BKR - Earnings call transcript Q4 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Baker Hughes Company Fourth Quarter and Full Year 2019 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. [Operator Instructions].

As a reminder, this conference call is being recorded.

to host like Mr. today's now would introduce for your conference, I Bailey, Relations. Investor President Jud of Vice Sir, begin. you may

Judson Bailey

Thank you. XXXX Good Baker Hughes morning, everyone, and fourth and welcome quarter full year earnings call. Company conference to the

me bakerhughes.com. CFO, Worrell. today our can with Simonelli; issued on found release Brian are CEO, The and Here Lorenzo Chairman our and be we earnings earlier our website at

and forward-looking guarantees course and reminder, this of conference our performance provide during of to that will factors not are the review of of cause a some risks statements. a website of statements differ actual As we These Please discussion number and results involve future call, materially. could the for assumptions. a filings SEC

non-GAAP release. be in to GAAP As reconciliations you know, measures our found other of earnings and operating can income

that, turn will Lorenzo. call to over I With the

Lorenzo Simonelli

solid thanks business. Thank joining Oilfield with orders everyone, were in in for our business. fourth Solutions and performance our TPS better cash OFS us. partially execution flow positives We segments, performance you, morning, from and quarter Jud. weaker-than-expected a solid business, margin strong by strong operating our Digital Good Turbomachinery offset free These from our and delivered Equipment

number full free cash basis in flow of of For achieved growth billion. order and OFE improvement order in of milestones, we year in year-over-year the margin TPS, including XX% XXXX, points key XXX a growth almost TPS, XX% $X.X

and new our GE, enough year. more our employees I from In hard thank effectively marketplace. efforts achieve changing goals company and their addition, a cannot positioned for to the we our accelerated to work in launched brand throughout ourselves compete separation dedication our

long-term opportunities flow well range day-to-day see we is basis. operations cash environment and In that we we and to and opportunities near-term, both Baker identify slowly in improve execute of improving strengthen into efficiency as continue as to As further near-term XXXX. on on our Hughes macro the the look a a to XXXX,

basis, Baker we we of digital attractive longer-term positioning opportunities company. energy a on for for industry. of transformation see transitions the number Hughes upcoming growth out Looking on And our the focused the a remain and

to and objectives well each of goals goals chemical you, as to CX. specifically operations competencies improvement of for and and together the on earnings in This our call. AI the are: can Services long-term end offerings be remind To core to in our our last between highlighted greater customers, portfolio, efficiency, drive I expand One, and as some well continuing with these our evolving balance offerings improving the Two, expand our as our near-term energy more Oilfield partner that position our our Equipment Oilfield in margin our unique leveraging industrial digital three, for reliable strategic And markets, businesses. found safer transition. as

last several have which Over focus at and months, important execution the length XXXX. our for operational improvement, spoken remains Hughes in about we Baker of first goal an

thinking of like to our and positioning the energy portfolio time spend insight for evolution today, about we're I'd how on However, goal transition. providing some

the is to transition months. in momentum gained XX last over has topic an energy know, significant important of six amount industry the you As in that investment community a the and

transition. the our net-zero in carbon our own stated And committed playing made clearly to we is help energy by remains Baker One emission previously, to a carbon the being energy corporate technology XXXX. role have we company Hughes facilitate future. focused As ago, on strategy firmly leading lower to year commitment leading a achieve

sources. rate the renewable As the for for we there next decades, two energy outlook look to and expected long-term published are various forecasts the demand ahead on growth hydrocarbons

coming decade. ranges the these hydrocarbons Within different types of or in there wide predictions demand peak for of forecasts, the are growth for

be fuel, future. the will Our view and destination for natural lower even a perhaps remains that key in fuel carbon scenario, transition gas almost a any

the than an be we more higher result, oil natural grow still pace Baker Hughes will next and will that that technologies help to footprint. a demand at annual X%. gas backdrop, As believe of over X% provide Against of to LNG growth years, we customers solutions rate lower this at the our that positioned twice is believe demand their uniquely XX carbon and that

their of While LNG there also class broad range growth help is a a continued customers world today, our products that offers to wide the are and in portfolio energy directly sources. our lower strong franchise, carbon that footprint of tied recognition renewable

LMXXXX equivalent gas emissions products well NOx and Like its to class. alternative by in turbines reduce can emissions are which known. by to aeroderivative XX% XX% up Some these turbine, examples COX our of overall compared

However, broader has opportunity where our level reduction in to the TPS deployed be there are uses, system carbon applications. equipment

application value generator our turbine to storage. utilization today. we and operate we XXX% and solutions NovaLT our in deliver example, core hydrogen on explore we chain For these technologies have And the actively in one in continue both technology compression transportation opportunities hydrogen, to customers capability gas capture, reconfigured carbon help marketing the and to In are to production.

deliver example, can the and storage efficiently effectively. help deliver source to our used equipment of turbomachinery energy for energy peak enabling for to to store in mechanical customers As be renewables, renewable demand grid and use another

for technology uniquely new is emerging addition, segment energy the as Digital of transition, positioned. In Solutions our see which areas we part three

first is as inspection offers and inspection Avitas The land where methane emissions is and and service are of LUMEN our monitoring monitoring and aerial a directly both solutions suite smart applications. solution LUMEN monitoring applicable. such in Avitas and products

