Q1 2024 Baker Hughes Company Earnings Call
Okay.
Speaker Change: Good day, ladies and gentlemen, and welcome to the Baker Hughes Company first quarter 2024 earnings call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: 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, Sir you may begin.
Chase Mulvehill: Thank you good morning, everyone and welcome to Baker Hughes first quarter earnings Conference call here with me are chairman and CEO, Lorenzo Simonelli, and our CFO Nancy BZ <unk>.
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 be found on our investor website.
Chase Mulvehill: As a reminder, during the course of this conference call. We are providing forward looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please.
Chase Mulvehill: Please review, our SEC filings and web site for the 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'll turn the call over to Lorenzo.
Lorenzo Simonelli: Thank you Traci.
Lorenzo Simonelli: Good morning, everyone and thanks for joining us.
Lorenzo Simonelli: I'm pleased with our solid first quarter results as we continue to build on the momentum from last year and shape our company.
Lorenzo Simonelli: The resilience of our order book and margin progress in both FSC and IEP.
Lorenzo Simonelli: Put us on a path towards achieving our full year guidance and overcoming external volatility.
Lorenzo Simonelli: Overall, EBITDA margins continued to demonstrate strong year over year growth, increasing by 100 basis points.
Lorenzo Simonelli: The margin upside was attributed to <unk>, where both gas tech equipment and industrial Tech demonstrated strong performance.
Lorenzo Simonelli: As highlighted on slide four we've had a positive start to the air on the order front.
Lorenzo Simonelli: This is particularly evident in Iot, where we booked over $2 $9 billion of orders during the quarter, including large awards from Aramco to the master gas system free.
Lorenzo Simonelli: And black and veatch for Cedar LNG.
Lorenzo Simonelli: LNG equipment orders totaled almost $200 million during the quarter.
Lorenzo Simonelli: Excluding LNG equipment, our IHT business booked more than $2 $7 billion of orders the second highest of any quarter since the 2017 merger.
Lorenzo Simonelli: This was attributed to non LNG gas tech equipment orders more than tripling from prior year levels.
Operator: Good morning, ladies and gentlemen, and welcome to the Baker Hughes Company First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode.
Lorenzo Simonelli: This really underscores the breath and vast utility of our <unk> portfolio.
Operator: 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.
Lorenzo Simonelli: In OSP, we received two significant contract awards from Petrobras.
Lorenzo Simonelli: With the SaaS for integrated well construction services in the <unk> field.
Lorenzo Simonelli: Baker Hughes has been working closely with Petrobras on the field development for many years, leveraging our expertise across both OFC and.
Lorenzo Simonelli: Trading the power of our combined portfolio.
Lorenzo Simonelli: We have previously received awards that include Cabo machinery equipment on 10, <unk> for the <unk> field and multiple OFC service contracts.
Chase Mulvehill: Thank you. Good morning everyone, and welcome to Baker Hughes' first quarter earnings conference call. Here with me are 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 be found on our investor website. As a reminder, during the course of this conference call, we are making forward-looking statements.
Lorenzo Simonelli: The second Petrobras contract awarded during the quarter was to supply electrical submersible pumps variable speed drives and sand separation across 450 wells to help a customer in Brazil optimize efficiency reliability and sustainability of its onshore operation.
Chase Mulvehill: These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for the factors that could cause actual results to differ materially. Reconciliations of operating income and other GAAP to non-GAAP measures can be found in our earnings release. With that, I'll turn the call over to Lorenzo.
Lorenzo Simonelli: And the Baja Tara cluster.
Lorenzo Simonelli: We delivered strong first quarter operating results.
Lorenzo Simonelli: Highlighted by 50% year over year EPS growth.
Lorenzo Simonelli: Importantly, we exceeded the midpoint of our EBITDA margin guidance.
Lorenzo Simonelli: Thank you, Chase. Good morning, everyone, and thanks for joining us. We are pleased with our solid first quarter results as we continue to build on the momentum from last year and shape our campaign. The resilience of our order book and margin progress in both OFSC and IET put us on a path toward achieving our full-year guidance and overcoming external volatility. Overall, EBITDA margins continue to demonstrate strong year-over-year growth, increasing by 100 basis points.
Lorenzo Simonelli: Driven by outstanding operational performance in IEP.
Lorenzo Simonelli: We booked $239 million of new energy orders and generated over $500 million of free cash flow.
Lorenzo Simonelli: As mentioned.
Lorenzo Simonelli: <unk> got off to a strong start to the year.
Lorenzo Simonelli: Compared to the first quarter of 2023.
Lorenzo Simonelli: EBITDA increased by 30% the best quarterly year over year growth rate in three years and represents 80 basis points of EBITDA margin improvement year on year.
Lorenzo Simonelli: The margin upside was attributed to IET, where both gas tech equipment and industrial tech demonstrated strong performance. As highlighted on slide four, we've had a positive start to the year on the orders front. This is particularly evident in IAT, where we booked over $2.9 billion of orders during the quarter, including large awards from Aramco for the Master Gas System III and Black & Veatch for Cedar LNG. LNG equipment orders totaled almost $200 million during the quarter.
Lorenzo Simonelli: This was driven by the conversion of higher margin equipment backlog.
Lorenzo Simonelli: Continued margin expansion in our industrial tech businesses, and further efficiency and cost optimization efforts by the team.
Lorenzo Simonelli: Partially offset by continued tightness in the gas tax services supply chain.
Lorenzo Simonelli: In our FSC, we continued to make solid progress on the margin front, even with some lower offshore activity during the quarter.
Lorenzo Simonelli: Segment EBITDA margins were in line with guidance and improved 80 basis points compared to last year.
Lorenzo Simonelli: Excluding LNG equipment, our IET business booked more than $2.7 billion in orders, the second highest of any quarter since the 2017 merger. This was attributed to non-LNG gas tech equipment orders more than tripling from prior year levels. This really underscores the breadth and versatility of our IET portfolio. In OFSE, we received two significant contract awards from Petrobras for the FAFSA Integrated Well Construction Services in the Bousia Field.
Lorenzo Simonelli: Supported by year over year, Oss incrementals of nearly 40%.
Lorenzo Simonelli: On the activity front, we experienced some delays in rigs coming out of maintenance in both Mexico, and the north sea due to tight supply chains and busy shipyards.
Lorenzo Simonelli: We expect these are only timing delays and see no impact to our overall outlook for OFC This year.
Lorenzo Simonelli: In line with our previous commitments, we continue to enhance returns to our shareholders.
Lorenzo Simonelli: During the quarter, we increased our quarterly dividend by one penny to 'twenty one.
Lorenzo Simonelli: Baker Hughes has been working closely with Petrobras on the field development for many years, leveraging our expertise across both OFSC and IET, demonstrating the power of our combined portfolio. We have previously received awards that include cargo machinery equipment on ten FPSOs for the Buseo field and multiple OFSC service contracts. The second Petrobras contract awarded during the quarter was to supply electrical submersible pumps, variable speed drives, and sand separation across 450 wells to help a customer in Brazil optimize efficiency, reliability, and sustainability of its onshore operations in the Baja Terra cluster.
Lorenzo Simonelli: Which represents an 11% increase year on year.
Lorenzo Simonelli: We repurchased $158 million of sheds.
Lorenzo Simonelli: And remain firmly on track to deliver 60% to 80% of free cash flow to shareholders.
Lorenzo Simonelli: Turning to the macro on slide five.
Lorenzo Simonelli: Since bottoming in December of last year oil prices have rallied significantly.
Lorenzo Simonelli: A resilient global economy.
Lorenzo Simonelli: Steeper than expected seasonal decline in U S oil production to start the year and the roll forward of OPEC plus production cuts have helped to keep global oil markets more balanced.
Lorenzo Simonelli: OPEC plus timing on restarting idled oil production the trajectory of global economic activity and the geopolitical risk will be key factors in determining the oil price path for the remainder of the year.
Lorenzo Simonelli: We delivered strong first-quarter operating results, highlighted by 50% year-over-year EPS growth. Importantly, we exceeded the midpoint of our EBITDA margin guidance, driven by outstanding operational performance in IAT. We booked $239 million of new energy orders and generated over $500 million of free cash flow.
Lorenzo Simonelli: We reiterate our 2020 for North America, and international drilling and completion spending outlooks as we see potential offsets to higher oil prices.
Lorenzo Simonelli: In North America, our outlook remains for a year over year decline in the low to mid single digit range.
Lorenzo Simonelli: As mentioned, IET got off to a strong start to the year. Compared to the first quarter of 2023, IET's EBITDA increased by 30 percent, the best quarterly year-over-year growth rate in three years, and represents 80 basis points of EBITDA margin improvement year-on-year. This was driven by the conversion of higher-margin equipment backlogs, continued margin expansion in our industrial tech businesses, and further efficiency and cost optimization efforts by the team, partially offset by continued tightness in the gas tech services supply chain.
Lorenzo Simonelli: We continue to anticipate declining activity in U S gas basins, partially offsetting modest improvement in oil activity during the second half of the year.
Lorenzo Simonelli: Across international markets, we maintain our expectations for high single digit growth.
Lorenzo Simonelli: This contemplates extended OPEC plus cuts through the end of the year as well as any potential timing differences between the transitioning of Briggs from oil to gas in Saudi Arabia.
Looking out beyond 2024, we expect continued upstream spending growth. Despite the recent MSC target reduction in Saudi Arabia.
Lorenzo Simonelli: Though at a more moderate pace than we have experienced in recent years.
Lorenzo Simonelli: In OFSC, we continue to make solid progress on the margin front, even with some lower offshore activity during the quarter. Segment EBITDA margins were in line with guidance and improved 80 basis points compared to last year. Supported by year-over-year OFS incrementals of nearly 40%. On the activity front, we experienced some delays in rigs coming out of maintenance in both Mexico and the North Sea due to tight supply chains and busy shipyards. We expect these are only timing delays and see no impact on our overall outlook for OFSC this year.
Lorenzo Simonelli: We expect growth to be led by offshore markets in Latin America, and West Africa, as well as the middle East.
Lorenzo Simonelli: As we move into the next phase of the upstream spending cycle, we anticipate increasing focus on optimizing production from existing assets.
Lorenzo Simonelli: At our annual meeting in January we launched the mature asset solutions and emerging business that maximizes the health and value of our customers mature fields.
Lorenzo Simonelli: It leverages, our decades of experience deep domain knowledge and industry, leading technologies, including Lucifer and coveted franchises in both upstream chemicals and artificial lift.
Lorenzo Simonelli: In line with our previous commitments, we continue to enhance returns to our shareholders. During the quarter, we increased our quarterly dividend by one penny to 21 cents, which represents an 11% increase year on year, repurchased $158 million of shares, and remain firmly on track to deliver 60 to 80% of free cash flow to shareholders. Turning to the macro on slide five.
Lorenzo Simonelli: We continue to experience strong customer demand for <unk> as this differentiated digital solution is driving next level efficiencies for our customers through automation digital optimization and workflow orchestration.
Lorenzo Simonelli: Turning to global natural gas and LNG on slide six.
Lorenzo Simonelli: The long term demand outlook for both remains very encouraging.
Lorenzo Simonelli: Since bottoming in December of last year, oil prices have rallied significantly. A Resilient Global Economy, a deeper-than-expected seasonal decline in U.S. oil production to start the year, and the roll-forward of OPEC-plus production cuts have helped to keep global oil markets more balanced. OPEP plus timing on restarting idled oil production, the trajectory of global economic activity, and geopolitical risk will be key factors in determining the oil price path for the remainder of the year.
Lorenzo Simonelli: Through 2014, we expect natural gas demand to grow by almost 20%, representing a 1% CAGR driven growth and underlying energy demand and the desire to drive towards a net zero energy ecosystem.
Lorenzo Simonelli: Looking at non OECD Asia coal still accounts for about 60% of power generation, which is three to four times the level utilized in the United States and Europe.
Lorenzo Simonelli: As this region increasingly focuses on reducing and abating emissions, we expect coal to gas substitution to be multivalent <unk>, helping to drive a mid single digit CAC over for both India and China in natural gas demand through 2014, while the rest of Asia will grow at solid low single digit.
Lorenzo Simonelli: We reiterate our 2024 North America and international drilling and completion spending outlooks as we see potential offsets to higher oil prices. In North America, our outlook remains for a year-over-year decline in the low- to mid-single-digit range.
Lorenzo Simonelli: <unk>.
Lorenzo Simonelli: Strong underlying natural gas demand was robust growth in LNG over the coming decades.
Lorenzo Simonelli: We continue to anticipate declining activity in U.S. gas basins, partially offsetting modest improvement in oil activity during the second half of the year. Across international markets, we maintain our expectations for high single-digit growth. This contemplates extended OPEC plus cuts through the end of the year, as well as any potential timing differences between the transitioning of rigs from oil to gas in Saudi Arabia. Looking out beyond 2024, we expect continued upstream spending growth despite the recent MSC target reduction in Saudi Arabia, although at a more moderate pace than we have experienced in recent years. We expect growth to be led by offshore markets in Latin America and West Africa, as well as the Middle East.
Lorenzo Simonelli: Through the end of this decade, we expect demand to increase by mid single digits annually.
Lorenzo Simonelli: We believe this will support an installed nameplate capacity of 800 <unk> by <unk>.
Lorenzo Simonelli: Looking out to 2040, we expect LNG demand.
Lorenzo Simonelli: Growth to continue requiring fabric capacity additions beyond 800 Tpa.
Lorenzo Simonelli: While there could be periods of price volatility driven by temporary dislocations in supply and demand over this time period, we see these as opportunities for accelerated demand creation.
Lorenzo Simonelli: LNG consumers, who tend to be very price sensitive typically respond to lower prices with stronger demand.
Lorenzo Simonelli: As we move into the next phase of the upstream spending cycle, we anticipate an increasing focus on optimizing production from existing assets. At our annual meeting in January, we launched Mature Asset Solutions, an emerging business that maximizes the health and value of our customers' mature fields. It leverages our decades of experience, deep domain knowledge, and industry-leading technologies, including LUCIPA and coveted franchises in both upstream chemicals and artificial lift. We continue to experience strong customer demand for Lucipa as this differentiated digital solution is driving next-level efficiencies for our customers through automation, digital optimization, and workflow orchestration.
Lorenzo Simonelli: We are seeing evidence of this recently global LNG demand is up 4% year to date against the backdrop of an approximate 50% decline in LNG prices over the same period.
Lorenzo Simonelli: As shown on slide seven we expect global LNG <unk> of about 100 and Tpa over the next three years.
Lorenzo Simonelli: This view supported by customer dialogue and our internal LNG demand expectations would result in our installed capacity increasing by 70%.
Lorenzo Simonelli: This growing installed base brings significant opportunities for Baker Hughes across the lifecycle of the equipment.
Lorenzo Simonelli: Like our industrial peers are drastic businesses typically generates more profitability on the less cyclical after market services.
Lorenzo Simonelli: Turning to global natural gas and LNG, on slide six, the long-term demand outlook for both remains very encouraging. Through 2040, we expect natural gas demand to grow by almost 20%, representing a 1% cargo-driven growth in underlying energy demand and the desire to drive towards a net zero energy ecosystem. Looking at non-OECD Asia, coal still accounts for about 60% of power generation, which is three to four times the level utilized in the United States and Europe.
Lorenzo Simonelli: For LNG equipment, specifically this accounted for less than 10% of our total company EBITDA last year.
Lorenzo Simonelli: On the new energy front, we continued to see good momentum with a number of positive developments across our five focus areas of Ccs hydrogen.
Lorenzo Simonelli: Formal clean power and emissions abatement.
Lorenzo Simonelli: As mentioned, we booked $239 million of new energy orders during the first quarter, including a climate Technology Solutions award from snap for compression trains driven by hydrogen ready Novo LTE 12 turbines.
Lorenzo Simonelli: As this region increasingly focuses on reducing and abating emissions, we expect coal-to-gas substitution to be more pervasive, helping to drive a mid-single-digit CAGR for both India and China's natural gas demand through 2040, while the rest of Asia will grow at solid low single-digit rates. Strong underlying natural gas demand will spur robust growth in LNG over the coming decades. Through the end of this decade, we expect demand to increase by mid-single digits annually, and we believe this will support an installed nameplate capacity of 800 MTPA by 2030.
Lorenzo Simonelli: This equipment will support a new gas compressor station in Italy that will eventually transport additional hydrocarbons from Azerbaijan Africa, and the eastern Mediterranean region to Northern Europe.
Lorenzo Simonelli: Cts also secured an order to supply ICL zero emissions integrated compressor technology to be deployed by total energies for our process plant and the rock on what's a region of Argentina.
Lorenzo Simonelli: We continue to expand our relationship with our key middle Eastern Industrial company, securing a cts order for the refurbishment of steam turbines and centrifugal compressor trains.
Lorenzo Simonelli: This upgrade drives process efficiency improvement and 5% estimated cotr emissions reduction as part of the customer's energy transition roadmap.
Lorenzo Simonelli: Looking out to 2040, we expect LNG demand and growth to continue, requiring further capacity additions beyond 800 mTPA. While there could be periods of price volatility driven by temporary dislocations in supply and demand over this time period, we see these as opportunities for accelerated demand creation. LNG consumers, who tend to be very price-sensitive, typically respond to lower prices with stronger demand. We have seen evidence of this recently. Global LNG demand is up 4% year-to-date against the backdrop of an approximate 50% decline in LNG prices over the same period.
Lorenzo Simonelli: As we look out across the rest of the year, we remain confident in achieving new energy orders between $800 million and $1 billion.
Lorenzo Simonelli: Which would amount to a tripling of new energy orders since 2021.
Lorenzo Simonelli: Longer term, we continue to be encouraged by increasing opportunities to support growing energy demand and decarbonization efforts.
Lorenzo Simonelli: Giving us confidence in achieving our 6% to $7 billion, new LNG orders target in 2030.
Lorenzo Simonelli: Turning to slide eight I want.
Lorenzo Simonelli: Wanted to take a moment to reflect on some of the emerging themes within the energy sector.
Lorenzo Simonelli: As shown on slide seven, we expect global LNGF IDs of about 100 MTPA over the next three years. This view, supported by customer dialogue and our internal LNG demand expectations, would result in our installed capacity increasing by 70%. Its growing installed base brings significant opportunities for Baker Hughes across the life cycle of the equipment. Like our industrial peers, our gas tech businesses typically generate more profitability on the less cyclical aftermarket services. For LNG equipment specifically, this accounted for less than 10% of our total company EBITDA last year.
Lorenzo Simonelli: It has been a busy quarter with several industry events, including our own annual meeting in Florence, where we hosted over 2000 customers partners and industry leaders in January.
Lorenzo Simonelli: Firstly, it is becoming clearer just how complex the undertaking is to transition the worlds energy ecosystem.
Lorenzo Simonelli: This complexity is driving a slower than expected expansion of renewable energy capacity and leading to record levels of coal demand.
Consequently, we are seeing more pragmatism towards a pathway fatigue carbonization.
Lorenzo Simonelli: We are growing agency to affect this trend there is mounting consensus that there is no possible routes to decarbonize, the energy system without driving greater efficiency and significantly increasing gases weighting within the overall energy mix.
Lorenzo Simonelli: On the new energy front, we continue to see good momentum with a number of positive developments across our five focus areas of CCUS, hydrogen, geothermal, clean power, and the emissions debate. As mentioned, we booked $239 million in new energy orders during the first quarter, including a Climate Technology Solutions Award from SNAM for compression trains driven by hydrogen-ready Nova LT12 turbines. This equipment will support a new gas compressor station in Italy that will eventually transport additional hydrocarbons from Azerbaijan, Africa, and the eastern Mediterranean region to northern Europe.
Lorenzo Simonelli: Energy provider space, the multifaceted challenge of providing secure sustainable and affordable energy against the backdrop of increasing energy demand.
Lorenzo Simonelli: Gas is abundant lower emission low cost and the speed to scale is unrivaled.
Lorenzo Simonelli: This is the age of gas.
Lorenzo Simonelli: Whether it be the super majors, the <unk> or the independent companies.
Lorenzo Simonelli: All of our customers are messaging that they plan to increase their exposure to gas in the coming years.
Lorenzo Simonelli: Baker Hughes is extremely well positioned to facilitate this through our upstream capabilities and OFC and expertise in LNG and gas infrastructure and IEP.
Lorenzo Simonelli: CTS also secured an order to supply ICL Zero Emissions Integrated Compressor technology to be deployed by TotalEnergies for a process plant in the Vaca Muerto region of Argentina. We continue to expand our relationship with a key Middle Eastern industrial company, securing a CTS order for the refurbishment of steam turbines and centrifugal compressor trains. This upgrade drives process efficiency improvement and a 5% estimated CO2 emissions reduction as part of the customer's energy transition roadmap.
Lorenzo Simonelli: An excellent example of this is the reallocation of capital and Saudi Arabia, primarily towards gas.
Lorenzo Simonelli: Following the recent announcement to not pursue an increase to its maximum sustainable capacity.
Lorenzo Simonelli: The country's shifting focus towards natural gas, where production is now expected to increase by more than 60% from <unk> will require significant investment and gas infrastructure.
Lorenzo Simonelli: This represents a sizable opportunity for our business as highlighted by our <unk> Award.
Lorenzo Simonelli: As we look out across the rest of the year, we remain confident in achieving new energy orders between $800 million and $1 billion, which would amount to a tripling of new energy orders since 2021. In the longer term, we continue to be encouraged by increasing opportunities to support growing energy demand and decarbonization efforts, giving us confidence in achieving our $6 to $7 billion new energy orders target in 2030. Turning to slide eight, I wanted to take a moment to reflect on some of the emerging themes within the energy sector.
