Q3 2024 Baker Hughes Co Earnings Call

October 23, 2024

Okay.

Speaker Change: Good day, ladies and gentlemen, and welcome to the Baker Hughes Company third 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 would now like to introduce your host for today's conference. Mr. Chase Mulvehill, Vice President of Investor Relations, Sir you may begin.

Yeah.

Thank you good morning, everyone and welcome to the Baker Hughes third quarter earnings Conference call here with me are chairman and CEO, Lorenzo Simonelli, and our CFO Nancy Vesey.

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

Speaker Change: We'll also be using a presentation with our prepared remarks during this webcast, which can be found on our website as.

As a reminder, during this conference call. We will provide forward looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please.

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

Speaker Change: Conciliations of operating income and other GAAP to non-GAAP measures can be found in our earnings release.

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

Lorenzo: Thank you Jay good morning, everyone and thanks for joining us.

Lorenzo: On slide four we delivered strong third quarter results highlighted by another record quarterly EBIT.

Lorenzo: And the five consecutive quarter of at least 20% year on year EBITDA growth.

Lorenzo: EBITDA margins continue to improve at an accelerated pace increasing year over year by two seven percentage points to 17, 5%, which marks the highest margin quarter since 2017.

Lorenzo: This strong performance is driven by significant margin expansion across both segments with clear progress being made towards our 20% EBITA margin targets.

Lorenzo: Total company orders remained at solid levels during the quarter, including $2 9 billion for IEP.

Lorenzo: This marks the eighth consecutive quarter for IEC orders at or above that level and highlights the end market diversity and versatility of our technologies.

Lorenzo: Our free cash flow performance was equally impressive during the quarter coming in at $754 million.

Lorenzo: Our business continues to perform well and we remain confident in achieving the midpoint of our full year EBITDA guidance.

Baker Hughes is becoming less cyclical and is demonstrating the capability to generate more durable earnings and free cash flow across cycles, given our balanced portfolio significant reoccurring service revenue and improved cost structure and.

Lorenzo: In addition to the company's untapped market opportunities.

Lorenzo: Turning to slide five we want to highlight recent key awards and technology developments.

Lorenzo: And gas technology equipment, we secured two additional fpss orders, increasing the year to date total to four <unk>.

Lorenzo: <unk> awarded US a contract to supply a bcl and ICL centrifugal compressors for total energies all electric convener.

Lorenzo: <unk> project in Angola.

Lorenzo: Separately.

Lorenzo: <unk> was selected to provide electric motor driven compressors for an <unk> project, and our strategic and Latin American Basin.

Lorenzo: And gas technology services, we secured a multi decade agreement for an LNG facility in the middle East to provide extensive aftermarket services and digital solutions leveraging Igt's <unk>.

Lorenzo: Including this award gas technology services has booked into op yo over $600 million of contractual service agreements year to date, highlighting the value of gas technologies lifecycle offering.

Lorenzo: And new energy, we continued to see solid order momentum, we booked $287 million during the quarter, increasing year to date orders to $971 million.

Lorenzo: We are on pace to exceed the high end of our $800 million to $1 billion order guidance anticipating to book over $1 billion for the first time.

Lorenzo: And climate Technology solutions, we received the largest award to date for a zero emissions ICL technology.

Lorenzo: As part of the UAE Decarbonization strategy, we will supply 10 compressor units to Dubai Petroleum enterprise for the Mark harm gas storage facility, highlighting continued strong global demand for gas infrastructure.

Lorenzo: And our strategy we.

Lorenzo: <unk> to experience strong order momentum in Brazil further strengthening our relationship with Petrobras during.

Lorenzo: During the quarter, we received multiple contracts to supply flexible pipe systems, and Brazil Santos basin.

Lorenzo: The contracts also include multiyear service agreements to support maintenance activities through the lifecycle of the project.

Lorenzo: We are also seeing increased brownfield activity as more customer spending is allocated to optimizing recovery from existing fields and.

Lorenzo: An underlying trend that we expect to last many decades.

Lorenzo: This creates a strong backdrop for mature asset solutions, our integrated offering that leverages <unk> full range of innovative technologies to enhance total field recovery.

With this trend we were awarded a sizable multiyear well intervention and completion contracts in the middle East.

Lorenzo: We continue to make progress on the digital front.

Lorenzo: OFC benefited from increased customer adoption of Lucifer.

Lorenzo: Our intelligent automated field production digital solution.

Lorenzo: A major global operator expanded the use of Lucifer across multiple wells in the Permian basin, enabling optimized recovery rates through real time field orchestration to produce lower carbon short cycle barrels.

Lorenzo: Additionally, we announced earlier this month, a new strategic collaboration with Repsol to develop and deploy next generation AI capabilities for Lucifer across its global upstream portfolio.

Lorenzo: In addition at the gas Tech Conference last month, we launched carbon edge powered by <unk>.

Lorenzo: This end to end risk based digital solution. The lizards precise real time data and alerts on <unk> flows across Cc U S infrastructure from sub surface to surface.

Lorenzo: This connectivity enables OFC and IEC customers to mitigate risk improve decision, making enhanced operational efficiency and simplify regulatory reporting.

Lorenzo: Turning to the next slide it is important to reiterate our long held macro view of structurally growing energy demand, which underpins our strategy and remains the nucleus of our long term growth potential.

Lorenzo: Between now and 2040, we expect global primary energy demand to grow by 10% driven by population growth and increasing energy intensity across major developing countries.

Lorenzo: But this in perspective, there are roughly 8 billion people in the world today.

Lorenzo: 1 billion live in OECD countries with the other 7 billion living in emerging economies.

Lorenzo: According to the Energy Institute a passenger in the developed world consumes on average three times the energy of a person who lives in emerging countries there.

Lorenzo: Therefore, even a small increase in energy consumption per capita in the emerging world can have a sizeable impact on overall energy demand.

Lorenzo: While we forecast significant growth in renewables. We believe this increase in primary energy demand will need to be mapped by multiple sources.

Lorenzo: Ultimately, we expect renewables to fall short of meeting both growing demand and replacing hydrocarbons to decarbonize the existing energy system.

Lorenzo: It will take on all of the above strategy focusing on the emissions and not the fuel source to meet the increase in energy demand.

Lorenzo: And our view natural gas as a clear winner it has abundant low cost and has lower emissions.

Lorenzo: This is the age of gas.

Lorenzo: By 2040, we expect natural gas demand to grow by almost 20% and global LNG demand to increase at an even faster rate of 75%.

Lorenzo: This backdrop provides a very constructive environment in which Baker Hughes can flourish.

