Baker Hughes (BKR) Q2 2026 earnings call transcript

Thank you. Good morning, everyone, and welcome to Baker Hughes Second Quarter Earnings Conference Call. Here with me are Chairman and CEO Lorenzo Cimonelli and our CFO, Ahmed Mogul. Their earnings release we issued yesterday evening can be found on our website at BakerHews. com. We will also be using a presentation with our prepare 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 risk and assumptions. Please review our SEC filings and website for the factors that could cause actual results to differ materially.

Reconciliation of adjusted EBITDA and certain GAP to non-GAP 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'd 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 BakerHews. 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 four. 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 total at $1.23 billion, exceeding the high end of our guidance range.

The outperformance was driven primarily by strong OFSC execution, supported by greater across broader markets outside the region. Adjusted earnings per share were $0.64, modestly year over year, a 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%, a strong IET performance more than offset lower OFSC 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 four quarters, IET has secured 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 portfolio 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 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 free to four times increase over 2025 revenue, underscoring the growth opportunity ahead. With $12 billion of IET orders yet 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 five. 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 gigawatt 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 Dynamics for Nova LT gas turbine, representing approximately 1.3 gigawatt of mobile power generation capacity across data center and oil and gas applications.

Additionally, we signed a multi-year strategic agreement with Kodiak gas services anchored by an initial award for approximately one gigawatt of power generation capacity and a framework for up to 1.8 gigawatt over time. The agreement leverages Nova LT frame five and generates a technology 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 three large projects. We received a major award from Venture Global, including six LNG blocks comprising of 12 liquefaction modules. The scope includes advanced and trifical compressors, cold boxes, air coolers, and integrated control systems, further strengthening our longstanding customer relationship.

We also booked a significant award from GOLA to provide four-era derivative gas turbine-driven refrigerant compressor trains for a floating LNG facility, marking the fourth GOLA vessel to feature Baker's uses gas technology solutions. In addition, we secured multiple awards supporting sineers subine past LNG facility, including aeroderivative gas turbines and compression equipment for train seven, a boil-off gas reliquefaction unit and fleet-wide gas turbine enhancements that help drive record GTS upgrade orders in the quarter.

Beyond equipment upgrades, we continued to strengthen our lifecycle services portfolio for a significant multi-year agreement extension with Nigeria LNG, and a new multi-year CSA with Arnold 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 continued to see strong global demand across gas processing and production infrastructure. During the quarter, we secured two significant awards for electric motor driven compression trains supporting the brownfield expansion of a large offshore field in the Middle East, and Aramco's Uphania onshore gas development.

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 continued to accelerate digital adoption across our installed base, securing multiple software awards through our coordinate 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 OFSC team received several key awards across integrated services, sub-sea 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, Santos Basin, while Equinor extended key contracts for integrated drilling, well-services, and wire line intervention in Norway.

In sub-sea, we expanded our North Sea footprint with a new manufacturing facility in Norway and booked two notable sub-sea production systems awards, including Azul Energy's ultra-deep water development offshore Angola and an offshore gas development in Brunei. These investments in awards demonstrate the strength of our global sub-sea capability.

We also continued to build commercial momentum across our digital platforms while extending their application into adjacent markets. Cantori, 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. Lecipa 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 megawatt 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 six, 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. Inventory is a 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 lowest 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 multi-year growth cycle, driven by accelerating investment in AI infrastructure.

The magnitude of plant-type-scale investment reinforces the durability of this trend. Capital spending by the largest-type of scalars 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 Forecast's data center power demand will grow at an 18% annual rate through 2030, reaching approximately 1,850 carowatt 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-User's 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 $100 billion of addressable market opportunity by 2030 for power systems, with more than half expected to be associated with behind-meter solutions and further growth through 2035.

Let me now turn to chart on slide seven. The successful closing of the chart acquisition marks an important milestone in Baker-User's portfolio strategy and our evolution into our 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 lifecycle 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-User's third reporting segment. This structure preserves the business, commercial, and operational focus while highlighting chart's contribution to Baker-User's growth and financial performance.

Importantly, the reporting structure does not change how we will capture the anticipated synergies. With day one successfully completed, we are now focused on disciplined integration execution and delivering the full value of the transaction. Our integration management offices 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 two 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 lifecycle 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-User's 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 safe approach enables us to capture near-term efficiencies while building the foundation for sustained operational improvement and commercial growth.

