Baker Hughes Q1 2025 Earnings Report

Baker Hughes EPS Results

• Actual EPS: $0.51
• Consensus EPS: $0.48
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: N/A

Baker Hughes Revenue Results

• Actual Revenue: $6.43 billion
• Expected Revenue: $6.54 billion
• Beat/Miss: Missed by -$116.59 million
• YoY Revenue Growth: N/A

Baker Hughes Announcement Details

• Quarter: Q1 2025
• Date: 4/22/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, April 23, 2025
• Conference Call Time: 9:30AM ET

Baker Hughes (NASDAQ:BKR) Company provides a portfolio of technologies and services to energy and industrial value chain worldwide. The company operates through Oilfield Services & Equipment (OFSE) and Industrial & Energy Technology (IET) segments. The OFSE segment designs and manufactures products and provides related services, including exploration, appraisal, development, production, rejuvenation, and decommissioning for onshore and offshore oilfield operations. This segment also provides drilling services, drill bits, and drilling and completions fluids; completions, intervention, measurements, pressure pumping, and wireline services; artificial lift systems, and oilfield and industrial chemicals; subsea projects and services, flexible pipe systems, and surface pressure control systems; and integrated well services and solutions. It serves oil and natural gas companies; the United States and international independent oil and natural gas companies; national or state-owned oil companies; engineering, procurement, and construction contractors; geothermal companies; and other oilfield service companies. The IET segment provides gas technology equipment, including drivers, driven equipment, flow control, and turnkey solutions for the mechanical-drive, compression, and power-generation applications; and energy sectors, such as oil and gas, LNG operations, petrochemical, and carbon solutions. This segment also provides rack-based vibration monitoring equipment and sensors; integrated asset performance management products; inspection services; pumps, valves, and gears; precision sensors and instrumentation, and condition monitoring solutions. It serves upstream, midstream, downstream, onshore, offshore, and small and large scale customers. The company was formerly known as Baker Hughes, a GE company and changed its name to Baker Hughes Company in October 2019. Baker Hughes Company was incorporated in 2016 and is based in Houston, Texas.

Baker Hughes Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to the Baker Hughes Company First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr.

[Operator]

Chase Mulvehill, Vice President of Investor Relations. Sir, you may begin.

[Chase Mulvehill, VP - Investor Relations at Baker Hughes Company]

Thank you. Good morning everyone and welcome to Baker Hughes first quarter earnings conference call. Here with me are our Chairman and CEO Lorenzo Simonelli and our CFO Ahmed Mogul. The earnings release we issued yesterday evening can be found on our website at bakerhughes.com. We will also be using a presentation with our prepared remarks during this webcast, which can be found on our investor website.

[Chase Mulvehill, VP - Investor Relations at Baker Hughes Company]

As a reminder, we will provide forward looking statements during this conference call. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for the factors that could cause actual results to differ materially. Reconciliation of adjusted EBITDA and certain GAAP to non GAAP measures can be found in our earnings release. With that, I'll turn the call over to Lorenzo.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Thank you, Chase. Good morning, everyone, and thanks for joining us. Before getting into the results, I would like to welcome Ahmed to the earnings call as our new CFO. Ahmed brings extensive experience and a deep understanding of the Baker Hughes portfolio. He will collaborate with me and the broader executive team to advance our strategic priorities with a clear focus on profitable growth and sustained margin improvement.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Now, let me start by providing a quick outline for today's call. I will begin by providing our thoughts on the macro environment before discussing our strong first quarter results. I will then highlight key awards and technology developments announced during the quarter. After this, I will briefly speak to our outlook before handing the call over to Ahmed, who will provide more details on our financial performance, walk through the potential tariff impacts to our business and provide further detail around our outlook. Ahmed will then hand it back to me for a quick recap before we open the line for questions.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Now let's turn to our macro outlook. Starting on slide four. The global economy has started cautiously this year due to ongoing geopolitical tensions, uncertainty around trade policy and tariffs, China's slower growth rate, and lingering inflationary pressures. Specifically for Baker Hughes, we continue to monitor the evolving landscape closely and are taking proactive steps to mitigate the potential impact of changes in trade policy, particularly tariff rates. Broadly speaking, our strong weighting to international markets along with a diversified localized supply chain and established competitive position helps reduce our overall financial exposure.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Later during the call, Ahmed will provide more detail on the potential implications for Baker Hughes. Turning to oil markets. There are several factors driving downward pressure on oil prices. As announced earlier in the first quarter, OPEC plus has now begun executing its plan to return 2,200,000 barrels per day of previously idled oil production to the market. Subsequently, oil prices saw increased volatility stemming from elevated tariff uncertainty that's affecting global GDP and oil demand.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

