Baker Hughes Company (BKR) Q2 2026 Earnings Report, Transcript and Summary

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 in 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 energy upstream 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 $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 4 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 the 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 3 large projects. We received a major award from Venture Global including 6 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 4 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 2 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 for 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 2 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 a $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 1 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 2 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 3. The largest opportunities are concentrated in 3 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 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 system. 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 establish 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 the 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 $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 advanced 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. 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 3 including $95 million in year 1, $230 million in year 2, and $325 million in year 3. 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 of $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 overview aero derivative 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 $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 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 25. 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 [Inaudible] 29% increase year over year. Turning to Slide 14, I will review our third quarter and full-year 2026 guidance on a stand alone 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, 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 $6.87 billion and adjusted EBITDA $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 aero derivative 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 26, 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 3 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.

Thank you. We ask that you please limit yourself to 1 question. To ask a question, simply press star, then the number 1 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, you know, the evolution of that through 2029, and perhaps just talk a little bit about what this means for CapEx.

Yeah. Arun, I will take that. So, obviously, look. Power systems, you have seen us highlighted a few times. it is 1 of the most meaningful growth opportunities. And the strength of the recent orders, gives us the confidence in terms of the investments that we are making and the demand signals we are seeing. The returns we can generate on that incremental capacity investment is strong. So as we said, when you step back and look at it, our expected $5 billion of annualized revenue capacity, by the end of 2029 would represent roughly a 3x to 4x increase from the approximate billion dollars of power systems revenue generated last year, layering in a practical utilization assumption on the capacity of course. So you know, the opportunity set is quite broad So think about capability across gas turbines, steam turbines, turbo expanders, gearboxes, synchronous condensers, so forth, power solutions. So it is not a single product customer type configuration. it is a broad capability we have. So I will get into mix, and then I will go into capacity pricing and the revenue profile. So on mix, of those capabilities, gas turbines would represent roughly half of the opportunity. And then brush is approximately, call it, a quarter. And the balance is made up of all the other, you know, the products and systems we have got. So that mix also matters because it allows us to capture the demand cycle through more than 1 way and also increases the value of the broader solution for customers. On CapEx specifically, you know, we have always talked about us being very disciplined in phase and that is what we are doing here. So, you know, generally speaking on that incremental capacity, you know, we are looking at paybacks below 2 years. So quite strong. And spend is moderate to the size and opportunity that we see between all the signals. And the spend will be between 2026. So this year, and out to 2028 in the phased manner. And, you know, the discipline and the intensity we have talked about we wanna make sure that, you know, we can leverage a lot of our existing roofline the manufacturing infrastructure so that, you know, we are not looking at greenfield. So that is how we can also calibrate and keep the investment as competitive as possible. And then from the supply side, you know, we are focused on also make buy strategy. So we will make sure critical components stay in we are also partnering with strategic suppliers across the world. So that is really, you know, on the CapEx side. On pricing, you know, the way to think about it is it is not a simple 5 billion over megawatts to imply turbine price. The revenue opportunity includes, as I mentioned, in terms of capability, more than just gas turbine hardware. it is got the broader scope. And, also, you know, the analysis we have done is not based on today's pricing. it is more average pricing level in 2025. So we feel it is relatively grounded in the way we are thinking of the of the assumptions there and potential pricing expansion. And so lastly, I will just talk about the revenue ramp, and it is a phased build rather than a step function sort of a change. So the first incremental NovaLT capacity expected to come online in the first half of 27? And then revenue, depending on the cycle and so forth, would be around 6 to 12 months based on normal timing. The incremental capacity that we are talking about, you know, will continue to build into 2028. And so when you step back, you will see the gas turbine capacity actually double from 2026 levels. By the end of 28. So we think about this as a real meaningful growth contributor from 2028 through 2030. And then, of course, you have the installed base and services pull through that you expect to have coming through. So, you know, as we look at this, really excited about the investments, you know, we will remain very, very disciplined And, you know, we expect power systems to be a real driver of growth in earnings 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? You know, I imagine, there are some underappreciated ones that sit in the new end markets, that you highlighted that, you know, maybe simplifying under the radar for folks currently. So more color on the commercial synergy side would be great.