Flare.IQ allows emissions XX%. our flaring emissions system by is reduce management flare secondary downstream to The where operators reduction,

specifically area condition renewables, wind is turbine in monitoring third application. for The

most more Solutions monitoring globally, of and last ensure modes, decade. over base has devices which have detectability built tremendous deployed Our Bentley costly within the drive a Nevada failure the than critical turbines trains wind business Digital XX,XXX we installed on

a growth future product services products have we strong percentage are great a revenue these carbon-based technologies While believe provide combined and for and small that represent a with overall Baker customers. platform also and introductions, Hughes' they of initiatives today, potential,

execute across become On and the believe backdrop have also ever we're macro few these last dynamics markets. changing positive. the this improved long-term near-term generally months and macro we demand As side supply note, strategic from that have we energy fundamentals as slightly mindful on the initiatives, more both over of

that Middle said, With of notably geopolitical our incrementally the by tempered view growing macro risk, in environment is positive the most East.

with modestly the economies, the economic On gas improvement deal, and oil the improved outlook trade key demand which and positive recent one these plans side, phase of and execute supportive U.S. PMIs of for in for customers slight continued be has out variables firm data outlook one oil continue to budget our advance will important We in that projects. a demand and their should in believe the XXXX,

firm also the recent more cuts OPEC side, signs with On another the and supply of slowing U.S. production outlook round of production is growth.

discipline solid growth macro excess combined XXXX E&P we this multiple Importantly, with begin these commitment to trends inventory later capital continuation by more we growth, constructive the growing internationally. believe of support outlook. crude Further, reduce for could years of and demand the to into help a continuation year believe the of or

improving, outlined earnings environment remain largely framework our our macro segments and on Although from we to for call. the unchanged the overall OFE outlook third appears be our OFS quarter

E&P versus America that of in the decline based spend now XXXX. we on in view early announcements fourth trending rate segment, lower a budget is low is XXXX D&C XXXX. This towards exit North believe the OFS and our rate For double-digit quarter

of to markets. that continue We to somewhat in OFS the differentiated will American portfolio the believe our provide a challenges buffer North

our upside, to but remain mid-single-digit to stable, a growth, our opportunities. the in is outlook subsea of pipeline remain improving bias OFE the trees with Internationally, segment, tree driven around the slight XXX for by an expectations primarily XXXX. market In

execution customers Subsea driven subsea Connect and continued position in We strong maintain expect strategy. for our traction by to our the market with

TPS, our in XXXX remains strong the expect we growth the continued not For as and in services equipment company's we backlog outlook segment execute this FIDs and in LNG non-LNG the awards. to constructive history for while for XXXX, largest in expect repeat do year exceptionally

prices this brownfield of Despite into has from XXXX to in For segment outlook FIDs shift competition not projects weakness of balance advance towards the the constructive. persists, expect to customers more price our future in changed timeframe. If portion TPS LNG would remains XXXX softness near-term our spot some economically spot the we our materially.

around of XXXX. MTPA end We and of were FIDs to LNG see pleased between of the XXXX XX the quarter fourth

annual of just activity before FID While the short XXXX the FID XXXX in witnessed and cycle average between and level the in at XXX in industry solid, FID believe we line for the XXXX. MTPA this with remain that least in prior should period,

drives market including the electronics mature, Digital serves. where the across range inspection Reuter-Stokes, consumer business XX% Druck, end segment, a and and software aerospace, GDP over industrials. by is Panametrics In to hardware number of automation, solutions technology. the industries, XX% other business The power is coming given of which stable growth to market this balance such Nexus coming of revenue forecast global Controls, most and associated and brands from XX% Bently best-in-class metric DS it a believe and from DS of markets the from Nevada, and as this the of a With measurement, is Solutions oil continue with sensing gas variety our relevant revenue, we approximately

In and XXXX. a full quarter year summary, delivered solid fourth we

returns. margins free clearly and executing driving generating are focused strong on We improving our strategy cash flow, and

turn With let the that, over to Brian. me call

Brian Worrell

decrease driven X% begin Sequentially third very by obligation LNG order will the total down the quarter was up booked $XX.X and X% strong Equipment. with the billion, into and The year-over-year quarter. Oilfield a segment year-over-year driven company I results Turbomachinery orders growth up was in were by move performance Remaining Orders Thanks, details. was billion, sequentially. in $X.X large sequentially. Lorenzo. which the for then XX% the

at RPO $XX.X RPO ended $X.X at and sequentially Equipment ended up services billion. XX% billion,

company Revenue Oilfield driven the quarter quarter billion, and the Services. our in $X.X offset book-to-bill was OFE up sequentially the revenue X% X.X Turbomachinery, OFS was X%, ratio and Digital by Our Equipment was and X.X. offset Solutions equipment driven Year-over-year TPS by in total quarter was by and book-to-bill Oilfield in up by declines for DS.

million, quarter $XXX incurred XX% new operating down charges. was and excludes is which $XXX of which Adjusted separation OFS restructuring, other and restructuring of million the in million, We up during $XXX was cost for product $XXX the our XX% primarily charges income business delivery a year-over-year. income out we sequentially service $XX Operating merger-related through as optimization, These and costs. driving productivity on charges the work of phase million. are in quarter focused Separation to and utilization were improving new and asset supply quarter initiatives. and chain continue million down

was and sequentially, up income Adjusted up XX% year-over-year. operating XX%

up Our for was sequentially, rate adjusted XXX and X.X%, XX points basis operating basis year-over-year. quarter the up income points

is the were expectations initial than which $XXX in quarter a third modestly quarter, ago. million few Corporate months our and higher levels costs

from this we continue will in efforts. slightly go increase We I a in expect to level XXXX more the our separation costs corporate detail line into moment. to accelerate as these on