With the softening macro backdrop, we now expect global upstream spending to be down by high single digits in 2025, including a mid to high single digit decline internationally and a low double digit decrease in North America. Excluding Mexico, international upstream spend is expected to fall in the low to mid single digit range. These expectations assume a stabilization of oil prices around the current levels and tariffs hold at the current ninety day pause rates. A sustained move lower in oil prices or worsening tariffs would introduce further downside risk to this outlook. The prospects of an oversupplied oil market, rising tariffs, uncertainty in Mexico and activity weakness in Saudi Arabia are collectively constraining international upstream spending levels.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Amid broader market softness, we see pockets of resilience in key international markets like Brazil and several countries in The Middle East and Asia Pacific. In North America, discretionary spending delays are extending into the second quarter, driven by ongoing uncertainty. Additionally, recent oil price volatility presents potential downside to second half activity, particularly in US land. While second half visibility remains limited, we expect to outperform the broader North American market supported by our production weighted portfolio. On natural gas, we see a more positive outlook.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Long cycle gas levered projects in LNG, gas infrastructure, and data centers continue to make progress towards FID. Rising gas fired power demand underscores a long term shift in market fundamentals unaffected by near term macroeconomic volatility. To this point, natural gas demonstrated the strongest increase in demand among fossil fuels in 2024, led by a significant increase in power consumption. According to the IEA, gas demand increased by a 15 BCM or 2.7% compared with an average of 75 BCM annually over the past decade. Strong gas fundamentals remain positive for LNG contracting trends.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Wood Mackenzie reports that 15.5 MTPA of long term LNG offtake contracts were signed in the first quarter, following a record 81 MTPA last year. These statistics highlight consumer confidence in long term global LNG and natural gas demand. In The US, the repeal of the LNG permitting moratorium and the administration stated goal of increasing US LNG exports has led to an improvement in orders for US LNG projects. We have now booked around $1,700,000,000 of orders for US LNG projects over the past two quarters. Given this positive backdrop, several key LNG customers in The Gulf Coast are indicating plans to further expand capacity beyond 2,030.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

This offers greater clarity regarding the potential increase in installed capacity above the anticipated 800 MTPA by the end of the decade. I would now like to address our outlook given the current macroeconomic environment. We have a clear view of the near term direct impact that tariffs will have on our business and are actively implementing a number of mitigation actions. However, the ongoing and dynamic trade negotiations between The US and its trading partners and the uncertainty regarding the eventual status of tariff rates and other trade policies across key markets introduce a high degree of variability. Given this backdrop, we are providing our second quarter guidance along with a framework for our 2025 outlook, which Ahmed will cover in more detail later.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

As we evaluate the path forward, it is important to recognize the differing dynamics across our segments. OFSE is facing a wider range of potential outcomes, driven by reduced upstream spending, tariff related cost inflation and exposure to more cyclical markets, limiting visibility beyond the current quarter. IET offers greater visibility and is well positioned in this environment, supported by a healthy equipment backlog, substantial recurring revenues and strong operational performance underscoring the strength and balance of our portfolio. We remain confident in our strategy. Our focus is on the areas within our control, driving productivity, executing with discipline and accelerating our efforts to be a leaner, more efficient company.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Turning to our first quarter operational performance on Slide five. We delivered strong results, maintaining the trend of meeting or exceeding the midpoint of our EBITDA guidance for the ninth consecutive quarter. We also set new first quarter records for revenue and our adjusted measures of EPS, EBITDA and EBITDA margin. Adjusted EBITDA of $1,040,000,000 increased by 10% year over year, led by IET where EBITDA has increased by at least 30% for five consecutive quarters. Industrial and energy technology experienced a solid start to the year, booking $3,200,000,000 of orders with segment backlog reaching another record level of $30,400,000,000.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Excluding LNG equipment, orders totaled a robust $2,700,000,000 During the quarter, we generated free cash flow of $454,000,000 and returned a total of $417,000,000 to shareholders. Our strong first quarter results reflect our commitment to profitable growth and continuous margin improvement. Solid operational execution and transformation progress are driving structural margin improvement with our adjusted EBITDA margin expanding by 140 basis points to 16.1%, including gains across both segments, even as a softer upstream market weighed on OFFE. Turning to Slide six, we are witnessing strong commercial momentum across new and existing markets. This was reinforced by the record attendance at our recent annual meeting in Florence, Italy, which brought together over 2,300 customers and delegates from 85 countries.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Importantly, we had representation across industrial and energy ecosystems, including participants from mining, steel, cement, industrial power generation, and data center markets. Following several customer engagements at this event, we booked multiple data center awards, marking our entrance into this market and further expanding IET's industrial reach. Of the 35 NovaLTs booked during the quarter, 22 will be utilized to power data centers. This amounts to more than 350 megawatts of power for this high growth market. In March, we signed an agreement with Frontier Infrastructure to develop large scale CCS and power solutions for data centers, including the development of behind the meter gas fired power generation that will utilize our NovaLT turbines.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

This partnership will leverage technologies and services across Baker Hughes by providing CO2 compression, industrial gas turbines, digital monitoring solutions, well construction, and completion services. We also secured an order from Turbinex Energy, one of Baker Hughes' network of authorized packages in North America. The scope includes NovaLT gas turbines, gears, and power generation technology for microgrid solutions to power data centers. In gas infrastructure, we secured an award in North America for two pipeline compression stations, which will provide feed gas to a Gulf Coast LNG facility. This award includes a total of 10 gas turbines and 10 centrifugal compressors.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Generally, we see growing opportunities in North America for gas infrastructure driven by LNG capacity expansion along the Gulf Coast and AI led demand for gas powered data centers. We also received an award to supply a NovaLT gas turbine and a pipeline compressor for a gas boosting station in The UK. This equipment order is part of National Gas Transmission's broader investment to enhance The UK's gas infrastructure, ensuring energy security and reducing overall emissions. In LNG, we secured an order for a liquefaction train in North America. We will provide four main refrigerant compressors driven by LM 6,000 gas turbines and four expander compressors.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