Lorenzo Simonelli: Considering this transition towards SaaS as well as increasing investments in new energy and chemicals we.
Lorenzo Simonelli: We see this announcement as a long term net positive for Baker Hughes, given our exposure to all free markets.
Lorenzo Simonelli: In addition, we are seeing a number of gas infrastructure projects emerge around the world.
Lorenzo Simonelli: These midstream opportunities along with solid first quarter bookings give us confidence that non LNG gas deck equipment orders will be up more than 50% this year.
Lorenzo Simonelli: Okay.
Lorenzo Simonelli: It has been a busy quarter with several industry events, including our own annual meeting in Florence, where we hosted over 2,000 customers, partners, and industry leaders in January. Firstly, it is becoming clearer just how complex the undertaking is to transition the world's energy ecosystem. This complexity is driving a slower than expected expansion of renewable energy capacity and leading to record levels of coal demand.
Adding further impetus to this growth theme is an increasing demand for artificial intelligence, which is expected to be a key enabler in driving significant productivity and efficiency improvements across the entire energy value chain and could enhance decarbonization efforts.
Lorenzo Simonelli: At Baker Hughes, we have been utilizing AI within our digital solutions for a number of years.
Lorenzo Simonelli: We continue to make great progress with our Lucifer production optimization solution.
Lorenzo Simonelli: Consequently, we are seeing more pragmatism towards a pathway for decarbonization. With growing urgency to affect this trend, there is mounting consensus that there is no possible route to decarbonize the energy system without driving greater efficiency and significantly increasing gas weighting within the overall energy mix. Energy providers face the multifaceted challenge of providing secure, sustainable, and affordable energy against the backdrop of increasing energy demand. Gas is abundant, has lower emissions, is low cost, and the speed to scale is unrivaled. This is the Age of Gap.
Lorenzo Simonelli: I see and drive greater efficiencies and reliability without coordinate solutions platform in IEP.
Lorenzo Simonelli: Which both leverage AI.
Lorenzo Simonelli: The efficiency and productivity benefits of AI will be balanced by the increased need for energy intensive data centers.
Lorenzo Simonelli: AI will likely drive substantial electrical load growth, therefore, increasing both the challenge and opportunity to provide clean reliable and firm power solutions.
Lorenzo Simonelli: Given the requirement for continuous power supply the demand for distributed power systems will be substantial.
With gas the likely dominant fuel source.
Lorenzo Simonelli: Baker Hughes is again well positioned to participate in this market through our clean power solutions, particularly on Nova LTE fleet of <unk>, which can run on natural gas and hydrogen.
Lorenzo Simonelli: Whether it be the supermajors, the NOCs, or the independent companies, all of our customers are messaging that they plan to increase their exposure to gas in the coming years. Baker Hughes is extremely well positioned to facilitate this through our upstream capabilities in OFSE and expertise in LNG and gas infrastructure in IET. An excellent example of this is the reallocation of capital in Saudi Arabia, primarily towards gas.
Lorenzo Simonelli: As the market scales.
Lorenzo Simonelli: <unk> of data centers and talent needs will also likely growth, which would benefit our largest scale solutions that include steam turbines for <unk> solutions and net power.
Lorenzo Simonelli: With the growing realization that we need and all of the above approach to the energy transition.
Lorenzo Simonelli: Following the recent announcement not to pursue an increase to its maximum sustainable capacity, the country's shifting focus towards natural gas, where production is now expected to increase by more than 60% through 2030, will require significant investment in gas infrastructure. This represents a sizable opportunity for our IET business, as highlighted by our MGS3 award. Considering this transition towards gas, as well as increasing investments in new energy and chemicals, we see this announcement as a long-term net positive for Baker Hughes, given our exposure to all free markets.
Lorenzo Simonelli: Our focus is shifting towards the emissions rather than the fuel source.
Lorenzo Simonelli: I have spoken about this important shift for several years now and we are pleased to see it taking hold and our customers' operations and policy initiatives.
Lorenzo Simonelli: The market's increasing alignment towards the view is supporting stronger momentum in particular for Ccs.
Lorenzo Simonelli: This is very encouraging to see and provides tailwind for our technology solutions that play across the entire <unk> value chain.
Lorenzo Simonelli: Specifically on the capture side, we continue to make progress across our portfolio, where we are developing a suite of solutions that have applications across various scales impurities of Sidoti.
Lorenzo Simonelli: In addition, we are seeing a number of gas infrastructure projects emerge around the world. These midstream opportunities, along with solid first quarter bookings, give us confidence that non-LNG gas tech equipment orders will be up more than 50% this year. Adding further impetus to this growth theme is an increasing demand for artificial intelligence, which is expected to be a key enabler in driving significant productivity and efficiency improvements across the entire energy value chain and could enhance decarbonization efforts.
Lorenzo Simonelli: Complementing our capture portfolio after decades of experience, we havent Sidoti compression and storage.
Lorenzo Simonelli: <unk> two compression we have experienced a strong increase in demand both for offshore and onshore applications. While we are also involved in several <unk> storage projects.
Lorenzo Simonelli: In summary.
Lorenzo Simonelli: All of these themes play to the strengths of Baker Hughes and continued to heighten our conviction in our strategy with.
Lorenzo Simonelli: With our expansive portfolio capabilities and solutions offerings, we are uniquely positioned to deliver value for our diverse set of energy and industrial customers.
Lorenzo Simonelli: At Baker Hughes, we have been utilizing AI within our digital solutions for a number of years. We continue to make great progress with our Lucipa production optimization solution in OFSC and drive greater efficiencies and reliability with our Cordent solutions platform in IET, which both leverage AI. However, the efficiency and productivity benefits of AI will be balanced by the increased need for energy-intensive data centers.
Lorenzo Simonelli: This is what differentiates Baker Hughes and enables us to deliver durable earnings and free cash flow across our free time horizons.
Lorenzo Simonelli: With that I'll turn the call over to Nancy.
Nancy: Thanks, Lorenzo I'll begin on slide 10, with an overview of our consolidated results and then speak to segment details before outlining our second quarter outlook.
Nancy: We're very pleased with our first quarter results above the midpoint of our EBITDA guidance orders remained solid as the diversity of Iets end markets continue to support a strong level of orders.
Lorenzo Simonelli: AI will likely drive substantial electrical load growth, increasing both the challenge and the opportunity to provide clean, reliable, and firm power solutions. Given the requirement for a continuous power supply, the demand for distributed power systems will be substantial, with gas the likely dominant fuel source. Baker Hughes is again well positioned to participate in this market through our clean power solutions, particularly our Nova LT fleet of turbines, which can run on natural gas and hydrogen.
Nancy: We continue to make progress on driving operational improvements across the business to enhance margins and returns highlighted by the consistent improvement in EBITDA margins and ROIC.
Nancy: We remain confident in our full year guidance that points to another strong year for Baker Hughes.
Nancy: Adjusted EBITDA of $943 million increased 21% year over year and came in above the midpoint of our guidance range, which was due to stronger performance in IEP.
Lorenzo Simonelli: As the market scales, the size of data centers and power needs will also likely grow, which would benefit our larger-scale solutions that include steam turbines for SMR solutions and net power. With the growing realization that we need an all-of-the-above approach to the energy transition, the focus is shifting towards emissions rather than fuel sources.
Nancy: First quarter GAAP operating income was $653 million.
Nancy: <unk> operating income was $660 million.
Nancy: GAAP diluted earnings per share were <unk> 45.
Nancy: Excluding adjusting items earnings per share were <unk> 43, an.
Nancy: An increase of 50% compared to the same quarter last year.
Nancy: Our adjusted tax rate continues to trend downwards declining to 29, 7% in the quarter as we continue to execute as planned.
Lorenzo Simonelli: I have spoken about this important shift for several years now, and we are pleased to see it taking hold in our customers' operations and policy initiatives. The market's increasing alignment towards this view is spawning stronger momentum, in particular for CCUS. This is very encouraging to see and provides tailwinds for our technology solutions that play across the entire CCUS value chain. Specifically, on the capture side, we continue to make progress across our portfolio, where we are developing a suite of solutions that have applications across various scales and purities of CO2. Complementing our capture portfolio are the decades of experience we have in CO2 compression and storage.
Nancy: As a reminder, we guided to a midpoint of 29, 5% in 2024 down from our average 2023 tax rate of approximately 33%.
Nancy: Corporate costs for the quarter were $88 million $2 million lower than our guidance.
Nancy: Total company orders of $6 $5 billion maintained strong momentum highlighted by continued strength in <unk> orders of $2 9 billion.
Nancy: Alongside a strong order book IGT RPM ended the quarter at $29 3 billion.
Nancy: 10% year over year.
Nancy: FSC RPM remains at a healthy $3 4 billion up 8% year over year.
Nancy: These RP levels provide exceptional revenue and earnings visibility over the coming years.
Lorenzo Simonelli: For CO2 compression, we have experienced a strong increase in demand, both for offshore and onshore applications, while we are also involved in several CO2 storage projects. In summary, all of these themes play to the strengths of Baker Hughes and continue to bolster our conviction and our strategy.
Nancy: Free cash flow was robust coming in at $502 million.
Nancy: The full year, we continue to target free cash flow conversion of 45% to 50% and expect free cash flow to be more weighted towards the back half of this year.
Nancy: Turning to slide 11, our balance sheet remains strong as we ended the first quarter with cash of $2 7 billion net debt to trailing 12 month adjusted EBITDA ratio of <unk>, eight times and liquidity of $5 7 billion.
Nancy K. Buese: With our expansive portfolio, capabilities, and solutions offerings, we are uniquely positioned to deliver value for our diverse set of energy and industrial customers. This is what differentiates Baker Hughes and enables us to deliver durable earnings and free cash flow across our free time horizon. With that, I'll turn the call over to Nancy.
Nancy: Let's turn to capital allocation on slide 12.
Nancy: In the first quarter, we returned $368 million to shareholders. This included $210 million of dividends, where we have increased the quarterly dividend three times over the past six quarters.
Nancy K. Buese: Thanks, Lorenzo. I'll begin on slide 10 with an overview of our consolidated results and then speak to segment details before outlining our second quarter outlook. We are very pleased with our first quarter results, above the midpoint of our EBITDA guidance. Orders remain solid as the diversity of IETs and markets continues to support a strong level of orders.
In addition, we repurchased $158 million of shares.
Nancy: We remain committed to returning 60% to 80% of free cash flow to shareholders. Since the company was formed in 2017, we have now returned over $10 billion to shareholders through dividends and buybacks.
Nancy K. Buese: We continue to make progress on driving operational improvements across the business to enhance margins and return, as highlighted by the consistent improvement in EBITDA margins and ROI. We remain confident in our full-year guidance that points to another strong year for Baker. Adjusted EBITDA of $943 million increased 21% year-over-year and came in above the midpoint of our guidance range, which was due to stronger performance in IE2. First Quarter Gap Operating Income was $653 million, and Adjusted Operating Income was $660 million. GAAP diluted earnings per share were $0.45; excluding adjusting items, earnings per share were 43 cents, an increase of 50% compared to the same quarter last year.
Nancy: Our primary focus is to continue growing our dividend with increases aligned with the structural growth in the Companys earnings power we.
Nancy: We will continue to use buybacks to reach our 60% to 80% target and will remain opportunistic on buybacks within this range.
Nancy: Now I'll walk you through our business segment results in more detail and provide our second quarter outlook.
Nancy: Starting with the oilfield services and equipment on slide 13.
Nancy: The segment maintained its strong margin trajectory meeting our margin expectations, despite heavier seasonality across our international markets.
Nancy: This is a testament to the work the Oss team has done to drive cost efficiencies across the business.
Nancy: Strength in flexible helped to drive Sps orders of $633 million in line with fourth quarter levels.
Nancy K. Buese: Our adjusted tax rate continues to trend downwards, declining to 29.7% in the quarter as we continue to execute as planned. As a reminder, we guided to a midpoint of 29.5% in 2024, down from our average 2023 tax rate of approximately 33%. Corporate costs for the quarter were $88 million, $2 million lower than our guidance.
Nancy: We expect the offshore market to remain strong and Sps order should remain at solid levels in 2024 and beyond.
Nancy: <unk> revenue in the quarter was $3 8 billion up 6% year over year.
Nancy: International revenue was down 5% sequentially, while North America fell 3%.
Nancy: <unk> in rig reactivation in Mexico, and the North Sea impacted international activity, adding to the traditional seasonal declines typically experienced during the first quarter.
Nancy K. Buese: Total company orders of $6.5 billion maintained strong momentum, highlighted by continued strength and IET orders of $2.9 billion. Alongside a strong order book, IETRPO ended the quarter at $29.3 billion, up 10% year over year, while OFSC RPO remained at a healthy $3.4 billion, up 8% year over year. These RPO levels provide exceptional revenue and earnings visibility over the coming year. Free cash flow was robust, coming in at $502 million
Nancy: In North America offshore declined while North America land held flat.
Nancy: OFC EBITDA in the quarter was $644 million up 11% year over year. This.
Nancy: This came in slightly below our guidance midpoint due to the previously mentioned and seasonal declines and slower than anticipated activation of offshore rigs factors that were considered in our guidance range.
Nancy: OFC EBITDA margin rate was 17%, increasing 80 basis points year over year, driven by continued improvements in cost efficiencies productivity enhancements and improved execution, particularly in Sps.
Nancy K. Buese: For the full year, we continue to target free cash flow conversion of 45 to 50% and expect free cash flow to be more weighted towards the back half of the year. Turning to slide 11, our balance sheet remains strong. As we ended the first quarter with cash of $2.7 billion, net debt to trailing 12-month adjusted EBITDA ratio of 0.8 times, and liquidity of $5.7 billion. Let's turn to capital allocation on slide 12.
Nancy: Now turning to industrial and energy technology on slide 14.
Nancy: This segment performed above the midpoint of our EBITDA guidance during the quarter due to improving revenues and margins.
Nancy: Orders were a solid $2 9 billion with.
Nancy: With non LNG gas equipment orders more than tripling compared to last year, highlighting the diversity of our customer base and end market exposure.
Nancy K. Buese: In the first quarter, we returned $368 million to shareholders. This included $210 million in dividends, where we have increased the quarterly dividend three times over the past six quarters. In addition, we repurchased $158 million of shares.
Nancy: Ags orders were $193 million in the first quarter highlighted by strong orders for our Nova LTE 12 turbines that can run on 100% hydrogen.
Nancy K. Buese: We remain committed to returning 60% to 80% of free cash flow to shareholders. Since the company was formed in 2017, we've now returned over $10 billion to shareholders through dividends and buybacks. Our primary focus is to continue growing our dividend with increases aligned with the structural growth in the company's earnings power. We will continue to use buybacks to reach our 60% to 80% target and will remain opportunistic on buybacks within this range.
Nancy: <unk> ended the quarter at $29 3 billion.
Nancy: Up 10% year on year gas Tech equipment, <unk> was $11 5 billion.
Nancy: Gas Tech services RPM was $14 6 billion.
Nancy: Gas Tech equipment book to Bill was one time, the 11th consecutive quarter of one or greater.
Nancy: Turning to slide 15, <unk> revenue for the quarter was $2 6 billion up 23% versus the prior year led by a 46% increase in gas tech equipment revenues as we continue to execute our robust backlog.
Nancy K. Buese: Now I'll walk you through our business segment results in more detail and provide our second quarter outlook, starting with oil field services and equipment on slide 13. The segment maintained its strong margin trajectory, meeting our margin expectations despite heavier seasonality across our international markets. This is a testament to the work the OFSE team has done to drive cost efficiencies across Strength and Flexibles, which helped to drive SSPS orders of $633 million in line with fourth-quarter levels.
Nancy: EBITDA was $386 million.
Nancy: Up 30% year over year and exceeding the high end of our guidance range of $380 million from better gas tech equipment backlog conversion and strong performance in industrial Tech.
Nancy: Both drivers were previously identified as factors that would push us to the higher end of our guidance range.
Nancy: EBITDA margin was 14, 7% up 80 basis points year over year against the backdrop of robust growth in gas tech equipment.
Nancy K. Buese: We expect the offshore market to remain strong and SSPS orders should remain at solid levels in 2024 and beyond. OFSC revenue in the quarter was $3.8 billion, up 6% year-over-year. International revenue was down 5% sequentially, while North America fell 3%. Delays in rig reactivations in Mexico and the North Sea impacted international activity, adding to the traditional seasonal declines typically experienced during the first quarter. In North America, offshore activity declined, while North America land held flat.
Nancy: Solid margin improvement in both industrial Tech and gas Tech equipment were partially offset by higher R&D spend related to our new energy investments and continued supply chain tightness and gas Tech services.
Speaker Change: Before walking through our updated outlook, which is shown on slide 16, I would like to spend some time on the progress each business is making on achieving their 20% EBITDA margin targets.
Speaker Change: We are off to a strong start to the year and how FSC and IGT EBITA margins increased 80 basis points for both segments when compared to the same quarter last year.
Nancy K. Buese: OFSC EBITDA in the quarter was $644 million, up 11% year-over-year. However, this came in slightly below our guidance midpoint due to the previously mentioned seasonal declines and slower than anticipated activation of offshore rigs. OFSC's EBITDA margin rate was 17%, increasing 80 basis points year-over-year, driven by continued improvements in cost efficiencies, productivity enhancements, and improved execution, particularly in SSE. Now turning to industrial and energy technology on slide 14. This segment performed above the midpoint of our EBITDA guidance during the quarter due to improving revenues and margins.
Speaker Change: Looking forward, we see good progression throughout the year and remain confident in our ability to achieve these targets in 2025 for OFC in 2026 for IGT.
Speaker Change: These are important targets set a benchmark and demonstrate our operational progress since announcing the consolidation into our two segments from four segments previously.
Speaker Change: These actions helped to streamline the organization and have created a simpler leaner and lower cost structure that allows for faster decision, making and has driven more than $150 million of cost out across the company.
Nancy K. Buese: IET orders were a solid $2.9 billion, with non-LNG gas tech equipment orders more than tripling compared to last year, highlighting the diversity of our customer base and end market exposure. ATS orders were $193 million in the first quarter, highlighted by strong orders for our NOVA LT12 turbines that can run on 100% hydrogen. IET RPO ended the quarter at $29.3 billion, up 10% year-on-year.
Speaker Change: In reality, we've been working on this since we brought the businesses together in 2017.
Speaker Change: To accelerate our transition to an energy technology company, we have long held the three pronged approach of transforming the core investing for growth and positioning for new energy frontiers.
Speaker Change: To date the success of transforming the core a key initiative to drive higher profitability and returns across the company has been most visible in LFS.
Speaker Change: Hey.
Speaker Change: For this segment margins are expected to approach 18% this year.
Speaker Change: More than 400 basis points from pre Covid levels.
Nancy K. Buese: Gas Tech Equipment RPO was $11.5 billion, and GasTech Services RPO was $14.6 billion. Gas Tech Equipment Book to Bill was one time, the 11th consecutive quarter of one or greater.
Speaker Change: The <unk> team has done a tremendous job transforming the way the business operates with a focus on right sizing operations, removing duplication and improving service delivery to drive sustainable structural improvement in OFC margins.
Nancy K. Buese: Turning to slide 15, IET revenue for the quarter was $2.6 billion, up 23% versus the prior year, led by a 46% increase in gas tech equipment revenues as we continue to execute our robust back, IET EBITDA was $386 million, up 30% year-over-year, and exceeding the high end of our guidance range of $380 million from better gas tech equipment backlog conversion and strong performance in industrial. Both drivers were previously identified as factors that would push us to the higher end of our guide.
Speaker Change: Turning to Igt's margin journey. This segment's margin progress has been more measured in part due to the tremendous growth in our gas tech equipment business, where we have consistently exceeded our order expectations. We are very excited by the robust growth in our equipment installed base that will drive decades of margin accretive service growth.
Speaker Change: And best guess tech.
Speaker Change: The <unk> team is committed to executing its margin expansion strategy.
Speaker Change: The nucleus of this strategy is instilling a more rigorous process driven culture across the organization.
Speaker Change: These changes are helping to drive enhanced operational discipline and dedication to continuous improvement.
Nancy K. Buese: EBITDA margin was 14.7%, up 80 basis points year over year against a backdrop of robust growth in gas tech equipment. Solid margin improvement in both industrial tech and gas tech equipment was partially offset by higher R&D spend related to our new energy investments and continued supply chain tightness in gas tech. Before walking through our updated outlook, which is shown on slide 16, I would like to spend some time on the progress each business is making on achieving their 20% EBITDA margin. We are off to a strong start to the year in OSSE and IET. EBITDA margins increased 80 basis points for both segments when compared to the same quarter last year.
Speaker Change: In addition, there is a cultural shift to focus more on value over volume.
Speaker Change: With these foundational elements in place alongside the opportunities for better R&D absorption supply chain optimization and execution of higher margin backlog, we remain confident in achieving 20% margins for this segment.
Speaker Change: Next I'd like to update you on our outlook for the two business segments.
Speaker Change: Overall, the outlook remains strong for our businesses, which will be complemented by continued operational enhancements sustained improvement in backlog execution and margin upside.
Speaker Change: We continue to focus on operational excellence and service delivery across our two segments.
Nancy K. Buese: Looking forward, we see good progression throughout the year and remain confident in our ability to achieve these targets in 2025 for OFSE and 2026 for IEP. These are important targets that set a benchmark and demonstrate our operational progress since announcing the consolidation into our two-segment operation from four segments previously. These actions help to streamline the organization and have created a simpler, leaner, and lower cost structure that allows for faster decision making and has driven more than $150 million of costs out across the country.
