Q3 2025 Earnings Call: Contradictions Emerge on OFSE Margins and IET Order Outlook

Date of Call: None provided

Financials Results

• Revenue: Total revenue up 1% year-over-year (absolute amount not disclosed)
• EPS: GAAP diluted EPS $0.61; Adjusted EPS $0.68 (no YOY comparison provided)
• Operating Margin: Consolidated adjusted EBITDA margin 17.7%, up 20 basis points year-over-year

Guidance:

• Q4 adjusted EBITDA ~ $1.255B; IET EBITDA ~$680M; OFSE EBITDA ~$650M.
• Full-year adjusted EBITDA midpoint raised to $4.74B; company now expects to exceed $4.7B.
• IET revenue midpoint $13.05B; IET EBITDA midpoint $2.4B; IET orders guidance midpoint increased to $14B.
• Full-year free cash flow conversion expected 45–50%; target ≥50% by 2028.
• Post-Chart: target net debt/adjusted EBITDA 1–1.5x within 24 months; $325M cost synergies; ~$1B expected from portfolio proceeds.
• Horizon 2: total company adjusted EBITDA margin target 20% by 2028; at least $40B of IET orders over next three years.

Business Commentary:

• Strong Financial Performance:
• Baker Hughes reported adjusted EBITDA of $1.24 billion for Q3, above the midpoint of guidance, with a 20 basis points year-over-year increase in consolidated adjusted EBITDA margins to 17.7%.

• This performance was driven by continued momentum from business system deployment, positive trends in gas technology, and strong outperformance in U.S. land operations.

• IET Orders and Backlog Growth:

• Industrial & Energy Technology (IET) achieved $4.1 billion in orders for Q3, driven by LNG equipment, record coordinate solutions orders, and ongoing strength in gas infrastructure and power generation.

• The significant orders led to a 3% sequential growth in IET backlog, reaching a new record of $32.1 billion, supported by a robust technology portfolio and a strong pipeline across various end markets.

• Power Generation Demand:

• Baker Hughes secured more than $800 million in power generation equipment orders, reflecting strong demand for distributed power, cogeneration, and geothermal solutions across multiple sectors.

• This demand is driven by increasing investment in data center power solutions, with over $700 million booked year-to-date, and the need for reliable energy sources in upstream and downstream markets.

• Natural Gas and LNG Expansion:

• LNG equipment orders reached $800 million, including significant awards for projects like Sempra's Port Arthur Phase Two and NextDecade's Rio Grande LNG.
• The growth in LNG infrastructure reflects strong investment in large-scale projects and Baker Hughes' ability to deliver integrated equipment and digital solutions that reduce downtime and boost availability.

Sentiment Analysis:

Overall Tone: Positive

• Management described a "strong third quarter" with adjusted EBITDA rising to $1.24B and consolidated adjusted EBITDA margin at 17.7% (up 20 bps YOY). IET backlog hit a record $32.1B and IET orders were $4.1B this quarter; full-year adjusted EBITDA midpoint was raised to $4.74B and IET orders guidance midpoint was increased to $14B — all signaling confidence and positive execution.

Q&A:

• Question from David Anderson (Barclays): Can you discuss the various power generation opportunities (data centers, distributed power, geothermal, offshore), their size/duration, and other end markets?
  Response: Power demand is broad and accelerating across data centers, distributed oilpatch power, geothermal and offshore; IET booked ~$800M of power-related orders this quarter, sees a strong pipeline, expects data center orders to hit the $1.5B target ahead of schedule, and views the expanded installed base as a source of durable aftermarket revenue.

• Question from Arun Jayaram (JPMorgan): What are the key building blocks to reach 20% corporate adjusted EBITDA by 2028 and achieve $40B of IET orders?
  Response: Confidence in $40B IET orders comes from LNG, gas infrastructure, power, new energy and digital pipeline; margin to 20% is expected via continued business-system cost improvements, AI-driven productivity, portfolio optimization (targeting ~$1B proceeds), and segment actions with IET aiming for 20% margins by 2026.

• Question from Stephen Gengaro (Stifel): What does the comprehensive evaluation of capital allocation, cost structure and operations entail and what should investors expect?
  Response: The company is conducting a board-backed, comprehensive review of capital allocation, cost structure and operations post-Chart approval to identify additional shareholder-value actions; no specific actions announced yet, but management emphasized continued disciplined value-creation efforts.

• Question from Scott Gruber (Citigroup): How will you accelerate time-to-synergy and integration for Chart Industries before and after close?
  Response: An integration management office with 14 workstreams is active now (systems, supply chain, commercial, operations); integration led by an experienced officer with emphasis on swift systems harmonization and capture of $325M targeted cost synergies, with close expected mid-2026.