Yeah, Scott. Definitely. And I am very happy and excited about closing the transaction and welcoming the Chart portfolio, the employees to the Baker Hughes family. And commercial synergies are going to be a meaningful driver for the long term value creation opportunity. As you think about the combined portfolio, it gives us a broader set of capabilities to address customer needs across the full value chain from power generation thermal management, to gas processing, air and gas handling, cryogenic storage and transport, digital monitoring, and life cycle services. And that is important because, as you look at our customers, they are increasingly looking for partners that can reduce complexity, improve reliability, and accelerate project execution and support them over the life of the asset. So it gives us a broader, more greater integrated solutions value proposition that is gonna be a key factor for the long term in commercial synergies. As you look at some of the near term opportunities, I would like to highlight maybe 2 areas. First, data centers. Is 1 of the clearest near term commercial opportunities As you have seen, the AI driven demand is creating immediate pressure around reliable power and efficient cooling. Which plays directly to the combined strength of Baker Hughes and Chart With Baker Hughes, we bring the power generation digital solutions, life cycle services, and also the project execution. And Chart's going to be bringing and adding the thermal management, heat transfer, cooling, cryogenic, and related equipment capabilities. So together, we can really offer data center customers a broader infrastructure solution focused on uptime, energy efficiency, reliability, speed of deployment, including tri generation style solutions that improve energy utilization and facility performance. And that is gonna be, you know, an immediate commercial opportunity for a combined offering on both sides that we are looking at power and cooling. it is going to be a great opportunity for us going forward. Secondly, and importantly, gas infrastructure remains very actionable. As you look at both companies, we have different initiated capabilities. For our strong customer relationships, and there is a lot of demand out there for reliable, efficient infrastructure. The combined portfolio on gas gathering treating, NGL recovery, compression liquefaction, cryogenic storage, and transport allows us to offer customers a complete solution across the entire value of gas. And importantly, this is not just limited to natural gas, It actually is going on across multiple molecules, and the strength of the combined portfolio allows us to serve customer needs across hydrogen, helium, carbon dioxide, nitrogen, oxygen, creating additional growth and synergy opportunities and further diversifies our end market exposure. And beyond those 2 immediate opportunities, there are several underappreciated sources for long term value that we are looking forward to. And it is reflected with the combination now that we have And compelling examples are space, geothermal, and mining. If you think about space, Chart brings established customer relationships. And highly relevant cryogenic storage, transport, and thermal management capabilities We see an opportunity to build on Chart's position with space customers by adding Baker Hughes' LNG expertise, energy infrastructure capabilities, the life cycle services, and project execution. On geothermal, another attractive opportunity it is more tied to the Baker Hughes commercial model. But as you look at opportunities to leverage also across the 3 segments with subsurface power generation and thermal management capabilities that Chart brings it is going to be a more integrated geothermal solution And then I just want to mention is mining where Chart has a large installed base there is meaningful cross sell opportunity, improve attach rates, leveraging our broader services portfolio. Expanding the adoption of digital monitoring, asset performance solutions like Cordant, And so, again, a great commercial synergy. Over time, you know, mining could also provide an avenue to extend selected sub surface and production focus, OFSE capabilities. In a new market for us. So we believe the opportunities highlight the strategic value of combining 2 highly complementary portfolios. At a time when customers are increasingly looking for broader, more integrated solutions and we feel very good about, substantial runway to deepen the customer relationships, expand the addressable market, and drive long term value creation for customers and shareholders. Great. I appreciate the color. Thank you.

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. Could you-- I noticed that the construction completion Were Quite Strong. Could You Talk About What Drove Outperformance this quarter and then, kind of, Setting Aside 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 1. So maybe, you know, I will hit second quarter and then decomp a little bit of how we are thinking about the second half. But, look, the team delivered a solid quarter in a pretty dynamic environment. And that is on the back of the business, you know, continuing to benefit from all the work the teams have put in over the years on structural and operating changes we have made So on the on the second quarter, revenue and EBITDA both increased 7% sequentially and margins expanded 10 basis points. So, obviously, as we talked about, that exceeded our guidance across all key metrics. I would attribute the outperformance to 3 major areas. First, you know, again, outside The Middle East, activity was broadly stronger than expected. Across, you know, really North America, Latin America, East Asia, Europe, Sub Saharan Africa, And so international OFS revenue outside of The Middle East increased double digits sequentially. So that was the first major factor. The second 1, I would say is, you know, conditions in The Middle East, obviously, were volatile and disrupted. But results were better than anticipated, driven by product revenue outperformance versus, our assumptions and that was mostly offset with softer service activity. And so with that higher product mix, you have elevated logistics and freight costs associated with supporting the customers in a volatile environment. That created some pressure on margins in the East specifically. The third factor is really our SSPS business delivered a really good quarter. SSPS revenue increased about 10% sequentially and margins were recovered to the high teens. And that was supported by our flexibles business and just overall good execution. So you know, all those factors contributed to the second quarter. Now when I when I think about the second half and I and I decomp it, there are a few things that drive the outlook, our balanced outlook. So I would say, you know, we as we mentioned, we assume Middle East activity to remain broadly stable through year end. So that is an important, assumption going in. North America, we expect further seasonal recovery. In onshore in the third quarter. And then depending on budgets and so forth on the fourth quarter, depending on where price is, you know, that level may be less pronounced than, in previous years. And then for international markets outside of The Middle East, we expect continued improvement in the third quarter. And year end product sales, you know, will be typically offset by typical North Sea seasonality in the fourth quarter. And then Latin America, expect activity to remain constructive, specifically in Brazil and Mexico. Sub Saharan Africa and Asia Pacific as well, you know, activity and tendering levels remain, relatively healthy. And then SSPS of course, will be an important contributor to the second half, and that is going to be through stronger backlog conversion good order momentum, and stable margins. So when you put all that together, you know, you will get a sense that OFSE is benefiting from that diversification, good execution, changes the team's made, over the last few years, and, you know, we will look to keep up that resilience as we go through the balance of the year. So, hopefully, Dave, that helps. that is great. Thank you very much.

