the global average annual rate of energy efficiency improvements by 2030. Net zero methane emissions and no routine flaring by 2030. Endorsement of a Global Hydrogen Certification Standard and accelerating efforts towards the phase down of unabated coal power.

Chase Mulvehill: Portfolio.

Speaker Change: Thank you.

Speaker Change: We haven't seen it yet so that's from a guidance perspective, we're banking on the projects being FID this year and coming through and then if there is an opportunity. It's that there is an acceleration as was discussed earlier with Scott relative to other projects that come into our order book, but haven't yet so.

Speaker Change: Thank you.

Speaker Change: Thanks Scott.

Speaker Change: Thanks, Scott. Thank you.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Marc Bianchi with TD Cowan. You may proceed.

Speaker Change: Our next question comes from Marc Bianchi with TD Cowen You May proceed.

Marc Bianchi: Hey, thanks.

Marc Bianchi: Hey, thanks. I was curious if you could talk a little bit more about the LNG award expectation that's embedded in the IET order guidance. So you did $5.6 billion of LNG equipment award in 2023. What's the assumption for 2024, and is that what's contributing to the wide range of IET order guidance?

Marc Bianchi: I was curious if you could talk a little bit more about the LNG Award.

Speaker Change: I feel confident with the range that we've given and again there is the growth outside of LNG that is significant as well and I just maybe mention again, if you look at what we've laid out this would be close to the second year record that has already been here for that business. So feeling good about the moment.

Chase Mulvehill: Expectations Thats embedded in the IAG order guidance. So you did $5 $6 billion of LNG equipment Award in 2023, whats the assumption for 'twenty four and is that's what's contributing to the wide range of.

Chase Mulvehill: Of IEP order guidance.

Chase Mulvehill: Okay.

Speaker Change: Again Marc, going to also what I mentioned before relative to LNG, we see that in 2024 there should be 65 MTPA of awards and within our guidance obviously we've taken account for what we've booked in the past and what we anticipate to book this year and we wouldn't go and actually start putting in orders that we haven't seen FID'd yet. So that's from a guidance perspective, we're banking on the projects being FID'd this year and coming through and then if there's an opportunity it's that there's an acceleration as was discussed earlier with Scott relative to other projects that come into our order book but haven't FID'd yet. So feel confident with the range that we've given and again there's the growth outside of LNG that is significant as well and I just maybe mention again. If you look at what we've laid out this would be close to the second year record that has already been here for that business so feeling good about the momentum continuing as we go forward.

Speaker Change: Yeah again, Mark going to also what I mentioned before relative to LNG, we see that.

Speaker Change: Hmm continuing as we go forward.

I would encourage you to think about that in terms of just margin improvement in both segments and overall. So stay tuned and keep focusing on margins, and that's where you'll see the improvements over time. Okay, Nancy. That's very thorough.

Speaker Change: Okay.

Maybe one for Nancy on the tax rate.

Nancy BZ: You're guiding to a nice improvement here.

Nancy BZ: And 'twenty four, but it's still above where peers are.

Nancy BZ: Where do you think you can get that tax rate to an <unk>.

Nancy BZ: Over what timeframe.

Yes, it's a great question and something we're working hard on there's a lot of history and baggage associated with tax rate given the formation of the company and all of that but we are we are working I would say moving ourselves into summer.

Lorenzo Simonelli: We also continue to see progress on the policy and permitting front in the United States that should help advance emissions reduction progress. We are pleased with the U.S.'s final ruling on the methane standards, which should prevent an estimated 58 million tons of methane emissions from 2024 to 2038, according to the EPA. Additionally, the state of Louisiana being granted primacy on Class 6 wealth permitting should help to reduce CCUS project bottlenecks in that region of the United States.

Chase Mulvehill: We haven't seen it yet so that's from a guidance perspective, we're banking on the projects being FID this year and coming through and then if there is an opportunity. It's that there is an acceleration as was discussed earlier with Scott relative to other projects that come into our order book, but haven't yet so.