Speaker Change: For Baker Hughes, we expect second quarter revenue to be between six 6% and seven 5 billion and EBITDA between one and $1 1 billion.
Speaker Change: Resulting in EBITDA margin rate increasing quarter over quarter by approximately 70 basis points at the midpoint.
Speaker Change: For OFC, we expect second quarter results to reflect typical seasonal growth in international and flattish activity in North America.
Speaker Change: We expect second quarter OFC revenue between three 8% and $4 <unk> billion.
Speaker Change: And EBITDA between 660 and $710 million.
Nancy K. Buese: In reality, we've been working on this since we brought the businesses together in 2017. To accelerate our transition to an energy technology company, we have long held the three-pronged approach of transforming the core, investing for growth, and positioning for new energy. To date, the success of Transforming the Core, a key initiative to drive higher profitability and returns across the company, has been most visible in OFSP. For this segment, margins are expected to approach 18% this year, at more than 400 basis points from pre-COVID levels.
Speaker Change: Factors impacting this range include the phasing of 2020 for E&P budgets Sps backlog conversion realization of further cost out initiatives and the pace of recovery in activity that was deferred in the first quarter.
Speaker Change: We expect.
Speaker Change: <unk> second quarter results to benefit from strong year over year revenue growth as we continue to execute on our near record backlog for gas tech equipment and convert our healthy backlog in industrial technology we.
Speaker Change: We also expect to see continued progress on our margins as we drive productivity enhancements and process improvements across the business.
Nancy K. Buese: The OFSC team has done a tremendous job transforming the way the business operates, with a focus on right-sizing operations, removing duplication, and improving service delivery to drive sustainable structural improvement in OFSC. Now, turning to IET's Margin Journey.
Speaker Change: We expect second quarter IEP revenue between $2, eight and $3 5 billion and EBITDA between $425 and $475 million.
Speaker Change: The major factors driving this range will be the pace of backlog conversion and gas tech equipment, the impact of any aero derivative supply chain tightness in gas Tech and.
Nancy K. Buese: This segment's margin progress has been more measured, in part due to the tremendous growth in our gas tech equipment business, where we have consistently exceeded our order expectations. We are very excited by the robust growth in our equipment install base that will drive decades of margin-accretive service growth in Bethel. The IET team is committed to executing its margin expansion strategy. At the nucleus of this strategy is instilling a more rigorous, process-driven culture across the organization.
Speaker Change: And operational execution in industrial Tech.
Speaker Change: Turning to our full year outlook, we maintain our 2024 guidance issued in January of this year.
Speaker Change: For the full year 2024, we continue to expect Baker Hughes' revenue to be between 26, 5% and $28 5 billion and EBITDA between four one and $4 5 billion.
Speaker Change: At the midpoint our outlook results in EBITDA growing a strong 14% from the prior year.
Nancy K. Buese: These changes are helping to drive enhanced operational discipline and dedication to continuous improvement. In addition, there is a cultural shift to focus more on value over volume. With these foundational elements in place, alongside the opportunities for better R&D absorption, supply chain optimization, and execution of higher margin backlog, we remain confident in achieving 20% margins for this project. Next, I'd like to update you on our outlook for the two businesses. Overall, the outlook remains strong for our business, and will be complemented by continued operational enhancement.
Speaker Change: In addition, we still expect total company, new energy orders of $800 million.
Speaker Change: $1 billion, which at the high end would amount to a tripling of new energy orders since 2021.
Speaker Change: Oh FSC, we maintain our full year forecast of revenue between $15 75, and $16 75 billion and EBITDA between $2 eight and three point out $1 billion. As we expect continued strength across international markets to be modestly offset by softness in North America land.
Speaker Change: We expect orders to remain at robust levels. This year and maintain a range between 11, 5% to $13 5 billion.
Nancy K. Buese: Sustained Improvement in Backlog Execution and Margin Upset; continue to focus on operational excellence and service delivery across our team. For Baker Hughes, we expect second quarter revenue to be between $6.6 and $7.05 billion, and EBITDA between $1 and $1.1 billion, resulting in EBITDA margin increasing quarter over quarter by approximately 70 basis points. For OFSE, we expect second quarter results to reflect typical seasonal growth in international and sladdish activity in North America. We expect second quarter OFSC revenue between $3.8 and $4.0 billion and EBITDA between $660 and $710 million.
Speaker Change: Driven by strong momentum across all aspects of the portfolio.
Speaker Change: As mentioned, we have already experienced a noticeable increase in non LNG gas tech equipment orders in the first quarter.
Speaker Change: As a result of continued momentum in exceptional orders performance over the last two years, we maintain our full year.
Speaker Change: Guidance for revenue between $10, 75, and $11 75 billion and EBITDA between $1 65, and $1 85 billion.
Speaker Change: In summary, we remain confident in our ability to generate double digit EBITDA growth for the fourth consecutive year as we remain focused on execution.
Speaker Change: Diving further operational improvements and capitalizing on market tailwind with our differentiated portfolio of products and services.
Nancy K. Buese: Factors impacting this range include the phasing of 2024 E&P budgets, SSPS backlog conversion, realization of further cost-out initiatives, and the pace of recovery and activity that was deferred in the. For IET, we expect second quarter results to benefit from strong year-over-year revenue growth as we continue to execute on our near-record backlog for gas tech equipment and convert our healthy backlog into industrial technology. We also expect to see continued progress on our margins as we drive productivity enhancements and process improvements across.
Speaker Change: Overall, we are very pleased with the progress demonstrated by our first quarter results and remain excited about the future of Baker Hughes I will turn the call back to Lorenzo.
Lorenzo Simonelli: Thank you Nancy.
Lorenzo Simonelli: Turning to slide 18 two.
Lorenzo Simonelli: 2024 is off to a strong start for Baker Hughes highlighted by our strong margin performance in both OFC and.
Lorenzo Simonelli: Our continued focus on commercial enhancements and cost efficiencies are driving structural improvement in both segments underlying margins.
Nancy K. Buese: Overall, we expect second quarter IET revenue between $2.8 and $3.05 billion, and EBITDA between $425 and $475 million. The major factors driving this range will be the pace of backlog conversion in gas tech equipment, the impact of any aero derivative supply chain tightness in gas tech, and Operational Execution and Industry.
Lorenzo Simonelli: With these transformational efforts gaining momentum we remain on track to achieve our 20% margin targets for both segments.
Lorenzo Simonelli: Margin improvement and EBITDA growth are important parts of the <unk> story.
Lorenzo Simonelli: As important we have significantly improved our returns on invested capital.
Lorenzo Simonelli: It has increased by more than three times compared to 2019 levels.
Nancy K. Buese: Turning to our full year outlook, we will maintain our 2024 guidance issued in January. For full year 2024, we continue to expect Baker Hughes revenue to be between 26.5 and 28.5 billion dollars and EBITDA between 4.1 and 4.5 billion. At the midpoint, our outlook results in EBITDA scoring a strong 14% from the prior year. In addition, we still expect total company new energy orders of $800 million to $1 billion, which at the high end would amount to a tripling of new energy orders since 2020.
Lorenzo Simonelli: Ill focus on disciplined growth and margin enhancement facilitated by transforming the way we work is helping to drive meaningful improvements and returns across the company.
Lorenzo Simonelli: With margins EBITDA and returns forecast to increase further over the coming years, we expect to see stronger free cash flow conversion of at least 50% through the cycle and as a result higher free cash flow.
Lorenzo Simonelli: When combined with our balanced portfolio untapped market opportunities and overhauled cost structure.
Nancy K. Buese: For OFSE, we maintain our full-year forecast of revenue between $15.75 and $16.75 billion and EBITDA between $2.8 and $3.0 billion, as we expect continued strength across international markets to be modestly offset by softness in North America.
Lorenzo Simonelli: Could you use is becoming less cyclical in nature and capable of generating more durable earnings and free cash flow across cycles.
Lorenzo Simonelli: All of these metrics provide a healthy backdrop as we remain committed to returning 60% to 80% of free cash flow to shareholders.
Nancy K. Buese: We expect IET orders to remain at robust levels this year and maintain a range between $11.5 to $13.5 billion, driven by strong momentum across all aspects of the IET portfolio. As mentioned, we've already experienced a noticeable increase in non-LNG gas tech equipment orders in the first quarter. As a result of continued momentum and exceptional order performance over the last two years, we maintain our full-year IET guidance for revenue between $10.75 and $11.75 billion and EBITDA between $1.65 and $1.85 billion.
Lorenzo Simonelli: This will add to the impressive $10 billion plus that we have already returned to shareholders since forming the new company in 2017.
Lorenzo Simonelli: To put this in context this amounts to almost one third of our current market cap.
Lorenzo Simonelli: We have a history of returning cash to shareholders and expect to continue that trend well into the future.
Lorenzo Simonelli: With that I'll turn the call back over to Chase.
Chase Mulvehill: Thanks, Lorenzo operator, let's open the call for questions.
Chase Mulvehill: Thank you 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 one again, we ask that you. Please limit yourself to one question and one related.
Nancy K. Buese: In summary, we remain confident in our ability to generate double-digit EBITDA growth for the fourth consecutive year as we remain focused on execution, driving further operational improvements, and capitalizing on market tailwinds with our differentiated portfolio of products and services. Overall, we are very pleased with the progress demonstrated by our first quarter results and remain excited about the future of Big Mouth. I'll turn the call back to Lorenzo. Thank you, Nancy. Turning to slide 18.
Chase Mulvehill: A follow up please standby, while we compile the Q&A roster.
Chase Mulvehill: Our first question comes from the line of Scott Gruber from Citigroup.
Scott Gruber: Yes, good morning.
Scott Gruber: Hi, Scott.
Lorenzo Simonelli: 2024 is off to a strong start for Baker Hughes, highlighted by our strong margin performance in both OFSC and IET. Our continued focus on commercial enhancements and cost efficiencies are driving structural improvement in both segments' underlying margins. With these transformational efforts gaining momentum, we remain on track to achieve our 20% margin targets for both segments. Margin improvement and EBITDA growth are important parts of Baker Hughes' story. As important, we have significantly improved our returns on invested capital, which have increased by more than three times compared to 2019 levels.
Scott Gruber: So your margins were quite strong despite a headwind from more equipment revenues, which is great to see in the rest of you walked through the multiple drivers.
Scott Gruber: Looking at two to <unk> guidance is above our forecast we did list the full year. So can you walk through how you think about those margin drivers continuing.
Scott Gruber: How do you think about the impact on the second half or are there reasons to believe the normal seasonality, maybe a bit more muted for both revenues and margins in the second half or is the high end of the range.
Scott Gruber: For the full year revenues and EBITDA looking more likely now for <unk>.
Scott Gruber: Yes, Scott first of all.
Lorenzo Simonelli: Our focus on discipline, growth, and margin enhancement, facilitated by transforming the way we work, is helping to drive meaningful improvements in returns across the company. With margins, EBITDA, and returns forecast to increase further over the coming years, we expect to see stronger free cash flow conversion of at least 50% through the cycle, and as a result, higher free cash flow. When combined with our balanced portfolio, untapped market opportunities, and overhauled cost structure, Baker Hughes is becoming less cyclical in nature and capable of generating more durable earnings and free cash flow across cycles.
Scott Gruber: Very strong quarter for the company and as you said led by also but overall very pleased by both segments and.
Speaker Change: A very strong solid quarter end.
As we've said we've been committed to our journey towards the 20% EBIT dollars and Youre starting to see some of those levers coming through as you look at first quarter and as you look at the rest of the year again, you've got a.
Speaker Change: Strong backlog conversion and gas tech equipment as you can see in the first quarter revenue up nearly 50% year over year and that helped the gas tech equipment from a margins perspective.
EBITDA was up nearly 200 basis points, and you're seeing the better backlog margin coming through as well as productivity in the factories.
Lorenzo Simonelli: All of these metrics provide a healthy backdrop as we remain committed to returning 60 to 80% of free cash flow to shareholders. This will add to the impressive $10 billion plus that we have already returned to shareholders since forming the new company in 2017. To put this in context, this amounts to almost one-third of our current market cap. We have a history of returning cash to shareholders and expect to continue that trend well into the future. With that, I'll turn the call back over to Chase.
Speaker Change: A bright spot was in IGT from an industrial solutions perspective, as you look at the.
Speaker Change: The revenue side, but also when you look at the projects and the services revenue, which was up 20% year over year and margins also improving in the Bentley, Nevada with some of the supply chain constraints that we've discussed before that have been alleviated now and also gas Tech services.
Speaker Change: Revenue increasing.
Speaker Change: We went through the first quarter, we continued to see that for the rest of the year, even though we're still constrained by some of the supply chain headwinds. So as you look at IDT for the rest of the year. We continue on the basis that we said in the journey that we've laid out with continued margin expansion and improvement toward.
Chase Mulvehill: Thanks, Lorenzo. Operator, let's open the call for questions. Thank you. As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker Change: That 20% as we go forward as we continue the journey.
Speaker Change: Got it.
Operator: We ask that you please limit yourself to one question and one related follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Scott Gruber from Citigroup. Good morning. Hi, Scott. So your IEP margins were quite strong, despite a headwind from more equipment revenues, which is great to see. And Lorenzo, you walked through the multiple drivers.
Speaker Change: And then turning to the production side of OS and.
Speaker Change: And we recently saw one of your big competitors move to enhance their position how do you see the market evolving for the production vertical where you have a strong position.
Speaker Change: The growth rate for production start to rival the growth rate.
Speaker Change: For drilling and completion spend in 'twenty, five and beyond and how do you think about the competitive dynamics in the market.
Scott Gruber: Looking at 2Q, IEP guidance is above our forecast, but you didn't list the full year. So can you walk through, you know, how you think about those margin drivers continuing? What impact do you think they will have on the second half for IEP?
Speaker Change: The team was we're quite excited by your production optimization solutions.
Speaker Change: At your annual meeting.
Speaker Change: Yes got it.
Lorenzo Simonelli: Are there reasons to believe the normal seasonality may be a bit more muted for both revenues and margins in the second half? Or is the high end of the range for full year revenues and EBITDA looking more likely now for IEP? Yeah, Scott, first of all, a very strong quarter for the company, and as you said, led by IAT, but overall, very pleased with both segments. And IAT, a very strong, solid quarter. And as we've said, we've been committed to our journey in IAT towards 20% EBITDA. And you're starting to see some of those levers coming through.
Very good points.
Speaker Change: For us.
Whats happening from the external perspective, and the dynamics doesn't change.
Speaker Change: The strategy and we've been firmly focused on our strategy around production solutions for some time as you know from.
Speaker Change: The comments that I made at the annual meeting 70% of the world's production comes from mature assets and.
Speaker Change: Our mature asset being.
Speaker Change: A well that <unk>.
Speaker Change: Produced 50% of its reserves or has been in production for over 25 years.
Speaker Change: When we look at the future there is a tremendous focus on improving that optimization and we've got some great capabilities with the largest global installed base of ESPN.
Lorenzo Simonelli: As you look at the first quarter and as you look at the rest of the year, again, you've got strong backlog conversion in gas tech equipment. As you can see in the first quarter, revenue was up nearly 50% year over year, and that helped gas tech equipment.
44000 pumps and we're moving about.
Speaker Change: Hey.
Speaker Change: Midland barrels fluid daily and again as you look at the.
Continued chemicals that are being applied and a 1% improvement just in a mature asset.
Lorenzo Simonelli: From a margins perspective, EBITDA was up nearly 200 basis points, and you're seeing the better backlog margin coming through, as well as productivity in the factories. Another bright spot was in IAT from an industrial solutions perspective, as you look at the revenue side. But also when you look at the projects and the services revenue, which was up 20% year over year.
Speaker Change: Production can give a two to three years of global consumption. So.
Speaker Change: As we go forward no.
Speaker Change: No change and we continue to see this is a space, where you know between IRA Rts, our ESP and chemical solutions and also the digital automation and AI that we can deliver through new super being a great opportunity for our customers and increasing area of focus for our company.
Lorenzo Simonelli: And margins are also improving in Bentley Nevada with some of the supply chain constraints that we've discussed before that have been alleviated now. And also gas tech services, revenue increasing as we went through the first quarter. We continue to see that for the rest of the year, even though we're still constrained by some of the supply chain headwinds. So as you look at IAT for the rest of the year, we continue on the basis that we said and the journey that we've laid out with continued margin expansion and improvement towards that 20% as we go forward. I got it.
Speaker Change: I appreciate the color lines up thank you.
Speaker Change: Thank you one moment far next question.
Speaker Change: Our next question comes from the line of our rooms, you're wrong from Jpmorgan Securities LLC.
Arun Jayaram: Yeah. Good morning, Lorenzo Nancy Lorenzo I wanted to start with the Saudi MSC reduction I wanted to get your perspective on the potential impacts to Baker from the changing mix of activity.
Our rooms: With the higher mix of onshore versus offshore and perhaps you could just comment on what on the gas side of the equation.
Scott Gruber: And then turning to the production side of OSSE, you know, we recently saw one of your big competitors move to enhance their position. How do you see the market evolving for the production vertical, where you have a strong position? You know, does the growth rate for production start to rival the growth rate, you know, for drilling and completion spend in 25 and beyond? And what do you think about the competitive dynamics in the market? Your team was quite excited by your production optimization solutions at your annual meeting. Yeah, Scott, it's a very good point.
Our rooms: With a higher infrastructure spend chemicals, a new energy spend what that means for bakers, we think about the rest of this year and into next year.
Speaker Change: Yes, sure Arun and.
We remain confident in the international market outlook.
Speaker Change: We expect E&P spending to be up.
Speaker Change: High single digits this year and.
Speaker Change: As we look at in particular.
Speaker Change: MFC reduction as we said in the.
Speaker Change: Last call, we don't anticipate any.
Lorenzo Simonelli: And, you know, for us, what's happening from the external perspective and the dynamics doesn't change the strategy. And we've been firmly focused on a strategy around production solutions for some time. As you know, from the comments that I made at the annual meeting, 70% of the world's production comes from mature assets. And, you know, a mature asset is a well that's produced 50% of its reserves or has been in production for over 25 years.
Speaker Change: Real changes and in fact, when we look at.
Speaker Change: Saudi we see it as opportunities outside of just the upstream area given our presence as you know natural gas production is set to grow by 60%.
Speaker Change: Through 2000, and fatty and it's going to benefit our <unk> business. You saw the announcement that was made in <unk> relative to the master gas system free.
Free the pipeline project that is going to be more opportunities down. The road also this shift of Capex is also across new energy and chemicals. We recently opened our new chemical facility in the Kingdom. We're also as you know from a new energy perspective participating in.
Lorenzo Simonelli: And when we look at the future, there's a tremendous focus on improving that optimization. And we've got some great capabilities with the largest global installed base of ESPs, 44,000 pumps, and, you know, we're moving about 80 million barrels of fluid daily. And, again, as you look at the continued chemicals that are being applied, and a 1% improvement just in mature asset production can give two to three years of global consumption. So, you know, as we go forward, no change.
Speaker Change: Hydrogen on neon so overall the capex shift for US is a longtime net positive for Baker Hughes and doesn't change the outlook that we laid out at the beginning of the year.
Speaker Change: Great. That's helpful. Maybe a follow up maybe for Nancy Nancy I wanted to get your take on some of the puts and takes around.
Nancy: The <unk> guide it looks to be about 3% above our model it looks like just slightly better margins.
Lorenzo Simonelli: And we continue to see this as a space where, you know, between our RTS, our ESPs, and chemical solutions, and also the digital automation and AI that we can deliver through Lucipa, a great opportunity for our customers and an increasing area of focus for our company. Appreciate the color, Lorenzo.
Nancy: So just wondering if you could talk about some of the puts and takes in just the <unk>.
Speaker Change: But you kept the back half maybe a follow up to Scott's question.
Speaker Change: The full year. The same are you getting a little bit more confidence on the full year outlook.
Speaker Change: Given.
Speaker Change: What's transpiring in the first half of the year.
Speaker Change: Yeah happy to take that one so on Q2, I'd really say the strength in our guide for that quarter highlights our differentiated portfolio and we've probably been talking about how that is helping us to frame up more durable earnings and strong free cash flow generation and growth our midpoint for EBITDA guidance in Q2 really represents about 16% year over year.
Scott Gruber: Thank you. Thank you. One moment for our next question. Our next question comes from the line of Arun Jayaram from JP Morgan Securities LLC. Good morning, Lorenzo and Nancy.
Arun Jayaram: Lorenzo, I want to start with the Saudi MSC reduction. I wanted to get your perspective on the potential impacts on Baker from the changing mix of activity with the higher mix of onshore versus offshore. And perhaps you could just comment on what, on the gas side of the equation, with higher infrastructure spend, chemicals, and new energy spend, what that means for Baker as we think about the rest of this year and into next year. Yeah, sure, Arun.
Speaker Change: Growth and Thats about 20% EBITDA growth in the IGT business. So there are a lot of good drivers. There we've talked about that really robust backlog levels that are driving the gas tech equipment acceleration and much higher margins in the backlog as we convert as we've been signaling and then we're also seeing broadening strength across industrial tech.
Speaker Change: I would also say the cost focus and the process driven mindset deepened in the business is starting to show signs of really solid momentum and the midpoint of that guidance is indicating that margin expansion and that's even as gas tech equipment growth continues to impact us and again, we've talked very much about how the growth.
Lorenzo Simonelli: And, you know, we remain confident in the international market outlook. We expect E&P spending to be up high single digits this year. And, you know, as we look at, in particular, the MSC reduction, as we said in the last call, we don't anticipate any real changes. And, in fact, when we look at Saudi Arabia, we see it as opportunities outside of just the upstream area, given our presence. As you know, natural gas production is set to grow by 60% through 2030, and it's going to benefit our IAT business. You saw the announcement that was made in 1Q relative to the master gas system free, the pipeline project. There's going to be more opportunities down the road.