Lorenzo: We are experiencing a significant increase in gas infrastructure equipment orders and anticipate this trend will continue as many developing economies look to increase the use of natural gas within power generation and industrial applications.

Lorenzo: In LNG, we continue to see a requirement for 800 MTA of liquefaction capacity by 2030 to meet increasing global LNG demand.

Lorenzo: This view is supported by more than 200 MTA of LNG capacity under construction today and a positive outlook for additional.

Lorenzo: Sure.

Lorenzo: Turning to oil, we anticipate moderating levels of demand growth through the end of the decade.

Lorenzo: In this environment, we expect opex spend to accelerate as the focus shifts from greenfield to brownfield developments.

Lorenzo: We have positioned our <unk> portfolio for differentiated growth in mature fields, playing a leading role in helping customers optimize oil and gas production for a mature asset solutions.

Lorenzo: With this energy mix backdrop, the focus must be on lowering emissions.

We see energy efficiency and Decarbonization technologies, playing a critical role in achieving net zero goals were.

Lorenzo: We are focusing our efforts to enhance and develop new technologies in these areas and see this as a fundamental growth theme for our company.

Lorenzo: On Decarbonization, we continued to experience good traction across our new energy portfolio, which focuses on Ccs hydrogen geothermal clean power and emissions abatement.

Lorenzo: We expect deployment of Decarbonization technologies will continue to gain momentum as policy support and technology advances drive improving project economics.

Lorenzo: With this anticipated strengthening demand backdrop, we remain confident in our ability to achieve our <unk> target of 6% to $7 billion.

Lorenzo: Across our industrial and energy installed base. We are also developing solutions to enhance efficiency and reduce emissions from our equipment.

Lorenzo: This can be in the form of operating turbines and compresses installing electric motors or adding zero lead trials.

Lorenzo: Beyond the equipment, we are seeing increased levels of digital adoption for accordant, which improves asset performance optimizing its processes and reduces energy consumption.

Lorenzo: Turning to slide seven I wanted to spend some time discussing near term market dynamics, where we see customers spend shifting towards global gas in mature fields as oil demand fundamentals soften.

Lorenzo: Oil markets have recently been impacted by both supply and demand factors, including slowing global economic growth resilient North American production.

Lorenzo: Weakening OPEC, plus compliance and geopolitical uncertainty in the middle East.

Lorenzo: Even with the onset on oil macro backdrop.

Lorenzo: Global upstream spending outlook for this year remains unchanged.

Lorenzo: In North America, we continue to anticipate spending to decrease year over year in the mid single digits range and.

Lorenzo: And we expect to outperform given our production weighted portfolio mix.

Lorenzo: Across international markets, we maintain our outlook for high single digit growth this year.

Lorenzo: Looking beyond 2024, there are many factors that we are monitoring that could drive further volatility in oil prices.

Lorenzo: On the supply side, we continue to see production increasing in North America, adding to the growth in deepwater production that is planned for next year.

Lorenzo: Combining these variables with planned OPEC plus production increases.

Lorenzo: Projections point to relatively soft oil fundamentals in 2025 however.

Lorenzo: However, geopolitical uncertainty across the middle East could create added volatility for oil prices.

Lorenzo: We continue to evaluate our 2025 plans for the company and we will communicate guidance in January.

Based on the current macro and geopolitical environment, We expect next year's global upstream spending to be similar to 2024 levels.

Lorenzo: As the upstream cycle matures.

Lorenzo: We expect our customers to increasingly focus on optimizing production from existing assets providing.

Lorenzo: Providing significant growth opportunities for our mature asset solutions.

Lorenzo: This leverages, our decades of experience deep domain knowledge and industry, leading technologies by capitalizing on our expansive capabilities across the <unk> portfolio.

Lorenzo: <unk>, we estimate that 80% of the world's oil and gas supply will be produced by mature fields.

Lorenzo: Turning to natural gas, we continue to see strong growth, which will drive demand for our gas lift products and solutions and both of FSC niet.

Lorenzo: For LNG year to date Offtake contracting has totaled 78, MTA, which is on pace to exceed the record 84 <unk> achieved in 2022.

Lorenzo: This contracting strength supports our outlook for 100 MTA.

Lorenzo: Between 2024 and 2026.

Lorenzo: We also continued to see strong demand for gas infrastructure projects with significant awards. This year for Mgs free in Saudi Arabia has <unk> in Algeria, and <unk> gas storage facility in Dubai.

Lorenzo: We expect non LNG gas technology equipment orders this year to more than double levels booked in 2023.

Lorenzo: On the back of another strong year for new energy, we see several projects progressing towards <unk> in the U S and internationally in 2025, giving us confidence that our new energy orders will continue to grow.

Lorenzo: To conclude on the market outlook, our production Levered OFC portfolio will benefit from increasing levels of Opex spending.

Lorenzo: In addition, our diversified.

Lorenzo: Portfolio and significant leverage to recurring revenue position us well to drive more earnings and free cash flow stability, which will be supplemented by the structural growth drivers ally length, and a long term energy outlook.

Turning to slide eight I wanted to spend a few minutes discussing the full lifecycle aspect of gas technology, where there is a strong linkage between equipment and services.

Lorenzo: This connectivity and associated recurring service revenue stream, our valuable characteristics of our business that are more aligned with our high quality industrial peers.

Lorenzo: Starting from the design phase of the project, we work closely with our customers to select the right equipment to meet the desired operating conditions, while also providing solutions that are safe reliable and efficient.

Lorenzo: This AD engagement provides significant visibility into our future equipment orders.

Lorenzo: After receiving the equipment award we worked with the customer to design the appropriate maintenance plan to optimize the total cost of ownership.

Lorenzo: This typically includes preventive maintenance the provision of spare parts repairs and field technical support.

Lorenzo: Compared to the original equipment sale. These aftermarket service agreements provide recurring revenue streams that can generate one to two times the revenue over the life of the equipment.

Lorenzo: Commercial value of these long term agreements is linked to performance reliability and availability guarantees.

Lorenzo: This along with the engineering support over the life of the contract drives customer loyalty and in time higher margins.

Lorenzo: In many cases this recurring service revenue is supplemented by upgrade opportunities on our installed equipment.

Lorenzo: As the original equipment manufacturer with decades of service experience, we have the best knowledge to assess the feasibility of various options.

Lorenzo: We have successfully executed over 2000 and upgrade projects around the world optimizing upstream oil and gas production LNG production pipeline transport volumes refinery and petrochemical output and much more.

Lorenzo: To meet rising upgrade demand, we are investing in new technology that keeps equipment running beyond its original design life and improve the availability reliability emissions productivity and lifecycle cost of our customers installed equipment.

