Good day, ladies and gentlemen, and welcome to the Baker Hughes A GE company Third Quarter 2018 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, Nicole. Good morning everyone and welcome to the Baker Hughes, A GE Company third quarter 2018 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. Please review our SEC filings for a discussion of some of the factors that could cause actual results to differ materially. As you know, reconciliations of operating income and other non-GAAP to GAAP measures can be found in our earnings release and on our website at bhge.com under the Investor Relations section. With that, I will turn the call over to Lorenzo.

Thank you, Phil. Good morning everyone and thanks for joining us. On the call today, I will give a brief overview of our third quarter results. I will then share some perspectives on market dynamics and highlights some of our key achievements in the quarter as we are building out our market leading product companies. We are now in the second year of our journey as BHG, we are operating the company better and we are driving change in the industry with our differentiated portfolio. We are focused on commercial innovation, outcome based models and leading technology. Today, I will provide few exciting examples of our outcome based solutions. The product is a new approach to integrated well construction in oilfield services that will provide significant productivity across the value chain. The second is a new philosophy for offshore development, which introduces new technology and a productivity based approach to subsea deepwater projects. Brian will then review our financial results in more detail before we open the call for questions. In the third quarter, we delivered $5.7 billion in orders and $5.7 billion in revenue. Adjusted operating income in the quarter was $377 million. We are seeing continued improvements in our shorter cycle businesses and the outlook for our longer cycle businesses is improving. Free cash flow in the quarter was $146 million. Earnings per share for the quarter were $0.03 and adjusted EPS was $0.19. Now I would like to take a few moments to share our view on the markets. We are encouraged by the improved outlook on the macro environment. Overall, the North American market continues to be resilient. Drilling related activity remains stable, which bodes well for our portfolio. We see softness in frac-related completions activity as the North American pressure pumping market weakens into the…

Thanks Lorenzo. I will begin with the total Company results and then move into the segment details. Orders for the quarter were $5.7 billion, down 5% sequential and flat year-over-year. These results do not include the ONGC 98/2 order, we announced on October 3rd. Sequentially, the decline was driven by oilfield equipment down 47%, primarily due to orders timing and digital solutions which was down 1%. These declines were partially offset by oilfield services of 5% and Turbomachinery, which is up 4%. Overall, as we head into the fourth quarter, we feel good about our ability to redo backlog especially in our longer cycle equipment businesses. Year-over-year, oilfield services up 10% and Turbomachinery was up 16% offset by oilfield equipment down 27% and digital solutions down 31% as a result of the large digital order we secured in the third quarter of last year did not repeat. Repeating performance obligation ended the quarter at $20.8 billion, which was down 1% sequentially. Equipment RPO ended at $5.4 billion flat versus the second quarter and services RPO ended at $15.3 billion, down 1%. Our book-to-bill ratio in the quarter was one and equipment book-to-bill ratio was also one. Revenue for the quarter was $5.7 million, up 2% sequentially. Revenue growth was driven by oilfield services, which is a 4% and oilfield equipment up 2% partially offset by Turbomachinery, which was flat and digital solution down 1%. Year-over-year revenue was up 7%, driven by oilfield services up12%, digital solutions up 6% and oilfield equipment up 3% partially offset by Turbomachinery, which was down 3%. Operating income for the quarter was $282 million, up $204 sequentially and up $475 million year-over-year. Adjusted operating income was $377 million, which excludes $95 million of restructuring impairment and other charges. Adjusted operating income was up 30% sequentially…

Thanks Brian. Our outlook on the market remains positive and we are well positioned to capture the benefits of an improving macro environment across all of our businesses. The BHGE’s portfolio is unmatched in the industry. We continue to win the most important projects in the market today by partnering with our customers to address the challenges. Our priorities are unchanged, we are focused on executing to deliver on our commitments on share, margins and cash. Phil, now over to you for questions.

Thanks. With that, Nicole, let’s open the call for questions.