Speaker Change: Equipment is great for us in the longer term and we love that installed base I would say, that's also offset a bit by a slower than expected start to the year in <unk> and some of thats related to timing and an offshore rig delays. So on balance we'd say Q2 is showing modestly better seasonal recovery is on the <unk> side of some of those rigs.
Come out of maintenance and also some of the delayed product shipments came out of Q1 into Q2, but net net I would say for the year, we would retain our guidance as is there still a lot of unknowns and it's still early in the year, we're very confident in our full year guidance and we will keep an eye on it if there's if there's more to tell we'll get back to you next quarter with with more information, but we.
Speaker Change: Feel very good about execution and we're on the right track for Q2 and balance of the year.
Lorenzo Simonelli: Also, this shift of CAPEX is also across new energy and chemicals. We recently opened our new chemicals facility in the kingdom. We're also, as you know, from a new energy perspective, participating in hydrogen on neon. So, overall, this CAPEX shift for us is a long-term net positive for Baker Hughes and doesn't change the outlook that we laid out at the beginning of the year. Great, that's helpful. Maybe a follow-up, maybe for Nancy.
Speaker Change: Thanks, Tim I appreciate it.
Speaker Change: Thank you one moment far next question.
Speaker Change: Our next question comes from the line of Dave Anderson from Barclays.
John David Anderson: Great. Thank you Larry and good morning, Lorenzo I was wondering if you could talk a little bit like the non high.
Speaker Change: Hi.
John David Anderson: We can talk about the non LNG side of the IEP GAAP Tech equipment order side.
John David Anderson: I think you made a couple of comments I know you talked about as these tripled this quarter and you expect to be up 50%. This year could you kind of dig into that a little bit about where thats being driven from I know, we've had an offshore side, which tends to be a little lumpier I know you had the <unk>.
Nancy K. Buese: Nancy, I want to get your take on some of the puts and takes around the 2Q guide. It looks to be about 3% above our model on, it looks like, slightly better margins. And so, I was wondering if you could talk about some of the puts and takes and just the fact that you kept the back half. Maybe that could be a follow-up to Scott's question. You did the full year the same. Are you getting a little bit more confidence on the full year outlook given what's transpiring in the first half of the year? I'm happy to take that one.
John David Anderson: Three award in there, but could you just sort of talk about the mix of that non LNG business. Please.
Speaker Change: Definitely Dave and thanks for the question, obviously, we've spoken a lot about LNG and we will I'm sure in the future and I think at times, we don't.
Speaker Change: Get a lot of time to talk about the non LNG sector and it's a very important part of our portfolio and it's very expensive as well and the equipment and solutions that play across a number of end markets, including the upstream midstream refining petrochemical as you look at the pipelines and various industrial.
Nancy K. Buese: So on Q2, I'd really say the strength in our guide for that quarter highlights our differentiated portfolio. And we've really been talking about how that's helping us to frame up more durable earnings and strong free cash flow generation and growth. Our midpoint for EBITDA guidance in Q2 really represents about 16% year over year growth, and that's about 20% EBITDA growth in the IET business. So there are a lot of good drivers there.
Speaker Change: Our end markets and its really the volatility of our equipment that not only goes into LNG, but goes into these other end markets.
Nancy K. Buese: We've talked about the really robust backlog levels that are driving the gas tech equipment acceleration and much higher margins in the backlog as we convert, as we've been signaling. And then we're also seeing broadening strength across industrial tech. I would also say the cost focus and the process-driven mindset deep into the business are starting to show signs of really solid momentum, and the midpoint of that guidance is indicating that margin expansion.
Speaker Change: And <unk> was evidence of that and as you said.
Speaker Change: Triple down in <unk> versus prior year.
Speaker Change: Onshore offshore production has remained consistently strong as part of the mix as you see both on the compression side that you see on the power generation side, you highlighted the master gas system.
Speaker Change: And as you've continued to see the shift towards gas.
Nancy K. Buese: And that's even as gas tech equipment growth continues to impact us. And again, we've talked very much about how the growth and equipment are great for us in the longer term. And we love that installed base.
Speaker Change: Gas infrastructure plays towards a lot more compression place towards also the pipelines that place towards a lot of the onshore power generation, that's going to be necessary also as you look at on the industrial side. When you think about the needs for distributed power generation that play.
Nancy K. Buese: I would say that's also offset a bit by a slower than expected start to the year in OFSC, and some of that's related to timing and offshore rig delays. So on balance, we'd say Q2 is showing modestly better seasonal recovery on the OFSC side as some of those rigs come out of maintenance, and also some of the delayed product shipments came out of Q1 into Q2. But net-net, I would say for the year, we would retain our guidance as is. There's still a lot of unknowns, and it's still early in the year.
Speaker Change: As to the.
Speaker Change: And industrial gas turbines that we have the Nobel T. So across it.
Speaker Change: We see an expanding base of non LNG equipment and again, it's part of the expansive portfolio that we have including the pumps the valves and the other areas that go into the other sectors. When you think of refineries and also petrochemicals that are.
Nancy K. Buese: We're very confident in our full-year guidance, and we'll keep an eye on it. If there's more to tell, we'll get back to you next quarter with more information, but we feel very good about execution, and we're on the right track for Q2 and balance. Thanks, team. Thank you.
Speaker Change: So increasing infrastructure builds that are happening around the world as we continue through.
Speaker Change: Energy demand that is increasing.
Speaker Change: And is there sort of expanding upon that I'd like to dig into maybe a little bit on what's going on in Saudi here you touched on here a bit obviously, we saw the <unk>.
Operator: One moment for our next question. Our next question comes from the line of Dave Anderson from Barclays. Great. Thank you, Ryan. Good morning, Lorenzo. I was wondering if we could talk a little bit about the non-LNG side of the IET gas tech equipment order side. I think you made a couple of comments on that.
Speaker Change: Award, we saw this quarter, but I'd be curious if you could talk about how you're differentiated versus your competitors on both the IEP side and the RTC side.
John David Anderson: You talked about how they tripled this quarter and you expect to be up 50% this year. Could you kind of dig into that a little bit about where that's being driven from? I know we've had an offshore side, which tends to be a little lumpier. I know you had the MGS3 award in there, but could you just sort of talk about the mix of that non-LNG business? Definitely, Dave.
Speaker Change: You said you were talking about.
Speaker Change: Placing oil driven powered industrial sales of natural gas and so that seems like an enormous opportunity Saturday, but it seems like a very unique opportunity for really just Baker and then if I flip over to the <unk> side, one thing you've really done differently than others.
Speaker Change: Catching in country kind of could you talk to that a little bit about how both the key initiative in the kingdom and how that gives you an advantage.
Lorenzo Simonelli: And thanks for the question. Obviously, we've spoken a lot about LNG, and we will, I'm sure, in the future. And I think, at times, we don't get a lot of time to talk about the non-LNG sector. And it's a very important part of our portfolio, and it's very expansive as well in the equipment and solutions that play across a number of end markets, including upstream, midstream, refining, petrochemical, as you look at the pipelines and various industrial and other end markets. And it's really the versatility of our equipment that not only goes into LNG but goes into these other end markets that 1Q was evidence of that.
Speaker Change: Yes, Thanks, and I know that you and a team also had the chance to towards the region and also visit the Kingdom and that's true we focused a lot on localization and as I mentioned, we've just recently opened our chemicals facility on new petrol I've. We've also got a.
Speaker Change: While headset are manufactured we've also got compresses and as we look at drill bits and across the Kingdom, we focused on localization to support not just the kingdom, but also support the region and outside of the region proved capability close to our customers and that's been a.
Our strategy of focus.
Lorenzo Simonelli: And as you said, it tripled in 1Q versus the prior year. Onshore-offshore production has remained consistently strong as part of the mix, as you see both on the compression side and on the power generation side. You highlighted the master gas system.
Speaker Change: And the diversification of Baker Hughes is across the two major segments. We play obviously within the oilfield services and the equipment side, but then the gas infrastructure side, the hydrogen when we think of neon and the facilities associated with.
Lorenzo Simonelli: And as you continue to see the shift towards gas, that gas infrastructure plays towards a lot more compression, plays towards also the pipelines, plays towards a lot of the onshore power generation that's going to be necessary. Also, as you look at on the industrial side, when you think about the needs for distributed power generation, that plays to the... industrial gas turbines that we have, the Nova LT. So across it, you know, we see an expanding base of non-LNG equipment.
Speaker Change: Hydrogen the infrastructure, that's going to be required when we think of power generation distributed power generation and as you think of also the opportunity for productivity and also with digital capabilities and solutions so across the board.
Speaker Change: What makes us unique because again the ability to play at the full value chain of the energy ecosystem within the kingdom through local capabilities and that's a strategy that we've also put into place in other middle eastern come.
Lorenzo Simonelli: And again, it's part of the expansive portfolio that we have, including the pumps, the valves, and the other areas that go into the other sectors when you think of refineries and also petrochemicals that are also increasing infrastructure builds that are happening around the world as we continue through, you know, an energy demand that is increasing. And Lorenzo sort of expanding upon that, I'd like to dig into maybe a little bit of what's going on in Saudi Arabia here. You touched on that here a bit.
Speaker Change: Countries as well with facilities in the UAE and Qatar and.
Speaker Change: Likewise.
Speaker Change: Region, that's very important to us.
Speaker Change: I appreciate it thank you.
Speaker Change: Thank you one moment far next question.
Speaker Change: Our next question comes from the line of James West from Evercore ISI.
John David Anderson: Obviously, we saw the award we saw this quarter, but I'd be curious if you could talk about how you differentiate yourself versus your competitors on both the IET side and the OFAC side. On the IET side, we're talking about displacing oil-driven power in the industrial side of natural gas. And so that seems like an enormous opportunity in Saudi Arabia, but it seems like it's a very unique opportunity for really just Baker.
Hey, good morning, Lorenzo Nancy.
James West: Hi, James.
James West: But remember I wanted to touch back on carbon capture because it sounded like there was a bit of a shift in your tone there.
James West: With respect to projects starting to move forward and to scale. So I wanted to one is that is that accurate too.
James West: Have you seen any change or have you put any change in your <unk>.
James West: U S strategy.
John David Anderson: And then if I flip over to the OFAC side, one thing you've really done differently than others is manufacturing in-country. Could you talk a little bit about how that's a key initiative in the kingdom and how that gives you an advantage? Yeah, Dave, thanks, and I know that you and a team also had the chance to tour the region and also visit the kingdom, and that's true. We focused a lot on localization, and as I mentioned, we've just recently opened our chemicals facility, our new petrolite. We've also got wellheads that are being manufactured.
James West: And how about an update on your kind of commercialization of some of the new newer technologies in carbon capture.
Speaker Change: Yes, it definitely James and.
Speaker Change: As we look at what's happening and we've been discussing for some time the continued increasing demand for energy and the realization that we need and all of the above approach to the energy transition. It means there's a shifting focus towards emissions rather than the fuel source and that puts the.
Speaker Change: The forefront Cc U S and as you know we've been playing in participating in Ccs for many decades.
Lorenzo Simonelli: We've also got compressors, and as we look at drill bits and across the kingdom, we focused on localization to support not just the kingdom but also the region and outside of the region through capability close to our customers, and that's been a strategy of focus, and the diversification of Baker Hughes is across the two major segments. We play, obviously, on the oil field services and equipment side, but then on the gas infrastructure side, the hydrogen side, when we think of NEOM and the facilities associated with hydrogen, the infrastructure that's going to be required when we think of power generation, distributed power generation, and as you think of also the opportunity for productivity, and also with digital capabilities and solutions.
But we've also been investing in <unk> capabilities and so as we go forward. We think <unk> is going to be a first mover and as you look at our order intake also on the new energy front you can see from last year also that a large portion of our orders was associated with.
Speaker Change: Carbon capture utilization and storage and we've got a wide array of capabilities that we've been developing and we've got the chilled ammonia process, which is for large scale applications like power generation and we've got the mixed salt process and.
Speaker Change: And compact carbon capture which is a rotating bed solution, which is suitable for a smaller footprint of industrial applications. And then we're also testing and piloting a mosaic materials for direct air capture technology complementing all of this is the compression capability that we have and also storage and the <unk>.
Lorenzo Simonelli: So, across the board, I think what makes us unique is, again, the ability to play at the full value chain of the energy ecosystem within the kingdom through local capabilities. And that's a strategy that we've also put into place in other Middle Eastern countries as well, with facilities in the UAE and Qatar. Likewise, it's a region that's very important to us. We appreciate it. Thank you. Thank you.
Speaker Change: Knowledge of the reservoir and how to store and maintain the Seo too and compress. It. So this is a theme that we see in projects that are going forward and we think that's increasing as the year progresses and also going into the next few years as people appreciate that.
Speaker Change: As in all of the above and we're going to.
Speaker Change: Need to focus more on emissions as opposed to the fuel source.
Speaker Change: Great and then maybe a follow up on the all of the above comment.
Operator: One moment for our next question. Our next question comes from the line of James West from Evercore ISI. Hey, good morning, Lorenzo and Nancy. Hi, James.
Speaker Change: You have relationships with all the major.
Speaker Change: Tech companies.
Speaker Change: They are trying to scale data centers in and Thats been supercharged by AI. It seems to me that renewable deployments that could really keep up with that so they're going to have to go towards some type of fossil fuels and it sounds like gas as the one they are targeting but all of these data center providers, you're beginning to at least acknowledging that reality that for some period of <unk>.
James West: Lorenzo, I wanted to touch back on carbon capture. It sounded like there was a bit of a shift in your tone there with respect to projects starting to move forward and scale. So I want to know, first, is that accurate?
Speaker Change: Tom we're going to have to build out.
Speaker Change: Potentially as more gas infrastructure to support this because it is the power generation needs are running well ahead of our renewable or cleaner fuel sources.
Tom: Yes, I'd agree with you that there's a growing realization that there's a growing demand for energy and that's being driven by some of the data centers and look AI provide huge benefits both.
Lorenzo Simonelli: Two, have you seen any change or made any change to your CCUS strategy? And how about an update on your commercialization of some of the newer technologies in carbon capture? Yeah, definitely, James.
Tom: Internally and also from an external perspective.
Tom: To us internally to drive optimization for our customers, but also externally to drive growth for our equipment and the services that we provide and that's <unk>.
Tom: Why we like the ready gas turbines that go on natural gas today, but then can switch to hydrogen. That's also why we like the solutions that we're offering with regards to other clean power solutions and as we've talked to our customers that's what they're looking for and.
Tom: At the data center developers.
Tom: They're all coming to a realization that there is going to be a growing need for off grid solutions as well as distributed power generation with a view to continuing the aspect of reducing emissions. So.
Tom: There's also opportunities for <unk>, and others, where we play and we looked at it as being a growing element of our equipment portfolio and a nice <unk>.
Tom: Segment that again, diversifies us versus others because of the portfolio that we have.
Speaker Change: Alright, Thanks Rhonda.
Rhonda: Thank you.
Speaker Change: One moment far next question.
Our next question comes from the line of Luke Lemoine from Piper Sandler.
Lorenzo Simonelli: And, you know, as we look at what's happening, and, you know, we've been discussing for some time, the continued increasing demand for energy and the realization that we need an all-of-the-above approach to the energy transition, it means there's a shifting focus towards emissions rather than fuel sources. And that puts CCS at the forefront. And as you know, we've been playing and participating in CCS for many decades.
Luke Lemoine: Hey, good morning, Lorenzo Nancy.
Luke Lemoine: <unk> orders you had in <unk> put you on a nice pathway to hit the midpoint of the annual guide.
With GTE being the largest component I am sure most severe ability resides here.
Luke Lemoine: And you talked about some of the LNG awards outlook within GTE, but can you just talk about some of the puts and takes within the annual order guidance for IEP.
James West: But we've also been investing in CCUS capabilities. And so, as we go forward, we think CCUS is going to be a fast mover. And as you look at our order intake, also on the new energy front, you can see from last year that a large portion of our orders were associated with carbon capture, utilization, and storage. So, this is a theme that we see in projects that are going forward. And we think that number is increasing as the year progresses and also going into the next few years, as people appreciate that it is all of the above, and we're going to need to focus more on emissions as opposed to fuel cells. Great. And then maybe a follow-up on the all-of-the-above comment.
Speaker Change: Yeah, I'll kick it off here look and we remain very confident in the orders range that we provided for 2024. If you look at the start of the year very positive from the auto front bookings.
Speaker Change: Booking over $2 $9 billion of orders.
Speaker Change: Including a larger awards again from Aramco, but also from black and Veatch and Cedar LNG.
Lorenzo Simonelli: Lorenzo, when you have relationships with all the major tech companies, and they're, you know, trying to scale data centers, and that's being supercharged by AI, it seems to me that, you know, renewable deployment is not going to be able to keep up with that. So they're going to have to go towards some type of fossil fuel. And it sounds like gas is the one they're targeting. But are these data center providers beginning to at least acknowledge that reality, that for some period of time, we're going to have to build out potentially more gas infrastructure to support this, because the power generation needs are running well ahead of renewable or cleaner fuel sources?
Speaker Change: LNG equipment will still be a portion of the orders outlook as we go through the year and again it was significant last year.
Speaker Change: But it's also outside of LNG.
Lorenzo Simonelli: Yes, I'd agree with you that there is a growing realization that there is a growing demand for energy, and that's being driven by some of the data centers, and AI provides huge benefits, both internally and also from an external perspective to us internally to drive optimization for our customers, but also externally to drive growth for our equipment and the services that we provide. And that's why we like the ready gas turbines that run on natural gas today but can switch to hydrogen later.
Speaker Change: It's onshore offshore production, it's the gas infrastructure and also coupled with the new energy and as you look at the.
Guidance that we've given of new energy orders between 800 to a $1 billion and stable growth in services and industrial.
Speaker Change: So very confident in the 11 52525 orders range and a strong pipeline of activity and when you look at what's being had from our customers and also what's been seen I think growing confidence on the elements all of our gas infrastructure and the opportune.
James West: That's also why we like the solutions that we're offering with regard to other clean power solutions. And as we talk to our customers, that's what they're looking for. And you look at the data center developers; they're all coming to a realization that there is going to be a growing need for off-grid solutions, as well as distributed power generation with a view to continuing the aspect of reducing emissions. So, you know, there are also opportunities for geothermal and others where we play.
Speaker Change: <unk> that we have in the multiple sectors that we play in.
Speaker Change: Okay, and then Nancy on getting to the 20% Odyssey margins next year. There are some finer points, but the broad buckets has kind of been on productivity cost price volume could you just refresh us on the drivers here and maybe the confidence around the individual pieces.
Nancy: Yeah, absolutely, we absolutely remain confident in hitting those 20% EBITDA margins and you're starting to see some traction with a lot of D.
Nancy: Activities that are being done been done in this segment and continuing actions and we do still see strength in international markets. This year. We're also maintaining our outlook for high single digit E&P Capex. So those are good drivers as well I would also just note that hitting that margin target does not require an acceleration of growth compared to where we already are so that's all baked.
James West: And we look at it as being a growing element of our equipment portfolio and a nice segment that, again, diversifies us versus others because of the portfolio that we have. Right. Thanks, Linda. Thank you. One moment for our next question. Our next question comes from the line of Luke Lemoine from Piper Sandler.
Nancy: Intuit alongside that we do have a cost out program that we've announced with Q4 earnings and that's really helping to reset the cost structure within the segment.
Nancy: Reducing further duplication and becoming more efficient I would said the team is also focused on continuing to drive more cost efficiencies around the business and we'll see more of that come to play as 2024 unfolds. The other piece of it is on the <unk> side, we have higher margin activity in that backlog and you'll see that drive up margins in 'twenty four and 'twenty.
Luke Lemoine: Hey, good morning, Lorenzo, and Nancy. The IT orders you had in 1Q put you on a nice pathway to hit the midpoint of the annual guide, with GTE being the largest component. I'm sure most of the variability resides here, and you talked about some of the non-LNG awards and outlook within. Can you just talk about some of the puts and takes within the annual order guidance for IU? I'll kick it off here, Luke.
Nancy: So overall I would say that 20% margin target remains in place, we feel very confident on it and it doesn't require anything from market tailwind to achieve so that's within our control and we continue to focus on that target.
Lorenzo Simonelli: And, you know, we remain very confident in the order range that we provided for 2024. If you look at the start of the year, very positive on the order front, booking over $2.9 billion in orders, including large awards, again, from Aramco, but also from Black & Veatch and Cedar LNG. And LNG equipment will still be a portion of the orders outlook as we go through the year. And again, it was significant last year. But it's also outside of LNG.
Speaker Change: Okay perfect. Thanks, Nancy Thanks Laurence.
Yes.
Speaker Change: Lou.
Speaker Change: Thank you.
Speaker Change: At this time I would now everyone.
Speaker Change: Yeah, maybe just thanks to everyone for joining the call today and.
Speaker Change: I look forward to speaking to everybody soon and I think operator you can.
Close to call.
Lorenzo Simonelli: It's onshore-offshore production. It's gas infrastructure, and also coupled with new energy. And as you look at the guidance that we've given of new energy orders between $800 and $1 billion and stable growth in services and industrial tech, so very confident in the $11.5 to $13.5 orders range and a strong pipeline of activity. And when you look at what's being heard from our customers and also what's being seen, I think growing confidence in the elements of gas infrastructure and the opportunities that we have in the multiple sectors that we play in.
Speaker Change: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may all disconnect everyone have a great day.
Speaker Change: Okay.
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Speaker Change: Okay.
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Speaker Change: Okay.
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Okay.
