Baker Hughes(BKR) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the first quarter ended March 31, 2024, show a 12% year-over-year increase in total revenue to $6.4 billion, while net income attributable to the company decreased to $455 million from $576 million, primarily due to a significant reduction in other non-operating income from equity securities, and cash flow from operations substantially increased to $784 million Q1 2024 vs Q1 2023 Key Financials (in millions, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenue | $6,418 | $5,716 | | Operating Income | $653 | $438 | | Net Income Attributable to Baker Hughes | $455 | $576 | | Diluted EPS | $0.45 | $0.57 | | Cash Flow from Operating Activities | $784 | $461 | - The decrease in net income was primarily driven by a significant drop in 'Other non-operating income, net' to $29 million in Q1 2024 from $386 million in Q1 2023, largely due to a smaller gain from the change in fair value of certain equity investments compared to the prior year[8][62] Financial Position Summary (in millions) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $37,141 | $36,945 | | Total Liabilities | $21,591 | $21,426 | | Total Equity | $15,550 | $15,519 | Note 13: Revenue Analysis Revenue by Segment and Product Line (in millions) | Segment / Product Line | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Oilfield Services & Equipment (OFSE) | $3,783 | $3,577 | | - Well Construction | $1,061 | $1,061 | | - Completions, Intervention & Measurements | $1,006 | $909 | | - Production Solutions | $945 | $938 | | - Subsea & Surface Pressure Systems | $771 | $670 | | Industrial & Energy Technology (IET) | $2,634 | $2,138 | | - Gas Technology Equipment | $1,210 | $831 | | - Gas Technology Services | $614 | $591 | | - Industrial Products & Solutions | $992 | $685 | | - Climate Technology Solutions | $83 | $31 | | Total Revenue | $6,418 | $5,716 | - As of March 31, 2024, the company had Remaining Performance Obligations (RPO) of $32.7 billion, with the majority expected to be recognized as revenue over the next 5 years[151] Note 14: Segment Performance Segment Revenue and Operating Income (in millions) | Segment | Q1 2024 Revenue | Q1 2023 Revenue | Q1 2024 Operating Income | Q1 2023 Operating Income | | :--- | :--- | :--- | :--- | :--- | | Oilfield Services & Equipment (OFSE) | $3,783 | $3,577 | $422 | $371 | | Industrial & Energy Technology (IET) | $2,634 | $2,138 | $330 | $241 | | Total Segment | $6,418 | $5,716 | $752 | $612 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported strong momentum in Q1 2024, with a 12% revenue increase driven by higher volumes in both the IET and OFSE segments, and the outlook remains positive, supported by a multiyear upstream spending cycle led by international and offshore markets, and a strong LNG project pipeline, while the company continues its transformation and cost-out initiatives and maintains a flexible capital allocation policy, evidenced by an increased dividend and share repurchases - The company generated revenue of $6,418 million in Q1 2024, a 12% increase from Q1 2023, primarily driven by higher volume in IET from Gas Technology Equipment project execution and better activity in OFSE[45] - Management believes in a durable, multiyear upstream spending cycle that is less sensitive to commodity price swings and led by international and offshore markets[41] - The company remains optimistic about the global natural gas outlook, with a strong LNG project pipeline driven by energy demand growth and decarbonization efforts[43] - In Q1 2024, the company returned $368 million to shareholders through dividends and share repurchases, and increased its quarterly dividend to $0.21 per share[17] Business Environment & Outlook The business environment in Q1 2024 was characterized by relatively stable oil prices and a decrease in natural gas prices compared to the prior year, with the worldwide rig count declining by 5%, driven by a 15% drop in North America, while international rig counts grew by 5%, and the company expects North American activity to see a modest recovery in the second half of 2024, with solid growth in international spending throughout the year Average Oil & Natural Gas Prices | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Brent Oil Price ($/Bbl) | $82.92 | $81.07 | | WTI Oil Price ($/Bbl) | $77.50 | $75.93 | | Natural Gas Price ($/mmBtu) | $2.15 | $2.64 | Average Rig Count | Region | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | North America | 831 | 982 | (15)% | | International | 965 | 915 | 5% | | Worldwide | 1,796 | 1,897 | (5)% | - Outlook for 2024 includes a flattening of North American activity into Q2 before a modest recovery in the second half, and solid growth in international spending compared to 2023[19] Results of Operations Total revenue for Q1 2024 increased by $702 million (12%) year-over-year, with the IET segment contributing $496 million and the OFSE segment $206 million to this growth, and total segment operating income rose by $139 million, driven by higher volume, price, and cost-out initiatives in both segments, which were partially offset by unfavorable business mix and inflationary pressures - OFSE revenue increased 6% to $3,783 million, driven by a $208 million increase in international revenue, particularly in Europe/CIS/Sub-Saharan Africa and Middle East/Asia[215] - OFSE operating income grew to $422 million from $371 million, primarily due to higher volume, price, and cost-out initiatives[5] - IET revenue surged 23% to $2,634 million, mainly from higher volume in Gas Technology Equipment[198] - IET operating income increased to $330 million from $241 million, driven by higher volume, price, and cost-out initiatives, partially offset by unfavorable mix and higher R&D spending[224] Liquidity and Capital Resources The company maintained a solid liquidity position with $2.7 billion in cash and cash equivalents as of March 31, 2024, with net cash from operating activities significantly increasing to $784 million, and key uses of cash included $333 million in capital expenditures, $210 million in dividends, and $158 million in share repurchases, while the company has a $3 billion undrawn revolving credit facility and expects the impact of the Pillar Two global minimum tax to be immaterial in 2024 Cash Flow Summary (in millions) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Operating | $784 | $461 | | Investing | ($269) | ($229) | | Financing | ($427) | ($250) | - The company increased its quarterly dividend to $0.21 per share and repurchased 5.4 million shares for $158 million during Q1 2024[245][264] - As of March 31, 2024, the company had no borrowings under its $3 billion committed unsecured revolving credit facility and no outstanding commercial paper[239] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's exposure to market risk has not materially changed since December 31, 2023, and for detailed disclosures, the report refers to the company's 2023 Annual Report - The company's exposure to market risk has not changed materially since the end of the previous fiscal year[282] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no material changes to internal controls over financial reporting during the quarter - Management concluded that as of the end of the period, the company's disclosure controls and procedures were effective at a reasonable assurance level[283] - No changes in internal controls over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[270] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is subject to legal proceedings in the ordinary course of business, and a putative securities class action lawsuit related to C3.ai, Inc., which had named the company as a defendant, was amended to reassert claims after a prior dismissal, with the company currently unable to predict the outcome of these proceedings - In a securities class action related to C3.ai, Inc., claims against the company were dismissed on February 22, 2024, but plaintiffs filed an amended complaint on April 4, 2024, reasserting claims, and the outcome is currently unpredictable[55] - Management does not expect the ultimate outcome of currently pending legal proceedings to have a material adverse effect on the company's financial position, results, or cash flows[9] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - The company's risk factors have not materially changed from those discussed in the 2023 Annual Report[271] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2024, the company repurchased 5.4 million shares of its Class A common stock for a total of $158 million under its publicly announced repurchase program, and as of March 31, 2024, approximately $2.1 billion remained authorized for future repurchases Q1 2024 Share Repurchases | Metric | Value | | :--- | :--- | | Total Shares Repurchased | 5.4 million | | Average Price Paid per Share | $29.32 | | Total Cost | $158 million | - As of March 31, 2024, the company had approximately $2.1 billion remaining under its share repurchase authorization[159][285]