Slb NV ($SLB) Q4 2025 Earnings Call

Thank you for your patience. The call will begin momentarily.

Good morning. My name is Megan and I'll be your conference operator today and would like to welcome everyone to the fourth quarter and full year 2025 SLB earnings call. At this time, all participants are in a listen-only mode. After the speaker remarks, there will be a Q&A session. If you would like to ask a question during the time, simply press star followed by the number one on your telephone keypad. You may remove yourself from the queue by putting star two. As a reminder, this call is being recorded. I will now turn the call over to James R. McDonald, senior vice president of investor relations and industry affairs. Please go ahead.

Thank you, Megan. Good morning and welcome to the SLB fourth quarter and full year 2025 earnings conference call. Today's call is being hosted from Houston following our board meeting held earlier this week. Joining us on the call are Olivier Peuch, chief executive officer, and Stephane Biguet, chief financial officer. Before we begin, I would like to remind all participants that some of the statements we will be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. For more information, please refer to our latest 10K filing and other SEC filings which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our fourth quarter and full year earnings press release which is on our website. With that, I will turn the call over to Olivier.

Thank you, Olivier. And good morning, ladies and gentlemen. Fourth quarter earnings per share excluding charges and credits was 78 cents. This represents an increase of 9 cents sequentially and a decrease of 14 cents compared to the fourth quarter of last year. We recorded 23 cents of net charges during the fourth quarter. This includes an 11 cent goodwill impairment charge relating to our carbon capture business, 8 cents of merger and integration charges, 7 cents related to workforce reductions, and 3 cents of other charges. Offsetting these charges is a 6 cent credit relating to the reversal of a valuation allowance that was recorded against certain deferred tax assets. Overall, our fourth quarter revenue of 9.7 billion increased 817 million or 9% sequentially. Approximately 300 million of this increase is due to an additional month of activity from the acquired ChampionX businesses. Excluding the impact of this transaction, SLB's fourth quarter global revenue increased 6% sequentially. The sequential revenue step-up was higher than expected and was driven by strong year-end digital sales, significant backlog deliveries, and project milestones in production systems as well as higher reservoir performance activity in international markets. Fourth quarter adjusted EBITDA margin of 23.9% increased 83 basis points sequentially primarily driven by very strong digital performance. Margin growth during the quarter was however constrained by a loss in a carbon capture project that negatively impacted margins by approximately 50 basis points. Let me now go through the fourth quarter results for each division. Fourth quarter digital revenue of 825 million increased 25% sequentially while pre-tax operating margin expanded 557 basis points to 34%. These results were driven by stronger end-of-year sales in digital exploration and increased revenue in both digital operations and platforms and applications. Notably for the full year, digital revenue of 2.7 billion grew 9%. The combination of this growth rate and the full year EBITDA margin of 35% well exceeded the widely recognized rule of 40. In addition, digital annual recurring revenue surpassed $1 billion, reflecting year-on-year growth of 15%. Finally, trailing 12-month net recurring revenue was 103% at the end of the fourth quarter. Reservoir performance revenue of 1.7 billion increased 4% sequentially driven by strong international activity particularly in Saudi Arabia, East Asia, Qatar, Indonesia, and Guyana. Pre-tax operating margin of 19.6% increased 105 basis points largely due to a favorable activity mix in the Middle East. Well construction revenue of 2.9 billion decreased 1% sequentially, primarily driven by declines in Middle East and Asia, while pre-tax operating margin of 18.7% was slightly down. Production systems revenue of 4.1 billion increased 17% sequentially, reflecting a full quarter of activity from ChampionX. Excluding the impact of this acquisition, production systems revenue increased 11% driven by strong sales of completions and artificial lift as well as project milestones in process technologies. Pre-tax operating margin of 20.4% increased 130 basis points due to improved profitability in completions and production chemicals. Now turning to liquidity. During the fourth quarter we generated 3 billion of cash flow from operations and 2.3 billion of free cash flow. This strong performance was due to the unwinding of working capital on significant customer collections and reduced inventory driven by year-end product deliveries. For the full year, we generated free cash flow of 4.1 billion, marking the third year in a row with free cash flow at or above 4 billion. As a result, net debt reduced by 1.8 billion during the quarter to end the year at 7.4 billion. Capital investments including capex and investments in APS projects and exploration data were 716 million in the fourth quarter and 2.4 billion for the full year. For the full year, we returned a total of 4 billion to our shareholders with approximately 2.4 billion in stock repurchases and 1.6 billion in dividends. Looking ahead, let me now provide some additional color on our outlook for 2026. Building on the details Olivier shared earlier, we expect revenue to benefit from a full year of ChampionX, which will result in incremental revenue of approximately 1.8 billion in 2026. This increase will be partially offset by the effects of the 2025 divestitures of our interest in the Paliser APS project in Canada and of our rig business in the Middle East. These two businesses accounted for approximately 350 million in combined revenue in 2025. As Olivier mentioned, adjusted EBITDA margin for 2026 will be relatively consistent with 2025 levels with differing dynamics by division. Digital margin will increase slightly year-on-year and continued top-line growth. Production systems margin will increase primarily driven by synergies from the ChampionX acquisition where we still expect to achieve approximately half of the 400 million of total synergies by the end of 2026, 30 million of which were achieved in 2025. About 75% of the synergies will benefit production systems with the remaining portion benefiting well construction and reservoir performance. The positive effect of ChampionX synergies on production systems margins will be partially offset by unfavorable technology mix within the division. In reservoir performance and well construction, despite activity levels stabilizing, margins will be down year-on-year due to activity mix and pricing headwinds in select markets. From a below-the-line perspective, corporate costs will increase year-on-year driven by an incremental 70 million of intangible asset amortization expense as a result of a full year of ChampionX. Additionally, we expect our effective tax rate to be approximately 20% representing a slight increase from 2025. While we expect overall activity to stabilize and increase from today's level in certain key international markets, we will remain disciplined in our capital allocation. In this regard, we expect our total capital investments to be approximately 2.5 billion in 2026. This should lead to another year of strong free cash flow generation. As a result, today we announced a 3.5% dividend increase and we expect to return more than four billion to our shareholders in 2026 through a combination of dividends and stock buybacks. We are currently targeting to buy back the same 2.4 billion that we repurchased in 2025. However, this amount could increase as the year unfolds depending on our free cash flow generation progress and our visibility on the business outlook. I will now turn the conference call back to Olivier.

