Q2 2025 Baker Hughes Co Earnings Call
Good day, ladies and gentlemen and welcome to the Baker Hughes company. Second quarter 2025 earnings conference call. At this time, our participants on a listen, only mode
later, we will conduct a question and answer session and instructions will follow that time.
As a reminder, this conference call is being recorded.
Speaker Change: I would now like to introduce your host for today's conference Mr. Chief Motel vice, president of Investigation. Sir. You may begin.
Speaker Change: Thank you. Good morning everyone. And welcome to Baker Hughes second quarter earnings conference. Call here with me, are our chairman and CEO Lorenzo simonelli and our CFO Ahmed mogul.
Speaker Change: the earnings release, we issued yesterday evening can be found on our website at Baker hughes.com
Speaker Change: We will also be using a presentation with our prepared remarks. During this webcast, which can be found on our investor website.
Speaker Change: As a reminder, we will provide forward-looking statements during this conference call. These statements are not guarantees of future performance and involve a number of risk and assumptions.
Speaker Change: Please review our SEC filings and website for the factors that could cause actual results to differ materially.
Speaker Change: Reconciliation of adjusted EBA and certain gaap to non-gaap measures can be found in our earnings release with that. I'll turn the call over to Lorenzo.
Lorenzo: And thanks for joining us.
Lorenzo: First, I'd like to provide a quick outline for today's call.
I will then highlight key Awards and Technology developments announced during the quarter and provide some support on the macro backdrop.
Lorenzo: After this, I will share an update on the exciting progress. We are making in the distributed power space with a particular focus on that centers.
Armed will then cover our financial performance followed by an overview of our portfolio, optimization strategy, and our Outlook.
Lorenzo: Finally, I'll provide a quick recap before opening the line for questions.
Let's now turn to the key. Highlights on slide 4.
Lorenzo: We delivered another strong set of results maintaining the trend of meeting or exceeding, the midpoint of our Eva guidance for the 10th consecutive quarter. Adjusted ebit da rows to 1.21 billion, dollars reflecting a 170 basis, point year-over-year, Improvement in margins,
Lorenzo: This was driven by the impact of structural cost actions and stronger, operational execution.
Lorenzo: We continue to make clear, progress in scaling, our business system, a standardized platform that enables consistent strategy, execution, and delivers differentiated outcomes.
Lorenzo: These efforts are driving. Structural margin Improvement. Strengthening the resilience of our earnings and laying the foundation for long-term value creation.
Lorenzo: This performance reflects strong execution, across both segments amid ongoing macro and Industry related, headwinds.
Lorenzo: Also field services and equipment delivered 90 basis points of sequential margin Improvement, driven by stronger, international and subk, and surface pressure systems Revenue as well as meaningful progress on cost out initiatives.
In industrial and energy. Technology margins expanded by 190 basis points year-over-year supported by the continued deployment of our business system which is enhancing operational, discipline, and execution,
IET orders continue to demonstrate strong momentum totaling 3.5 billion dollars in the quarter.
Lorenzo: Notably. This was achieved with no material LNG equipment orders. Once again, highlighting the strength and versatility of our technology portfolio as we further expand across energy and Industrial and markets.
Lorenzo: This diversification is reflected in the growing demand for our data center Solutions.
Lorenzo: During the quarter, we booked more than 550 million in power generation equipment, orders for data centers.
Lorenzo: In addition, we experience another strong quarter for gas tech services upgrades and transactional bookings as customers focus on improving performance and extending the life of equipment.
Lorenzo: IET backlog, grew free percent sequentially, reaching a new record of 31.3 billion dollars reinforcing the durability of our growth Outlook.
Lorenzo: Following a strong first half and a positive outlook for the second half Awards, we are confident in achieving its full year. Order guidance range of 12.5 to 14.5 billion.
Lorenzo: Looking Beyond this year, we see continued momentum for Power Solutions. Sustained growth in new energy and a robust pipeline of LNG and gas infrastructure opportunities.
Lorenzo: All of which support a constructive outlook for orders.
Lorenzo: During the quarter, we generated free cash flow of 20039 million and return the total of 423 million to shareholders, including a 196 million, in share repurchases.
Lorenzo: Starting to slide 5.
We also announced free strategic transactions in the quarter to advance our portfolio optimization strategy.
Lorenzo: Reinforcing efforts to enhance the durability of earnings and cash flow while creating long-term value for shareholders.
Lorenzo: First regarding diversities, we entered into an agreement to establish a joint venture with cactus. Contributing surface pressure control in exchange for approximately 30045 million. While maintaining a minority ownership stake.
Lorenzo: Additionally, we announced the sale of precision sensors and instrumentation to Crane company for approximately 1.15 billion.
Lorenzo: Haunting overall returns.
Lorenzo: Next from a strategic acquisition perspective, we signed an agreement to purchase Continental disc Corporation.
Lorenzo: A leading provider of pressure Management Solutions for approximately 540 million.
Lorenzo: CDC represents a high quality bolt-on acquisition within IAT.
Lorenzo: adding a highly complimentary offering to our existing valve portfolio, that expands our presence in the pressure and flow control market and brings margin accretive life, cycle based Revenue,
Lorenzo: As we advance our portfolio, optimization initiatives, we remain focused on executing a strategic and disciplined Capital, allocation approach to maximize long-term shareholder value.
Lorenzo: Overall we made strong progress on multiple fronts during the quarter and each of these actions support our commitment to profitable growth, continuous margin expansion, and improving quality of earnings.
Lorenzo: Planning to slide 6, we continue to build strong commercial momentum across new and existing markets with growing Synergy opportunities across our portfolio that enhance how we deliver value to customers while expanding our Market presence.