Operator: Thank you. Lorenzo, thanks. I'll turn it back.

Nancy BZ: Somewhere in the low 20% overtime cant give you exact specifics on how we get there, but I would say theres a lot of important work being done in the next year or two to really focus on that right. It's very important to move the needle from an earnings perspective. So we're doing all the things to understand our attributes and really think about structuring as we move forward we are in a lot.

Operator: Thanks. Thank you. One moment for questions.

Nancy BZ: Of complex structures over over the course of the globe with some of our contracts and our customer base, but I can tell you. This is something I'm personally very interested in and we're working hard to bring that rate down over the coming years.

Lorenzo Simonelli: Our next question comes from Scott Gruber with Citigroup. You may proceed, yes, good morning. Hey, good morning. I want to circle back on the lng approval discussion. Just given that it's a hot topic, Lorenzo. Do you think that would pull forward some international projects to fill the gap? It seems that buyers would pivot their focus, you know, but is the international slate of projects ready, You know, from a timing perspective to offset any U.S. decline. So, Scott, as you saw also in 2023, we actually had bookable orders that were on projects that we hadn't FID'd. We wouldn't obviously put that in any guidance, and we think that the 65 MTPA FIDs will happen this year. But as you look at any slowdown in the U.S., there are clearly projects internationally that can take the opportunity and offset what was anticipated from US LNG. Again, it's not something that we factored into the guidance, but again, it's something that could happen, and we'll continue to monitor the situation. I think the benefit for us is that we play globally.

Lorenzo Simonelli: In the area of hydrogen, the U.S. Treasury provided clarity on the 45V hydrogen tax credits, which could impact the pace of green hydrogen development. We are hopeful that a pragmatic solution will be reached that actually encourages rather than inhibits new investments in this critical industry that will play a vital role in decarbonizing hard-to-abate sectors. As we have stated previously, the energy transition will likely be more challenging and take longer than many expect. This is why we at Baker Hughes are pursuing an all-of-the-above strategy, where our technologies and capabilities have a key role to play in decarbonizing the planet, irrespective of the fuel source. It is important to note the pace of the transition will not impact the ultimate size of the new energy market opportunity. As an illustration, the IEA has sized annual clean energy investment at $4.5 trillion by the early 2030s and $4.7 trillion by 2050 under its net zero scenario. In comparison, investment in fossil fuels totaled just under $1 trillion last year.

Hmm continuing as we go forward.

Chase Mulvehill: Okay.

Speaker Change: Okay, maybe one for Nancy. On the tax rate, you're guiding to a nice improvement here in 24, but it's still above where peers are. Where do you think you can get that tax rate to and over what timeframe?

Speaker Change: Great. Thanks, so much I'll turn it back.

Speaker Change: Maybe one for Nancy on the tax rate.

Speaker Change: Thanks and.

Speaker Change: You're guiding to a nice improvement here.

Speaker Change: Look we're coming to time here. So I just want to thank everyone for joining the call and as we mentioned very much looking forward to 2020 for continuing the momentum of change within Baker Hughes and continuing to execute for our customers and also for the employee base and meeting what we've laid out from a guidance prospect.

Nancy: And 'twenty four, but it's still above where peers are.

Chase Mulvehill: Where do you think you can get that tax rate to an <unk>.

Chase Mulvehill: Over what timeframe.

Nancy: Yeah, it's a great question. It's something we're working hard on. There's a lot of history and baggage associated with tax rate given the formation of the company and all of that. But we are working, I would say, moving ourselves into somewhere in the low 20% over time. Can't give you exact specifics on how we get there, but I would say there's a lot of important work being done in the next year or two to really focus on that rate. It's very important to move the needle from an earnings perspective. So we're doing all the things to understand our attributes and really think about structuring as we move forward. We are in a lot of complex structures over the course of the globe with some of our contracts and our customer base, but I can tell you this is something I'm personally very invested in and we're working hard to bring that rate down over the coming years.