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

Hey good morning gentlemen. So Lorenzo and Brian, you outlined a lot of significant wins kind of across the portfolio in your prepared remarks and what I wanted to dig into or the one area I wanted to really dig into here is the Middle-East, it's obviously a growth area for the industry, you have the recent ADNOC investment, the MOU’s in the Iraq, MOU’s in Saudi, the Marjan field win. I mean it seems like you are picking up share kind of across the region, could you maybe touch on that for a minute or two and talk about your strategy and how you guys are progressing there?

Yes James, as you said clearly this is in-line with the strategy we laid out at the beginning of the year and growing our share in the Middle-East and we feel very good about what we did achieve and also the outlook going forward, the Middle-East continues to be an areas of growth. You have highlighted some of the wins, the Marjan field for us important, because it really allows us to be an exclusive provider for drilling services, co-tubing services and also provide drilling fluids engineering services and this allows to be at the start of the development really incumbent in the customer and be able to grow as the field continues to grow. Qatar Petroleum, we have announced obviously a five year drilling services contract to support the offshore and onshore drilling activities and again this is based on the success we have had of drilling wells for the customer performing well and getting the best the outcomes. And we have taken the opportunity to strengthen our partnership in United Arab Emirates with the ADNOC Drilling and this is really favoring the partnership we have already have with ADNOC, it's attractive from a strategic perspective to gain share and the conventional and also the unconventional which are going to be increasing overtime. So we feel very good about what we are seeing in the Middle-East and it's going to be an area of continued growth and focus and I'll let Brian give you a little bit more details on the ADNOC partnership.

Yes, James if I take a step back and look at the ADNOC partnership, we are going to invest $500 million of cash for 5% of the equity and in ADNOC Drilling and on that we will get a 7% annual dividend. So good returns from that standpoint. The other things I would say is that given the book of business we see there in the first year plus the 7% return it will be EPS accretive in year one, so solid financial, solid return. It's also structured in a way James that our working capital ramp is partially funded by the partnership and so we will get a payment in the fourth quarter here to help fund that working capital ramp which again furthers the return on this deal when makes it quite attractive. And the other things I really like about this is it gives us partnership with both ADNOC and ADNOC Drilling, obviously ADNOC Drilling is well positioned in UAE and is exclusive provider of drilling services for ADNOC and we are exclusive in key areas of that supply and feel good about the position it gives us into the broader market as Lorenzo mentioned on both unconventional and conventional. The other thing I would just point out to is the deal, we do have a board seat on ADNOC Drilling which further strengthens the partnership there, so like how we are positioning ourselves in UAE and the growth trajectory that the customers outlined there in UAE. And then kind of stepping back on Middle-East more broadly and our strategy, I would say when I was there in September I would say there was overall positive sentiment broadly from customers in the region. So we like how we repositioning ourselves there and feel good about our objectives to continue to gain market share in a way that is going to be you know helping us to continue to generate better returns for shareholders.

Thank you. Our next question comes from the line of Jud Bailey of Wells Fargo. Your line is now open.

Thanks. Good morning. A couple of question on TPS. I guess maybe Lorenzo first for you if I could, you made some good commentary on LNG awards and your outlook $65 million in TPA, you already, you really book and LNG came in the fourth quarter. Can you maybe give us a little more detailed thoughts on how you see kind of order cadence progressing and kind of projects around the world. And kind of how that looks over the next couple of years, anymore thoughts that would be appreciated.

Yes Jud, we feel again very positive on the outlook of the LNG market, we have said consistently that in the second half of the year we would start to see final investment decisions. LNG Canada plays a first good step in that direction and also what we show with Corpus Christi. As you know, back in 2014, we did actually get selected for the LNG Canada with our high-efficiency element 100 aeroderivative. So that is a good start and look we are progressing well in the LNG market. If you look overall we expect demand to double to about 500 MTPA by 2030 and as we mentioned there is going to be sectioning of up to 65 million pounds per annum by now 2020. So feel well positioned and LNG is a good robust positioning for us, and I'll let Brian jump in a little bit more on TPS which again continues the theme of improvement as we have stated along and we feel good about that.

