管理層發言
Good day, ladies and gentlemen, and welcome to the Baker Hughes Company Second Quarter 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. Chase Mulvehill, Vice President of Investor Relations. Sir, you may begin.
Thank you. Good morning, everyone, and welcome to Baker Hughes Second Quarter Earnings Conference Call. Here with me are our Chairman and CEO, Lorenzo Simonelli, and our CFO, Ahmed Moghal. 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. 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 results to differ materially. Reconciliation of adjusted EBITDA and certain GAAP to non-GAAP measures can be found in our earnings release and presentation available on our investor website. With that, I will turn the call over to Lorenzo.
Thank you, Chase. Good morning, everyone, and thank you for joining us. First, I would like to provide a quick outline for today's call. I will start with a summary of our second quarter results, then highlight key awards and address the evolving macro environment. I will also discuss the recent closing of the Chart acquisition and the compelling opportunities it brings to Baker Hughes. I will then turn it over to Ahmed who will review our financial performance, provide guidance for the third quarter and review our outlook for the full year. To close, I will highlight how we are connecting our capabilities across upstream energy, energy infrastructure, and industrial markets to create greater value for our customers and shareholders. Let's turn to Slide 4. We delivered another strong quarter as disciplined execution and the strength of our diversified portfolio more than offset anticipated headwinds in the Middle East. While conditions in the region remain fluid, our teams have responded exceptionally well, maintaining a clear focus on safety, execution, and meeting our customer needs. For the second quarter, adjusted EBITDA was $1.23 billion, exceeding the high end of our guidance range. The outperformance was driven primarily by strong OFSE execution supported by greater resilience in the Middle East, and a solid seasonal recovery across broader markets outside the region. Adjusted earnings per share were $0.64, up modestly year over year as strong operational performance more than offset the effects of the PSI divestiture and the formation of the SPC joint venture. Adjusted EBITDA margin expanded 70 basis points year over year to a record 18.3% as strong IET performance more than offset lower OFSE margin resulting from higher inflationary costs. During the second quarter, we generated robust free cash flow of $1.1 billion. Turning to orders. IET delivered another exceptional quarter with orders doubling year over year to a record $7.1 billion, resulting in a 2.2x book-to-bill ratio and driving RPO up 19% to an all-time high of $37.1 billion. Over the past four quarters, IET has booked more than $20 billion of orders, providing significant revenue visibility while expanding the installed base that will drive future aftermarket and digital revenue. These results highlight the breadth and versatility of IET and reinforce our ability to capture sustained growth as customers continue investing in reliability, resilience, and security of supply across critical energy infrastructure markets. Our confidence in the long-term outlook for power generation continues to be supported by the strength of our power systems backlog and the depth of our order pipeline. In response, we are further expanding gas turbine and generator capacity while maintaining disciplined capital deployment and operational flexibility. When this additional capacity comes online by the end of 2029, we estimate it could support nearly $5 billion in annual power systems revenue opportunity at full utilization. Even assuming a practical utilization below full capacity, the implied revenue opportunity still represents a 3x to 4x increase over 2025 revenue, underscoring the growth opportunity ahead. With $12 billion of IET orders year to date, strong end market demand and expanding power systems capacity, we now expect Horizon 2 IET orders to exceed $45 billion. Earlier this month, we completed the acquisition of Chart Industries, a significant milestone in the continued execution of our portfolio strategy. We are pleased to welcome Chart employees to Baker Hughes and look forward to leveraging our combined capabilities to create greater value for customers and shareholders. Now turning to key awards on Slide 5. The second quarter further demonstrated broad-based demand across our core end markets, with meaningful awards across power, gas infrastructure, digital, and energy upstream markets. Starting with power, we booked $2.6 billion of power systems orders during the quarter, including 2.7 GW of power generation. We continue to expand our presence in power generation for data center markets, securing several significant awards across North America that further reinforce our strategy and technology leadership. Most notably, we secured a major award from Dynamis for NovaLT 16 gas turbines, representing approximately 1.3 GW of mobile power generation capacity across data center and oil and gas applications. Additionally, we signed a multiyear strategic agreement with Kodiak Gas Services anchored by an initial award for approximately 1 GW of power generation capacity and a framework for up to 1.8 GW over time. The agreement leverages NovaLT 16, Frame 5, and generator technologies to support growing power demand across North America. In gas infrastructure, we delivered another outstanding quarter, highlighted by $1.8 billion of LNG equipment orders across three large projects. We received a major award from Venture Global including six modularized blocks comprising 12 liquefaction modules. The scope includes