Speaker Change: Yeah, It's a great question and something we're working hard on there's a lot of history and baggage associated with tax rate given the formation of the company and in all of that but we are we are working I would say moving ourselves into.

Speaker Change: So thank you very much everybody.

Speaker Change: Thank you. Thank you for your participation you may now disconnect.

Chase Mulvehill: Somewhere in the low 20% overtime cant give you exact specifics on how we get there, but I would say theres a lot of important work being done in the next year or two to really focus on that right. It's very important to move the needle from an earnings perspective. So we're doing all the things to understand our attributes and really think about structuring as we move forward we are in a lot.

Chase Mulvehill: [noise] of complex structures over over the course of the globe with some of our contracts and our customer base, but I can tell you. This is something I'm personally very interested in and we're working hard to bring that rate down over the coming years.

Great. Thanks, so much I'll turn it back.

Speaker Change: Great. Thanks so much. I'll turn it back.

Speaker Change: Thanks. And look, we're coming to time here. So I just want to thank everyone for joining the call. And as we mentioned, very much looking forward to 2024, continuing the momentum of change within Baker Hughes and continuing to execute for our customers and also for the employee base and meeting what we've laid out from a guidance perspective. So thank you very much, everybody.

Thanks and.

Lorenzo Simonelli: Turning to slide nine, we are focused on executing our strategy over our free time horizons. In the first Horizon, we're focused on unlocking the full potential of Baker Hughes, successfully transforming our business, and simplifying the way we work. We are committed to developing and commercializing our new energy portfolio while also evolving our digital offerings across both OFSE and IET. These strategic investments, along with better penetration across various underserved energy and industrial markets, will be the underpinning for driving peer-leading growth across the next two Time Horizons.

Speaker Change: So thank you very much everybody.

Lorenzo Simonelli: We play with a total gamut of solutions around LNG, and so when it comes to small, modular, onshore, offshore, stick, you know, floating, you come to us. And again, there are international opportunities. I think the benefit for us is that we play globally.

Speaker Change: Thank you. Thank you for your participation. You may now disconnect.

Speaker Change: Thank you. Thank you for your participation you may now disconnect.

Chase Mulvehill: Yes.

Lorenzo Simonelli: While our activities in LNG and New Energy have been the focus for investors in recent years, I'd like to take this opportunity to shine a spotlight on parts of the broader IET portfolio. In gas tech, almost 50% of our equipment business is focused on serving customers outside of LNG. Our turbine machinery equipment, generators, motors, and pumps have applications across multiple end markets, including upstream, midstream, refining, petrochemical, and various industrial end

Chase Mulvehill: [music].

Lorenzo Simonelli: There's still a lot of coal to displace out there. Shifting to the service opportunity for non-LNG equipment, you know, over the next five years, could you provide some color on the rough growth rate in your installed base of non-LNG equipment, just so we can get a sense of the associated growth and the service opportunities? So we haven't given a specific percentage, but your characterization is correct that there is a large opportunity. As you look at onshore and offshore from the FPSO perspective, then the gas pipelines, but then you also go to the transactional business.

Chase Mulvehill: Yes.

Chase Mulvehill: [music].

Lorenzo Simonelli: These segments have demonstrated exceptional growth since 2020, increasing by more than 50 percent, and we have good visibility on a number of growth opportunities in the coming year. Take the FPSO markets, for example; we have booked more than $1 billion of awards over the past two years and expect the market could see a further seven to nine FPSOs take FID each year out to the latter part of this decade. We are also seeing a lot of potential opportunities in onshore gas processing and pipelines as natural gas becomes an important aspect of the energy mix around the world, particularly in places like the Middle East and Southeast Asia.

Chase Mulvehill: Yes.