Lorenzo Simonelli: Okay, and then, Nancy, on getting to the 20% OFC margins next year, there were some finer points, but the broad buckets had kind of been on productivity and cost price. Can you just refresh this on the drivers here and maybe the confidence around the individual? Absolutely.
Speaker Change: Hum.
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Speaker Change: Yes.
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Nancy K. Buese: We absolutely remain confident in hitting those 20% EBITDA margins, and you're starting to see some traction with a lot of the activities that have been done in the segment and continuing actions. And we do still see strength in international markets this year. We're also maintaining our outlook for high single-digit EMP CapEx. So those are good drivers as well.
Okay.
Nancy K. Buese: I would also just note that hitting that margin target does not require an acceleration of growth compared to where we are already. So that's all baked into it. Alongside that, we do have a cost-out program that we announced with Q4 earnings, and that's really helping to reset the cost structure within the segment, reducing further duplication and becoming more efficient. I would say the team is also focused on continuing to drive more cost efficiencies around the business, and we'll see more of that come into play as 2024 unfolds.
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Nancy K. Buese: The other piece of it is on the SSPS side, we have higher margin activity in that backlog, and you'll see that drive up margins in 2024 and 2025. So overall, I would say that the 20% margin target remains in place. We feel very confident about it, and it doesn't require anything from market tailwinds to achieve. So that's within our control, and we continue to focus on that. Perfect. Thanks, Nancy. Ashley, Thank you. At this time, without everyone.
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Lorenzo Simonelli: Yeah, maybe just thanks to everyone for joining the call today and look forward to speaking to everybody soon. And I think, operator, you can close the call. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day. ?? ?? ?? ?? ?? Thanks for watching! ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good day, ladies and gentlemen, and welcome to the Baker Hughes Company first quarter 2024 earnings call. At this time, all participants are in a listen only mode.
Chase Mulvehill: 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 Mulvihill, Vice President of Investor Relations. Please, you may begin.
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Speaker Change: Good day, ladies and gentlemen, and welcome to the Baker Hughes Company first quarter 2024 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
Speaker Change: As a reminder, this conference call is being recorded.
Speaker Change: I'd 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 good morning, everyone and welcome to the Baker Hughes first quarter earnings Conference call here with me are chairman and CEO, Lorenzo Simonelli and our <unk>.
Chase Mulvehill: <unk> the.
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 be found on our investor website.
Chase Mulvehill: As a reminder, during the course of this conference call. We will providing forward looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please.
Chase Mulvehill: Please review, our SEC filings and web site for the factors that could cause actual results to differ materially.
Chase Mulvehill: Conciliation 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.
Lorenzo Simonelli: Thank you Chase good morning, everyone and thanks for joining US we are pleased with our solid first quarter results as we continue to build on the momentum from last year and shape our company.
Lorenzo Simonelli: The resilience of our order book and margin progress in both OFC Niet put us on a path towards achieving our full year guidance and overcoming external volatility.
Lorenzo Simonelli: Overall, EBITDA margins continued to demonstrate strong year over year growth, increasing by 100 basis points.
Lorenzo Simonelli: The margin upside was attributed to <unk>, where both gas tech equipment and industrial Tech demonstrated strong performance.
Lorenzo Simonelli: As highlighted on slide four we've had a positive start to the year on the order front.
Lorenzo Simonelli: This is particularly evident in Iot, where we booked over $2 9 billion of orders during the quarter, including large awards from Aramco to the master gas system free.
And black and veatch for Cedar LNG.
LNG equipment orders totaled almost $200 million during the quarter.
Lorenzo Simonelli: Excluding LNG equipment, our IHT business booked more than $2 $7 billion of orders the second highest of any quarter since the 2017 merger.
Lorenzo Simonelli: This was attributed to non LNG gas tech equipment orders more than tripling from prior year levels.
Lorenzo Simonelli: This really underscores the breath investor utility of our <unk> portfolio.
Lorenzo Simonelli: In OSP, we received two significant contract awards from Petrobras.
Lorenzo Simonelli: With the SaaS for integrated well construction services in the <unk> field.
Lorenzo Simonelli: Baker Hughes has been working closely with Petrobras on the field development for many years, leveraging our expertise across both OFC and.
Lorenzo Simonelli: Demonstrating the power of our combined portfolio.
Thank you. Good morning, everyone, and welcome to Baker Hughes' first quarter earnings conference call. Here with me are 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 be found on our investor website. As a reminder, during the course of this conference call, we are making forward-looking statements.
Lorenzo Simonelli: We have previously received awards that include Turbo machinery equipment on 10, <unk> for the <unk> field and multiple OFC service contracts.
Lorenzo Simonelli: The second Petrobras contract awarded during the quarter was to supply electrical submersible pumps variable speed drives and sand separation across 450 wells to help a customer in Brazil, optimize efficiency reliability and sustainability of it onshore operations.
Lorenzo Simonelli: And the bio terror cluster.
Lorenzo Simonelli: We delivered strong first quarter operating results.
Lorenzo Simonelli: Highlighted by 50% year over year EPS growth.
Lorenzo Simonelli: Importantly, we exceeded the midpoint of our EBITDA margin guidance.
These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for the factors that could cause actual results to differ materially. Reconciliations of operating income and other GAAP to non-GAAP measures can be found in our earnings release. With that, I'll turn the call over to Lorenzo. Thank you, Chase. Good morning, everyone, and thanks for joining us.
Lorenzo Simonelli: Driven by outstanding operational performance in IEP.
We are pleased with our solid first quarter results as we continue to build on the momentum from last year and shape our campaign. The resilience of our order book and margin progress in both OFSC and IET put us on a path towards achieving our full-year guidance and overcoming external volatility. Overall, EBITDA margins continue to demonstrate strong year-over-year growth, increasing by 100 basis points.
Lorenzo Simonelli: We booked $239 million of new energy orders and generated over $500 million of free cash flow.
Lorenzo Simonelli: As mentioned.
Lorenzo Simonelli: <unk> got off to a strong start to the year.
Lorenzo Simonelli: Compared to the first quarter of 2023.
Lorenzo Simonelli: EBITDA increased by 30% the best quarterly year over year growth rate in three years and represents 80 basis points of EBITDA margin improvement year on year.
The margin upside was attributed to IET, where both gas tech equipment and industrial tech demonstrated strong performance. As highlighted on slide four, we've had a positive start to the year on the Autus front. This is particularly evident in IAT, where we booked over $2.9 billion of orders during the quarter, including large awards from Aramco for the Master Gas System III and Black & Veatch for Cedar LNG. LNG equipment orders totaled almost $200 million during the quarter.
Lorenzo Simonelli: This was driven by the conversion of higher margin equipment backlog.
Lorenzo Simonelli: Continued margin expansion in our industrial tech businesses, and further efficiency and cost optimization efforts by the team.
Lorenzo Simonelli: Partially offset by continued tightness in the gas tax services supply chain.
Lorenzo Simonelli: And our FSC, we continued to make solid progress on the margin front, even with some lower offshore activity during the quarter.
Lorenzo Simonelli: Segment EBITDA margins were in line with guidance and improved 80 basis points compared to last year.
Excluding LNG equipment, our IET business booked more than $2.7 billion in orders, the second highest of any quarter since the 2017 merger. This was attributed to non-LNG gas tech equipment orders more than tripling from prior year levels. This really underscores the breadth and versatility of our IET portfolio. In OFSC, we received two significant contract awards from Petrobras, with the SAS for Integrated Well Construction Services in the Busia Field.
Lorenzo Simonelli: Supported by year over year, Oss incrementals of nearly 40%.
Lorenzo Simonelli: On the activity front, we experienced some delays in rigs coming out of maintenance in both Mexico, and the north sea due to tight supply chains and busy shipyards.
Lorenzo Simonelli: We expect these are only timing delays and see no impact to our overall outlook for OFC This year.
Lorenzo Simonelli: In line with our previous commitments, we continue to enhance returns to our shareholders.
Lorenzo Simonelli: During the quarter, we increased our quarterly dividend by one penny to 'twenty one.
Baker Hughes has been working closely with Petrobras on the field development for many years, leveraging our expertise across both OFSC and IET, demonstrating the power of our combined portfolio. We have previously received awards that include Turbo Machinery Equipment on 10 FPSOs for the Buseo field and multiple OFSC service contracts. The second Petrobras contract awarded during the quarter was to supply electrical submersible pumps, variable speed drives, and sand separation across 450 wells to help a customer in Brazil optimize efficiency, reliability, and sustainability of its onshore operations in the Baja Terra cluster.
Lorenzo Simonelli: Which represents an 11% increase year on year.
Lorenzo Simonelli: We repurchased $158 million of sheds.
Lorenzo Simonelli: And remain firmly on track to deliver 60% to 80% of free cash flow to shareholders.
Lorenzo Simonelli: Turning to the macro on slide five.
Lorenzo Simonelli: Since bottoming in December of last year oil prices have rallied significantly.
Lorenzo Simonelli: A resilient global economy.
Lorenzo Simonelli: Steeper than expected seasonal decline in U S oil production to start the year and the roll forward of OPEC plus production cuts have helped to key global oil market is more balanced.
Lorenzo Simonelli: OPEC plus timing on restarting idled oil production the trajectory of global economic activity and the geopolitical risk will be key factors in determining the oil price path for the remainder of the year.
We delivered strong first-quarter operating results, highlighted by 50% year-over-year EPS growth. Importantly, we exceeded the midpoint of our EBITDA margin guidance, driven by outstanding operational performance in IAT. We booked $239 million of new energy orders and generated over $500 million of free cash flow.
Lorenzo Simonelli: We reiterate our 2020 for North America, and international drilling and completion spending outlooks as we see potential offsets to higher oil prices.
Lorenzo Simonelli: In North America, our outlook remains for a year over year decline in the low to mid single digit range.
As mentioned, IET got off to a strong start to the year. Compared to the first quarter of 2023, IET's EBITDA increased by 30%, the best quarterly year-over-year growth rate in three years, and represents 80 basis points of EBITDA margin improvement year-on-year. This was driven by the conversion of higher-margin equipment backlogs, continued margin expansion in our industrial tech businesses, and further efficiency and cost optimization efforts by the team, although partially upset by continued tightness in the gas tech services supply chain.
We continue to anticipate declining activity in the U S gas basins, partially offsetting modest improvement in oil activity during the second half of the year.
Lorenzo Simonelli: Across international markets, we maintain our expectations for high single digit growth.
Lorenzo Simonelli: This contemplates extended OPEC plus cuts through the end of the year as well as any potential timing differences between the transitioning of rigs from oil to gas in Saudi Arabia.
Lorenzo Simonelli: Looking out beyond 2024, we expect continued upstream spending growth. Despite the recent MSC target reduction in Saudi Arabia.
Lorenzo Simonelli: Though at a more moderate pace than we have experienced in recent years.
In OFSC, we continue to make solid progress on the margin front; even with some lower offshore activity during the quarter, segment EBITDA margins were in line with guidance and improved 80 basis points compared to last year, as reported by year-over-year OFS incrementals of nearly 40%. On the activity front, we experienced some delays in rigs coming out of maintenance in both Mexico and the North Sea due to tight supply chains and busy shipyards. We expect these are only timing delays and see no impact on our overall outlook for OFSC this year.
Lorenzo Simonelli: We expect growth to be led by offshore markets in Latin America, and West Africa, as well as the middle East.
Lorenzo Simonelli: As we move into the next phase of the upstream spending cycle, we anticipate increasing focus on optimizing production from existing assets.
Lorenzo Simonelli: At our annual meeting in January we launched the mature asset solutions and emerging business that maximizes the health and value of our customers mature fields.
Lorenzo Simonelli: It leverages, our decades of experience deep domain knowledge and industry, leading technologies, including Lucifer and coveted franchises in both upstream chemicals and artificial lift.
In line with our previous commitments, we continue to enhance returns to our shareholders. During the quarter, we increased our quarterly dividend by one penny to 21 cents, which represents an 11% increase year on year, repurchased $158 million of shares, and remain firmly on track to deliver 60 to 80% of free cash flow to shareholders. Turning to the macro on slide five.
Lorenzo Simonelli: We continue to experience strong customer demand for new CPAP as this differentiated digital solution is driving next level efficiencies for our customers through automation digital optimization and workflow orchestration.
Lorenzo Simonelli: Turning to global natural gas and LNG on slide six.
Lorenzo Simonelli: The long term demand outlook for both remains very encouraging.
Since bottoming in December of last year, oil prices have rallied significantly. A resilient global economy, a deeper than expected seasonal decline in U.S. oil production to start the year, and the roll forward of OPEC plus production cuts have helped to keep global oil markets more balanced. OPEP plus timing on restarting idled oil production, the trajectory of global economic activity, and geopolitical risk will be key factors in determining the oil price path for the remainder of the year.
Lorenzo Simonelli: Through 2014, we expect natural gas demand to grow by almost 20%, representing a 1% CAGR driven growth and underlying energy demand and the desire to drive towards a net zero energy ecosystem.
Lorenzo Simonelli: Looking at non OECD Asia coal still accounts for about 60% of power generation, which is three to four times the level utilized in the United States and Europe.
As this region increasingly focuses on reducing and abating emissions, we expect coal to gas substitution to be multivalent <unk>, helping to drive a mid single digit CAC over for both India and China in natural gas demand through 2014, while the rest of Asia will grow at solid low single digit.
We reiterate our 2024 North America and international drilling and completion spending outlooks as we see potential offsets to higher oil prices. In North America, our outlook remains for a year-over-year decline in the low- to mid-single-digit range.
Lorenzo Simonelli: <unk>.
Lorenzo Simonelli: Strong underlying natural gas demand was robust growth in LNG over the coming decades.
We continue to anticipate declining activity in the U.S. gas basins, partially offsetting modest improvement in oil activity during the second half of the year. Across international markets, we maintain our expectations for high single-digit growth. This contemplates extended OPEC plus cuts through the end of the year, as well as any potential timing differences between the transitioning of rigs from oil to gas in Saudi Arabia. Looking out beyond 2024, we expect continued upstream spending growth despite the recent MSC target reduction in Saudi Arabia, although at a more moderate pace than we have experienced in recent years. We expect growth to be led by offshore markets in Latin America and West Africa, as well as the Middle East.
Lorenzo Simonelli: Through the end of this decade, we expect demand to increase by mid single digits annually.
Lorenzo Simonelli: We believe this will support an installed nameplate capacity of 800 <unk> by <unk>.
Lorenzo Simonelli: Looking out to 2040, we expect LNG demand.
Lorenzo Simonelli: Growth to continue requiring further capacity additions beyond 800 MTA.
Lorenzo Simonelli: While there could be periods of price volatility driven by temporary dislocations in supply and demand over this time period, we see these as opportunities for accelerated demand creation.
Lorenzo Simonelli: LNG consumers, who tend to be very price sensitive typically respond to lower prices with stronger demand.
As we move into the next phase of the upstream spending cycle, we anticipate an increasing focus on optimizing production from existing assets. At our annual meeting in January, we launched Mature Asset Solutions, an emerging business that maximizes the health and value of our customers' mature fields. It leverages our decades of experience, deep domain knowledge, and industry-leading technologies, including Lucipa, and coveted franchises in both upstream chemicals and artificial lift. We continue to experience strong customer demand for Lucipa as this differentiated digital solution is driving next-level efficiencies for our customers through automation, digital optimization, and workflow orchestration.
Lorenzo Simonelli: We are seeing evidence of this recently global LNG demand is up 4% year to date against the backdrop of an approximate 50% decline in LNG prices over the same period.
Lorenzo Simonelli: As shown on slide seven we expect global LNG <unk> of about 100 MTA over the next three years.
Lorenzo Simonelli: This view supported by customer dialogue and our internal LNG demand expectations would result in our installed capacity increasing by 70%.
Lorenzo Simonelli: This growing installed base brings significant opportunities for Baker Hughes across the lifecycle of the equipment.
Lorenzo Simonelli: Like our industrial peers are drastic businesses typically generates more profitability on the less cyclical after market services.
Turning to global natural gas and LNG, on slide six, the long-term demand outlook for both remains very encouraging. Through 2040, we expect natural gas demand to grow by almost 20%, representing a 1% CAGR-driven growth in underlying energy demand and the desire to drive towards a net zero energy ecosystem. Looking at non-OECD Asia, coal still accounts for about 60% of power generation, which is three to four times the level utilized in the United States and Europe.
Lorenzo Simonelli: For LNG equipment, specifically this accounted for less than 10% of our total company EBITDA last year.
Lorenzo Simonelli: On the new energy front, we continue to see good momentum with a number of positive developments across our five focus areas of Ccs hydrogen.
Lorenzo Simonelli: Formal clean power and emissions abatement.
Lorenzo Simonelli: As mentioned, we booked $239 million of new energy orders during the first quarter, including a climate Technology Solutions award from snap for compression trains driven by hydrogen ready Novo <unk> 12 turbines.
As this region increasingly focuses on reducing and abating emissions, we expect coal-to-gas substitution to be more pervasive, helping to drive a mid-single-digit CAGR for both India and China's natural gas demand through 2040, while the rest of Asia will grow at solid low-single-digit rates. Strong underlying natural gas demand will spur robust growth in LNG over the coming decades. Through the end of this decade, we expect demand to increase by mid-single digits annually, and we believe this will support an installed nameplate capacity of 800 MTPA by 2030.
Lorenzo Simonelli: This equipment will support a new gas compressor station in Italy that will eventually transport additional hydrocarbons from Azerbaijan Africa, and the eastern Mediterranean region to Northern Europe.
Lorenzo Simonelli: Cts also secured an order to supply ICL zero emissions integrated compressor technology to be deployed by total energies for our process plant and the rock on Walter region of Argentina.
Lorenzo Simonelli: We continue to expand our relationship with our key middle Eastern Industrial company, securing a cts order for the refurbishment of steam turbines and centrifugal compressor trains.
Looking out to 2040, we expect LNG demand and growth to continue, requiring further capacity additions beyond 800 mTPA. While there could be periods of price volatility driven by temporary dislocations in supply and demand over this time period, we see these as opportunities for accelerated demand creation. LNG consumers, who tend to be very price sensitive, typically respond to lower prices with stronger demand. We have seen evidence of this recently. Global LNG demand is up 4% year-to-date against the backdrop of an approximate 50% decline in LNG prices over the same period.
Lorenzo Simonelli: This upgrade drives process efficiency improvement and 5% estimated cotwo emissions reduction as part of the customer's energy transition roadmap.
Lorenzo Simonelli: As we look out across the rest of the year, we remain confident in achieving new energy orders between $800 million and $1 billion.
Lorenzo Simonelli: Which would amount to a tripling of new energy orders since 2021.
Lorenzo Simonelli: Longer term, we continue to be encouraged by increasing opportunities to support growing energy demand and decarbonization efforts, giving us confidence in achieving our 6% to $7 billion, new energy orders target in 2030.
Lorenzo Simonelli: Turning to slide eight I wanted to take a moment to reflect on some of the emerging themes within the energy sector.
As shown on slide seven, we expect global LNGF IDs of about 100 MTPA over the next three years. This view, supported by customer dialogue and our internal LNG demand expectations, would result in our installed capacity increasing by 70%. This growing installed base brings significant opportunities for Baker Hughes across the life cycle of the equipment. Like our industrial peers, our gas tech businesses typically generate more profitability on the less cyclical aftermarket services. For LNG equipment specifically, this accounted for less than 10% of our total company EBITDA last year.
Lorenzo Simonelli: It has been a busy quarter with several industry events, including our own annual meeting in Florence, where we hosted over 2000 customers partners and industry leaders in January.
Lorenzo Simonelli: Firstly, it is becoming clearer just how complex the undertaking is to transition the worlds energy ecosystem.
Lorenzo Simonelli: This complexity is driving a slower than expected expansion of renewable energy capacity and leading to record levels of coal demand.
Lorenzo Simonelli: Consequently, we are seeing more pragmatism towards a pathway for TG carbonization.
Lorenzo Simonelli: We are growing agency to affect this trend there is mounting consensus that there is no possible route to decarbonize, the energy system without driving greater efficiency and significantly increasing gases weighting within the overall energy mix.
On the new energy front, we continue to see good momentum with a number of positive developments across our five focus areas of CCUS, hydrogen, geothermal, clean power, and the emissions debate. As mentioned, we booked $239 million in new energy orders during the first quarter, including a Climate Technology Solutions Award from SNAM for compression trains driven by hydrogen-ready Nova LT12 turbines. This equipment will support a new gas compressor station in Italy that will eventually transport additional hydrocarbons from Azerbaijan, Africa, and the eastern Mediterranean region to northern Europe. CTS also secured an order to supply ICL Zero Emissions Integrated Compressor technology to be deployed by TotalEnergies for a process plant in the Vaca Muerto region of Argentina.
Lorenzo Simonelli: Energy provider space, the multifaceted challenge of providing secure sustainable and affordable energy against the backdrop of increasing energy demand.
Lorenzo Simonelli: Gas is abundant lower emission low cost and the speed to scale is unrivaled.
Lorenzo Simonelli: This is the age of gas.
Lorenzo Simonelli: Whether it be the super majors, the <unk> or the independent companies all of our customers are messaging that they plan to increase their exposure to gas in the coming years.
Lorenzo Simonelli: Baker Hughes is extremely well positioned to facilitate this through our upstream capabilities in OFC and expertise in LNG and gas infrastructure and IGT.
Lorenzo Simonelli: An excellent example of this is the reallocation of capital and Saudi Arabia, primarily towards gas.