Lorenzo: during the quarter IAT secured 2 significant Data Center Awards,
Lorenzo: First, we received our largest data center award today for 30 Nova LT gas turbines.
These units will deliver almost 500, megawatts of power to data centers in the United States, and operate on a blend of natural gas, and hydrogen supporting, both reliability, and lower carbon operations.
Lorenzo: Second, we received an order for 16. Nova LT gas, turbines representing up to 270 megawatts of power for deployment of Frontiers data centers in Wyoming and Texas.
Lorenzo: This award is the first phase of the previously announced enterprise-wide agreement with Frontier to Advanced Power Solutions and large-scale carbon capture and Storage.
These Awards reflect the accelerating long-term demand for distributed lower carbon power in support of digital infrastructure.
Lorenzo: This trend is also unlocking greater commercial synergies across our power and decarbonization portfolios reinforcing the potential for sustained Data Center and new energy growth.
Lorenzo: in total it booked 69 Nova, LT units, this quarter with more than 70%, allocated to Data Center projects
Lorenzo: yet to date. We have secured almost 1.2 gigawatts of Nova. LT capacity for data center applications highlighting, our expanding role in enabling the growth of digital infrastructure through flexible lower carbon Power Solutions.
Lorenzo: We are also expanding our pipeline of future digital infrastructure opportunities.
Lorenzo: At the recent Saudi us investment Forum. We signed an mou with data Volts for data center projects globally, which includes plans to power data centers in the Kingdom with our Nova LT turbines using hydrogen from the Neon
Lorenzo: Beyond data centers, we continue to see strong demand in gas infrastructure.
Lorenzo: In Saudi Arabia, we secured an award for 4, Nova, LT turbines, to support a ramco's master. Gas system free pipeline.
Lorenzo: Also, in climate Technology Solutions, we find the framework agreement with integers to supply. 16 reciprocal packages, supporting an increase in biogas production while driving emissions reduction for gas infrastructure in Denmark.
Lorenzo: In GTS, we secured more than 350 million in contractual service agreements during the quarter, strengthening our backlog of recurring Revenue.
Lorenzo: Key Awards included, a new maintenance agreement with proel to improve uptime, and reliability of critical turbo, Machinery equipment, and a renewal of a multi-year service contract with Oman LNG featuring remote monitoring and diagnostic services delivered through our Eye Center.
Lorenzo: In new energy, we continue to build momentum, internationally where we have historically seen the greatest concentration of orders during the quarter CTS secured, 1 of the largest CCS orders today. Providing compression technology for a large CCS Hub in the Middle East.
Lorenzo: In geothermal we successfully drilled lower Saxon first productive deeper exploration. Well in Germany.
Lorenzo: Solutions, that optimize performance.
Lorenzo: In ofsc, we maintain strong momentum in production and mature asset Solutions booking several meaningful Awards.
Lorenzo: Notably we signed a significant Master Services agreement with a ramco for installation and maintenance of electrics at masport pumps across the kingdom.
Lorenzo: We also received 2, large multi-year, contracts to help optimize production. Throughput and reliability, for 2, major operators in offshore Angola and the US Gulf Coast leveraging. Our chemicals, artificial lift, and digital Solutions.
Lorenzo: In Norway, equinor, awarded us a contract to industrialize offshore plug-in abandonment operations in the oberg East field, which followed the announcement of a new multi-year framework agreement for integrated wealth services.
Speaker Change: Ofsc also secured a multi-year contract to provide drag reducing chemicals to be deployed on 2 major offshore pipeline systems operated by Genesis energy.
Speaker Change: To support this agreement, we will expand our chemicals, manufacturing footprint and deploy. Lucifer our digitally automated fuel production solution.
Speaker Change: Also for the sea, we received an award from Repsol for Next Generation, AI capabilities and entered into a new agreement with eni to deploy Lucifer for ESP optimization and ai-driven Predictive Analytics in the Middle East.
Speaker Change: Continuing on digital cord, and solutions, secured a notable contract with a large NOC, to deploy asset Performance Management for several compressor, stations in the Middle East.
Speaker Change: Corden Solutions was also awarded a contract with Nova chemicals to optimize maintenance and maximize production across multiple petrochemical facilities leveraging, apms asset strategy, and asset Health, digital offerings.
Speaker Change: Overall, it was another strong quarter, both from a commercial and Technology engagement perspective, we are building strong order and Technology pipelines that extend beyond our traditional oil and gas markets, creating additional life, cycle growth opportunities. That further, enhance our earnings and cash flow durability.
Speaker Change: Turning to the macro on slide 7.
Speaker Change: Amid continued macron certainty. I want to take a moment to reaffirm the strong long-term fundamentals. Underpinning our business.
Speaker Change: Global energy. Demand continues to grow supported by durable, secular macro trends that are shaping the future of the energy landscape.
Speaker Change: Population growth, particularly in Emerging Markets is driving Baseline demand for energy across residential mobility and infrastructure.
Speaker Change: At the same time, continued Economic Development and industrialization are expanding energy needs across critical sectors, such as manufacturing, transportation and Technology.
Speaker Change: Urbanization and the global push for electrification. Our accelerating the buildout of modern Energy Systems.
Speaker Change: This includes both expanding access to Reliable electricity and supporting new demand drivers, like data centers and Industrial decarbonization
Amid. This backdrop, there is a global push for lower carbon Solutions as countries, Advance their emission reduction goals.
Speaker Change: In response, we are seeing increased investment in clean power. Ccus emissions, abatement, geothermal and hydrogen.
Speaker Change: These markets require scalable flexible and Energy Solutions.
Speaker Change: Capabilities that are core to be used and essential to enabling a lower carbon economy.