We also signed key strategic framework agreements with NextDecade and Argent LNG, growing our pipeline of potential orders. For NextDecade, the scope includes equipment for five additional trains totaling 30 MTPA of liquefaction capacity at the Rio Grande LNG facility. This will be complemented by contractual services agreements for these equipment packages. Argent LNG has selected Baker Hughes to provide liquefaction, power solutions, and related aftermarket services for its proposed 24 MTPA LNG export facility in Louisiana. Importantly, the project will employ Baker Hughes nimble modularized LNG solution driven by the LM 9,000 gas turbine while also utilizing our iCenter and Cordon digital solutions.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Including NextDecade and Argent, we now have LNG supply agreements in place for over a 20 MTPA. This provides visibility for potential LNG equipment orders into the latter part of this decade. In GasTech Services, we experienced a record quarter for upgrade orders, increasing by a 67% year over year as many operators look to drive efficiencies, reduce emissions, and extend the life of their gas infrastructure projects. This was the largest order quarter for upgrades in the history of the company. In The Middle East, we received a significant upgrade award to support one of the world's largest gas processing plants.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

The scope includes the upgrade of two existing gas turbines to drive new compressors and the supply of a third compression train to support production expansion. Separately, the team is partnering with Sonatrac to deliver an upgrade solution to support the modernization of a key compressor station in Algeria. Turning to Oilfield Services and Equipment, we experienced sustained commercial momentum through market uncertainty during the first quarter. Petrobras continues to leverage our innovative solutions to help unlock Brazil's vast energy supply. During the quarter, Baker Hughes received a major integrated completion systems order across multiple deepwater fields in Brazil.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

In mature asset solutions, OFSE received an award from Sokar in Azerbaijan to expand deployment of Lucifer to all wells in the Uberson and Gunseli fields, including those with non Baker Hughes electric submersible pumps. We also signed a multi year frame agreement with Equinor to provide plugging services on the Norwegian continental shelf. As part of this agreement, BetaGuse's mature asset solutions team will lead the integrated plug and abandonment campaign, managing the planning and execution across the North Sea's Auschberg East field. Across the Baker Hughes Enterprise, we are capturing increasing commercial synergies between OFSE and IET through our early engagement on gas infrastructure, CCUS, geothermal, and data center projects. Looking out to horizon two, our pipeline of enterprise wide opportunities continues to grow as customers seek solutions to address their energy efficiency and decarbonization needs.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

In addition to the previously mentioned Frontier agreement, we booked two orders that highlight commercial synergies across the enterprise. OSSE was awarded a multiyear contract to provide integrated coil tubing drilling services on the Margham gas storage project in Dubai. This award was facilitated by IET's existing customer relationship with Dubai Supply Authority who previously ordered ICL compressors for the same project. We are also observing this commercial trend offshore. In OFSE, we received a significant multi year award from ExxonMobil Guyana to provide specialty chemicals and related services for FPSOs, which complements our IET scope that includes power generation and compression equipment previously awarded.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Moving to new energy, we booked $238,000,000 of orders and maintain our 2025 order target of one point four to one point six billion dollars. During the quarter, we booked an award to supply free electric motor driven c o two compression trains and gearboxes for a CCS project in Northwestern Europe. We also made progress on several new energy technology developments. In geothermal, we have been selected by The US Air Force and the Department of Defense to explore the development of utility scale geothermal power. During the quarter, we also announced the joint development and collaboration agreement with Hanwha for the development of a new small scale turbine for ammonia applications.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

The new ammonia turbine will be suitable across shipping, FPSO, and gas infrastructure markets. Overall, we had a positive start to the year from a commercial and technology engagement perspective and remain confident in our IET orders guidance range this year. We are building strong order and technology pipelines that extend beyond our traditional oil and gas markets, providing additional life cycle growth opportunities that further enhance our earnings durability. Baker Hughes is well positioned to deliver sustainable growth and long term shareholder value, and we're excited about the future as we advance into the next phase of our journey. With that, I'll turn the call over to Ahmed, who will provide more details on our quarterly results, tariff exposure and guidance.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Thanks, Lorenzo. I'll begin on Slide eight with an overview of our consolidated results and then speak to segment performance before providing details of our exposure to evolving trade policy and tariffs. I'll also provide a quick summary of our outlook before handing it back to Lorenzo for final comments. As Lorenzo mentioned, orders got off to a solid start to the year, booking $6,500,000,000 for the total company and included $3,200,000,000 in IET. Adjusted EBITDA increased by 10% year over year to $1,040,000,000 driven by strong IET revenue growth and continued margin expansion across both segments.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

GAAP diluted earnings per share were $0.40 Excluding adjusting items, earnings per share were $0.51 an increase of 19 when compared to the same quarter last year. We generated free cash flow of $454,000,000 for the quarter. For the full year, we continue to target free cash flow conversion of 45 to 50% with a normal weighting towards the second half of the year. Turning to capital allocation on slide nine. Our balance sheet remains in a very strong position, ending the first quarter with cash of $3,300,000,000 a net debt to EBITDA ratio of 0.6 times and liquidity of $6,300,000,000 Our next debt maturity is not until December 2026, and S and P recently upgraded our long term credit rating to A.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

