SLB LIMITED/NV Q3 FY2026 earnings call

• Broad-Based Recovery: The third quarter showed sequential revenue growth and margin expansion across all geographical areas and core divisions, signaling the start of an inflecting upcycle.
• Middle East Gradual Recovery: Revenue in the Middle East grew 13% to $1.9 billion, driven by activity in the UAE, Kuwait, and Qatar, despite late-quarter disruptions. Long-term visibility is strengthened by multi-year integrated well construction awards.
• ChampionX Integration Success: The acquired ChampionX business delivered its highest quarterly revenue and margin since acquisition, with margins expanding for four consecutive quarters. Synergies are exceeding expectations, on track to meet interim targets.
• Digital Acceleration: Automated drilling exceeded 750,000 feet (up nearly 50% year-on-year). Hillops Predictive Analytics now monitors over 20% of active international rigs. Data center solutions are expanding into Asia and supporting major projects like Meta’s.
• Deepwater & Exploration Momentum: One Subsea continues to secure long-cycle awards, including a significant project in Mozambique. Exploration activity is rebounding globally, with SLB participating in approximately 80% of high-impact exploration wells.
• Venezuela Growth Driver: Activity in Venezuela is accelerating, with revenue expected to more than double this year, driven by international oil companies and U.S. operators entering the market.
• Strategic Focus on Production: The production business (systems and reservoir performance) now comprises over 50% of the portfolio, providing durable revenue visibility and exposure to resilient OPEX spend.

Total third-quarter revenue was $9.45 billion, a 5% sequential increase. Adjusted EBITDA margin expanded to 21.9%, up 71 basis points sequentially.

• Digital: Revenue of $693 million was essentially flat sequentially. Pre-tax operating margin increased to 28%, up 27 basis points.
• Reservoir Performance: Revenue of $1.6 billion increased 5% sequentially. Pre-tax operating margin rose to 16.3%, an improvement of 140 basis points.
• Well Construction: Revenue of $2.9 billion increased 5% sequentially. Pre-tax operating margin improved to 16.4%, up 122 basis points.
• Production Systems: Revenue of $4 billion increased 6% sequentially. Pre-tax operating margin reached 16.1%, up 60 basis points. This segment now represents over 50% of the company's portfolio.
• Other (Data Center Solutions): Revenue increased 8% sequentially, driven by strong data center growth, though pre-tax income decreased slightly due to ramp-up costs.

• Q4 2026 Revenue: Expected to reach approximately $10 billion, representing a 5% to 7% sequential increase.
• Q4 2026 Margins: Adjusted EBITDA margins are expected to expand by 100 to 150 basis points.
• Q4 2026 Divisional Outlook:
  • Core divisions combined revenue expected to increase by low single digits.
  • Digital revenue expected to grow significantly in Q4, led by year-end exploration sales.
  • Production systems revenue expected to grow in the high single digits.
  • Well construction revenue expected to be essentially flat.
• Assumptions: Guidance assumes Middle East revenue remains flat at ~$1.9 billion (approx. 83% of Q4 2025 levels). Excluding the Middle East, global Q4 revenue is expected to grow in the high single digits year-on-year.
• 2027 Outlook: Assuming Middle East activity remains at second-half 2026 levels, global offshore service contract (OFSC) market activity is expected to grow in the mid-single digits. SLB expects to visibly outperform the market, driven by deepwater, exploration, production recovery, and Venezuela reactivation.

• Geopolitical Uncertainty in Middle East: Ongoing tensions create uncertainty regarding the pace of recovery. The guidance assumes no further escalation; a resolution would unlock deferred activity, while escalation could negatively impact results.
• Pension Settlement Costs: A non-cash pension settlement charge of $187 million ($0.12 per share) was recorded, related to lump-sum payments to former employees.
• Merger Integration Charges: $0.03 per share in charges related to the ChampionX transaction were recorded.
• Data Center Ramp-Up Costs: Initial ramp-up costs associated with new data center projects slightly decreased pre-tax income in the 'Other' category.
• Market Volatility: While the upcycle is broadening, near-term performance remains dependent on geopolitical developments and the speed of reserve replacement investments.

Q: Analyst James West asked which specific areas or products are driving the inflection higher across the business, noting that most segments seem to be growing except the Middle East. / A: Olivier Le Peuch confirmed the cycle has started, characterized by deepwater exploration rebounds, investment in production recovery, and development in new areas like Venezuela and Argentina. He emphasized that the combination of long-cycle deepwater and short-cycle production recovery creates a durable upcycle, with digital and exploration also benefiting from this broad-based trend.

Q: Analyst Scott Gruber asked about the resilience of growth drivers if crude prices moderate back to $65-$70 after a Middle East resolution, and specifically queried the potential size of the Venezuela opportunity for SLB in 2-3 years. / A: Le Peuch argued that lost supply and energy security concerns necessitate continued investment regardless of price, setting the stage for mid-single-digit global growth. Regarding Venezuela, he stated that revenue is doubling this year and could multiply again in 2027, with no ceiling beyond the historical peak of $1 billion, as international operators commit to increasing CapEx in the region.

Q: Analyst Saurabh Pant asked for details on the Middle East disruptions, why Q3 revenue beat expectations despite them, and how margins might normalize in 2027 given cost inflation and pricing pressures. / A: Le Peuch explained that early Q3 activity surged in countries like UAE and Kuwait before late-quarter disruptions hit. For margins, CFO Stephane Biguet noted that SLB intentionally kept resources in place rather than cutting them, ensuring strong operating leverage when activity rebounds. He added that while the Middle East will boost margins, the overall equation includes digital growth and data center scaling, with full 2027 margin clarity coming in January.

Q: Analyst Arun Jayaram asked about ChampionX trends, specifically regarding international scaling versus North America, and sought visibility on One Subsea awards and greenfield activity for 2027. / A: Le Peuch highlighted ChampionX’s successful integration and margin expansion, noting international upside in offshore basins post-conflict. For One Subsea, he projected that bookings would surpass the $9 billion target set for 2025-2026, translating into visible revenue growth through 2029 due to the multi-year nature of subsea awards and the progressing deepwater cycle.

Q: Analyst Sebastien Erskine asked about the building blocks of North America’s strong Q3 growth and the potential size of the data center solution opportunity outside the U.S., particularly in Asia. / A: Le Peuch attributed NA growth to a differentiated portfolio including ChampionX, artificial lifts, and digital, alongside data centers. He noted data center solutions are on track to exceed $1 billion run-rate by year-end and $2 billion by end of 2027. Regarding Asia, he described it as early days, leveraging existing hyperscaler contracts and manufacturing hubs, but emphasized that near-term growth will remain centered in North America.