Speaker Change: Consistent with this trend, we booked 1 billion dollars in new energy orders during the quarter.
Speaker Change: Bringing year to-day bookings to 1.25 billion already matching our total for last year.
Speaker Change: As a result, we now anticipate exceeding, the high end of our 1.4 to 1.6 billion order range for this year.
Speaker Change: This performance reflects increasing Global demand for lower carbon Solutions, and reinforces our confidence in our 6 to 7 billion order Target by 2030.
Speaker Change: Collectively these macro Trends, support a strong long-term outlook for the global energy and Industrial landscape as customers. Increasingly prioritize, efficiency, reliability, and sustainability.
Speaker Change: It is an environment aligned with our strengths and 1 that positions us to capitalize on the significant opportunities ahead.
Speaker Change: Now turning to Natural Gas.
Speaker Change: Rentals, its abundance, low-cost reliability, and lower. Emissions set natural gas apart from other fossil fuels.
Speaker Change: This year is increasingly being validated across policy and market dynamics.
Speaker Change: While we expect significant growth from Renewables.
Speaker Change: Scaling, these Technologies at PACE required to meet growing energy, needs remains a challenge, particularly in light of supply chain, constraints, permitting, delays cost inflation and less favorable policy support.
Speaker Change: These challenges further, reinforce the positive long-term outlook for natural gas.
Speaker Change: By 2040. We expect natural gas demand to grow by over 20% with global LNG increasing by at least 75%.
Speaker Change: This growth Outlook creates a favorable environment for Baker Hughes.
Speaker Change: We are already seeing strong momentum booking 2.9 billion dollars in gas infrastructure, equipment orders over the past, 6 quarters, a trend. We expect to continue as countries tend to Natural Gas to support power generation and Industrial Development.
Speaker Change: In LNG, approximately 60, mtpa of additional fids are needed over the next 18 months, to reach our free year Target of 100 mtpa, which would bring the global installed base to our long-held Target of 800. Mtpa by 2030.
Speaker Change: Beyond this, we see continued growth in the installed base as energy demand and Emissions reduction, efforts convert.
Speaker Change: This year LNG demand continues to grow rapidly at 5% year-over-year. A softness in China is more than offset by strength in Europe.
Speaker Change: This increase in demand is driving sustained momentum in LG Contracting activity, for example, would McKenzie reports 49, mtpa of long-term LNG offtake, contracts have been signed in the first half of the Year positioning 2025 to exceed the record 81 mtpa signed last year.
now, turning to oil markets,
this year has been marked by heightened volatility with Brent prices ranging. From a low of $60 per barrel in early May to a high of 77 per barrel in June with continued volatility into July.
Speaker Change: The market continues to navigate cross-currents balancing weakening, demand, and Rising OPEC plus production against persistent. Geopolitical risks in both the Middle East and Russia.
Speaker Change: As we look into the second half of the year, we expect continued volatility as OPEC plus accelerates the return of its 2.2 million barrels per day of idol production, into what we anticipate will be a soft Market.
Speaker Change: Ultimately, until all excess OPEC plus barrels are absorbed by the market. We anticipate oil related Upstream spending will remain subdued
Speaker Change: On global Upstream spending, we maintain our outlook for our high single-digit decline this year.
Speaker Change: In international. We now expect spending to decline toward the high-end of our mid to high single-digit range. Given downward pressure in key countries such as Saudi Arabia and Mexico.
Speaker Change: In North America, We Still project spending to decline in the low double digits.
Speaker Change: These forecasts assume current oil prices hold and no further trade policy escalation.
Speaker Change: Any meaningful deterioration in Iva could present incremental downside.
Speaker Change: Longer term, we expect oil demand to grow Beyond 2030 to meet that demand significant investments will be required. In addition, we anticipate growing customer focus on mitigating. Reservoir Decline, and optimizing production, efficiency,
Speaker Change: This underscores, our strategic focus on mature asset Solutions in ofse.
Speaker Change: These technologies will improve production, reliability, boost for your performance and expand our presence in more durable Opex. Le production Market increasing the resilience of our Revenue base.
Speaker Change: Planning to slide 8. I wanted to take a few minutes to discuss the opportunity, we see, in distributed Power Solutions for Data Center Market and Beyond.
Speaker Change: Distributed power represents a compelling growth factor for Baker Hughes drawing on multiple parts of our Enterprise from industrial gas turbines and electric motors to geothermal and CCS Technologies.
Speaker Change: This opportunity broadens, our Market exposure to digital infrastructure and reinforces the stability of our earnings and cash flow. Through life cycle, driven equipment, and service Revenue.
Speaker Change: Reaching 945 terawatt, hours by 2030.
In the US, electricity demand for data. Processing alone is projected to surpass the combined power needs of all energy, intensive, manufacturing, sectors, including aluminium, steel cement and chemicals.
Speaker Change: To support this surge in power requirements. Gas turbine manufacturers are experiencing robust. Order activity, across both utility scale and sub utility scale power applications.
Speaker Change: Our portfolio is well suited for the sub utility scale behind the meter Solutions. Providing advanced technology and shorter deployment timelines with our hydrogen. Ready, Nova lt12 and 16 megawatt turbines as well as brush Electric Generators.
Speaker Change: To meet Rising demand. We continue to make targeted organic Investments to enhance our Nova, LT capabilities, including initiatives to increase power range and reduce startup times. In addition activities are underway to significantly increase our manufacturing capacity by 2027 capitalizing on strong order visibility.
In the utility scale space, uh, geothermal Solutions offer customers reliable and scalable base load power.
Speaker Change: Supported by iat's, organic rankine cycle, steam table, and Technologies and osas subsurface expertise.