We returned $417,000,000 to shareholders in the first quarter. This included $229,000,000 of dividends and $188,000,000 of share repurchases. We remain committed to returning 60% to 80% of free cash flow to shareholders. I will now highlight the results for both segments starting with IET on Slide 10. During the quarter, we booked solid IET orders of $3,200,000,000 This included $510,000,000 for LNG equipment, dollars 104,000,000 for data centers and record gas tech service upgrades of $272,000,000 Book to bill was 1.1 times, resulting in IET RPO of $30,400,000,000 that reached a new record.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

This RPO level and a structural growing installed base provide significant revenue visibility for IET over the coming years. IET revenue increased by 11% year over year to $2,900,000,000 led by a 20% increase in GasTech equipment and 114 growth in ClimateTech solutions, partially offset by GasTech services. EBITDA growth significantly outpaced segment revenue, increasing 30% year over year as margins expanded by two forty basis points to 17.1% despite mix headwinds. This performance was driven by a strong margin expansion in gas tech equipment supported by productivity from project closeouts. IET continues to benefit from the lean strategies being adopted across operations that are driving structural margin improvement.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Turning to OFSE on slide 11. OFSE revenue in the quarter was $3,500,000,000 down 10% sequentially as we experienced enhanced seasonal weakness across many international markets. Economic and tariff uncertainty to start the year resulted in customers delaying discretionary spending, primarily impacting direct equipment sales. In international markets, revenue declined 11% sequentially, driven by a significant slowdown in activity in Mexico. Rig activity in Mexico declined sequentially by 52%, now down 72% from twenty twenty three's peak levels.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Excluding Mexico and SSPS, international revenue was down 7% sequentially, more aligned with typical seasonal declines. In North America, revenue declined 5% sequentially, driven by seasonal weakness in offshore. North America land was down 3% as strength in drilling services and drill bits were offset by lower revenue across most other businesses. OFSE EBITDA margin rate was 17.8%, improving 80 basis points year over year, even with segment revenue declining by 8%. This is a testament to the team's hard work to structurally change the way we operate.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Due to the previously mentioned Mexico weakness and delays in discretionary customer spending, segment EBITDA of $623,000,000 was between the low and midpoint of our guidance range. Turning to slide 12, I want to walk through our outlook and how the current environment could impact performance. I'll begin by outlining the potential tariff impacts to Baker Hughes, then walk through our full year framework and conclude with detailed guidance for the second quarter. While the situation remains fluid, we have been conducting comprehensive scenario planning exercises and continue to develop and implement mitigation strategies to manage through this period of volatility. In our OFSE segment, our strong international presence provides us a degree of protection against tariff impacts since approximately 80% of segment revenue is derived from markets outside The US.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Domestically, we benefit from a broad US manufacturing footprint and a resilient local supply chain. However, we do expect some cost headwinds tied to imports from China, Germany and The UK. We also sourced some oilfield components and chemicals from Canada and Mexico, a portion of which qualify under USMCA provisions. To reduce reliance on these imports for OFFE, we have been working with US supply chain partners to increase domestic sourcing. Additionally, we have engaged with customers on cost recovery initiatives, which have led to encouraging outcomes to date.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Within IET, we have identified three areas of tariff exposure. First, a portion of Industrial Tech's U. S. Volumes exported to China may be impacted by new trade policies. Second, we supply critical equipment to U.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

S. Projects from our facilities in Italy, although this backlog has limited exposure due to existing contractual terms. Third, we anticipate modest impact from steel and aluminum tariffs, as well as U. S.-China trade activity. Similar to OFSE, we're deploying several mitigation strategies within IET, including exploring domestic procurement alternatives to reduce input costs and optimizing our global manufacturing footprint.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

We expect these actions combined with continued productivity gains will largely offset the tariff related impacts. After accounting for these offsets across both segments, we estimate a net EBITDA impact in the range of 100,000,000 to $200,000,000 This assumes current tariff rates applied during the ninety day pause period continue for the remainder of 2025. Beyond direct impacts, we are also monitoring secondary effects such as more cautious customer behavior and the potential for broader economic weakness, factors that remain difficult to quantify. A further slowing of customer spending could affect our more economically sensitive areas, such as direct sales and transactional services in OFSE and industrial tech in IET. Turning to our 2025 outlook, we use this tariff outline to help shape our framework for the full year.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

As visibility on trade policy and the broader market dynamics improve, we will provide further updates as we progress through the year. In IET, we believe our diversified portfolio, substantial IET backlog, and sizable aftermarket services business provide earnings and cash flow stability during this period of uncertainty. In the current environment, IET's lean mindset and process driven culture should continue to deliver structural margin improvement, even in the face of higher input costs. As we balance our current view, we believe the IET EBITDA guidance range communicated in January remains achievable. In OFSE, visibility beyond the second quarter remains limited.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