Chase Mulvehill: [music].

Lorenzo Simonelli: And when you think of industrial segments, fertilizers, petrochemicals, refineries, all of this goes to the transactional side of services. And as we mentioned, one of the paths to the 20% EBITDA for IET is also new service solutions and digital offerings. There's a tremendous amount of opportunity as we continue to expand across the balance of plant, as we look to our cordon solutions being implemented. And we're already seeing some success in the marketplace with non-traditional customers. And that's really a growth opportunity as we go forward, and it just is a further demonstration of diversity.

Chase Mulvehill: Okay.

Lorenzo Simonelli: The diversity of our end markets and the opportunity set is not confined to equipment, and GasTech Services; over 50% of our revenue has been generated from our transactional and upgrade services, which focus on maintaining our rotating equipment utilized in upstream, midstream, refining, and petrochemical sectors. Like LNG, which accounts for less than 40% of Gas Tech Services revenue, these non-LNG markets also have significant growth opportunities as our installed base expands significantly. Our industrial tech portfolio provides additional diversity into industrial markets like aerospace, automotive, steel, and electronics. In Industrial Solutions, we leverage our digital technology to monitor and maintain critical equipment.

Lorenzo Simonelli: Diversity and versatility of the IET portfolio. Thank you. Thanks, Scott. Thank you. One moment for questions. Our next question comes from Marc Bianchi with TD Cowan. You may proceed.

Operator: Hey, thanks. I was curious if you could talk a little bit more about the LNG award expectation that's embedded in the IET order guidance. So you did $5.6 billion of LNG equipment awards in 2023. What's the assumption for 2024, and is that what's contributing to the wide range of IET order guidance? Again Marc, going back to what I mentioned before, relative to LNG, we see that in 2024 there should be 65 MTPA of awards, and within our guidance, obviously, we've taken account of what we've booked in the past and what we anticipate to book this year, and we wouldn't go and actually start putting in orders that we haven't seen FID'd yet. So that's from a guidance perspective; we're banking on the projects being FID'd this year and coming through, and then if there's an opportunity, it's that there's an acceleration, as was discussed earlier with Scott relative to other projects that come into our order book but haven't FID'd yet.

Lorenzo Simonelli: We have a significant opportunity to extend this service beyond our critical equipment to the balance of plants and industrial products; we are focused on increasing market penetration in high-margin niche sectors. Finally, and most importantly, we are able to leverage core technologies like compressors, turbo expanders, and turbines across CTS's five targeted new energy markets. These are CCUS, Hydrogen, GeoFAML.

Chase Mulvehill: [music].

Lorenzo Simonelli: Clean Power and Emissions Management, providing additional long-term growth for IET. As you can see, we have a differentiated portfolio of technologies within IET that provides BakerHughes a unique opportunity to grow well beyond LNG. Before turning it over to Nancy, I would like to speak at a high level about our 2024 outlook.

Nancy K. Buese: In OFSE, we expect solid revenue growth led by international, with a year of strong incremental margins as we continue to focus on reshaping the OFSE cost structure in pursuit of 20% margins in 2025. In IET, conversion of our record gas tech equipment RPO will drive robust IET revenue growth, with margins improving despite increasing mix headwinds and putting us on a path toward our 20% margin target in 2026. With that, I'll turn the call over to Nancy.

Lorenzo Simonelli: So feel confident with the range that we've given and again, there's the growth outside of LNG that is significant as well, and I just want to remind you again. If you look at what we've laid out, this would be close to the second-year record that has already been here for that business, so I feel good about the momentum continuing as we go forward. Okay, maybe one for Nancy.

Operator: On the tax rate, you're guiding to a nice improvement here in 24, but it's still above where peers are. Where do you think you can get that tax rate to and over what timeframe? Yeah, it's a great question. It's something we're working hard on. There's a lot of history and baggage associated with the tax rate given the formation of the company and all of that.