Speaker Change: More. Broadly, we are seeing expanded Market opportunities to deploy, Advanced and enhanced, geothermal Technologies, to deliver dispatchable, low-carbon power to data centers.
Speaker Change: Additionally, we are collaborating on the development of the utility and Industrial scale. Net Power Solutions forever, expanding our power range and enabling near zero emissions power generation.
Speaker Change: The growing frequency of grid. Disruptions is prompting Industries with critical operations to seek more reliable. On-site Power Solutions.
This shift is especially evident in sectors like energy, Healthcare data, centers airports, and other Mission critical infrastructure where our distributed power offerings are well positioned to meet this emerging need for behind the meter power.
Building on the momentum from our recent data center related Awards, totaling more than 650 million year to date. We are making strong progress toward our free year Target of 1.5 billion.
The pace of recent Awards positions us to meet or exceed, this target earlier than planned importantly. This excludes the substantial recurring Revenue opportunity, tied to aftermarket Services which typically generate 1 to 2 times the original equipment value over a 20-year period.
Speaker Change: in summary the surging momentum in data center development is reinforcing its fundamental demand drivers while also, increasing the pipeline of Enterprise wide opportunities,
Speaker Change: We are expanding into attractive high growth markets, beyond our traditional oil and gas space. Creating new avenues for growth while further strengthening the durability of our earnings and cash flow.
To conclude it was another strong quarter for the company with significant progress, on several fronts, despite the challenges presented by the external environment.
Speaker Change: Our Focus remains on the areas within our control. Most notably. The continued deployment of our business system across the Enterprise, which is driving productivity and accelerating our efforts to be a leaner more efficient company.
Speaker Change: Baker Hughes is well, positioned to deliver sustainable growth and create long-term shareholder value. We are excited about the future, as we advance into the next phase of our journey with that, I'll turn the call over to Ahmed.
Ahmed: Thanks Lorenzo. I'll begin with the review of our Consolidated results. And segment performance, I will then outline our portfolio optimization strategy, and conclude with a summary of our outlook before turning it back to Lorenzo for final remarks.
Ahmed: Starting on slide 10.
Ahmed: As Lorenzo highlighted, we delivered another strong quarter of orders with total company. Bookings of 7 billion dollars including 3.5 billion from IET.
Ahmed: This performance demonstrates continued customer confidence in our Diversified portfolio and underscores the strength and breadth of our Market leading Technologies and solutions.
Ahmed: adjusted ibida increased by 7% year-over-year to 1.21 billion dollars, despite lower Revenue driven by strong margin expansion across both segments,
Ahmed: And more durable earnings.
Gap diluted earnings per. Share were 71 cents excluding adjusting items earnings per share were 63 cents up 11% year-over-year.
Ahmed: We generated free cash flow of 239 million for the full year. We maintain our free cash flow conversion Target of 45 to 50% with a typical stronger performance expected in the second half of the year.
Ahmed: Turning to Capital allocation on slide 11, our balance sheet remains in a very strong position. We ended the quarter with cash of 3.1 billion and net debt to ibida ratio of 0.6 times and liquidity of 6.1 billion.
Ahmed: We also returned 423 million to shareholders, this included, 227 million of dividends and 196 million, in share repurchases. We remain committed to returning 60 to 80% of free cash flow to shareholders.
Ahmed: The portfolio optimization actions announced in the second quarter are expected to generate about 1 billion dollars in net. Proceeds upon closure of these transactions further. Strengthening our balance sheet and increasing flexibility for organic Investments, shareholder returns, and value accretive acquisitions.
Ahmed: I will now highlight the results for both segments, starting with IET on slide 12.
Ahmed: During the quarter, we secured IET orders, totaling 3.5 billion dollars, including record bookings for both CTS and Cordon Solutions as well as a 28% year-over-year increase in GTS. Driven by another strong quarter of upgrades and transactional orders.
Ahmed: This brings our year-to-date total to 6.7 billion dollars which includes 1.9 billion in GTS. 1.4 billion for LNG and gas infrastructure and more than 650 million for data center Power Solutions.
Ahmed: These commercial achievements further underscore the versatility of our technology portfolio and our strategic positioning to benefit from multiple secular growth Trends across the energy and Industrial sectors.
Ahmed: With a book to Bill of 1.1 times, for the quarter, IET achieved, another record RPO of 31.3 billion.
Ahmed: This RPO level and a structurally expanding installed. Base provides strong Revenue. Visibility in the years ahead.
Ahmed: IET Revenue, increased by 5% year-over-year to 3.3 billion led by a 9% increase in GTS and 22% increase in CTS partially offset by the expected softness in industrial Tech.
Ahmed: segment, ebida growth significantly, outpaced segment Revenue, increasing 18% year-over-year as margins expanded, by 190 basis points to 17.8% despite some tariff related headwinds
Ahmed: This performance was driven by record gastec equipment, margins, and strong execution, and coordinate Solutions, partially offset by CTS.
Ahmed: These results clearly highlight the benefit of our business system implementation. Now in its third year, this disciplined operating model is focused on Performance Management strategy, deployment and continuous Improvement.
Ahmed: Rooted in lean and Kaizen principles. It is equipping teams across the Enterprise with tools, to simplify workflows, eliminate waste, and improve execution, ultimately supporting progress towards our 20% ibida. Margin targets.
Ahmed: Turning to ofsc on slide 13, ofsc revenue on the quarter was 3.6 billion dollars up, 3% sequentially.
In international markets, Revenue, increased 4%, sequentially led by Europe and Middle East, excluding Saudi Arabia. Where activity continued to Trend lower.