Turning to synergies on slide eight, we have identified almost 300 initiatives across procurement, corporate cost systems, operations, and footprint optimization, reinforcing our confidence in delivering the full 325 million of annualized cost synergies by year three. The largest opportunities are concentrated in three 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 should drive meaningful supply chain efficiencies 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-User's 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, charts establish customer relationships, create opportunities to introduce additional Baker-User technologies.

We also see emerging opportunities in space where charts 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-User's global service network and field presence position us to increase attachment rates across charts installed base, while the cross selling of eye center, cordoned 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-Use. We delivered results above expectations led by OFSC 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, an increased gas turbine and generator capacity, supports raising our horizon to IET orders target to more than $45 billion. Importantly, the equipment orders we secure today expand our installed base and create 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 lifecycle services opportunity, while also providing cost and commercial synergy potential.

Dispositions, Baker-Use to deliver more consistent growth, margins and cash flow over time. With that, I'm now time to call over to Amit.

Thanks Lorenzo. I'll begin on slide 10. We delivered exceptional orders in the second quarter with total company bookings of $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 increase 2% year over year as continued growth in IET more than offset lower OFSC performance. Adjusted EBITDA margin increased by 70 basis points year over year to 18.3%. Gap diluted earnings per share with 68 cents, excluding 4 cents of adjusting items adjusted diluted earnings per share for 64 cents, 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 OFSC.

Moving on to capital allocation on slide 11. At quarter end, the company's balance sheet remains 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 to 1.5 times 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. As you heard from Lorenzo, chart will be reported as Baker Hughes's 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 media focus is on disciplined execution and early value capture. We continue to target $325 million of annualized cost energies by year three, including $95 million in year one, $230 million in year two and $325 million in year three.

Overall, we remain confident that the acquisition will accelerate revenue growth, expand margins and free cash flow and enhance the durability of Baker Hughes's 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 CDC 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 Overdue Arrow Derivative Backwalk. We continue to expect GTS growth to level off in the second half of the year, reflecting the timing of planned service outages and a significantly lower contribution from catch-up work associated with overdue backlog. IET EBITDA increased 16% year over year to $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 OFSC on slide 13. OFSC delivered significantly stronger than anticipated 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. 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, OFSC revenue in the Middle East declined 1% sequentially, leaving revenue down 10% from the fourth quarter of 2025. OFSC reported even though of $605 million, also exceeding the high end of our guidance range.

Even though margin of 17.5% increased 10 basis points sequentially, this performance reflected strength in SPS margin, which more than offset margin pressure in OFSC for Middle East related disruptions and ongoing inflationary costs. In addition, SPS continued its order momentum, securing $667 million in the quarter. When excluding the impact of SPC, this represents a 29% increase year over year.

Turning to slide 14, I will review our third quarter and full year 2026 guidance on the standalone 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'll 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, we expect OFSC 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 of $6.87 billion and adjusted EBITDA of $1.205 billion.

For IET, we expect solid year of year EBITDA growth, driven by continued progress in industrial technology and CTS. While the overall impact for 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 at EBITDA for approximately $660 million. The major factors driving our guidance ranges for IET will be the pace of backlog conversion and GTE, progress with a derivative supply chain in GTS, the level of Middle East related disruptions, foreign exchange rates and trade policy. For OFSC, we expect broadly stable activity in the Middle East and modest sequential growth across most other markets, complemented by strong revenue growth in SPS 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 OFSC include execution of our SPS 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 2026, 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 meaningful portion of the GTE order makes extending beyond 2027.

Assuming the announced weighted 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 OFSC, 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 OFSC again demonstrated the resilience of its diversified portfolio despite ongoing market disruptions. We entered the second half of the year well-position 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'll turn the call back to Lorenzo.

Thank you, Ahmed. For those following along, please tend to slide 16. Our second quarter performance demonstrates the continued progress of BAKI's strategy and our transformation into a leading industrialized energy solutions company. At the center of this strategy is a clear objective to strengthen our capabilities across free, core, and 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 lifecycle. 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. An industrial market where energy is central to productivity and growth, the combined capabilities of BAKI's use 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 BAKI's use 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. BAKI use 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 BAKI use employees for their commitment, performance, and support for one another as we continue to grow, evolve, and deliver for our customers and shareholders.