If oil prices and tariffs hold at current levels, we expect global upstream spending to decline in the high single digit range for 2025. Under this scenario, we believe OFSE margins will still improve year over year, driven by cost efficiency and continued execution of transformation initiatives. As this framework illustrates, our 2025 outlook reflects pressure from market sensitive elements of OFSE, while IET is expected to deliver strong growth compared to last year. Turning to second quarter, we expect total revenue of 6,300,000,000.0 to $7,000,000,000 and total EBITDA of approximately $1,040,000,000 to $1,200,000,000 This guidance assumes we can partially offset tariff impacts through abatement opportunities, contractual pass throughs, and other mitigation strategies. It also assumes tariff levels remain consistent when compared to the current ninety day pause scenario.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

For IET, we forecast EBITDA of $520,000,000 to $580,000,000 on revenue of 3,000,000,000 to $3,300,000,000 led by growth in GasTech services. The major factors driving this range will be the pace of backlog conversion in GTE, the impact of any aeroderivative supply chain tightness, and volume levels in industrial tech. For OFSE, we forecast EBITDA of $600,000,000 to $700,000,000 on revenue of $3,300,000,000 to $3,700,000,000 implying further margin improvement on flat sequential revenue. We expect results to reflect a less pronounced seasonal recovery in both international and U. S.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Markets due to ongoing macro uncertainty and recent oil price weakness. Factors driving the range include execution of our SSPS backlog, the impact of near term activity levels in North America and international markets, and the pace of activity in Mexico. In summary, we're pleased with the company's operational performance during the first quarter. OFSE margins remained resilient despite upstream market softness, while IET margins continued progressing towards 20%. Although our outlook is tempered by macro and trade policy uncertainty, we remain focused on elements we can control, continuing to streamline operations and drive efficiencies that will benefit us well beyond the cycle.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

With that, I'll turn the call back over to Lorenzo.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Thank you, Amit. Our strong first quarter results demonstrate the progress we've made in transforming our operations and streamlining the organization. This has created a solid foundation to further optimize margins and enhance returns even in a challenging environment. Looking beyond near term macro uncertainty, we continue to believe in the structural growth of global energy demand, an outlook that underpins our strategy and anchors Baker Hughes' long term value creation. The world needs more energy with fewer emissions, and we see natural gas playing a fundamental role in achieving this dual objective.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

To conclude, thank you to the entire Baker Hughes team for yet again delivering outstanding results. As we continue our journey to take Baker Hughes and energy forward, we remain committed to our customers, shareholders and employees. With that, I will turn the call back over to Chase.

[Chase Mulvehill, VP - Investor Relations at Baker Hughes Company]

Operator, we can now open up for questions.

[Operator]

To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. In the interest of time, we ask that you please limit yourself to one question. Our first question comes from Arun Jayaram with JPMorgan. Your line is open.

[Arun Jayaram, Analyst at JPMorgan Chase]

Yes, good morning. My question is regarding guidance. We appreciate the fact there's a lot of uncertainty associated with tariffs and OPEC plus policy. It makes sense to us, Lorenzo, you shifted to a hybrid called pragmatic approach to the guide with the explicit guide for 2Q. I guess my question is you've highlighted 100 to $200,000,000 of tariff impacts this year.

[Arun Jayaram, Analyst at JPMorgan Chase]

I know that you had on the fourth quarter call had a guidance range of $4,700,000,000 at the low end, dollars 4,950,000,000.00 at the midpoint. I was wondering if you could highlight any confidence you have, Lorenzo or Med, around, call it, the low end of the guide if we factor in some of the tariff impacts and the fact that IET looks largely intact?

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Yes. Hi, Arun. And thanks. Appreciate the question, an important topic. And we'll break it down into really I'll start off and then let Ahmed maybe walk you through the framework and then also specifically respond to the question and I'll come back at the end because I think it's important that everybody's clear on what we're saying here.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

As I noted in my prepared remarks, the global economy has experienced a cautious start driven by the ongoing geopolitical tensions, some of the trade policy and tariff uncertainty, slower growth in China and persistent inflationary pressures. So far in the second quarter and also what you saw with our good results in first quarter, we've not experienced a material impact to volumes or activity levels. We do recognize though there's growing uncertainties around the trade policy and tariffs that's creating some uncertainties for our customers as well as for Baker Hughes. So as a result, we've got less visibility into the second half of the year across our more economically sensitive businesses such as drilling and completion service lines, U. S.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Land, short cycle, oilfield services and international and the GDP like industrial tech businesses. So given the wide range of potential outcomes on the trade policy and tariff outcomes and their impact, we thought it was important to provide a framework that allows you to look at 2025. And once there's greater clarity in the external environment, we intend again to provide formal full year guidance ranges for the company. And I'll pass it to Ahmed to give a little bit more detail on the aspects of the framework.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Yeah. Arun, let me just start by talking through the framework itself. So I'll start with the key points around tariffs. Under the current set of trade policies, we understand the direct implications for our business and have been implementing, as you heard, several mitigation actions. So after accounting for those potential offsets across both segments, we estimate a net EBITDA impact in the range of what we mentioned of 100,000,000 to $200,000,000 which includes both direct costs as well as revenue related impacts.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