Lorenzo: Our service capabilities will also continue to evolve and provide additional growth opportunities for our advanced service solutions, leveraging the latest AI capabilities and over 20 years of monitoring and diagnostic data from our machines.

Lorenzo: <unk> center facilities, which specialized in the edge to cloud applications and remote operations, we are able to improve operating performance increased asset efficiency and reduce emissions throughout the life of the equipment.

Lorenzo: At every stage of this lifecycle journey, we are closely aligned with our customers to ensure they extract the best value from our equipment.

Lorenzo: In return we are rewarded with a recurring higher margin revenue stream that is reflective of the differentiated industrial like aftermarket services provided by gas technology.

Lorenzo: Looking at slide nine.

Gas technologies, serviceable equipment base, which spans across LNG onshore offshore production industrial downstream and gas infrastructure markets has doubled from 4400 units in 2000 to about 9000 units in 2023.

Lorenzo: Due to the significant growth and the introduction of service business models like contractual service agreements and the early two thousands our gas technology services revenues demonstrated a notable increase from about $400 million in 2000 to two 6 billion in 2023.

Looking out to 'twenty strategy, we expect our serviceable installed base to increase by 20% given our robust level of equipment backlog and positive outlook for orders.

Lorenzo: This significant installed base growth and the multi decade lifespan of our equipment gives us confidence that we can structurally grow our gas technology services revenue over the next decade.

Anchored by gas technologies lifecycle business model.

Lorenzo: <unk> segment is truly differentiated and what sets us apart from our peer group.

Lorenzo: Before turning the call over to Nancy.

Lorenzo: I'd also like to take a moment to welcome <unk> to the company as our new executive Vice President of our FSC.

Lorenzo: Has an extensive background in both energy and industrial sectors.

Lorenzo: He will be pivotal in leading OFC into the next horizons building upon the strong foundations laid by Maria Claudia Barbara and her team to achieve our 2025 EBITDA margin targets.

Lorenzo: We are accelerating towards the next phase of our journey across all three horizons, we remain focused on executing our strategic pillars, which include transforming the core driving profitable growth and delivering for new energy.

Lorenzo: We are committed to driving margins and returns higher and realizing the full potential of our diversified energy and industrial company with that I will turn the call over to Nancy.

Nancy: Thanks, Lawrence L. I will begin on slide 11, with an overview of our consolidated results and then speak to segment details before summarizing our outlook we.

Nancy: We have again delivered solidly on our third quarter results setting another record for quarterly EBITDA and generated the highest EBITDA margins for the company. Since 2017. It is clear that our focus on operational excellence and profitable growth is demonstrating results.

Nancy: I want to LTE and <unk>, both delivered exceptionally strong margin performance, helping to drive record adjusted EBITDA of approximately $1 two 1 billion.

Nancy: A 23% year over year increase and above our guidance midpoint, we have now met or exceeded the midpoint of our EBITDA guidance for all seven quarters that we've been providing guidance we are delivering on our commitments and we remain focused on meeting our targets.

Nancy: GAAP operating income was $930 million there were no adjustments to operating income during the quarter.

Nancy: GAAP diluted earnings per share were <unk> 77.

Nancy: Excluding adjusting items earnings per share were <unk> 67.

Nancy: An increase of 59% when compared to the same quarter last year.

Nancy: Our adjusted tax rate declined to 26% as we continued to execute our tax optimization program. We expect our year end tax rate to be slightly below the midpoint of our full year guidance range.

Nancy: As Lorenzo mentioned, we delivered another quarter of solid orders with total company orders of $6 7 billion.

Nancy: Including $2 $9 billion from IGT.

Nancy: Diversity of Iets end markets continue to support a healthy order book strengthened by additional gas infrastructure projects and two <unk> Awards.

We generated free cash flow of $754 million for the quarter, bringing our year to date total to almost $1 4 billion.

Nancy: For the full year, we are targeting free cash flow conversion of 45% to 50%.

Nancy: Our balance sheet remains strong ending the third quarter with cash of $2 7 billion net debt to EBITDA ratio of two eight times and liquidity of $5 7 billion.

Nancy: Turning to capital allocation on slide 12.

Nancy: In the third quarter, we returned $361 million to shareholders. This includes $209 million of dividend and $152 million of shares repurchased during the third quarter year to date, we have returned $1 1 billion to investors.

Nancy: For the full year, we remain committed to returning 60% to 80% of free cash flow to shareholders. Our primary focus is to continue growing the dividend with increases aligned with the structural growth of the business. We will continue to use share repurchases to reach its target range and we remain opportunistic.

Nancy: Now I will walk you through the business segment results in more detail and provide our outlook, starting with industrial and energy technology on slide 13.

Nancy: IGT EBITDA outperformed our guidance midpoint entirely attributed to outstanding margin performance as I will discuss later the process mindset adopted by the team is driving a culture and improved efficiency and productivity, which is clearly reflected in the segment's margin performance.

Nancy: <unk> orders remained strong at $2 9 billion.

Nancy: Driven by further <unk> and gas infrastructure orders. We are also seeing solid momentum for <unk> solutions, which booked record orders.

Nancy: Year to date, we have now about $9 $2 billion of IGT orders and we remain on pace to achieve our full year order guidance.

Nancy: First agility and differentiation of the IHG portfolio remained significant advantages for Baker Hughes, allowing us to profitably grow with new customers across both core energy and industrial end markets.

Nancy: <unk> ended the quarter at $30 2 billion.

Nancy: An increase from prior quarters record level and up 5% year on year.

Nancy: This level of RPM provides exceptional revenue and earnings visibility over the coming years.

Nancy: As we execute our robust equipment backlog this will significantly increase our installed base, which will then drive structural growth in our aftermarket service business well beyond 2030.

Nancy: <unk> revenue for the quarter was $2 9 billion.

Nancy: Up 9% versus the prior year led by a 200% increase in climate technology solutions, and 9% growth in gas technology services.

Nancy: IEC EBITDA was $528 million up 31% year over year.

Nancy: EBITDA margin increased two nine percentage points year over year to 17, 9%.

Nancy: I want to specifically highlight the progress in gas technology equipment margins, which are up significantly due to conversion of higher margin backlog cost efficiency improvement and strong productivity gains. We also continued to say good margin expansion in a few of our more digital and industrial Levered businesses.

Nancy: Turning to oilfield services and equipment on slide 14, the segment maintained its strong margin trajectory and we are on track to achieve our 20% margin target for next year.

Nancy: This is a testament to the work the OFC team has done to drive cost efficiencies and maintain commercial discipline as they remain focused on profitable growth and driving towards stronger service delivery to customers.

