Q3 2025 Schlumberger Ltd Earnings Call
Speaker #1: Good morning, my name is Megan, and I'll be your conference operator today. I would like to welcome everyone to the third quarter SLB earnings call.
Speaker #1: At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press * followed by the number 1 on your telephone keypad.
Speaker #1: You may remove yourself from the queue by pressing *2. As a reminder, this call is being recorded. I will now turn the call over to James R.
Speaker #1: James McDonald, Senior Vice President of Investor Relations and Industry Affairs. Please go ahead.
Speaker #2: Thank you, Megan. Good morning, and welcome to the SLB third quarter 2025 earnings conference call. Today's call is being hosted from Houston, following our board meeting held earlier this week.
Speaker #2: Joining us on the call are Olivier Peuch, Chief Executive Officer, and Stephane Biguet, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking.
Speaker #2: These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. For more information, please refer to our latest 10-K filing and other SEC filings, which can be found on our website.
Speaker #2: Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third-quarter earnings press release, which is on our website.
Speaker #2: With that, I will turn the call over to Olivier.
Speaker #3: Thank you, James. Ladies and gentlemen, thank you for joining us on the call. I'll begin today by discussing our third quarter performance. Then, I will describe the near-term outlook for oil and gas markets and, finally, I will share our guidance for the fourth quarter.
Speaker #3: Stephane will then provide more details on our financial results and the structure for our new digital division. After that, we'll open the line for your questions.
Speaker #3: Let's begin. Our fourth quarter unfolded in line with expectations as we achieved sequential revenue growth driven by the addition of two months of activity from Champenex, our digital business, and the resilient performance of our core.
Speaker #3: In the international markets, revenue rose 1% sequentially, with notable increases in several countries across the Middle East and Asia. In this region, sequential growth was seen in Iraq, the United Arab Emirates, Oman, Egypt, China, East Asia, Indonesia, Australia, and India.
Speaker #3: Alongside broader improvement in offshore activity across Guyana, Sub-Saharan Africa, and Scandinavia. Meanwhile, revenue in North America grew 17% sequentially. This was driven mainly by the contribution of Champenex, followed by higher offshore activity, which more than offset a decline in US land activity as US shale operators focused on further efficiency gains and cash preservation during the quarter.
Speaker #3: We also experienced strong growth in our data center solution business, extending our reach with hyperscalers to a new market for SLB. This quarter marks the first time we have disclosed our data center revenue, which has more than doubled year-on-year.
Speaker #3: Looking ahead, we foresee expansion beyond the US, along with the onboarding of new customers. Next, let me discuss the performance of our divisions. I'll begin with digital.
Speaker #3: As this is the first quarter we are reporting digital as a standalone division. As you have seen in our release this morning, our digital business is comprised of four categories where SLB offers solutions that help unlock productivity for geoscientists and engineers, drive step changes in efficiency and safety in operations, and help our customers deliver better results and higher producing assets.
Speaker #3: These solutions embed in platforms and applications, digital operations, digital exploration, and professional services, each of which Stephane will describe in more detail in a little later in this morning's call.
Speaker #3: Specific to the third quarter, digital revenue increased 11% sequentially. This was driven by a 39% increase in digital operations, which enables digital services and automation capabilities, augmenting our offering from our core divisions.
Speaker #3: Of note, automated drilling footage increased by more than 50% year-on-year. This was also supported by the addition of new connected assets from Champenex. Following the integration, we now have a combined total of more than 20,000 connected assets deployed in the field.
Speaker #3: Providing additional digital insights and optimization for our customers is essential. One of the reasons digital operation is such an exciting area of growth is that it presents an opportunity to enhance every service and piece of equipment that we deliver.
Speaker #3: By embedding digital capabilities that enhance performance and unlock the power of autonomous operations, we are creating an adjacent and fast-growing digital market that strengthens our core offering.
Speaker #3: In the earnings release published this morning, you will have seen a broad range of examples of platform and application adoption by customers across all basins, customer types, and life cycles.
Speaker #3: These examples demonstrate the global reach of our digital brand, the impact of our platform strategy, and the emergence of AI as a transformative force in our industry.
Speaker #3: This quarter, for example, we secured key contracts awards for our opticide production suite, which enables customers to process comprehensive data streams through cloud-based applications to drive productivity and efficiency across assets and facilities in the field.
Speaker #3: I will also announce a collaboration with AIQ to deploy its Energy AI agentic AI solution for ADNOC, powered by SLB Lumi data and AI platform.
Speaker #3: These are meaningful milestones that speak to the momentum behind our digital business, and you can expect to hear more announcements in the weeks ahead that further demonstrate the impact and scale of these solutions.
Speaker #3: Turning to the financial performance of this business, we expect our digital revenue to continue growing at a rate that visibly outperforms global upstream spending and exceeds the growth rate of our core business by double digits.
Speaker #3: At the same time, we expect digital to continue delivering highly accurate margins to the company. In the core, I was very pleased with the resilient performance of this quarter.
Speaker #3: Given the challenging macro environment, excluding the impact of the Champenex contribution, the core divisions of Zazawa Performance, Well Construction, and Production Systems were essentially flat sequentially.
Speaker #3: This demonstrates how our global footprint and broad portfolio help us navigate regional uncertainties and offset localized headwinds. Specific to our Production System division, we're already benefiting from the addition of Champenex, which delivered revenue growth and margin contribution ahead of expectations.
