Baker Hughes' Q3 2025: Contradictions Emerge on NovaLT Orders, OFSE Margins and Tariffs, IET Margins, and LNG Demand

Date of Call: October 24, 2025

Financials Results

• Revenue: Revenue growth of 1% year-over-year (no consolidated dollar revenue disclosed); IET revenue $3.4B, up 15% YOY; OFSE revenue $3.6B, up 1% sequentially.
• EPS: GAAP diluted EPS $0.61; adjusted EPS $0.68 (excluding adjusting items).

Guidance:

• Q4 adjusted EBITDA expected ~ $1.255B; IET Q4 EBITDA ~ $680M; OFSE Q4 EBITDA ~ $650M.
• Raised full-year midpoint adjusted EBITDA to $4.74B.
• IET FY revenue midpoint $13.05B and EBITDA midpoint $2.4B; IET orders midpoint raised to $14B.
• OFSE FY revenue midpoint $14.35B; OFSE EBITDA midpoint unchanged at $2.62B.
• Free cash flow conversion expected 45%–50% for FY25; target ≥50% by 2028.
• Expect Chart close mid‑2026; target net debt/EBITDA 1–1.5x within 24 months post-close.

Business Commentary:

• Strong Financial Performance:
• Baker Hughes reported adjusted EBITDA of $1.24 billion for the third quarter, above the midpoint of guidance, reflecting a 2% year-over-year increase.

• The growth was driven by strong business system deployment, positive trends in gas technology, and leverage to U.S. land production.

• IET Order Momentum:

• Industrial and Energy Technology (IET) achieved $4.1 billion in orders during the third quarter, with a record backlog reaching $32.1 billion.

• This momentum was driven by LNG equipment orders, Cordant Solutions, and ongoing strength in industrial solutions and gas infrastructure.

• Power Generation Demand:

• Baker Hughes secured over $800 million in power generation orders, supported by strong demand across multiple sectors including data centers, oil and gas, and industrial markets.

• The demand is attributed to electrification needs in oil and gas basins, grid constraints, and increased data center requirements.

• Macro Environment and Future Outlook:

• The market continues to navigate cross currents with concerns about OPEC+ production and geopolitical risks supporting commodity prices.
• Baker Hughes anticipates that oil-related upstream investment will remain subdued until market adjustment to OPEC+ supply, with potential softening of oil fundamentals ahead.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'another quarter of strong results' with adjusted EBITDA of $1.24B (up 2% YOY) and consolidated adjusted EBITDA margin of 17.7% (up 20 bps YOY), raised full‑year adjusted EBITDA midpoint to $4.74B, and increased IET guidance and order expectations while projecting multi‑year targets (20% company margins by 2028, $40B IET orders).

Q&A:

• Question from John Anderson (Barclays Bank PLC): So power has been a huge theme over the last quarter. It kind of seems to be ramping up in the last month or so. I was wondering if you could please talk about some of the various opportunities you're seeing today and over the next several years in power generation. Obviously, the data center demand for your NovaLT is getting a lot of attention. But the Dynamis order today shows how distributed power is also a growing in store in the oil patch. Then you mentioned the geothermal opportunities and then also offshore. I was wondering if you could kind of put that all together for us and talk about kind of the size and the duration of these opportunities, but also what else is out there in terms of end markets for power generation?
  Response: Power demand is broad and accelerating across data centers, distributed oil & gas, geothermal and industrial markets; the company booked ~$800M of power generation orders this quarter, expects to hit $1.5B of data‑center orders ahead of schedule and sees this driving installed‑base growth and aftermarket services.

• Question from Arun Jayaram (JPMorgan Chase & Co): My question is wondering if you could talk a little bit about some of the key financial targets in Horizon Two and kind of give us -- Lorenzo, I meant some of the building blocks you see that are necessary to get to the 20% corporate adjusted EBITDA target by 2028 and maybe some thoughts on achieving $40 billion of IET orders over this time horizon.
  Response: Management is confident in achieving at least $40B of IET orders and the 20% company margin goal by 2028, driven by a strong backlog/pipeline across LNG, gas infrastructure, power and new energy, plus business‑system improvements, AI productivity gains and portfolio optimization (targeting ~$1B disposals).

• Question from Stephen Gengaro (Stifel, Nicolaus & Company): So you have the Chart merger pending, and you've done a tremendous amount over the last five years, really reshaping the portfolio. And then in early October, you had a press release out and you mentioned this earlier about performing a comprehensive evaluation of capital allocation, the business costs and operations in general. Can you talk a bit more about what this entails and what we should expect to hear from Baker over the next couple of quarters?
  Response: The company and Board are conducting a board‑backed comprehensive review of capital allocation, cost structure and operations to identify shareholder‑value actions in connection with the Chart transaction; no specific actions announced yet, evaluation ongoing.

• Question from Scott Gruber (Citigroup Inc.): It's been a couple of months since the Chart acquisition announcement. You mentioned the integration planning underway. But can you provide some more color on what you can do now through the early close period to really accelerate the time to full synergy capture and accelerate the timing to full integration of Chart into IET?
  Response: An integration management office with 14 workstreams (systems, supply chain, commercial, operations) is active pre‑close, led operationally by Jim Apostolides, focused on realizing the $325M in cost synergies and accelerating commercial integration ahead of a mid‑2026 close.

• Question from James West (Melius Research LLC): So I wanted to dig in on the OFSE business and particularly the margin because you guys significantly outperformed the peer group on the third quarter. You've given guidance for 4Q for a little bit more degradation, but not a lot, which is differentiated. And so I'd love to hear about the moving pieces on the margin, what you're doing to kind of address and kind of maintain high margin rate. And then -- and if you could also expand on maybe next year as you think about -- you've given kind of the -- your guidance on what you think exploration and production spending will be for next year, down slightly what do you expect for the margin to do in that segment as we go through the year?
  Response: OFSE outperformed via cost‑out initiatives, productivity and mix management; Q4 shows modest seasonal and product‑sale pressure and 2026 may see subdued activity, but management will prioritize margin quality over volume to preserve and improve margins versus peers.

• Question from Marc Bianchi (TD Cowen): I wanted to ask about NovaLT, you had a really good first half year for NovaLT, but it seems like 3Q didn't have much. What are you expecting for NovaLT in 4Q and into 2026? And what's the lead time look like for customers placing those orders?
  Response: NovaLT demand is strong: expect >$1B of NovaLT orders in 2025 with ~1/3 oil & gas and the rest data center/industrial, delivery slots into 2028+, manufacturing capacity is being expanded and the growing installed base implies significant aftermarket opportunity.

Contradiction Point 1

NovaLT Orders and Manufacturing Capacity

It involves differing statements regarding the status of NovaLT orders and manufacturing capacity, which could impact investor expectations and strategic planning.

Can you provide an update on NovaLT orders and capacity, and 2026 expectations? - Marc Bianchi (TD Cowen, Research Division)

2025Q3: Record year for NovaLT orders, over $1 billion expected in 2025; strong demand across data centers and industries; expanding manufacturing capacity. - Ahmed Moghal(CFO)

What is the opportunity for Baker in the data center sector and how might macro factors affect IET order flow this year? - Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q1: We continue to have visibility into the next 18 months, but the macroeconomic environment does create some uncertainty, which may impact our ability to execute on certain opportunities, particularly on the new equipment sales side. - Lorenzo Simonelli(CEO)

Contradiction Point 2

OFSE Margins and Impact of Tariffs

It involves differing statements regarding the impact of tariffs on OFSE margins, which are critical for financial forecasting and investor expectations.

Can you explain the margin performance in OFSE and 2026 margin expectations considering the expected decline in E&P spending? - James West (Melius Research LLC)

2025Q3: OFSE margins expected to decline by 10 basis points despite 8% revenue decline; cost-out initiatives and productivity drove resilience. - Ahmed Moghal(CFO)

How do you view the impact of tariffs and OPEC+ policy on guidance? What confidence do you have in achieving the low end of guidance despite tariff impacts? - Arun Jayaram (JPMorgan Chase & Co, Research Division)

2025Q1: We are providing a framework for 2025, not full guidance, due to varying potential outcomes. OFSE faces a broader range of outcomes, limiting visibility beyond the second quarter. - Lorenzo Simonelli(CEO)

Contradiction Point 3

IET Margin Expectations

It involves differing statements regarding IET margin expectations, which are crucial for financial forecasting and investor confidence.

Can you update on NovaLT orders, capacity, and 2026 outlook? - Ahmed Moghal

2025Q3: We expect IET margins to progress year-over-year due to productivity gains and backlog execution. - Ahmed Moghal(CFO)

What are the drivers of IET margin progression and the impact of tariffs on the target? - John Anderson (Barclays Bank PLC, Research Division)

2025Q1: We expect measured margin expansion in the second half, even with higher tariff costs, depending on their evolution. - Ahmed Moghal(CFO)

Contradiction Point 4

LNG Orders and Demand

It involves differing expectations regarding LNG orders and demand, which are crucial for understanding the company's growth and market positioning in the energy sector.

What are the key financial targets in Horizon Two, the steps to achieve the 20% corporate adjusted EBITDA target by 2028, and how will the $40 billion IET orders goal be achieved? - Arun Jayaram (JPMorgan Chase & Co, Research Division)

2025Q3: We expect 25 MTPA FIDs in the next 15 months, which could be the largest number of MTPA in the industry in a short period. This is a huge opportunity for us. - Lorenzo Simonelli(CEO)

What are the key factors and macroeconomic outlook for orders in IET subsegments like LNG, OOP, and gas infrastructure? Can Gas Tech orders reach the $5 billion threshold as in prior years? - Arun Jayaram (JPMorgan Securities)

2024Q4: We see 80 MTPA of LNG FIDs anticipated in 2025, which is below the 100 MTPA consensus. However, I think there is more risk to the upside than downside on this number. - Lorenzo Simonelli(CEO)

Contradiction Point 5

OFSE Revenue and Margin Expectations

It involves differing expectations regarding OFSE revenue and margin performance, which are critical for assessing the company's financial health and operational strategies.

Can you explain the margin outperformance in OFSE and expectations for 2026 margins with the expected E&P spending decline? - James West (Melius Research LLC)

2025Q3: OFSE margins expected to decline by 10 basis points despite 8% revenue decline; cost-out initiatives and productivity drove resilience; 4Q expects modest revenue and margin declines due to seasonality and product sales; 2026 continues cost efficiency, prioritizing margin quality over volume. - Ahmed Moghal(CFO)

Could you outline the key factors driving the 20% OFS target and the 2026 IET target? - Stephen Gengaro (Stifel, Nicolaus & Company, Incorporated, Research Division)

2024Q4: In OFSE, margins are expected to expand to 20% by 2026 and beyond. With discipline around executing self-help cost savings initiatives and portfolio transformation, we're confident we can deliver on this commitment even in a softer upstream spending environment. - Nancy Buese(CFO)