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    BKR
    Earnings call· Dec 2024(Q4 FY24)

    Baker Hughes Co BKR

    Jan 31, 2025 Source

    Executive summary

    Baker Hughes Q4 FY24 — Record Financials and Strong IET Order Momentum

    Baker Hughes delivered a strong Q4 FY24, achieving record revenue, free cash flow, adjusted EPS, and EBITDA margins, driven by robust IET order momentum and effective operational execution. Despite facing some near-term market headwinds and geopolitical uncertainties, the company is strategically positioned for continued growth, particularly in natural gas, LNG, and new energy, with a clear focus on margin expansion and shareholder returns.

    Highlights

    5

    • Adjusted EPS increased 37% in Q4 2024 and 47% for the full year.

    • Company adjusted EBITDA margins increased 1.8 percentage points year-on-year to a record 17.8% in Q4 2024.

    • Industrial & Energy Technology (IET) orders reached $3.8 billion in Q4 2024, driving the annual total above the midpoint of guidance.

    • New energy orders totaled $1.3 billion, representing approximately 70% year-over-year growth.

    • Generated record annual free cash flow of $2.3 billion, achieving a 49% conversion rate.

    Concerns

    4

    • Global upstream spending is expected to be down slightly in 2025.

    • North America spending is anticipated to decrease year-on-year in the mid-single-digit range in 2025.

    • International markets spending is expected to be flat to down year-on-year in 2025.

    • Near-term market headwinds include the maximum sustainable capacity (MSC) reduction in Saudi Arabia and the LNG moratorium in the United States.

    Guidance & targets

    22
    CategoryTargetConfidence
    New energy orders
    $1.4 billion to $1.6 billion
    high materiality
    High
    Global upstream spending
    down slightly
    medium materiality
    Medium
    North America upstream spending
    decrease year-on-year in the mid-single-digit range
    medium materiality
    Medium
    International upstream spending
    flat to down year-on-year
    medium materiality
    Medium
    Subsea Production Systems (SSPS) orders
    up materially
    medium materiality
    High
    Gas Technology Services (GTS) digital orders
    double
    medium materiality
    High
    Company EBITDA
    demonstrate another year of strong growth
    high materiality
    High
    Full Year 2025 Total Company Revenue
    approximately $27.75 billion
    high materiality
    High
    Full Year 2025 Total Company EBITDA
    $4.95 billion
    high materiality
    High
    Full Year 2025 Free Cash Flow Conversion
    45% to 50%
    high materiality
    High
    Full Year 2025 Effective Tax Rate
    25% to 30%
    medium materiality
    High
    Full Year 2025 IET Orders
    $12.5 billion to $14.5 billion
    high materiality
    High
    Full Year 2025 IET Revenue
    $12.75 billion
    high materiality
    High
    Full Year 2025 IET EBITDA
    $2.3 billion
    high materiality
    High
    Full Year 2025 OFSE Revenue
    $15 billion
    high materiality
    High
    Full Year 2025 OFSE EBITDA
    $3 billion
    high materiality
    High
    Q1 2025 Total Company Revenue
    $6.5 billion
    high materiality
    High
    Q1 2025 Total Company EBITDA
    approximately $1.02 billion
    high materiality
    High
    Q1 2025 IET EBITDA
    $460 million
    medium materiality
    High
    Q1 2025 OFSE EBITDA
    $645 million
    medium materiality
    High
    OFSE EBITDA margin target
    20%
    high materiality
    High
    IET EBITDA margin target
    20%
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Industrial & Energy Technology (IET)
    Strong order momentum driven by LNG awards and gas infrastructure. Full year EBITDA set a record for the second consecutive year, with margins reclaiming prior peak levels due to operational enhancements and conversion of higher-priced backlog.
    Orders (Q4): $3.8 billionOrders (FY24): $13 billionBook-to-bill (FY24): 1.1xRPO (year-end): $30.1 billionEBITDA (Q4): Up 38% YoYEBITDA (FY24): RecordMargin improvements: Industrial Solutions and Gas Tech Equipment
    		New high (FY24)——Approached $2.1 billion (FY24 EBITDA)
    Oilfield Services & Equipment (OFSE)
    Strong orders in flexibles drove SSPS performance. EBITDA margin continues to outperform revenue, supporting solid Q4 results. Full year EBITDA increased, driven by margin expansion, reflecting proactive positioning and transformation efforts.
    SSPS Orders (Q4): $802 millionSSPS Orders (FY24): $3.1 billionEBITDA (FY24): $2.9 billionEBITDA growth (FY24): 11%EBITDA margin (FY24): 18.4%EBITDA margin expansion (FY24): 1.5 percentage pointsSSPS EBITDA margins: More than doubled into mid-teens (last year)
    		———$755 million (Q4 EBITDA)

    Operational metrics

    32
    Adjusted diluted EPS
    $0.70Up 37% YoY
    Q4 FY24

    Excluding adjusting items, which included a net benefit of $0.48 related to unrealized gains on equity investments and release of valuation allowances, partially offset by restructuring charges.