Speaker #3: We're very pleased with the integration so far, and in addition to the strong delivery of the team, we continue to receive positive feedback from our customers.
Speaker #3: For example, we recently delivered a combined ESP string using a Champenex pump with an SLB induction motor for a main operator in the Pan Am Basin.
Speaker #3: By bringing together these two best-in-class technologies, we will improve performance for unconventional wells and enable faster installation, reducing downtime and strengthening project economies for our customers.
Speaker #3: And in the Middle East, we have received several contract awards for arterial lift well testing and pollution chemical technologies that leverage the combination of SLB and Champenex solutions and engineering capabilities.
Speaker #3: Moving forward, in the context of tighter industry economics and mounting pressure from production declines, our customers are placing greater emphasis on production recovery solutions to unlock additional barrels at the lowest possible cost and with maximum capital efficiency.
Speaker #3: This presents an exciting growth opportunity for companies. We can offer solutions and technology to optimize production and maximize recovery from maturing assets. Technology will be the key.
Speaker #3: This is where SLB, as a distinct advantage and why we have made production and recovery a strategic focus for our business. By combining our deep subsurface expertise, the industry broadest lift intervention and chemical technology portfolio, with unique integration and digital capabilities, we offer a differentiated value proposition to our customers.
Speaker #3: This offering now includes Champenex, which brings unique technical capabilities and a strong track record of customer success. From production chemicals to arterial lift, it is enhanced with digital capabilities.
Speaker #3: And we continue to develop our portfolio with strategic investments, including our recent acquisitions of Resman, Energy Technology, and Stimline Digital. Altogether, our production recovery offerings add another level of growth to our business, with combined exposure to CAPEX and OPEX spend complementing our leadership in upstream exploration and development.
Speaker #3: Now turning back to our quarterly results and continuing with the market conditions we faced during the past few months, I'm pleased with our performance. We achieved resilient results across the core divisions, delivering early success with Champenex and continuing the momentum in digital.
Speaker #3: And there are several bright spots on the horizon. Thank you to the entire SLB team, including our new colleagues from Champlonex, for your excellent contribution this quarter.
Speaker #3: Next, I will discuss the ongoing macro environment and the near-term outlook for oil and gas markets. In an environment with increasingly challenging commodity prices and uncertainty on the demand-supply balance, the industry has so far proven discipline, with most long-cycle and international activity demonstrating resilience.
Speaker #3: While it is difficult to predict the exact outcome of further production increases and ongoing geopolitical developments, the fundamentals for oil and gas remain constructive.
Speaker #3: Global inventories still reside at multi-year lows, and the need for offsetting natural production declines accounts for nearly 90% of annual upstream investment. These dynamics create a supportive environment for stable investment in the near to mid-term, without dramatically shifting commodity prices.
Speaker #3: Against this backdrop, with the exception of three to four well-known markets where activity has recessed, global activity has stabilized in many locations and is still on the rise.
Speaker #3: To touch on international markets, many countries remain poised for investment growth tied to long-term capacity expansion plans and assurance of energy supply, particularly for gas.
Speaker #3: Notably, while OPEX plus production release are currently being filled using capacity behind the pipes, additional release will eventually require new infiltration or new development to meet the higher supply output from these countries.
Speaker #3: This presents a positive catalyst for activity in member countries and reinforces the potential for higher activity in 2026. Specific to deepwater markets, the pipeline remains very healthy, with favorable economics.
Speaker #3: We expect further investments in countries across the Atlantic supported by oil and in Asia driven by gas. While short-term scheduling uncertainties have resulted in white space, particularly in Sub-Saharan Africa, we expect this to progressively disappear as there are a number of FID plans for 2026 and early 2027.
Speaker #3: Meanwhile, in North America, operators continue to progress production maintenance as a result of commodity prices. This is underpinned by efficiency improvements, leading to muted activity in the near to mid-term.
Speaker #3: In this context, considering the current industry dynamics and commodity price environment, we believe the conditions are set for the supply-demand rebalancing in international markets to lead the future activity rebound. SLB is well-positioned to benefit from such an event.
Speaker #3: Now that we have discussed the market condition, let me describe how we see the fourth quarter unfolding for our business. We expect that we will achieve a sequential step-up in results in the fourth quarter, with high single-digit top-line growth as we report a full quarter of Champenex and generate seasonally higher year-end digital and product sales.
Speaker #3: With the third-quarter results behind us, we're now in a position to confirm that second-half revenue will be within the midpoint of our previous guidance range of $18.2 billion to $18.8 billion.
Speaker #3: We also expect the fourth quarter adjusted EBITDA margin to expand 50 to 150 basis points sequentially. This will be driven primarily by increased earnings contribution from both digital and production systems, end-of-year sales—including a full quarter of Champenex results—and fully restored operations on our EPS equal assets.
Speaker #3: Specific to the digital business, we expect a significant increase in the fourth quarter due to seasonally higher sales across the portfolio. As a result, we believe our digital division will be able to achieve double-digit growth year-on-year, with an EBITDA margin reaching 35% on a full-year basis.
Speaker #3: Overall, SLB continues to demonstrate resilience in navigating the challenging market environment. Our strength in digital, coupled with our growing presence in the production recovery space, will expand our leadership in the sector and help us drive positive outcomes for our customers.
Speaker #3: I will now turn the call over to Stephane Biguet to discuss our financial results in more detail.
