Baker Hughes Company Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Strong Third Quarter Results: Adjusted EBITDA rose to $1.24 billion, above guidance midpoint. Consolidated adjusted EBITDA margins increased 20 basis points year-over-year to 17.7%. Full year adjusted EBITDA expected to exceed $4.7 billion.
• Awards and Market Highlights: Secured over $800 million in LNG equipment orders, including from Sempra and NextDecade. In power generation, secured a significant award from Dynamis and made progress in geothermal power. On aftermarket services, secured contracts with bp and Pembina Pipeline. In offshore, secured awards for FPSO and subsea trees. SSPS had a record order quarter.
• Macro Environment: Macro environment resilient despite headwinds. AI-driven power demand and natural gas growth are key tailwinds. Oil market faces cross currents, but natural gas demand expected to grow significantly by 2040.
• Portfolio Management: Chart Industries acquisition in progress, with integration planning underway. Divestitures of certain businesses progressing, expected to generate cash proceeds.

Segment Performance

• IET (Industrial and Energy Technology): Secured $4.1 billion in orders during the quarter, with backlog growing 3% sequentially to a new record of $32.1 billion. Year-to-date IET orders totaled nearly $11 billion. Revenue increased 15% year-over-year to $3.4 billion. Segment EBITDA rose 20% year-over-year to $635 million, with margins expanding to 18.8%.
• OFSE (Oilfield Services and Equipment): Revenue for the quarter was $3.6 billion, up 1% sequentially. OFSE delivered EBITDA of $671 million, with EBITDA margins declining 30 basis points sequentially to 18.5% due to cost inflation and business mix, partially offset by cost-out initiatives and productivity improvements.

Guidance

• Fourth Quarter: Anticipates total company adjusted EBITDA of approximately $1.255 billion. IET expected to contribute $680 million in EBITDA, with OFSE expected to have $650 million in EBITDA.
• Full Year: Raised midpoint of total company adjusted EBITDA to $4.74 billion. Increased IET revenue and EBITDA guidance midpoints, and raised IET orders guidance midpoint by $500 million to $14 billion. For OFSE, increased revenue midpoint by $150 million to $14.35 billion.
• 2026 Outlook: Focus on profitable growth and margin expansion. IET aims for 20% margins, while OFSE expects subdued operator activity and modest reduction in upstream spending.

Risks

• Trade Policy: Net tariff impact to EBITDA near prior quarter levels, with potential for retaliatory tariffs and need for continued mitigation actions. Monitoring U.S.-China trade policy evolution, including potential 90-day pause end.
• Market Volatility: Periods of market volatility may occur due to nonlinear nature of supply growth in LNG and other markets, affecting spot prices and demand.

Question and Answer

Q: David Anderson from Barclays asked about power generation opportunities, including data center demand, Dynamis order, geothermal, and offshore.

A: Lorenzo Simonelli responded that power generation has strong demand across various markets, including data centers, oil and gas, industrial, and geothermal. Baker Hughes has versatile equipment offerings and a strong pipeline, with confidence in achieving data center order targets and continued momentum in geothermal and offshore solutions.

Q: Arun Jayaram from JPMorgan inquired about key financial targets in Horizon Two and achieving $40 billion of IET orders.

A: Lorenzo Simonelli mentioned confidence in achieving $40 billion of IET orders over Horizon Two due to strong visibility in LNG, gas infrastructure, power generation, new energy, and digital markets. Ahmed Moghal added that achieving 20% corporate adjusted EBITDA target by 2028 involves margin improvement through business system execution, AI tailwinds, portfolio optimization, and Chart acquisition accretion.

Q: Stephen Gengaro from Stifel asked about comprehensive evaluation of capital allocation, business costs, and operations related to Chart acquisition.

A: Lorenzo Simonelli stated that the evaluation reflects ongoing disciplined approach to unlocking value, with focus on enhancing shareholder value through strategic actions taken over years.

Q: Scott Gruber from Citigroup inquired about integration planning for Chart acquisition.

A: Lorenzo Simonelli and Ahmed Moghal discussed alignment of cultures, 14 work streams for integration, and progress in systems, supply chain, and commercial integration, with focus on realizing $325 million in cost synergies and closing deal in mid-2026.

Q: James West from Melius Research asked about OFSE margin and 2026 outlook.

A: Ahmed Moghal explained that OFSE margin resilience comes from cost-out initiatives, with 2026 expecting subdued operator activity and modest reduction in upstream spending, but SSPS backlog providing positive momentum.

Q: Marc Bianchi from TD Cowen asked about NovaLT performance in 4Q and 2026.

A: Ahmed Moghal responded that NovaLT has strong demand with over $1 billion in orders expected in 2025, strong pipeline, and significant manufacturing capacity expansion, with demand for delivery slots well into 2028 and beyond, supporting aftermarket services growth.