Ahmed: We also saw a solid growth in Latin America driven by Mexico while Upstream activity in Mexico remains subdued. We experienced strong growth in chemicals as refiners work to address Rising crude quality challenges,
Ahmed: In North America Revenue was up 1% sequentially.
Ahmed: North America, land Revenue news remains stable, compared to the first quarter. Outperforming the 3% decline in US onshore rig activity, due to our strong waiting towards production related, work,
Ahmed: Driven by disciplined execution and a continued focus on cost. Efficiencies ofsc delivered ibida of 677 million exceeding. The midpoint of our guidance range despite a challenging Market
Ahmed: Importantly, ibida, margins expanded 90 basis points. Sequentially to 18.7%.
Ahmed: Advancing the Strategic priority as we transition from Horizon 1. A period defined by significant operational Improvement into Horizon 2 which will be characterized by continued execution discipline and an increased focus on strategic growth. Particularly in industrial new energy, markets and mature asset Solutions,
Ahmed: We have remained focused on reshaping the portfolio to drive, higher profitability, and position, Baker Hughes for more durable long-term growth including the 1.5 billion dollars of expected proceeds from the PSI and SPC transactions. We will have generated over 2.5 billion dollars in cash from a series of strategic actions since the merger in 2017.
Ahmed: Our divested businesses will now be with owners where they are a stronger strategic fit while enabling Baker Hughes to further. Streamline its portfolio and concentrate on higher margin, recurring Revenue opportunities.
Ahmed: These transactions have unlocked significant value, strengthened our balance sheet and enhanced our strategic, focus and flexibility.
Ahmed: We have also been disciplined in how we've redeployed this Capital, including the acquisition of CDC. We have reinvested approximately 1.8 billion dollars to expand our industrial presence and aligned with long-term growth trends,
Other notable Investments include brush electric motors, which expanded iet's driver and power generation offerings, and Altus Intervention, which strengthened our capabilities within mature asset Solutions, we have also made early stage investments in decarbonization technologies that once commercialized could drive meaningful. Long-term growth
Ahmed: the combination of the PSI divestiture and CDC acquisition is a clear example of our portfolio. Strategy in action, we are a monetizing, non-core assets and unlocking significant value while reinvesting into higher margin. Recurring Revenue businesses at attractive multiples that enhance returns
Ahmed: Collectively these actions Advance our strategy to reshape the portfolio for more resilient earnings and cash flows.
Ahmed: The demonstrate our disciplined approach, prioritizing strategic fit exposure to growth markets, AC creative, margins and returns and life. Cycle based business models looking ahead. We will continue to invest in opportunities that strengthen our industrial footprint and unlock meaningful synergies.
Ahmed: Our ability to integrate Acquisitions. Effectively is enabled by the strength of our business system. It provides the structure discipline and repeatability to execute with speed and consistency. Accelerating Synergy capture and driving faster value creation.
Ahmed: With the net leverage ratio of 0.6 time, zba we have ample capacity to pursue value of creative opportunities, including High return, organic Investments, disciplined m&a. And continued, Capital return to shareholders.
This financial flexibility enables us to allocate Capital with precision and purpose with a clear focus on actions to accelerate Revenue growth, enhance margins, improve returns and strengthen our long-term position.
Ahmed: Our ultimate objective Remains the Same to maximize long-term shareholder value and position Baker Hughes for sustainable differentiated growth.
Ahmed: Turning to slide 15. I want to provide an update on the dynamic trade policy, environment, and our Outlook.
Ahmed: In the second quarter, we estimate that the increase in tariff rates, negatively impacted our ibida by approximately 15 million dollars.
Ahmed: We executed a series of mitigation initiatives that help limit the financial impact and these actions will continue to play a critical role in managing ongoing exposure.
Ahmed: Since our trade policy update in our previous earnings call, there have been several changes, both implemented and proposed relative to the Tariff rates assumed in our original analysis.
Ahmed: At a high level. Our updated analysis suggests that these developments largely offset each other. As a result, we are maintaining the previously communicated estimate of 100 to 200 million dollars. Net ibida impact for the year.
Ahmed: Note that this assumes recently announced tariffs are implemented as planned. No further trade policy escalation including retaliatory, tariffs and continued success of our mitigation actions across both segments.
Ahmed: We are tracking the risk for retaliatory tariffs in key regions while not currently reflected in our net, tariff impact estimate. We remain prepared to implement additional mitigation initiatives to limit, where possible any further impact on our Global operations and financial performance.
Next I would like to update you on our Outlook, the details of our third quarter and full year, 2025 guidance are also found on slide 15 the ranges for revenue ibida and depreciation and amortization are shown on this slide and I'll focus on the midpoint of our guidance.
Ahmed: While there's still volatility around trade policy developments, we have been successfully executing, our mitigation plans and our underlying business continues to perform well
Ahmed: in light of these factors. And consistent with our commitment to transparency, we are re-establishing fully your guidance for both segments and the company overall.
Ahmed: For the third quarter, we expect total company in ibida of approximately 1.185 billion dollars at the midpoint of our guidance range. Led by continued strong growth in IET and resilient margins in ofse.
Ahmed: For IET. We expect third quarter results to benefit from continued productivity gains supported by the enhanced implementation of our business system as well as strong Revenue conversion from the segments record backlog.
Ahmed: Overall, we anticipate IET evv $600 million at the midpoint of our guidance range.
Ahmed: For ofsc, we expect third quarter, ebida of 665 million at the midpoint of our guidance range which represents flat sequential margins on a slight Revenue decline.
Ahmed: Now, turning to our full year guidance, we see continued strength in IET fundamentals while ofsc remains challenged by subdued market conditions.
Ahmed: Taking this into account. We expect total company ibida of 4.675 billion at the midpoint of our guidance range.