Speaker #4: Thank you, Olivier, and good morning, ladies and gentlemen. Third quarter earnings per share, excluding charges and credits, was $0.69, which represents a decrease of $0.05 sequentially and $0.20 when compared to the first quarter and the third quarter of last year.
Speaker #4: We recorded $0.19 of charges during the third quarter. This includes $0.12 of merger and integration charges, largely related to the ChampionX acquisition that we closed during the quarter.
Speaker #4: As well as approximately $0.04 related to workforce reductions and $0.03 related to the impairment of an equity method investment. Overall, our third quarter revenue of $8.9 billion increased $382 million, or 4%, sequentially.
Speaker #4: I recognize that there are a lot of moving pieces this quarter, so let me bridge our Q3 revenue to Q2 at a high level.
Speaker #4: $579 million of the sequential revenue increase comes from the two months of activity we recorded this quarter from the acquired ChampionX businesses. This increase was partially offset by the loss of approximately $100 million of EPS revenue due to production interruptions arising from a pipeline disruption in Ecuador, and the absence of approximately another $100 million of revenue following the divestiture of our interest in the Palisare EPS project in Canada at the end of Q2.
Speaker #4: In other words, after considering the revenue contribution from ChampionX and the impact of the lower EPS revenue due to the two factors I just mentioned, revenue was essentially flat on a sequential basis.
Speaker #4: Our pre-tax segment operating margin declined 32 basis points sequentially to 18.2%. The impact of the two months of ChampionX was accretive to these margins, as ChampionX contributed $579 million of revenue and $108 million of pre-tax income in the quarter.
Speaker #4: Company-wide adjusted EBITDA margin for the third quarter was 23.1%, representing a sequential decrease of 92 basis points. The effect of the pipeline disruption in Ecuador negatively impacted our EBITDA margin by approximately 60 basis points.
Speaker #4: In addition, the divestiture of our interest in the Palisare project resulted in a further 30 basis points rejection. I will now go through the quarterly results for each division.
Speaker #4: And let me begin by sharing more detail about our new digital reporting structure. As Olivier described earlier, digital is a fast-growing business, and SLB is at the forefront of this industry transformation.
Speaker #4: We expect our digital business to grow faster than our core business for the foreseeable future, with margins visibly accretive to the rest of the company.
Speaker #4: As such, our intent is to increase transparency around our digital business and better highlight its strategic value. To do this, we are now reporting digital as a standalone division.
Speaker #4: At the same time, our EPS business is now being reported in the all-over category, together with our data center solutions and SLB Capturee businesses.
Speaker #4: To provide you with better insight into these reporting changes, as well as the impact of ChampionX, we have included supplemental pro forma financial information going back to the first quarter of 2024, as an exhibit to the Form 8-K we filed this morning for our earnings press release.
Speaker #4: Getting back to digital, revenue is captured and will be reported across four categories where SLB offers solutions for our customers: platforms and applications, digital operations, digital exploration, and professional services.
Speaker #4: Let me briefly describe each of these categories. Additional details can be found in question 11 of the FAQs at the back of our earnings release.
Speaker #4: The first category is platforms and applications. Platforms and applications include SLB's cloud technologies, such as the Delphi and Lumi platforms, along with a suite of specialized, domain-focused applications such as Petrel and Techlog, offered as SaaS subscriptions or perpetual licenses.
Speaker #4: These platforms and applications automate complex models, unlock data, and utilize AI in machine learning to reduce cycle time and improve the efficiency of workflows. This allows our clients to make better, faster decisions to improve their project economics and reservoir performance.
Speaker #4: With the exception of one-off license sales, revenue in this category is recurring in nature, underpinned by a globally installed software base built over four decades and complemented by growing adoption of cloud-based capabilities and IoT-enabled solutions.
Speaker #4: As a result, platforms and applications have high retention rates and very limited churn, as illustrated by the fact that the net revenue retention rate was 103% at the end of the third quarter.
Speaker #4: This represents the percentage of recurring revenue retained from our existing customer base over the last trailing 12 months, relative to the prior trailing 12 months.
Speaker #4: The second category is digital operations, which combines the unique strength of SLB's core oilfield services and products with advanced digital technologies to deliver more reliable and more efficient field operations.
Speaker #4: By integrating connected solutions with performance live digital service delivery centers, customers gain real-time monitoring, remote decision-making, and automated execution across their workflows, for autonomous drilling to automated well intervention.
Speaker #4: Revenue in this category is generated from the same client base as our core divisions and is therefore repeatable. Additionally, a portion of the revenue is recurring in nature.
Speaker #4: To incentivize the free core divisions—well construction, reservoir performance, production systems, and digital—to develop and promote this offering, the resulting revenue is recognized in both the respective core division as well as in the digital division.
Speaker #4: This revenue is then eliminated in consolidation. The third category is digital exploration. Digital exploration represents our exploration beta business, our differentiated library of seismic surveys and other subsurface data, covering key exploration and producing basins worldwide.
Speaker #4: These licensed data sets are refreshed and reprocessed to benefit from the latest imaging algorithms and AI technologies, enabled by high-performance cloud computing. Revenues are generated from one-time non-transferable license sales and are, therefore, non-recurring in nature.
Speaker #4: Professional services make up the fourth revenue category. This includes consulting and other services required to support our clients' digital transformations. These services include transition support from on-prem to cloud-based digital solutions, data cleanup and migration, and workflow automation.