Yes, LNG is obviously an important part of the TPS story, but when I take a step back and look at some of the key leading indicators that we saw this quarter. I feel really good about where TPS is and where its headed. Overall orders were up 16% versus last year, mainly driven by services which, as I mentioned were up 41%. Equipment orders were down 10% that is mainly on large deals. But you know as you saw, as you mentioned there is a lot of activity in the LNG space and we are well-positioned to capitalize on that. And then within service orders, transactional services, which convert more quickly were up 46% in the quarter and that is 20% year to date and the third quarter service revenue and TPS was up 9% since starting to see some of that come through. We are also executing on the cost up program that we talked about, this will start to yield results in the Q4 and definitely into next year and when I look at all these indicators, it makes me pretty confident about our positioning for the quarter to be able deliver margin growth and as we roll into 2019. And overall for TPS really outlook hasn’t changed for 2019 on what we talked about with the cost out, better project mix that we have in the backlog and we see coming to the backlog and the higher outages that will roll to the services portfolio kind of underpinned with that transactional service demand growth that we have seen here this quarter and year-to-date. So feeling good about where we are positioned with TPS.

Thank you. Our next question comes from the line of Dave Anderson of Barclays. Your line is now open.

I was hoping if you can talk a little bit about the opportunities you are seeing offshore development over the next 12 to 18 months. You have had a couple of good wins last few months including the large NGC award, I was wondering if you can perhaps - that award in particular, it’s one of the larger integrated awards, I’m assuming its very competitive. But what put you the position to win this, what did you guys bring to the table and maybe you could also expand about relationship with McDermott, it seems like it’s not a coincident, you have teamed up with them now several times here?

Sure. Dave. And firstly, let’s start off with the offshore outlook and also how we see it developing. Clearly, there is an improving sentiment out there, we have got better visibility to commodity price, range bounds and with that also the competitiveness of our offering has increased, which is allowing customers to go forward with final investment decisions. It’s not at the height of what we saw back in 2014, but we do see the pipeline of opportunities improving as we go forward. And you have seen some announcements of the Gulf on Phase two, [indiscernible] Phase two and most recently beyond ONGC 98/2. So just to put that into perspective, it is the single largest award that ONGC has made, we do have a partnership structure with both McDermott and L&T. We are going to be providing study full deepwater tree, manifolds, controls connection systems, SPS installation tools, and really it’s a great result and it does build on the relationship we have had in the past with McDermott. But I would say it also built on the strong relationship we have with ONGC. We have worked with them in the past and we have always said, it’s important to be flexible in the type of arrangements, we have and alliances we have to meet the customer requirements. And in this case, we are very happy to be with our partners and providing what they need going forward as the productive rates as well. The industry as a whole and offshore continues to be very competitive and clearly there is that element that continues just because there is still some overcapacity out there. So we are focused on really continuing to drive productivity in our portfolio and that is why we launched Subsea Connect really the work that we have done over the last year on developing better products, lighter weight, more cost competitive and that is the offering that we are providing also, and we are continuing to work with.

And Dave, one thing I would say about where we are in subsea in particular, because of the market dynamics that we have talked about and you are all familiar with. Neil and the team has done a great job this year, repositioning our offering and taking quite a bit of costs out of the products, as well as installation costs and as we work with our partners to take the overall cost of these projects down for us to respond to that competitive environment. So we like where we are positioned there, you highlighted McDermott, I like the way the team is positioning to take advantage of what is going on in the market and win there. So look we feel good about the backlog going into 4Q and into 2019 and subsea in particular. If I look at the flexible pipe business in Neil’s world, while we have continued to make a lot of improvements there as well. Just given where we are in the procurement cycle of the largest customers there. I do expect that piece of the business to be a bit of a headwind next year that will offset some of the positive momentum we are seeing in the subsea production systems face.

Thank you. Our next question comes from the line of Scott Gruber with Citi. Your line is now open.