Nancy: Continued strength in flexible helped to drive subsea and surface pressure systems orders of $776 million.

Nancy: We expect offshore activity to remain at solid levels and anticipate increased order contribution from subsea tree awards in 2025.

Nancy: <unk> revenue in the quarter was $4 billion.

Nancy: Led by our sequential growth in flexible type systems surface pressure control and artificial lift.

Nancy: International revenue was flat sequentially growth continued in Europe, and sub Saharan Africa, which was offset by lower revenue in the middle East and Latin America.

Nancy: In North America revenues declined 5% sequentially, mostly due to the Gulf of Mexico, North America land revenues were flat sequentially again outperforming rig activity due to our heavy weighting towards production Levered businesses.

Nancy: Let's see EBITDA in the quarter was $765 million up 14% year over year.

Nancy: OFC EBITDA margin rate was 19, 3% increased two three percentage points year over year. This strong margin improvement was led by higher pricing cost efficiency and productivity enhancements that we've been executing across the business. We are particularly pleased with the continued improvement in SSP.

Nancy: Performance, where margins increased to record levels.

Nancy: Turning to slide 15, I want to take a moment to emphasize the strong progress we are making in driving structural margin improvement. This is clearly evident from our results an important aspect to highlight is that more than half of this quarter's year over year margin improvement is attributed to the transformation actions. The team has executed across.

Nancy: The company. This will continue to be a large contributor to our margin improvement as we progress through 2025.

Nancy: We are executing several projects to streamline activities.

Nancy: Duplication and modernize management systems. This is improving clarity transparency and the pace of decision, making enabling our colleagues to work smarter and drive cost structurally lower.

Nancy: We also continue to enhance our supply chain across the enterprise specifically on our procurement strategy. We are focused on sourcing a larger volume of materials from best cost countries by leveraging suppliers in India, Mexico and Eastern Europe.

Nancy: And IGT, we have demonstrated significant progress this year highlighted by EBITDA margins, reaching the high teens this quarter.

Nancy: We remain on track to achieve our 20% margin target in 2026, an important milestone in our journey towards high quality industrial type margins.

Nancy: The key drivers in achieving our margin target include conversion of higher margin gas technology equipment backlog.

Cost and supply chain efficiencies.

Nancy: Industrial technology margins and reduced R&D spending as revenues continue to grow.

Nancy: We are demonstrating tremendous progress.

Nancy: The team has adopted a process mindset that is driving a culture of improved efficiency and productivity embracing industrial automation and deploying lean strategies across our operations. This is yielding higher throughput lower manufacturing costs and reduce lead times for our customers. This.

Nancy: This year alone.

Nancy: <unk> has initiated over 100 kaizen projects to give you some perspective on targeted improvements from these guys and that team has recently reduced the lead time of one of our X-ray industrial inspection machines by one third and made significant improvements to product costs on multiple product lines.

Nancy: FSC, we delivered an EBITDA margin rate of 19, 3% in the quarter, which is approaching our 20% target.

Nancy: SPS performance. This year is a great example of the progress we have made in our FSC.

Nancy: Sps EBITDA margins have increased significantly over the last two quarters and now are in line with our subsea equipment peers.

Nancy: This has been driven by refocusing, our commercial model right sizing, our capacity and improving our execution.

Nancy: There are still more opportunities across the broader <unk> portfolio to optimize our supply chain improve service delivery and drive further cost productivity. We are focused on profitable growth over the coming years and remain confident in driving continuous margin improvement beyond our 20% target overall, we are making.

Nancy: <unk> progress in changing the way we operate and are excited by the many opportunities still available to drive margins, even higher across Baker Hughes.

Nancy: Next I'd like to update you on our outlook.

Nancy: The details of our fourth quarter and full year 2024 guidance are found on slide 16.

The ranges for revenue EBITDA and DNA are shown on this slide and I will focus on the midpoint of our guidance.

Nancy: Overall, we maintain our outlook for the company.

Nancy: <unk> is benefiting from multiple cycles, including LNG gas infrastructure offshore and new energy our portfolio is well suited to capitalize on the positive momentum in each of these areas.

Nancy: Given these tailwind and our continued operational improvement, we expect fourth quarter total EBITDA of approximately $1 $2 6 billion at the midpoint of our guidance range.

Nancy: For <unk>, we expect fourth quarter results to benefit from continued productivity enhancements and process improvements as well as strong revenue conversion of the segment's robust backlog overall, we expect fourth quarter IGT EBITDA.

Nancy: $590 million at the midpoint of our guidance range.

Nancy: The major factors driving this range will be the pace of backlog conversion and gas technology equipment, the impact of any aero derivatives supply chain tightness in gas technology and operational execution in industrial technology and climate technology solutions.

For OFC, we expect fourth quarter EBITDA of $750 million at the midpoint of our guidance range impacted by activity uncertainty in Saudi Arabia, Mexico, and North America.

Nancy: Factors impacting this range includes the PFS backlog conversion realization of further cost out initiatives broader activity levels and the amount of year end product sales.

Nancy: Now turning to our full year guidance, we have narrowed the guidance range for total company EBITDA and the midpoint remains unchanged.

Nancy: We expect orders to remain at robust levels this year.

Nancy: Driven by strong momentum across all aspects of the portfolio, we maintain our full year guidance range of $11 5 billion to $13 5 billion.

Nancy: With expectations for orders to approach the mid point.

Nancy: As a result of robust backlog conversion and strong margin performance, we are increasing our full year outlook for IGT EBITDA to $2 billion at the midpoint of our guidance range.

Nancy: OFC, our updated EBITDA midpoint is $2 $87 billion were margin strength is expected to be offset by lower second half <unk> revenues.

Summary, we are extremely pleased with the operational performance of the company the third quarter marks the second consecutive quarter of record EBITDA, the highest EBITDA margin quarter since 2017, and a more than a 150% increase for quarterly EPS in just two years. These are clear indicators that our transformation.

Nancy: Is working.

Nancy: Entire organization is committed to structurally improving margins and capitalizing on market opportunities with our differentiated portfolio of products and services both of which are key drivers in our journey to further increase shareholder value. We are proud of the progress. The company is making and we are excited about the future of Baker Hughes.

Nancy: I will turn the call back over to Lorenzo.

Lorenzo: Thank you Nancy turning to slide 18, our results are showing clear progress as the company's strategy is delivering success EBIT.

Lorenzo: EBITDA has almost doubled in four years and our margins are expected to be up five percentage points compared to 2020.

Looking forward, we see a differentiated growth opportunity for Baker Hughes led by our strong market positioning across natural gas LNG, new energy industrial and mature fields.