Speaker #4: Including the deployment of solutions built using our global network of innovation factories. Professional services revenue is largely project-based, and repetitive engagements with the same customers are common.
Speaker #4: These services generate pull-through opportunities across the other digital revenue streams. In addition to reporting revenue across each of these four categories, we will also share annual recurring revenue, or ARR, on a quarterly basis.
Speaker #4: ARR represents the annual value of recurring subscription and maintenance revenue from platforms and applications, along with the recurring portion of digital operations, providing a measure of predictable revenue over the next 12 months.
Speaker #4: Now that I have described our digital reporting structure in more detail, I will walk through our third quarter digital results. Third quarter digital revenue of $658 million increased 11% sequentially, and adjusted EBITDA was $215 million, reflecting a margin of 32.7%, up 123 basis points sequentially.
Speaker #4: Third quarter sequential revenue growth was driven by robust sales of digital exploration, coupled with increased digital operations. It also reflects two months of activity from ChampionX, which contributed digital revenue of $20 million.
Speaker #4: Annual recurring revenue stood at $926 million at the end of Q3, representing year-on-year growth of 7%. This highlights our ability to continuously expand our offerings in platforms and applications and digital operations, as well as secure new customers.
Speaker #4: Turning to the core divisions, reservoir performance revenue of $1.7 billion declined 1% sequentially, as higher activity in Europe and Africa was more than offset by lower revenue in the Middle East and Asia, primarily in Saudi Arabia.
Speaker #4: Pre-tax operating margin of 18.5% was essentially flat sequentially. Well construction revenue of $3 billion was flat sequentially, as higher revenue in offshore Guyana and North America was offset by lower drilling activity in Saudi Arabia and Argentina.
Speaker #4: Margins of 18.8% were essentially flat sequentially. Production Systems reported revenue of $3.5 billion, an increase of $542 million, or 18% sequentially. This reflects two months of activity from the acquired ChampionX production chemicals and artificial lift businesses, which contributed $575 million of revenue.
Speaker #4: Pre-tax operating margin of 16.1% declined by 66 basis points sequentially, driven by an unfavorable geographic mix in completions and lower subsea margins. This decline was partially offset by the accretive margin contribution from ChampionX.
Speaker #4: On a pro forma basis, production systems revenue of $3.8 billion was flat sequentially, with lower completion sales offset by increased sales of valves and production chemicals.
Speaker #4: While it is still early days, we are quite pleased with the performance of ChampionX, which recorded another quarter of year-on-year revenue and margin growth.
Speaker #4: Demonstrating the resilient nature of this production and OPEX-based business. Going forward, these results will be further enhanced by the $400 million of annual pre-tax synergies that we expect to generate within the first three years after closing.
Speaker #4: We will remain confident that we will be able to realize 70% to 80% of the synergies within the first 24 months of the transaction.
Speaker #4: As a result, we expect the transactions will be accretive to both margins and earnings per share on a full-year basis in 2026. Now turning to our liquidity.
Speaker #4: During the quarter, we generated $1.7 billion of cash flow from operations and $1.1 billion of free cash flow. This amount includes the payment of $153 million for acquisition-related items during the quarter.
Speaker #4: Capital investments, inclusive of CAPEX and investments in EPS projects and exploration data, were $581 million in the quarter. For the full year, we still expect capital investments, including the impact of ChampionX, to be approximately $2.4 billion.
Speaker #4: We expect that, following our historical patterns, free cash flow will increase in the fourth quarter, on the back of lower inventory as a result of year-end product sales, as well as higher customer collections.
Speaker #4: The extent of the sequential step-up in free cash flow will largely depend on cash collections in certain countries. Finally, we repurchased $114 million of our stock during the quarter, which brings our total stock repurchases to $2.4 billion on a year-to-date basis.
Speaker #4: When combined with our $1.6 billion dividend commitment for the year, this will result in us returning a total of $4 billion to our shareholders for the full year.
Speaker #4: I will now turn the call back to Olivier.
Speaker #2: Thank you, Stephane. Megan, I think we are ready to open the floor for questions.
Speaker #5: We will now begin the Q&A session. If you would like to ask a question, please press star followed by the number one on your telephone keypad.
Speaker #5: Your first question comes from the line of Dave Anderson with Barclays. Dave, your line is open.
Speaker #6: Hi, good morning. So, the IEA good morning. The IEA put out a report highlighting the increased global decline rates and the need to spend capital just offset these barrels each year.
Speaker #6: You now have ChampionX in the fold, and you've created really what looks to be the largest production-focused business and services. When we think about chemicals, lifts, subsea, something like 40, 45% of your revenue.
Speaker #6: Can you talk about how you see this part of your business growing? Because a little confusing when I think about your core business, because this seems a little bit different.
Speaker #6: But how are you thinking about this part of your business growing particularly with deep water development ramping up? And I'm just wondering, are you thinking the production should outpace upstream-driven part of your portfolio through the end of the decade?
Speaker #6: Is that the right way to think about it in terms of the opportunity set?
Speaker #2: I I think the right way to think about it first is what the customer is looking for. And I think as you pointed out, I think it's clear that the metal decline that are waiting on the on the industry that have to be offset, not only by infiltrating a new development, but as an increased recognition by the customer in the customer, that production and recovery is a new theme that needs reinvestment, that needs technology, that needs innovation, that needs integration, and that needs capability to lift and increase production and hence recovery through technology, through disruptive solutions that I think the industry needs.