    Adjusted diluted EPS
    $2.35Up 47% YoY
    FY24

    Set a new annual record.

    Adjusted EBITDA
    $1.31 billionUp 20% YoY
    Q4 FY24

    Exceeded the midpoint of guidance for the eighth consecutive quarter.

    Adjusted EBITDA
    $4.6 billionUp over 20% YoY
    FY24

    Set a record for the second consecutive year.

    Adjusted EBITDA margin
    17.8%Up 1.8 percentage points YoY
    Q4 FY24

    Set a new quarterly record.

    Adjusted EBITDA margin
    16.5%Up 1.7 percentage points YoY
    FY24

    Marked the fourth consecutive year of margin expansion for the company.

    Free cash flow conversion rate
    49%
    FY24

    Near the high end of the 45% to 50% target range.

    Effective tax rate
    28%Declined approximately 5 percentage points
    FY24

    Benefited EPS by $0.17 for the year.

    Dividend increase
    10%
    Q1 FY25

    Marks the fourth consecutive year of dividend increases, up 28% since Q3 2022.

    Shareholder returns
    $1.3 billion
    FY24

    Committed to returning 60% to 80% of free cash flow to shareholders.

    Net debt-to-EBITDA ratio
    0.6x
    Q4 FY24

    Balance sheet remains strong.

    Liquidity
    $6.4 billion
    Q4 FY24

    Includes cash of $3.4 billion.

    Return on Invested Capital (ROIC)
    25%
    FY24

    Exceeded the 20% target one year early.

    Return on Invested Capital (ROIC)
    13%
    FY24

    Continues to make steady progress towards the 15% target.

    Gas Tech Equipment non-LNG orders
    $3.6 billionMore than doubled
    Q4 FY24

    Led by strength in gas infrastructure and FPSOs.

    New energy orders
    $1.3 billion70% YoY growth
    Q4 FY24

    Third consecutive year exceeding the high end of original guidance range.

    LNG equipment bookings
    $2.1 billion
    FY24

    Total for the year.

    Gas Tech Services long-term service agreements
    Over $1 billion
    FY24

    Second consecutive year.

    Flexible pipe orders
    $1.4 billion
    FY24

    Record year for this business.

    GTS digital orders
    Approximately 60%YoY increase
    FY24

    On the back of increasing customer acceptance and enhanced digital product offerings.

    GTS connected units
    Over 1,800
    End of FY24

    Leveraging iCenter monitoring capabilities and generative AI.

    Best-value countries spend
    15%YoY increase
    FY24

    Part of supply chain enhancement, typically seeing over 20% cost savings.

    GTE volumes increase
    40%
    FY24

    Driven by lean strategies and Kaizen projects, supporting growing demand.

    Orbit 60 lead times reduction
    50%
    FY24

    Achieved through lean adoption in manufacturing processes and new assembly line layout.

    Orbit 60 effective capacity
    More than doubled
    FY24

    Result of lean adoption in manufacturing processes.

    Gas turbine market pace
    Double to around 100 gigawatt per year
    Beyond end of decade

    Market forecasts suggest this pace, driven by rapid expansion of data center capacity.

    Serviceable installed base increase
    20%
    By 2030

    Driven by over $19 billion of equipment orders booked over the past 3 years.

    Serviceable LNG installed base increase
    Over 50%
    Through 2030

    Outpacing the overall 20% growth rate of the serviceable installed base.

    LNG FIDs
    100 MTPA
    2024-2026

    Expected to increase global capacity to 800 MTPA by 2030. 17 MTPA FID'd in 2024, anticipating >80 MTPA in 2025 and 2026.

    LNG offtake contracting
    92 MTPA
    FY24

    Record year, exceeding prior record of 84 MTPA set in 2022, supporting strong FID outlook.