Nancy K. Buese: Thanks, Lorenzo. I will begin on slide 11 with an overview of our consolidated results and then briefly talk about segment details before outlining our first quarter and full year 2024 outlook. We were very pleased with our fourth quarter and full year results. We made outstanding progress on all fronts during 2020. We've booked another year of record orders in IET, capitalized on market tailwinds to deliver robust revenue growth across both segments, realized the full benefit of our $150 million cost-out program, and continue to transform how we operate. For the fourth quarter, adjusted EBITDA of $1.09 billion came in above the midpoint of our guidance, due to stronger margin performance across both segments. For the year, EBITDA came in at the upper end of our original $3.6 to $3.8 billion guidance. Fourth Quarter Gap Operating Income was $651 million during the, and Adjusted operating income was $860,000. GAAP diluted earnings per share were 43 cents, excluding adjusting items.

But we are working, I would say, moving ourselves into somewhere in the low 20% over time. Can't give you exact specifics on how we get there, but I would say there's a lot of important work being done in the next year or two to really focus on that rate. It's very important to move the needle from an earnings perspective, so we're doing all the things to understand our attributes and really think about structuring as we move forward. We are in a lot of complex structures across the globe with some of our contracts and our customer base, but I can tell you this is something I'm personally very invested in, and we're working hard to bring that rate down over the coming years.

Nancy K. Buese: Earnings per share were $51,000, which resulted in 2023 adjusted EPS of $1,000. Total company orders of $6.9 billion during the quarter maintained strong momentum, highlighted by continued strength and IET. For the year, IET orders totaled $14.2 billion, which sets another record.

Nancy K. Buese: SSPS full-year orders were a robust $3.9 billion, which, as Lorenzo mentioned, marks our largest order intake for that business since 2014. Thanks to the sustained strength in orders, IET RPO of $29.9 billion ended the quarter at yet another record level, while OFSC RPO remained at a healthy $3.5 billion, up 37% year-over-year. These RPO levels provide exceptional revenue and earnings visibility over the coming years. Free cash flow outperformed our expectations, coming in at $633 million. For the full year, we generated over $2 billion of free cash, resulting in a conversion rate of 54% from adjusted EBITDA, which was above the high end of our expected rate. In 2024, we are targeting free cash flow conversion of 45% to 50% and expect. Turning to slide 12, our balance sheet remains During the fourth quarter, we extended our $3 billion revolving credit facility by four years, which now has a maturity date of November 2028.

Nancy K. Buese: And we also used available cash to pay down $650 million. Turning to capital allocation on slide 13, in 2023, we will return more than $1.3 billion to shareholders, equivalent to 65% of free cash. This included almost $800 million in dividends, where we have increased the quarterly dividend twice over the past five quarters. In addition, we repurchased $538 million of BakerHughes shares in 2020, including $321 million during the fourth. We are committed to returning 60% to 80% of free cash flow to investors and have a strong track record. Since the company was formed in 2017, we've now returned $10 billion to shareholders through dividends and by-payments. We plan to grow our dividend with increases driven by the structural earnings power and growth of the company. We will continue to utilize buybacks to reach our 60 to 80% target and will remain opportunistic on buybacks.

Operator: Great. Thanks so much. I'll turn it back. Thanks. And look, we're coming to time here. So, as we mentioned, very much looking forward to 2024, continuing the momentum of change within Baker Hughes and continuing to execute for our customers and also for the employee base and meeting what we've laid out from a guidance perspective.

Lorenzo Simonelli: So thank you very much, everybody. Thank you. Thank you for your participation. You may now disconnect. transcript Emily Beynon

Nancy K. Buese: Now I will walk you through the business segment results in more detail and provide our 2024 outlook, starting with Oilfield Services and Equipment on slide 14. The segment performed slightly above expectations, as OFS margins exceeded the 20% level, despite the softer U.S. landscape, where rig activity fell 4% during. SSPS orders of $654 million contributed to the highest order year since 2009.