We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. Your first question comes from the line of Stephen Richardson from Evercore ISI. Your line is open.

Hi, good morning.

Hi. I was wondering if we could talk a little bit about capex. I understand appreciate you've given some outlook here on 2026. There seems to be something with investors of an old rule of thumb about your capex leading revenue expectations and I thought it'd be helpful if you could maybe give us some context around the trend line of capex but also how is the capital intensity of your forward business different than perhaps it was in the past.

Thank you. And on the Middle East, your comments are appreciated about the other regions picking up the slack in Saudi and your view on the full year improving. I was wondering if you could talk, what we're seeing is the IOCs are seeing a lot more opportunity across North Africa and the Middle East and I was wondering if you could talk a little bit about your mix or your expectation of your kind of customer mix as you go into '26 and how much of that is driving some of this optimism on improvement versus some of your traditional customers, the national companies.

Thanks so much.

Thank you. Your next question comes from the line of James West with Melius Research. Your line is open.

Thanks. Good morning, Olivier, Stephane.

Morning, James. So Olivier, curious, so with the headwinds bottoming here, Saudi, Mexico, some of the white space in deep water, Sub-Saharan Africa, and everything looking kind of up and to the right...

Right. How are you thinking about the exit rate for 2026 versus the exit rate we saw in 2025? Certainly it's going to be higher, but what kind of observations or thoughts can you give us on the magnitude of how this upcycle will begin?

Okay, that's helpful. Thank you, Olivier. And then maybe a follow-up on the digital side of the business. Obviously strong results in the fourth quarter, but my sense is we're still fairly underpenetrated on Lumi and Deli and the cloud platforms and the AI platforms that you have. My numbers may be a little bit dated, but I think a couple hundred or so customers out of your 1,500 or so customers were on the cloud as of maybe a year ago. Could you give us a sense of where that stands now or where you see that heading? I'm assuming everybody eventually goes there. Most everybody goes there. But just the magnitude of what that could mean for your digital business. I'm assuming it's pretty accretive.

Thanks, Olivier.

Thank you. Your next question will go to the line of Aaron Jara with JP Morgan. Your line is open.