Lorenzo: Recent growth cycles across multiple end markets have resulted in robust order levels that provides significant revenue visibility for <unk> equipment and after market service businesses.

Lorenzo: In addition, we continue our journey of relentless margin improvement.

Lorenzo: So EBIT margins this quarter reached the highest level since 2017 with both segments achieving high teen margins on a path to a 20% targets.

20% is not a destination it is only a milestone on our journey towards peer leading margins across both segments.

Lorenzo: To close I'd like to thank the Baker Hughes team for yet again, delivering very strong results.

Lorenzo: It's a testament to the strength of our people. The culture. We are building the portfolio, we have created and the value of the Baker Hughes enterprise.

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

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

Speaker Change: Thank you.

Speaker Change: To ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: We ask that you please limit yourself to one question.

Speaker Change: Our first question comes from David Anderson with Barclays.

David Anderson: Great. Thank you good morning Lorenzo.

Lorenzo: Hey, Dave.

David Anderson: So.

David Anderson: Global gas infrastructure being theme to us clearly really well positioned over the as you highlighted for through the end of the decade.

David Anderson: I thought it was really interesting youre, highlighting kind of interconnectivity between the equipment and the services component I'm wondering if you could talk about that a little bit and kind of dig into that a little bit more the services business is clearly an accretive growth angle here.

Speaker Change: You highlighted kind of how this whole changes so could you talk about kind of how you expect services to change going forward I'm, assuming most of this is LNG now, but then we also have a bit of a mix shift happening as youre seeing from the order book. This year is more non LNG. So could you talk about the various components of services and kind of how you see those sort of inflicting over the next.

David Anderson: Several years.

Speaker Change: Yes, definitely Dave and I think it's an important aspect of our business that sometimes is overlooked tenants a key differentiator for gas technology because of the lifecycle offering that we have with our customers and we're able to optimize their total cost of ownership and you can see in the presentation.

Speaker Change: <unk> eight the connectivity that's associated with recurring service revenue stream and the valuable characteristics as I've mentioned before razor razor blade and its really aligns with our high quality industrial peers that have some of the same characteristics across the entire lifecycle of the equipment.

And this recurring revenue stream spans for a period of 20 to 30 years and can generate one to two times the revenue that we get from the equipment originally when sold and from a margin standpoint also it generates higher margins as an after market service business compared to our equipment module.

Speaker Change: And as you look at it today.

Speaker Change: Gas Tech services already accounts for nearly 50% of Idt's total EBIT.

Speaker Change: And so when you look at the equip.

Speaker Change: Equipment build cycle that we've had not just in LNG, but also on offshore onshore production gas infrastructure. It provides us a lot of visibility to our service revenue over the next 20 to 30 years that I think is different than some of our traditional peers and it can be lumpy just because of.

Speaker Change: The timing intervals of maintenance.

Speaker Change: But it typically takes about seven to 10 years from the equipment award to the vast significant service revenue milestone.

Speaker Change: So accordingly, what we're starting to see the benefits of now is related to the 2014 2019, LNG cycle, where we booked more than 165 M. Tpa of LNG projects, which were commissioned and these facilities are now starting to reach their major inspection milestones.

Speaker Change: What's interesting, though and again important is the 200 <unk> under construction today Hasnt.

Speaker Change: Haven't yet started to generate material service revenue and one start to do that until the latter part of this decade Ali. The next the important aspect is that we have the LNG installed capacity already in our backlog today and that installed capacity is expected to grow by 70% by 'twenty five.

Speaker Change: The same is true also on onshore and offshore production gas infrastructure and we have a number of machines as you know in service today on <unk> pipelines downstream and industrial sites with several under construction. So it gives us a lot of confidence that with the nearly $20 billion of gas tech equip.

Speaker Change: <unk> orders since the start of 2022, along with the positive outlook for further GTO orders will drive a 20% growth in our installed base by 20 fatty and further upside beyond 'twenty Friday, so it gives us.

Speaker Change: Continuous visibility and that increasing installed base as well as the upgrade opportunities will give us structural growth for the gas Tech services revenue over at least the next decade led by the high service calories of LNG, but as you mentioned also the increasing mix within <unk>.

Speaker Change: The gas infrastructure and it is a very important element of our business that we want to shine a light to enhance the the focus on that page slide eight today.

Speaker Change: A real quick follow up there is the LNG calories from services are those higher calories and everything else is is it a noticeable difference or but just slightly higher.

Speaker Change: The attachment rate on LNG is definitely higher and as you know we have contractual service models that we've implemented over the course of <unk>.

Speaker Change: The last decades and on LNG, there is a higher attachment rate.

Speaker Change: We do have the same attachment rate also on some of the <unk> and then also transactional service agreements as well so all bodes well with regards to gas Tech services going forward.

Speaker Change: Okay. Thank you very much.

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

Scott Gruber: Yes, good morning.

Scott Gruber: Good morning.

Scott Gruber: Well I can say that you guys been beating our margins all year, but this is by far the most impressive quarter. So congrats.

Scott Gruber: Thanks.

Scott Gruber: And <unk> multiple confidence in achieving the 20% margin threshold and 26.

Speaker Change: How do you think about the cadence of margin improvement over 25.

Speaker Change: And in 'twenty will smooth that expansion be more.

Speaker Change: Or is it more more 26 weighted from here.

Speaker Change: As you think about the margin drivers.

Speaker Change: What are the biggest contributors over the next few years, just given the improvement already realized to date.

Speaker Change: Yes, Scott I'll take that one we are really pleased with the progress we're making on the margin front and you've noted the significant improvement that we've made we're continuing to really improve those margins are at I would say accelerated pace and that's increased two seven percentage points up to 17, 5% which is real.

Speaker Change: The highest margin quarter since the company was formed.

Speaker Change: And truly this is driven by really strong progress across both the segments and at corporate and one way to help frame that up a little bit is to just to kind of isolate the drivers as you've asked is about half a little over half of the year over year margin improvement was attributed to self help across the company and I think thats really notable about the work that's been done.

Speaker Change: So if you think about corporate for example, we've really driven down our corporate costs and we're right now on pace to be about $60 million annually lower than they were just two years ago and that's part of the work around enhancing the systems and processes driving some real efficiencies and removing any duplication between the center and the segment.

Speaker Change: So we found that to be Super effective and then niet EBITA.

Speaker Change: EBITDA margins have increased to 17, 9% that's up two nine percentage points year over year and also a record and that's due to a lot of really good work being done in the segments. That's been going on over the last couple of quarters and Youre seeing that play out today. So for example gas tech equipment margins are up significantly year over year as.

Speaker Change: We've signal due to conversion of higher margin backlog.