advanced centrifugal compressors, cold boxes, air coolers, and integrated control systems, further strengthening our long-standing customer relationship. We also booked a significant award from Golar to provide four aeroderivative gas turbine-driven refrigerant compressor trains for a floating LNG facility, marking the fourth Golar vessel to feature Baker Hughes's gas technology solutions. In addition, we secured multiple awards supporting Cheniere's Sabine Pass LNG facility, including aeroderivative gas turbines and compression equipment for train 7, a boil-off gas unit, and fleet-wide gas turbine enhancements that helped drive record GTS upgrade orders in the quarter. Beyond equipment upgrades, we continue to strengthen our life cycle services portfolio through a significant multiyear agreement extension with Nigeria LNG and a new multiyear CSA with ANOH Gas Processing Company for its gas processing facility in Nigeria. Together, these awards highlight the strength of our LNG franchise, the durability of our installed base, and the recurring nature of our services business. We also continue to see strong global demand across gas processing and production infrastructure. During the quarter, we secured two significant awards for electric motor-driven compression trains supporting the brownfield expansion of a large offshore field in the Middle East and Aramco's Uthmaniyah gas processing facilities. These awards demonstrate the critical role of our compression technology in enhancing recovery, sustaining production, and improving the efficiency of global gas infrastructure. Turning to digital solutions, we also continue to accelerate digital adoption across our installed base, securing multiple software awards through our Cordant solutions portfolio with several NOCs and IOCs. In addition, we entered into a preferred supplier agreement with a large global turbine manufacturer to deliver sensing, condition monitoring, and asset health software solutions that enhance equipment reliability and performance. Turning to energy upstream, our OFSE team received several key awards across integrated services, subsea, digital, and production, reinforcing the breadth of our capabilities and global customer relationships. In integrated services, we secured a major award from Petrobras for well construction solutions across Brazil's Santos Basin, while Equinor extended key contracts for integrated drilling, well services, and wireline intervention in Norway. In subsea, we expanded our North Sea footprint with a new facility in Norway and booked two notable subsea production systems awards, including Azule Energy's ultra-deepwater development offshore Angola and an offshore gas development in Brunei. These investments and awards demonstrate the strength of our global subsea capability. We also continue to build commercial momentum across our digital platforms while extending their application into adjacent markets. Kantori, our autonomous well construction solution launched earlier in 2026, secured an award for an Equinor well construction project and was recognized with the 2026 OTC Spotlight New Technology Award. Leucipa also reached an important milestone with its first deployment outside oil and gas, integrating our ESP and digital production optimization capabilities to support a geothermal and lithium development in Europe. Finally, we also advanced our geothermal strategy through an agreement with Mantle Reach Power to support up to 500 MW of development in North America. Separately, we entered into a strategic collaboration with H&P. Collectively, these awards demonstrate the breadth of the Baker Hughes portfolio, the growing value of our enterprise capabilities, and rising demand for integrated energy and industrial solutions spanning molecules to electrons. Turning to the macro on Slide 6. Since the onset of the conflict in the Middle East, global growth expectations have moderated, with the World Bank now projecting growth of 2.5% in 2026. While the recent escalation has increased uncertainty, global trade and energy markets continue to adapt as supply chains adjust, inventories are rebuilt, and regional supply and demand patterns evolve. At the same time, these events have further elevated energy security as a strategic priority for governments, customers, and economies globally. The need for resilient infrastructure, diversified supply, and secure energy flows is supporting sustained investment across energy upstream and energy infrastructure markets where Baker Hughes is particularly well positioned. Across global energy upstream markets, customers remain focused on maximizing production from existing assets while preserving flexibility to respond to evolving market conditions, which continues to drive demand for production optimization and mature asset solutions. Reflecting these dynamics, we expect global upstream spending this year to decline modestly year over year as growth in Latin America, offshore Africa, and North America land is more than offset by lower spending in Europe and the Middle East. In LNG, recent disruptions further reinforce the importance of supply security and energy diversification. We believe it will take time for LNG markets to fully normalize given the complexity of restoring liquefaction capacity, rebalancing trade flows, and rebuilding inventories. Importantly, recent developments have not changed our conviction in the long-term LNG outlook. We continue to see a path toward installed nameplate capacity approaching 800 MTPA by 2030 and approximately 950 MTPA by 2035, underpinned by energy security needs, expanding power demand, and increasing natural gas consumption across emerging markets. Turning to power markets, demand remains exceptionally strong. The rapid growth of AI