We continue to expand our relationship with a key Middle Eastern industrial company, securing a CTS order for the refurbishment of steam turbines and centrifugal compressor trains. This upgrade drives process efficiency improvement and a 5% estimated CO2 emissions reduction as part of the customer's energy transition roadmap. As we look out across the rest of the year, we remain confident in achieving new energy orders between $800 million and $1 billion, which would amount to a tripling of new energy orders since 2021.
Lorenzo Simonelli: Following the recent announcement to not pursue an increase to its maximum sustainable capacity.
Lorenzo Simonelli: The country's shifting focus towards natural gas, where production is now expected to increase by more than 60% from <unk> will require a significant investment in gas infrastructure.
Lorenzo Simonelli: This represents a sizable opportunity for our business as highlighted by our <unk> Award.
Lorenzo Simonelli: Considering this transition towards gas as well as increasing investments in new energy and chemicals, we see this announcement as a long term net positive for Baker Hughes, given our exposure to all free markets.
Longer term, we continue to be encouraged by increasing opportunities to support growing energy demand and decarbonization efforts, giving us confidence in achieving our $6 to $7 billion New Energy Orders target in 2030. Turning to slide 8, I wanted to take a moment to reflect on some of the emerging themes within the energy sector. It has been a busy quarter with several industry events, including our own annual meeting in Florence, where we hosted over 2,000 customers, partners, and industry leaders in January. Firstly, it is becoming clearer just how complex the undertaking is to transition the world's energy ecosystem. This complexity is driving a slower-than-expected expansion of renewable energy capacity and leading to record levels of coal demand.
Lorenzo Simonelli: In addition, we are seeing a number of gas infrastructure projects emerge around the world.
Lorenzo Simonelli: These midstream opportunities along with solid first quarter bookings give us confidence that non LNG gas deck equipment orders will be up more than 50% this year.
Lorenzo Simonelli: Okay.
Lorenzo Simonelli: Adding further impetus to this growth theme is an increasing demand for artificial intelligence, which is expected to be a key enabler in driving significant productivity and efficiency improvements across the entire energy value chain and could enhance decarbonization efforts.
Lorenzo Simonelli: At Baker Hughes, we have been utilizing AI within our digital solutions for a number of years.
Lorenzo Simonelli: We continue to make great progress with our Lucifer production optimization solution, and OFC and drive greater efficiencies and reliability without coordinate solutions platform and <unk>.
Consequently, we are seeing more pragmatism towards a pathway for decarbonization. With growing urgency to affect this trend, there is mounting consensus that there is no possible route to decarbonize the energy system without driving greater efficiency and significantly increasing gas weighting within the overall energy mix. Energy providers face the multifaceted challenge of providing secure, sustainable, and affordable energy against the backdrop of increasing energy demand. Gas is abundant, has lower emissions, is low cost, and the speed to scale is unrivaled. This is the Age of Gap.
Which both leverage AI.
Lorenzo Simonelli: The efficiency and productivity benefits of AI will be balanced by the increased need for energy intensive data centers.
Lorenzo Simonelli: AI will likely drive substantial electrical load growth, therefore, increasing both the challenge and opportunity to provide clean reliable and power solutions.
Lorenzo Simonelli: Given the requirement for continuous power supply the demand for distributed power systems will be substantial.
Lorenzo Simonelli: With gas the likely dominant fuel source.
Lorenzo Simonelli: Baker Hughes is again well positioned to participate in this market through our clean power solutions, particularly on Nova LTE fleet of <unk>, which can run on natural gas and hydrogen.
Whether it be the supermajors, the NOCs, or the independent companies, all of our customers are messaging that they plan to increase their exposure to gas in the coming years. Baker Hughes is extremely well positioned to facilitate this through our upstream capabilities in OFSE and expertise in LNG and gas infrastructure in IET. An excellent example of this is the reallocation of capital in Saudi Arabia, primarily towards gas.
Lorenzo Simonelli: As the market scales.
Lorenzo Simonelli: <unk> of data centers, and Palo needs will also likely growth, which would benefit our largest scale solutions that include steam turbines for <unk> solutions and net power.
Lorenzo Simonelli: With the growing realization that we need and all of the above approach to the energy transition.
Following the recent announcement not to pursue an increase to its maximum sustainable capacity, the country's shifting focus towards natural gas, where production is now expected to increase by more than 60% through 2030, will require significant investment in gas infrastructure. This represents a sizable opportunity for our IET business, as highlighted by our MGS3 award, considering this transition towards gas, as well as increasing investments in new energy and chemicals. We see this announcement as a long-term net positive for Baker Hughes, given our exposure to all free markets.
Lorenzo Simonelli: Focus is shifting towards the emissions rather than the fuel source.
Lorenzo Simonelli: I have spoken about this important shift for several years now and we are pleased to see it taking hold and our customers' operations and policy initiatives.
Lorenzo Simonelli: The market's increasing alignment towards the view is supporting stronger momentum in particular for Ccs.
Lorenzo Simonelli: This is very encouraging to see and provides tailwind for our technology solutions that play across the entire <unk> value chain.
Lorenzo Simonelli: Specifically on the capture side, we continued to make progress across our portfolio, where we are developing a suite of solutions that have applications across various scales impurities of Sidoti.
In addition, we are seeing a number of gas infrastructure projects emerge around the world. These midstream opportunities, along with solid first quarter bookings, give us confidence that non-LNG gas tech equipment orders will be up more than 50% this year. Adding further impetus to this growth theme is an increasing demand for artificial intelligence, which is expected to be a key enabler in driving significant productivity and efficiency improvements across the entire energy value chain and could enhance decarbonization efforts.
Lorenzo Simonelli: Complementing our capture portfolio.
Lorenzo Simonelli: Cadence of experience, we havent Sidoti compression and storage.
Lorenzo Simonelli: <unk> compression, we have experienced a strong increase in demand both for offshore and onshore applications. While we are also involved in several seo to storage projects.
Lorenzo Simonelli: In summary.
Lorenzo Simonelli: All of these themes play to the strengths of Baker Hughes and continued to heighten our conviction in our strategy.
Lorenzo Simonelli: With our expansive portfolio capabilities and solutions offerings, we are uniquely positioned to deliver value for our diverse set of energy and industrial customers.
At Baker Hughes, we have been utilizing AI within our digital solutions for a number of years. We continue to make great progress with our Lucipa production optimization solution in OFSC and drive greater efficiencies and reliability with our Cordent solutions platform in IET, which both leverage AI. However, the efficiency and productivity benefits of AI will be balanced by the increased need for energy-intensive data centers.
This is what differentiates Baker Hughes and enables us to deliver durable earnings and free cash flow across our free time horizons.
Lorenzo Simonelli: With that I'll turn the call over to Nancy.
Nancy: Thanks, Lauren so I'll begin on slide 10, with an overview of our consolidated results and then speak to segment details before outlining our second quarter outlook.
Nancy: We are very pleased with our first quarter results above the midpoint of our EBITDA guidance orders remained solid as the diversity of Igt's end markets continue to support our strong level of orders.
AI will likely drive substantial electrical load growth, increasing both the challenge and the opportunity to provide clean, reliable, and firm power solutions. Given the requirement for a continuous power supply, the demand for distributed power systems will be substantial, with gas the likely dominant fuel source. Baker Hughes is again well positioned to participate in this market through our clean power solutions, particularly our Nova LT fleet of turbines, which can run on natural gas and hydrogen.
Nancy: We continue to make progress on driving operational improvements across the business to enhance margins and returns highlighted by the consistent improvement in EBITDA margins and ROIC.
Nancy: We remain confident in our full year guidance that points to another strong year for Baker Hughes.
Nancy: Adjusted EBITDA of $943 million increased 21% year over year and came in above the midpoint of our guidance range, which was due to stronger performance in IEP.
As the market scales, the size of data centers and power needs will also likely grow, which would benefit our larger-scale solutions that include steam turbines for SMR solutions and net power. With the growing realization that we need an all-of-the-above approach to the energy transition, the focus is shifting towards emissions rather than fuel sources.
Nancy: First quarter GAAP operating income was $653 million adjusted operating income was $660 million.
Nancy: GAAP diluted earnings per share were <unk> 45.
Nancy: Excluding adjusting items earnings per share were <unk> 43.
Nancy: An increase of 50% compared to the same quarter last year.
Nancy: Our adjusted tax rate continues to trend downwards declining to 29, 7% in the quarter as we continue to execute as planned.
I have spoken about this important shift for several years now, and we are pleased to see it taking hold in our customers' operations and policy initiatives. The market's increasing alignment towards this view is spawning stronger momentum, in particular for CCUS. This is very encouraging to see, and provides tailwinds for our technology solutions that play across the entire CCUS value chain. Specifically, on the capture side, we continue to make progress across our portfolio, where we are developing a suite of solutions that have applications across various scales and purities of CO2. Complementing our capture portfolio are the decades of experience we have in CO2 compression and storage.
Nancy: As a reminder, we guided to a midpoint of 29, 5% in 2024 down from our average 2023 tax rate of approximately 33%.
Nancy: Corporate costs for the quarter were $88 million $2 million lower than our guidance.
Nancy: Total company orders of $6 $5 billion maintained strong momentum highlighted by continued strength in orders of $2 9 billion.
Nancy: Alongside a strong order book <unk> ended the quarter at $29 3 billion.
Nancy: Up 10% year over year.
Nancy: <unk> remained at a healthy $3 4 billion up 8% year over year.
Nancy: These RP levels provide exceptional revenue and earnings visibility over the coming years.
For CO2 compression, we have experienced a strong increase in demand, both for offshore and onshore applications, while we are also involved in several CO2 storage projects. In summary, all of these themes play to the strengths of Baker Hughes and continue to bolster our conviction and our strategy. With our expansive portfolio, capabilities, and solutions offerings, we are uniquely positioned to deliver value for our diverse set of energy and industrial customers. This is what differentiates Baker Hughes and enables us to deliver durable earnings and free cash flow across our free time horizon. With that, I'll turn the call over to Nancy.
Nancy: Free cash flow was robust coming in at $502 million for the full year, we continue to target free cash flow conversion of 45% to 50% and expect free cash flow to be more weighted towards the back half of this year.
Nancy: Turning to slide 11, our balance sheet remains strong as we ended the first quarter with cash of $2 7 billion net debt to trailing 12 month adjusted EBITDA ratio of <unk>, eight times and liquidity of $5 7 billion.
Nancy: Let's turn to capital allocation on slide 12.
Nancy: In the first quarter, we returned $368 million to shareholders. This included $210 million of dividends, where we have increased the quarterly dividend three times over the past six quarters.
Thanks, Lorenzo. I'll begin on slide 10 with an overview of our consolidated results and then speak to segment details before outlining our second quarter outlook. We are very pleased with our first quarter results, above the midpoint of our EBITDA guidance. Orders remain solid as the diversity of IETs and markets continue to support a strong level of orders.
Nancy: In addition, we repurchased $158 million of shares.
Nancy: We remain committed to returning 60% to 80% of free cash flow to shareholders.
Nancy: The company was formed in 2017, we've now returned over $10 billion to shareholders through dividends and buybacks our primary.
We continue to make progress on driving operational improvements across the business to enhance margins and return, as highlighted by the consistent improvement in EBITDA margins and ROI. We remain confident in our full-year guidance that points to another strong year for Baker. EBITDA of $943 million increased 21% year-over-year and came in above the midpoint of our guidance range, which was due to stronger performance in IE2. First Quarter Gap Operating Income was $653 million, and Adjusted Operating Income was $660 million. GAAP diluted earnings per share were $0.45.
Nancy: <unk> focus is to continue growing our dividend with increases aligned with the structural growth in the Companys earnings power we.
Nancy: We will continue to use buybacks to reach our 60% to 80% target and will remain opportunistic on buybacks within this range.
Nancy: Now I'll walk you through our business segment results in more detail and provide our second quarter outlook.
Starting with oilfield services and equipment on slide 13.
Nancy: The segment maintained its strong margin trajectory meeting our margin expectations, despite heavier seasonality across our international markets.
Nancy: This is a testament to the work the Oss team has done to drive cost efficiencies across the business.
Excluding adjusting items, earnings per share were $0.43, an increase of 50% compared to the same quarter last year. Our adjusted tax rate continues to trend downwards, declining to 29.7% in the quarter as we continue to execute as planned. As a reminder, we guided to a midpoint of 29.5% in 2024, down from our average 2023 tax rate of approximately $33,000. Corporate costs for the quarter were $88 million, $2 million lower than our guidance.
Nancy: Strength in flexible helped to drive Sps orders of $633 million in line with fourth quarter levels. We expect the offshore market to remain strong and Sps order should remain at solid levels in 2024 and beyond.
Nancy: <unk> revenue in the quarter was $3 8 billion up 6% year over year.
Nancy: International revenue was down 5% sequentially, while North America fell 3%.
Nancy: <unk> in rig reactivation in Mexico, and the North Sea impacted international activity.
Total company orders of $6.5 billion maintained strong momentum, highlighted by continued strength and IET orders of $2.9 billion. Alongside a strong order book, IET RPO ended the quarter at $29.3 billion, up 10% year-over-year, while OFSC RPO remained at a healthy $3.4 billion, up 8% year-over-year. These RPO levels provide exceptional revenue and earnings visibility over the coming years. Free cash flow was robust, coming in at $502 million.
Nancy: Adding to the traditional seasonal declines typically experienced during the first quarter.
Nancy: In North America offshore declined while North America land held flat.
Nancy: OFC EBITDA in the quarter was $644 million up 11% year over year. This.
Nancy: This came in slightly below our guidance midpoint due to the previously mentioned and seasonal declines and slower than anticipated activation of offshore rigs factors that were considered in our guidance range.
Nancy: OSB EBITDA margin rate was 17%, increasing 80 basis points year over year, driven by continued improvements in cost efficiencies productivity enhancements and improved execution, particularly in Sps.
For the full year, we continue to target free cash flow conversion of 45 to 50% and expect free cash flow to be more weighted towards the back half of the year. Turning to slide 11, our balance sheet remains strong as we ended the first quarter with cash of $2.7 billion, a net debt to trailing 12-month adjusted EBITDA ratio of 0.8 times, and liquidity of $5.7 billion. Let's turn to capital allocation on slide 12.
Nancy: Now turning to industrial and energy technology on slide 14.
Nancy: This segment performed above the midpoint of our EBITDA guidance during the quarter due to improving revenues and margins.
Nancy: Orders were a solid $2 9 billion with.
Nancy: With non LNG gas tech equipment orders more than tripling compared to last year.
In the first quarter, we returned $368 million to shareholders. It included $210 million of dividends, where we have increased the quarterly dividend three times over the past six quarters. In addition, we repurchased $158 million of shares.
Nancy: Delighting, the diversity of our customer base and end market exposure.
Nancy: Ags orders were $193 million in the first quarter highlighted by strong orders for our Nova LTE 12 turbines that can run on 100% hydrogen.
We remain committed to returning 60% to 80% of free cash flow to shareholders. Since the company was formed in 2017, we've now returned over $10 billion to shareholders through dividends and buybacks. Our primary focus is to continue growing our dividend with increases aligned with the structural growth in the company's earnings power. We will continue to use buybacks to reach our 60% to 80% target and will remain opportunistic on buybacks within this range.
Nancy: <unk> ended the quarter at $29 3 billion.
Nancy: Up 10% year on year.
Nancy: <unk> Tec equipment, <unk> was $11 5 billion.
Nancy: Gas Tech services RPM was $14 6 billion.
Nancy: Gas Tech equipment book to Bill was one time, the 11th consecutive quarter of one or greater.
Nancy: Turning to slide 15.
Nancy: Revenue for the quarter was $2 6 billion.
Nancy: Up 23% versus the prior year led by a 46% increase in gas tech equipment revenues as we continue to execute our robust backlog.
Now I'll walk you through our business segment results in more detail and provide our second quarter outlook, starting with oil field services and equipment on slide 13. The segment maintained its strong margin trajectory, meeting our margin expectations despite heavier seasonality across our international markets. This is a testament to the work the OFSE team has done to drive cost efficiencies across Strength and Flexibles, which helped to drive SSPS orders of $633 million in line with fourth-quarter levels.
Nancy: EBITDA was $386 million up 30% year over year and exceeding the high end of our guidance range of $380 million from better gas tech equipment backlog conversion and strong performance in industrial Tech.
Nancy: Both drivers were previously identified as factors that would push us to the higher end of our guidance range.
Nancy: EBITDA margin was 14, 7% up 80 basis points year over year against the backdrop of robust growth in gas tech equipment.
We expect the offshore market to remain strong and SSPS orders should remain at solid levels in 2024 and beyond. OFSE revenue in the quarter was $3.8 billion, up 6% year-over-year. International revenue was down 5% sequentially while North America fell 3%. Delays in rig reactivations in Mexico and the North Sea impacted international activity, adding to the traditional seasonal declines typically experienced during the first quarter. In North America, offshore activity declined while North America land held flat.
Nancy: Solid margin improvement in both industrial Tech and gas Tech equipment were partially offset by higher R&D spend related to our new energy investments and continued supply chain tightness and gas Tech services.
Speaker Change: Before walking through our updated outlook, which is shown on slide 16, I would like to spend some time on the progress each business is making on achieving their 20% EBITDA margin targets.
Speaker Change: We are off to a strong start to the year and how efficacy and IGT EBITDA margins increased 80 basis points for both segments when compared to the same quarter last year.
OFSC EBITDA in the quarter was $644 million, up 11% year-over-year. However, this came in slightly below our guidance midpoint due to the previously mentioned seasonal declines and slower than anticipated activation of offshore rigs, factors that were considered in our guidance. OFSE's EBITDA margin rate was 17%, increasing 80 basis points year-over-year, driven by continued improvements in cost efficiencies, productivity enhancements, and improved execution, particularly in SSE. Now turning to industrial and energy technology on slide 14.
Speaker Change: Looking forward, we see good progression throughout the year and remain confident in our ability to achieve these targets in 2025 for OFC and 2026 for IAG.
Speaker Change: These are important targets that set a benchmark and demonstrate our operational progress since announcing the consolidation into our two segments from four segments previously.
Speaker Change: These actions helped to streamline the organization and have created a simpler leaner and lower cost structure that allows for faster decision, making and has driven more than $150 million of cost out across the company.
This segment performed above the midpoint of our EBITDA guidance during the quarter due to improving revenues and margins. IET orders were a solid $2.9 billion, with non-LNG gas tech equipment orders more than tripling compared to last year, highlighting the diversity of our customer base and end market exposure. ATS orders were $193 million in the first quarter, highlighted by strong orders for our NOVA LT12 turbines that can run on 100% hydrogen. IET RPO ended the quarter at $29.3 billion, up 10% year-on-year.
Speaker Change: In reality, we've been working on this since we brought the businesses together in 2017.
Speaker Change: To accelerate our transition to an energy technology company, we have long held the three pronged approach of transforming the core investing for growth and positioning for new energy frontiers.
Speaker Change: To date the success of transforming the core a key initiative to drive higher profitability and returns across the company has been most visible in our FSC.
Speaker Change: For this segment margins are expected to approach 18% this year.
Speaker Change: More than 400 basis points from pre Covid levels.
Gas Tech Equipment RPO was $11.5 billion, and GasTech Services RPO was $14.6 billion. Gas Tech Equipment Book to Bill was one time, the 11th consecutive quarter of one or greater.
Speaker Change: The <unk> team has done a tremendous job transforming the way the business operates with a focus on right sizing operations, removing duplication and improving service delivery to drive sustainable structural improvement in OFC margins.
Turning to slide 15, IET revenue for the quarter was $2.6 billion, up 23% versus the prior year, led by a 46% increase in gas tech equipment revenues as we continue to execute our robust backlog. IET EBITDA was $386 million, up 30% year over year and exceeding the high end of our guidance range of $380 million from better gas tech equipment backlog conversion and strong performance in industrial. Both drivers were previously identified as factors that would push us to the higher end of our guidance range.
Speaker Change: Turning to Igt's margin journey. This segment's margin progress has been more measured in part due to the tremendous growth in our gas tech equipment business, where we have consistently exceeded our order expectations. We are very excited by the robust growth in our equipment installed base that will drive decades of margin accretive service growth.
Speaker Change: And best guess tech.
Speaker Change: The <unk> team is committed to executing its margin expansion strategy.
Speaker Change: The nucleus of this strategy is instilling a more rigorous process driven culture across the organization.
Speaker Change: These changes are helping to drive enhanced operational discipline and dedication to continuous improvement in.
The EBITDA margin was 14.7%, up 80 basis points year-over-year against a backdrop of robust growth in gas tech equipment. Solid margin improvement in both industrial tech and gas tech equipment was partially offset by higher R&D spend related to our new energy investments and continued supply chain tightness in gas tech. Before walking through our updated outlook, which is shown on slide 16, I would like to spend some time on the progress each business is making on achieving their 20% EBITDA margin. We are off to a strong start to the year in OFSC and IETF. EBITDA margins increased 80 basis points for both segments when compared to the same quarter last year.
Speaker Change: In addition, there is a cultural shift to focus more on value over volume.
Speaker Change: With these foundational elements in place alongside the opportunities for better R&D absorption supply chain optimization and execution of higher margin backlog, we remain confident in achieving 20% margins for this segment.
Speaker Change: Next I'd like to update you on our outlook for the two business segments.
Speaker Change: Overall, the outlook remains strong for our businesses, which will be complemented by continued operational enhancements sustained improvement in backlog execution and margin upside.
Speaker Change: We continue to focus on operational excellence and service delivery across our two segments.
Looking forward, we see good progression throughout the year and remain confident in our ability to achieve these targets in 2025 for OFSE and 2026 for IET. These are important targets that set a benchmark and demonstrate our operational progress since announcing the consolidation into our two-segment operation from four segments previously. These actions help to streamline the organization and have created a simpler, leaner, and lower cost structure that allows for faster decision making and has driven more than $150 million of costs out across the country.