Ahmed: in IET, we maintain the midpoint of our orders guidance range of 13.5 billion dollars given our solid first half orders, performance and positive outlook for the second half, particularly in LG
Ahmed: Also we are raising the guidance range for both revenue and debit de increasing the midpoint for Revenue to 12.9 billion from 12.75 billion and ibida to 2.35 billion for 2.3 billion.
Ahmed: The major factors driving our third quarter. And full year guidance ranges for IET will be the pace of backlog conversion in GTE. The impact of any Aero derivative supply chain tightness and gas Tech. Foreign exchange rates trade policy and operational execution in industrial Tech and CTS.
Ahmed: For ofse, we are re-establishing full year Guidance with midpoints of 14.2 billion for revenue and 2.625 billion for ibida implying margin Improvement. Despite lower Revenue driven by strong execution of our structural cost out program and reinforcing the durability of our margins.
Ahmed: Factors driving our third quarter and full year guidance, range for ofsc include execution of our ssps backlog. The impact on near-term activity levels in North American International markets, trade policy and pricing across more transactional markets
Ahmed: We remain confident in our ability to deliver solid performance in 2025. We'd continued growth in IET helping to offset softness in more Market sensitive areas of osc underscoring the strength of our portfolio and the benefits of our strategic diversification.
In summary we are pleased with the company's operational performance during the second quarter, ossc delivered, strong margin performance despite softness in the Upstream Market, while IET margins continue to progress towards our 20% Target.
Ahmed: We remain focused on elements within our control, streamlining operations, and driving efficiencies that will benefit us. Well, beyond the cycle with that, I'll turn the call back over to Lorenzo.
Lorenzo: Thank you, Ahmed, a strong second quarter results. Clearly demonstrate the continued progress. We are making in Transforming Our operations and streamlining, the organization even in a challenging and uncertain Market environment.
Lorenzo: As you can see, Illustrated on slide 17, we have evolved into a much more profitable energy and Industrial technology company.
Lorenzo: At the midpoint of our 2025 guidance Baker Hughes ibra margin will have increased by almost 600 basis points over the past 5 years. Additionally ibida has more than doubled over the same period.
Lorenzo: The magnitude of this Improvement speaks to the substantial progress. We've made and reinforces our confidence in the Strategic Vision. We set out when we formed the company.
Lorenzo: We are entering Horizon 2 from a position of strength with a clear path to drive further growth and enhanced margins underscoring. Our commitment to delivering long-term value for our shareholders.
Lorenzo: To continued success. Driving operational discipline, improving productivity and accelerating the consistency of execution.
Lorenzo: We are now complementing our operational efforts with additional portfolio, optimization actions.
Lorenzo: These transactions announced in the second quarter, serve as a clear, blueprint for our strategy, unlocking value from non-core businesses and recycling that Capital into higher margin opportunities aligned with our financial and strategic Frameworks.
Lorenzo: In addition to our operational and portfolio progress, our complimentary and versatile technology portfolio, supports our strong position in key growth markets, including natural, gas, new energy, and mature basins.
This enables us to capitalize on emerging secular Trends driving sustains Auto momentum into Horizon 2 and Beyond.
Lorenzo: The opportunities emerging Within These growth markets are fostering, enhanced commercial integration throughout the company.
Lorenzo: By leveraging our Enterprise wide customer relationships, cross segment, sales, channels and integrated offerings, we will be able to drive incremental growth and capture a greater share of our addressable markets.
Speaker Change: To conclude, thank you to the entire Baker, Hughes team for yet. Again, delivering outstanding results as we continue. Our journey to take Baker Hughes and energy forward. We remain committed to our customers shareholders and employees with that. I'll turn the call back over to Chase.
Speaker Change: Operator. We can now open up for questions.
Chase: Thank you.
Chase: You have a question at this time, please, press star 1, 1 on your touchtone, telephone, and wait for your name to be announced.
Chase: So we draw your questions simply press star 1 1 again.
Chase: As a reminder, we ask that you, please limit yourself to 1 question.
Chase: Please stand by while we compile the Q&A roster.
Speaker Change: Uh, first question coming from the line of Scott, goober with the CD group, your line is now open.
Speaker Change: Yes, good morning.
Speaker Change: Hi Scott. Hi Scott.
Scott: Morning. Um, so the the margin performance across both segments was was impressive in the Outlook, in ofs was better than we expected given the backdrop. Um, can you just unpack the uh the drivers of the margin performance a bit more and, you know, as we we start to think about 26, uh, your confidence level and hitting the the the 20% Mark in IED. Uh, and then thinking about OSS,
Scott: Um, you know, giving your internal drivers, you know, they think you can grind those margins. A bit higher in a soft Market or is, um, you know, a kind of flat, uh, assumption. Uh, a good starting point for us.
Yeah, Scott. Uh, look, obviously we're we're pleased with the way the teams have executed in the first half and also in the second quarter with that, uh, progress and continuous Improvement, despite the external headwind. So you know, I think it's helpful as as we think about it by segment. So in in ofsc, you know the IBM, margins, as we pointed out expanded by, um, around 90 basis points, sequentially to 18.7%, and that was on the back of sequential stronger Revenue. Um, as well as you know, the progress we've made on on cost efficiency. So, you know, by cost efficiency, you really were, we're looking at a few things. Um we continue to streamline our cost structure. So right sizing and making sure we understand the current activity levels and you know simple things like removing duplication across uh the segment which we've been doing for over a year so I think uh you know that's 1 piece on cost but then also on price uh we remain
Scott: Discipline. So really
Speaker Change: By uh, speaking lines from the technical difficulties.