Depreciation flat and amortization and year-over-year. was down $XXX million, sequentially

to around earnings and UN which XXXX. We for was of expected, expect the and the mix $XXX first than higher quarter this of amortization level the in depreciation geographic million by Tax quarter driven remain expense certain provisions. was

well $X.X TPS strong earnings Free expectations. $XXX collections quarter collection OFS, We cash flow in working per and $X.XX Adjusted as management GAAP by $X.XX $X.XX OFE. $X.XX, were year-over-year. billion, up share and up down in and above as sequentially was which down the inventory $X.XX, were capital year-over-year. from essentially, per our was million delivered and share earnings $X.XX in driven progress

as performance cash third OFS Overall, in we the are with in saw quarter improvements shortfall the the after very quarter. fourth the pleased

We working free capital cash flow cash we our processes see and ensure are improvement conversion our on deliver on focused target. in to optimizing our to continue operations

XXXX, the priorities I'm XX% with OFE. growth XXXX I growth driven the full pleased year which on by order out in reflect execution beginning the were When of year. results XX% set Orders up our and financial year the at look in TPS the our consistent order at total XX% for in we

was X.X X%. in TPS was and year revenue year Full book-to-bill up the X.X. was OFE book-to-bill

up XX% offset declines and OFE both DS. TPS OFS were Our in and by businesses

in able were of the We XXX for drove DS. decline adjusted Despite in margins basis four the companies and broader we basis in basis are with in points. three the macro margin OFE of TPS, of beginning XXX operating environment point challenging company points framework line by improvements segments XX Overall, product energy grow total higher OFS, each with in a of outlined to our basis the market, at of a we basis by points XX points in our XXX results offset year. the income

for the costs were Corporate year million. $XXX

to million $XX million mentioned, XXXX an I ramp expect the costs As related incur in to we additional efforts. of up to corporate separation $XX in

we including number other a business range continuity in functions infrastructure We with IT, treasury, have operations. transition across the agreements GE to of of ensure a significant HR, services our and place of maintain

upgrade recede our systems roll the to sunsets is Importantly, In activities, taking aging operations own we we XXXX higher services to which to and our and infrastructure also as utilize transition opportunity in expect incremental and our these lead separation efficiencies costs off conjunction agreements in we further systems. the to with ensure positioned margins. drive best Hughes Baker the processes and to should are

million are generated pleased in CapEx continued We cash working the in and expenditures billion with XXXX. similar capital our Included in We restructuring, free levels separation improve net invested $XXX merger-related of year and see XXXX. $XXX results We $X.X to free in to million flow very in XXXX net in and our outflows. performance XXXX we flow cash capital of cash cash expect our were metrics.

outlined, an have in restructuring-related we by cash separation-related increase outflows offset to we decline outflows. in As XXXX expect

Given billion to free of and XXXX, cash flow returning of billion buybacks net through the generated strong debt shareholders in $X on after $X.X ended cash with level dividends. billion and the we hand of cash $X.X of year

as to sheet this in key see industry. and differentiator continue balance a strength our cyclical We

Oilfield environment through you internationally. to walk will thoughts down by $X.X in on forward. the I driving rig strong while going revenue more down Now, revenue our and U.S. double-digit North Gulf count a Services, North X% land, as weaker detail our navigate in in billion, declining American was growth and driven the In OFS segment operations. quarter the sequential sequentially, challenging in outlook a continues team was America, the XX% as results well Mexico completions decline was which in sequentially. give of

International expectations, planned. margins XX% margins to sales America. East, were American below growth by driven down originally Latin revenue sequentially, North weaker quarter was XXX Asia Pacific and was Middle million, in results product due and income up the our basis in the X% continued $XXX lower declined OFS Operating and points. sequentially than primarily

in slightly expectations, headwinds expectations unchanged. and are coming largely the in our transitory quarter our for Despite fourth are the below margin XXXX we believe

North America. expect of mid-single-digit in OFS of regional we and international parts coming at the the we Middle for As XXXX the to our most with a look offshore number growth from segment, strength spending range increase of and in East, Sea, markets Latin

would track execution in on focus our Given I industry trends. international with our OFS and generally business improving to line margins, expect

more spend In we to E&Ps to North America, continue decline expect U.S. domestic generate D&C to low-double-digits cash flow. versus XXXX spending as free restrain

expect we to our trends American XXXX, to weighted Similar production for our would North given revenue industry outperform spending OFS mix. business

the goal we I For actions. close will to cost with out reiterate primarily driven also remains to and year-over-year over our deliver growth margins, productivity enhancement time, our by margin that peers. gap expect

markets off trends Eastern and Russia. to the Hemisphere like first As typical we key look to get expect slow Sea start and the seasonal to expect ahead America a quarter, in North we relatively North

decline, modest ago well As total for but we expect remain OFS margin a above experience decline margins a and still year slightly levels. sequential to to revenue result,

a up maintained will total in this $X.X Oilfield quarter I driven OFE several Next, equipment With quarter trees, book-to-bill key level orders. growth year-over-year, of was the market to Equipment. the cover awards, which service XXXX. booked were in the X.X. X% in We similar totaling brings XXXX in Orders both in our Equipment XX we by and billion, as trees. awards XX position in

income activity increased million, better Systems basis volume lower year-over-year, and in million, sequentially by Production driven was were flexibles. $XXX up revenues Operating driven up partially year-over-year. volumes, in margins by Operating XX% points increase $XX This points Subsea XX X% XX up by was SPS. Subsea up Services was and Revenue primarily offset basis year-over-year.