Speaker #2: So we are positioning ourselves with this acquisition of ChampionX to not only address both the OPEX and the CAPEX market as a larger market and hence as a larger share of the wallet of our customers, but also as a more resilient space, as the OPEX is indeed growing and has been growing at a higher pace than the CAPEX lately.
Speaker #2: And we continue to do so. But more is more important, I believe is that we are able to unlock new solutions because we have the broadest portfolio with this addition.
Speaker #2: We have the broadest lift portfolio, where we have the largest intervention portfolio in the market. We now have advancements in chemistry and capabilities in the industry that not only touch the production, from the wallet to the process, but also the reservoir.
Speaker #2: And I think that when combining this, our established integration capability, and our digital solutions, we have something that I believe the industry was looking for.
Speaker #2: And I think the customer feedback we are getting is actually extremely good, because they are all focused increasingly on production recovery as a way to add to their production target.
Speaker #2: And it's an end; it's not an or. The end of upstream exploration development will be complemented by production recovery. It's a market that will expand long-term, and this market we believe we have a leadership position that we have established.
Speaker #6: And so, shifting over to digital, I'm thrilled to see how the breakout here. I have a million questions, so I'm going to try to keep it to a handful of things just to focus on.
Speaker #6: Stephane, you talked we have the four different segments here. I was wondering if you could kind of just talk a little bit about how we should be thinking about those four segments, how they should be trending, and kind of what the drivers are for those four segments.
Speaker #6: I guess the exploration part, but kind of the rest of it. And then, secondarily, you highlighted $900 million in recurring revenue year-to-date, up 7% from last year.
Speaker #6: I'm just curious: are you expecting this to accelerate? Did you think it was going to grow more or less this year? And how should we think about that going forward?
Speaker #2: Thank you for all the questions. Indeed, it's a lot of additional info. The ARR is already above $900 million, yes, it's growing, and we clearly anticipate this to continue growing as we not only offer more to our existing customers, but also secure new customers.
Speaker #2: So, probably going into Q4, we can be looking at high single-digit growth for ARR. With the kind of number you see now, we are not too far, I believe, from getting to $1 billion of ARR next year, which really provides a very good baseline of revenue for the rest of your questions.
Speaker #2: I will pass it to Olivier.
Speaker #3: Yeah, no, thank you, Stephane. No, Dave, clearly I think, yes, there's a different dynamic for the four buckets, but I think if you like to look at the platform and application, these were the customer adoption and expansion of offering will give us the opportunity to continue on our journey, to accompany our customers from the across the subsurface, across the production drilling, and across their data and AI capability.
Speaker #3: So the expansion of AI into that space, and you have seen several announcements during the earnings press release this morning, showing that this is the early innings.
Speaker #3: We'll be driving forth for further growth. The deployment of clouds, both hybrid and public clouds, continuation of our platform transition that we have sent, and the continuing adoption of the capability we keep adding to our offering, the application we have seen.
Speaker #3: So, this is all about customer adoption. Remember the technology transition from desktop to cloud to AI. Secondly, the digital operation is all driven by the adoption of, for every well we touch, for every product and equipment we deliver, we will continue to add digital services, automation, and autonomous capability to complement this offering.
Speaker #3: So, this will be added to the core. It's jointly to the core, but it's an exciting adjacent space to the core that will grow and have fast-paced growth ahead of the core.
Speaker #3: You have seen this quarter; you have seen the year-on-year, and we're talking about 50% year-on-year growth. This is remarkable. The digital exploration is linked to the exploration market, but it's increasingly becoming digital, because the customer recognizes they need to use more digital insights before they drill the first well.
Speaker #3: Hence, it will be linked, and it will be up and down, highly viable from quarter to quarter, but yet trending, in our opinion, positively.
Speaker #3: And finally, the service, professional services, I think, are here to support the three buckets. And I hear the capability we put inside the customer office, ahead of the large engagement through consulting engagements, or doing the transition of that data space into our offering.
Speaker #3: This is what drives this. So it's different driver, but all together, we believe over time, this will all be positive leading to each other, to create a sustainable growth going forward, as we say, outpacing the CAPEX spend.
Speaker #3: Appreciate the insight, thank you.
Speaker #2: Thank you.
Speaker #5: Thank you. Your next question goes to the line of James West with Moelis Research. James, your line is open.
Speaker #7: Thanks, and good morning, Olivier and Stéphane.
Speaker #2: Good morning, James.
Speaker #7: So, I'm curious about two key markets here for you guys, where you have a nice dominant position, that I'd love to get your thoughts on.
Speaker #7: First is deep water, as we look out into '26. Obviously, it's been very resilient, although there is some white space, but it looks like we're going to kick off a lot of campaigns next year.
Speaker #7: I'd just love to hear your thoughts on how we should think about that unfolding, and some percentage position or SLB, excuse me, position.
Speaker #2: No, first and foremost, I think deep water remains easier to stay in and easier to grow as a market. It has several economics and is seen as a place to invest to unlock new resources.
Speaker #2: You see it's not only development, FID, but it's also exploration. Deep water is going on and is steady and is growing. So now, if we look at the activity and the schedule of the rigs that we foresee going forward, actually, we are foreseeing that the white space that developed in the last 18 months are starting to dissipate, and we are at the we believe from a rig activity drilling activity, we may say that we are at bottom this quarter in Q4 of 2025.