Nancy K. Buese: With the offshore market expected to remain strong, we expect SSPS orders to be in the upper 50s, healthy levels. OFSC revenue in the quarter was $3.95 billion, up 11% year over year. Excluding SSPS, international revenue was up 2% sequentially, as seasonal declines in Europe were more than offset by strength in Latin America and Sub-Saharan Africa. North America revenue was down 3% sequentially as North American land declined during the quarter.

Nancy K. Buese: OFSC Ibadan, the quarter with $709 million, and up 16% year-over-year, while also slightly above our guidance midpoint of $705 million. OFSC Ibadan's EBITDA margin rate was 17.9%, increasing 99 basis points sequentially and 79 basis points year-over-year. SSPS margins significantly improved year over year, increasing by 300 basis points to just over, driven by improved execution and commercial. Now turning to industrial and energy technology on the slide. This segment also performed above expectations during the quarter due to a better-than-expected gas price. IET orders were $3 billion, and they included more than $800 million of LNG. Full year LNG equipment orders were approximately five. Orders in CTS, which now comprises IET's new energy business, increased to $123 million in the fourth quarter, about 80% of these orders representing projects across the Clean Power and Emissions Management IETRPO ended the quarter at $29.9 billion, up 4%. Gas Tech Equipment RPO was $12.1 billion. GasTech Services RPO was $14.8 billion and included more than $1.1 billion of newly signed CSAs. Gas Tech Equipment's Book to Bill was 1.1 times. 10th consecutive quarter. Turning to slide 16.

Nancy K. Buese: IET revenue for the quarter was $2.9 billion, up 24% versus the prior year, led by Gas Tech Equipment growth that was up more than 40% year-over-year driven by the execution of projects. IET EBITDA was $463 million, up 8% year over year and coming in above our guidance midpoint of $463 million. David Dammarjian was 16.1%, down 233 basis points year over year, as solid improvement in gas tech equipment margin was offset by mix and higher R&D spend related to our new energy. In 2023, IET R&D spending increased by approximately $70 million as we continue to advance our new energy investment, as well as invest in other IEDs. Turning to slide seven.

Nancy K. Buese: Before detailing our outlook, I'd like to provide an update on our business transformation activities and the path that lies ahead in unlocking the full potential of. Over the course of the past 18 months, the business has undertaken significant structural changes that delivered over $150 million in analyzed revenue, providing sustainable benefits across the organization. However, there is still more to do as we continue our transformation. Our focus is on operational excellence and continuous improvement in all that we do. Early this year, we launched actions in OFSE to remove duplication and drive more cost efficiency across. These measures resulted in additional restructuring charges during the fourth quarter, with these changes being implemented during the first half of 2024. These charges are almost entirely related to severance costs.

Nancy K. Buese: It's important to note that these discrete OFSC actions will drive margin upside into the back half of the year and put the segment on a clear path to achieve 20% margin. As we continue our transformation work in 2024, we continue to focus on eliminating duplication, remaining focused on execution, and listening to our customers while ensuring the company is set up for success in the back half of the year. In 2023, we laid the groundwork for improved execution, accountability, and transparency; we will draw on those foundational aspects to evolve. We've begun the work of synchronizing many diverse systems and working towards efficient and streamlined processes and reporting. These efforts will allow us efficiency gains, improve data, all oriented towards the goal of structural margin. Another part of our transformation journey is centered around our approach to customers and meeting their needs. As we've highlighted, customers are increasingly looking for integrated solutions as they reduce the emissions footprint of their operations. It is critical that our OFSC and IET commercial teams collaborate and respond to these customers.