fundamentals look in solid remain our XXXX, market tree expected support orders year OFE believe we at segment XXXX. with we As offshore consistent relatively another subsea with that should of award to

revenue that growth. strong growth believe two we range, orders the should single-digit see of high years OFE XXXX, For following in

solid We SPS from mix in improving in flexibles volume growth in to XXXX. margin expect OFE and improvement drive

revenue the anticipated with basis, trend modest product increase in conversion to as margin mid-single-digit schedule, Based first and year-over-year along For we revenues project of we expect OFE on SPS to expect growth from lines. on flexibles positive we the range continue a execute the the our momentum the improvement. quarter, on year-over-year

Moving quarter and year-over-year. to Turbomachinery. Orders down the in billion, XX% were orders X.X. was down were $X.X year-over-year Equipment book-to-bill equipment XX%

Area awards driven FPSO award Total’s booked we project an production, During on the and Mozambique were quarter America. upgrades. versus two including by year-over-year, offset liquefaction LNG equipment had and in Service for in we important $X.X quarter, the year. the was prior some in wins Latin X services mainly onshore/offshore down X% for Revenue lower transactional the billion, services, X% quarter by higher the orders contractual down

services For equipment driven higher XX.X%, primarily dispositions. and up XX%, was the points was mix and basis income basis productivity. and points versus driven XX% sequentially. down by margin $XXX revenue X% down the was services by year-over-year, million, quarter, Operating XXX prior year, up cost XXX year-over-year TPS for business revenue up Operating was

Overall, that in expectations. TPS stronger the a results below much for quarter rate, our above with margin offsetting our expectations revenue was slightly came

deliver our history. a TPS' execution, supply the team the the as LNG lingered equipment and in was than the fourth to backlog managing driver chain largest quarter anticipated. the the of work backlog quarter, issues they primary job good on behind While we slower the have third lower-than-expected Rod into very impacted revenue conversion that done of and costs equipment

TPS last similar. outlook XXXX largely remains for provided we quarter The

continue roughly of our XX% current note, revenue consecutive more expect Given of expand. the revenue and growth second half for and for in order the weighted years on is of expectation timing. project year XXXX towards strong that based would to conversion growth I margins the to year-over-year we however, XXXX,

we orders, be low believe down compared could double-digits still to that For levels. to TPS flat XXXX

can wide which a range of scenarios. on timing you As know, drives large vary projects

we previously As quarter mentioned. revenues we to levels, equipment TPS think I expect about that conversion with the given first the first XXXX be roughly quarter, flat schedules

margin front, we the solid On show basis. on expect improvement to year-over-year a

Finally, declines & on inspection Pipeline was year-over-year. Orders Solutions. $XXX million, the offset we Revenue down the in by Growth of our to quarter due regions. in East, declines strong for digital partially controls and other & Process million, Measurement the the Solutions. APM Asia year-over-year, sale orders Regionally, down $XXX quarter growth X% primarily in and and product were Digital offset Sensing Middle the X% by in a was line. saw businesses for

Excluding & the Measurement in growth and impact Pipeline in Nevada, of slightly this disposition, Sensing was declines Bentley Process revenue down offset Solutions. by and inspection with Controls &

flat Operating million, year-over-year decline $XXX revenue, lower margin hold the quarter to year-over-year, of rate the volume. on Despite out by we driven fourth the income was delivered and for versus the in XXXX. costs quarter productivity X% down

with CX in some as with margins. to into softness that plus Looking DS, DS year in account outlook the continued single-digits, ahead anticipates closely growth is strategy to a digital takes offering This rate for the of see we likely impacted the and power growth opportunities. and work low our new full expect also be XXXX modestly our software AI to the Revenue APM GDP partner will but on pivot continue the we higher revenue growth sale business.

mid the fourth In to to we to expect solid strong we of decline a for in quarter and Baker year-over-year XXXX at non-repeat the revenue a due large first single-digits the project finishing Hughes. XXXX. delivered a in of for decline quarter modestly quarter, closing, the first For margins

we and focused to margins forward strategy returns. cash our free are executing improving generating look strong and driving we clearly As XXXX, flow, on

back to that, will With the call over turn Jud. I

Judson Bailey

the you. questions. let’s Thank for open Operator, call

Operator

[Operator instructions].