    EBITDA margin increase
    More than 6 percentage points
    Past 5 years (by FY25 midpoint)

    At the midpoint of 2025 guidance, Baker Hughes' EBITDA margin will have increased by this amount.

    EBITDA growth
    More than doubled
    Past 5 years

    Over the same period as the EBITDA margin increase.

    Industry KPIs

    8
    MetricValueDetails
    Rpo backlog$30.1 billionUSD
    Book to bill ratio1.1xx
    FCF CAPEX leverage49%%
    Digital recurring revenueApproximately 60%%
    Aftermarket installed base20%%
    Orders bookings by segment$3.8 billionUSD
    Segment adjusted EBITDA margin16.5%%
    Data center new energy revenue capacity$1.3 billionUSD

    Orderbook & backlog

    1
    IET RPO$30.1 billionYear-end FY24

    Near-record levels, providing strong backlog support for equipment business into 2027 and growth for high-margin aftermarket service businesses.

    Deals & partnerships

    9
    Venture GlobalOrder for modularized LNG systems and a power island.

    Part of LNG equipment bookings for 2024.

    Bechtel (for Woodside Energy)Award for two liquefaction compression trains for Louisiana LNG project.

    This phase will include 2 Baker Hughes liquefaction compression trains with a capacity of 11 MTPA.

    Saudi Arabia (Jafurah gas field)Award for gas compression equipment for the third expansion phase.

    Will supply a total of 12 electric motor-driven compression trains and auxiliary treatment equipment. In total, 24 electric motor-driven compressors and an additional 14 compressors have been awarded for this field.

    Venture GlobalLong-term service frame agreement to support phase 1 and 2 of their Plaquemines LNG facility.

    Part of over $1 billion in long-term service agreements secured by Gas Technology Services (GTS) in 2024.

    NextDecade25-year services agreement to support Rio Grande LNG facility.25 years

    Part of over $1 billion in long-term service agreements secured by GTS in 2024.

    SOCARIntegrated gas recovery and hydrogen sulfide removal system.

    To significantly reduce downstream flaring at the Heydar Aliyev oil refinery. Announced at COP29.

    PetrobrasSignificant award for 48 miles of flexibles.

    To be delivered across 4 fields. Follows a Q3 award for 43 miles for the Santos Basin, contributing to a record $1.4 billion in flexible pipe orders for the year.

    EniMultiyear contract to provide AutoTrak eXact rotary steerable drilling system.Multiyear

    To unlock bypass reserves in one of Europe's largest developments, helping lower risk and execution costs.

    AIQ, ADNOC and CorvaAgreement to launch the AI Rate of Penetration Optimization project.

    Utilizes AI digital technology to enhance drilling efficiency in real time by optimizing weight on bit, rotations per minute, and other critical parameters.

    Risks & headwinds

    12
    Global economic and geopolitical uncertainties2025

    Result in another year of uneven global economic growth

    Potential for U.S. tariffs

    Likely dampen growth in key oil-consuming countries like China

    Persistent structural imbalances in Chinese economy

    Weigh on the economy

    Oil price volatility2025

    Path highly dependent on the pace and magnitude at which OPEC+ production cuts are reversed

    Global upstream spending decline2025

    Down slightly

    North America upstream spending decrease2025

    Mid-single-digit range

    Mitigation: Company expects to outperform the market due to its production-weighted portfolio mix.

    International upstream spending2025

    Flat to down year-on-year

    Mitigation: Partially offset by bright spots of activity in Brazil, the Middle East outside of Saudi Arabia, and Sub-Saharan Africa.

    Near-term policy uncertainty in clean technology areas

    Exists in the United States

    Mitigation: Company remains confident in achieving its 2030 new energy orders target of $6 billion to $7 billion.

    Near-term market headwinds

    MSC reduction in Saudi Arabia and LNG moratorium in the United States

    Mitigation: Company still exceeded midpoint for orders and high end of EBITDA compared to original guidance ranges in 2024.

    Aeroderivative supply chain tightnessQ1 FY25

    Impacts IET Q1 results

    Activity levels in Saudi Arabia and MexicoQ1 FY25

    Impacts OFSE Q1 results

    Winter weather in the Northern HemisphereQ1 FY25

    Impacts OFSE Q1 results

    What to watch in Q1 FY25

    5

    IET Orders

    Next quarter
    CurrentFY24: $13 billion
    TargetProgress towards FY25 guidance of $12.5B-$14.5B

    Why it matters

    IET orders are a key indicator of future revenue and backlog quality, especially with LNG momentum returning.