and other compute-intensive workloads is driving a step change in electricity demand with access to reliable, scalable power increasingly becoming the primary constraint. We believe the power generation market remains in the early stages of a multiyear growth cycle, driven by accelerating investment in AI infrastructure. The magnitude of planned hyperscaler investment reinforces the durability of this trend. Capital spending by the largest hyperscalers is expected to double, increasing from approximately $370 billion in 2025 to nearly $750 billion by 2028. As this infrastructure is deployed, S&P Global forecasts data center power demand will grow at an 18% annual growth rate through 2030, reaching approximately 1.85 thousand terawatt hours — equivalent to India's projected annual electricity consumption by the end of the decade. More broadly, the combination of AI-driven power demand, energy security priorities, and continued electrification is driving investment across the energy value chain. This is creating demand not only for power generation and natural gas infrastructure, but also for grid modernization, energy management, carbon capture, and other lower carbon solutions that improve reliability, resilience, and affordability. This opportunity aligns directly with Baker Hughes' strategy. Our differentiated portfolio positions us to benefit from the convergence of energy and industrial demand. As customers increasingly seek integrated solutions, our connected capabilities enable us to address their most complex challenges. As a result, we see approximately $100 billion of addressable market opportunity by 2030 for power systems, with more than half expected to be associated with behind-the-meter solutions and further growth through 2035. Let me now turn to Chart on Slide 7. The successful closing of the Chart acquisition marks an important milestone in Baker Hughes' portfolio strategy and our evolution into a higher-value industrialized energy solutions company. Chart adds differentiated capabilities in thermal management, air and gas handling, and carbon capture, complementing our existing technologies and strengthening our position across attractive energy and industrial markets including gas infrastructure, data centers, space, new energy, and industrial gases. The combination expands the solutions we can offer customers while materially increasing our installed base and life cycle services opportunity. This enhances our revenue mix through greater recurring aftermarket and digital growth, supporting more durable earnings and cash flow over time. Given the scale and strategic importance of these capabilities, Chart will operate as Baker Hughes' third reporting segment. This structure preserves the business, commercial, and operational focus while highlighting Chart's contribution to Baker Hughes' growth and financial performance. Importantly, the reporting structure does not change how we will capture the anticipated synergies. With day one successfully completed, we are now focused on disciplined integration execution and delivering the full value of the transaction. Our integration management office is advancing 18 work streams across the combined organization with clear milestones and accountability for both cost and commercial synergies. We have structured the initial integration into two phases across the first 180 days. During the first 90 days, we are prioritizing customer continuity, employee retention, and consistent operational performance. We are also initiating early cost synergy actions while mobilizing commercial teams to pursue cross-selling opportunities, expand life cycle services, and develop more integrated customer solutions. Over the next 90 days, we plan to shift towards delivering early value and further embedding the Baker Hughes business system by aligning operating models and advancing our commercial playbook. We will also launch commercial workshops and sales training to support combined solutions and an integrated go-to-market strategy. This phased approach enables us to capture near-term efficiencies while building the foundation for sustained operational improvement and commercial growth. Turning to synergies on Slide 8. We have identified almost 300 initiatives across procurement, corporate costs, systems operations, and footprint optimization, reinforcing our confidence in delivering the full $325 million of annualized cost synergies by year three. The largest opportunities are concentrated in three areas. First, SG&A offers significant potential through the elimination of duplicative costs and simplifying support functions and systems. Second, the scale of the combined company will drive meaningful supply chain efficiency through greater purchasing power with suppliers and a more streamlined logistics network. Third, we see significant opportunities to optimize our manufacturing and operating footprint, leveraging the scale of the combined company to improve efficiency and utilization across our global operations. The Baker Hughes business system will be central to this work, providing the operating discipline and accountability required to convert identified opportunities into sustainable margin and cash flow improvement. In addition to cost synergies, we see meaningful commercial upside. Chart broadens the solutions we can offer in existing markets while expanding our reach into attractive industrial adjacencies. For data centers, our power generation capabilities complement Chart's thermal management and cryogenic storage systems. Chart also expands our capabilities in geothermal and CCUS through thermal management, gas handling, and carbon capture, enabling broader solutions and greater participation across the project value chain. In metals and mining, Chart's