And I'd say just over half is attributed to IET. And the primary factor behind that range is actually the timing and effectiveness of our mitigation actions. So the estimate assumes the current tariff levels are in effect during the ninety day pause period and remain in place through year end. And as a result, our estimate doesn't really include the secondary effects from tariffs like lower oil prices, broad economic weakness, which could ultimately have a larger impact on our results than just the direct inflationary cost pressures. But of course, if trade policy and the tariff environment worsens, then we'll need to reassess and likely adjust the estimated impact accordingly.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

So how this translates to the segments? So I'll start with IET. IET is reasonably well positioned to manage through this environment. While tariff related costs inflation, we expect it to impact the segment of force, the effect is largely concentrated in the industrial tech side of the segment. And at this stage, we assume that continued productivity gains that you've seen in gas tech are expected to offset much of that inflationary pressure within the industrial tech side of the house.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

And also in industrial tech, which accounts for just as a reminder about a quarter of IET revenues, we could face potential headwinds from slowing GDP growth in addition to the inflationary pressures that we've talked about. But taking all of that into account, we continue to view our 2025 total year IET EBITDA guidance range of 2,200,000,000.0 to $2,400,000,000 as achievable. So then you go on to OFFC and ultimately OFFC, as Lorenzo mentioned, faces a broader range of outcomes, which limits the visibility beyond the current quarter, so second quarter. Now, we expect North American upstream spending to decline in the low double digit range and international spending to decline by mid to high single digits. But despite that deterioration in the overall market, we remain focused on optimizing cost structure, eliminating duplication to protect margins.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

And you've seen us do that even as market conditions soften. Now, as to your last question about holding the $4,700,000,000 EBITDA level for the year, we believe that we could approach that EBITDA level if the tariff related impacts land towards the lower end of that 100,000,000 to $200,000,000 range and oil prices stabilize and tariffs hold at the current ninety day pause rates.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

So Arun, maybe just to conclude because I think this is a very fluid situation and everybody is approaching this differently. I just wanted to maybe add a couple of quick points here. And the hybrid model that we've laid out is really to provide a lot of transparency. And if you look at the conclusion, on the IAT side, we set our guidance ranges are still achievable. On the OFSE side, it's more of a framework given some of the higher level of uncertainty.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Ultimately, we believe there's still a path for our full year results to approach the low end of our guidance range and we'll continue providing updates, being transparent and also clearly managing the fluid environment that we're in. So appreciate the question, Arup.

[Operator]

Thank you. Our next question comes from Stephen Gengaro with Stifel. Your line is open.

[Stephen Gengaro, Managing Director at Stifel Financial Corp]

Thanks. Good morning, everybody. So after three strong years, very strong years of IET orders, you're off to a good start in 2025 and you had those significant data center orders as well. Can you talk about the opportunity for Baker on the data center side? And maybe you should also share thoughts on how you think the macro could impact the IET order flow this year?

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Definitely, Stephen, and thanks. IET did have a solid start to the year for orders booking $3,200,000,000 in the first quarter, as you mentioned. And without LNG equipment, IAT orders still totaled $2,700,000,000 which continues to demonstrate the depth and versatility of the IAT portfolio. For the full year, we're sticking to the guidance that we laid out at the beginning of the year to be in the range of $12,500,000,000 and $14,500,000,000 We continue to feel good about the LNG outlook and the data center opportunities, which are gaining momentum. I think as you look at highlight during the first quarter, record levels of also gas tech services upgrades, a trend that looks like it will continue.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

And we're really not seeing customers pull back from LNG, gas infrastructure or the data center projects and we're staying very close to them and monitoring things. Just to highlight on the LNG momentum, during the quarter, we booked an order for liquefaction equipment in North America, Also booked a gas infrastructure order for feed gas compression from a major US LNG operator. And we expanded our relationship with NextDecade to cover five more trains at Rio Grande and signed an agreement with Argent LNG to support their proposed 24 MTPA facility. So over the past two quarters, we secured $1,700,000,000 in LNG orders and that speaks to our leading position in LNG and reinforces the positive outlook for the year and the growing confidence we have in LNG orders that's supported by long term equipment supply agreements with strategic operators including Venture Global next decade. So as you look at overall, we've got a growing number of LNG customers and we have supply agreements in place for over 120 MTPA of LNG.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

And we've seen a good increase in offtake agreements and equity investments by LNG players, which further strengthens our confidence on the outlook for this year and beyond. So as you look at 2025 and also 2026, again, we feel good about the 100 MTPA of FIDs that make us reach the 800 MTPA by 02/1930. And we also think we'll surpass that 800 MTPA as we go beyond 02/1930. So LNG continues to be good. On data centers, I think great example of what we've discussed before, really showcasing IT's expanding reach in industrial areas and the diversity of the portfolio.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

And looking at external factors, we continue to see strong pickup in demand. As you look at McKinsey, they see U. S. Data center energy demand by 02/1930. That's increasing at 23% CAGR rate.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

And we're continuing to see strong interest in the capability that we have across the Baker Hughes portfolio given OSSC and IET to provide decarbonization solutions and power generation. And a great example is Frontier Infrastructure that we announced, which again provides the development of large scale CCS and power solutions for data centers. And it's their first development end to end solution, turbine, CO2 storage, well designed construction. So we feel good that that's going to continue and the enterprise wide solutions we can provide are a key differentiator. As you look at NovaLTs, the industrial gas turbines that we have, booked over three fifty megawatts across multiple customers during the quarter.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

And we have multiple use cases for data centers, not just base load but also bridge to backup, temporary power. And for gas power generation, our focus is on the 150 megawatt range or below and that really suits well the NOVA gas turbines as well as being able to provide our subsurface to surface geothermal solutions in the five to 80 megawatt range. So we're continuing to increase the capacity of the NovaLT and we're seeing good traction with our customers. Over the next three years, we expect to book at least $1,500,000,000 of orders in data center equipment. And long term, we think data centers could be a meaningful growth driver for IAT as well as overall for the enterprise solutions we have and also reoccurring aftermarket services over the rest of the life of the equipment.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

So data centers is a key area of focus. Thanks, Steven.