Speaker #2: And we expect, although very gradual, the strengthening of rig activity to support both exploration and development FIDs coming in the pipeline.
Speaker #2: With a gradual strengthening and an uptick in the later part of the year that is currently scheduled, and strengthening further in 2027. We see it from the core from our customers to prepare the subsea pipeline that corresponds.
Speaker #2: We are happy with our subsea position. We will be closing the year with a growth in both our bookings and backlog, ahead of last year, placing us in a position where subsea should grow not only in 2026, but also in 2027 as a consequence of this pipeline.
Speaker #2: So we are confident that it's on our horizon, and I think we are starting to see the strengthening happening step by step.
Speaker #7: Got it. Okay, that's great. Thanks for that, Olivier. And then the other market, the Kingdom of Saudi Arabia, has gone through some gyrations here in recent quarters.
Speaker #7: But it seems to me like at least we may have found somewhat of a bottom and maybe looking to add to activity. Next year, is that consistent with what you're seeing in that market?
Speaker #7: I know it's a sizable market for yourself.
Speaker #2: No, I would comment on the activity. I think it is our assessment indeed that we have reached a stabilized activity if not bottom, in the current level of activity we see.
Speaker #2: And we are anticipating a likely rebound in the near to mid-term. Directionally, we expect increased activity in the first half of 2026 for both gas and oil, driven by different factors.
Speaker #2: Gas continues to support the expanded capacity commitment to 2030 and on commercial Jaffa and other assets in the country. For oil, we are focused on supporting the extra supply that is delivered to the market and ensuring supply through intervention, and possibly some additional oil drilling as well.
Speaker #7: Great. Thanks, Olivier.
Speaker #2: Thank you, James.
Speaker #5: Thank you, James. Your next question comes from the line of Scott Silver with Liberty Research. Scott, your line is open.
Speaker #8: Yes, good morning. I want to ask about the data. The
Speaker #2: Morning, Scott.
Speaker #8: The solutions business, this morning. So the data center solutions business is growing pretty quickly here. It’s actually becoming fairly sizable. Can you talk about the strategy for the business?
Speaker #8: Is it aimed here to develop a skill set and take a global data center construction goes global? And overall, how do we think about the growth for the data center solutions business in '26 and beyond?
Speaker #2: Yeah, I think it's early days, and we're very pleased with the market position we gained at a very, very fast pace. I think based on our first relationship and partnership with that per scale that gave us the opportunity to step into that market, building on our manufacturing engineering process technology and global supply logistics that I think we have put to make it a reality.
Speaker #2: Now, going forward, yes, the ambition is to expand beyond the U.S. footprint we have established, and we already have a pipeline of expansion here in Asia.
Speaker #2: That has been agreed. We will also expand to more customers and diversify our hyperscalers and colocators, as we call them, to complement our offering. But yes, we will add technology; we will add the critical technology that makes it unique to go beyond the first step we have.
Speaker #2: So yes, we have an ambition to grow it, to expand customers, to expand geography, to broaden our offering. And remember, this is clearly not driven by oil and gas customers; it's driven by our hyperscaler partners that reach out to us to help them respond to this AI boom and data center growth that I think will last beyond this decade, clearly.
Speaker #3: Got it. No, very interesting. It's a bit of a different business. Is it fair to assume that there's little CAPEX and balance sheet commitment with the business, or is there an investment needed to grow this?
Speaker #2: Absolutely. No, the investment is competencies that I think we have at scale in the organization. It's technology, creating a reputable scalable modular solution that differentiates us for fast deployments.
Speaker #2: And, but it's not CAPEX, no. I think we are not—this is a very low CAPEX intensity business that we have set up here.
Speaker #3: Excellent. Well, we'll continue to watch. Thank you.
Speaker #2: Thank you.
Speaker #5: Thank you, Scott. Your next question comes from the line of Josh Silverstein with UBS. Josh, your line is open.
Speaker #8: Yeah, hi everyone. Thanks for the new digital details here. You mentioned the 7% growth in annual recurring revenue. Is this growth predominantly coming from new customers, or from expanding the existing customer base?
Speaker #8: Sorry, the existing customer base? Obviously, the 100% net retention rate shows how sticky the revenue is, but I'm curious about whether you need to keep adding customers to drive that growth going forward.
Speaker #2: I think we already have 1,500 customers, and I believe we have a lot of growth potential with each customer. But yes, we are adding new customers in every new space where we develop technology.
Speaker #2: I think the digital operation, I think, is a discovery for many customers, and we are doing it every day. The platform and application, I think the new offering, Lumi and Lumi Data and AI Platform, I think is being delivered fresh from launch last Q4 to new customers, and has adoption has been already more than 50 customers in less than a year.
Speaker #2: I think it's remarkable, and we are very proud of this. It's a combination of enhancing the adoption within customers, developing enterprise solutions, enhancing the consumption, and delivering more to an existing customer set.
Speaker #2: And also expanding and broadening our customer access for part of our offering that we were more confined to a few customers in the past.
Speaker #2: So, I think we are broadening our offering with more access across all our customers, and we are strengthening our position with the existing large customers. You have seen announcements in the past, and you will see more announcements coming soon on customer adoption, particularly large customer adoption, that reflect our success with those customers.