established customer relationships create opportunities to introduce additional Baker Hughes technologies. We also see emerging opportunities in space where Chart's cryogenic expertise complements our power generation and liquefaction capabilities in a market requiring advanced fuels, thermal management, and mission-critical infrastructure solutions. Aftermarket represents another substantial opportunity. Baker Hughes's global service network and field presence position us to increase attachment rates across Chart's installed base, while the cross-selling of iCenter, Cordant, and Uptime can enhance asset performance, improve customer outcomes, and generate additional recurring higher-margin revenue. Overall, our work to date reinforces our confidence in the strategic fit of the combination. We are now focused on integrating with discipline, delivering the cost synergies we have identified, and steadily realizing the benefits of the broader portfolio. To close, let me briefly recap. Our second quarter performance reinforces the momentum across Baker Hughes. We delivered results above expectations led by OFSE and supported by strengthening energy upstream markets. We also achieved another record quarter of IET orders, reflecting strong demand across data centers and gas infrastructure markets. This demand, combined with our expanding order pipeline and increased gas turbine and generator capacity, supports raising our Horizon 2 IET orders target to more than $45 billion. Importantly, the equipment orders we secure today expand our installed base and create a longer-term runway for higher-margin services, upgrades, and digital solutions. The addition of Chart further advances our portfolio strategy by strengthening our capabilities across energy and industrial markets and expanding our life cycle services opportunity while also providing cost and commercial synergy potential. This positions Baker Hughes to deliver more consistent growth, margins, and cash flow over time. With that, I will now turn the call over to Ahmed.
Thanks, Lorenzo. I will begin on Slide 10. We delivered exceptional orders in the second quarter with total company bookings of $10.5 billion. IET contributed a record $7.1 billion, well above the previous record of $4.9 billion set just last quarter. Adjusted EBITDA of $1.23 billion increased 2% year over year. This continued growth in IET more than offset lower OFSE performance. Adjusted EBITDA margin increased by 70 basis points year over year to 18.3%. GAAP diluted earnings per share were $0.68. Excluding $0.04 of adjusting items, adjusted diluted earnings per share were $0.64, up 2% year over year despite the impact of divestitures completed earlier this year. During the quarter, we generated free cash flow of $1.1 billion supported by strong customer collections across IET, including milestone and advance payments, along with improved working capital performance in OFSE. Moving on to capital allocation on Slide 11. At quarter end, the company's balance sheet remained strong with net debt to adjusted EBITDA ratio declining to 0.1 times. Following the Chart acquisition, leverage will temporarily increase but we remain firmly committed to deleveraging and expect to return to 1.0x to 1.5x net leverage within 24 months, supported by free cash flow generation, synergy realization, disciplined capital allocation, and proceeds from portfolio actions, including the announced Waygate divestiture. Before turning to the segment results, I would like to briefly address the Chart acquisition. As you heard from Lorenzo, Chart will be reported as Baker Hughes' third operating segment reflecting the scale and strategic importance of the business while providing investors with clear visibility into its financial performance. Integration and synergy execution will continue to be managed centrally through our integration management office and dedicated work streams. Our immediate focus is on disciplined execution and early value capture. We continue to target $325 million of annualized cost synergies by year three including $95 million in year one, $230 million in year two, and $325 million in year three. Overall, we remain confident that the acquisition will accelerate revenue growth, expand margins and free cash flow, and enhance the durability of Baker Hughes' financial profile over time. Let's now turn to segment results starting with IET on Slide 12. During the quarter, orders doubled year over year to a record $7.1 billion driven by continued strength in power systems and LNG, along with record upgrade orders in GTS. Our second quarter IET results reflect another solid quarter of performance with revenue of $3.3 billion, near the midpoint of our guidance range and in line with the levels a year ago. Compared to last year, revenue was impacted by the PSI and CVC transactions which together represented a headwind of 2% to aggregate revenue. Revenue was modestly impacted by ongoing disruptions in the Middle East, while growth continued to be led by GTS as we worked through the aeroderivative backlog. We continue to expect GTS growth to level off in the second half of the year reflecting the timing of planned service outages and the significantly lower contribution from catch-up work associated with the overdue backlog. IET EBITDA increased 16% year over year to $678 million and margins expanded by 280 basis points to 20.6%. This strong margin performance was driven by favorable backlog pricing and ongoing execution of the Baker Hughes business system, further reinforcing our operating discipline. Turning to OFSE on Slide 13. OFSE delivered a significantly stronger-than-expected quarter despite ongoing disruptions in the Middle East, further demonstrating the resilience of the portfolio and the benefits of