West Evercore first ISI. from Our James question comes with

James West

So part in have the to I talk you’re Lorenzo, a some leaders various wanted of there. you little lead is big here. strategy guys level natural this. mean gas the the clear you about transition attacking energy bit a I are I products And clearly know maybe high and buckets

been you've that also carbon hit monitoring plans year. of many have have capture. goals, products of over own services then which you your also the You carbon and all highlighted chain, the internal last that's ESG and whether But and parts then

is I if think do those into capital way about do you how less if do ones your know. you bucket it, the capital you to me which for strategy? growth those the and about mean if maybe want not, are please I more drivers in think intermediate -- Baker, I So then which to, the that's let think bigger allocate But you about what term overall to, three, how guess

Lorenzo Simonelli

as areas, energy as amount use transition was transition is, first James. we and that recall as of XXXX, be in in NovaLT, ago, by at as as grows given the that COX, energy last reducing portfolio, of broad natural gas made -- look the with LNG, that natural LMXXXX, energy you to energy even going look of clearly but the destination as renewables which hydrogen-based. number application, months. of and to transition that’s the we’ve few And is critical grow relative the that the the role target. next year also a going our in carbon a Baker transition reducing those increasing see know script with footprint for gas And is prepared. key key some over decades of a our by commitment us areas of the introduction actually I Hughes, XX% Thanks. net-zero lot LNG beam to if A at And well. look Yes, also of focus the look to continue first the and XX an And there course over as you I XXXX. has really the you you a would the you say we're our is at we own achieve our the attention a gained made highlighted at But some playing across of transition you'll

and equipment energy side the -- towards tech the So the transition. helping -- with on clearly in a shift

LUMEN look monitor their also the Digital that customers platform, also have and clearly of and reduce can our footprint. solutions are as that also is Solutions we to they these how you carbon what enable Avitas, Beyond kind understand

you also look our of helping standpoint our being energy are we positioned technology be this we're and broad from an transition. going portfolio, moving to customers partners if forwards and what energy a So say uniquely through at we that’s energy and company,

Brian Worrell

Yes, of mean is adjacencies capital, in are you we're if today. clearly I James opportunities we to lots continuing how in an which look in at We’ve invest TPS got having allocating impact TPS.

We are capital going to high-margin or put will to a invest footprint returns little either bit of and there. technology Solutions, grow good it’s our do can capital And partnerships get Digital business to there. development then we work continue a some to

balance So portfolio the think will energy see pivot and of as then short-term as with capital we transition. part us continue I you long-term the allocation to

well for are So as we’ve if the margins any right drive growth position as long-term. I now short-term to in changes portfolio will we update pretty to that. there good you the think But got a approach

James West

But on GE the of Yes, same the -- kind see pricing other the projects. totally short-term really statements two, do up has I better LNG, the now pricing fair seems the conversations liquefaction the prices cycle full it's that agree. One, going beyond LNG. And issue, build-out we perception for weakness to future those in steam then on better record, And are onto story. changed to much Are a we you saw that it build-out of we're not am making ahead? agree demand LNG know and impacted any things. me a number than pretty two maybe cause capitalized the I but year last -- it hasn’t lower the real follow weakness in probably

Lorenzo Simonelli

way. at right looking it the James, Yes,

XXX If with at XXX customers overall be it’s long-term And million to look XXXX, we're of demand million going you're continued change And going the of take look between over really the spot going towards a if recent conversations long-term. produce step LNG for by demand you to in where are capacity. and back, to tons XXX the price LNG our fact at million the and to weakness, be demand to supply doesn’t having it installed you that you need tons we're dynamics. LNG

the So million are the in was with XX that XX got XXX another also that’s with construction and we still even next where last going of coming year. MTPA the to FID XXX year, million today you to go

so LNG and about feel feel the space good of good aspect it. the about long-term And we

Operator

you. Thank

Your next question Sedita comes Angie Goldman with from Sachs.

Angie Sedita

do not you start you where think think when XXXX could really much your for you So you I side some Brian self in we into bit be think appreciate Oilfield year help around we peers? the QX. on down details on drill revenue margin XXXX want and when about how but if going could know to Service the have XXXX. little thoughts see side, you margins a the could versus to But parity the I you're

Brian Worrell

think we was activity to really fourth specific. point we There say in the that them let’s Look, one thing market were slightly which we that the the the did driver. where customer quarter see and to Angie. Hey, lower-than-anticipated wasn't land below wanted I a be margins main can couple things first in really basin say we and us margin. U.S. I'd for was is impacted saw going on largely there

quarters. We anticipated. the carries we of And obviously the say demand, end very weakness because we of out rates we margin remember operations, products then did meet to if there. accelerated lower be I'd the a lower reasons year were Gulf sales to than which quarter obvious saw were Mexico deliveries as flip we our had have and as lastly going they We higher some you of went in some also strong we some of third into knew of customer product those those for

based things I'm So, combined expected. put largely transitory on impacting I But what seeing and nature margin are on versus in roll they the into see those don't what three today, pressure XXXX. we rate them we us

productivity initiatives we improvement as margin And say that look of be with and we’re at you expect a I large that driving. self-help to out if portion XXXX, cost

rate as posted across thing say improvement. in reserves service we to improvement really some margin up had Maria that some year other this costs specific where supply the larger in help I'd up maturation and come very quarter saw supports ramp restructuring programs in the And delivery of the we chain we’ve contracts XXXX Claudia’s and the of margin rate is, the portfolio we curve. So, getting the that are some we phase internationally, integrated learning to drive

strong improvement can in contracts. those I margin see So,

help the are out certainly cost should and that really is operations buckets at costs. efficiency overall around product the Angie. and So, is two look productivity margin One overall if in optimization I initiatives, rate. other And around there

broader So, product with working where and for specific for drive time out, we more base can some to that identify it’s of costs looking and areas in we a it’s we've product see costing, cost of some is instance around overheads at efficiently. some looking to how quite can engineering teams been globally some target leverage at supply and go overheads the of

up our to OFS. those and details place, the XXXX put out in to plans and to to and us at get feel of send ability we have who it’s taken opportunities in and to cross-train time the in multiple people both make sure in some in lot rig attack idle time grow productivity a when the how we they with On you to that, good individuals we're a continue understand are have have on efficiency what to restructuring really looking won’t margins to going we side, about are quarter

