SLB: Q4 TAKE THREE

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Key Awards And Outlook: SLB won significant contracts in Q4, including ultradeep contracts in the UK North Sea, Trinidad and Tobago, and the Gulf of Mexico. The contracts include digital directional drilling services and hardware, logging while drilling (LWD), surface logging, cementing, etc. Its major clients include BP, Petrobras, and TotalEnergies in Brazil and Europe. The company’s launch of the Lumi data and AI platform, Performance Live centers, the achievement of fully autonomous drilling operations, Neuro autonomous geo-steering, and Stream high-speed intelligent telemetry have strengthened its core business.

SLB's management expects the acquisition of ChampionX to strengthen its production and recovery capabilities. While the upstream investment growth can remain subdued in the short term, SLB’s management believes focusing on energy security and rising energy demand from AI and data centers will help it deliver sustained outperformance in the digital field.

Digital & Integration Sales Up in Q4 : SLB's Digital & Integration segment witnessed the sharpest quarter-over-quarter revenue and operating income growth in Q4 (6% up), followed by Production Systems. On the other hand, the Well Construction segment saw the steepest revenue fall in Q4 (5% down). Overall, the company's adjusted EBITDA improved by 1.7% in Q4 compared to Q3. Geographically, the company's international businesses registered minimal growth compared to a decent increase in revenue in North America in Q4. Increased contributions from higher digital sales in North America and higher activity in the Middle East, Europe, and North Africa led to a revenue rise in Q4.

Also, strong backlog conversion following upstream operators’ efforts to maximize recovery from existing assets aided SLB’s Q4 performance. Readers may note that the Aker subsea business acquisition and the Onesubsea joint venture formation generated $1.93 billion in revenue in FY2024.

Cash Flows Stabilized As Buyback Accelerated : SLB's cash flow from operations remained nearly unchanged in FY2024 compared to a year ago despite higher revenues. Its FCF also changed little over this period. Due to the higher shareholders’ equity, debt-to-equity decreased (0.54x) compared to 0.56x in FY2023. Led by steady cash flows, it increased quarterly dividends by 3.6% while it accelerated the share repurchase program. As a result, it plans to increase total return from shareholders from $3.3 billion in FY2024 to $4 billion in 2025.

Thanks for reading the SLB take three, which is designed to give you three critical takeaways from SLB's earnings report. Soon, we will present a second update on SLB earnings highlighting its current strategy, news, and notes we extracted from our deeper dive.

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