Speaker Change: Cost efficiency improvements very strong productivity gains and also some great work being done in supply chain. We've also continued to see really good margin expansion and some of our more industrial levered businesses like our bently, Nevada and valves.

Speaker Change: And then gears and as I mentioned this segment has over 100 kaizen projects going on today and Theyre all driving for more improvement. So there is more to go.

Speaker Change: The progress is really clear I think it's we've restated that we're very confident in achieving our 20% EBITDA target by 2026% and I would also say just one thing to note is that that mix question, we get between gas tech equipment and gas Tech services that differential is actually more muted the number before so that's really not a driver of this is really driven.

Speaker Change: By excellent work being done on the segment.

And then on the OSV side. Similarly, EBITDA margins have increased to 19, 3% that's up two three percentage points year over year. So it's a really important.

Speaker Change: Change for them.

Speaker Change: Driver was also around strong progress made in Sps, which we noted where EBITDA margins were up more than twice a year over year and they're really now in line with peers. So lot of great work, there they've removed layers of duplication, they've right sized capacity and really narrowed the focus to basins and customers and focusing.

Speaker Change: More on price than on volume and really around service delivery and in the rest of our FSC. We've been taking numerous actions to drive the margin rate beyond 20% and if you recall earlier. This year, we talked about additional actions we were taking to remove duplication and we're still receiving more benefits from that program. So more work to be done also in OFC, but.

Speaker Change: Some great early signs.

Speaker Change: I think it's also really important to highlight that there is a lot within our control and we are actively progressing for both segments. We are fundamentally changing the way we work.

Speaker Change: Another thing to note, though is the margin journey. We're on is not totally reliant on the external market environment. So there is a lot of self help and even even with the external market is changing we are very confident in our ability to drive continuous margin improvement well beyond the 20% targets. So hopefully that gives you a little bit of color on where we're headed and Scott.

Note I mentioned this in the remarks as well.

This is not a destination to 20% is a milestone along a longer journey and what you can see is.

Speaker Change: Baker Hughes, we have visibility to a longer timeframe and during that timeframe. The goal is to continue to accrete the margin rates and obviously go above the 20% and that's just a milestone 425 for <unk> and 'twenty six Friday.

Speaker Change: And then it will continue to improve.

Speaker Change: Got it.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Stephen <unk> with Stifel.

Speaker Change: Yeah.

Speaker Change: Thanks, Good morning, everybody.

Speaker Change: Good morning.

Speaker Change: You ever.

Speaker Change: Slide in the presentation on GTS on the installed base.

Speaker Change: I was curious looking at the slide you've seen I think about eight 5% CAGR in revenue for the last 20 plus years, but the installed base has grown I think about 3%. So theres been strong outperformance in revenue versus the installed base and I'm curious as we look forward and you've kind of guided to 20.

Speaker Change: <unk> percent growth in the installed base through 2030, how we should think about.

Speaker Change: Revenue growth relative to the installed base should we continue to see outperformance and maybe if so what would drive that.

Speaker Change: Yes, definitely as Stephen and <unk>.

Speaker Change: You rightly correct, but we do see that the revenue growth should continue to outpace the 20% increase in our installed base as we go out to 'twenty fatty and as you look at the history, it's really down to four main factors that will contribute to that revenue growth firstly higher.

Speaker Change: Pricing as you know some of.

Speaker Change: The services are contractual service agreements, which are indexed pricing factors and as you look at inflation being driven up we'll see that come through in the contracts.

Speaker Change: Quiet for transactional agreements as we see the pricing environment by market conditions, we're able to see.

Speaker Change: Benefits from that secondly, as you look at the mix improvement and in fact as we're going forward as was highlighted also with Daves question, we do see a LNG mix being higher and our LNG installed base is expected to increase by 70% between now and 'twenty fatty so that's.

Speaker Change: Overall, outpacing the 20% GTS installed base with higher attachment rates and more revenue per installed unit, Firstly advanced server solutions, our capabilities to evolve with digital capabilities and continue to monitoring and diagnostics of data on the machines.

Speaker Change: Which we've been doing for 20 years, and we continue to do more and finally upgrades and.

Typically customers.

Speaker Change: Have been really running their equipment right now and looking to not have upgrades they've been deemphasize, but as we go forward. We think there's a lot of opportunities for our installed base to actually <unk>.

Speaker Change: Benefit from the upgrades, especially as we see the focus on emissions and efficiencies and we've got a good technology.

Speaker Change: Basket of capabilities from an upgrade technology that we've been investing in and releasing onto the market. So those four levers are really the ones that.

Speaker Change: Give us comfort that the revenue growth was going to outpace the 20%.

Speaker Change: Increase in our installed base by 20 <unk>.

Speaker Change: Our next question comes from James West with Evercore ISI.

James West: Hey, good morning, Lorenzo Nancy.

Lorenzo Nancy: Hey, James.

James West: So I wanted to ask again.

Lorenzo Nancy: On <unk>.

James West: Given the importance.

James West: The importance of that business, especially over the next.

James West: A couple of years.

James West: Decades, or so the business.

James West: A few things one.

Speaker Change: Comfort on the $12 5 billion order number for this year. Obviously, it's late October so probably pretty high to kind of what are the puts and takes on 25.

Speaker Change: Orders and how should we think about that and then.

Speaker Change: Lastly, if I could throw in a third one break all the operator's rules are.

Speaker Change: The third one and ask you when would you anticipate.

Speaker Change: The sorting to surpass <unk> in terms of income for the company.

James West: James Thats, a great way to get three questions into one.

Speaker Change: There you go.

Speaker Change: So.

Speaker Change: With regards to the fast question on the.

Speaker Change: Aspect of 2024 for <unk> feel good about the.

Speaker Change: 12 to 12 five as you know at the beginning of the year, we gave a guidance of 11 five to $14 five.

Speaker Change: And if you take that midpoint again, we feel good about being able to achieve that and I think what I've been particularly pleased about this year is we.

Speaker Change: We gave that guidance at the beginning of the year before we knew about the LNG moratorium and we've been able to see very robust levels.

Speaker Change: Order intake, even with lighter year over year LNG orders.

Speaker Change: If you look at $9 $2 billion of year to date orders and only $700 million of LNG equipment orders so far in 2024 so.

Speaker Change: Secondly, lower than last year when for the year, we booked $5 6 billion.

Speaker Change: We've been able to see that.

Speaker Change: Diversity of our portfolio really come through.

Speaker Change: As you look at the significant.

Speaker Change: Orders in gas infrastructure, Fps, so as well as new energy, which again I highlight we're going to top the $1 billion for the first time relative to your energy and as you look at the guidance. We gave at the beginning of the year $800 billion to $1 billion. So we feel good.