Maria margin So, the well Claudia our are as framework is rates getting enterprise and focused those and on all team up. really unchanged as

Angie Sedita

helpful, appreciate Brian. very That's I that. Thanks.

strong already can XXXX. had the backlog you So around margins for do Thoughts around thing given maybe same TPS, if you [indiscernible]. the

a mid past I do think you low said think fair you to your still is maybe that would And teens, ultimately high that in the you rate? is run assumption? teens where consider

Brian Worrell

cost I pleased large year the go incredibly and customer with am how have returns very they closed as expectations managing to through Angie. and are Rod balancing this. Yes, backlog the out this and with team and

last with call. a the Look, what And will in outlook for about for much talked are come just again we pleased with are margin really there margin that remind dynamics the to accretion that they impact into today. you, largely where So, we play year. our in how few XXXX is unchanged have

services First, in we to transactional to is and XXXX, services which grow expect margins. contractual accretive

our largest in large mentioned backlog, the You the history.

come see through more in equipment LNG will XXXX. revenue We

accrete effect is in equipment talked early over projects, overall the margin it X, have negative the a we which for and lowest to two that Arctic accretive at then LNG the margin, to mix very of execution executing see are on BG of about While time. does tend beginning to start you and the total that And point large as business. stages have we’ve

we will of that So see we And this strengthen back a that. and earlier position about we've franchise bit the a evaluating have spend transition opportunity continue lot there. then were an energy actually James’ and this impact in to question, we said TPS to technology the talked to grow marketplace. in And in

is it spend I'd roughly year. to this expect So be technology where

up, goal to normalizes LNG, continue And that that business. have, over in equipment. strong have in dynamics saw see as overall services to was revenue time teens large of start the through portfolio sign all and I’d come now you'll and time And with in grow. we to third grow quarter, to the continue in you agreements. the and the long-term say enhancement the And see we add margins. the for of up we equipment over grows, we the But as backlog that margin if do mid backlog such versus high it customers that in services service to drive the So how the is services you magnitude upside faster impacts the more fourth revenue

team the And Rod So through managing think and the I job done a great that. in have tailwinds business. largely unchanged

Operator

Thank you.

Our next Bank question with comes from Chase Merrill Mulvehill Lynch. America of

Chase Mulvehill

I digital the services a about that Earlier bit for TPS or have backlog then service some guess largest the the opportunities over about talked the shift with potentially the LNG little maybe you and business? the I LNG you're this you to LNG that and side the touched wanted some contractual talk business? history you service commentary. to in of the kind come service side ultimately this significant what -- the backlog And on of TPS to on doing. back you things digital Could of the means

Brian Worrell

very slightly a the we the total take Look, you the is with up dispositions Chase. the that for as happy the revenue of reported revenue services was Yes, into for TPS. the year, basis, was actually operationally. service flattish, mid-single-digits some And down. business how performing on well year, in When as account of had, impact FX

transactional And transactional then starts more a is operate partnership perform. about that And as And portfolio. convert. equipment we change with and opportunities today. in expect standpoint, in from help services we backlog the in lots would and productivity services can service will this theirs XX% much some that you our how services field. services majority time better things this And these we big to that pointed offerings the would contractual things pretty for round equipment take then on lots expect productivity, drive a upgrades, there's introduce about services. and of do to to installations XXXX. opportunities and perform have contractual equipment. over as have data had year better this of is $XX uptime customers and I services for some contractual with on represents that equipment If upgrades to of to that, at from help to and digital and us we the CX contractual unlock how on valves as well as that piece, we of portfolio the our including the to but even operate internally out, got line into to on contracts help the in additional We’ve can that internal us as use together grow. think we I data And And of billion growth large provide piece this services just into and services put tons CX. XXXX the out pumps One of customers’ we help better. better as do revenue. obviously and TPS' expect mid the the We it we transactional in aren't to execute with services that a that continue And single-digits. continue services, are So and contractual look

So, think revenue. years impact in I we with to CX counting and teams. We're on a of it's kick roll this a digital expect of as things now. that opportunity have into on see not And would the an XXXX. I to some right outer meaningful a untapped lot We'll working lot our be

Lorenzo Simonelli

Hey, Chase, to maybe just add.

the the look digital the solutions launched drive actually optimization. which you and to targets productivity, also on that and then and at CX applied be the one efficiency equipment If we marketplace, two side agreements the and reliability, can into really have uptime for the partnership, already service around and

we area years, really efficiencies. is a it's so, And digital to if key the a look at of lot drive going focus of few next and

Chase Mulvehill

flow alongside more One you real it after kind talk obviously we Hughes overhanging actually dividend bit of cash of Could much take still. quick think Baker how free bit little an XXXX? know to GE to Or of stock? offering would to up. offering. repurchase the leverage mean you a a Should down would you follow little there I add got for out you look

Brian Worrell

our I and that in before, hasn't to put allocation will as have And from changed to what allocate of that say by talked XX% terms over you our we GE buybacks. capital about shareholders certainly potential of I net think we into we’ve course offerings finance through to and Chase, talked the of evaluate look capital the really overall thinking commitments year. any policy as dividends I'd and corporate XX% and return

that that So cash as certainly we for And of look you account taking at thinking change it. message of about we free year. no all real into we flow, terms are and there our in our are how should the assume