its diversified geographic and product mix. Revenue for the quarter was $3.45 billion reflecting a 7% sequential increase and above the high end of our guidance range. Growth was led by Brazil, Mexico, Asia Pacific, and North America land. In the Middle East, product revenue exceeded our expectations, demonstrating our ability to effectively manage logistical constraints and support customer activity across the region. As a result, OFSE revenue in the Middle East declined 1% sequentially, leaving revenue down 10% from the fourth quarter of 2025. OFSE reported EBITDA of $655 million, also exceeding the high end of our guidance range. EBITDA margin of 17.5% increased 10 basis points sequentially. This performance reflected strength in SSPS margins which more than offset margin pressure in OFS Middle East related disruptions and ongoing inflationary costs. In addition, SSPS also continued its order momentum, securing $667 million in the quarter. When excluding the impact of one-time items, SSPS orders increased 29% year over year. Turning to Slide 14, I will review our third quarter and full-year 2026 guidance on a standalone Baker Hughes basis. Given the recent close, we are not providing Chart segment guidance today. We will provide updated Baker Hughes and Chart guidance ahead of the third quarter earnings call. For clarity, I will speak to the midpoint of the guidance ranges. For the purposes of this guidance, we assume current activity levels in the Middle East remain broadly unchanged through year end. Under this assumption, we expect OFSE revenue in the region to remain broadly consistent with second quarter levels, while IET continues to face a 1% to 2% revenue headwind related to Middle East disruptions. Our guidance also assumes logistics costs and supply chain disruptions remain broadly in line with recent levels. However, any material change in geopolitical conditions or regional disruptions could result in outcomes that differ either positively or negatively from our current guidance. Starting with third quarter guidance, we anticipate company revenue of $6.87 billion and adjusted EBITDA of $1.205 billion. For IET, we expect solid year-over-year EBITDA growth driven by continued progress in industrial technology and CTS. While the overall impact from Middle East disruptions should remain modest, we expect some increase in logistics and inflationary pressures at our regional facilities during the third quarter. Overall, we expect IET revenue of approximately $3.32 billion and EBITDA of approximately $660 million. The major factors driving our guidance ranges for IET will be the pace of backlog conversion and GTE, progress with aeroderivative supply chain and GTS, the level of Middle East related disruptions, foreign exchange rates, and trade policy. For OFSE, we expect broadly stable activity in the Middle East and modest sequential growth across most other markets, complemented by strong revenue growth in SSPS and modest segment margin improvement. Consequently, we expect third quarter revenue of $3.55 billion and EBITDA of approximately $625 million. Outside of the Middle East conflict, factors driving our guidance ranges for OFSE include execution of our SSPS backlog, near-term activity levels, trade policy, foreign exchange rates, and pricing across more transactional markets. Moving to our full year guidance, we now expect company revenue and adjusted EBITDA to modestly exceed our previous expectations provided alongside first quarter results. We now anticipate revenue of $27.35 billion and adjusted EBITDA of $4.85 billion. Although near-term challenges persist due to the conflict in the Middle East, we remain confident that our portfolio positions us to manage short-term disruptions effectively. In IET, we have built exceptional order momentum through the first half of 2026, securing $12 billion of bookings and significantly exceeding the level implied by our original full-year outlook. Supported by this performance, our expanding pipeline and sustained customer demand, we are raising our full-year IET orders guidance to $17.5 to $19.5 billion. This will mark the second consecutive year of record orders, further strengthening revenue visibility over the coming years. However, given longer GTE cycle times, we expect these orders to convert to revenue at a more measured pace with a meaningful portion of the GTE order mix extending beyond 2027. Assuming the announced Waygate divestiture closes at year end, we are maintaining the midpoint of our full year IET revenue guidance of $13.5 billion and modestly increasing the midpoint of our EBITDA guidance to $2.725 billion. While developments in the Middle East continue to create uncertainty for certain projects and local supply chains, we expect the impact to be more than offset by stronger-than-expected performance outside the region during the first half of the year. For OFSE, we now expect full year revenue of $13.85 billion and EBITDA of $2.425 billion, an improvement from last quarter which contemplated EBITDA trending towards the low end of the original guidance range. In summary, we delivered another quarter of strong execution highlighted by record orders, continued margin expansion, and robust free cash flow generation. IET continued to build on its exceptional momentum with a second consecutive quarter of record orders while OFSE again demonstrated the resilience of its diversified portfolio despite ongoing market disruptions. We entered the second half of the year well positioned to deliver sustained growth and create substantial long-term value for shareholders, supported by the addition of Chart, favorable market fundamentals, and a record backlog that provides enhanced revenue visibility. With that, I will turn the call back to Lorenzo.