Speaker #8: Great. And then just as a follow-up, I wanted to go back on the margin comments that you guys had made. You highlighted it was around 32% for the first nine months, but I think you said you expected to reach 35% for the full year, which implies a very large jump towards 45% in the fourth quarter.
Speaker #8: So, I wanted to just make sure that was right. And then where do you think margins can kind of go to if we look at 2026 versus 2025?
Speaker #2: Yes, yes, I confirm we did say that we think we can reach 35% with the margin for the full year. And yes, it's a step up for the fourth quarter.
Speaker #2: If you look at actually at the pro forma statements, we provided for the which include the digital division by quarter, back to 2024, it's this variability and seasonality is quite common actually.
Speaker #2: We always start very low in the first quarter, and margins, as well as revenue, by the way, grow quarter after quarter. So Q4 is always the best revenue quarter and is always the best EBITDA quarter as well.
Speaker #2: So, we are pretty confident we can get there. If you look into the future, a 35% EBITDA margin is a good baseline to start from, basically.
Speaker #2: By the way, if I can add something we've not discussed before, the net EBITDA margin, except for the EXD—sorry, the digital exploration part of it—is a very good proxy for free cash flow. There's obviously no CAPEX in the digital business.
Speaker #2: Again, excluding exploration data.
Speaker #8: Great. Thanks, guys.
Speaker #2: Thank you.
Speaker #3: Thank you.
Speaker #5: Thank you, Josh. Your next question comes from the line of Arun Jayaram with J.P. Morgan. Arun, your line is open.
Speaker #8: Yeah, that was my question on kind of digital margins and kind of the capital intensity of that segment. So, you know, I was just wondering about, as you think about, you know, longer-term growth from that segment, I mean, you mentioned that you think that it could outstrip the core business by double digits.
Speaker #8: I was wondering if you could maybe elaborate on that commentary on growth from digital.
Speaker #2: I think there are two comments to it. One, as I said, is the adoption of our customers, existing and new customers, we developed in the last question.
Speaker #2: I think the market expansion itself, the digital, is being seen as a critical mission—critical for many customers to transform the way they operate, to add productivity, and to add efficiency to their geoscientist, engineer, and asset teams.
Speaker #2: And I think this trend is here to stay, and we are leveraging our market leadership to continue to grow our market position in support of that trend.
Speaker #2: But secondly, and I think more importantly, or I call it importantly, is our ability to continue to add digital operation capability, digital growth, and hence this one will outperform the core because the principle we are setting here is in essentially for every service we provide, for every website we touch, for every equipment we deliver, will progressively add building on our platform and connecting to our live platform center will add a set of digital services that enhance this offering, that enhance the operation, the performance, and get differentiation, get the customer to create more value.
Speaker #2: So, this will ultimately and mechanically be growing at a higher rate than the core because it will be a market penetration of digital into our core business.
Speaker #2: So, if you add this to the underlying trend of digital transformation, with the early innings that we are witnessing in AI, I think you get a combination that gives us confidence that we will clearly outperform the market growth of CAPEX and outperform the core as a combination.
Speaker #3: Great. One follow-up, Olivier. I wanted to see if you could elaborate on your commentary on what would happen in the recovery. Your commentary suggests you expect that international would lead in a recovery; historically, it's been North America.
Speaker #3: So, I was wondering if you could elaborate on that thought behind that commentary.
Speaker #2: Yeah, I think we believe that the tightened economics that we are under and we believe we don't see them necessarily changing very much. We see them improving slightly as soon as the demand supply rebalance.
Speaker #2: But under those conditions, I think we believe that the situation in North America is such that we don't anticipate significant gains in activity, based on the efficiency track record, based on, I would say, the challenging economics of some basins, and also on the continuing consolidation happening in this market.
Speaker #2: By contrast, in international, you have several trends that are here to stay. I think deep water has a very solid pipeline that drives the international growth.
Speaker #2: You have gas, and as a security of supply, that has led to capacity deployment, exploration, capacity expansion, and non-commercial development internationally. And you still have the commitment to oil capacity expansion, if not the necessity to offset the decline in many international locations and aging basins. That combination makes the international outlook, I would say, better and sets a first leg for the rebound as activity strengthens.
Speaker #3: Great, thank you.
Speaker #2: Thank you.
Speaker #5: Thank you, Arun. Your next question goes to the line of Neil Mehta with Goldman Sachs. Neil, your line is open.
Speaker #8: Yeah, good morning, Olivier and team. Thank you for taking the time. So, sir, I just wanted your perspective on the oil macro, and this is more of a near-term question.
Speaker #8: Certainly, the market has flipped into oversupply, and I think what a lot of market participants are trying to figure out, which you have a unique perspective on, is what the rebalancing mechanism is to get the market back into balance?
Speaker #8: And there are a couple of different levers; certainly, the U.S. could be part of it, and part of it could just be time, and demand can grow into it.
Speaker #8: But how do you see the market rebalancing from this current period of oversupply?
Speaker #2: Yeah, I think first you have to assume that I think the release of supply that are happening, that have happened, I think will align and moderate and/or be managed to not create a further, I think I would say, further stretch, okay, to the demand supply or to the oversupply market.