Operator

you. Thank

Our with comes from David question next Barclays. Anderson

David Anderson

offshore-onshore, was you about about. the is the to which drivers not really down next several business if I'm now in little in talk some of can the mix and much I terms with which changing your market wondering downstream, gaining chemicals bit primary your just growth dig hoping competitor into here, a see as more biggest years hands. lately business attention hear a what we is you

Valero with you talk you of contract big that kind a today. business Could that had see developing? and You how just about

Lorenzo Simonelli

in it's we've America. in a our North and the you capital we chemical Dave, And actually it presence at upstream our great think that if internationally. on Yes, been a we've increase again, area look footprint actually before side that to mentioned franchise, we've and got allocated good

of I that oil you M&A usage as Singapore expansion Arabia, of increasing our If We’ve you look facility, Kingdom the an we've you look as chemicals, in actually mentioned approach when got at had. lot and the just in at recovery. well think of Saudi the activity enhanced a validates

mentioned, provide it's got across that’s And the its downstream. which at also increasing on an both we that upstream growing. application, when and side, the opportunity You've an you and look the we’ve downstream specialty as chemicals opportunity got you

in growth we also about Baker and we the chemicals time. the So place got feel good in strategy Hughes over business

Brian Worrell

presence. We we making in Yes. an with North and growth do Singapore more And very have in Saudi region. investments see to upstream. where a for think as we're have international for downstream about Singapore coming mostly And investments us us predominantly cost we're I’d downstream be today, then America. well. look the We opportunities customers logistics base, And the manufacturing, growth are going to I to lot reduce in there's allow us supply is that and that really is we're shift at But if doing I David, region do we're for other today, costs, we lot we're out point thing responsive size better internationally. very the of to the the costs. in a what of Saudi making, to better better investment capacity, really And our chain large some

So margin and we again, chemicals. see expect space. growth to there, to this and would like accretion we capital We're in work putting

David Anderson

your is test I can this business accretive presumably assume, I’d rather Yes, to correct? say

Brian Worrell

Yes, we like this business. Yes.

David Anderson

of exit kind or just about in Okay. you're longer OFS your Lufkin of kind whether things a kind thought to strategy. you subject. just about I seen just of potentially business, feel how the not And you would maybe I’ve there? ask where you I term satisfied want North rod looking reports lift part are be and your out there business. America have it be would of out and different may on of kind to that some that

talked of the perhaps and capital of North in wondering American was maybe maybe more is terms like. intensive more broadly want where on you'd side. that, on this you if But You just comment I you be? about more mix production could than to your

Brian Worrell

benefit company Yes, the generate as that over are meet Dave, areas are with by I and differentiated want where short-term highly before. returns. to portfolio unfold, look expect said the potentially cash and to focus look we within talked in And I’d we the we we the that energy that higher we fragmentation returns if us and don't the less can look allow generate basically areas the areas about that are that And criteria, get portfolio those to a in higher cash not to there having say we’ve portfolio. into at redeploying would transition how that long-term

returns market you terms incremental have we has capital we we returns bit now are market that continue the or the years. focused being looking at inside changing a American we the quite there certainly areas portfolio, get to are right changed update things. on the I last be and and the to And I understand, you few where them a that need we'll dollars. North where will But quite here to think know. are to bit, will And this some nothing some fragmentation you that technology it in we over look So of we make news on things the deploy has think changed going and let are want as I'd that. say I justify look But to harder

Operator

Sean question from Our comes with JP next Meakim Morgan.

Sean Meakim

flow the catch in progress was you would benefit, million cash XQ projects maybe how maybe as in you cash projects? perhaps to the some how TPS of the collections and mentioned. maybe free the cycle just capital much in 'XX the working with 'XX attribute about $XXX from OFS good seasonal typical free peak So, for seasonality versus talk I we'll expectations payments just some should quarter, project? typical a And how see. you thinking profile these on to that influence new typical the looks like just 'XX, cash you of start course Of and order in? up in coming over convert Can

Brian Worrell

in would Sean, the I think seasonality. the I quarter have saw majority that typical of seasonality say, we related what did we and was typical to

And good came by on making strong And fourth talked of we we was and It through. the they making team of call, third by lot up the of inputs had been quarter came that collection some expectations. way the following below the managing course the OFS over As changes corner quarter really miss. really in and about process turned on billing did on here really all up, process inventory as time, the collections driven that in. getting a year the in that's the a from then of overall job

project, a down-payments it only bringing look as have getting at in some well. progress piece. the small time is equation, to piece We you're OFE, from think same inventories executing did collections it's getting TPS a in I but you're on where the you're collections as also at in benefits But totality, you have because and one progress of progress you're

to through have at flow, follow a So, on look it's sheet. balance you of accounts more in not cash the terms free one-to-one

down-payment. TPS And start you in out typically, a with the

items then you milestones you you And on collect. bill based lead and the customer that bring We certain have project. the into long

a the in cash So, be favourable at cash goal looks to what have things our curve one that. And I our any see to in look project cash first them of is standpoint. like TPS position is from flow

a project So, in fourth of it you flows collections would the over receivables was and impact the and But in I inventory. say, quarter. small a see ebbs and progress here will lifecycle