Thank you, Ahmed. For those following along, please turn to Slide 16. Our second quarter performance demonstrates the continued progress of Baker Hughes' strategy and our transformation into a leading industrialized energy solutions company. At the center of this strategy is a clear objective: strengthen our capabilities across three core end markets — energy upstream, energy infrastructure, and industrial. Our focus is to connect these capabilities in ways that deliver broader solutions for customers and greater value for shareholders. In energy upstream, we deliver solutions that help customers develop and optimize resources safely and efficiently, supported by technology and digital capabilities across the full reservoir life cycle. In energy infrastructure, we enable the transportation, processing, and conversion of energy through leading capabilities across gas infrastructure, refining, and power. These markets remain central to our strategy as energy security, electrification, and rising power demand continue to drive investment in more scalable and resilient infrastructure. In industrial markets, where energy is central to productivity and growth, the combined capabilities of Baker Hughes and Chart strengthen our offering across data centers, space, industrial gases, metals and mining, and other attractive industrial markets. The close of the Chart acquisition further strengthens our position across energy infrastructure and industrial markets, creating new opportunities to deliver more integrated solutions and providing a platform to add new capabilities over time. What differentiates Baker Hughes is the breadth of our portfolio and our ability to connect capabilities across energy and industrial value chains, from the subsurface through energy infrastructure to the point of industrial use. As these markets increasingly converge, that breadth positions us to solve more complex customer challenges and capture opportunities beyond the reach of discrete products. Baker Hughes has always been an energy technology pioneer. Today, we are building on that foundation, recognizing that energy enables industrial progress, and that our role is to help shape how energy and industrial markets advance together. In closing, I want to thank all Baker Hughes employees for their commitment, performance, and support for one another as we continue to grow, evolve and deliver for our customers and shareholders. Operator, we are ready to open the line for questions.
分析師問答
Thank you. We ask that you please limit yourself to one question. To ask a question, simply press star, then the number one on your telephone keypad. Our first question will come from the line of Arun Jayaram with JPMorgan. Please go ahead.
Good morning, Lorenzo, Ahmed. I was wondering if you could—yeah.
Good morning.
I was wondering if you could peel a layer of the onion on your capacity expansion plans through 2029. You highlighted a $5 billion power systems revenue opportunity by the end of 2029. Can you elaborate on how you see mix, pricing, and the revenue ramp — the evolution of that through 2029 — and perhaps just talk a little bit about what this means for CapEx?
Arun, I will take that. Power systems is one of the most meaningful growth opportunities, and the strength of the recent orders gives us confidence in the investments we are making and the demand signals we are seeing. The returns we can generate on that incremental capacity investment are strong. When you step back, our expected $5 billion of annualized revenue capacity by the end of 2029 would represent roughly a three- to four-fold increase from the approximately $1 billion of power systems revenue generated last year, layering in a practical utilization assumption on the capacity. The opportunity set is broad: gas turbines, steam turbines, turbo expanders, gearboxes, synchronous condensers, and other power solutions — it's not a single product or customer type configuration. On mix, gas turbines would represent roughly half of the opportunity, generators approximately a quarter, and the balance is made up of our other products and systems. That mix matters because it allows us to capture demand cycles in multiple ways and increases the value of the broader solution for customers. On CapEx specifically, we are being disciplined and phasing the investments. Generally speaking, on that incremental capacity we are looking at paybacks below two years, which is quite strong. Spend is moderate relative to the size of the opportunity and will be phased between 2026 and 2028. We will leverage much of our existing manufacturing footprint so we are not looking at greenfield builds, which keeps investment competitive. From the supply side, we are focused on a make-buy strategy to keep critical components in-house while partnering with strategic suppliers globally. On pricing, think of the $5 billion opportunity as including more than turbine hardware — the broader scope of systems, services, and aftermarket. Our analysis is not based on today's spot pricing but more on average 2025 pricing levels, so assumptions are grounded. Lastly, the revenue ramp is phased rather than a step function. The first incremental NovaLT capacity is expected to come online in the first half of 2027, with revenue ramping 6 to 12 months thereafter based on normal timing. Incremental capacity will continue to build into 2028, and by the end of 2028 we expect gas turbine capacity to have roughly doubled from 2026 levels. We see this as a meaningful growth contributor from 2028 through 2030, with installed-base services pulling through over time. We will remain disciplined, and we expect power systems to be a real driver of earnings growth through the end of the decade. Thank you.