Speaker Change: Even with all the headwinds we are looking solid for that <unk> number this year and as we look to next year, which was really your second question associated with order expectations, we'll come back in the fourth quarter earnings call and give more specific guidance.

Relative to 2025.

Speaker Change: Say, though we feel good about 2025 with most segments similar to 2024.

Showing slight growth.

Speaker Change: If you start off with the equipment side, we do expect the pace of LNG <unk> to pick up next year again, assuming a positive resolution of the U S. LNG moratorium as well as the significant international LNG projects that are accelerating pace.

Speaker Change: Also.

Speaker Change: We've got a considerable addressable market outside of LNG that continues to be there.

Speaker Change: Stated that before for our GTE equipment $100 billion to $120 billion between 'twenty 'twenty, four and 'twenty Friday gas infrastructure again, we've had a very good year in 2024 that may be slightly softer in 2025, but.

Speaker Change: Again overall.

Speaker Change: And takes means that we are seeing a solid year in 2025, as well and very similar to 2024 and <unk> markets remained strong other market opportunities and micro grid as well as Cts So positive with regards to <unk> orders in 2025.

Speaker Change: And on your last question look we feel good about both segments, we feel good about the growth trajectory both on the.

Speaker Change: The margin getting more accretive and.

Speaker Change: Obviously, the Baker Hughes story is made up of both of them growing.

Speaker Change: Our next question comes from Sourav, Pat with Bank of America.

Hi, Good morning, Lorenzo Andi Nancy.

Speaker Change: Turning.

Speaker Change: But Lorenzo Nancy if you don't mind I want to continue with the discussion maybe make it a little nearer to home.

Speaker Change: If we look at the revenue number for the third quarter. It was a little below the range, we would expecting but.

Speaker Change: But the fourth quarter guide it implies a pretty pretty good rebound. This is especially on the gas stick Oh equipment side of things, maybe you can give us a little color on how things will evolve in the third quarter and whats driving that rebound over the fourth quarter or maybe it's just timing, but a little more color on that please.

Speaker Change: Yeah happy to take that one this is Joe.

Joe: Remember this is a long cycle business and we are certainly can experience some lumpiness from quarter to quarter for <unk> in particular and really in some cases. They are just large projects that can experience some kind of delay due to an external factor and that's why we give the range that we do so that exactly happened in Q3, where we just had some supplier delays and some vessel delays.

Speaker Change:

Speaker Change: At the.

Speaker Change: Midpoint, we missed by just over $200 million and that is all GTE related to timing and so you will see that revenue coming in the coming quarters, and then you'll see some of that in Q4 some of that in Q1, but we do remain super confident in our guidance and I would say the important point to note is our guidance is still intact and even with that.

Speaker Change: Lumpy revenue the margin improvement continues and revenue overall is still increasing by 30%. This year. So just to give a little context around that.

Speaker Change: <unk> revenue is up 4% year over year, and if you look at year to date 24 versus year to date 23, it's actually up 33% and margins are now up to 17, 9%. So we remain totally confident in our ability to continue executing on the nearly $12 billion of the GTE backlog.

Speaker Change: <unk>.

Speaker Change: And again as I said earlier, it's really not about mix, but revenues are up and margins are up and margins are up 10 points year over year, and we are very confident in executing on that backlog and it's also just got to note too that these are really diverse businesses deep down niet and including gas tech all of them.

Speaker Change: Our growing so we are confident and GTE is is all of the orders are still there and we are working through the backlog.

Speaker Change: I would just add and again to go back to what Lance you mentioned at the beginning and I know maybe it's <unk>.

Speaker Change: Different than some of our peers. These are long cycle projects.

Speaker Change: Having seen these for over a decade youre going to have some puts and takes over the course of quarters. Just based on also shipping and logistics as well as some of the deliveries again, all timing related and I think the element here is we're staying on track with the 20% EBITDA.

Speaker Change: 2026, the target that's been laid out and feel very good about the continued momentum of the orders coming in and the backlog being converted.

Speaker Change: Our last question comes from Marc Bianchi with TD Cowen.

Marc Bianchi: Hi, Thanks.

Marc Bianchi: I guess.

Marc Bianchi: First question I had was just on the book.

Marc Bianchi: Book to Bill as we think about.

2025, so it sounds like maybe the base case for the order level is flattish with where 2024 is I'm curious, how we should be thinking about the backlog conversion.

Speaker Change: Yes, so again if you.

Speaker Change: Look at the early read on 2025, and again, we'll give official guidance during the fourth quarter earnings call. In January 2025, we're seeing again, a robust level of activity and year over year again.

Speaker Change: 2024 with positive momentum and then obviously.

Speaker Change: Looking to the LNG moratorium being lifted.

Speaker Change: And from a conversion perspective again the cycle time of these projects continues to be the same.

Speaker Change: So again, when you think about the <unk> continuing to be at record levels as we go forward and continuing to convert at the same pace.

And thank you that was our last question I will hand, you back to Mr. Lorenzo Simonelli, Chairman and Chief Executive Officer to conclude the call.

Lorenzo Simonelli: Thanks, a lot to everyone for taking the time to join our earnings call today and I look forward to speaking with you. All again soon operator, you may now close the 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.

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Speaker Change: As a reminder, this conference call is being recorded.

Speaker Change: I would now like to introduce your host for today's conference. Mr. Chase Mulvehill, Vice President of Investor Relations, Sir you may begin.

Thank you good morning, everyone and welcome to Baker Hughes third quarter earnings Conference call here with me are chairman and CEO, Lorenzo Simonelli, and our CFO Nancy Vesey.

Speaker Change: The earnings release, we issued yesterday evening and can be found on our website at Baker Hughes Dot Com. We will also be using a presentation with our prepared remarks. During this webcast, which can be found on our website as.

Speaker Change: As a reminder, during this conference call. We will provide forward looking statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please.

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

Speaker Change: Reconciliations of operating income and other GAAP to non-GAAP measures can be found in our earnings release.

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

Lorenzo: Thank you Chase good morning, everyone and thanks for joining us starting on slide four we delivered strong third quarter results highlighted by another record quarterly EBIT.

Lorenzo: And the third consecutive quarter of at least 20% year on year EBIT growth.

Lorenzo: EBITDA margins continue to improve at an accelerated pace increasing year over year by two seven percentage points to 17, 5%, which marks the highest margin quarter since 2017.

Lorenzo: This strong performance is driven by a significant margin expansion across both segments with clear progress being made towards our 20% EBITDA margin targets.