Yes, good morning. Brian you are going on 4Q for oil services, is the trend with the market if I heard you correctly and we have a lot of moving pieces 4Q as you know seasonality and just extended frac holiday year and product sales et cetera. Would you be able to put a range on the 4Q revenue trajectory in oil services for us?

Yes. Look we feel pretty constructive about the fourth quarter outlook for OFS, we do expect top-line growth in-line with the broader market and I would say core incremental around our historical rate there, so nothing out of line there. We do expect some increase headwinds though as I mentioned from some ramp-up cost as we start to execute on some of the recent international wins and it's really Equinor and Marjan that Lorenzo talked about earlier and those types of costs are really driven by mobilization cost of the fleet, some increased reactivation cost as we start to put tools in place to be able to start up that activity in the early part of next year and then off course there is some new tool build that we will do here in the quarter as we get ready for executing on those. So look, I would expect those cost to continue a little bit into 2019 and it's just a short-term dynamics there, but feel pretty good about how were positioned from a share standpoint in OFS we have seen positive momentum now for the last few quarters, Maria Claudia and the team are focused on important deals and I think it position the team pretty well to capture the market growth. So overall in-line with the market like I said with core incremental holding and like the outlook we see there.

And Scott just to remind everybody and I think it's important when you talk about the North America market, our exposure to the frac side of things is limited here. We have got go just the minority investment in the BJ service, so we are not materially impacted by some of the challenges you are seeing in the Permian softness outside of some of the impact from completions there.

Thank you. Our next question comes from the line of Bill Herbert of Simmons. Your line is now open.

Hi. Brian, you have already quoted incremental on mining what those are, I think they had been in the vicinity of 25% and again to be clear in light of all - very impressive international contract wins that you guys have Gardner in a very competitive price environment, do you expect to maintain those for the forcible future and well into 2019.

Yes Bill. If you take a look at incremental, the present incremental in OFS for the quarter is 38% when you take into account that a favorability coming in from lower depreciation and amortization, but then the un-favorability coming from FX primarily Argentina and adjust to those and where synergies came in OFS incremental are right in-line with where we would expect it about 24%. As I was saying earlier, I don’t see the book of business changing our view on what that incremental margin is going to be over the course of the year, next year as I mentioned there are some short-term headwinds with some of the ramp-up cost that we see here on a couple of the large wins, but I generally feel good about those incremental given where we are from synergy execution, knowing that there are some headwinds coming through on commodities and the other cost that we were working. I feel good with that historical rates.

Our next question comes from the line of Kurt Hallead of RBC. Your line is now open.

Hi, good morning. You definitely peaked my curiosity on the subsea front with the Subsea Connect. I went through the number of different dynamics that drive the value preposition, I appreciate that. So I'm just kind of wondering as well whether or not you could put that into a context relative to one of your major peers are offering to the market and maybe how Subsea Connect - does it take that and make it even better, does it lower the cost even more. So can you give a relative value prop maybe compared to what one of your major competitors are doing on subsea front.

Yes Kurt. Look I think overall industry has been working towards this as we come through a difficult cycle within the industry there has been a focus by our customers to drive productivity within the offshore and deepwater projects and our offering here is differentiated relative to what we are doing specifically with our trees, our manifold and the integration that we can have across our portfolio. I think what is differentiated is the extent of our portfolio and the reach we have and so what we are offering to our customers is really the capability that we can help them drive the lowest cost per barrel, lowest listing cost and that is what we are focused. Others are doing it in the industry. We have our approach and we feel very good about the positioning of it.

Thank you and then it’s all the time you have for question. I would like to hand the call back Lorenzo for any closing remarks.

Thanks and thanks for joining us today. We are excited about the future and remain constructive on our outlook for the industry. We are remaining focused on our priorities of share, margins and cash. Thanks.

Ladies and gentlemen. Thank you for participating in today's conference. That does conclude today’s program. You may all disconnect. Everyone have a great day.