Nancy K. Buese: Driven by this developing customer trend, we see an opportunity for greater collaboration across the Baker Hughes organization, which will be a vitally important factor in unlocking the full commercial potential of our unique and differentiated service and technology. Next, I'd like to update you on our outlook for the two business segments, which are detail and sliding. Overall, the outlook remains strong for both OFSC and IE, with tailwinds expected to persist across each business in spite of macro. This will be complemented by continued operational enhancements driving sustained improvement and backlog execution, and Marjan Upside as we pursue our 20% margin target across. Baker Hughes. We expect first quarter revenue to be between 6.1 billion dollars and EBITDA between $880 and $950. For IET, we expect first-quarter results to reflect seasonal declines in both gas tech and industrial technology.

Nancy K. Buese: However, due to improved linearity, we expect GASTEC sequential declines to be less pronounced than prior. Overall, for IET, we expect first-quarter revenue between $2.4 and $2.65 billion and EBITDA between $340 and $380 million. The major factors driving this range will be the pace of backlog conversion in gas tech and the impact of any aeroderivative supply chain tightening. For OFSE, we expect first quarter results to reflect the typical seasonal decline in international revenues, as well as a slow start across U.S. economies.

Nancy K. Buese: We therefore expect first quarter OFSC revenue between $3.7 and $3.95 billion, and EBITDA between $630 and $670 billion. Factors driving this range include the pacing of 2024 EMP budgets, SSPS backlog conversions, Realization of Further Cost-Out Initiatives, and Winter Weather in the Northern. Turning to our full year outlook. For the full year 2024, we expect Baker Hughes revenue to be between $26.5 and $28.5 billion and EBITDA between $4.1 and $4.5 billion. In addition, we expect total company new energy orders to be between $800 million and $1 billion, which would amount to more than tripling new energy orders since 2020. We expect IET orders to remain at robust levels.

Nancy K. Buese: We anticipate a range between $11.5 to $13.5 million, driven by strong momentum across all aspects of the IET portfolio. And importantly, we expect a noticeable increase in non-LNG gas technology. As a result of this continued momentum and exceptional order performance over the last two years, we expect full-year IET revenue between $10.75 and $11.75 billion, and EBITDA between $1.65 and $1.85 billion. For OFSE, we forecast full-year revenue of $1.75 billion. $15.75 and $16.75 billion, and EBITDA between $2.8 and $3 billion, as we expect softness in North American land to more than offset continued strength across international borders.

Nancy K. Buese: In summary, 2023 was a strong year of execution for Big, where we delivered results near the high end of our original guidance range and set records for all our primary. In 2024, we expect double-digit EBITDA growth for the fourth consecutive year as we remain focused on economic growth, driving further operational improvement, and capitalizing on market tailwinds with our unique solution. Lastly, we are intensely focused on achieving the guidance set for 2024 and our 20% EBITDA margin targets for OFSC in 2025 and IET in 2021. And while 20% segment margins are important intermediate goals, we will continue to take transformative actions to exceed them. Overall, we are proud of the progress demonstrated by our 2023 results and remain very excited about the future. I turn the call back over to Nancy. Thank you.

Lorenzo Simonelli: As you can see from our strong 2023 results and the exceptionally strong margin improvement illustrated on slide 20, Baker Hughes is on its way to becoming a leaner and more efficient energy technology company. We continue to carefully execute our plan to drive margins meaningfully higher. Put simply, we remain relentless in transforming the way we operate. We also have a unique technology portfolio that will drive growth across all three of our horizons, irrespective of the pace of the energy transition. In addition, our versatile OFSE and IET portfolios provide significant growth opportunities across underserved and mainstream markets. It's this broad-based portfolio that underpins our 17% EBITDA compounded annual growth rate from 2020 through 2023. Given our balanced portfolio, untapped market opportunities, and overhauled cost structure, Baker Hughes is becoming less cyclical in nature and therefore should generate more durable earnings and free cash flow across cycles. Finally, while on this journey, we remain committed to our employees, customers, and shareholders as we continue to push Baker Hughes forward. With that, I'll turn the call back over to Chase.