[Operator]

Thank you. Our next question comes from Scott Gruber with Citigroup. Your line is open.

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

Yes, good morning and appreciate all the tariff color. Can you just provide some more color on the mitigation initiatives that you're undertaking? I imagine some levers can be pulled fairly quickly, some are probably longer dated, especially if you're shifting manufacturing locations. And how much mitigation is embedded in the 100,000,000 to $200,000,000 impact? And is there an ability to squeeze that figure lower over time, assuming a status quo environment for the tariffs?

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

Thanks.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Yeah. Hi, Scott. So look, I'll start with one thing to keep in mind is just reinforcing that we have a strong international mix in the company, and it's not just from a customer perspective, but also from our global supply chain footprint. And that naturally limits our exposure to direct US tariffs. But for context, we purchase roughly $14,000,000,000 in direct and indirect materials annually.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Of that, we imported less than 5% into The US and under 2% comes from China. If you last remember, this global footprint served us well during the last round of tariffs implemented in 2018. So as we mentioned in the prepared remarks, we've taken proactive steps to develop mitigation strategies, and that's what's helping reduce the net impact down of direct tariffs to the 100,000,000 to $200,000,000 range. So as an example, we've established a centralized coordination hub with leaders from many different functions, the supply chain, legal, commercial, government relations, tax, just to name a few, where we're monitoring develops and acting quickly to implement things and also adjust as things evolve. And so when you really double click into the actual mitigation, there are really two aspects that we're working through.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

First, there's the direct sourcing costs tied to imports into The US, most of which come from places like I mentioned, Germany, UK, China, Canada and Mexico. So in that we're taking, I would say three specific actions that reduce that gross exposure. First, we're leveraging the global supply chain manufacturing footprint to better align with end markets, so we make sure we have the right things in the right places, obviously. Second, we're utilizing free trade agreements and expanding beauty drawback programs where they're available. And third, I'd say is understanding and utilizing our contract mechanisms where pricing increases and surcharges offset some of that where possible.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

So that's around the direct sourcing costs. The second piece we're working through is assessing the actual potential revenue exposure. And that will mainly relate to US exports to China. So think about our IT industrial tech business. So at the moment, we're not assuming any mitigation success here, but we do see opportunity over time to backfill China imports with locally sourced volumes.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Now, as for Italy, exposure there is limited due to our contractual terms where customers typically take ownership of the products in Italy. So everything I've said is focused on the direct tariff impact, but then the potential secondary effects are difficult to quantify as we've said at this point, but we're monitoring them quite closely. And they would show up in the more transactional side of the business, so OFFC and parts of industrial tech. But in summary, I step back and look at this, with our diversified portfolio, the global supply chain footprint I've talked about, the IET backlog, the aftermarket business, it really provides us a strong foundation for us to navigate in this type of environment and still deliver the earnings and cash flow in this environment.

[Operator]

Thank you. And our next question comes from Saurabh Pont with Bank of America. Your line is open.

[Saurabh Pant, Analyst at Bank of America]

Hi. Good morning, Lorenzo and Ahmed.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Hi, Saurabh.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Good morning.

[Saurabh Pant, Analyst at Bank of America]

Lorenzo and Ahmed, maybe I'll wanna pivot a little bit and and talk about OFAC. I know revenues were down 10%. You talked about enhanced seasonal weakness, delayed discretionary spending rate, but if you can just walk us through the key moving pieces, key geo markets, and how they are moving and how should we think about them going forward through the rest of the year? And ultimately, what does that mean for your 20% EBITDA margin target for this year? If you can step us through that, Lorenzo, that would be perfect.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Sure, Saurabh. And I'll kick it off with sort of as we see the marketplace. And as I mentioned earlier, we started to see some revenue softness in Q1 and that was mainly due to deferral of discretionary spending, particularly on the international side. Separately, Pemex put a pause on contracting activity in Mexico. And just to give you a sense of that scale, rig activity there was down 52% sequentially.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

That's now a 72% drop from peak levels in 2023. Outside of Mexico, we saw sharper seasonal declines in places like Sub Saharan Africa, Asia Pacific, Argentina and Brazil. Saudi remained relatively flat quarter over quarter. We continue though to see a shift in focus from oil to gas activity. In North America, we saw revenue come down 5% sequentially, mostly tied to offshore seasonality.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Land was down slightly and largely in line with our expectations. So looking ahead, we've revised our outlook given the recent trade policy uncertainty and oil price volatility. And when we first gave our view on global upstream spending, Brent was sitting in the mid-seventy dollars range, but now down to the mid-60s. So based on where we see things stand, we expect global upstream spending to be down high single digits this year and breaking that down, international upstream spending expected to decline mid to high single digits. North America expecting a low double digit decline.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