Speaker Change: For Baker Hughes, we expect second quarter revenue to be between six 6% and seven 5 billion and EBITDA between one and $1 1 billion.
Speaker Change: Resulting in EBITDA margin rate increasing quarter over quarter by approximately 70 basis points at the midpoint.
Speaker Change: For OFC, we expect second quarter results to reflect typical seasonal growth in international and flattish activity in North America.
Speaker Change: We expect second quarter OFC revenue between three 8% and $4 <unk> billion.
Speaker Change: And EBITDA between 660 and $710 million.
In reality, we've been working on this since we brought the businesses together in 2017. To accelerate our transition to an energy technology company, we have long held the three-pronged approach of transforming the core, investing for growth, and positioning for new energy. To date, the success of Transforming the Core, a key initiative to drive higher profitability and returns across the company, has been most visible in OFSC. For this segment, margins are expected to approach 18% this year, at more than 400 basis points from pre-COVID levels.
Speaker Change: Factors impacting this range include the phasing of 2020 for E&P budgets Sps backlog conversion realization of further cost out initiatives and the pace of recovery in activity that was deferred in the first quarter.
Speaker Change: We expect second quarter results to benefit from strong year over year revenue growth as we continue to execute on our near record backlog for gas tech equipment and convert our healthy backlog in industrial technology.
Speaker Change: We also expect to see continued progress on our margins as we drive productivity enhancements and process improvements across the business.
The OFSC team has done a tremendous job transforming the way the business operates, with a focus on right-sizing operations, removing duplication, and improving service delivery to drive sustainable, structural improvement in OFSC marketing. Now, turning to IET's Margin Journey.
Speaker Change: Overall, we expect second quarter IEP revenue between $2, eight and $3 5 billion and EBITDA between $425 and $475 million.
Speaker Change: The major factors driving this range will be the pace of backlog conversion and gas tech equipment, the impact of any aero derivative supply chain tightness in gas Tech and.
This segment's margin progress has been more measured, in part due to the tremendous growth in our gas tech equipment business, where we have consistently exceeded our order expectations. We are very excited by the robust growth in our equipment install base that will drive decades of margin-accretive service growth in Bexar. The IET team is committed to executing its margin expansion strategy. At the nucleus of this strategy is instilling a more rigorous, process-driven culture across the organization.
Speaker Change: And operational execution in industrial Tech.
Speaker Change: Turning to our full year outlook, we maintain our 2024 guidance issued in January of this year.
Speaker Change: For the full year 2024, we continue to expect Baker Hughes' revenue to be between 26, 5% and $28 5 billion and EBITDA between four one and $4 5 billion.
Speaker Change: At the midpoint our outlook results in Ebitdas growing a strong 14% from the prior year.
These changes are helping to drive enhanced operational discipline and dedication to continuous improvement. In addition, there is a cultural shift to focus more on value over volume. With these foundational elements in place, alongside the opportunities for better R&D absorption, supply chain optimization, and execution of higher margin backlog, we remain confident in achieving 20% margins for this project. Next, I'd like to update you on our outlook for the two businesses. Overall, the outlook remains strong for our business, and will be complemented by continued operational enhancement.
In addition, we still expect total company, new energy orders of $800 million.
Speaker Change: $1 billion, which at the high end would amount to a tripling of new energy orders since 2021.
Speaker Change: Oh FSC, we maintain our full year forecast of revenue between $15 75, and $16 75 billion and EBITDA between two eight and three point out $1 billion. As we expect continued strength across international markets to be modestly offset by softness in North America land.
Speaker Change: We expect <unk> orders to remained at robust levels. This year and maintain a range between 11, 5% to $13 5 billion.
We continue to focus on operational excellence and service delivery across our team. For Baker Hughes, we expect second quarter revenue to be between $6.6 and $7.05 billion, and EBITDA between $1 and $1.1 billion, resulting in the EBITDA margin rate increasing quarter over quarter by approximately 70 basis points. For OFSE, we expect second quarter results to reflect typical seasonal growth in international and sladdish activity in North America. We expect second quarter OFSC revenue between $3.8 and $4.0 billion and EBITDA between $660 and $710 million.
Speaker Change: Driven by strong momentum across all aspects of the portfolio.
Speaker Change: As mentioned, we have already experienced a noticeable increase in non LNG gas tech equipment orders in the first quarter.
Speaker Change: As a result of continued momentum in exceptional orders performance over the last two years, we maintain our full year.
Speaker Change: Guidance for revenue between $10, 75, and $11 $75 billion.
Speaker Change: And EBITDA between $1 65, and $1 85 billion.
Speaker Change: In summary, we remain confident in our ability to generate 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 differentiated portfolio of products and services.
Factors impacting this range include the phasing of 2024 E&P budgets, SSPS backlog conversion, realization of further cost-out initiatives, and the pace of recovery and activity that was deferred in the. For IET, we expect second quarter results to benefit from strong year-over-year revenue growth as we continue to execute on our near-record backlog for gas tech equipment and convert our healthy backlog into industrial technology. We also expect to see continued progress on our margins as we drive productivity enhancements and process improvements across. Overall, we expect second-quarter IET revenue between $2.8 and $3.05 billion and EBITDA between $425 and $475 million.
Speaker Change: Overall, we are very pleased with the progress demonstrated by our first quarter results and remain excited about the future of Baker Hughes.
Speaker Change: Turn the call back to Lorenzo.
Lorenzo Simonelli: Thank you Nancy.
Lorenzo Simonelli: Turning to slide 18 two.
Lorenzo Simonelli: <unk> 2024 is off to a strong start for Baker Hughes highlighted by our strong margin performance in both OFC and IEP.
Lorenzo Simonelli: <unk> focus on commercial enhancements and cost efficiencies are driving structural improvement in both segments underlying margins.
Lorenzo Simonelli: With these transformational efforts gaining momentum we remain on track to achieve our 20% margin targets for both segments.
The major factors driving this range will be the pace of backlog conversion in gas tech equipment, the impact of any aeroderivative supply chain tightness in gas tech, and Operational Execution and Industry. Turning to our full-year outlook, we will maintain our 2024 guidance issued in January of this year. For the full year 2024, we continue to expect Baker Hughes revenue to be between $26.5 and $28.5 billion and EBITDA between $4.1 and
Lorenzo Simonelli: Margin improvement and EBITDA growth are important parts of the <unk> story.
Lorenzo Simonelli: As important we have significantly improved our returns on invested capital.
Lorenzo Simonelli: Which has increased by more than three times compared to 2019 levels.
Lorenzo Simonelli: I'll focus on disciplined growth and margin enhancement facilitated by transforming the way we work.
Lorenzo Simonelli: Helping to drive meaningful improvements and returns across the company.
Lorenzo Simonelli: With margins EBITDA and returns forecast to increase further over the coming years, we expect to see stronger free cash flow conversion of at least 50% through the cycle and as a result higher free cash flow.
At the midpoint, our outlook results in EBITDA growing a strong 14% from the prior year. In addition, we still expect total company new energy orders of $800 million to $1 billion, which at the high end would amount to a tripling of new energy orders since 2020. For OFSE, we maintain our full-year forecast of revenue between $15.75 and $16.75 billion and EBITDA between $2.8 and $3.0 billion, as we expect continued strength across international markets to be modestly offset by softness in North America alone.
Lorenzo Simonelli: When combined with our balanced portfolio untapped market opportunities and overhauled cost structure.
Lorenzo Simonelli: Baker Hughes is becoming less cyclical in nature and capable of generating more durable earnings and free cash flow across cycles.
Lorenzo Simonelli: All of these metrics provide a healthy backdrop as we remain committed to returning 60% to 80% of free cash flow to shareholders.
We expect IET orders to remain at robust levels this year and maintain a range between $11.5 to $13.5 billion, driven by strong momentum across all aspects of the IET portfolio. As mentioned, we've already experienced a noticeable increase in non-LNG gas tech equipment orders in the first quarter. As a result of continued momentum and exceptional order performance over the last two years, we maintain our full-year IET guidance for revenue between $10.75 and $11.75 billion and EBITDA between $1.65 and $1.85 billion.
Lorenzo Simonelli: This will add to the impressive $10 billion plus that we have already returned to shareholders since forming the new company in 2017.
Lorenzo Simonelli: To put this in context this amounts to almost one third of our current market cap.
Lorenzo Simonelli: We have a history of returning cash to shareholders and expect to continue that trend well into the future.
Lorenzo Simonelli: With that I'll turn the call back over to Chase.
Chase Mulvehill: Thanks, Lorenzo operator, let's open the call for questions.
Lorenzo Simonelli: Thank you as a reminder to ask a question. Please press star one one on your telephone.
In summary, we remain confident in our ability to generate double-digit EBITDA growth for the fourth consecutive year as we remain focused on execution, driving further operational improvements, and capitalizing on market tailwinds with our differentiated portfolio of products and services. Overall, we are very pleased with the progress demonstrated by our first quarter results and remain excited about the future of Baker. I'll turn the call back to Lorenzo. Thank you, Nancy. Turning to slide 18.
Wait for your name to be announced to withdraw your question. Please press star one one again, we ask that you. Please limit yourself to one question and one related follow up.
Lorenzo Simonelli: Please standby, while we compile the Q&A roster.
Lorenzo Simonelli: Our first question comes from the line of Scott Gruber from Citigroup.
Scott Gruber: Yes, good morning.
Scott Gruber: Hi, Scott.
2024 is off to a strong start for Baker Hughes, highlighted by our strong margin performance in both OFSC and IET. Our continued focus on commercial enhancements and cost efficiencies are driving structural improvement in both segments' underlying margins. With these transformational efforts gaining momentum, we remain on track to achieve our 20% margin targets for both segments. Margin improvement and EBITDA growth are important parts of Baker Hughes' story. As important, we have significantly improved our returns on invested capital, which have increased by more than three times compared to 2019 levels.
Scott Gruber: So your margins were quite strong despite a headwind from more equipment revenues, which was great to see in the rest of you walked through the multiple drivers.
Scott Gruber: Looking at <unk> guidance is above our forecast we did list the full year. So can you walk through how you think about those margin drivers continuing.
Scott Gruber: How do you think about the impact on the second half for other.
Scott Gruber: Are there reasons to believe the normal seasonality, maybe a bit more muted for both revenues and margins in the second half or is the high end of the range for the full year revenues and EBITA looking more likely now for it.
Speaker Change: Yes, Scott first of all.
Our focus on discipline, growth, and margin enhancement facilitated by transforming the way we work is helping to drive meaningful improvements in returns across the company. With margins, EBITDA, and returns forecast to increase further over the coming years, we expect to see stronger free cash flow conversion of at least 50% through the cycle, and as a result, higher free cash flow. When combined with our balanced portfolio, untapped market opportunities, and overhauled cost structure, Baker Hughes is becoming less cyclical in nature and capable of generating more durable earnings and free cash flow across cycles.
Scott Gruber: Very strong quarter for the company and as you said led by also but.
Speaker Change: Overall very pleased by both segments and.
Speaker Change: A very strong solid quarter and.
Scott Gruber: As we've said we've been committed to Johnny Eni towards the 20% EBIT Dah and Youre starting to see some of those levers coming through as you look at first quarter and as you look at the.
Speaker Change: The rest of the year again, you've got.
Speaker Change: Strong backlog conversion and gas tech equipment as you can see in the first quarter revenue up nearly 50% year over year and that helped to gas tech equipment from a margins perspective.
Speaker Change: EBITDA was up nearly 200 basis points, and you're seeing the better backlog margin coming through as well as productivity in the factories.
All of these metrics provide a healthy backdrop, as we remain committed to returning 60% to 80% of free cash flow to shareholders. This will add to the impressive $10 billion plus that we have already returned to shareholders since forming the new company in 2017. To put this in context, this amounts to almost one-third of our current market cap. We have a history of returning cash to shareholders and expect to continue that trend well into the future. With that, I'll turn the call back over to Chase.
Speaker Change: A bright spot was in IGT from an industrial solutions perspective, as you look at the.
Speaker Change: The revenue side, but also when you look at the projects and the services revenue, which was up 20% year over year and margins also improving in the Bentley, Nevada with some of the supply chain constraints that we've discussed before that have been alleviated now and also gas Tech services.
Speaker Change: Revenue increasing.
Speaker Change: We went through the first quarter, we continued to see that for the rest of the year, even though we're still constrained by some of the supply chain headwinds. So as you look at <unk> for the rest of the year. We continue on the basis that we said in the journey that we've laid out with continued margin expansion and improvement toward.
Thanks, Lorenzo. Operator, let's open the call for questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker Change: That 20% as we go forward as we continue the journey.
Speaker Change: Got it.
Speaker Change: And then turning to the production side of OS and we recently saw one of your big competitors move to enhance their position how do you see the market evolving for the production vertical where you have a strong position.
We ask that you please limit yourself to one question and one related follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Scott Gruber from Citigroup. Good morning. Hi, Scott. So your IEP margins were quite strong, despite a headwind from more equipment revenues, which is great to see. And Lorenzo, you walked through the multiple drivers.
Speaker Change: The growth rate for production start to rival the growth rate.
Speaker Change: For drilling and completion spend in 'twenty, five and beyond and how do you think about the competitive dynamics in the market.
Looking at 2Q, IEP guidance is above our forecast, but you didn't list the full year. So can you walk through, you know, how you think about those margin drivers continuing? What impact do you think they will have on the second half for IEP?
Speaker Change: Your team was we're quite excited by your production optimization solutions.
At your annual meeting.
Speaker Change: Yes got it very good points and for us.
Are there reasons to believe the normal seasonality may be a bit more muted for both revenues and margins in the second half? Or is the high end of the range for full year revenues and EBITDA looking more likely now for IEP? Yeah, Scott, first of all, a very strong quarter for the company, and as you said, led by IAT, but overall, very pleased with both segments. And IAT, a very strong, solid quarter.
Speaker Change: Whats happening from the external perspective, and the dynamics doesn't change.
Speaker Change: The strategy and we've been firmly focused on our strategy around production solutions for some time as you know from.
Speaker Change: The comments that I made at the annual meeting 70% of the world's production comes from mature assets and.
Speaker Change: Our mature asset being a.
Speaker Change: Well that's.
Speaker Change: Produced 50% of its reserves or has been in production for over 25 years and when we look at the future. There is a tremendous focus on improving that optimization and we've got some great capabilities with the largest global installed base of USPS.
And as we've said, we're committed to our journey in IAT towards the 20% EBITDA. And you're starting to see some of those levers coming through. As you look at the first quarter, and as you look at the rest of the year, again, you've got strong backlog conversion in gas tech equipment. As you can see in the first quarter, revenue was up nearly 50% year over year.
Speaker Change: 44000 pumps and we're moving about.
Speaker Change: Midland barrels fluid daily and again as you look at.
And that helped the gas tech equipment. From a margins perspective, EBITDA was up nearly 200 basis points. And you're seeing the better backlog margin coming through, as well as productivity in the factories. Another bright spot was in IAT from an industrial solutions perspective, as you look at the revenue side. But also when you look at the projects and the services revenue, which was up 20% year over year.
Speaker Change: Continued chemicals that are being applied and a 1% improvement just in a mature asset.
Production can give a two to three years of global consumption. So as.
Speaker Change: As we go forward.
Speaker Change: No change and we continue to see this is a space where between IRA Rts, our ESP and chemical solutions and also the digital automation and AI that we can deliver through new sofa being a great opportunity for our customers and increasing area of focus for our company.
And margins are also improving in Bentley Nevada with some of the supply chain constraints that we've discussed before that have been alleviated now. And also gas tech services, revenue increasing as we went through the first quarter. We continue to see that for the rest of the year, even though we're still constrained by some of the supply chain headwinds. So as you look at IAT for the rest of the year, we continue on the basis that we've said and the journey that we've laid out with continued margin expansion and improvement towards that 20% as we go forward. I got it.
Speaker Change: I appreciate the color lines. Thank you.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Rooms: Our next question comes from the line of our rooms, you're wrong from Jpmorgan Securities LLC.
Arjun: Yes, good morning, Lorenzo Nancy Lorenzo I wanted to start with the Saudi MSC reduction I wanted to get your perspective on the potential impacts to Baker from the changing mix of activity.
Our rooms: With the higher mix of onshore versus offshore and perhaps you could just comment on what on the gas side of the equation with a higher infrastructure spend chemicals and new energy spend what that means for bakers, we think about rest of this year and into next year.
And then turning to the production side of OSSE, you know, we recently saw one of your big competitors move to enhance their position. How do you see the market evolving for the production vertical, where you have a strong position? You know, does the growth rate for production start to rival the growth rate, you know, for drilling and completion spend in 25 and beyond? And what do you think about the competitive dynamics in the market? Your team was quite excited by your production optimization solutions at your annual meeting. Yeah, Scott, it's a very good point.
Nancy K. Buese: Yes, sure Arun and.
Speaker Change: We remain confident in the international market outlook.
Speaker Change: We expect E&P spending to be up high.
Arun Jayaram: High single digits this year end.
Arun Jayaram: As we look at in particular.
Arun Jayaram: MFC reduction.
Arun Jayaram: As we said in the last call we don't anticipate any.
And, you know, for us, what's happening from the external perspective and the dynamics doesn't change the strategy. And we've been firmly focused on a strategy around production solutions for some time. As you know, from the comments that I made at the annual meeting, 70% of the world's production comes from mature assets, and, you know, a mature asset is a well that has produced 50% of its reserves or has been in production for over 25 years.
Arun Jayaram: Real changes and in fact, when we look at.
Arun Jayaram: Saudi we see it as opportunities outside of just the upstream area given our presence as you know natural gas production is set to grow by 60%.
Arun Jayaram: Through 2030, and it's going to benefit our <unk> business you saw the announcement that was made in <unk> relative to the master gas system free.
Arun Jayaram: Free the pipeline project that is going to be more opportunities down. The road also this shift of Capex is also across new energy and chemicals. We recently opened our new chemical facility in the Kingdom. We're also as you know from a new energy perspective participating in.
And when we look at the future, there's a tremendous focus on improving that optimization, and we've got some great capabilities with the largest global installed base of ESPs, 44,000 pumps. And, you know, we're moving about 80 million barrels of fluid daily. And again, as you look at the continued chemicals that are being applied, and a 1% improvement just in mature asset production can give two to three years of global consumption. So, you know, as we go forward, there will be no change.
Arun Jayaram: Hydrogen on neon so overall the capex shift for US is a longtime net positive for Baker Hughes and doesn't change the outlook that we laid out at the beginning of the year.
Arun Jayaram: Great. That's helpful. Maybe a follow up maybe for Nancy Nancy I want to get your take on some of the puts and takes around.
Nancy: The <unk> guide it looks to be about 3% above our model on it looks like just slightly better margins.
And we continue to see this as a space where, you know, between our RTS, our ESPs, and chemical solutions and also the digital automation and AI that we can deliver through Lucipa, a great opportunity for our customers and an increasing area of focus for our company. Appreciate the color, Lorenzo.
Nancy: So just wondering if you could talk about some of the puts and takes in just the <unk>.
Nancy: Fact that you've kept the back half maybe a follow up to Scott's question.
Nancy: The full year. The same are you getting a little bit more confidence on the full year outlook.
Nancy: Even.
Nancy: What's transpiring in the first half of the year.
Speaker Change: Yeah happy to take that one so on Q2, I'd really say the strength in our guide for that quarter highlights our differentiated portfolio and we've really been talking about how thats, helping us to frame up more durable earnings and strong free cash flow generation and growth our midpoint for EBITDA guidance in Q2 really represents about 16% year over year.
Thank you. Thank you. One moment for our next question. Our next question comes from the line of Arun Jayaram from JP Morgan Securities LLC. Good morning, Lorenzo and Nancy.
Lorenzo, I want to start with the Saudi MSC reduction. I wanted to get your perspective on the potential impacts on Baker from the changing mix of activity, with the higher mix of onshore versus offshore. And perhaps you could just comment on what, on the gas side of the equation, with higher infrastructure spend, chemicals, and new energy spend, what that means for Baker as we think about the rest of this year and into next year. Yeah, sure, Arun. And, you know, we remain confident in the international market outlook. We expect E&P spending to be up high single digits this year.
Speaker Change: And that's about 20% EBITDA growth in the IGT business. So there are a lot of good drivers. There we've talked about that really robust backlog levels that are driving the gas tech equipment acceleration and much higher margins in the backlog as we convert as we've been signaling and then we're also seeing broadening strength across industrial tech.
Speaker Change: I would also say the cost focus and the process driven mindset deepened in the business is starting to show signs of really solid momentum and the midpoint of that guidance is indicating that margin expansion and that's even as gas tech equipment growth continues to impact us in and again, we've talked very much about how the growth.
Speaker Change: Equipment is great for us in the longer term and we loved that installed base I would say, that's also offset a bit by a slower than expected start to the year and OFC and some of thats related to timing and offshore rig delays. So on balance we'd say Q2 is showing modestly better seasonal recovery is on the <unk> side of some of those rigs.
And, you know, as we look at, in particular, the MSC reduction, as we said in the last call, we don't anticipate any real changes. And, in fact, when we look at Saudi Arabia, we see it as opportunities outside of just the upstream area, given our presence. As you know, natural gas production is set to grow by 60% through 2030, and it's going to benefit our IAT business. You saw the announcement that was made in 1Q relative to the master gas system free, the pipeline project. There are going to be more opportunities down the road. Also, this shift of CAPEX is also across new energy and chemicals. We recently opened our new chemical facility in the kingdom.