Speaker #2: You have to assume this first, and I think that's an assumption we are making. Secondly, we are making the assumption that indeed the demand will over time and we're talking about we're not talking years, we're talking a month, okay, will catch up and hence we believe that with the buffer of supply being behind us or the decline of this excess of supply being behind us, we believe that sometime next year, I think that's when hypothesis, that the demand supply will be sufficiently rebalanced to allow the market to have the investment incentive to indeed consolidate from this steady solution or steady situation in which we are today to start to rebound.
Speaker #2: So, there are some pluses and minuses, obviously. There is some China adding some silos of liquid inventory; there are some OPEC countries that currently are not fulfilling their quota, despite the raise. I think there is some U.S. shale production anticipation that could also be starting to create a deficit of supply on the horizon.
Speaker #2: So you combine this, and you get a situation where the demand-supply will rebalance itself in the future. Under those conditions, we believe that the drivers of activity will prompt reinvestment and a rebound of activity, first in the international market.
Speaker #8: Yeah, thanks, Olivier. You have a unique perspective on what's going on in the oil market. The follow-up is just on M&A, ChampionX. I think, in retrospect, it really helped to balance out the portfolio on the production side just for the extent we are in a period of softness.
Speaker #8: Do you see an opportunity for SLB to continue to be a consolidator, or, given the softness in the equity, do you feel like a more organic approach is the right strategy?
Speaker #2: I think we're first we are focusing on executing the strategy ChampionX, realizing the benefit of this unique addition. To our portfolio, to consolidate and execute a production recovery strategy, and you have seen we have done two more add-on bolt-on strategic acquisition, ResMan for the tracer technology-induced chemistry actually, okay, to enhance and to help enhance recovery development.
Speaker #2: And Steamline Digital, which is a digital technology addition to our portfolio, is a cloud application that helps to plan and execute well intervention for our customers.
Speaker #2: So all of this pertains to the production recovery portfolio, and this is one focus that we have. We believe that, aside from bolt-on acquisitions, we don't see any further need for consolidating this, but executing through integration with our unique capability set and expanding internationally to get the full benefit of this is our current focus.
Speaker #8: Okay, thanks, Olivier.
Speaker #5: Thank you, Neil. Your last question will go to the line of Steve Richardson with Evercore ISI. Steve, your line is open.
Speaker #8: Thank you. Thanks for filling me in. Good morning. I was wondering if you could talk a little bit about the addressable market in digital.
Speaker #8: I think you just talked about the longer-term growth, but how should we think about the addressable market? I mean, I think we've seen consultants talk about a mid-$30 billion number for total revenues in 2030, or should we think about it as a proportion of total upstream spend?
Speaker #8: How do we think about the total pie here and appreciate that it's very subjective in terms of how you define what is digital and what isn't?
Speaker #2: Well, it's very subjective. But I would consider it unconstrained. I would consider that I think the digital solution will create the space for their own, and I believe that the scale of offering the capability and the opportunity we have I don't see constraints into the market.
Speaker #2: So I believe that, okay, the growth potential we have from both the digital operation today, if you compare the digital operation, if you were to do the math, okay, we could say that this represents 1% of revenue of our core.
Speaker #2: Why not 50% of revenue of our core in the future? So that's the way you could look into it, okay? We have 1,500 customers.
Speaker #2: Only a few portions of them are adopted on our platform. We are in the early innings of AI; you have seen a handful of announcements on Lumi and AI during this quarter.
Speaker #2: Why not 1,000 customers using Lumi and AI in the future, and using agentic AI to supplement and get companions to help them execute their workflows with digital capabilities?
Speaker #2: So this is, okay, digital is a new wild line, I could say, okay? So I think I believe that you should consider it unconstrained for now, and it's only limited by the ability to create the right solution that I think the customers are keen to adopt because it has a net impact on their productivity for their geoscientists, a net impact on their effectiveness and their decision-making, and it creates value, and they recognize the value.
Speaker #2: So, one-on-one will continue to work and partner with our customers to further develop and use our platform to address both the office workflow and the back office workflow, as well as the digital operation, in order to expand the offering.
Because whenever we are delivering a new drilling operation and we can offer uh, autonomous Joe steering uh, as an option. I think it's obviously have a mutual pull through, uh, pull through on the digital to sell this, uh, this value. Added the join capability and put through off, uh, Hardware Services, uh, that, uh, that get the benefit of, uh, better performance. So this is Digital Services, so it's all in and I think that's the reason why we are optimistic that it will continue to go at
A pace in the industry, global spend, and respect, and hence, it's a bright, bright future ahead of us.
Thank you.
Thank you. Thank you.
I will now turn the call over to SLB for closing comments.
Thank you, Megan, ladies and gentlemen. As we conclude today's call, I would like to leave you with the following takeaways. First, upstream gas investment remains resilient, with pockets of growth in many international markets.
SMB, unique global footprint, and portfolio provide us.
With leading exposure to many of these regions, we are able to deliver steady financial results under all market conditions.
The second edition of Champ is already making a meaningful impact on customers. We remain focused on increasing production from existing assets.
We have expanded our portfolio and positions to capture a larger share of their spending and unlock greater value across the pollution life cycle, both in Opex and Capex spend categories. Finally, our digital business is a true differentiator for SLB. This is the fastest growing part of our business, and I look forward to sharing the continuing growth of this business through our new digital division.
With this strength, Schlumberger is exceptionally well positioned to contribute, delivering for our customers and our shareholders. I look forward to delivering a strong fourth quarter to close the year with this. I conclude today’s call. Thank you all for joining.
This concludes today's conference call. You may now disconnect.