Thanks. Our next question will come from the line of Scott Gruber with Citigroup. Please go ahead.
Yes. Good morning. Lorenzo, you outlined a number of commercial synergies with Chart now in the portfolio. Can you unpack that opportunity set for us a bit more? What are some of the near-term opportunities that you see? And what could be some underappreciated opportunities? I imagine there are some underappreciated ones that sit in the new end markets you highlighted that might be simplifying under the radar for folks currently. So more color on the commercial synergy side would be great.
Scott, I'm very excited about closing the transaction and welcoming the Chart portfolio and employees to Baker Hughes. Commercial synergies will be a meaningful driver of long-term value creation. The combined portfolio gives us a broader set of capabilities to address customer needs across the full value chain — power generation, thermal management, gas processing, air and gas handling, cryogenic storage and transport, digital monitoring, and life cycle services. Customers increasingly look for partners that can reduce complexity, improve reliability, and accelerate project execution while supporting them over an asset's life. That broader integrated solutions value proposition will be key. Near-term opportunities: first, data centers are one of the clearest opportunities. AI-driven demand creates immediate pressure around reliable power and efficient cooling. Baker Hughes brings power generation, digital solutions, life cycle services, and project execution; Chart adds thermal management, heat transfer, cooling, cryogenics, and related equipment capabilities. Together, we can offer data center customers a broader infrastructure solution focused on uptime, energy efficiency, reliability, and speed of deployment, including tri-generation style solutions that improve energy utilization and facility performance. Second, gas infrastructure is very actionable. The combined portfolio across gas gathering, treating, NGL recovery, compression, liquefaction, cryogenic storage, and transport allows us to offer complete solutions across the gas value chain. This is not limited to natural gas — it extends to hydrogen, helium, carbon dioxide, nitrogen, and oxygen — creating additional growth and synergy opportunities and further diversifying our end market exposure. Underappreciated long-term opportunities include space, geothermal, and mining. In space, Chart brings customer relationships and cryogenic storage, transport, and thermal management capabilities; combined with Baker Hughes' LNG expertise, energy infrastructure capabilities, and life cycle services, we can better serve space customers requiring advanced fuels and mission-critical infrastructure. In geothermal, integrating subsurface expertise with Chart's thermal management creates more integrated geothermal solutions. In mining, Chart's large installed base creates cross-sell opportunities to introduce our services and digital monitoring like Cordant and increase attachment rates. Over time, mining could also provide avenues to extend selected OFSE capabilities into a new market. Overall, the combination creates substantial runway to deepen customer relationships, expand the addressable market, and drive long-term value creation for customers and shareholders.
Our next question comes from the line of Dave Anderson with Barclays. Please go ahead.
Hey, good morning, Lorenzo. I was wondering if you could talk a little bit about the OFS business and how it performed this quarter. I noticed that the construction completion was quite strong. Could you talk about what drove outperformance this quarter and then, setting aside the Middle East, what are some of the moving parts that you are seeing in the back half of the year? Thank you.
Hey Dave, I will take this one. The team delivered a solid quarter in a dynamic environment, benefiting from structural and operating improvements made over recent years. In the second quarter, OFSE revenue and EBITDA both increased 7% sequentially and margins expanded 10 basis points, exceeding our guidance across key metrics. I attribute the outperformance to three main areas. First, outside the Middle East, activity was broadly stronger than expected across North America, Latin America, East Asia, Europe, and Sub-Saharan Africa — international OFSE revenue outside the Middle East increased double digits sequentially. Second, conditions in the Middle East were volatile and disrupted, but results were better than anticipated driven by product revenue outperformance versus our assumptions; this was mostly offset by softer service activity. The higher product mix carried elevated logistics and freight costs associated with supporting customers in a volatile environment, creating margin pressure in the East specifically. Third, our SSPS business delivered a very good quarter: SSPS revenue increased about 10% sequentially and margins recovered to the high teens, supported by our flexibles business and overall strong execution. Looking to the second half, a few factors drive our outlook. We assume Middle East activity remains broadly stable through year end. In North America, we expect further seasonal recovery in onshore activity in the third quarter, with fourth quarter activity dependent on budgets and price levels. International markets outside the Middle East should continue to improve in the third quarter; year-end product sales will typically be offset by North Sea seasonality in the fourth quarter. Latin America activity is expected to remain constructive, specifically in Brazil and Mexico. Sub-Saharan Africa and Asia Pacific tendering levels remain relatively healthy. SSPS will be an important contributor in the second half through backlog conversion, strong order momentum, and stable margins. Altogether, OFSE's diversification, good execution, and the changes the team has made over the last few years support continued resilience through the balance of the year.