Yeah, good morning. I was wondering if you could frame your thoughts on the near-term and longer-term opportunity for SLB in Venezuela. You mentioned you're the only international service company now actively operating, but talk to us about what type of product lines could benefit if we do get a revitalization of the oil industry in Venezuela.

Great. That's helpful. Olivier, my follow-up, I was wondering if you could talk a little bit about your data center infrastructure business. You mentioned that you expect to reach a $1 billion run rate in revenue, if I heard you correct, by year-end. Can you talk a little bit about the solutions you're providing today and maybe how you're thinking about organic and even inorganic opportunities to grow that business over time?

Great. Thanks.

Thank you. Your next question comes from the line of David Anderson with Barclays. Your line is open.

Great. Thank you. Good morning, Olivier. If we compare SLB today versus 10 years ago, in addition to digital, I think the biggest shift is now the emphasis on production and recovery. I was wondering if you could talk a little bit more specifically about the growth opportunity the next few years as we think about OneSubsea, ChampionX, artificial lift. If I think about OneSubsea, I'm thinking about backlog conversion accelerating, you know, in Guyana, Venezuela potentially could be growth engines, and chemicals and then artificial lift in the Middle East. Could you sort of frame this growth opportunity for us over the next few years on this side of your business?

That makes a lot of sense. Shifting gears a little bit to another area of potential growth in geothermal. You've been dabbling there for a number of years, but now you, as you noted in the release here, you're working with ORMAT on a pilot project, I believe later this year, in enhanced geothermal. It looks a lot, as we look at geothermal, a lot of this sounds a lot like shale in the early 2000s. We know the resource is there, but it's a matter of process and technique to solve for the economics. Do you agree with that conceptually? And where's your confidence that this can be scaled up to create, say, 100-plus megawatt geothermal plants in the next few years?

Very exciting. Thank you.

Thank you. Your next question comes from the line of Neil Mehta with Goldman Sachs. Your line is open.

Yeah, thank you so much, Olivier and team. I guess the first question is more of a macro question. Olivier, you have a unique perspective on this big debate that's in the market right now about how much OPEC spare capacity really lives there in markets like the Middle East. And of course, recognizing that there's probably limitations about what you could say, your perspective on that question I think would be helpful for us as we think about the back end of the oil curve.

Yeah, that makes sense to us. And then another market we'd love to get your perspective on is Mexico. Olivier, this is probably the most constructive I've heard you on Mexico in a little bit, that we're in a bottoming phase and maybe even a cash recovery phase. Your perspective on that market and how it should evolve from here as we think about SLB.

Thank you, sir.

Thank you. Your next question comes from the line of Mark Bianke with TD Cowen. Your line is open.

Hey. Thank you. Good morning. I wanted to ask on, so we've got these activity increases in your outlook for 2026 for certain international markets. Earlier, I think a few months ago, there was some discussion of some pricing potential weakness. Can you talk about what that looks like today and what your expectation is embedded in the outlook here?

Okay, thank you for that. And the other question I had was related to the offshore outlook. So you've talked about an expectation for improvement in offshore, and I think if we go back a year or two, there was an expectation for offshore improvement that didn't really materialize. So what are you seeing now that you think is different from that prior period and gives you the confidence to make those comments?

Thank you very much.

Thank you. Your last question comes from the line of Scott Gruber with Citigroup. Your line is open.

Yes, good morning. So I want to come back to the data center solutions business. Olivier, you mentioned expanding the business abroad, but did the billion-dollar target capture any of that international growth opportunity or would that be future upside? And how quickly could this materialize? And ultimately, as you leverage your global relationships, could the international opportunity become even larger than your US business?

Got it. Appreciate that color. And I want to come back to the question Stephen asked at the beginning on capex. So your $2.5 billion of capex this year will support the second-half growth rate that you'll achieve, which will be led by digital and data center solutions, some contribution from the core, but overall the capital intensity of the portfolio is improving. So my question is, can you sustain similar growth rates for a couple of years into the future at a capex level that's still broadly around $2.5 billion, given those kind of less capital-intensive drivers of growth, or do you think capex would need to keep creeping a bit higher?

So without some acceleration in the kind of core business, you would expect the capex-to-sales ratio to continue to improve over the next couple of years. Is that fair?

Okay, I appreciate the call. Thank you.

Ladies and gentlemen, as we conclude today's call, I would like to leave you with the following takeaways.

This concludes today's conference call. You may now disconnect.