Chase Mulvehill: Thanks, Lorenzo. Operator, let's open the call for questions. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Operator: One moment for questions. Our first question comes from James West with Evercore ISI. You may proceed. Hey, good morning, Lorenzo and Nancy.

James West: Hi James. So, Lorenzo, there's a lot of versatility in the IET portfolio that you guys have put together here, and you talked a lot about it in your remarks, but I'm curious to know, you know, which of the end markets today do you see the biggest opportunities for growth? Yeah, definitely.

Lorenzo Simonelli: And, you know, we've said it before, and we wanted to state it more clearly. Our IAT business has a very expansive portfolio of equipment and solutions that really play across many different end markets, including upstream, midstream, refining, petrochemical, and a number of industrial end markets, including aerospace and automotive. And we think that's been underappreciated today, and largely because there's been a large focus, which is quite reasonably on LNG and new energy, and we're very proud of our LNG business. We've worked hard over the years to build it, and we've got differentiated solutions, and we're going to be committed to continue being the market leader for liquefaction solutions across all of the LNG markets. And we think that LNG is still very positive with LNG awards over the next two to three years and also reaching the market installed capacity of 800 MTPA by 2030. But our gas tech equipment is also more than that.

Lorenzo Simonelli: We've demonstrated exceptional growth since 2020, increasing by more than 50% in other areas, and we've got good visibility on a number of growth opportunities in the coming years. A couple of examples, as you look at onshore and offshore production, OOP, you know, we've got a leadership position in FPSOs, and we see another seven to nine FPSOs over the course of the next few years. In onshore production, you know, we're seeing the emergence of a number of opportunities associated with pipelines and the processing of gas, in particular, that continues to grow in places like the Middle East, and also exposure to petrochemicals, which is ultimately anticipated to continue to grow. And we've got the new Nova class of turbines, compressors, valves, pumps, gears, and digital solutions. Put all together, it boils down to an exceptionally versatile IET portfolio that provides us with significant growth opportunities as we serve many of the strengthening underserved markets in the coming years. Right, great. That's great!

James West: I think there's huge opportunities there. And then maybe a follow up for me on the New Energies business, clearly orders, you know, ramping, you know, significantly 400 to 750 million. And I heard Nancy's guidance for this year as being, you know, continued growth there. Which parts of the New Energies portfolio, kind of a similar question to the IET broadly, but do you see the most potential near-term growth? Where's the biggest demand today? Definitely

Lorenzo Simonelli: We've been very pleased with the progress of new energy orders, and you saw last year that we continue to take up our guidance on new energy. And as you correctly stated, we've given guidance for this year relative to the 800 and also the billion, and we really think that this growth will continue going forward. The markets are growing and maturing across both IET and OFSC portfolio technologies. And when you look at it, it really is a sequence of carbon capture technologies that we have in our portfolio, compact carbon capture, and mosaic. As you look at direct air capture, you see the partnership we have with NetPower supplying turbo expanders. And also, as you look at hydrogen, and you've seen the growing emphasis on hydrogen in hard-to-abate areas, but also geothermal, and looking at emissions management and deflaring.

Lorenzo Simonelli: And I think, again, as a consequence of some of the discussions at COP 28, there's a clear move towards accelerating some of these as we continue to move forward. And, you know, our total addressable market, we've mentioned it before, for new energy in 2030 is between 60 to 70 billion dollars across the five major markets that we serve. And we believe we can book six to seven billion dollars of new energy orders by 2030. So, again, it's something that we see as a growing area of the business and feel confident about that six to seven billion dollars of new energy orders by 2030.

Luke Lemoine: Perfect. Thanks, Lindsay. Thanks, Chase. Thank you. One moment for questions. Our next question comes from Luke Lemoine with Piper Sandler. You may proceed.

Q4 2023 Baker Hughes Co Earnings Call

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