And all of this assumes oil prices stabilize around current levels and that the tariffs hold at the current levels under the ninety day pause. Obviously, that changes on the pricing or the tariffs, then there'll be some potential further downside we have to anticipate. And that's the market outlook that we see. And I'll pass it over to Ahmed on the 20%.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Yeah. Surab. So on the margin question, look, I'd like to step back and just remind everyone of the margin progress OFSE has made over the past few years. So when we introduced this 20% target back in September of twenty two, OFFC margins were below 15%. And in the second half of last year, margins averaged about 19.5%.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

There's clear progress that reflects the work the team's been doing on structural improvements. And we remain focused on what we control and we're still committed to the 20% margin milestone. But however, we didn't envisage an environment where upstream spending would be down nearly 10% after a year of flattish levels. So for the second quarter, we still margins to improve sequentially by 80 basis points, reaching around 18.6%. And we're starting to see, and we saw some of that come through already of a portion of the benefits from the restructuring actions we announced in the fourth quarter of last year.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

So most of the benefits will show up in the second half and should provide some of that insulation and further margin uplift. And driving that measured margin expansion in this environment is a real testament to the transformation that work that we've been doing. But that said, the ultimate pace of improvement will depend on, as Lorenzo said, how tariffs play out and how the broader upstream environment evolves.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

I think, Saurabh, you can just look at it from a standpoint of we're focused on the elements we control. That margin accretion that we've seen also in the first quarter for OFSE, that 20% is what we're continuously aiming for, and we're going to execute what's in our control and continue to drive the transformation as we've laid out and continue that progression.

[Operator]

Thank you. Our next question comes from David Anderson with Barclays. Your line is open.

[J. David Anderson, Managing Director at Barclays]

Thanks. Good morning, Lorenzo and Ahmed. Similar vein on the IET side, just interested in margin progression here and some of the variables you're thinking about as you look at your target. So better pricing and improved efficiency is going to be really showing up in the first quarter results. So what drives expansion from here?

[J. David Anderson, Managing Director at Barclays]

Is it just more efficiency gains from faster backlog conversion? And do you still hope to do you still expect to hit 18% margins this year and 20% next year in light of the headwinds with tariffs and potentially maybe even services slowing down a little bit in this environment? Thank you.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

Hey, Dave, how are

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

you?

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

So look, I would say, looking ahead, we do expect second quarter margins to increase again. The sequential increase though will be more modest compared to revenue for a few reasons. First, we had some project closeouts in first quarter that helped margins. So that's part of the natural flow of RPO and as we execute through that. Second is, when you look at the Industrial Tech business and what we mentioned about tariffs, you find that there'll be some modest margin pressure on that side as we go through.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

And then lastly, from a sequential standpoint, the risk on China and US trade volume that we highlighted within industrial tech and that business carries high gross margin. So any reduced volume there could impact overall IT margin. So we've tried to capture our best estimate for how those reduced high margin IT volumes and higher tariff costs will impact second quarter. So that is in the second quarter guide. And then when you look out actually into the second half of the year, we still anticipate year over year margin progression, but we anticipate that pace of improvement will be a little bit more measured as you compare it to the first half.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

So second half of this year, the second half of twenty four, of course. So if you look at our January IET guidance ranges, our EBITDA margin midpoint was 18%. So this is a level we still think it's achievable. It reflects the net tariff impacts that we have laid out today, which will be mostly offset as I mentioned by execution of two things really, margin gas tech equipment backlog, as well as the productivity across the portfolio that the teams have been driving and you've seen go through. So then stepping back and looking at overall for 2025, we feel good about how the business is executing and still believe the full year EBITDA guidance range is achievable based on what we're seeing today.

[Ahmed Moghal, EVP & CFO at Baker Hughes Company]

And then when you actually look at 2026, obviously a lot can happen between now and then, But based on everything we're seeing, what we know, the visibility we have and focusing on what we can control, the path to reaching 20% EBITDA margin is still there.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

And Dave, remember, I mean, we've laid this out as a journey and we've showed how the installed base is increasing year over year. And as you look at the progression and also what we've said from maintaining the IET guidance for the year and also that 20% margin rate for 26% still being achievable at this stage.

[Operator]

Thank you. That was our last question. I will hand you back to Mr. Lorenzo Simonelli, Chairman and Chief Executive Officer, to conclude the call.

[Lorenzo Simonelli, Chairman & CEO at Baker Hughes Company]

Thank you to everyone for taking the time to join our earnings call today, and I look forward to speaking with you all again soon. Operator, you may now close out the call.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.

Participants

Executives

• Chase Mulvehill, VP - Investor Relations
• Lorenzo Simonelli, Chairman & CEO
• Ahmed Moghal, EVP & CFO

Analysts

• Arun Jayaram, Analyst at JPMorgan Chase
• Stephen Gengaro, Managing Director at Stifel Financial Corp
• Scott Gruber, Director - Oilfield Services & Equipment Research at Citi
• Saurabh Pant, Analyst at Bank of America
• J. David Anderson, Managing Director at Barclays