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 2029. Can you elaborate on how you see mixed pricing and the revenue ramp, the evolution of that through 2029 and perhaps just talk a little bit about what this means for CapEx? Yeah, Arun, I'll take that. So obviously, look, power systems, you've seen us highlighted a few times. It's one of the most meaningful growth opportunities, and the strength of the recent orders gives us the confidence in terms of the investments that we're making and the demand signals we're seeing. So 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 2029 would represent roughly a three to four times increase from the approximate $1 billion of power systems revenue generated last year, you know, 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, and so forth, power management solutions. So it's not a single product customer type configuration. It's a broad capability we have. So I'll get into mix, and then I'll go into capacity pricing and the revenue profile. So on mix, you know, off those of those capabilities, I mentioned gas turbines would represent roughly half of the opportunity and then brushes approximately call it a quarter and the balance is made up of all the other, you know, the products and systems we've got.

So that mix also matters because it allows us to capture the demand cycle through more than one way and also increases the value of the broader solution for customers. On capex specifically, you know, we've always talked about being very disciplined in phase. And that's what we're doing here. So, you know, generally speaking on that incremental capacity, you know, we're looking at paybacks below two years. So quite strong and spend is moderate relative to the size and opportunity that we see between between all the signals and the spend will be between 2026. So this year and out to 2028 in the base manner. And, you know, the discipline and the intensity we've talked about, we want to make sure that, you know, we can leverage a lot of our existing roof line, the manufacturing infrastructure so that, you know, we're not looking at green fields.

So that's how we can also calibrate and keep the investment as competitive as possible. And then from a supply side, you know, we're focused on also make buy strategy. So we'll make sure critical components stay in. And we're also partnering with strategic suppliers across the world. So that's really, you know, on the capex side. On pricing, you know, the way to think about it is it's not a simple five billion over megawatts to imply a turbine price. The revenue opportunity includes, as I mentioned, in terms of capability more than just gas turbine hardware. It's got the broader scope. And also, you know, the analysis we've done is not based on today's pricing. It's more average pricing level in 2025.

So we feel it's relatively grounded in the way we're thinking of the assumptions there and potential pricing expansion. And so, lastly, I'll just talk about the revenue ramp. And it's a phased build rather than a step function sort of change. So the first incremental novelty capacity, I expect it to come online in the first half of 27. And then revenue, depending on the cycle and so forth, will be around six to 12 months based on normal timing. The incremental capacity that we're talking about, you know, will continue to build into 2028. And so when you step back, you'll see the gas turbine capacity actually doubled from 2026 levels by the end of 2028. So we think about this as a real meaningful growth contributor from 2028 through 2030.

And then, of course, you have the install base and services both of that you'd expect to have coming through. So, you know, as we look at this, really excited about the investments, you know, will remain very, very disciplined. And, you know, we expect our systems to be a real driver of growth and earnings through the end of the decade.

Thank you.

Yes, Scott, definitely. And very happy and excited about closing the transaction and welcoming the chart portfolio, the employees, 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 lifecycle services. And that's important because as you look at our customers, they're 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's going to be key factor for the long term in commercial synergies.

As you look at some of the near term opportunities, I'd like to highlight maybe two areas. First data centers is one of the clearest near term commercial opportunities. As you've seen, the AI driven demand is creating immediate pressure around reliable power and efficient cooling, which plays directly to the combined strengths of Baker Hughes and chart. With Baker Hughes, we bring the power generation, digital solutions, lifecycle services and also the project execution and charts 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's going to be immediate commercial opportunity for a combined offering on both sides that we're looking at power and cooling, and it's 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 differentiated capabilities, strong customer relationships and there's 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 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 two immediate opportunities, there are several underappreciated sources for long-term value that we're looking forward to, and it's reflected with the combination now that we have. And compelling examples are space, geo-firmal and mining. If you think about space, CHOP brings established customer relationships, and highly relevant cryogenic storage, transport and thermal management capabilities. We see an opportunity to build on CHOP's position with space customers by adding bakers, users, LNG expertise, energy infrastructure capabilities, the life cycle services and project execution.

On geo-firmal, another attractive opportunity, it's more tied to the Baker Hughes commercial model, but as you look at the opportunity to leverage also across the free segments with subsurface, power generation and thermal management capabilities that CHOP brings, it's going to be a more integrated geo-firmal solution. And the other one, just to mention, is mining, where CHOP has a large installed base, there's meaningful cross-sell opportunity, improve attachment rates, leveraging our broader services portfolio, expanding the adoption of digital monitoring, asset performance solutions, like Gordon, and so again, a great commercial synergy. Over time, mining could also provide an avenue to extend selected subsurface and production-focused OFSC capabilities in a new market for us. So we believe the opportunities highlight strategic value of combining two 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.