Scott: Again, please stand by
Sorry. So that's uh, so sorry we may have lost you for a second, but I was on IET ibida margins. So, um, you know, we the margins expanded by 190 basis points, close to 18% despite some tariff related headwinds um and that impacted margins to be clear by around 40 basis points in IET. So the drivers of the performance are. Um, you know, record margins, in GTE Corden Solutions also, contributed to solid performance. Um, and that's underpinned by our business system, which we've had in place for you know, coming into its third year. And uh I I point out also ofsc and IET continue to work together to implement the best practices on Business System across uh the company. So
Scott: Lastly, I'd say, you know, going forward, as we look at um, you know, additional efficiency opportunities, we see it there in it, we're confident on the 20% margin, Target in ossc, similarly, we are closing the margins Gap, to our peers and you know, we're focused on margins and not and non-market share. So overall, pretty strong setup and the way the teams have been executing to, make sure we have continuous Improvement. Yes, Scott. I'm not sure how much cut out there but, uh, really. As you look at it from a trajectory of going forward. Again, as Ahmed said, Majin accretion is, uh, the
Speaker Change: Name of the game. It's what we've stated with regards to the progression. Going forward, great progress, across both segments. Even with some of the, uh, headwinds we see in the marketplace, in particular ofsc, and the performance that they've been able to demonstrate and uh as we go forward, we uh aim to continue that margin progression into 26.
Scott: Thank you.
David Anderson: From the line of David Anderson with Barkley Selena Smith, hi, good morning, Lorenzo and Ahmed.
Bye.
Hi. I was wondering if you could just expand a little bit uh more on the IET order performance, this quarter, uh Gass Tech equipment was a bit light. Uh, but Services was surprisingly strong. I was just wondering how you think these components should Trend the rest of the year and maybe what gets you to the highest end of that order guy, that you, that you would reiterated. And also while we're here, if you could provide some insight to how these orders are start to shape up for 2026, particularly with the data center orders on page 2. Well, looks to be far exceeding your prior targets there. Thank you.
Dave, you have very pleased with that. The order progress made in IET, and as you saw bookings of 3.5 billion dollars of orders in the quarter, taking the year to date to uh, 6.7 billion. So, we're trending towards our midpoint of the 4 year guidance. Um, as again, state is 13.5 billion and this is, um, as a result of strength and the strong visibility
David Anderson: On orders. Uh, and the back half of the Year, we're confident in achieving that and continue to see strength in the, uh, overall Market. As you look at orders today. Uh, it's been driven by non LNG, markets, uh, gas infrastructure, data centers GTS upgrades, and Cordon Solutions. So if you look into the second half, we do anticipate, strengthening LNG orders and a number of the projects that, um, we've mentioned in the past, uh, coming through and, uh, that we've been working on. So as we look at the strength, uh, of our orders in the first half, uh, touching on that data centers, It's Quickly emerging as a strong growth area. Uh, we've received several awards for our Nova LT turbines you know year to date, we've booked over 70 LT, um, novelty turbines for the data center Market providing 1.2 gigawatts of power. Uh notably you know the uh award includes our largest single order today to 30 Nova LTS for a customer.
David Anderson: Uh in the US data center projects and 16 Novelties for Frontier infrastructure projects. So both great examples of the increasing connectivity between the surging digital infrastructure demand and also the increasing need for lower carbon Solutions. As uh, we look forward. You know, we continue to see opportunities to leverage our hydrogen ready, capabilities on the novelty turbines as well as providing CCS Solutions. Uh, such as the frontier uh project.
David Anderson: Uh we do anticipate being able to meet that earlier than planned on the back strength that we see within the marketplace outside of uh some of the equipment side. As you mentioned, Gass tech services, we booked several CSA agreements totaling more than 350 million also experienced uh strong quarter for both transactional and upgrade orders uh, extending the life of, um, the equipment that we have out there installed and yet today we booked 1.9 billion dollars of GTs orders, which is up 28% versus last year. And also, uh, upgrades very strong with orders up 165% for the same period, uh, and transactional orders are increased by 20%, so very strong performance by the, um, Services side on the gas technology and also on the digital cord and solutions achieving uh, record orders. As you look at court and orders, uh, up 16% year-over-year.
David Anderson: Which rose by 56% and we see a long runway for continuous uh, growth within cordant as uh, customers continue to increase the adoption and our large installed base that we've got as an opportunity, as well as balance of plant to go after from third party equipment. And we keep on gaining traction, on our a center, uh, major milestone in the quarter is uh, over 2,000 critical turbo, Machinery Assets Now connected. So, looking at
David Anderson: The second half again, feel good about that. Uh, midpoint of the range, uh, we expect LNG orders to strengthen. Uh, the projects are there, we see further strength in GTS orders and also, as we look to the second half opportunities in the fpso market, uh, that uh, will start to materialize and for 2026.
David Anderson: You know, we see secular Tailwinds across um many of the end markets continue to strengthen. So we expect solid momentum across LNG and we expect uh 26 it orders to be consistent with 2025 levels. So in summary feeling good about the start to the year, feeling good about the second half and also the visibility we have into 2026 and Beyond
Speaker Change: Gyro with JP Morgan Neil and his Melvin.
David Anderson: Yeah, good morning. Um,
you guys have had a called a more muscular approach to the portfolio, more recently uh with the 3 transactions, um you know, announced in June
Uh, I was wondering perhaps for Ahmed, if you could discuss perhaps the net impact from these 3 transactions, as we think about sharpening, our pencil on 2026, perhaps top line or ebit dots and maybe, uh, thoughts Lorenzo on further portfolio, moves and, and do you expect some of these moves to be for?
Focused in IET ofsc or both.