Speaker Change: Come out of maintenance and also some of the delayed product shipments came out of Q1 into Q2, but net net I would say for the year, we would retain our guidance as is there still a lot of unknowns and it's still early in the year, we're very confident in our full year guidance and we will keep an eye on it if there's if there is more to tell we will be back to you next quarter with with more information, but we.
Speaker Change: Feel very good about execution and we're on the right track for Q2 and balance of the year.
Speaker Change: Thanks, Tim I appreciate it.
Speaker Change: Thank you one moment for our next question.
We're also, as you know, from a new energy perspective, participating in hydrogen and neon. So, overall, this CAPEX shift for us is a long-term net positive for Baker Hughes and doesn't change the outlet that we laid out at the beginning of the year. Great, that's helpful. Maybe a follow-up, maybe for Nancy.
Our next question comes from the line of Dave Anderson from Barclays.
John David Anderson: Great. Thank you Larry and good morning, Lorenzo I was wondering if you could talk a little bit at the non high.
Speaker Change: Hi.
John David Anderson: We can talk about the non LNG side of the IEP GAAP Tech equipment order side.
I think you made a couple of comments I know you talked about as these tripled this quarter and you expect to be up 50%. This year could you kind of dig into that a little bit about where thats being driven from I know, we've had an offshore side, which tends to be a little lumpier. I know you had the Mgs three award in there, but could you just sort of talk about the mix of that non LNG business. Please.
Nancy, I want to get your take on some of the puts and takes around the 2Q guide. It looks to be about 3% above our model on, looks like, slightly better margins. And so, just wondering if you could talk about some of the puts and takes and just the fact that you kept the back half. Maybe follow up to Scott's question. You did the full year the same.
Speaker Change: Definitely Dave and thanks for the question, obviously, we've spoken a lot about LNG and we will I'm sure in the future and I think at times, we don't.
Are you getting a little bit more confidence on the full year outlook given what's transpiring in the first half of the year? Happy to take that one. So on Q2, I'd really say the strength in our guide for that quarter highlights our differentiated portfolio, and we've really been talking about how that's helping us to frame up more durable earnings and strong free cash flow generation and growth. Our midpoint for EBITDA guidance in Q2 really represents about 16% year-over-year growth, and that's about 20% EBITDA growth in the IET business. So there are a lot of good drivers there.
Speaker Change: Get a lot of time to talk about the non LNG sector and it's a very important part of our portfolio and it's very expensive as well and the equipment and solutions that play across a number of end markets, including the upstream midstream refining petrochemical as you look at the pipelines and various industrial and <unk>.
Speaker Change: Our end markets and its really the volatility of our equipment that not only goes into LNG, but goes into these ever end markets.
We've talked about the really robust backlog levels that are driving the gas tech equipment acceleration and much higher margins in the backlog as we convert, as we've been signaling. And then we're also seeing broadening strength across industrial tech. I would also say the cost focus and the process-driven mindset deep into the business are starting to show signs of really solid momentum.
Speaker Change: <unk> was evidence of that and as you said.
Speaker Change: Triple down in <unk> versus prior year.
Speaker Change: Onshore offshore production has remained consistently strong as part of the mix as you see both on the compression side that you see on the power generation side, you highlighted the master gas system.
Speaker Change: And as you continue to see the shift towards gas that gas infrastructure plays towards a lot more compression place towards also the pipelines that place towards a lot of the onshore power generation, that's going to be necessary also as you look at on the industrial side when you.
And the midpoint of that guidance is indicating that margin expansion, and that's even as gas tech equipment growth continues to impact us. And again, we've talked very much about how the growth in equipment is great for us in the longer term, and we love that installed base. I would say that's also offset a bit by a slower than expected start to the year in OFSC, and some of that is related to timing and offshore rig delays.
Speaker Change: Think about the needs for distributed power generation that plays to the.
So on balance, we'd say Q2 is showing modestly better seasonal recovery on the OFSC side as some of those rigs come out of maintenance and also some of the delayed product shipments came out of Q1 into Q2. But net-net, I would say for the year, we would retain our guidance as is. There are still a lot of unknowns, and it's still early in the year.
Speaker Change: And industrial gas turbines that we have the Nobel T. So across it.
Speaker Change: We see an expanding base of non LNG equipment.
Speaker Change: Again, it's part of the expansive portfolio that we have including the pumps the valves and the other areas that go into the other sectors. When you think of refineries and also petrochemicals that are also in.
We're very confident in our full year guidance, and we'll keep an eye on it. If there's more to tell, we'll get back to you next quarter with more information. But we feel very good about execution, and we're on the right track for Q2 and balance. Thanks, team. I appreciate it.
Speaker Change: Increasing infrastructure builds that are happening around the world as we continue through.
Speaker Change: Energy demand that is increasing.
One moment for our next question. Our next question comes from the line of Dave Anderson from Barclays. Great. Thank you, Ryan. Good morning, Lorenzo.
Speaker Change: And is there sort of expanding upon that I'd like to dig into maybe a little bit on what's going on in Saudi here you touched on here a bit obviously, we saw the award we saw this quarter, but I'd be curious if you could talk about how you're differentiated versus your competitors on both the IEP side and the RCC side.
I was wondering if we could talk a little bit about the non-LNG side of the IET gas tech equipment order side. I think you made a couple of comments on that. You talked about how revenue tripled this quarter, and you expect it to be up 50% this year. Could you kind of dig into that a little bit about where that's being driven from? I know we've had an offshore side, which tends to be a little lumpier.
Speaker Change: So we're talking about displacing oil driven powered industrial side of the natural gas.
Speaker Change: And so that seems like an enormous opportunity Saturday, but it seems like a very unique opportunity for really just Baker and then if I flip over to the <unk> side, one thing you've really done differently than others manufacturing in country kind of could you talk to that a little bit about how both the key initiative in the kingdom and how that gives you an advantage.
I know you had the MGS3 award in there, but could you just sort of talk about the mix of that non-LNG business? Definitely, Dave, and thanks for the question. Obviously, we've spoken a lot about LNG, and we will again, I'm sure, in the future. And I think at times we don't get a lot of time to talk about the non-LNG sector, and it's a very important part of our portfolio, and it's very expansive as well in the equipment and solutions that play across a number of end markets, including upstream, midstream, refining, petrochemical, as you look at the pipelines and various industrial and other end markets.
Speaker Change: Yes, thanks and.
Speaker Change: Know that you and the team also had the chance to tour the region and also.
Speaker Change: Visit the Kingdom and that's true we focused a lot on localization and as I mentioned, we just recently opened our chemicals facility on new petrol I've. We've also got <unk>.
Speaker Change: <unk> set a manufactured we've also got compressive and.
Speaker Change: We look at drill bits and across the Kingdom, we focused on localization to support not just the kingdom, but also support the region and outside of the region fruit capability close to our customers and that's been a strategy of focus and.
And it's really the versatility of our equipment that not only goes into LNG but goes into these other end markets. And 1Q was evident of that, and as you said, it tripled in 1Q versus the prior year.
Speaker Change: The diversification of Baker Hughes is across the two major segments. We play obviously within the oilfield services and the equipment side, but then the gas infrastructure side, the hydrogen when we think of neon and the facilities associated with hydrogen.
Onshore-offshore production has remained consistently strong as part of the mix, as you see both on the compression side and on the power generation side. You highlighted the master gas system. And as you continue to see the shift towards gas, that gas infrastructure plays towards a lot more compression, plays towards also the pipelines, and it plays towards a lot of the onshore power generation that's going to be necessary. Also, on the industrial side, when you think about the needs for distributed power generation, that plays to the... industrial gas turbines that we have, the Nova LT.
The infrastructure, that's going to be required when we think of power generation distributed power generation and as you think of also the opportunity for productivity and also with digital capabilities and solutions. So across the board I think what makes us unique is again.
Speaker Change: The ability to play.
So across it, you know, we see an expanding base of non-LNG equipment. And again, it's part of the expansive portfolio that we have, including the pumps, the valves, and the other areas that go into the other sectors when you think of refineries and also petrochemicals that are also increasing infrastructure builds that are happening around the world as we continue through, you know, an energy demand that is increasing. And Lorenzo, sort of expanding upon that, I'd like to dig into maybe a little bit of what's going on in Saudi Arabia here. You touched on that a bit here, obviously; we saw the award we saw this quarter.
Speaker Change: At the full value chain of the energy ecosystem within the kingdom through local capabilities and that's a strategy that we have also put into place in other middle eastern.
Countries as well with facilities in the UAE and Qatar and.
Speaker Change: Likewise.
Speaker Change: A region, that's very important to us.
Speaker Change: Much appreciate it thank you.
Speaker Change: Thank you one moment far next question.
Speaker Change: Our next question comes from the line of James West from Evercore ISI.
James West: Hey, good morning, Lorenzo Nancy.
James West: Hi, James.
James West: But I wanted to touch back on carbon capture because it sounded like there was a bit of a shift in your tone there.
But I'd be curious if you could talk about how you're differentiated versus your competitors on both the IET side and the OFAC side. On the IET side, we're talking about, you know, we're displacing oil-driven power in the industrial side of natural gas. And so that seems like an enormous opportunity in Saudi, but it seems like it's a very unique opportunity for really just Baker. And then if I flip over to the OFAC side, one thing you've really done differently than others is manufacturing in the country. And kind of could you talk about that a little bit about how that's a key initiative in the kingdom and how that gives you an advantage? Yeah, Dave, thanks.
James West: With respect to projects starting to move forward and to scale. So I wanted to one is that is that accurate too.
James West: Have you seen any change or have you put any change in your U S strategy.
James West: And how about an update on your kind of commercialization of some of the new newer technologies and carbon capture.
Speaker Change: Yes, definitely James and.
Speaker Change: As we look at what's happening and we've been discussing for some time the continued increasing demand for LNG and the realization that we need and all of the above approach to the energy transition. It means there is a shifting focus towards emissions rather than the fuel source and that puts the.
And I know that you and a team also had the chance to tour the region and also visit the kingdom. And that's true. We focused a lot on localization. And as I mentioned, we've just recently opened our chemicals facility, our new petrolite. We've also got wellheads that are being manufactured.
Speaker Change: At the forefront Cc U S and as you know we've been playing in participating in Ccs for.
We've also got compressors. And as we look at drill bits and across the kingdom, we focused on localization to support not just the kingdom but also the region and outside of the region through capability close to our customers. And that's been a strategy of focus, and the diversification of Baker Hughes is across these two major segments. We play, obviously, on the oil field services and the equipment side, but then on the gas infrastructure side, the hydrogen, when we think of NEOM and the facilities associated with hydrogen, the infrastructure that's going to be required when we think of power generation, distributed power generation, and as you think of also the opportunity for productivity and also with digital capabilities and solutions.
Speaker Change: Many decades.
Speaker Change: But we've also been investing in <unk> capabilities and so as we go forward. We think <unk> is going to be a fast mover and as you look at our order intake also on the new energy front you can see from last year also that a large portion of our orders was associated with.
Speaker Change: Carbon capture utilization and storage and we've got a wide array of capabilities that we've been developing.
Speaker Change: We've got the chilled ammonia process, which is for large scale applications like power generation and we've got the mixed salt process and.
Speaker Change: And compact carbon capture which is rotating bed solution, which is suitable for a smaller footprint of industrial applications. And then we're also testing and piloting mosaic materials for direct air capture technology in complementing all of this is the compression capability that we have and also storage and <unk>.
So across the board, I think what makes us unique is, again, the ability to play at the full value chain of the energy ecosystem within the kingdom through local capabilities. And that's a strategy that we've also put into place in other Middle Eastern countries as well, with facilities in the UAE and Qatar. And likewise, it's a region that's very important, so I appreciate it. Thank you. Thank you.
Speaker Change: Knowledge of the reservoir and how to store and maintain the Seo too and compress. It. So this is a theme that we see in projects that are going forward and we think that's increasing as the year progresses and also going into the next few years as people appreciate that.
Speaker Change: As in all of the above and we're going to.
Speaker Change: Need to focus more on emissions as opposed to the fuel source.
Speaker Change: Great and then maybe a follow up on the all of the above comment Lorenzo.
Speaker Change: Relationships with all the major tech.
Speaker Change: Tech companies.
One moment for our next question. Our next question comes from the line of James West from Evercore ISI. Hey, good morning, Lorenzo, Nancy. Hi, James.
Speaker Change: They're trying to scale data centers.
Speaker Change: And thats been supercharged by AI and it seems to me that renewable deployments that could really keep up with that so they're going to have to go towards some type of fossil fuels and it sounds like gas as the one they are targeting but all of these data center providers, you're beginning to least acknowledges that reality that for some period of time, we're going to have to build out.
But Lorenzo, I wanted to touch back on carbon capture. It sounded like there was a bit of a shift in your tone there with respect to projects starting to move forward and scale. So I want to know, first, is that accurate?
Speaker Change: Potentially as more gas infrastructure to support this because of this power generation needs are running well ahead of our renewable or cleaner fuel sources.
Speaker Change: Yes, I'd agree with you that there's a growing realization that there's a.
Speaker Change: A growing demand for LNG and Thats being driven by some of the data centers and look AI provide huge benefits both.
Two, have you seen any change or made any change to your CCUS strategy? And how about an update on your commercialization of some of the newer technologies in carbon capture? Yeah, definitely, James.
Speaker Change: Internally and also from an external perspective.
Speaker Change: To us internally to drive optimization for our customers, but also externally to drive growth for our equipment and the services that we provide and that's.
Speaker Change: Why we like the ready gas turbines that go on natural gas today, but then can switch to hydrogen. That's also why we like the solutions that we're offering with regards to other clean power solutions and as we talk to our customers. That's what they are looking for and.
Speaker Change: At the data center developers there.
Speaker Change: They are all coming to a realization that there is going to be a growing need for off grid solutions as well as distributed power generation with a view to continuing the aspect of reducing emissions. So.
Speaker Change: There's also opportunities for Gi firewall, and others, where we play and we look at it as being a growing element of our equipment portfolio.
Speaker Change: A nice segment that again, diversifies us versus others because of the portfolio that we have.
Speaker Change: Alright, Thanks Rhonda.
Rhonda: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Luke Lemoine from Piper Sandler.
And, you know, as we look at what's happening, and, you know, we've been discussing for some time, the continued increasing demand for energy and the realization that we need an all-of-the-above approach to the energy transition, it means there's a shifting focus towards emissions rather than fuel sources. And that puts CCS at the forefront. And as you know, we've been playing and participating in CCS for many decades.
Luke Lemoine: Hey, good morning, Lorenzo Nancy.
Luke Lemoine: Good morning.
Luke Lemoine: <unk> orders you had in <unk>, which on a nice pathway to hit the midpoint of the annual guide.
Luke Lemoine: With GTE being the largest component I am sure most severe ability resides here and you talked about some of the LNG awards outlook within GTE, but can you just talk about some of the puts and takes within the annual order guidance for IEP.
But we've also been investing in CCUS capabilities. And so, as we go forward, we think CCUS is going to be a fast mover. And as you look at our order intake, also on the new energy front, you can see from last year that a large portion of our orders were associated with carbon capture, utilization, and storage. So, this is a theme that we see in projects that are going forward. And we think that number is increasing as the year progresses and also going into the next few years, as people appreciate that it is all of the above. And we're going to need to focus more on emissions as opposed to fuel storage. Great. And then maybe a follow-up on the all-of-the-above comment.
Speaker Change: Yeah, I'll kick it off here look and we remain very confident in the orders range that we provided for 2024. If you look at the start of the year very positive from the orders front.
Booking over $2 $9 billion of orders.
Speaker Change: <unk> larger awards again from Aramco, but also from black and Veatch, and Cedar LNG and LNG equipment will still be a portion of the orders outlook as we go through the year and again it was significant last year.
Lorenzo, when you have relationships with all the major tech companies, and they're, you know, trying to scale data centers, and that's being supercharged by AI, it seems to me that, you know, renewable deployment is not going to be able to keep up with that. So they're going to have to go towards some type of fossil fuel. And it sounds like gas is the one they're targeting. But are these data center providers, you know, beginning to at least acknowledge the reality that, for some period of time, we're going to have to build out potentially some more gas infrastructure to support this? Because it is, you know, power generation needs are running well ahead of renewable or cleaner fuel sources.
Speaker Change: But it's also outside of LNG.
Yes, I'd agree with you that there is a growing realization that there is a growing demand for energy, and that's being driven by some of the data centers. And look, AI provides huge benefits both internally and also from an external perspective to us internally to drive optimization for our customers, but also externally to drive growth for our equipment and the services that we provide. And that's why we like the ready gas turbines that run on natural gas today but can switch to hydrogen later.
Speaker Change: It's onshore offshore production, it's the gas infrastructure and also coupled with the new energy and as you look at the.
Speaker Change: The guidance that we've given of new energy orders between 800 to a $1 billion and stable growth in services and industrial.
Speaker Change: So very confident in the 11 52525 orders range and a strong pipeline of activity and when you look at what's being had from our customers and also what's being seen I think growing confidence on the element solid gas infrastructure and the opportune.
That's also why we like the solutions that we're offering with regard to other clean power solutions. And as we talk to our customers, that's what they're looking for. And you look at the data center developers; they're all coming to a realization that there is going to be a growing need for off-grid solutions, as well as distributed power generation with a view to continuing the aspect of reducing emissions. So, you know, there are also opportunities for geothermal and others where we play.
Speaker Change: <unk> that we have in the multiple sectors that we play.
Speaker Change: Okay, and then Nancy on getting to the 20% off to see margins next year. There are some finer points, but the broad buckets has kind of been on productivity cost price volume.
Nancy: Could you just refresh us on the drivers here and maybe the confidence around the individual pieces.
Nancy: Yeah, absolutely, we absolutely remain confident in hitting those 20% EBITDA margins and you're starting to see some traction with a lot of the.
Nancy: Activities that are being done been done in this segment and continuing actions and we do still see strength in international markets. This year. We're also maintaining our outlook for high single digit E&P Capex. So those are good drivers as well I would also just note that hitting that margin target does not require an acceleration of growth compared to where we already are so that's all baked.
And we look at it as being a growing element of our equipment portfolio and a nice segment that, again, diversifies us versus others because of the portfolio that we have. Right. Thanks, Lorenzo. Thank you. Our next question comes from the line of Luke Lemoine from Piper Sandler. Hey, good morning, Lorenzo, Nancy.
Nancy: And two it.
Nancy: Alongside that we do have a cost out program that we've announced with Q4 earnings and that's really helping to reset the cost structure within the segment.
The IT orders you had in 1Q put you on a nice pathway to hit the midpoint of the annual guide, with GTE being the largest component. I'm sure most of the variability resides here, and you talked about some of the non-LNG awards and outlook within. Can you just talk about some of the puts and takes within the Annual Order Guidance for IU? I'll kick it off here, Luke.
Nancy: Reducing further duplication and becoming more efficient.
Speaker Change: I would say the team is also focused on continuing to drive more cost efficiencies around the business and we will see more of that come to play as 2024 unfolds.
Speaker Change: Other piece of it is on the <unk> side, we have higher margin activity in that backlog and Youll see that drive up margins and 24 and 25. So overall I would say that 20% margin target remains in place we feel very confident on it and it doesn't require anything from a market tailwind to achieve so that's within our control and we continue.
And, you know, we remain very confident in the order range that we provided for 2024. If you look at the start of the year, very positive on the order front, booking over $2.9 billion in orders, including large awards, again, from Aramco, but also from Black & Veatch and Cedar LNG. And LNG equipment will still be a portion of the orders outlook as we go through the year. And again, it was significant last year. But it's also outside of LNG.
Speaker Change: To focus on that target.
Speaker Change: Okay perfect. Thanks, Nancy Thanks Laurence.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Thank you.
Speaker Change: Yeah, maybe just thanks to everyone for joining the call today and.
Speaker Change: Look forward to speaking to everybody soon and I think operator, you can close.
Speaker Change: Close to call.
Speaker Change: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may all disconnect everyone have a great day.
It's onshore and offshore production, it's the gas infrastructure, and also coupled with new energy. And as you look at the guidance that we've given of new energy orders between $800 to $1 billion and stable growth in services and industrial tech, I am very confident in the $11.5 to $13.5 orders range and a strong pipeline of activity. And when you look at what's being heard from our customers and also what's being seen, I think growing confidence in the elements of gas infrastructure and the opportunities that we have in the multiple sectors that we play in.
Okay, and then Nancy on getting to the 20% of the sea margins next year, there were some finer points, but the broad buckets had kind of been on productivity and cost price. Can you just refresh this on the drivers here and maybe the confidence around the end? Absolutely.
We absolutely remain confident in hitting those 20% EBITDA margins, and you're starting to see some traction with a lot of the activities that have been done in the segment and continuing actions. And we do still see strength in international markets this year. We're also maintaining our outlook for high single-digit EMP CapEx. So those are good drivers as well.
I would also just note that hitting that margin target does not require an acceleration of growth compared to where we are already. So that's all baked into it. Alongside that, we do have a cost-out program that we announced with Q4 earnings, and that's really helping to reset the cost structure within the segment, reducing further duplication and becoming more efficient. I would say the team is also focused on continuing to drive more cost efficiencies around the business, and we'll see more of that come into play as 2024 unfolds.
The other piece of it is on the SSPS side; we have higher margin activity in that backlog, and you'll see that drive up margins in 2024 and 2025. So overall, I would say that the 20% margin target remains in place. We feel very confident about it, and it doesn't require anything from market tailwinds to achieve.
So that's within our control, and we continue to focus on that. Perfect. Thanks, Nancy. Ashley, thanks. Yeah, maybe just thanks to everyone for joining the call today and looking forward to speaking to everybody soon. And I think, operator, you can close the call. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.