Q3 2024 Earnings Summary
- **Baker Hughes expects revenue growth to outpace the 20% increase in installed base by 2030, driven by higher pricing, a 70% increase in LNG installed base, advanced service solutions, and upgrades.
- EBITDA margins have significantly improved, reaching 17.5%, the highest since the company was formed, with confidence in achieving 20% EBITDA margin targets by 2026 in IET, driven by self-help measures and efficiencies.
- Despite headwinds like the LNG moratorium, year-to-date orders are at $9.2 billion, with only $700 million from LNG equipment orders, demonstrating strong portfolio diversity; similar robust orders are expected in 2025.
- Dependency on higher pricing and inflation for revenue growth may pose risks if market conditions change .
- Potential flattening of IET order levels in 2025 compared to 2024, as indicated by questions about book-to-bill ratios, suggesting possible slowdown in growth .
- Customers have been deemphasizing upgrades and running their equipment without investing in upgrades, which may negatively impact the company's expected revenue from upgrades .
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IET Margin Improvement
Q: How confident are you in achieving 20% IET margins by 2026?
A: We are very confident in reaching the 20% EBITDA target for IET by 2026, given our accelerated margin improvement. EBITDA margins have increased to 17.9%, up 2.9 percentage points year-over-year, driven by cost efficiencies, productivity gains, and supply chain improvements. This progress is due to strong execution across segments and over 100 ongoing kaizen projects driving further improvements. Importantly, this margin journey is not solely reliant on external markets but is propelled by internal self-help initiatives. -
IET Orders Guidance
Q: Do you feel comfortable with the $12.5 billion IET order target for this year, and what about 2025?
A: Yes, we are confident in achieving the $12 billion to $12.5 billion IET orders this year, despite lighter LNG orders and the LNG moratorium. Year-to-date orders are $9.2 billion, with only $700 million in LNG equipment orders, showing the strength of our diversified portfolio. For 2025, we expect orders to be similar to 2024, with growth across most segments. We anticipate an increase in LNG FIDs next year, assuming a positive resolution of the U.S. LNG moratorium, and continued strength in international LNG projects. -
Revenue Growth vs. Installed Base
Q: Will revenue growth continue to outpace the installed base growth in Gas Tech Services?
A: Yes, we expect revenue growth to outpace the 20% increase in our installed base by 2030. Key drivers include higher pricing due to indexed contractual agreements and market conditions, a higher mix of LNG with a 70% increase in LNG installed base expected by 2030, advanced service solutions leveraging digital capabilities, and upgrades focused on emissions and efficiencies. These factors give us confidence in exceeding installed base growth rates. -
Q3 IET Revenue Timing
Q: Why was IET revenue below expectations in Q3, and what drives the rebound in Q4?
A: The Q3 shortfall was due to timing delays in Gas Tech Equipment deliveries caused by supplier and vessel delays, amounting to just over $200 million. This revenue will shift into future quarters, with some occurring in Q4 and some in Q1. Despite this, we remain confident in our guidance, with IET revenues up 30% this year and margins improving. The underlying business remains strong, and these are normal timing differences in long-cycle projects. -
Backlog Conversion
Q: How should we think about IET backlog conversion in 2025?
A: We expect the cycle time of projects to remain consistent, with the RPO (Remaining Performance Obligations) continuing at record levels and converting at the same pace. We see robust activity levels into 2025, similar to 2024, with positive momentum and potential resolution of the LNG moratorium enhancing prospects.