we've across help will we in franchise, believe been OFS, just look how do capital think progress and offset XXXX, from that As processes in smaller at a but not working into we impact I improvements I the should out, the that. XXXX should see go play saw it payments than in driving

we that. the other growth of in the TPS cash total significantly, offset percentage and cash as OFE. in the out outlay do CapEx as outlay I flow CapEx, to standpoint, down to free thing would more separation And cash obviously will The Sean, see flat restructuring is say net a round roughly but we be in expect from but down dollar sales be

for dynamics flow free net-net as the good into cash roll XXXX strength. So, we

Sean Meakim

Got it. for Brian. Thank you that,

margin to back progression coming just TPS. in maybe So

versus growth got topped up quarter. year, you last guidance you So your revenue strong today this

got think make We limited last that from sense. I somewhat cycle. historicals

kind of much record So call in And of the high absorption costs equipment mix. how versus I on between margins? think impact fixed level of of you track incremental about the services terms talked versus a early

roll year-over-year basis? we that together to of all in about incremental how a as Just terms do through flow on margins, the you normalized think that

Brian Worrell

Yes, executed, TPS. Sean, in do and do revenue and percentage the side we projects I accretion see heavier requested an and standpoint. margin quickly depends the based really revenue second I equipment as so are see note much standpoint the an on that the half delivery way customer margin some schedules look, all the being what on overall how absolute today, But increase see be. from grows we equipment it on said, I under that scenarios the will will

the to fixed revenue impact And half. a first much on be second obviously larger in has an So we at cost expect you would the look half as then more the standpoint. from absorption revenue

continue changes. now, update see out. right that's we how I So, the But throughout you to playing will of look, year things

Operator

Thanks.

with comes question Herbert next from Bill Your Simmons.

Bill Herbert

your case, just crush you remind free cash what So, back or consumer a One, flow it again. that's I cash XXXX? income. cash do if like And cash flow of very in expect flow secondly, conversion and the think generator you be free net working XX% quickly. cash capital to Brian are seems target is? that us it’s And to like going to

update those us of please. on both Thank So, maybe you.

Brian Worrell

Yes. Bill. Okay,

net the based you how over it income business cash where And in and are XX% the on at working on of some is years it look going years business. again, I conversion have based could capital we're below be flow projects to if you driving where time. of exceed that So, some mix target, could free that,

cycle is XX% goal. the through So,

you capital earlier, have seen that see I I those XXXX driving. the XXXX, is a in look other to the not have you offsets where processes that expect slight progress but at are some And metrics based strong we about could with from should in mean year as we portfolio, with the and working to quite capital working improve. but we usage our dynamics capital strong continue if overall capital the the working we’ve working we dynamics on talked will again growth

Operator

question Next Citigroup. comes Gruber with from Scott

Scott Gruber

transitory. you're What American of a XQ? business Just was the impacted detailed in is is this XQ, profitability which OFS activity back snap North then that event? couple what that to that split international for more in is And that XQ? here. Does or and and a of the it slumped, believe you sounds the ones pretty XQ like between business in spread Gulf your looking XQ in Is that guide similar

Brian Worrell

as back, know XQ a we Gulf. And I do see I margin obviously said that improvement some I’ll the but there. exactly in Look, call improvement Yes, obvious a for don't reasons. Scott. positive do we in rate, it snap has impact on see

were was do a look, expect come big loads that driver that to XQ, So, down frac and which in we back. of

have talking and abated. well those there. I the the there costs in we we're think opportunities accretion just was to large execute another integrated standpoint, thing say profitability feel Angie is continue projects you the lot when as these see the from field I those America, we profitability, mentioned that look, up would we But of disclose see would and curve As margin pretty getting that and XXXX, start-up remind softness expect And to in don't I as costs as in North far but I should as I now to on seeing international. region by growth that, a about in we a good were dynamics projects learning the

internationally, So, growth about backdrop feel there. margin the the progress and pretty good

Scott Gruber

relative And Got the overall color like going any about as of return current Just beneficial on growth the be think to it. the to back come business, then the to they trying you of in the it profile. of plans do to the business? able sounds investments size chemicals and ahead? new the just when come and your on chemicals will Are there magnitude mix years impact your to petro line the they provide

Lorenzo Simonelli

it’s Yes, from -- and in these look again are plants perspective, a construction. timing

So in They'll see in won't into phase anything start commissioning XXXX. you going XXXX. a

As we mentioned, we updates as see we'll opportunities. more give Stay start tuned, plants. we the international completing growth

Brian Worrell

Yes, going It's and reiterate all here. again, be to just I’d incremental not capacity.

the We very going cost are again, here. to shifting advantage. Singapore capacity facility And is be

time we're I work But spending of business. capital into commissioning for this and addition there lot the some product things to closer And higher And how putting to internationally, liked give guys to in Singapore. as look benefits have again, So coming out we we a we insight like form will of rates of that's you about we're the growing get there. like that. and said, thinking we'll margin up,

Operator

concludes I’d back remarks. today's Ladies the call conference. any for and our over like gentlemen, to this turn closing the to Q&A of portion host

Lorenzo Simonelli

Just a strong closed out joining again We XXXX. us. for thanks

is look feel as and macro improving and You saw results environment Thanks. about we quarter the the we at XXXX our outlook. good full feel

Operator

presentation. Ladies and conclude does gentlemen, today's this

now may day. wonderful a disconnect have You and

Baker Hughes (BKR) 22 Jan 202019 Q4 Earnings call transcript