• Question from James West (Melius Research): What drove OFSE's margin outperformance and what is the outlook into Q4 and 2026?
  Response: OFSE resilience driven by cost-out initiatives, simplification and productivity; Q3 mix and cost inflation were mostly offset by savings; modest margin pressure expected in Q4 and subdued upstream activity into 2026, with priority on preserving margin quality over volume.

• Question from Mark Bianchi (TD Cowen): What are expectations for Nova LT orders in 4Q and into 2026 and what lead times are you seeing?
  Response: Expect to book over $1B of Nova LT orders in 2025 (roughly one-third oil & gas, remainder data center/industrial); pipeline is strong with delivery slots into 2028+, manufacturing capacity increasing, and meaningful aftermarket potential as installed base grows.

Contradiction Point 1

OFSE Margins and Margin Improvement Strategy

It involves differing statements about the OFSE margins and the strategy to improve them, which are crucial for financial performance and investor expectations.

Can you discuss the OFSE business margins and the risk of margin decline in Q4? - James West (Melius Research)

2025Q3: OFSE margins are expected to decline slightly in the fourth quarter due to seasonal factors and tempered product sales. Focus remains on cost efficiency, pricing discipline, and upselling opportunities. We continue to outperform peers through cost-out initiatives. - Ahmed Moghal(CFO)

What drove the margin performance in both segments? What is the confidence in achieving 20% IET margins in 2026? Can OFS improve margins with internal drivers in a soft market? - Scott Andrew Gruber (CitiGroup)

2025Q2: In OFSE, margins expanded by 90 basis points due to sequential revenue growth and cost efficiencies. The focus is on cost structure optimization and disciplined pricing. - Ahmed Moghal(CFO)

Contradiction Point 2

IET Order Performance and Market Dynamics

It involves differing statements about the order performance and market dynamics in the IET segment, which are crucial for understanding the company's growth prospects.

Can you discuss the opportunities in power generation currently and in the coming years, including data center demand for your Nova LT and distributed power in the oil patch? - David Anderson (Barclays)

2025Q3: Orders were strong with $4.4 billion in the quarter, primarily driven by Industrial Equipment Technology, particularly gas infrastructure projects, where we saw strong bookings. - Lorenzo Simonelli(CEO)

Could you clarify IET order performance, especially the weakness in Gas Tech Equipment and the strength in Gas Tech Services? How do you expect these components to trend in H2? - J. David Anderson (Barclays Bank PLC)

2025Q2: Order bookings were strong in IET, with non-LNG markets and services driving growth. LNG orders are expected to strengthen in the second half with several projects maturing. Data centers are a growth area, with over 70 NovaLT turbines booked for data centers this year. - Lorenzo Simonelli(CEO)

Contradiction Point 3

OFSE Margin Expectations

It involves differing expectations for the margin progression and resilience of the OFSE segment, which impacts financial forecasts and investor expectations.

Can you discuss OFSE business margins and the potential for margin degradation in Q4? - James West (Melius Research)

2025Q3: OFSE margins are expected to decline slightly in the fourth quarter due to seasonal factors and tempered product sales. Focus remains on cost efficiency, pricing discipline, and upselling opportunities. We continue to outperform peers through cost-out initiatives. - Ahmed Moghal(CFO)

Can you explain the revenue decline and the path to a 20% margin target? - Saurabh Pant (Bank of America)

2025Q1: OFSE margins have improved structurally, and we remain committed to the 20% margin target. Second-quarter margins are expected to improve by 80 basis points. Structural improvements and transformation work will continue to drive margin progression. - Ahmed Moghal(CFO)

Contradiction Point 4

IET Order Outlook and Market Growth

It involves differing expectations for the IET order outlook and market growth, which directly impacts revenue projections and investor expectations.

Can you discuss opportunities in power generation over the next few years, particularly data center demand for your Nova LT and distributed power solutions in the oil sector? - David Anderson (Barclays)

2025Q3: In IET, we've achieved our $40 billion of IET orders over the past 3 years. In 2024, we booked $13 billion, despite a 65% decline in LNG orders. In 2025, we expect continued strength in gas infrastructure and LNG, with around 80 MTPA of LNG orders expected to be FID-ed. - Lorenzo Simonelli(CEO)

Can you provide the 2025 IET order outlook, including challenges and opportunities, as well as order trends across subsegments like LNG, OOP, and gas infrastructure? - Arun Jayaram (JPMorgan Securities)

2024Q4: Our order outlook for 2025 is $13.5 billion. And while the composition of the order book will continue to evolve, we believe that we are set up well to deliver on this outlook. - Nancy Buese(CFO)