Lorenzo: Total company orders remained at solid levels during the quarter, including $2 9 billion for IEP.

Lorenzo: This marks the eighth consecutive quarter for IEC orders at or above that level and highlights the end market diversity and versatility of our technologies.

Lorenzo: Our free cash flow performance was equally impressive during the quarter coming in at $754 million.

Lorenzo: Our business continues to perform well and we remain confident in achieving the midpoint of our full year EBITDA guidance <unk>.

Lorenzo: Baker Hughes is becoming less cyclical and is demonstrating the capability to generate more durable earnings and free cash flow across cycles, given our balanced portfolio significant reoccurring service revenue and improved cost structure and.

Lorenzo: In addition to the company's untapped market opportunities.

Lorenzo: Turning to slide five we wanted to highlight recent key awards in technology development.

Lorenzo: And gas technology equipment, we secured two additional fpss orders, increasing the year to date total to four <unk>.

Lorenzo: <unk> awarded US a contract to supply a bcl and ICL centrifugal compressors, but total energies all electric <unk>.

Lorenzo: <unk> project in Angola.

Lorenzo: Separately.

Lorenzo: <unk> was selected to provide electric motor driven compressors for an <unk> project and our strategic Latin American basin.

Lorenzo: And gas technology services, we secured a multi decade agreement for an LNG facility in the middle East to provide extensive after market services and digital solutions leveraging igt's ice sensor.

Lorenzo: And new energy, we continued to see solid order momentum, we booked $287 million during the quarter, increasing year to date orders to $971 million.

Lorenzo: We are on pace to exceed the high end of our $800 million to $1 billion order guidance anticipating to book over $1 billion for the first time.

In climate Technology solutions, we received the largest award to date for a zero emissions ICL technology.

Lorenzo: We continue to experience strong order momentum in Brazil further strengthening.

Lorenzo: <unk> our relationship with Petrobras.

Lorenzo: During the quarter, we received multiple contracts to supply flexible pipe systems, and Brazil Santos basin there.

Lorenzo: The contracts also include multiyear service agreements to support maintenance activities through the lifecycle of the project.

Lorenzo: We are also seeing increased brownfield activity as more customer spending is allocated to optimizing recovery from existing fields and.

Lorenzo: An underlying trend that we expect to last many decades.

Lorenzo: This creates a strong backdrop for mature asset solutions, our integrated offering that leverages osce's full range of innovative technologies to enhance total field recovery.

Lorenzo: With this trend we were awarded a sizable multiyear well intervention and completion contracts in the middle East.

Lorenzo: We continue to make progress on the digital front.

Lorenzo: OFC benefited from increased customer adoption of Lucifer, our intelligent automated field production digital solution.

Lorenzo: Additionally, we announced earlier this month and new strategic collaboration with Repsol to develop and deploy next generation AI capabilities for Lucifer across its global upstream portfolio.

In addition at the gas Tech Conference last month, we launched carbon edge powered by Igt's quarter. This.

This end to end risk based digital solution. The lasers precise real time data and alerts on <unk> flows across Cc U S infrastructure from sub surface to surface.

Lorenzo: This connectivity enables OFC and IEC customers to mitigate risk improve decision, making enhanced operational efficiency and simplify regulatory reporting.

Lorenzo: Between now and 2040, we expect global primary energy demand to grow by 10% driven by population growth and increasing energy intensity across major developing countries.

Lorenzo: To put this in perspective, there are roughly 8 billion people in the world today.

Lorenzo: 1 billion live in OECD countries with the other 7 billion living in emerging economies.

Lorenzo: According to the Energy Institute a patent in the developed world consumes on average three times the energy of a person who lives in emerging countries.

Lorenzo: Therefore, even a small increase in energy consumption per capita in the emerging world can have a sizeable impact on overall energy demand.

Lorenzo: While we forecast significant growth in renewables. We believe this increase in primary energy demand will need to be mapped by multiple sources.

Lorenzo: Ultimately, we expect renewables to fall short of meeting both growing demand and replacing hydrocarbons to decarbonize the existing energy system.

Lorenzo: It will take on all of the above strategy focusing on the emissions and not the fuel source to meet the increase in energy demand.

Lorenzo: And our view natural gas as a clear winner it has abundant low cost and has lower emissions.

This is the age of gas.

By 2040, we expect natural gas demand to grow by almost 20% and global LNG demand to increase at an even faster rate of 75%.

Lorenzo: This backdrop provides a very constructive environment in which Baker Hughes can flourish.

Lorenzo: In LNG, we continue to see a requirement for 800 MTA of liquefaction capacity by 2030 to meet increasing global LNG demand.

Lorenzo: This view is supported by more than 200 <unk> of LNG capacity under construction today and a positive outlook for additional.

Lorenzo: <unk>.

Lorenzo: Turning to oil, we anticipate moderating levels of demand growth through the end of the decade.

Lorenzo: In this environment, we expect opex spend to accelerate as the focus shifts from greenfield to brownfield developments.

Lorenzo: With this energy makes backdrop, the focus must be on lowering emissions.

Lorenzo: We see energy efficiency and Decarbonization technologies, playing a critical role in achieving net zero goals were.

Lorenzo: We are focusing our efforts to enhance and develop new technologies in these areas and see this as a fundamental growth theme for our company.

Lorenzo: On Decarbonization, we continued to experience good traction across on your energy portfolio, which focuses on Cc U S hydrogen geothermal clean power and emissions abatement.

Lorenzo: We expect deployment of Decarbonization technologies will continue to gain momentum as policy support and technology advances drive improving project economics.

Lorenzo: With this anticipated strengthening demand backdrop, we remain confident in our ability to achieve our <unk> target of 6% to $7 billion.

Lorenzo: Across our industrial and energy installed base. We are also developing solutions to enhance efficiency and reduce emissions from our equipment.

Lorenzo: This can be in the form of operating turbines and compresses installing electric motors or adding zero lead valves.

Lorenzo: Beyond the equipment, we are seeing increased levels of digital adoption for accordant, which improves asset performance optimizing processes and reduces energy consumption.

Lorenzo: Turning to slide seven I wanted to spend some time discussing near term market dynamics, where we see customers span shifting towards global gas in mature fields as oil demand fundamentals soften.

Lorenzo: Oil markets have recently been impacted by both supply and demand factors, including slowing global economic growth.

Lorenzo: <unk> North American production.

Lorenzo: We can and OPEC plus compliance and geopolitical uncertainty in the middle East.

Lorenzo: Even with the onset on oil macro backdrop.

Lorenzo: Global upstream spending outlook for this year remains unchanged.

Lorenzo: In North America, we continue to anticipate spending to decrease year over year in the mid single digits range.