    Given the strong environment, we expect IET orders of $12.5 billion to $14.5 billion.

    Q&A highlights

    7

    Can you discuss the puts and takes for the 2025 IET order outlook of $13.5 billion, including subsegments like LNG, FPSOs, gas infrastructure, and the likelihood of reaching the $5 billion GTE threshold?

    Management expressed confidence in the $13.5 billion IET order midpoint for 2025, noting $40 billion in IET orders over the past three years. They anticipate continued strong demand in gas infrastructure, a return of LNG orders (expecting 80 MTPA FIDs over next two years), and sustained FPSO demand. NovaLT turbine orders could double, driven by data centers. New energy orders are robust, supporting the $1.4 billion to $1.6 billion target. The $5 billion GTE threshold is considered well within reach.

    “So feel good about where the midpoint is, the $13.5 billion. It would mark the third consecutive year of being ahead of the $13 billion orders. And again, on the GTE side, the $5 billion well in reach.”

    asked by Arun Jayaram · answered by Lorenzo Simonelli

    3 min read6 chapters

    Detailed Narrative

    01

    Record Financial Performance and Margin Expansion

    Baker Hughes reported a strong Q4 and full year 2024, achieving new quarterly and annual records for revenue, free cash flow, adjusted EPS, and adjusted EBITDA. Adjusted EPS grew 37% in Q4 and 47% for the full year, while company adjusted EBITDA margins expanded 1.8 percentage points year-on-year to a record 17.8% in Q4. This performance demonstrates the effectiveness of the company's transformation initiatives and commitment to operational excellence, with full-year adjusted EBITDA increasing over 20% to $4.6 billion.

    02

    Robust IET Order Momentum and Diversification

    The Industrial & Energy Technology (IET) segment maintained strong order levels, with $3.8 billion in Q4 and $13 billion for the full year, marking the second-highest order total in company history. This was driven by significant awards in gas infrastructure, FPSOs, and LNG, including $2.1 billion in LNG equipment bookings for 2024. New energy orders grew 70% year-over-year to $1.3 billion, exceeding guidance for the third consecutive year and highlighting the increasing diversity of the IET portfolio.

    03

    Gas Technology Services (GTS) as a Key Growth Accelerator

    Gas Technology Services (GTS) is positioned for structural growth, with its serviceable installed base expected to increase by 20% by 2030, and GTS revenue projected to outpace this growth. The mix shift towards LNG installed units, which have higher attachment rates, is a significant driver, with the LNG serviceable installed base expected to grow over 50% through 2030. Additionally, upgrades and digital enhancements, including a 60% increase in GTS digital orders this year, are contributing to margin expansion and customer plant performance optimization.

    04

    OFSE Transformation and Resilience in Maturing Market

    The Oilfield Services & Equipment (OFSE) segment continues its transformation, focusing on streamlining operations, reducing duplication, and modernizing management systems. Despite an anticipated softening in the oilfield service market in North America and flat to down international spending in 2025, OFSE EBITDA is still expected to increase to $3 billion. The segment's production-weighted portfolio and focus on mature asset solutions provide resiliency, with SSPS margins more than doubling into the mid-teens last year due to commercial model refocus and improved execution.

    05

    Strategic Outlook and Market Tailwinds for Natural Gas and New Energy

    Baker Hughes anticipates accelerated growth in natural gas and LNG demand, driven by new LNG facilities and data centers, with 100 MTPA of FIDs expected between 2024 and 2026. The company is targeting $1.4 billion to $1.6 billion in new energy orders for 2025, confident in its $6 billion to $7 billion target by 2030. Emerging opportunities in distributed power solutions and new industrial markets, coupled with a balanced technology portfolio, are expected to drive growth through the decade, making the company less cyclical.

    06

    Commitment to Shareholder Returns and Capital Efficiency

    The company remains committed to returning 60% to 80% of free cash flow to shareholders, having returned $1.3 billion in dividends and share repurchases in 2024. A 10% dividend increase was announced, marking the fourth consecutive year of growth, demonstrating confidence in earnings durability. Baker Hughes is also making solid progress in enhancing returns on invested capital, with IET ROIC exceeding its 20% target a year early at 25% and OFSE ROIC increasing to 13% towards its 15% target.

    AI-generated summary of the company’s earnings call. Not investment advice.