Olivier Le Peuch
Chief Executive Officer at Schlumberger
Thank you, James. Ladies and gentlemen, thank you for joining us this morning.
During the call, I will cover a few topics. I will start by reviewing our third quarter results, then I will discuss how we are leveraging our differentiated market positioning, digital leadership and operating efficiency to navigate the evolving macro environment. And finally, I will provide an update on our full year financial ambitions and our early outlook for 2025. Stephane will then provide additional details on our financial results, and we'll open the line to your questions.
Let's begin. SLB delivered strong third quarter results with continued margin expansion. Sequentially, although revenue was flat, we expanded our adjusted EBITDA margin by more than 50 basis points to 20.5% -- 20.6% by driving efficiencies throughout the business, and we generated very strong free cash flow of $1.81 billion. In the international markets, revenue remained steady sequentially despite lower reactivity as commodity prices resulted in a more cautious approach to discretionary short-cycle spending.
Demand for SLB's digital products and services continue to accelerate, and we saw continued growth in the Middle East and Asia, fueled by all capacity expansions and strong gas activity as well as offshore projects. Meanwhile, revenue in Europe and Africa was largely unchanged as strong production and recovery activity in North Africa was offset by a decline in Latin America following a strong second quarter.
Turning to North America. Revenue increased 3% sequentially as higher offshore activity in the Gulf of Mexico was partially offset by lower drilling activity in U.S. land as the market remains constrained by gas prices and ongoing capital discipline by operators.
Next, let me touch on the performance of the divisions. In Digital & Integration, we delivered strong sequential growth led by our digital business, which reached a new quarterly revenue high. We also continued to increase profitability, expanding our pretax segment operating margins to 36%, driven by higher digital revenue and cost optimization. Overall, our digital business remains on pace to achieve full year revenue growth in the high teens, and we announced a number of exciting new products and partnership during the quarter that I will discuss a little later in today's call.
Turning to the core divisions. Production Systems continues to grow, benefiting from long-cycle development activity, particularly in the Middle East and Asia and in the Gulf of Mexico. I was proud to see that most Production System business lines contributed to this performance as we continue to secure sizable bookings, while also increasing our backlog for the future. As our performance remains steady, supported by stable production and recovery spending and Well Construction declined slightly due to weaker land activity in North America and international markets.
Overall, these results demonstrate SLB's unique ability to navigate the evolving market by leveraging our differentiated international and offshore positioning, our broad technology portfolio and our continued focus on capital discipline and operating efficiency.
I want to thank the SLB team for continuing to deliver for our customers and shareholders in this dynamic environment. I'm extremely proud of their contribution and dedication to our performance strategy.
Next, I wanted to share some updates on our progress in digital. We delivered another quarter of strong digital growth as operators continue to increase their investments in digital technology to reduce cycle times and risk, enhance productivity, lower cost and carbon and accelerate returns. This is presenting opportunities for high-margin growth, and we have taken a leading role in this space, partnering with our customers to accelerate their transition to the cloud, scaling new technology for drilling and production operations and creating new markets by delivering disruptive solutions for data and AI.
As part of this journey, we hosted our digital forum in September, where we brought more than 1,000 customers and partners to innovate solutions and shape our shared digital future. During this event, we launched the Lumi data and AI platform, which will accelerate advanced data and generative AI capabilities at scale for SLB customers across the energy value chain. Today, we offer approximately 150 AI and machine learning capabilities across our products and solutions. And we continue to work for customers and partners to innovate and deploy new ones.
We also unveiled a number of cross-industry announcement during the fall. This includes a collaboration with NVIDIA to develop generative AI solutions for energy as well as a partnership with Amazon Web Services to expand access to applications from the Delfi platform and to evaluate decarbonization solution for Amazon Digital Infrastructure. Each of these agreements helps to expand our capability set and positions SLB as a key partner in digital and sustainability across the industry.
Next, let me discuss the macro environment. Over the past few months, commodity prices have been under pressure. This is largely due to concern of an oversupplied market, driven by higher output from non-OPEC plus producers, uncertainty around OPEC+ supply releases, weaker demand from China and softer economic growth rates in the U.S. and Europe. This has resulted in a cautionary approach to activity and discretionary spend by many customers as highlighted in our third quarter results.
Despite these evolving market conditions, we believe the long-term fundamental for oil and gas remain in place. Demand for energy is increasing, and energy security remains a global priority as witnessed by recent commodity prices fluctuation tied to geopolitical tension in the Middle East. In this environment, gas will continue to play an increasing role in the energy transition, while oil remain a large part of the energy mix for decades to come.
Internationally, gas investment remains strong, particularly in Asia, the Middle East and the North Sea and is expected to grow regardless of OPEC+ decision on oil production. Meanwhile, whereas short-cycle oil investment has been more challenged, long-cycle deep water project globally and most capacity expansion projects in Middle East remains economically and strategically favorably. Specific to North America, we do not see U.S. activity rebounding in the near term, and any potential increases in gas rigs could be quickly offset by a further decline in oil rigs due to increased operating efficiency.
Overall, we expect this to result in a sustained level of global upstream investment in the years to come with the secular trends of digital and industry decarbonization extending the investment horizon. SLB is well positioned to navigate in this evolving macro environment through our differentiated portfolio and multipronged strategic approach across core, digital and new energy.
With that backdrop, let me conclude my opening remarks by sharing outlook for the full year 2024 and our early thoughts regarding 2025. Specific to the fourth quarter, we expect muted revenue growth with a favorable mix of year-end digital and product sales, partially offset by E&P budget exhaustion in U.S. land and cautious discretionary spending from certain international customers. And with continued cost optimization, we anticipate we will deliver EBITDA margin expansion in the fourth quarter. For the full year 2024, ongoing margin expansion will enable us to deliver full year adjusted EBITDA margins at or above 25%. Additionally, our strong cash flows, coupled with the announced sale of our Palliser asset in Canada, will support increased returns to our shareholders.
In 2025, we see the potential for upstream spending in the international markets to grow in the low to mid-single digits, while North America spending will be flat to slightly down. This directional outlook will depend on the geopolitical environment and commodity prices, and we will share an update with you in January after we receive more feedback on customer budget.
In conclusion, SLB remains well positioned to deliver strong financial results as our optimized cost structure, portfolio rationalization, differentiated exposure to key international and offshore markets and digital leadership will support further margin expansion, higher cash generation and increased returns to shareholders.
I will now turn the call over to Stephane.