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. So 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 a continued momentum on orders? And, also, if you can share any thoughts and views on the associated margin with the recent IET orders? Thank you.

Yeah. Sure, Carlos. And, you know, the record quarter reflects both the breadth of the Baker Hughes portfolio and also the strong demand that we are seeing across multiple end markets. And I think what is really encouraging is that the momentum is not being driven by 1 market. By continued strength across data centers, LNG, gas processing, and production infrastructure markets. A key driver is continued strength in power systems where orders totaled $2.6 billion in the quarter. And demand was broad based, including another size generator order, StrongGear orders, and approximately a 150 gas turbines for power generation application. And I think what you are seeing here is, again, the continued theme of behind the meter applications being very relevant and continuing to have strength going forward. And as a result, year to date, power systems orders are approaching 4 billion already exceeding the $3.2 billion booked to all of last year. And this sustained order strength continues to build backlog visibility into 2030 and beyond. As we continue to see strong demand signals coming through. Think it is also important you know, to remember from a power generation perspective, we still have available 27 delivery slots for some of our turbine frame fives and also the capacity addition, which is expected to add meaningful slots for NovaLT deliveries, beginning in late 2028. So again, continuing momentum there. Data centers remain important. As a source of power systems demand supported by the need for reliable, rapidly deployable power generation solutions. And during the quarter, data centers accounted for $2.2 billion of power systems order. I think, though, again, it is important that we emphasize that the IET order strength was much broader than just data centers. Even if you exclude data centers, related activity, IET orders would have reached 4.9 billion matching the previous quarterly record and key growth drivers outside of data centers have been gas infrastructure markets, where we continue to see robust investment across LNG gas processing and production infrastructure. LNG particularly important contributor in the quarter. Approximately 1.8 billion of equipment orders across 3 major projects And through the first half of the year, we booked $2.9 billion of LNG equipment orders already exceeding the full year total from last year. So secured also 2 additional gas infrastructure awards related to offshore production and onshore gas processing and it highlights the scale of infrastructure investment underway across many regions and continuing also in The Middle East and in addition, our GTS delivered record orders, including an all time high in upgrade activity which shows customers continuing to place importance and efficiency and extending the life of the existing assets. And with regards to the margins, you know, I think what is good is that we have continued to apply and secure these awards within our commercial framework consistent with our objective of driving continuous margin expansion over time. And the current supply demand environment across gas infrastructure power markets remains constructive and continues to support strong pricing dynamics So as these orders come back to revenue over the coming years, we expect that pricing strength combined with our discipline project selection and execution will provide meaningful favorable tailwind for IET margin performance in 2027 and beyond. Thank you, Lorenzo.

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.

Yeah. Hey, Marc. So obviously, as you know, we have stepped back and looked at the first half Great performance by the team, 12 billion of IET orders. Backlog sitting just over 37 billion which is a record. So, you know, as we look at the second half we have kept the balanced outlook. Our guidance again, assumes Middle East revenues to remain broadly consistent. But you know, obviously, there is still a level of uncertainty around project timing, local supply chains, and so forth just in the environment. And then, you know, for IET specifically, of course, we also have the Gas Technology Equipment backlog conversion. So, you know, just that cadence of that the aeroderivative supply chain progress, and then, of course, the usual stuff that we monitor around FX and trade policy. And then when you convert that to first half free cash flow was obviously strong. That was driven by some favorable working capital performance by strong customer collections, which know, come on the back of that type of order strength, but also milestone payments as we continue to progress on individual projects. So as we look at the balance of the year, you know, that can create you know, with working capital movements some quarter to quarter variability, but still, you know, we remain committed to, our overall free cash flow outlook. On 2027, while it is it is still early and we are not providing formal guidance, but you know, with the backlog sitting at these type of record levels, it gives us good visibility into 2027 and beyond. And as I mentioned in 1 of the answers, the pace of the backlog conversion will differ particularly within Gas Technology Equipment where you know, a lot of the orders that we have taken in the first half and overall 2026 are expected to convert after 2027 But what we do see next year is profitability, which is coming through with the way the teams are executing. The favorable pricing and the high quality mix that we have got sitting in that backlog between power systems, LNG, and services and upgrades. So it is it is a great setup with good visibility as we go through And, you know, the revenue cadence will obviously be paced by cycle times and capacity But with the margin visibility we have into 2027 and beyond, you know, we feel pretty good about where we are at. Great. So much, Ahmed. Yep. Thanks, Marc.

And thank you. That was our last question. I will hand you back to mister Lorenzo Simonelli and 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.