Our next question comes from the line of Carlos Escalante with Wolfe Research. Please go ahead.
Yes. Hey, team. Thank you for taking my question today. I wonder if I can ask about what is driving the record IET orders for the quarter. If you can perhaps dissect what you see as the key drivers as well as any market trends, particularly in heavy duty versus smaller gas turbines, that you may see as supporting continued momentum on orders? Also, if you can share any thoughts and views on the associated margin with the recent IET orders? Thank you.
Carlos, the record quarter reflects both the breadth of the Baker Hughes portfolio and strong demand across multiple end markets. Encouragingly, momentum is not driven by a single market. Strength was broad across data centers, LNG, gas processing, and production infrastructure. A key driver is continued strength in power systems where orders totaled $2.6 billion in the quarter; demand was broad based including generator orders, strong GTS orders, and approximately 150 gas turbines for power generation applications. Behind-the-meter applications remain very relevant and strong. Year to date, power systems orders are approaching $4 billion, already exceeding the $3.2 billion booked in all of last year. This sustained order strength builds backlog visibility into 2030 and beyond. We still have available 2027 delivery slots for some Frame 5 turbines and the capacity additions expected to add meaningful slots for NovaLT deliveries beginning in late 2028. Data centers accounted for $2.2 billion of power systems orders this quarter, but the IET order strength was broader than data centers alone. Excluding data center-related activity, IET orders would have been $4.9 billion, matching the previous quarterly record. Key growth drivers outside data centers include gas infrastructure markets where we saw robust investment across LNG, gas processing, and production infrastructure. LNG was particularly important this quarter with approximately $1.8 billion of equipment orders across three major projects; through the first half, we booked $2.9 billion of LNG equipment orders, already exceeding last year's full-year total. GTS delivered record orders, including an all-time high in upgrade activity, showing customers' focus on efficiency and extending asset life. Regarding margins, we have continued to secure awards within our commercial framework, consistent with driving continuous margin expansion over time. The current supply-demand environment across gas infrastructure and power markets remains constructive and supports strong pricing dynamics. As these orders convert to revenue over the coming years, we expect pricing strength combined with disciplined project selection and execution to provide meaningful favorable tailwinds for IET margin performance in 2027 and beyond.
Our next question will come from the line of Marc Bianchi with TD Cowen. Please go ahead.
Hey, thank you. Dave had asked about OFSE for the second half already. Can you talk about some of the puts and takes for IET in the second half? Annual guidance has increased by less than the first-half beat. I think you touched on some Gas Technology Services, some logistical costs in your prepared remarks, but maybe you could expand more on that. And then similarly on free cash, really strong here in the first half, but you have kept the conversion rate the same.
Hey Marc. We stepped back and looked at the first half — great performance by the team with $12 billion of IET orders and backlog just over $37 billion, which is a record. For the second half, we maintain a balanced outlook. Our guidance assumes Middle East revenues remain broadly consistent, but uncertainty remains around project timing and local supply chains. For IET specifically, the cadence of gas technology equipment backlog conversion, progress on the aeroderivative supply chain, FX, and trade policy will influence results. First half free cash flow was strong, driven by favorable working capital performance, strong customer collections, and milestone payments as we progress projects. As we look at the balance of the year, working capital movements can create quarter-to-quarter variability, but we remain committed to our overall free cash flow outlook. On 2027, while it's early and we are not providing formal guidance today, the record backlog provides good visibility into 2027 and beyond. Many orders taken in the first half of 2026 are expected to convert after 2027, particularly in gas technology equipment. We do see improving profitability coming through as the teams execute, favorable pricing, and a high-quality mix in the backlog across power systems, LNG, and services and upgrades. It's a great setup with good visibility as we go through the balance of the year and into 2027.
And thank you. That was our last question. I will hand you back to Mr. Lorenzo Simonelli, Chief Executive Officer, to conclude the call.
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.
Thank you. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.