Speaker Change: Yeah. Hi everyone. It's, um, it's look, I think, um, on on the impact, the first thing I'd highlight is that uh, these transactions, you know, we've never intended them to drive progress, towards the ossc and IET 20% margin targets. So that's an important point. And so, when you take the 3 transactions in aggregate, that we announced in the second quarter, uh, there's going to be a very modest benefit to both segments margins. And then when you roll that forward, in terms of, when we expect things to close and so forth. And you look at the net ibida impact from these 3 transactions in 2026. We expect that to be just over a hundred million dollars.
Speaker Change: And um Arun adding to um you know the aspect of going forward. First of all, we're very pleased with the transactions. We announced uh excited um about the prospect of welcoming uh, CDC into the family. And also, you know, we exited businesses that are no longer aligned with the Strategic priorities or return expectations and they're going to better owners and, uh, better strategic fit for the future. So what we've been able to do is unlock significant value, uh, and get some good valuations and redeploy that into, um, a creative assets that come into the portfolio. And as you look at it, that's really what we've highlighted within the prepared remarks about
Speaker Change: That are competing for Capital. And so, we're really concentrating on looking at where the stronger margin profiles, are the recurring Revenue potential and the long-term growth opportunities across, uh, all of the 30 and across the 2 segments. And we do a rigorous assessment of each of the businesses. And um, it's natural to think that over time, there'll be um, Evolution that takes place in certain businesses. May no longer aligned with our strategic priorities on the fervor Acquisitions. Uh, you know, we'll continue to Target opportunities that strengthen our industrial footprint and unlock meaningful synergies. Uh, we like businesses that offer margin accretive life, cycle driven revenue, and uh, are poised to drive. I towards leading margins in ofsc, we'll continue to focus on strengthening our leading franchise in Production Solutions and mature asset Solutions, increasing our exposure to the more resilient Optics focused and markets.
Speaker Change: So with a leverage ratio of 0.6 times and an additional billion dollars in that proceeds from the transactions that are yet to close, you know, we have ample capacity to pursue value of creative opportunities to strengthen the portfolio. So overall, you know, the ultimate objective remains maximize shareholder value, uh, maintaining strategic and financial discipline strengthening the earnings durability and really continuing to position big to use for.
Speaker Change: Sustainable differentiated growth.
Speaker Change: My next question.
Speaker Change: Hi, good morning, Lorenzo Ahmed.
Speaker Change: Morning.
Speaker Change: Uh, I have I have a question on the Tariff side of things. Uh, I don't know if Lorenzo you want to take it or do you want to take it? But on the Tariff side, your your guidance, your outlook of 100 to 200 billion dollar. Potential impact is the same as it was from 3 months back, right? And we have probably seen a thousand headlines come out in the last 3 months. So maybe if you can just walk us through the puts and takes, uh, of what has happened over the past 3 months and what businesses are impacted, and maybe as a follow-up, I think if I heard you correctly, M, you said 15 million dollar impact in the second quarter, right? So it sounds like you're baking in uh higher impact in the back half of the year. But if you can just walk us through that uh the implied second half expectations. So that would be helpful. Yeah. I'll I'll let ah, take that 1. Yeah. Yeah, it's a rough. So, so look, I think, um, I'll, I'll break it up between, you know, obviously what we saw in the second quarter and then how we've underwritten our second half Outlook. So maybe starting with the second quarter, um,
Speaker Change: Um, you know, the net tariff impact is it was approximately about 15 million dollars and, uh, to ibida. And that that was primarily us-china, and, and Europe. Um, and you know, the split between the 2 segments was predominantly IET. Uh, but you know as you sort of stated, you know, when we look into the second half we expect that the total net ibida impact to you know, at this stage, likely exceeding dollars in the second half with sequential increases in the third quarter. And then again in the fourth quarter and that linearity really is driven by, you know, the way the the the actual inventory rolls through our balance sheet and then also any search charges that come by, uh, through our supply, uh, chain Partners. You know, that actually comes through in the second half. So but you know, to be clear those type of impacts are clearly reflected in our in our guidance. Uh but what, you know, it does not include our any potential, you know.
Speaker Change: Escalation of trade policies and also assumes that us. China terrorists, remain at today's level. So um, you know, as we as we look at the actual mitigation actions and going forward, you know, in the, in the second quarter, we made significant progress and then on some of the Dynamics that, uh, we've seen in the overall environment. You know, we saw a positive developments in May with the temporary easing of, um, the terrorists between us and China. Uh, but then those developments were
Speaker Change: Or let's say, largely offset by several recent negative tariff, related announcements. So as an example in early June, um, you know, the US announced an Implement, an increase on steel and aluminum tariffs to 50%. Then in July, uh, the US announced a 50% tariff on copper Imports. Scheduled to take effect uh, you know, sometime August 1st.
Speaker Change: August 4th first unless you know, there's a trade deal that's reached beforehand. So as we take all of these
Speaker Change: Different variables and uh recognizing their Dynamic you know. Um we we have confidence in our um mitigation actions that we put in place immediately in you know we have as you know a flexible Global supply chain. And so we maintain our previously communicated uh estimate of the 100 to 200 million net IBA impact for the year about just as a reminder you know this does not uh this assumes the recently announced tariffs are implemented as scheduled. Uh but it does not assume any further trade policy escalation including retaliatory tariffs. So, hopefully it gives you a good framework of how we're under writing uh the balance of the year.
Speaker Change: Thank you.
Speaker Change: And ladies and gentlemen, that was our last question. I
Speaker Change: was officer to conclude the call.
Speaker Change: Yeah. Thanks to everyone for taking the time to join our earnings call today, and I look forward to speaking with you all again soon.
Speaker Change: Operator, you may now close out the call.
Speaker Change: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect.