Good day, ladies and gentlemen and welcome to the Baker Hughes, a GE Company Third Quarter 2017 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] And as a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Phil Mueller, Vice President of Investor Relations. Sir, you may begin.

Thank you, Sandra. Good morning, everyone, and welcome to the Baker Hughes, a GE Company third quarter 2017 earnings conference call. Here with me today are our Chairman and CEO, Lorenzo Simonelli, and our CFO, Brian Worrell. Today's presentation and the earnings release that was issued earlier today can be found on our website at bhge.com. As a reminder, during the course of this conference call, we will provide predictions, forecasts, and other forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance and involve a number of risks and assumptions. We advise you to review our SEC filings for a discussion of some of the factors that could cause actual results to differ materially. In addition, we believe that using additional non-GAAP financial measures on a combined business basis will enhance the evaluation of the profitability of the company and its ongoing operations. Also, reconciliations of operating income and other non-GAAP measures to GAAP results can be found in our earnings release and on our website at bhge.com under the Investor Relations section. Because this is the first quarter of operation following our merger, we have prepared financial statements on a combined business basis as if the merger had been completed on January 1, 2016. All prior year and quarter comparisons are to these combined business results. With that, I'll turn the call over to Lorenzo Simonelli.

Thank you, Phil. Good morning everyone and thanks for joining us today. Before we begin with the quarter results, I would like to thank our team for what we've achieved in our first 90 days as a combined company. As we said, this will be a journey. Our current focus is on understanding and improving our core operations as we integrate. I'm particularly impressed with the progress and the speed of the integration since the creation of Baker Hughes, a GE Company on July 3. The combined business was fully operational on day one. Thanks to the very detailed preparation and planning prior to closing. I'm more convinced than ever that the creation of BHGE combine the right companies at the right time. Customer feedback continues to be very positive and we're having constructive discussions about how our capabilities can improve project economics. In this sustained low commodity price environment, the need to drive productivity is critical for our customers. Our new company has taken its first steps and our message of partnership along the value chain is clearly resonating. From upstream to downstream, we provide our customers a broad offering of solutions. We're also driving a culture of safety for our customers, our employees and everybody else involved in our operations. We've implemented the Perfect HSE Day process. As you know, in our first quarter as a combined company, we've already have to deal with a number of challenging environmental events such as hurricanes Harvey, Irma and Irwin. Our thoughts go out to all those who are affected by these events, including many of our employees. Turning to this morning's discussion, I'll cover three topics. First, I'll give a brief overview of our operational results in the quarter. Second, I'll share our perspective of the industry and the market…

Thanks Lorenzo. I'll start with total company results and then go into the segment details. We had a strong orders quarter at $5.7 billion, which is up 2% sequentially and 18% year-over-year. Quarter-over-quarter the increase in orders was driven by our shorter cycle segments, oilfield services and digital solutions as activity picked up in North America as well as the Middle East. This increase was partially offset by headwinds in our long cycle business with turbomachinery and oilfield equipment down11% and 5% respectively. The declines in these businesses were driven by strong comparisons in the second quarter and continued delays in customer spending. Year-over-year total orders grew 18% our [indiscernible] base in the third quarter of 2016 and all of our segments showed growth. Backlog increased from $20.6 billion $20.9 billion in the quarter. Both equipment and services backlog grew. Equipment backlog ended at 5.7 billion. The third quarter was the first quarter and over six quarters as where our equipment backlog grew sequentially. The equipment book-to-bill was 1.1 marking this as the second straight quarter with a positive book-to-bill ratio. Service backlog was $15.2 billion and increased 1% sequentially. Revenue for this quarter was 5.4 billion, which is down 1% sequentially and flat year-over-year versus last quarter our short cycle business is oilfield services and digital solutions were up driven by activity increases in both North America and the Middle East. We saw sequential declines in our longer cycle businesses, turbomachinery and oilfield equipment as a result of lower 2016 order intake, which drove the lower opening backlog. Year-over-year the revenue increases in oilfield services and turbomachinery were offset by the significant decline in oilfield equipment. Operating loss in the quarter was 122 million. On an adjusted basis, we delivered 240 million of operating income. This excludes net restructuring,…

Thanks Brian. Overall, I'm pleased with the progress we've made in the quarter. We closed the transaction and formed the brand new company on July 3. And we hit the ground running on day one from an inspiration perspective. Commercially we secured several key wins in the quarter and booked $5.7 billion of new orders. We are base lining operations and where we see a need for improvement, we are taking immediate action. We are focused on margin improvements that are cash generation and delivering the best results for our customers. We continue to position the company for growth and profitability and we are focused on executing our strategy to deliver on our commitments on growth, margins and cash. Actions are on the way and I feel optimistic about the future. Phil, now over to you for questions.

Thanks, with that let's open up the call for questions Sandra.

[Operator Instructions] Our first question comes from James West with Evercore ISI. Your line is now open.

HI, good morning guys. So, Lorenzo the three pillars you guys are focused on, on regaining some share margins and free cash flow conversion. And it's only been a 100 days, I assume you get that, where do you think you stand in that process, are we 10%, 20%? Where are we in kind of getting to the optimal results?

Thanks, James and thanks for recognizing. We're just celebrating our 100 days into this transaction that we feel is going very well. And maybe just as the backdrop relative to the three strategic pillars you mentioned, we remain very focused on what we control. As you look at the external environment, oil inventories are still 20% above the five year averages. When you look at the three pillars, let's take them one-by-one to begin with. On growth, you look at the performance during the course of the third quarter, you had drilling services and bits growing and outpaced the rig count growth in North America, we feel good about that. You look at the orders performance; sequentially it's the second quarter in a row, where we got positive orders. You look at a year-over-year performance up 18%, on the book-to-bill positive. Critical wins, you look at this all, which was a key one in Egypt from a subsea perspective, digital. So, we see good traction on the growth side, it's early days, the market remains challenging, but we are definitely focused from a commercial standpoint and getting out there and meeting with the customers has been a key aspect of the first 100 days and as you noted during the course of the first two week, we met over 90% of the customers. On margins the key focus here is on the synergies, as you look at integration, it's on track. I mentioned even in September that we are on track, with what we've committed to for 2018, relative to the integration and the synergies. You look at the sequential margins performance from a business segment perspective, Brian walked you through that and sequentially three of the four businesses are showing positive performance. We've got weakness in our sea segment which again, is part of the aspect of Sub Sea and the industry continuing to be delayed in its recovery. You look at the third pillar cash, as Brian mentioned, it's a key area of focus for us. During the course of the quarter, we had one time key related items, and restructuring, however, from an operational perspective it's an area that we continue to focus on. It's one of the key areas I have as a focus on inventory receivables, I'd say we didn't perform where we wanted to in the third quarter, and it's something that we've addressed and we've got people acting upon it immediately. So, when you look at it, early days, but definitely positive momentum, we've got the team rallied and focused on the key priorities. So thanks James.

Okay, okay fair enough. And then may be just one follow up or little bit unrelated, but the shareholder return strategy, and I know you've seen or work on this, your net cash position. How are you guys thinking now and over again those old days, but about dividend sheer buy pack pay program?

Yeah James, just maybe to give you an update on capital allocation and 100 days and we mentioned in September that we're committed to a share hold of a friendly capital allocation plan, that's going to be returning 40% to 50% of netting coming to shareholders. We also mentioned we are going through that with our board at the moment and it's part of the key strategic review that's being undertaken. We got a strong balance sheet that gives us the ability to drive buy backs and also inorganic actions. And our capital allocation priorities are going to be alliance with creating significant shareholder value. So, we are going to take a balanced approach and we want to make sure that we maintain the strong balance sheet, as the industry continues to be volatile as we look at it going forward, it's a challenging environment. We did as you know, in the third quarter announced a dividend of $0.17 per share and we are reviewing that as we go forward, with our team and also the board, so we'll be giving an update as we go forward.

Okay, get it, thanks Lorenzo.

Thank you and our next question comes from the line of [indiscernible] with Morgan Stanley. Your line is now open.

Yeah, thank you very much and yes, congratulations on the 100 days. So still early and the quarter is kind of a cash standpoint, I think it was a little noisy, a little light, even adjusting for the foreign exchange and a few other things. So, given that you have a better handle on the integration and targets ahead, could you give us a game back to the initiatives on the way. I wonder whether you could give us an update on, this kind of, let us say even though improvement in the environment, but I think you'll believe there will be more. What is your current view on normalize margins for these businesses, could you for example get without any improvement in subsea [indiscernible]. Could you get the equipment business into a profitable state if you think? If you could run through some of the initiatives, I know you've issued focus going on in CRM, for example in Baker Hughes and trying to implement some of the GE systems there, so could you give us a little bit of an update there on your updated view on margins?

To start out with the cash, alright it was a bit noisy this quarter, given that this is a first quarter. We had a quite a bit of merger and deal related cost as well as restructuring, as I mentioned that was about $400 million. We took down our monetization program that impacted us by about $200 million. But, you know as I said, working capital did come in under our expectations from our cash flow perspective, and that was primarily driven by sea bubbles and the OFS business. We had a little bit of an inventory build as well, so if I look at that going forward, the deal related cost should definitely be declining here in the fourth quarter and into the next year we'll trail off. We will continue to look at high payback restructuring earlier as we drive the synergies here. So, I expect the restructuring cost to continue and as I mentioned earlier, we have mobilized the team to look at how we can build stronger operating processes to drive better collections, better visibility, not only with us, but across the portfolio. So, I would definitely expect fourth quarter better operationally, some of that seasonality, others are some of the process changes that were making here and then, last onetime items.

These things are never done in overnight, and yes, we all wanted to aggressively go after all hanging opportunities, you mentioned still a lot of interest a lot of infrastructure to be merged, if it telecoms to the cost of it. Its strike me that maybe the second quarter or the third quarter next year is considered as a timing to when we should start to get a more of a clarity on the underlined performance?

Yeah, I think so, by then you have a lot of the restructuring under way clearly and will have full three four quarters here to get some of the operating processes in place. But I think that's a realistic expectation.

Okay, Lorenzo sorry.

Yeah now, just to address your question on the business segment and if you think about all of us you know, speedy recovery in North America, decelerating but still growing and internationally we see some activity rising. On the other sea, subsea, at the moment it's extremely low, you've seen the activity level, at the same time; we've won some major business, as you look at our second quarter win relative to Mozambique. And also Zorro in the third quarter, we're focused on cost cut and one of the key enablers that we were able to win this whole deal was by applying digital tools within our supply chain, there really key cause competitiveness. We feel it's being a very important aspect of our business and offering for our customers going forward and so you should see over the long term, continuing project execution excellence and margin improvement in that business.

Okay, thank you very much. Well I'll hand it back.

Thank you and our next question comes from the line of Andrew [indiscernible], your line is now open.

Thanks, good morning guys Lorenzo, Brian. I appreciate the granular details. That was really very helpful. So, I guess I would start of to follow up on capital allocation and maybe you can talk about your optimal cost, capital structure giving your undelivered balance sheet and also maybe, I suppose capital allocation talk about thoughts on M&A, given the recent shadow, we've had in the market on especially subsea 7?

Okay Andy, I think when we talked earlier we definitely have an opportunity to relook capital structure, we are under leverage. If you look at the balance sheet by a lot of metrics, we are working to that as Lorenzo said, with the board here and will update you guys, you know, once we've gone through that process. But, the metrics look good, you know, we've continued to have a strong balance sheet and as I was talking in the call, we got a plant in here to get the free cash flow into more of a steady straight in line with what we talked about in early September. So, we'll keep you posted as we work through things with the board.

And Andy just on the rumor that was out there relative to subsea 7, I think that I've mentioned previously, you know, our focus right now is really on the integration hand, we've got our hands full. We don't speculate on the aspect of rumors, we see our all three businesses previously well positioned with the winds also that we had. And we partner with numerous CPC's out there, and we work with our customers, really on what's the best outcome for them.

Alright thanks, that was very helpful. And then when you think through your strategy and how it could differ from the past, for specifically oilfield services, can you talk a little bit about the strategy there, maybe potentially some rolling back of that acid like model internationally and how things could change and how you look at the world, when these things have done in the past?

Yeah Andy, if you look at our product portfolio, we feel very good about the combination that we have. Now, when you put together, packaging's and geo oil and gas, we have a suite of capabilities that we think is unique in the industry and enable us to work with our customers really to drive efficiencies. When you think about going below the mud line from and above, we've got the combination of the lifting equipment, the drilling services. We also have the digital capabilities to drive efficiencies and productivity. That's the game changer here, it's really to take the aspect of inefficiency through silos and drive productivity. In this environment that's what our customers continue to ask us for, is get us to the lowest cost per barrel, get us the efficiencies and as we go forward, we are really working on well construction, we're working on the operating environments that are necessary within each of the workplace and that's going to be the strategy going forward.

And Andy as we talked before, we are taking a look at some of the regions were the asset like model was being contemplated. And because of the infrastructure we have, I decided really not to have folks between us and our customers, dramatically reducing that asset like model. You know we are going to continue to evaluate the geography from our profitability and our returns and make decisions based upon that. But, until now the asset like model is going well.

Alright thanks guys, I'll turn it over.

Thank you and our next question comes from the line of Jud Bailey with Wells Fargo, your line is now open.

Thank you, good morning. I got a question, could you maybe comment a little more broadly on the TPS segment, I have seen a big dragger for Baker Hughes. Could you talk a little bit about your outlook, maybe on orders and mixable, because we are looking at 2018, understanding L&G's oversupplied at the moment. But I think there's been some, if I do sort of move toward and tell rightly to comment, is it possible the quarters could be up next year or do you see more flatter or down, just one?

Yeah, Jud, if you look at the PPS business in the as you said rightly L&G is a portion of it, but there is actually much more in there relative to the midstream and downstream when you look at pipelines, you look at also what we do from an offshore and onshore production. And as you look at 2018, we should see better order activity and L&G remains challenging, we see that more being trauma, to the free perspectives started to comeback as there is demand out there. But we see the other segments continuing to pick up and then also as we go towards the transactional business on services continuing to maintain a focus on the operating activities within our customers.

Okay, thank you very much follow up is on the same segment, but I am just thinking about margins? As service revenue grows, that's basic quota of the margins obviously revenue is going to be under some pressure. Could you talk us through, how you're thinking about maybe that the mix in revenue next year and how that could impact margins year-over-year for TPS?

Yeah Jud, if you take a look at the dynamics right now in TPS, you know revenues are up in the quarter 2%, and operating incomes comes down 19% in service. Service mix was good and we are certainly a tailwind, but it was more than all set by margined in equipment as we work through a backlog, which is got some negative mix primarily driven by the downstream segments which is not as profitable. As I look into the next couple of quarters, I would expect that to continue the negative mix based on what the backlog is today. But if you look, we actually had a booked a bill of 1 in the quarter, equipment back log grew, so we are refilling that back log and that should get better as we progress through the year. On top of that, we have seen some headwinds in the transactional services business, as operators are really conserving cash and our bags and based on what we see, later in the year next year, that's a turn as well.

Okay, I appreciate the color. You've answered about, thanks.

Thank you and our next question comes from the line of Jim Wicklund with Credit Suisse, your line is now open.

Good morning guys. I am looking at oilfield services segment, and North America was at 4%, I realize that you guys don't have the petrol pumping business directly anymore, just under station BJ. And while you are operating income, was right from 27 to 75, it just strikes me that a 2.8% margin in the US when we've got some of your peers reporting higher numbers. I'm just wondering, how comfortable you guys are with the current consensus forecast for either down Q4, with the kind of outlook you've given and with the biggest engine driver North America onshore kind of having some really relatively weak performance in the quarter. Can you address any of that?

Yeah, if you take a look at El Paso and North America, as you rightly pointed out, our portfolios are a bit different. We don't have pressure pumping, we do have the chemicals business which is not directly related obviously to rig counting what's going on in North America land. If you look at those businesses that are really rig count driven, you know drilling services wire line, drill beds all are more than the rig count, strong performance in incompletion as well. And if you look at the minimal fear in this quarter, we had really strong growth in drilling services and completions, and that's really have higher margins. As Lorenzo and I both mentioned, we see the market flattening and really I don't think in the fourth quarter, in drilling services won't be as much as a tail end, but we do see some pretty strong growth in other product areas, were our margins are a bit lower. And then we also have some synergy that should be coming in in the fourth quarter and then in the next year. So, when I put all that together, from a mixed end point, from the market, you know flattening a little bit, I would expect incremental to be in line with historical averages. But it is something we are focused on and you know as we talked about gaining share here and positioning the products from a cost perspective to drive higher margins.

Okay and can you talk about the equity income contribution from BJ?

Yeah if you look at the quarter it was a negative by $39 and as a reminder we report BJ services on a one month lag, because they don't close as quickly as we do. And look from a position standpoint, you know we like our position in the business, we got good visibility in the what's going on there, we work with more within the team and where we need to do something commercially with pressure pumping , we can do that. But BJ services is in a mode of coming together and we building that business and we are working closely with the team as they do that.

Okay guys thank you very much, I appreciate the help.

Thank you and our next question comes from the line of David Anderson with Barclays, your line is now open.

Thank you and good morning. I'll just come with a bigger picture question here, your business is mix is quite a bit different than the other names in the space, so, I was worried for the sooner your oil prices remain range bound for the next couple of years. Can you talk about which parts of your business do you think will perform best, I guess in other words, which part of the claws will still be able to grow even without the oil price ensure margin expansion?

Thanks so, good to speak to you again. As you look at the portfolio, yes we are different and also we got a good compliment of the oilfield services as well as you look at the longer cycle businesses. When you think about the price being range bound, you look at the benefit that we are going to achieve through synergies and also key focus of growth. So, the synergies will come through on the revenue side , we've already indicated that by 2020 there's $400 million of EBITDA revenue synergies, we feel good about those, lot of good conversations happening with the customers that will enable us. As we look at the longer term on the gas side, we see gas continuing to grow and also L&G returning, and so when you think about our PPS business that returning, again mentioned previously, orders being growing again in 2018. And you look out also at the other segments when you think about the downstream, the refinery chemicals, the pipelines and then our digital solutions business. As you think about the segment that's outside of also oil and gas, which is more aviation industrial that's continuing to pace with GDP. So, we have an opportunity to race; again grow even in ranges that are based on outlook.

And I just wanted if you could just address how you are looking into next year, with respect to 2018 EBITDA? Your reasoning the case that your call consensus number is out there, and now kind of first quarter under your bottom, are you still constant about hitting those numbers even if you don't see oil prices move up appreciably from here?

Yeah so David, you back on that conference, you go to that September conference, you know I said that the market in 2018 was consistent and the market was looking at things. Also I said, that is we go forward, we won't be providing a new guidance but, we think similar to everyone else in the industry. And you look at that we are thinking similar to others in the industry continuing to be challenged on the overseas side with some pushups on some on some of the projects. We've seen a deceleration in the North America grove from the trust perspective. So, we are staying focused really what we control, the synergies the integration and we'll be providing more updates as we go forward.

Thank you, Lorenzo.

Thank you and our next question comes from the line of [indiscernible], your line is now open.

Hey, thanks for squeezing me in. I guess quick question if we trying to bridge the gap 3Q verses kind of 4Q consensus, if you can kind of walk through the moving pieces as we think about the sequential change. You got the 15 million for the supply chain under ways, we'll have some cost synergies, you have digital solutions should be up and TPS should be up. And so if you can kind of bridge the gap, you know I think there's a 100 million kind of increase in 4Q?

Yeah, to give you some perspective on that, a couple of things, you did point out Harvey, the majority of that will come back to us in the quarter, so that definitely should be helpful. We have some normal; seasonality in the digital solutions businesses, so digital solutions is supposed to grow in the fourth quarter. As I walk through with Tim, we feel good about our position in LFS and expect to see growth in LFS if synergies come through and we think, we'll have some volume increase there. And in TPS for us to grow in the fourth quarter as well, as we looked at the back log, equipment as well as services. And we got a lot of productivity lined up for that business as well. So, those are the big drivers and in synergy, it will start to ramp up after the lower base this quarter, we should see some improvement in the synergies.

Okay, and then also on the offshore equipment, another short decline in margins here, are you ready to call the bottom line margins and also the equipment and if so, how long do you think it will kind of get back to break even there?

Yeah, offshore equipment is definitely continuing to be challenging here. And this quarter in particular we did have an all size affect impact. So, I don't expect them to repeat at that level. So from that perspective, you should see margins get better quarter over quarter from that alone. You know calling the bottom, Neil and the team have really been focused on going after deals and makes sense for us. And they've been taking a lot of cost out to deal with this volume decline. So, we feel good about the cost position, they are working hard to drive, you know profitability, as we rebuild the back log. But I do think they will continue to be challenged, so I wouldn't expect other than this FX item in appreciable increase in margin right here as we look for the next few quarters.

Any feedback out there, if FX was a clean margin on there, do you have the number?

The FX was around $39.

Okay. I'll turn it back over. Thanks, Brian.

Thank you and our final question comes from the line of [indiscernible], your line is now open.

Thanks for taking my question. I guess just back to the 18 hour I appreciate that you don't want to get specific on a number but justify the phrase at this way. As we look at consensus now about $3.5 billion of EBITDA and you mentioned that you expect orders to be up. Can you give us a sense of how much orders need to be up, to kind to get to that level, and I understand that there are a lot of other variable, but just try to give us a sense of magnitude there?

Let's maybe just break it down by business and go for it, because if you just look orders are, it's may be better to take it down a level and take it by business. So we look at your first business, you know we continue to see activity ramping up in North America and The Middle East along with some recover in the hour international market when you look at also the North sea, Latin America. So, in 2018 even though North America is decelerated you should still see some momentum there. On OFE, we see that continuing to be pressured at this moment in time; you know we should have better orders performance in 2018. But actually, the revenue side continued to be pressured, TPS we mentioned orders being positive in 2018 and also from the revenues perspective we should stop see the offshore, onshore production, the downstream area, so if you look at the activity thing, but we should see revenues essentially improving there. And we as business, you look at again improving their relative to the elements outside of also oil and gas from aviation and industrial perspective. So, you know really three out of the four business segments are seeing an opportunity here from the revenue which help us in 2018 and that's sort of the landscape when you break it down by business segment.

Okay, thanks for that Lorenzo. Maybe on the follow up, as I look at the $3 billion of orders this quarter, can you break that down into how much was - you had a few pretty large one time benefits there, I suspect some portion of that is recurring if sort of the world stays at level that it's at right now. Can you help us break down that 3 billion in terms of recurring and kind of one time large order?

So I think that that 3 billion is maybe an extra or a FX number, it's in total for the business at 5.7 billion orders.

Yeah, correct. Sorry about that got you.

Okay, so again the - can you repeat the question relative to the 3 billion please?

So if we have the 3 billion in which is largely the legacy GE portion of the business, so the backlog really driven businesses, how much of that 3 billion in orders is something that might be recurring versus something that's large and maybe one time, just to get a sense of what the baseline recurring number might be.

Yeah, look there's always going to be some lumpiness based on big orders that take place. If you look at that 3 billion, you'd say, the Zoro is something that you'd highlight in there as a big order and then the digital as we mentioned close to 300 million with a big international customer.

Yeah, the one thing I would point out about that too is, while we had Zoro as a big order this quarter, we also had Eni Mozambique last quarter and for the quarter-over-quarter that's kind of normalized.

Okay, great. Thanks for that and I'll turn it back.

Thank you and this concludes the Q&A portion of the call. I'll now turn the call back to Mr. Simonelli for final remarks.

Thank you very much. And again thanks to all of you for joining us this morning. I just wanted to maybe close out, so we're 100 days into this terrific new business that we've created. I'm pleased with the progress we've made this quarter. We've had several key wins in the quarter and booked $5.7 billion of new orders. We're base lining operations and where we need improvement, we're taking immediate actions. We know where we need to execute and we've been very open in having that discussion with you today. We're focused on margin improvement that are cash generation and delivering the best results for our customers and that's what we're going to be doing going forward. So thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Everyone have a great day.