Hey, Dave, I'll take this one. So maybe I'll hit the second quarter and then de-comp a little bit of how we're thinking about the second half. But look, the team delivered a solid quarter in a pretty dynamic environment, and that's on the back of the business continuing to benefit from all the work the teams have put in over the years on structural and operating changes we've made. So on the second quarter, revenue and EBITDA both increased 7% sequentially in margins expanded 10 basis points. So obviously, as we talked about, I exceeded our guidance across all key metrics. I would attribute the outperformance to three major areas first.

Again, outside the Middle East activity was broadly stronger than expected 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 one I'd say is 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 least specifically. The third factor is really our SPS business delivered a really good quarter. SPS revenue increased about 10% sequentially and margins were recovered to the high teams.

And that was supported by our flexible business and just overall good execution. So, all those factors contributed to the second quarter. Now, when I think about the second half and I decomp it, there are a few things that drives our balanced outlook. So I'd say as we mentioned, we assume Middle East activity to remain broadly stable through year end. So that's 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 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 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, activity and tendering levels remain relatively healthy. And then SSPS, of course, will be an important contributor to the second half. And that's going to be through stronger backlog conversion, good order momentum and stable margin. So, when you put all that together, you'll get a sense that OFSC is benefiting from that diversification, good execution, changes the teams made over the last few years.

And we'll look to keep up that resilience as we go through the balance of the year. So hopefully, Dave, that helps.

Yeah, sure, Carlos. And the record quarter reflects both the breadth of the Baker use portfolio and also the strong demand that we're seeing across multiple end markets. And I think what's really encouraging is that the momentum isn't being driven by one 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 total 2.6 billion in the quarter. And demand was broad based, including another sizable generator order, strong gear orders, and approximately 150 gas turbines for power generation applications. And I think what you're 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 approaching 4 billion, already exceeding the 3.2 billion book to all of us here. And the sustained order strength continues to build backlog visibility into 2030 and beyond, as we continue to see strong demand signals coming through. I think it's also important to remember from a power generation perspective, we still have available 2027 delivery slots for some of our turbines, frame 5s, and also the capacity edition, which is expected to add meaningful slots for Nobel T deliveries beginning in late 28. 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 orders. I think though, again, it's important that we emphasize that the IIT order strength was much broader than just data centers. Even if you exclude data centers, related activity, IIT 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 three 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 we secured also two additional gas infrastructure awards related to offshore production and on shore 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 and upgrade activity, which shows customers continuing to place importance and efficiency and extending the life of the existing assets. And with regards to margins, I think what's good is that we've continued to apply and secure these awards within our disciplined 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 score strong pricing dynamics.

So as these orders convert to revenue over the coming years, we expect that pricing strength combined with our disciplined project selection and execution will provide meaningful favorable tailwind variety margin performance in 2027 and beyond.

And then similarly on free cash, really strong here in the first half. But you've kept the conversion rate the same.

Yeah. Hey, Mark. So obviously, we've stepped back and look at the first half. Great performance by the team. 12 billion of IT orders backlog sitting just over 37 billion, which is a record. So as we look at the second half, we've kept the balanced outlook. Our guidance, again, assumes Middle East revenues to remain broadly consistent. But obviously, there's still a level of uncertainty around project timing, local supply chains, and so forth, just in the environment. And then for IT specifically, of course, we also have the gas tech equipment backlog conversion. So just that cadence of that, the error derivative supply chain progress. And then of course, the usual stuff that we monitor around effects 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 come on the back of that type of order strength, but also milestone payments as we continue to progress on on individual projects. So as we look at the balance of the year, that can create with working capital movements, some quarter to quarter variability. But still, we remain committed to our overall free cash flow outlook.

On 2027, while it's still early, and we're not providing formal guidance, but with the backlog sitting at these type of record levels, it gives us good visibility into 2027 and beyond. And as I mentioned in one of the answers, the pace of the backlog conversion will differ, particularly within GTE, where a lot of the orders that we've taken in the first half in 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've got sitting in that backlog between power systems, LNG and services and upgrades. So it's a great setup with good visibility as we go through.

And the revenue cadence will obviously be paced by cycle times and capacity. But with the margin visibility we have into 2027 and beyond, we feel pretty good about where we are at.

I'll hand you back to Mr. Lorenzo Simonelli, Chairman 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.